12th Mar 2008 07:01
French Connection Group PLC12 March 2008 12th March 2008 FRENCH CONNECTION GROUP PLC Preliminary Results for the year ended 31 January 2008 French Connection Group PLC today announces preliminary results that are in linewith market expectations. • Turnover £236.1 million (2007: £241.3 million) • Profit before tax £3.1 million (2007: £4.0 million) • Closing net cash £46.7 million (2007: £48.9 million) • Earnings per share 1.5p (2007: 0.1p) • Total dividend for the year 5.0p (2007: 5.0p) Stephen Marks, Chairman, commented on the results: "Our financial results for last year did not progress as we would have liked,having been impacted by a marked softening of the retail environment in both theUK and US towards the end of the year." "The results reflect some improvement in the performance of our FrenchConnection ladies' wear ranges, a robust performance at Toast in the face ofdifficulties earlier in the year, a significant improvement in the North Americabusiness and continued tight cost control. These positive elements were offsetby a considerably more challenging retail environment in the last quarter of theyear both in the UK and the US, a decline, as anticipated, in wholesale turnoverin the UK and a difficult year for French Connection men's wear." "The continuing difficult economic environment predicted for the new year islikely to have an impact on the rate of improvement in our retail business, butwe will continue to strive for growth based on our constantly evolvingfashion-forward products. Further, for the first time in two years, we areseeing some improvement in the wholesale orders in both UK/Europe and NorthAmerica. The final outcome, however, will depend on the general retailenvironment in our markets." Enquiries:Stephen Marks/Neil Williams/Roy Naismith French Connection +44(0)20 7036 7063Tom Buchanan/Deborah Spencer Brunswick +44(0)20 7404 5959 Head Office: Centro One, 39 Camden Street, Camden NW1 0DX Tel: 020 7036 7000 Fax: 020 7036 7001 French Connection Group PLC. Registered in England no 01410568 Registered address: 20-22 Bedford Row, London WC1R 4JS Dear Shareholders, Our financial results for last year did not progress as we would have liked,having been impacted by a marked softening of the retail environment in both theUK and US towards the end of the year. In the year ended 31 January 2008, Group turnover fell slightly to £236.1million (2007: £241.3 million) and profit before taxation was £3.1 million(2007: £4.0 million). Earnings per share amounted to 1.5 pence per share (2007:0.1 pence per share, or 2.2 pence per share, excluding an exceptional taxcharge). Cash generated from operations during the year amounted to £4.9 millionand after payment of taxation, investment in fixed assets and distribution ofthe dividend the Group retained £46.7 million of net funds at 31 January 2008(2007: £48.9 million). The Board is proposing that the full year dividend ismaintained at the same level as last year at 5.0 pence per share. These results reflect some improvement in the performance of our FrenchConnection ladies' wear ranges, a robust performance at Toast in the face ofdifficulties earlier in the year, a significant improvement in the North Americabusiness and continued tight cost control. These positive elements were offsetby a considerably more challenging retail environment in the last quarter of theyear both in the UK and the US, the decline, as anticipated, in wholesaleturnover in the UK and a difficult year for French Connection men's wear. This performance is clearly not good enough. In order to get our business backon track, we are reviewing all elements of our operation to drive improvement. Our over-riding focus in the French Connection business continues to be thecreation of fashion-forward products to meet our customers' aspirations and webelieve that we have been successful in achieving that for our ladies' wearranges both through the year under review and looking to the new year. Byconsistently maintaining these standards we have seen a sustained growth inladies' wear sales. Given the reaction in our stores it appears that the men's wear ranges arelagging the improvements achieved in ladies' wear, and, as reported previously,we have therefore made significant changes to our men's wear design andmerchandising teams. The refreshed teams are in place and are working to developthe ranges, although this will take some time to feed through to improvedtrading. Our businesses in North America have progressed well during the year with goodlike-for-like growth in retail, a 10% increase in sales through the wholesalechannel and a significant move forward in the net result. Trading conditions inthe US have deteriorated significantly since November 2007 and it would appearthat we are entering a more challenging period, however, based on good levels oforders received for Spring/Summer 2008 we are optimistic that we will seecontinued growth in wholesale in North America through the new year despite thechallenges in the wider economy. In Asia the French Connection brand continues to gain strength and to developprofitably. Product licences have also performed well in the year and we have anumber of new or replacement licensees coming on-stream in the new year. The more difficult economic environment widely predicted for the new year islikely to have an impact on the rate of improvement in our retail business, butwe will continue to strive for growth based on our constantly evolvingfashion-forward products. Further, for the first time in two years, we areseeing some improvement in the wholesale orders in both UK/Europe and NorthAmerica. The final outcome, however, will depend on the general retailenvironment in our markets. We have recently appointed Dean Murray to the Board. Dean has a long backgroundin retail, having run Adams Kidswear for some years and I look forward toworking with him. The French Connection Group businesses are built on the hard work and commitmentof our employees and I thank them for their continued dedication and focus. Wecontinually strive to find improvements in all parts of our business and I lookforward to seeing the changes translate into a return to growth in our financialperformance. Stephen MarksChairman and Chief Executive 11 March 2008 Management approach and management of risks This Business Review should be read in conjunction with the divisional tradinganalysis on page 11. Overview During the year ended 31 January 2008, turnover was marginally lower than theprevious year at £236.1 million (2007: £241.3 million) as a result mainly of theanticipated decline in turnover in the UK/Europe wholesale business. The grossmargin, impacted by the decrease in turnover, was a little lower than last yearbut overheads were trimmed to give an operating profit before financing costs of£1.4 million (2007: £3.3 million). With a good response to the French Connectionladies' wear ranges in the year this is a disappointing result having beenimpacted by a poorer than expected performance in men's wear and thewell-reported deterioration in the retail environment in both the UK and USsince November. We remain confident that we have the foundations required for a recovery intrading volumes with strong ladies' wear ranges and refreshed design andmerchandising teams in men's wear. In an extremely competitive market and withconsumer spending on fashion weakening, it is likely that a return to a morehealthy net operating margin will take some time, however we continue to work togenerate improvements in every aspect of the business as quickly as possible. Business performance over the past year and our outlook for the new year arediscussed in more detail by division in the sections below. United Kingdom and Europe - Retail Retail revenue was virtually unchanged at £115.6 million in the year (2007:£116.1 million). Average space traded through the year increased by 3% and thiswas offset by a like-for-like sales decline of a similar amount. Most of theincrease in trading space was a result of the transfer of franchised stores intothe company-owned retail portfolio during 2006. Three new Toast stores wereopened during the year, two in London and one in Bath and we also added afurther French Connection outlet store. The performance of the French Connection ranges in our stores was polarisedbetween an improvement in ladies' wear, which achieved a like-for-like increaseof 2% over the year, and men's wear which showed an 11% decline. The performanceof the ladies' wear ranges gives us confidence that we have made appropriateimprovements in the ranges and that our customers are rediscovering theattraction of the French Connection brand. In order to replicate this success inmen's wear we have refreshed the design and merchandising teams and we expect tosee an influence of the new teams on the ranges during the new year, althoughtheir main impact will be on the Spring/Summer 2009 ranges which will be soldthrough the wholesale channel from the autumn of 2008. Increases in retail volumes have become considerably harder to generate as thefashion retail market has become significantly more difficult over the lastquarter of 2007 and into the new year. Sales in our UK/Europe stores in theearly part of the new financial year were supported by discounting during theend of the sale period and since then have been lacklustre. While we aretargeting to increase sales volumes in the new year, it would appear that themarket will make any gains difficult to find and that tight control of inventorylevels and continued focus on reducing costs will continue to be imperative. As reported previously, Toast had a difficult Spring/Summer season in 2007 buthas bounced-back very effectively in the second half with much stronger sales ofthe Autumn/Winter ranges and a very good response to their new homewareselection. The Spring/Summer 2008 season has also started strongly in both themail order and retail channels. Toast continues to be a very exciting successstory and generates a healthy profit. We will be investing further in theinfrastructure at Toast over the coming two years to ensure that the expectedgrowth is built on solid foundations. While plans are at an early stage, theyare likely to include new, larger warehouse facilities and additional supportfor the management team. Based on our long-standing French Connection mail-order business "BuyMail" wehave had a trading presence on the internet for a number of years, well ahead ofmany of our competitors. This has grown consistently recently and is nowgenerating a healthy turnover. As the importance of internet-based sales growswe are investing further in our on-line offer and have recently recruited newmanagement with a focus on web retail and refreshed our transactional websitewith added features to improve the shopping experience. The performance of the Nicole Farhi stores over the year has been relativelyquiet with growth hard to find. For the second half we took on two trading areaswithin House of Fraser stores to operate as concessions where previously NicoleFarhi product had been sold as part of the store's general mix of merchandise.In these two stores the volumes have increased significantly, benefiting fromfully trained and focused sales assistants. We are investigating replicatingthis model in other House of Fraser locations. We are also investing inadditional management resources for the brand in order to provide fresh momentumto what remains one of the UK's best-known designer labels. The gross margin for the UK/Europe retail division was a little lower than lastyear at 62.6% (2007: 63.1%). The margin rate benefited from the weakness of theUS Dollar which affects the cost of product manufactured in China. This wasoffset by the impact of a slightly longer sale period at Christmas, the openingof a fourth outlet store and a higher allocation of design and productionoverheads to the retail business. Looking forward there remains a good opportunity to improve our gross marginthrough increasing full-price sales volumes and reducing the scale of the saleperiods. Both of these can be driven by a growth in like-for-like sales. We alsoexpect to see some margin uplift from the continued weakness of the Dollar whichhas had the effect of reducing the Sterling input prices of product bought inAsia. However, offsetting these benefits, we are witnessing increasedinflationary pressures on the pricing of products manufactured in China andelsewhere which is likely to negate the currency benefit. Taking all of the above together, and mainly due to the challenges in themarket, we are being very cautious in planning for any growth in like-for-likesales in the new year. We therefore expect no change in gross margins. We continue to critically assess our store portfolio, the store operations andthe store fit-outs. Despite the lower level of Group trading, there are onlyaround ten stores which will make a marked negative contribution to retailoverheads in the coming year and each of these is receiving close attention. Wehave plans to refurbish or relocate three stores in the coming year and morewill be considered as we progress. One new store will open in the year at theWhite City development in west London and another outlet store in the north ofEngland has recently opened, bringing the total number of outlets to five. Overhead costs within the retail portfolio are subject to inflation increases,in particular rent, rates and staffing costs. These are areas where there islittle opportunity for making major short-term savings, but overall the increasein costs was limited to 2% despite the 3% increase in average space traded inthe year. The flat revenue, slightly lower gross margin and only a small increase inoverheads resulted in an operating contribution of £0.1 million (2007: £2.4million). Since the overhead costs of our retail portfolio are largely fixed and indeedare subject to inflationary pressures and upward-only rent reviews our energiesare focused on increasing the sales volumes in the stores in order to improvethe profitability. As described above, this will also have the effect ofimproving the gross margin and will be achieved, first and foremost, bycontinuing to produce interesting, fashion-forward products which attract agrowing number of customers. United Kingdom and Europe - Wholesale As anticipated, sales through our UK/Europe wholesale business reduced in theyear to £55.6 million (2007: £63.4 million) as the effects of both the reductionin forward orders and the transfers of business to other channels fed through tothe trading result. Of the £7.8 million decline in sales compared to last year, £2.5 million arosefrom the transfer of wholesale business into other channels. Five franchisestores were acquired during last year which had the effect of moving trade fromwholesale to the retail channel, and similarly we have opened some concessionsin House of Fraser stores which were previously wholesale businesses. Finally,as previously reported, supplies previously made from the UK to our Middle Easternlicensees are now supplied through our office in Hong Kong and are therefore nowreported in that business channel. The remainder of the decrease in salesrepresented reduced orders from on-going customers. Looking forward, we are pleased that the orders for Spring/Summer 2008 are aheadof last year by 5% with good growth particularly in our export business. TheAutumn/Winter forward orders, which are still in the process of compilation,also appear to be showing growth. While this growth is encouraging, the resultsfor the full year will depend on the forward orders and in-season repeats forall three of the coming main seasons, all of which could be affected by the moredifficult retail market facing our wholesale customers. However, we are hopefulthat we will see some growth in wholesale sales in the new financial year. Gross margins in the year were supported by the weaker Dollar and a smallerimpact from discounted clearances of older stock, improving to 33.1% from 32.6%last year. Nonetheless the gross margin remains depressed due to the proportionof the sales represented by stock clearance caused by the declines in full-priceorders. Overheads have been tightly controlled and we continue to look for efficienciesin our business wherever possible. The net operating contribution from UK/Europe wholesale was £5.2 million (2007:£8.0 million). United Kingdom and Europe division Together, the retail and wholesale businesses in UK/Europe generated anoperating contribution of £5.3 million (2007: £10.4 million). This declinereflected static overall sales in retail and a decrease in wholesale, coupledwith the operational gearing caused by largely fixed overhead costs. Common overhead costs for the division, including accounting, advertising andsome infrastructure costs decreased £1.3 million to £5.7 million. The mainsavings came from general tight cost control, a reduction in advertising spendand a one-off benefit of £0.5 million from the termination of an office lease. Other income in the UK/Europe division of £4.6 million (2007: £4.7 million)includes both licence receipts from external licensees and also brand royaltiescharged to Group companies which are purely internal and are eliminated from theGroup result. The licence income from external sources amounted to £3.4 million(2007: £3.6 million). The small decline arose mainly from our toiletrieslicence, although this remains the major contributor to this line of income. Themen's range of toiletries has been redesigned and relaunched for Spring 2008 andthe initial results show an improvement in sales. Other declines arose from thetermination of licences for watches in the UK and children's wear in the US, butthese were offset by increases in royalties from Australia and Hong Kong whereour licensed retail operations continue to grow. The resulting operating profit for the UK/Europe division was £4.2 million forthe year (2007: £8.1 million). North America - Retail Our North America retail business had a strong year with sales increasing by 7%in Dollar terms and the net result improving significantly. Like-for-like salesimproved by 8% while three stores were closed. Sales were particularly strong inour eleven stores in Canada, while in the US some of the sales increase was atthe expense of gross margin. While we hope to build on the sales growth, theretail market in the US has slowed dramatically since Thanksgiving day inNovember, with many retailers reporting sales declines through December andJanuary. Our business has also been affected by this weakness in the market, butwe are focusing efforts to maximise opportunities in the new year. The Dollar depreciated by 8% over the year so that when translated intoSterling, revenue was down marginally at £35.1 million (2007: £35.5 million). The gross margin was affected by more promotional mark-downs during the year inthe US resulting in a margin of 60.1% (2007: 61.4%). Overheads saw no change on last year in Dollar terms and therefore show a 8%reduction in Sterling resulting in an operating contribution which was £1.1million better than last year at (£0.9) million. North America - Wholesale Revenue in the wholesale business continued to benefit from the success of ourproduct in the department stores resulting in a 10% increase in Dollar sales (2%increase in Sterling) despite the loss of an own-label contract as reported lastyear. Gross margin fell back from last year's high of 40.4% to 37.0% as olderinventory was cleared through at discounted prices. While the gross profitincreased in Dollar terms, the 8% decline in the exchange rates resulted in adecrease in Sterling terms. With a small increase in overheads driven byinflation the operating contribution from the business was marginally lower thanlast year at £2.4 million (2007: £2.7 million), half of the decline arising fromthe change in the exchange rates. North America division Together, the retail and wholesale operations in North America generated anoperating contribution of £1.5 million, well ahead of last year's £0.7 million.Common overhead costs were static in Dollar terms and decreased in Sterling togive a £0.9 million improvement in divisional operating result to a loss of £1.9million. Rest of the World Revenue in our business based in Hong Kong increased by 30% in Sterling terms to£13.3 million (2007: £10.2 million). This included an 8% increase from thetransfer of some customers from the UK. The rest of the increase reflectedcontinued growth in sales to our licensed operations in Australia, Japan,Singapore, Hong Kong and China and supported by new business in India and SouthAfrica. The gross margin generated by this business is affected by the mix of sales andwhile core margins were unchanged, the blended gross margin increased to 22.6%(2007: 20.6%). Overheads were broadly static. The business also earns commission income from Group companies on shipments fromHong Kong to the UK and North America. Total income from this channel fell by£0.2 million due to the reduction in requirements from the internal customers.Net divisional operating profit was £3.8 million (2007: £3.1 million). Group management The overheads arising from the central Group management function amounted to£4.7 million in the year, a saving of £0.4 million compared to last year as wecontinue to focus on finding efficiencies in our head office organisation. Group operating profit The operating profit before finance costs for the year was £1.4 million (2007:£3.3 million). The decline is disappointing, given the good start to the yearand the strength we saw in our ladies' wear ranges. However a weak retailenvironment in the run-up to Christmas combined with the anticipated decline inwholesale orders in the UK resulted in a 2% decline in total turnover which,when combined with the operational gearing effect of high gross margins andfixed overhead costs, resulted in a pronounced change in net operating profit. Net financing income of £1.6 million (2007: £1.3 million) was generated in theperiod with average net funds ahead of last year and interest rates also alittle higher. Group operating profit in the year amounted to £3.0 million (2007: £4.6million). Joint Ventures The Group is party to three retail joint ventures, each on a 50% shareholdingbasis, in Hong Kong, Japan and China. Each of these joint ventures is directlymanaged by a locally based management team and operates retail locations intheir respective territories. This business model allows for strategic inputfrom French Connection to marry with local operational experience to create amutually beneficial business. From the perspective of the French ConnectionGroup we benefit from not only our share of any profits generated but also frommargin created on supplying product to the businesses and licence royaltyincome. The Group's share of net profits generated by the joint ventures during the yearwas £0.1 million (2007: loss of £0.6 million) with growth being generated fromboth the Hong Kong and China businesses. The Hong Kong joint venture operates six locations, and has achievedlike-for-like growth in the year of well over 20%. In China the joint ventureoperates 23 locations and while the sales densities are low, sales are growingand the business is profitable. The business in Japan now operates 22 locations. Trading during the year was ata similar level to last year and the business continues to generate a loss atthe joint venture level. We are currently in discussions with our joint venturepartners to determine the best way to develop this business profitably. Each of these ventures provides a good opportunity for growth and cashgeneration for the Group. In addition to the £0.1 million share of profitsreported in the income statement, the joint ventures generated a combined £1.2million from licence income and gross margin. Group profit before tax The Group profit before tax was £3.1 million in the year compared to £4.0million achieved in the previous year. Taxation The tax charge for the year of £1.5 million represents an effective tax rate of48%. The tax charge for last year was much higher due to an exceptional one-offnet tax charge of £2.0 million. The tax charge last year excluding the one-offitems was £1.6 million, an effective rate of 40%. The unusually high effective tax rate of 48% is mainly because no benefit hasbeen taken in the tax charge for losses incurred in the US. Although notreflected in the tax charge for the period, these tax losses will remainavailable to reduce any future taxable profits generated by the business in theUS. The effective tax rate in future years will vary depending on the level ofprofit generated and the different geographic locations where it is taxed sincethe three principal countries of operation have significantly different taxrates. Currently the expectation is that the effective tax rate will remain inthe region of 50% for the new year. Minority interests The minority interest of £0.2 million (2007: £0.3 million) reported in theincome statement represents the share of results attributable to the 25%ownership held by local management in our Canada business, Toast and YMC. Earnings and dividends Net earnings for the year attributable to equity shareholders was £1.4 million(2007: £0.1 million). Earnings per share amounted to 1.5 pence per share (2007:0.1 pence). The Board has recommended a final dividend which will result in a full yeardividend of 5.0 pence per share, in line with the previous year, reflecting thehealthy cash balance and the cash generation of the business over the last year. The final dividend of 3.3 pence per share (2007: 3.3 pence) will, subject toapproval at the Annual General Meeting, be paid on 2 July 2008 to shareholderson the register on 25 March 2008 (ex-dividend date 19 March 2008). Fixed assets and investments Total capital expenditure in the year was £2.5 million, £2.3 million of whichwas spent on the retail portfolio including the four new store locations in theUK (a French Connection outlet store and three Toast stores), the re-site of aFrench Connection store in Essex and the fit-out of some in-store concessions.The remaining expenditure represented investment in our head offices andcomputer systems. The tangible assets at the end of the year represented mostly the remainingun-depreciated capital cost of fitting out our retail stores, head office andwarehouse along with IT hardware and systems. As required by InternationalFinancial Reporting Standards we have conducted an impairment test on assetswhere there was any indication of impairment. This has resulted in newprovisions amounting to £0.5 million in the year (2007: £0.8 million) inrelation to two stores: one in the UK and one in the US. Based on current plans and expectations, capital expenditure in the newfinancial year will amount to approximately £3.0 million. Investments relate to the amount invested in the three joint ventures describedabove. Working capital and net funds Total working capital at the end of the year, being the net of inventory,debtors and creditors, increased by £4.4 million to £37.9 million. The increaseincluded a £1.3 million or 3% increase in inventory. Through the year we havebeen successful in liquidating a good proportion of the excess inventory fromearlier seasons although there remains some elements of older inventory whichstill need to be dealt with. Full provision has been made against anyinventories which are likely to be sold at lower than their cost. The increasein the value of inventory at the end of the year is largely caused by anincrease in the average value of the Autumn/Winter 2007 and Spring/Summer 2008product due to a move towards higher-value products such as men's suiting. Debts due from wholesale customers are at a similar level to last year whiletrade creditors are lower, mainly reflecting timings of deliveries. After allowing for depreciation and the changes in working capital describedabove, net cash inflow from operations was £4.9 million (2007: £5.7 million). After payment of tax, dividends and fixed asset investments amounting to £7.2million the closing net funds decreased by £2.2 million to £46.7 million (2007:£48.9 million). The Board's policy is to maintain a strong capital base, including liquid funds,so as to maintain investor, creditor and market confidence and to sustain futuredevelopment of the business. Year ended 31 January 2008 2008 2007 Note £m £m £m £m_______________________________________________________________________________Revenue 2 236.1 241.3 Cost of sales (111.9) (113.6)_______________________________________________________________________________ Gross profit 2 124.2 127.7 Operating expenses (126.2) (128.0)Other operating income 3 3.4 3.6_______________________________________________________________________________ Operating profit before financing costs 2 1.4 3.3 Finance income 1.8 1.8Finance expenses (0.2) (0.5)Net financing income 1.6 1.3_______________________________________________________________________________ Operating profit 3.0 4.6 Share of profit/(loss) of joint ventures 0.1 (0.6)_______________________________________________________________________________ Profit before taxation 3.1 4.0 Income tax (expense)/credit - UK (0.6) 1.2Income tax expense - overseas (0.9) (4.8)Total income tax expense (1.5) (3.6)_______________________________________________________________________________ Profit for the year 1.6 0.4_______________________________________________________________________________ Attributable to: Equity holders of the parent 1.4 0.1Minority interests 0.2 0.3_______________________________________________________________________________ Profit for the year 1.6 0.4=============================================================================== Basic earnings per share 5 1.5p 0.1p_______________________________________________________________________________ Diluted earnings per share 5 1.5p 0.1p=============================================================================== The Group's results were entirely from continuing operations. At 31 January 2008 Note 2008 2007 £m £m_______________________________________________________________________________ AssetsNon-current assetsIntangible assets 14.1 14.1Property, plant and equipment 15.5 20.6Investments in joint ventures 3.6 3.1Deferred tax assets 2.4 2.1_______________________________________________________________________________ Total non-current assets 35.6 39.9_______________________________________________________________________________ Current assetsInventories 53.0 51.7Trade and other receivables 29.8 30.5Cash and cash equivalents 7 49.3 56.3Derivative financial instruments 0.2 -_______________________________________________________________________________ Total current assets 132.3 138.5_______________________________________________________________________________ Total assets 167.9 178.4_______________________________________________________________________________ Non-current liabilitiesDeferred tax liabilities 1.0 0.9_______________________________________________________________________________ Total non-current liabilities 1.0 0.9_______________________________________________________________________________ Current liabilitiesBank loans and overdraft 7 2.6 7.4Trade and other payables 44.9 49.2Current tax payable 1.4 0.4_______________________________________________________________________________ Total current liabilities 48.9 57.0_______________________________________________________________________________ Total liabilities 49.9 57.9_______________________________________________________________________________ Net assets 118.0 120.5=============================================================================== EquityCalled-up share capital 1.0 1.0Share premium account 9.4 9.4Other reserves (0.7) (1.4)Retained earnings 107.3 110.7_______________________________________________________________________________ Total equity attributable to equity holders of the parent 117.0 119.7Minority interests 1.0 0.8_______________________________________________________________________________ Total equity 118.0 120.5=============================================================================== Year ended 31 January 2008 2008 2007 £m £m £m £m_______________________________________________________________________________ Profit attributable to equity shareholders 1.4 0.1 Minority interests 0.2 0.3_______________________________________________________________________________ Total income and expense recognised in theincome statement 1.6 0.4_______________________________________________________________________________ Currency translation differences on foreigncurrency net investments (1.0) (1.1)Currency translation differences on foreign currency loans 2.1 (0.7)Effective portion of changes in fair value ofcash flow hedges 0.2 -Income tax on income and expense recognised in equity (0.6) 0.2_______________________________________________________________________________ Total income and expense recognised in equity 0.7 (1.6)_______________________________________________________________________________ Total income and expense recognised for the year 2.3 (1.2)=============================================================================== Attributable to: Equity holders of the parent 2.1 (1.5)Minority interests 0.2 0.3_______________________________________________________________________________ Total income and expense recognised for the year 2.3 (1.2)=============================================================================== Year ended 31 January 2008 2008 2007 Note £m £m_______________________________________________________________________________ Operating activitiesProfit for the period 1.6 0.4Adjustments for:Depreciation 8.0 9.8Foreign exchange losses - 0.1Finance income (1.8) (1.8)Finance expense 0.2 0.4Share of (profit)/loss of joint ventures (0.1) 0.6Non-operating gain on property, plant and equipment (0.1) -Income tax expense 1.5 3.6_______________________________________________________________________________ Operating profit before changes in workingcapital and provisions 9.3 13.1Increase in inventories (1.3) (3.6)Decrease/(increase) in trade and other receivables 0.7 (0.4)Decrease in trade and other payables (3.8) (3.4)_______________________________________________________________________________ Cash flows from operations 4.9 5.7Interest paid (0.2) (0.4)Income tax paid (1.3) (4.3)_______________________________________________________________________________ Cash flows from operating activities 3.4 1.0_______________________________________________________________________________ Investing activitiesInterest received 1.7 1.8Investment in joint ventures (0.2) (0.5)Acquisition of franchises - (1.5)Acquisition of property, plant and equipment (2.5) (4.6)Net proceeds from sale of property, plant and equipment 0.1 -_______________________________________________________________________________ Cash flows from investing activities (0.9) (4.8)_______________________________________________________________________________ Financing activitiesProceeds from the issue of share capital - 0.1Payment of finance lease liabilities 6 - (0.2)Dividends paid (4.8) (4.8)_______________________________________________________________________________ Cash flows from financing activities (4.8) (4.9)_______________________________________________________________________________ Net decrease in cash and cash equivalents 7 (2.3) (8.7)Cash and cash equivalents at 1 February 7 48.9 57.0Exchange rate fluctuations on cash held 7 0.1 0.6_______________________________________________________________________________ Cash and cash equivalents at 31 January 7 46.7 48.9=============================================================================== 1 Basis of preparation Consolidated financial statements and accounting policies The preliminary announcement for the year ended 31 January 2008 has beenprepared in accordance with International Accounting Standards and InternationalFinancial Reporting Standards (collectively "IFRSs") as adopted by the EuropeanUnion (EU) at 31 January 2008. Details of the accounting policies applied arethose set out in French Connection Group PLC's Annual Report 2007. The annualfinancial information presented in this preliminary announcement for the yearended 31 January 2008 is based on, and is consistent with, that in the Group'saudited financial statements for the year ended 31 January 2008, and thosefinancial statements will be delivered to the Register of Companies followingthe Company's Annual General Meeting. The auditor's report on those financialstatements is unqualified and does not contain any statement under Section 237(2) or (3) of the Companies Act 1985. Information in this preliminary announcement does not constitute statutoryaccounts of French Connection Group PLC and its subsidiaries ("the Group")within the meaning of Section 240 of the Companies Act 1985. Statutory accountsfor the year ended 31 January 2007 have been filed with the Registrar ofCompanies. The auditor's report on those accounts was unqualified and did notcontain statements under Section 237(2) or (3) of the Companies Act 1985. These consolidated financial statements have been prepared using the historicalcost convention, modified for certain items carried at fair value, as stated inthe accounting policies. Statutory accounts Information in this preliminary announcement does not constitute statutoryaccounts of French Connection Group PLC and its subsidiaries ("the Group")within the meaning of Section 240 of the Companies Act 1985. The Group's AnnualReport for the year ended 31 January 2008 is published today and is availablefor viewing and download from the Group's website at www.frenchconnection.com.The auditor's report on those accounts is unqualified and does not containstatements under Section 237(2) or (3) of the Companies Act 1985. The AnnualReport will be circulated in printed form to shareholders in the first week ofApril 2008. Statutory accounts for the year ended 31 January 2007 have been filed with theRegistrar of Companies. The auditor's report on those accounts was unqualifiedand did not contain statements under Section 237(2) or (3) of the Companies Act1985. 2 Segmental analysis UK/Europe North America Rest of Intra World Group Total _______________________________________________________________________________2008 Whole- Whole- Whole- Retail sale Total Retail sale Total sale £m £m £m £m £m £m £m £m £m _______________________________________________________________________________ Revenue 115.6 55.6 171.2 35.1 16.5 51.6 13.3 236.1 _______________________________________________________________________________ Gross profit 72.4 18.4 90.8 21.1 6.1 27.2 3.0 3.2 124.2 Gross margin 62.6% 33.1% 53.0% 60.1% 37.0% 52.7% 22.6% 52.6% Tradingoverheads (72.3) (13.2) (85.5) (22.0) (3.7) (25.7) (1.2) (112.4) _______________________________________________________________________________ Operatingcontribution 0.1 5.2 5.3 (0.9) 2.4 1.5 1.8 3.2 11.8 ________________ ______________ Commonoverhead costs (5.7) (3.4) (9.1) Other income 4.6 2.0 (3.2) 3.4 _______ ________________________________Divisionaloperatingprofit 4.2 (1.9) 3.8 - 6.1 _______ ______________________ ______ Groupmanagementoverheads (4.7) ______ Operatingprofit beforefinancingcosts 1.4 ______ UK/Europe North America Rest of Intra World Group Total _______________________________________________________________________________2007 Whole- Whole- Whole- Retail sale Total Retail sale Total sale £m £m £m £m £m £m £m £m £m _______________________________________________________________________________ Revenue 116.1 63.4 179.5 35.5 16.1 51.6 10.2 241.3 _______________________________________________________________________________ Gross profit 73.3 20.7 94.0 21.8 6.5 28.3 2.1 3.3 127.7 Gross margin 63.1% 32.6% 52.4% 61.4% 40.4% 54.8% 20.6% 52.9% Tradingoverheads (70.9) (12.7) (83.6) (23.8) (3.8) (27.6) (1.2) (112.4) _______________________________________________________________________________ Operatingcontribution 2.4 8.0 10.4 (2.0) 2.7 0.7 0.9 3.3 15.3 ________________ ______________ Commonoverhead costs (7.0) (3.5) (10.5) Other income 4.7 - 2.2 (3.3) 3.6 _______ ________________________________Divisionaloperatingprofit 8.1 (2.8) 3.1 - 8.4 _______ ______________________ ______ Groupmanagementoverheads (5.1) ______ Operatingprofit beforefinancingcosts 3.3 ______ 3 Other operating income 2008 2007 £m £m_______________________________________________________________________________ Licensing income 3.4 3.6=============================================================================== 4 Dividends - equity 2008 Pence 2007 Pence £m per share £m per share________________________________________________________________________________ Final paid for prior financial year 3.2 3.30p 3.2 3.30pInterim paid for current financial year 1.6 1.70p 1.6 1.70p________________________________________________________________________________ Total dividends paid during the year 4.8 5.00p 4.8 5.00p=============================================================================== The Board has proposed a final dividend of £3.2 million (2007: £3.2 million) or3.30 pence per share (2007: 3.30 pence) giving a total dividend for the currentfinancial year of 5.00 pence per share (2007: 5.00 pence). The proposed finaldividend is subject to shareholder approval and no liability has been recognisedfor this as at the balance sheet date. 5 Earnings per share Basic earnings per share of 1.5 pence per share (2007: 0.1 pence) is based on95,879,265 shares (2007: 95,838,691) being the weighted average number ofordinary shares in issue throughout the year, and £1.4 million (2007: £0.1million) being the profit attributable to equity shareholders. Diluted earningsper share of 1.5 pence per share (2007: 0.1 pence) is based on 95,915,337 shares(2007: 96,005,883) being the weighted average number of ordinary shares adjustedto assume the exercise of dilutive options. The reconciliation to adjustedearnings per share which is based on 95,879,265 shares (2007: 95,838,691) is asfollows: 2008 Pence 2007 Pence £m per share £m per share________________________________________________________________________________ Profit attributable to equity shareholders 1.4 1.5p 0.1 0.1pTax impact of write-off of US deferred taxasset - - 4.1 4.2pTax impact of provision release - - (2.1) (2.1)p________________________________________________________________________________ Adjusted earnings 1.4 1.5p 2.1 2.2p================================================================================ In the opinion of the Directors, the adjusted earnings per share gives a bettermeasure of the Group's underlying performance than the basic earnings per share. 6 Reconciliation of increase in cash to movement in net funds 2008 2007 £m £m_______________________________________________________________________________ Decrease in cash (2.3) (8.7)Cash outflow from finance leases - 0.2_______________________________________________________________________________ Change in net funds from cash flows (2.3) (8.5)Translation differences 0.1 0.6_______________________________________________________________________________ Movement in net funds (2.2) (7.9)Net funds at beginning of year 48.9 56.8_______________________________________________________________________________ Net funds at end of year 46.7 48.9=============================================================================== 7 Analysis of net funds 1 February Cash Non cash 31 January 2007 flow changes 2008 £m £m £m £m_______________________________________________________________________________ Cash and cash equivalents in thebalance sheet 56.3 (7.0) - 49.3Bank overdrafts (7.4) 4.7 0.1 (2.6)_______________________________________________________________________________ Cash and cash equivalents in thecash flow 48.9 (2.3) 0.1 46.7_______________________________________________________________________________ Net funds 48.9 (2.3) 0.1 46.7=============================================================================== 2008 2007 2006 2005 2004 £m £m £m £m £m_______________________________________________________________________________ Revenue 236.1 241.3 246.3 265.7 267.9_______________________________________________________________________________ Profit before taxation 3.1 4.0 15.7 33.7 38.1_______________________________________________________________________________ Profit attributable to 1.4 0.1 9.7 23.0 26.2shareholders_______________________________________________________________________________ Earnings per share_______________________________________________________________________________ Basic 1.5p 0.1p 10.2p 24.1p 27.5p_______________________________________________________________________________ Adjusted 1.5p 2.2p 7.1p 24.1p 28.4p_______________________________________________________________________________ Diluted 1.5p 0.1p 10.1p 23.9p 27.2p_______________________________________________________________________________ Dividends per share 5.00p 5.00p 5.00p 5.00p 3.25p=============================================================================== The 2008, 2007, 2006 and 2005 numbers have been prepared under IFRS. The 2004numbers were prepared under UK GAAP. The principal adjustments between IFRS and UK GAAP relate to goodwillamortisation, impairment of property, treatment of lease incentives andpremiums, accounting for proposed dividends and the consequential tax impact ofthe above. 31 January 2008 31 January 2007 Locations sq ft Locations sq ft______________________________________________________________________________ Operated locationsUK/EuropeFrench Connection Stores 75 236,507 75 237,743French Connection Concessions 19 13,918 19 13,918Nicole Farhi Stores 9 22,627 9 22,627Nicole Farhi Concessions 14 11,528 12 10,148Toast Stores 6 7,072 3 2,770Toast Concessions 3 1,679 4 1,725Great Plains Stores 1 850 2 2,109______________________________________________________________________________ 127 294,181 124 291,040______________________________________________________________________________ North AmericaFrench Connection Stores 36 143,841 38 153,021Nicole Farhi Stores 1 5,000 2 12,960______________________________________________________________________________ 37 148,841 40 165,981______________________________________________________________________________ 164 443,022 164 457,021______________________________________________________________________________ French Connection licensed andfranchisedUK/Europe 20 29,710 21 32,110North America 1 2,000 1 2,000Middle East 11 20,047 9 15,847Australia 38 55,610 26 42,046Japan 22 44,300 22 44,450Hong Kong 6 11,921 7 14,536China 22 29,016 19 26,747Other 50 51,961 44 41,730______________________________________________________________________________ 170 244,565 149 219,466______________________________________________________________________________ Total 334 687,587 313 676,487============================================================================== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
FCCN.L