Interim Results

19 September 2012

FRENCH CONNECTION GROUP PLC

Half-year results for the six month period ended 31 July 2012

French Connection Group PLC ("French Connection", "the Group") today announces results for the first six months of the financial year and outlines the initiatives implemented in order to improve the performance of the retail business.

Highlights

·; Revenue of £96.0 million (2011: £102.8 million)

·; Loss before tax of £(6.3) million (2011: profit of £0.7 million)

·; Closing net cash of £21.2 million (2011: £30.9 million)

·; Broad-ranging initiatives underway to improve the retail business

Commenting on this announcement, Stephen Marks, Chairman and Chief Executive of French Connection said:

"The last six months have continued to be very difficult for French Connection's UK/Europe retail business which has had an impact on the Group results for the period.

We have completed our extensive review of the retail business and have implemented a set of detailed initiatives across a broad number of fronts designed to improve the performance of the retail division and the business in general. The operational focus of the initiatives is on improving our store operations, developing our product offering and improving merchandise management. In addition we have strengthened our senior management team and will continue to target the disposal of loss making stores. We are confident that these actions will produce a growing positive impact on our trading performance over the next two financial years.

We recognise that the route to sustained recovery is likely to take some time but we are committed to building on French Connection's core strengths; our highly recognised and well-regarded brand, our long history of producing desirable, fashion forward products, our proven sourcing ability and the commitment and passion of our staff."

Enquiries:

CHAIRMAN'S STATEMENT

The last six months have continued to be very difficult for the Group.

In the six months to 31 July, revenue was £96.0 million, 7% lower than the comparable period, reflecting a decline in revenue in our UK/Europe retail division. Gross margin was affected by increased promotional discounting in the retail business, falling by 2.3% to 47.7%. Overheads continue to be tightly controlled. Group loss before taxation for the first six months of the year was £(6.3) million, compared with a profit of £0.7 million last year. However we ended the period with a strong balance sheet with £21.2 million of cash and no bank debt.

The UK/Europe retail division had another difficult season, with revenue declining by 10% which had a consequent impact on the gross margin. The performance of the rest of the Group was more encouraging, with growth in revenue and profit in North America, further growth in licensing income and solid performances from the Rest of the World business and our Asia joint ventures.

In March we announced our intention to undertake an extensive review of the UK retail business. This review has been successfully completed and has resulted in a broad range of significant initiatives details of which we are announcing today. We expect that our initiatives will have a growing positive impact on our trading performance over the next two financial years.

The initiatives focus on the following main areas:

Store operations

·; develop better selling skills and improve customer service to increase basket size and average transaction values;

·; improve efficiency in-store by re-engineering processes; and

·; optimise effectiveness of labour hours through more flexible labour management.

Customer focused product

·; develop our ranges to better meet the aspirations of our core customers;

·; ensure product pricing matches customers' value perceptions; and

·; improve accessories and ancillary product ranges.

Merchandise management

·; implement a more carefully structured approach to buying;

·; improve reaction speed to best selling lines and changing trends; and

·; continue to carefully manage gross margin during sale periods.

Portfolio management

·; target the disposal of loss making stores where economically viable; and

·; engage external property agents working with landlords and potential tenants.

Strengthened management team

·; a number of new senior management appointments have been made in design, retail and multi-channel functions to help bring about the changes required.

We are confident that the initiatives being implemented will result in a steady and significant improvement in the revenue and gross margins achieved in the UK/Europe retail business and therefore have a positive impact on Group profitability over the next two financial years.

During the period our e-commerce business has continued to perform well and has grown significantly, benefiting from the continued investment in this area, Further developments will be made in the second half of the year with the introduction of "click and collect" and the option to return products bought on-line direct to stores.

Wholesale revenue in the UK/Europe division was 11% lower in the period. This performance reflects both the difficult market conditions and also some of the challenges seen in our retail business. Many of the initiatives implemented as a result of the retail review will also benefit the wholesale business in due course.

In North America, on the other hand, the wholesale division achieved a 28% increase in revenue with increases in shipping to department stores, e-commerce businesses and specialty stores. Retail was more difficult and despite increased levels of promotions, revenue was 8% lower. Overall, the operating contribution from the North America division moved ahead by £0.9 million to £2.4 million.

In the Rest of the World we opened new stores and achieved continuing strong performances. The economy in Hong Kong and China softened a little in this first six months of the year resulting in a small reduction in the overall contribution from our joint ventures, however further stores were opened in China, India and Kuwait during the period to bring our total franchised stores to 243 in 24 countries.

Licensing continues to be a very important part of the business and the licensees using the French Connection brands continue to be very successful and generate a strong revenue stream for the Group, despite the change in strategy at Sears which resulted in the termination of the "UK Style" licence. We intend to continue to grow this division of the business and have recently agreed a new licence for furniture as part of French Connection's entry into the home wares market. In addition we have finalised new licences for shoes and children's wear and we are in advanced discussions for three further licences in new categories which we expect to generate further income in 2013. In the first half of the current financial year, income from licensing increased by 10% to £3.3 million (2011: £3.0 million).

The Group held £21.2 million of net cash at 31 July 2012 (2011: £30.9 million) with the reduction reflecting the difficult trading encountered in the intervening twelve months and higher inventories at the period end compared with last year. The Board has decided not to pay an interim dividend for the current year.

We are not expecting any improvement in the UK retail trading environment in the second half of the year and while it is too early to expect any significant impact from the results of our retail review we are making every effort to drive revenue and protect the gross margin while controlling costs very tightly. We recognise that the route to sustained recovery is likely to take some time, however we are committed to building on French Connection's core strengths; our highly recognised and well-regarded brand, our long history of producing desirable, fashion forward products, our proven sourcing ability and, of course, the commitment and passion of our staff, whom I thank for their continuing hard work.  

Stephen Marks

Chairman and Chief Executive

19 September 2012

BUSINESS REVIEW

Introduction

These tables show the divisional results of the continuing operations for the two periods on a comparable basis (see note 1).

Overview of Group results

This review will focus on the comparison of the results of the continuing operations as set out in the tables above.

In the six months to 31 July 2012, revenue was £96.0 million, 7% lower than the equivalent period last year, with the majority of the decrease arising in the UK/Europe retail division.

As a result of subdued demand across a number of divisions, further promotional discounts were granted resulting in a decrease in Group gross margin to 47.7% (2011: 50.0%).

Total Group operating expenses were only 2.8% higher in the period at £55.7 million reflecting general inflation, investment in e-commerce operations, on-going cyclical rent reviews and the costs of the retail review, but also good control of other overheads.

Our licence income increased by 10% to £3.3 million despite the cancellation of the "UK Style" licence, which had a £0.6 million impact in the period, with growing income from a number of our other licensees.

Our share of the profits of our joint ventures was £0.2 million (2011: £0.4 million) as a result of the retail market slow-down in Hong Kong and China. Finance income was the same as last year at £0.1 million.

The Group loss before tax was therefore £(6.3) million compared to a profit of £0.7 million for the corresponding period last year.

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 are set out below.

United Kingdom and Europe - Retail

In the UK/Europe retail business, which accounts for 51% of Group revenue, we saw a decline in like-for-like gross sales of 9.5% and a similar decline in total net revenue which was £49.0 million (2011: £54.3 million). There was no significant change in average space traded. The declines in revenue at French Connection retail stores were consistent over the period and affected both ladies' wear and men's wear, however the French Connection e-commerce business continued to grow at around 23% year-on-year.

The achieved gross margin was lower than last year at 54.7% (2011: 58.7%) as a result of the combination of deeper mark-downs to clear product and the leveraging effect of fixed costs within the cost of sales. Overheads were tightly controlled and while the impact of rent reviews has softened, they are still causing cost increases. There was continued investment in e-commerce operations and customer recruitment along with increased costs arising from the volume increases processed through our mail-order facility.

The operating result in the period from the UK/Europe retail division deteriorated to a loss of £(9.2) million (2011: (£3.5) million).

The retail trading results are a continuation of the disappointing results seen in the second-half of last year. As discussed in the Chairman's Statement, our review of the retail business has highlighted a number of areas where we believe that changes can be made to improve the performance of the business. These are now being put in place and we expect to see a beneficial impact over the next two years.

We have continued to work with our landlords and external advisors to deal with the under-performing stores. The rate of increase in rents has slowed, but demand for retail properties remains subdued.

United Kingdom and Europe - Wholesale

Wholesale revenue fell by 11% to £18.1 million (representing 19% of Group revenue) as a result of weaker in-season orders for the Summer season and lower Winter season forward-orders (which began delivery at the end of the period). This is a result of weaker performance of our ranges in our wholesale customers' stores, itself a reflection of the challenges in the market and the difficulties we have experienced in our own stores. The changes we are making to our approach to range architecture will have a positive effect on both retail and wholesale channels as the ranges develop to more closely reflect our customers' expectations.

The gross margin fell from 33.5% to 29.8% mainly as a result of higher levels of clearances of old-season product at lower prices. Overheads remain tightly controlled but operating contribution fell from £2.9 million to £1.5 million.

Forward orders for Winter 2012 and Summer 2013 are both showing a decline of around 10% compared to this time last year. While we will work hard to generate sales volumes to recover this decline, it appears likely that we will see a decline in revenue in the second half of the year in this division.

United Kingdom and Europe region

Together, the retail and wholesale businesses in UK/Europe incurred an operating loss of £(7.7) million (2011: £(0.6) million). Minor increases in common overheads resulted in total costs of £2.3 million (2011: £2.2 million) while other income rose by £0.7 million to £3.5 million (2011: £2.8 million) including continued growth in branded product sales by our licensees, discussed further below.

North America region

North America accounts for 24% of Group revenue and generated a profit contribution of £1.3 million in the period (2011: £1.1 million). In-line with the UK/Europe business, the retail division saw an 8% decline in revenue in the period and consequent reductions in gross margin resulting in an operating loss of £(1.1) million (2011: £(0.4) million). Conversely, the wholesale division achieved a 28% increase in revenue to £13.1 million (£10.2 million) generating a £3.5 million operating profit (2011: £1.9 million) with strong demand from department stores, e-commerce businesses and specialty multi-brand stores.

Licence income was lower during the period due to the termination of the licence for the "UK Style by French Connection" following a change in strategy at Sears department stores where the range was sold exclusively. Final tranches of licence income are due for the second half of the current financial year based on the values of product to be supplied in the autumn.

Wholesale deliveries for the second half of the financial year are expected to continue to show good growth, based on the orders received so far. Retail in both the US and Canada continues to be subdued but successes achieved from the UK retail review will be transferred to North America as quickly as possible.

Rest of the World region

Revenue in our wholesale business based in Hong Kong decreased from £7.3 million to £6.0 million and represents 6% of Group revenue. The decline was driven largely by reductions in orders from our licensee in Australia where the market has softened. Offsetting this, increases in deliveries to higher-margin customers has resulted in an increase in the gross margin for the region and an operating profit of £1.1 million (2011: £1.0 million).

Brand licensing income

The strength of the French Connection brand is reflected in the continuing growth of income generated through the licensing of the brand to third parties. Licence income from external sources amounted to £3.3 million (2011: £3.0 million) despite a reduction in income from the "UK Style" licence, with growth generated by licensees for opticals, suiting and sunglasses.

We continue to pursue other opportunities in licensing. During the first half we agreed a new licence to produce branded footwear and we also out-sourced our children's wear range to a specialist supplier. As part of the brand's entry to the home wares market, we have recently finalised a new licence for furniture. Further, we are in advanced discussions for new licences in relation to three other fashion and accessories categories.

Central overheads and financing income

The overheads associated with the central Group management, including IT and legal costs, amounted to £2.5 million in the period, £0.6 million more than last year including costs associated with the retail review.

Net finance income of £0.1 million (2011: £0.1 million) was generated in the period with average net funds over the period of £14.8 million compared with £22.2 million last year.

Joint ventures

Our joint venture in China operates 19 locations and further locations are planned. Revenue increased by 20% in the period although operating profit was broadly flat.

In Hong Kong the stores saw a 10% decline in like-for-like revenues (against a 33% increase in the same period last year) as a result of a general softening in the retail environment in the region. The operating profit was consequently lower.

The Group's share of the profits of these two operations amounted to £0.2 million (2011: £0.4 million) and a dividend of £0.4 million was received during the period.

Profit before tax

Largely as a result of the performances in our retail divisions the pre-tax result was a loss of £(6.3) million (2011: profit of £0.7 million). This is a disappointing outcome for the first half and despite the trading profits expected in the second half the result means that it is highly likely that the Group will be loss-making for the full-year. As reported above, the Board implemented a broad-ranging review of retail operations which has identified a number of initiatives which are expected to have a substantial positive impact on trading over the next two financial years.

Taxation

There is no tax charge for the period (2011: £0.1 million). Taxation payable on profits generated in Hong Kong has been offset by a prior-period credit. There will be a full-year tax charge in relation to profits generated in Hong Kong but no other significant tax charges due to the availability of tax losses.

Earnings and dividends

Net loss for the period attributable to equity shareholders was £(6.1) million (2011: profit of £1.0 million). Loss per share was (6.4) pence (2011: earnings of 1.0 pence per share).

Given the challenges faced by the business the Board has decided not to pay a dividend for the period. The final dividend of 1.0 pence per share in relation to the year ended 31 January 2012 was paid in July.

Working capital and net funds

The total cash at 31 July 2012 of £21.2 million was £9.7 million lower than last year's £30.9 million as a result of losses incurred in the intervening period, the payment of the dividend and higher levels of inventory carried.

The cash utilisation in the six month period to 31 July 2012 was £13.0 million compared to £3.1 million last year reflecting the trading loss, dividend payment and a movement in working capital. Further, the cash position last year benefited from £1.3 million of cash receipts in relation to the sale of the Nicole Farhi business.

The Group has good levels of cash reserves and we are confident that we have access to sufficient resources to support the turnaround project over the projected development period.

Longer term outlook

Our target is to restore the business to profit as soon as possible although we recognise that the initiatives we are implementing will take up to two years before they fully benefit our financial results. While the retail market is likely to remain subdued, we are well positioned to benefit from any recovery.

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 2012.

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19 September 2012

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:

(a) 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) 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 INCOME STATEMENT

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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. Operating segments

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

The share of the results of the joint venture operations of £0.2 million (2011: £0.4 million) relate to the Rest of the World retail operations and are not disclosed in the information above.

* The divisional table for the six months to 31 July 2011 has been amended for changes to inter-company charges, none of which impact

upon the Group's pre-tax results.

NOTES TO THE HALF-YEAR STATEMENT

2. Discontinued operations

In the year ended 31 January 2011 the Group completed the sale of the trading, assets and liabilities of the Nicole Farhi business to OpenGate Capital, details of which are disclosed in the Annual Report for that period.

In the year ended 31 January 2012 the arrangement with OpenGate Capital, along with the disposal of two former Nicole Farhi stores and the trading from the associated discontinued operations, gave rise to a profit of £0.8 million, of which £0.4 million was reported in the six month period ended 31 July 2011.

There were no discontinued operations in the six months ended 31 July 2012.

3. Revenue and gross margin

4. Other operating income

5. Earnings/(losses) per share

* adjusted to assume the exercise of dilutive options.

6. Cash and cash equivalents

NOTES TO THE HALF-YEAR STATEMENT

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

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 2012 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 2012 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.

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 UK's Financial Services Authority ("the UK FSA"), 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 2012, 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 2012 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 498(2) or (3) of the Companies Act 2006.

The Board of Directors approved the condensed consolidated half-year financial statements on 19 September 2012.

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 2012.

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 2012.

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.

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 increase the Group's cash generation. 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 these half-year financial statements.

NOTES TO THE HALF-YEAR STATEMENT

8. Retail locations