Interim Results

12th Sep 2008 07:00



12th September 2008

FRENCH CONNECTION GROUP PLC

Half-Year Statement

for the six months ended 31 July 2008

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

31st July 2008.

Turnover	£112.4 million	(2007: £109.4 million)
Loss before tax*	£(3.5) million	(2007: £(2.5) million)
Closing net cash	£34.8 million	(2007: £37.5 million)
Loss per share	(3.1)p	(2007: (2.0)p)
Interim dividend	1.7p	(2007: 1.7p)

* including £1.9 million gain on disposal of leased property

Stephen Marks, Chairman, commented on the results:

"Against the background of a significant downturn in our major markets, the performance of our retail business has continued to be encouraging, with a resilient overall sales and continued growth in our ladies' wear division. In total, however, turnover has remained broadly flat, which when combined with increasing pressures on our margins and cost base, means our financial results for the first six months remain disappointing."

"Looking forward, our main aim is to build on the strong momentum within our French Connection ladies' wear business and to mirror this success within our men's wear business. It would appear that the economic environment is unlikely to improve in the short-term and that therefore any gains we make will have to be achieved through significant out-performance by our ranges. Encouragingly, however, recent retail trading in UK/Europe has shown growth over last year, although North America has been softer."

"In this difficult retail environment, we will continue to manage all elements of the business very closely to reduce costs where possible and to maximise every opportunity available to improve our performance."

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,

Against the background of a significant downturn in our major markets the performance of our retail business has continued to be encouraging, with a resilient overall sales performance and continued growth in our ladies' wear division. In total, however, turnover has remained broadly flat, which when combined with increasing pressures on our margins and cost base, means our financial results for the first six months remain disappointing.

In the six months to 31 July 2008, Group revenue was £112.4 million, just ahead of the equivalent period last year. The Group gross margin at 51.8% was 1.9% below last year, affected by the strength of the Euro, on-going pressure on input cost prices and the level of discounting. Operating costs were 3.6% higher, affected mainly by the additional retail locations in the UK and Japan. The Group benefited from gains on the disposal of lease interests amounting to £1.9 million. The operating loss for the period was £3.3 million (2007: loss of £2.4 million).

The performance of French Connection ladies' wear continues to be very encouraging with growth in like-for-like sales in both the UK and North America of 8% despite the weak markets. This reflects a continued recognition by our customers of the strength of French Connection's design and quality. In men's wear our new design team have worked to enhance the Winter 2008 ranges and we expect this to start to have an impact on the second half sales figures. Their first full range, for Summer 2009, has received a very positive reaction from our wholesale customers.

Our wholesale customers have also been affected by the difficulties in the retail markets and in the UK this has had some impact on both the in-season orders and the forward orders achieved during the period. However in many cases our wholesale customers have also experienced the improvement in sales of the ladies' ranges providing further evidence that the changes we are making in our business are having the desired impact. In North America we have seen continued good growth in the wholesale business.

During the period our business in Japan, previously jointly owned with the Renown Group, became a wholly-owned subsidiary. We currently operate 20 stores in Japan and while the operation does not contribute to profits currently we expect to be able to develop the operation to be profitable within three years.

In licensing we have recently refreshed and re-launched our men's toiletries products in the UK resulting in a good increase in sales volumes. This gives us confidence for the key pre-Christmas trading period. Other licensed products are also performing well including the new licences for shoes and jewellery.

Toast has had a good season and rebounded well from the disappointing first half last year. Nicole Farhi, Great Plains and YMC have performed reasonably through a difficult Summer season.

Our main aim is to build on the strong momentum within our French Connection ladies' wear business and to mirror this success within our men's wear business. Looking to the second half of the financial year it would appear that the economic environment is unlikely to improve in the short-term and that therefore any gains we make will have to be achieved through significant out-performance by our ranges. Encouragingly, however, recent retail trading in UK/Europe has shown growth over last year, although North America has been softer.

In this difficult retail environment, we will continue to manage all elements of the business very closely to reduce costs where possible and to maximise every opportunity available to improve the performance of the business. 

Stephen Marks

Chairman and Chief Executive

11 September 2008

  BUSINESS REVIEW

Segmental Analysis 

Six months 31 July 2008		UK/Europe			North America			Rest of the World			Intra Group	Total
			Whole-			Whole-			Whole-
		Retail	sale	Total	Retail	sale	Total	Retail	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 overheads		(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)
Other income				2.0						0.8	(1.4)	1.4
Gain on disposal				0.6			1.3					1.9
Divisional operating profit/(loss)				(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)
Six months 31 July 2007		UK/Europe			North America			Rest of the World			Intra Group	Total
			Whole-			Whole-			Whole-
		Retail	sale	Total	Retail	sale	Total	Retail	sale	Total
		£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue		53.1	27.1	80.2	16.0	6.4	22.4		6.8	6.8		109.4
Gross profit		34.2	9.4	43.6	9.6	2.4	12.0		1.5	1.5	1.7	58.8
Gross margin		64.4%	34.7%	54.4%	60.0%	37.5%	53.6%		22.1%	22.1%		53.7%
Trading overheads		(36.5)	(6.4)	(42.9)	(11.0)	(1.5)	(12.5)		(0.6)	(0.6)		(56.0)
Operating contribution		(2.3)	3.0	0.7	(1.4)	0.9	(0.5)	-	0.9	0.9	1.7	2.8
Common overhead costs				(2.7)			(1.8)					(4.5)
Other income				2.0						1.0	(1.7)	1.3
Divisional operating profit/(loss)				-			(2.3)			1.9	-	(0.4)
Group management overheads												(2.8)
Operating loss before financing costs												(3.2)
Net financing income												0.8
Operating loss												(2.4)
Share of losses of Joint Ventures												(0.1)
Loss before taxation												(2.5)

 

Overview

In the six months to 31 July 2008 the Group generated a loss before taxation of £3.5 million compared with a loss of £2.5 million in the equivalent period last year. The change reflects increasing pressures on gross margins and some inflationary pressure in the overhead base. The result benefited from a gain of £1.9 million arising from the disposal of a number of leases with no similar income in the comparable period.

There have been a number of changes in the business which have affected the presentation of the results in the first half of this financial year. The most significant of these has been the transfer of business from our wholesale channel to the retail channel through the creation of retail concessions within certain department stores and the absorption of further franchises. Further, the Japan business became a subsidiary in July and this is now reported in the retail channel in the Rest of the World.

More details of the impact of each of these changes is given below along with an analysis of the trading results for the first six months of the year and implications for the second half of the financial year.

United Kingdom and Europe - Retail

Retail revenue in UK/Europe was 4.5% ahead at £55.5 million (2007: £53.1 million). On a like-for-like basis, sales were unchanged compared to the same period last year, but additional trading locations included in the retail channel in the period result in the overall increase. 

The increase in the retail turnover derives mainly from the introduction of new department store concessions during the period and from the impact of the strength of the Euro on European income. Within thirteen House of Fraser stores, space previously used for own-bought product has been converted to operate on a concession basis where the French Connection Group is responsible for the stocking and staffing of the space and pays a turnover based rent. Within our reporting this business is reported in the retail channel and there has been a consequent reduction in turnover within the wholesale channel.

The initial gross margin on turnover from these concessions is considerably higher than the margin generated on the previous wholesale turnover. Offsetting this are the staffing overheads, rent and any discounting or clearance of inventory.

The revised arrangements are expected to provide at least as much net operating profit as the previous arrangement but with higher sales volumes. A further ten such concessions will be added in the second half of the year.

Similarly we have concessions within Harvey Nichols stores and these also have been transferred to the retail channel. The turnover, gross margin and overheads previously reported within the wholesale channel are now reported in the retail channel. Since the gross margins on this business are higher than the normal wholesale margins, this change has resulted 

in a significant reduction in the gross margin for the wholesale channel although there has been no overall change to the profit generated for the Group.

We continue to review our retail portfolio and have successfully reduced the trading space in two stand-alone stores while keeping a more profitable footprint in both trading locations. In the period we have also closed three stores and three concessions. We also transferred two former franchise stores, in Liverpool and Chester, into the retail portfolio during May. Taking account of these changes, the average space traded during the period was only slightly ahead of the equivalent period in the previous year although the total number of locations is four more than at this time last year.

The gross margin achieved in the UK/Europe retail locations was 63.8% compared to 64.4% in the comparable period last year. The decrease in the gross margin arose mainly due to the increase in the proportion of fixed costs allocated to the retail channel. These costs include the design, production management and warehousing overheads which are allocated between the retail and wholesale channels in proportion to turnover. Core margins after sale discounting were similar to last year.

Trading overheads increased by 4.7% due mainly to the addition of the concessions, which account for 2.8% of the increase, and from the impact of Euro exchange rates of 1.3%. The remaining increase of 0.6% reflected the net impact from other changes in the portfolio and inflation. The net operating loss was £2.8 million (2007: loss of £2.3 million).

Looking forward, it would appear that the economic environment is unlikely to improve in the short term. Retail sales in the early part of the new season have continued to out-perform the market, but across the portfolio we expect that growth in like-for-like sales in the second half of the year will be difficult to achieve. However, total retail sales in UK/Europe will benefit from the volumes transferred from the wholesale channel, including a further ten concessions in House of Fraser stores to open in the second half. In total the concessions added and franchises transferred during this financial year will generate in the region of £4.0 million of additional turnover in the second half.

United Kingdom and Europe - Wholesale

Wholesale turnover during the period was affected by the transfer of business to the 

retail channel in relation to concessions in House of Fraser and Harvey Nichols. In total the impact on wholesale turnover from these changes in the period was £2.1 million. In addition a further reduction of £0.3 million arose from the transfer of a franchise business to the retail channel. The remaining £0.6 million decline in sales arose as our customers restricted their budgets as a reaction to the difficult trading conditions.

Wholesale turnover in the second half of the financial year will also be affected by the change in the concessions business described above along with a further ten concessions in House of Fraser stores. The impact of these changes in the second half will be to transfer approximately £2.5 million of turnover out of the wholesale channel, although there will be a consequent increase in the retail channel as described above.

The underlying orders received so far for Winter 2008 and Summer 2009 are broadly flat on last year although in-season orders are likely to be affected by the challenging retail environment.

The gross margin has also been impacted by the transfer of business to the retail channel. The gross margin in wholesale fell by 570 basis point to 29.0%. Of this decline, 270 basis points arose from the transfer of concession and franchise business to the retail channel. The remaining variance arose from a combination of the strengthening of the Euro (120 basis points) and reductions in core margins (180 basis points) due to a change in product mix away from dollar-based suppliers and slightly deeper discounts on end of season clearance. These elements will similarly affect the gross margin in the second half of the financial year.

Overheads are slightly lower than last year although as described above a reduction of £0.8 million arose from the transfer of the Harvey Nichols business to the retail channel. This reduction was offset by the costs associated with closure of a small high-end shoe brand and additional overheads to support the development of the YMC brand.

The net operating contribution from UK/Europe Wholesale was £0.8 million, a decrease of £2.2 million compared to the equivalent period last year. Of this decline, 

£0.3 million arose from the brand closure noted above which will not recur and £0.7 million arose from the transfer of business to the retail channel.

UK/Europe division

Together, the retail and wholesale businesses in UK/Europe contributed an operating loss of £2.0 million (2007: profit of £0.7 million).

Common overhead costs for the division increased by £0.3 million to £3.0 million. The majority of the increase related to advertising and promotion expenditure.

Other income in the UK/Europe division of £2.0 million (2007: £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 £1.4 million (2007: £1.3 million). During the period the men's grooming product sold exclusively in Boots was refreshed and re-launched. The reaction has been very positive providing confidence that the key Christmas trading period will show growth over last year. Our newer licensees for jewellery, shoes and sunglasses continue to develop well.

During the period arrangements were negotiated with landlords in relation to two large stores where we reduced the size of the stores. These arrangements, along with one of the store disposals, gave rise to a net gain of £0.6 million (2007: £nil).

The operating result for the UK/Europe division was a loss of £2.4 million for the period (2007: loss of £nil million).

North America - Retail

The retail environment in North America has also become more challenging as a result of the general economic difficulties, but our retail business has succeeded in maintaining like-for-like sales at the same level as last year while also achieving an 8% growth in the sales of French Connection ladies' wear. Total sales fell by 4.4% to £15.3 million as a result of the closure of four stores in the past year (and the opening of a new outlet store) giving a decline of 10% in the average space traded.

The gross margin, at 58.8% (2007: 60.0%) was affected by a higher level of in-season promotional discounting as a reaction to the highly competitive high street.

Overheads were reduced by £0.5 million to £10.5 million as a result of the store closures offset by two store rent increases to give a net operating result of a loss of £1.5 million, broadly in line with last year.

We expect the North America retail market to remain difficult throughout the second half.

North America - Wholesale

Sales to our wholesale customers in North America increased substantially to £8.8 million (2007: £6.4 million) reflecting continued strong demand for our products from the department store groups, where sell-through has been good, and also some clearance of old-season product.

The old-season sales had the effect of reducing the gross margin to 35.2% for the period (2007: 37.5%). There was also a small increase in overheads including increases in showroom rental and marketing expenditure.

The operating contribution for the period improved to £1.4 million from £0.9 million in the comparable period.

Looking to the second half, the market conditions have caused the department stores to restrict their orders to similar levels as last year and we therefore do not expect to see further growth in turnover.

North America division

Together, the retail and wholesale operations in North America generated a loss of £0.1 million at the operating level (2007: loss of £0.5 million). Common overhead costs were broadly flat.

The disposal of stores during the period gave rise to a gain amounting to £1.3 million, resulting in an improved net divisional operating loss of £0.7 million (2007: loss of £2.3 million).

Rest of the World - Retail

Following the absorption of the rest of the retail business in Japan the reporting now includes a Retail channel under the Rest of the World geographic segment. The results reported in this first half represent one month of trading for the Japan business. Further details of the acquisition are given in the Notes to the Half-Year Statement. In the first six months of the financial year the Japan business generated total turnover of £5.1 million and an operating loss of £0.8 million. Within this loss, £0.2 million was paid to the French Connection Group in relation to licence royalties and buying office commissions.

Rest of the World - Wholesale

Revenue in our business based in Hong Kong increased by £0.8 million to £7.6 million as a result of sales to newer licensees in South Africa and India as well as increases in supplies to the retail businesses in China and Hong Kong.

The gross margin generated by this business is affected by the mix of sales and while core margins were unchanged, the blended gross margin increased to 22.4% (2007: 22.1%). Overheads increased only £0.1 million to give a net operating profit of £1.0 million, slightly ahead of last year.

  

Rest of the World division

Taking the new retail channel in Japan along with the existing wholesale channel based in Hong Kong the Rest of the World division generated an operating contribution of £0.9 million in the period, the same as last year.

The business also earns commission income from Group companies on shipments from Hong Kong to the UK and North America. Total income from this channel was £0.8 million (2007: £1.0 million).

Total divisional operating result was a profit of £1.7 million compared to £1.9 million in the comparable period.

Group Management 

The overheads associated with the central Group management amounted to £2.7 million in the period, £0.1 million less than last year 

as a result of effort to reduce overhead spending.

Operating result and financing income 

The operating loss before finance costs for the period was £4.1 million (2007: loss of £3.2 million).

Net financing income of £0.8 million (2007: £0.8 million) was generated in the period with average net funds over the year lower than the previous year but interest rates a little higher. 

Group operating loss in the period amounted to £3.3 million (2007: loss of £2.4 million).

Joint Ventures

The Group's share of net losses generated by the joint ventures during the period was £0.2 million (2007: loss of £0.1 million). The Group's 50% share of the losses of the Japan business are included up to the end of June 2008 when the Japan business became a wholly owned subsidiary.

In addition to the share of losses reported in the income statement, the joint ventures generated over £0.6 million (2007: £0.5 million) of licence income and gross margin combined. This income is reported within Other 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 tax was £3.5 million in the period compared to a loss of £2.5 million in the previous half-year period.

Taxation

The tax credit for the period of £0.5 million (2007: £0.6 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 generated in the different regions.

Minority interest

The minority interest of £nil million (2007: £nil million) represents the net share of results attributable to the 25% ownerships held by local management in our Canada business, Toast and YMC.

Earnings and dividends

Net loss for the period attributable to equity shareholders was £3.0 million (2007: loss of £1.9 million). Loss per share was 3.1 pence (2007: loss of 2.0 pence per share).

Working capital and net funds

The business traditionally utilises cash in the first half of the year and this has remained at a similar level to last year at £11.9 million.

Closing stock levels at the end of July were £0.8 million lower than July last year despite the addition of £1.2 million of inventory in Japan. Due to the relative values of Winter product, the value of stock is usually higher in July than in January but this year the increase in value was lower than previously, providing a benefit to cash flows in the period. Both debtors and creditors have shown increases since the year-end, although they broadly negate each other so that the cash absorbed by working capital requirements in the period of £5.7 million was £2.1 million less than in the comparable period last year.

When combined with the cash absorbed by trading activities of £2.9 million (2007: £0.8 million) the cash utilised by operations amounted to £8.6 million in the period (2007: £7.0 million). Further cash of £3.3 million was utilised by the payment of tax, dividends and fixed asset investments offset by gains on the disposal of leases and interest income.

The closing net funds were £34.8 million (2007: £37.5 million).

Dividend

The interim dividend is 1.7 pence per share, the same as last year. The dividend is payable on 16 October 2008 to shareholders on the register at 26 September 2008 (ex-dividend date 24 September 2008).

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 2008.

____________________________________________________________________

11 September 2008

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
11 September 2008

CONDENSED GROUP INCOME STATEMENT
Note		£m	Six months 31 July 2008 £m	£m	Six months 31 July 2007 £m	£m	Year ended 31 Jan 2008 £m
Revenue	1		112.4		109.4		236.1
Cost of sales			(54.2)		(50.6)		(111.9)
Gross profit	1		58.2		58.8		124.2
Operating expenses			(65.6)		(63.3)		(126.2)
Other operating income	2		2.4		1.3		3.4
Other expenses	4		(1.0)		-		-
Net gain on sale of property, plant and  equipment			1.9		-		-
Operating (loss)/profit before financing costs	1		(4.1)		(3.2)		1.4
Finance income		0.8		1.0		1.8
Finance expenses		-		(0.2)		(0.2)
Net financing costs			0.8		0.8		1.6
Operating (loss)/profit			(3.3)		(2.4)		3.0
Share of loss of joint ventures			(0.2)		(0.1)		0.1
(Loss)/profit before taxation			(3.5)		(2.5)		3.1
Income tax credit/(expense) - UK		0.8		1.0		(0.6)
Income tax expense - overseas		(0.3)		(0.4)		(0.9)
Total income tax credit/(expense)			0.5		0.6		(1.5)
(Loss)/profit for the period			(3.0)		(1.9)		1.6
Attributable to:
Equity holders of the parent	3		(3.0)		(1.9)		1.4
Minority interest			-		-		0.2
(Loss)/profit for the period			(3.0)		(1.9)		1.6
Basic (losses)/earnings per share	3		(3.1)p		(2.0)p		1.5p
Diluted (losses)/earnings per share	3		(3.1)p		(2.0)p		1.5p

  

CONDENSED GROUP BALANCE SHEET
	Note	31 July 2008 £m	31 July 2007 £m	31 Jan 2008 £m
Assets
Non-current assets
Intangible assets		14.3	14.1	14.1
Property, plant and equipment		14.8	17.9	15.5
Investments in joint ventures		1.7	3.4	3.6
Deferred tax assets		2.4	2.1	2.4
Total non-current assets		33.2	37.5	35.6
Current assets
Inventories		59.6	60.4	53.0
Trade and other receivables		36.5	30.0	29.8
Current tax receivable		0.9	0.9	-
Cash and cash equivalents	5	35.9	40.5	49.3
Derivative financial instruments		0.1	-	0.2
Total current assets		133.0	131.8	132.3
Total assets		166.2	169.3	167.9
Non-current liabilities
Trade and other payables		1.0	-	-
Deferred tax liabilities		1.0	0.9	1.0
Total non-current liabilities		2.0	0.9	1.0
Current liabilities
Bank loans and overdraft	5	1.1	3.0	2.6
Trade and other payables		51.0	49.9	44.9
Current tax payable		0.5	0.4	1.4
Total current liabilities		52.6	53.3	48.9
Total liabilities		54.6	54.2	49.9
Net assets		111.6	115.1	118.0
Equity
Called-up share capital		1.0	1.0	1.0
Share premium account		9.4	9.4	9.4
Other reserves		(0.9)	(1.7)	(0.7)
Retained earnings		101.1	105.6	107.3
Total equity attributable to equity
holders of the parent		110.6	114.3	117.0
Minority interests		1.0	0.8	1.0
Total equity		111.6	115.1	118.0

CONDENSED GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
	£m	Six months 31 July  2008  £m	£m	Six months 31 July  2007 £m	£m	Year ended 31 Jan 2008 £m
(Loss)/profit attributable to equity shareholders		(3.0)		(1.9)		1.4
Minority interest		-		-		0.2
Total income and expense recognised in the  income statement		(3.0)		(1.9)		1.6
Currency translation differences on foreign currency net investments net of tax	(0.8)		(0.5)		(1.0)
Currency translation differences on foreign  currency loans	0.7		0.2		2.1
Effective portion of changes in fair value of cash flow  hedges	(0.1)		-		0.2
Income tax on income and expense recognised in equity	-		-		(0.6)
Total income and expense recognised in equity		(0.2)		(0.3)		0.7
Total income and expense recognised for the period		(3.2)		(2.2)		2.3
Attributable to:
Equity holders of the parent		(3.2)		(2.2)		2.1
Minority interest		-		-		0.2
Total income and expense recognised for the period		(3.2)		(2.2)		2.3

  

CONDENSED GROUP STATEMENT OF CASH FLOWS
	Note	Six  months 31 July  2008 £m	Six  months 31 July 2007 £m	Year  ended 31 Jan 2008 £m
Operating activities
(Loss)/profit for the period		(3.0)	(1.9)	1.6
Adjustments for:
Depreciation		3.1	4.0	8.0
Finance income		(0.8)	(1.0)	(1.8)
Finance expense		-	0.2	0.2
Share of loss/(profit) of joint ventures		0.2	0.1	(0.1)
Operating profit on property, plant and equipment		(1.9)	-	(0.1)
Income tax (credit)/expense		(0.5)	(0.6)	1.5
Operating (loss)/profit before changes in
working capital and provisions		(2.9)	0.8	9.3
Increase in inventories		(5.3)	(8.7)	(1.3)
(Increase)/decrease in trade and other receivables		(3.6)	0.5	0.7
Increase/(decrease) in trade and other payables		3.2	0.4	(3.8)
Cash flows from operations		(8.6)	(7.0)	4.9
Interest paid		-	(0.2)	(0.2)
Income tax paid		(1.1)	(0.4)	(1.3)
Cash flows from operating activities		(9.7)	(7.6)	3.4
Investing activities
Interest received		0.8	0.9	1.7
Investment in joint ventures		(0.2)	(0.4)	(0.2)
Acquisition of subsidiary	4	0.3	-	-
Acquisition of franchises		(0.2)	-	-
Acquisition of property, plant and equipment		(1.7)	(1.2)	(2.5)
Net proceeds from sale of property, plant and equipment		2.0	-	0.1
Cash flows from investing activities		1.0	(0.7)	(0.9)
Financing activities
Dividends paid		(3.2)	(3.2)	(4.8)
Cash flows from financing activities		(3.2)	(3.2)	(4.8)
Net decrease in cash and cash equivalents	5	(11.9)	(11.5)	(2.3)
Cash and cash equivalents at 1 February		46.7	48.9	48.9
Exchange rate fluctuations on cash held		-	0.1	0.1
Cash and cash equivalents at period end	5	34.8	37.5	46.7

  

NOTES TO THE HALF-YEAR STATEMENT

1. Segmental analysis

Six months 31 July 2008		UK/Europe			North America			Rest of the World			Intra Group	Total
			Whole-			Whole-			Whole-
		Retail	sale	Total	Retail	sale	Total	Retail	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 overheads		(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 profit/(loss)				(2.4)			(0.7)			1.7	-	(1.4)
Group management overheads												(2.7)
Operating loss before financing costs												(4.1)
Six months 31 July 2007		UK/Europe			North America			Rest of the World			Intra Group	Total
			Whole-			Whole-			Whole-
		Retail	sale	Total	Retail	sale	Total	Retail	sale	Total
		£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue		53.1	27.1	80.2	16.0	6.4	22.4		6.8	6.8		109.4
Gross profit		34.2	9.4	43.6	9.6	2.4	12.0		1.5	1.5	1.7	58.8
Gross margin		64.4%	34.7%	54.4%	60.0%	37.5%	53.6%		22.1%	22.1%		53.7%
Trading overheads		(36.5)	(6.4)	(42.9)	(11.0)	(1.5)	(12.5)		(0.6)	(0.6)		(56.0)
Operating contribution		(2.3)	3.0	0.7	(1.4)	0.9	(0.5)	-	0.9	0.9	1.7	2.8
Common overhead costs				(2.7)			(1.8)					(4.5)
Licensing income				2.0						1.0	(1.7)	1.3
Divisional operating profit/(loss)				-			(2.3)			1.9	-	(0.4)
Group management overheads												(2.8)
Operating loss before financing costs												(3.2)

  

NOTES TO THE HALF-YEAR STATEMENT

2. Other operating income

	31 July 2008 £m		31 July 2007 £m		31 Jan 2008 £m
Licensing income	1.4		1.3		3.4
Negative goodwill on acquisition of subsidiary	1.0		-		-
	2.4		1.3		3.4

3. (Losses)/earnings per share

Losses per share of (3.1) pence (2007: (2.0) pence) is based on 95,879,754 shares (2007: 95,878,902) being the weighted average number of ordinary shares in issue throughout the period, and £(3.0) million (2007: £(1.9) million) being the loss attributable to equity shareholders. Diluted losses per share of (3.1) pence (2007: (2.0) pence) is based on 95,879,754 shares (2007: 96,083,865) being the weighted average number of ordinary shares adjusted to assume the exercise of dilutive options.

The reconciliation to adjusted (losses)/earnings per share which is based on 95,879,754 shares (2007: 95,878,902) is as follows:

	Six months 31 July 2008 £m	Pence per share	Six months 31 July 2007 £m	Pence per share	Year ended 31 Jan 2008 £m	Pence per share
(Loss)/profit attributable to equity shareholders	(3.0)	(3.1)p	(1.9)	(2.0)p	1.4	1.5p
Adjusted (losses)/earnings	(3.0)	(3.1)p	(1.9)	(2.0)p	1.4	1.5p

  

NOTES TO THE HALF-YEAR STATEMENT

4. Acquisition of subsidiary

On 10 July 2008, the Group completed the acquisition of the 50% of French Connection Japan Inc. owned by Renown Inc. The 50% joint venture had previously been accounted for using the equity method of accounting. This resulted in French Connection Japan Inc. becoming a wholly-owned subsidiary of the French Connection Group. French Connection Group acquired the interest in return for a payment by Renown Inc. to French Connection Group of £0.2 million. 

Details of the subsidiary's trading post-acquisition are presented in Note 1 'Segmental analysis' in the Half-Year Statement. If the acquisition had occurred on 1 February 2008, management estimates that consolidated revenue for the six months to 31 July 2008 would have been £116.4 million and consolidated loss before tax for that period would have been £3.9 million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 February 2008.

The acquisition had the following effect on the Group's assets and liabilities on acquisition date.

		Pre-acquisition carrying amounts £m	Fair value adjustments £m	Recognised  values on acquisition £m
Property, plant and equipment		-	0.4	0.4
Inventories		0.6	-	0.6
Trade and other receivables		1.5	-	1.5
Cash and cash equivalents		0.1	-	0.1
Trade and other payables		(1.0)	(0.3)	(1.3)
Finance lease liabilities		-	(0.5)	(0.5)
Net identifiable assets and liabilities		1.2	(0.4)	0.8
Negative goodwill on acquisition				(1.0)
Consideration received, satisfied in cash				(0.2)
Cash acquired				(0.1)
Net cash inflow				(0.3)

The negative goodwill of £1.0 million has been credited within "Other operating income" in the Income Statement. The excess of the net fair value of the identifiable assets, liabilities and contingent liabilities acquired over the cost of the acquisition is mainly attributable to provisions against the carrying value of fixed assets, dilapidations provisions and the recognition of finance leases on the balance sheet.

As a result of the acquisition, the following fair value adjustments were made to the initial 50% investment in French Connection Japan Inc.

	Fair value  adjustments £m
Property, plant and equipment	(0.5)
Trade and other payables	(0.5)
Total fair value adjustments	(1.0)

NOTES TO THE HALF-YEAR STATEMENT

4. Acquisition of subsidiary continued

The above fair value adjustments are mainly attributable to fixed asset impairments and dilapidations provisions. These fair value adjustments have been expensed within "Other expenses" in the Income Statement. The total profit and loss effect of the negative goodwill and fair value adjustments is £nil.

Pre-acquisition carrying amounts were determined based on applicable IFRSs immediately before the acquisition. The values of assets, liabilities and contingent liabilities recognised on acquisition are their estimated fair values. The trade and other payables fair value estimates are provisional and may be adjusted within the twelve months following acquisition date. 

5. Analysis of net funds

	31 January 2008 £m	Cash flow £m	Non cash changes £m	31 July  2008 £m	31 July  2007 £m
Cash and cash equivalents in the balance sheet	49.3	(13.4)	-	35.9	40.5
Bank overdraft	(2.6)	1.5	-	(1.1)	(3.0)
Net funds	46.7	(11.9)	-	34.8	37.5

6. Statutory accounts and basis of preparation

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"), 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 2008, which are prepared in accordance with IFRS as adopted by the EU. 

These half-year condensed financial statements are unaudited and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The comparative figures for year ended 31 January 2008 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. 

A copy of this interim statement is being sent to all shareholders and will be available for inspection at the Company's registered office.

  

NOTES TO THE HALF-YEAR STATEMENT

7. Retail locations

		31 July 2008		31 January 2008
		Locations	sq ft	Locations	sq ft
Operated locations
UK/Europe
French Connection	Stores	75	235,912	75	236,507
French Connection	Concessions	29	18,868	19	13,918
Nicole Farhi	Stores	8	20,212	9	22,627
Nicole Farhi	Concessions	11	11,905	14	11,528
Toast	Stores	6	7,072	6	7,072
Toast	Concessions	1	854	3	1,679
Great Plains	Stores	1	850	1	850
		131	295,673	127	294,181
North America
French Connection	Stores	35	135,240	36	143,841
Nicole Farhi	Stores	1	5,000	1	5,000
		36	140,240	37	148,841
Japan
French Connection	Stores	17	37,580
French Connection	Concessions	3	4,950
		20	42,530
Total operated locations		187	478,443	164	443,022
French Connection licensed and franchised
UK/Europe		14	22,210	20	29,710
North America		1	2,000	1	2,000
Middle East		12	24,164	11	20,047
Australia		40	58,171	38	55,610
Japan				22	44,300
Hong Kong		7	12,416	6	11,921
China		23	32,613	22	29,016
Other		43	45,361	50	51,961
Total licensed and franchised locations		140	196,935	170	244,565
Total Group branded retail locations		327	675,378	334	687,587

ENDIR FKDKBOBKDCCD

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