TIDMFCCN
RNS Number : 7169O
French Connection Group PLC
12 October 2021
12 October 2021
FRENCH CONNECTION GROUP PLC
Interim Results for the six-month period ending 31 July 2021
"Group recovers from impact of COVID-19 Pandemic"
French Connection Group PLC ("French Connection", the "Company"
or the "Group") today announces results for the six-month period
ending 31 July 2021.
In accordance with statutory requirements, the financial
statements in this document present the results for the current
six-month period ending 31 July 2021, the prior six-month period
ending 31 July 2020 and the end of the immediately preceding
financial year ending 31 January 2021.
The comparisons, however, are presented relative to two years
ago (six months ended 31 July 2019) where the one-year comparisons
(six months ended 31 July 2020) are generally not reflective of
typical trading performance due to disruption from COVID-19.
Highlights:
-- Group revenue of GBP40.2m (2019: GBP51.0m), down 21.2%, due
to the reduced Retail portfolio and temporary COVID-19 store
closures, offset by increased Wholesale and E-commerce
contribution
-- Underlying loss of GBP(0.9)m compared to GBP(3.6)m in 2019, driven by continued closure of non-contributing stores, bounce back of Wholesale volumes and tight focus on overheads
-- Composite gross margin of 31.6% (2019: 42.7%) due to mix
shift towards lower margin Wholesale channel and the level of fixed
product development and logistic costs on the lower overall
volumes
-- Overheads reduced to GBP15.2m (2019: GBP27.3m) due to
permanent and temporary store closures, restructuring initiatives,
a tight focus on all costs as well as some COVID-19 relief
-- Permanent closure of 3 non-contributing locations during the first half
-- Terms and conditions agreed of a recommended acquisition of the Company
-- Closing net funds of GBP1.0m (2019: GBP10.0m)
Commenting on the results, Stephen Marks, Chairman and Chief
Executive said:
"I am pleased that the improvement in business we saw in the
early part of the period has continued throughout the first half of
the financial year. Wholesale in both the UK and the US has
performed well, with a good outcome to the Summer season.
Over the last 5 years, French Connection has made significant
progress in its plans to rationalise the size of its store
portfolio and to return the Group to profitability.
The Board has concluded that the offer being made by MIP
Holdings Ltd is fair and reasonable and recommends that all
shareholders accept.
Following completion of the transaction, I will retire from
French Connection. This is an appropriate time for me to step back
from the business that I founded in 1972, and I would like to take
this opportunity to thank all our people for their contribution to
our achievements over the years. I wish them all every success in
the future."
Summary of key financial and non-financial performance
indicators
Six months Six months Six months
31 July 31 July 2 year 31 July 1 year
2021 2019 variance 2020 variance
GBPm GBPm % GBPm %
----------- ----------- ----------- ----------- -----------
Revenue
----------- ----------- ----------- ----------- -----------
Retail 11.4 23.8 -52.1% 10.1 +12.9%
----------- ----------- ----------- ----------- -----------
Wholesale 28.8 27.2 +5.9% 13.8 +108.7%
----------- ----------- ----------- ----------- -----------
Group revenue 40.2 51.0 -21.2% 23.9 +68.2%
----------- ----------- ----------- ----------- -----------
Gross margin
----------- ----------- ----------- ----------- -----------
Retail 44.7% 52.5% -7.8% 18.8% +25.9%
----------- ----------- ----------- ----------- -----------
Wholesale 26.4% 34.2% -7.8% 12.3% +14.1%
----------- ----------- ----------- ----------- -----------
Group gross margin 31.6% 42.7% -11.1% 15.1% +16.5%
----------- ----------- ----------- ----------- -----------
Group operating expenses (15.2) (27.3) +44.3% (16.7) +9.0%
----------- ----------- ----------- ----------- -----------
Underlying operating (loss)/profit
----------- ----------- ----------- ----------- -----------
Retail (2.5) (5.2) +51.9% (7.5) +66.7%
----------- ----------- ----------- ----------- -----------
Wholesale 4.5 4.8 -6.3% (1.3) +446.2%
----------- ----------- ----------- ----------- -----------
Licence income 2.4 2.7 -11.1% 1.5 +60.0%
----------- ----------- ----------- ----------- -----------
Common and Group overheads (4.5) (5.1) +11.8% (4.3) -4.7%
----------- ----------- ----------- ----------- -----------
Finance expense (0.8) (0.8) - (0.6) -33.3%
----------- ----------- ----------- ----------- -----------
Underlying Group operating
loss (0.9) (3.6) +75.0% (12.2) +92.6%
----------- ----------- ----------- ----------- -----------
Net funds 1.0 10.0 -90.0% 5.2 -80.8%
----------- ----------- ----------- ----------- -----------
Average UK/Europe Retail
Space (sq.ft. 000s) 104.7 151.0 -30.7% 116.7 -10.3%
----------- ----------- ----------- ----------- -----------
Average Group Retail Space
(sq.ft. '000s) 104.7 161.3 -35.1% 124.3 -15.8%
----------- ----------- ----------- ----------- -----------
Number of stores/concessions:
----------- ----------- ----------- ----------- -----------
- Operated 64 90 -28.9% 72 -11.1%
----------- ----------- ----------- ----------- -----------
- Franchised, Licensed
& JV 164 185 -11.4% 162 +1.2%
----------- ----------- ----------- ----------- -----------
Notes:
1. Underlying results exclude adjusting items and discontinued operations.
2. Comparatives have been included for the six months ended 31
July 2019 and 31 July 2020. The July 2019 numbers are not impacted
by COVID-19.
The Directors believe these measures are best reflective of how
the business is managed and are informative to shareholders in
understanding the performance of the business.
A copy of this release will also be available on the
'Recommended Offer for French Connection plc' microsite at
https://www.frenchconnection.com/content/investor-relations/recommended-offer-for-french-connection-plc/index.htm
Neil Williams
Enquiries: Lee Williams French Connection +44 (0) 20 7036 7207
Tom Buchanan
Louise Evans Paternoster +44 (0) 20 3012 0241
----------------- ------------------------------------ -----------------------
CHAIRMAN'S STATEMENT
I am pleased to report that the improvement in business we saw
in the early part of the period has continued throughout the first
half of the financial year. Wholesale in both the UK and the US has
performed well, with a good outcome to the Summer season coupled
with encouraging order books for the Winter collections. We
achieved a stronger trading performance following the re-opening of
stores in Q2 2021 compared to the post-lockdown periods of 2020 and
have additionally seen the benefit of the closure of several
non-contributing stores over the last 18 months. We took a
significantly less promotional stance through the Summer season in
stores and through E-commerce, resulting in increased full price
revenue. Consequently, margins improved, however revenue growth was
restricted to some extent. Licence income has generally returned to
growth following the COVID-19 period, with a particularly strong
performance from DFS.
Revenue for the period was GBP40.2m (2019: GBP51.0m) with the
reduction reflecting the weeks of store closures at the start of
the period and the permanently closed locations. Wholesale revenue
has bounced back to above the levels seen in 2019. Overall margin
at 31.6% (2019: 42.7%) was lower due to the movement in the revenue
mix away from Retail to Wholesale, the level of fixed logistics and
development expenses, offset by reduced discounting of the Summer
product. Particularly, following the restructuring exercise
undertaken last year but also with tight control over ongoing
expenses, these costs have been considerably reduced. Overall this
has resulted in an improvement in the performance of the business
reflected in a loss for the period of GBP(0.9)m (2019:
GBP(3.6)m).
The net funds position of GBP1.0m is slightly ahead of our
expectations following a period of tight cash control. The
seasonality of our cash profile means that July tends to be one of
our strongest cash months prior to the commitment of working
capital to our Autumn/Winter collections and, accordingly, we are
grateful that our liquidity continues to be supported by credit
facilities of circa GBP20m which are available to fund our larger
working capital requirements during the second half of the
year.
Wholesale
Overall revenue grew to GBP28.8m for the period (2019:
GBP27.2m). Performance improved across all ranges with good sell
throughs achieved, particularly in the US. Underlying margins were
maintained but the impact of the increased fixed cost allocation of
development and logistics costs, due to the contraction of the
Retail business, reduced the reported margin to 26.4% (2019:
34.2%). Expenses were reduced across all areas to GBP3.1m (2019:
GBP4.5m) and overall the division made a contribution of GBP4.5m
(2019: GBP4.8m).
Retail
Revenue for the period was GBP11.4m (2019: GBP23.8m), reflecting
the store closures for 11 weeks due to COVID-19 restrictions and
the significant reduction in the store portfolio since 2019. Within
this, E-commerce revenue grew to GBP5.8m from GBP5.3m, with growth
achieved in both the UK and US despite reduced levels of promotion,
reflecting the strong sell through of the Summer product at full
price. Like-for-like sales were down 11.9% on 2019, which is a
better performance than when we reopened in 2020. Gross margin was
44.7% (2019: 52.5%) with an improvement in E-commerce offset by a
higher mix of outlet sales given the current makeup of the Retail
store portfolio and added clearance in the sale of the prior
season's stock built up during the COVID-19 period. Expenses were
reduced to GBP7.6m (2019: GBP17.7m) predominantly reflecting the
closure of stores but also the restructuring of staff levels within
the stores undertaken last year, as well as the continued business
rates relief. This was offset to some extent by additional
investment in the E-commerce channel to assist with the development
of that business which is reflected in the increase in revenue
through that channel. Overall the division made a loss of GBP(2.5)m
(2019: GBP(5.2)m).
Licensing
License income was GBP2.4m in the period (2019: GBP2.7m). DFS
continued to perform very strongly both on the existing ranges and
having added a further set. Our US homeware license also traded
well. These are offset by a drop in income from our formalwear
license and from our partner in India.
Operating expenses
Group operating expenses dropped by 44.3%, reflecting
predominantly the store closures and restructuring initiatives
discussed above. In addition, good progress has been made in
achieving savings across all expense categories.
CHAIRMAN'S STATEMENT (continued)
Other items
There are no adjusting items in the current period however in
2019 we incurred adjusting items of GBP1.0m. This was made up of
store closure costs, the reorganisation of some of our overseas
franchise relationships and the cost of a small Head Office
restructuring.
There still, however, remains a risk of disruption to trading
due to any future COVID-19 restrictions, particularly through the
winter months, together with other macro-economic factors including
the current constraints in the global supply chain and the impact
on the availability of merchandise at the correct time.
Following the commencement of a formal sale process under the
Takeover Code announced on 2 March 2021, we announced on 4 October
2021 the terms of a formal offer to be made by MIP Holdings Ltd for
the Company at 30p per share to be effected by way of a scheme of
arrangement under Part 26 of the Companies Act 2006. The terms and
conditions of this offer are set out in more detail in the scheme
document which was published on 9 October 2021. This offer is being
recommended by the Board and is supported by irrevocable
undertakings to vote in favour of the scheme from shareholders
representing, in aggregate, 43.6% of the issued share capital of
the Company. I and my fellow Directors strongly recommend that
shareholders read the scheme document on
www.frenchconnection.com/content/investor-relations/recommended-offer-for-french-connection-plc/index.htm
and vote in favour of the scheme at the upcoming shareholder
meetings to approve the transaction.
Stephen Marks
Chairman and Chief Executive
12 October 2021
Notes:
1. Underlying results excludes adjusting items and discontinued
operations.
2. Comparative numbers are for the six-month period ending 31
July 2019 as these numbers exclude any COVID-19 impact .
The Directors believe these measures are best reflective of how
the business is managed and are informative to shareholders in
understanding the performance of the business.
FINANCIAL REVIEW
Financial results overview
The half-year results cover the six-month period to 31 July
2021. This period continued to be significantly impacted by
COVID-19 and lockdown restrictions imposed in both the UK and our
global territories, with Retail stores only fully re-opening from
the middle of April 2021. Full details of the operational impact of
COVID-19 on the business are highlighted in Note 8 in these
half-year statements.
The first half generated a significantly improved underlying
operating performance reflected in a loss of GBP(0.9)m (2020:
GBP(12.2)m and 2019: GBP(3.6)m). The underlying result for the
current period includes no adjusting items (2020 and 2019: GBP1.0m
relating to store disposal and refinancing costs). Total operating
loss for the six months to July 2021 was GBP(0.9)m (2020:
GBP(13.2)m and 2019: GBP(4.7)m).
On 24 July 2020, the Group secured a two-year GBP15 million
asset based working capital facility with Hilco Capital.
Furthermore, in December 2020, our US business secured additional
funding of $6.5m (the "US loan") through the Government sponsored
Main Street Lending Programme. The US loan, through Flushing Bank,
Uniondale is for a period of five years with repayments commencing
from the end of the third year. The Group believes that these
combined working capital facilities are sufficient to cover the
Company's foreseeable future cash requirements.
Revenue overview
Total H1 2021 revenue of GBP40.2m was 21.2% lower than the 2019
comparative period (2019: GBP51.0m). Wholesale revenue improved to
slightly above pre-pandemic volumes of GBP28.8m (2019: GBP27.2m) as
the business benefitted from UK customers with strong E-commerce
propositions and a growing US departmental store client base.
Retail revenue fell by 52.1% to GBP11.4m (2019: GBP23.8m)
reflecting the significant reduction in the store portfolio since
2019. However, total E-commerce sales volumes continued to grow and
constitute 50.9% (2019: 22.3%) of total Retail sales.
Gross margin
Composite gross margin of 31.6% was lower than the comparative
2019 period (42.7%) reflecting a mix shift towards the lower margin
Wholesale channel following the closure of a significant number of
Retail outlets.
Wholesale
Wholesale revenue increased to slightly above pre-pandemic
volumes with total sales of GBP28.8m (2019: GBP27.2m), an
improvement of 5.9% (8.9% at constant currency) . Geographic
revenues have significantly increased in UK/Europe to GBP18.4m
(2019: GBP15.1m), while North America has remained broadly flat at
GBP9.9m (2019: GBP10.9m) and Rest of World volumes decreasing to
GBP0.5m (2019: GBP1.2m).
Group Wholesale margin has recovered in the period to 26.4%
(2019: 34.2%) although margins remain softened by off-price
clearance of older seasons product and a higher allocation of the
fixed overhead base as the Retail portfolio declines. Underlying
Wholesale performance in the first half returned to profitability
of GBP4.5m (2019: GBP4.8m).
Retail
Group Retail revenue of GBP11.4m was 52.1% (51.7% at constant
currency) lower than the 2019 comparative period (2019: GBP23.8m)
driven by the reduction in the Retail store portfolio. Three
non-contributing stores were closed during the last six months.
Over the past 24 months we have closed 26 non-contributing stores
and concessions. We continue to review each store depending upon
circumstances and opportunities available to us.
Retail gross margins of 44.7% (2019: 52.5%) reflect the higher
mix of outlet product sales and increased clearance sales of unsold
stock during lockdown periods.
E-commerce revenue as a proportion of Group Retail revenue has
increased to 50.9% (2019: 22.3%). Mobile comprises 71.6% of
E-commerce traffic (2019: 63.7%) and 59.8% of transactions (2019:
48.1%) as we continue to focus on and develop our CRM capability
and targeted social media advertising.
Underlying Retail loss in the six months improved to GBP(2.5)m
(2019: GBP(5.2)m) reflecting the significant reduction in the
Retail store portfolio over the last two years. The current period
result has been supported by a reduction in the Retail cost base
arising from Government initiatives, including employment furlough
schemes and business rates holidays. We have continued throughout
the current period to be in active discussions with landlords
regarding rent discounts together with an extension of existing
payment terms.
FINANCIAL REVIEW (continued)
Geographical analysis
The geographical revenue analysis highlights the UK/Europe
proportion of sales remaining constant at 72.2% (2019: 72.5%),
North American share of global revenue increasing to 26.6% (2019:
25.1%) and Rest of World revenue decreasing to 1.2% (2019:
2.4%).
The half-year has seen an improvement in profitability in the
geographic regions: UK/Europe returning to profitability of GBP1.0m
(2019: loss of GBP(1.5)m), North America similarly generating a
profit of GBP1.8m (2019: GBP1.4m) and the Rest of World
contributing a loss of GBP(0.4)m (2019: GBP(0.4)m).
Licensing income
Licensing income of GBP2.4m generated during the first half
remained broadly constant (2019: GBP2.7m). DFS orders continue to
grow year-on-year and new footwear and childrenswear licensees have
been launched in the US. However, these are offset slightly by a
drop in income from our formalwear license and our Indian
partner.
Operating expenses
Underlying Group operating expenses of GBP15.2m were 44.3% lower
than the comparative 2019 year (2019: GBP27.3m), reflecting the
year-on-year impact of store closures, targeted cost savings from
restructuring initiatives and Government support from furlough
schemes and business rates holidays. We continue to focus on cost
control and efficiency savings through H2. Total Group operating
expenses, including adjusting items and discontinued operations,
were GBP15.2m (2019: GBP28.3m).
Adjusting items
There were no adjusting items in the current period. Adjusting
items of GBP1.0m were recognised in 2020 and 2019 relating to store
disposal and dilapidation costs and refinancing costs in relation
to securing the working capital facility.
Balance sheet
The Group balance sheet at 31 July 2021 includes net assets of
GBP8.4m (2019: GBP33.4m).
Closing net funds of GBP1.0m (2019: GBP10.0m) are inclusive of
recently secured drawdown working capital facilities of GBP7.7m
(2019: GBPNil) offset by cash of GBP8.7m (2019: GBP10.0m).
Inventories reduced by 24.1% to GBP24.9m (2019: GBP32.8m)
reflecting a reduced Retail portfolio, offset by an increased
Winter season buy to service the growing UK and US Wholesale order
books. Trade and other payables have increased by 7.6% to GBP28.4m
(2019: GBP26.4m) relating to the increased Winter inventory. Trade
and other receivables of GBP18.9m have increased in the last twelve
months as wholesale volumes return to pre-pandemic levels although
remain lower than 2019 comparatives (GBP21.5m).
The right of use non-current asset, relating to the value-in-use
of future lease rentals has reduced to GBP9.1m (2019: GBP23.0m),
reflective of a contracting store portfolio and prior year
impairments relating to the impact of COVID-19 on Retail
profitability. The increase from January '21 year-end position of
GBP6.6m relates to an extension of a warehouse lease.
Cash flow
Combined UK and US working capital facilities of circa GBP20m
were secured in the second half of the prior financial year to
support the Group's foreseeable future cash requirements. The
maximum facility utilised in the six months to 31 July 2021 was
GBP9.4m and the maximum borrowing position forecast over the next
12 months is GBP12.5m.
Cash inflows of GBP6.4m (2019: GBP1.1m) were generated from
operating activities in the six-month period; the increase being a
combination of improved trading results and additional working
capital invested in increased period-end trade debtors as a result
of growing Wholesale sales volumes.
Cash outflows from investing activities of GBP0.4m (2019:
GBP1.5m) included store closure costs of GBP0.2m (2019: GBP0.6m)
relating to the closure of three stores in the first half. We
continue to target the closure of non-contributing stores and
expect more to close in the second half.
Cash outflows from financing activities of GBP2.5m (2019:
GBP5.8m) are inclusive of additional working capital facility loans
drawdown in the period of GBP1.2m (2019: GBPNil) utilised to
finance lease liability rental and interest payments of GBP3.4m
(2019: GBP5.8m) and debt interest and refinancing costs of GBP0.3m
(2019: GBPNil).
FINANCIAL REVIEW (continued)
Taxation
The tax charge for the half was GBPNil (2019: GBPNil). Deferred
tax assets of GBP4.5m (2019: GBP4.3m) on the balance sheet relate
to unused tax trading losses which can be utilised when the Group
returns to profitability.
Dividends
The Board of Directors remain of the view that the business is
best served by retaining current cash reserves to support the
turnaround of the business and therefore do not recommend the
payment of an interim dividend. Depending on the outcome of the
offer from MIP Holdings Ltd to acquire the Company, the Board
intend to keep the shareholder distribution policy under close
review during the year.
COVID-19
The half-year results continued to be impacted by COVID-19 and
the lockdown restrictions imposed during this period, particularly
in the UK. Further details are presented in Note 8.
Going concern
Given the Group and parent Company's new liquidity, together
with the actions being taken to optimise sales, tightly manage
costs and preserve cash, the Board is confident that the Group and
parent Company are well positioned to navigate an extended period
of uncertain consumer demand which will cover at least 12 months
from the date of approval of these interim results. The Board has
therefore concluded that it is appropriate to prepare the interim
accounts on a going concern basis.
The Group has a debt facility from Hilco which expires in
January 2022 with an option to extend the facility to July 2022 at
the Company's sole discretion. Furthermore, Hilco has offered the
Company an option to extend this facility further to July 2024.
Given the announcement on 4 October 2021 by MIP Holdings Ltd, a
company owned and controlled by, among others, Apinder Singh Ghura
(the second largest shareholder in French Connection with a holding
representing approximately 25.4% of the issued share capital of the
Company), of an intention to make an offer for the Company at 30p
per share, and the subsequent publication of the scheme document
setting out the full terms and conditions of that offer and given
that MIP Holdings Ltd has secured irrevocable commitments in
support of its offer from shareholders holding in aggregate 43.6%
of the issued share capital of the Company which, together with the
shares already owned by Apinder Singh Ghura, amount in total to
approximately 69% of the issued share capital of the Company, the
Company has elected to defer exercising the option offered by
Hilco, pending the outcome of the offer. Hilco have confirmed that
the offer of the option remains in place at the date of this
announcement and that it is not their intention to withdraw the
offer of the option until such time that control of the business
might pass to the Bidder and include the forthcoming renewal of the
UK credit facility in July 2022.
The Board believes that the combined secured circa GBP20 million
UK and US asset based working capital facilities are expected to be
sufficient to cover the Company's foreseeable future cash
requirements.
The Board is also of the opinion that the outcome of the current
offer for the Company by MIP Holdings Ltd is likely to see the
current financing arrangements amended with alternative funding
arrangements put in place, but is unlikely to affect the going
concern basis of these financial statements.
Principal risks and uncertainties
The principal risks and uncertainties were outlined in the
Director's Report within the 2021 Annual Report and remain
unchanged. These are described in Note 1 to these financial
statements.
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 2021.
FINANCIAL REVIEW (continued)
Financial Reporting Council Investigation
It was announced on 6 October 2021 that the Financial Reporting
Council (FRC) has commenced an investigation into the audit
procedures undertaken by Mazars LLP in Mazars' audit of the Group
financial statements for the year ended 31 January 2020. As was
noted in the Audit Committee Report in French Connection's Annual
Report 2021, the FRC's Audit Quality Review team's assessment of
Mazars' audit of the FY2020 accounts highlighted that a number of
improvements in the auditing process were required by Mazars. There
was no indication however that the findings of the audit were
incorrect. The subsequent FY2021 audit has also now been completed
satisfactorily. Following subsequent discussions with Mazars, the
Audit Committee was satisfied that the changes recommended by the
FRC were fully implemented during the FY2021 audit.
By order of the Board
Lee Williams
Chief Financial Officer
12 October 2021
Notes:
1. Underlying results excludes adjusting items and discontinued
operations.
2. Constant Currency is calculated translating the half-year
ending 31 July 2021 at 31 July 2019 rates to remove the impact of
exchange rate fluctuations.
The Directors believe these measures are best reflective of how
the business is managed and are informative to shareholders in
understanding the performance of the business.
In order to assist users of the accounts, we have additionally
presented the Income Statement, Balance Sheet and Cash Flow for the
preceding six-month period ended 31 July 2019.
INCOME STATEMENT 31 July 2021 31 July 2020 31 July 2019
GBPm GBPm GBPm
-------------------------------- ------------ ------------ ------------
Revenue 40.2 23.9 51.0
Cost of sales (27.5) (20.3) (29.2)
-------------------------------- ------------ ------------ ------------
Gross profit 12.7 3.6 21.8
Operating expenses (15.2) (16.7) (27.3)
Other operating income 2.4 1.5 2.7
Finance expense (0.8) (0.6) (0.8)
-------------------------------- ------------ ------------ ------------
Underlying loss before taxation (0.9) (12.2) (3.6)
Taxation - - -
-------------------------------- ------------ ------------ ------------
Underlying loss for the
period (0.9) (12.2) (3.6)
-------------------------------- ------------ ------------ ------------
SEGMENT REVENUE AND RESULTS 31 July 2021 31 July 2020 31 July 2019
GBPm GBPm GBPm
------------------------------------ ------------- ------------- -------------
Revenue
Retail 11.4 10.1 23.8
Wholesale 28.8 13.8 27.2
Group revenue 40.2 23.9 51.0
Gross profit 12.7 3.6 21.8
Retail 44.7% 18.8% 52.5%
Wholesale 26.4% 12.3% 34.2%
Group gross margin 31.6% 15.1% 42.7%
Underlying operating (loss)/profit
Retail (2.5) (7.5) (5.2)
Wholesale 4.5 (1.3) 4.8
Licence income 2.4 1.5 2.7
Common and Group overheads (4.5) (4.3) (5.1)
Finance expense (0.8) (0.6) (0.8)
Underlying Group operating
loss (0.9) (12.2) (3.6)
Underlying operating margin
Retail (21.9)% (74.3)% (21.8)%
Wholesale 15.6% (9.4)% 17.6%
Underlying Group operating
margin (2.2)% (51.0)% (7.1)%
BALANCE SHEET 31 July 31 July 31 July
2021 2020 2019
GBPm GBPm GBPm
------------------------------ ------- ------- -------
Assets
Non-current assets
Intangible assets 0.2 0.2 0.2
Property, plant and equipment 0.7 1.6 2.6
Right-of-use asset 9.1 14.4 23.0
Investments in joint ventures - - 1.7
Deferred tax assets 4.5 4.5 4.3
Total non-current assets 14.5 20.7 31.8
Current assets
Inventories 24.9 26.0 32.8
Trade and other receivables 18.9 15.3 21.5
Cash and cash equivalents 8.7 5.2 10.0
Total current assets 52.5 46.5 64.3
------------------------------ ------- ------- -------
Total assets 67.0 67.2 96.1
Non-current liabilities
Loans and borrowings 4.7 - -
Lease liabilities 15.6 17.7 25.4
Provisions 0.6 0.2 -
Total non-current liabilities 20.9 17.9 25.4
Current liabilities
Loans and borrowings 3.0 - -
Trade and other payables 28.4 25.3 26.4
Lease liabilities 5.6 7.1 10.7
Provisions 0.7 0.7 0.2
Total current liabilities 37.7 33.1 37.3
Total liabilities 58.6 51.0 62.7
Net assets 8.4 16.2 33.4
------------------------------ ------- ------- -------
CASH FLOW 31 July 31 July 31 July
2021 2020 2019
GBPm GBPm GBPm
---------------------------------------------- ------- ------- -------
Operating activities
Loss for the period (0.9) (13.2) (4.7)
Adjustments for:
Depreciation of property, plant and equipment 0.5 0.6 0.6
Depreciation of right-of-use asset 1.2 3.2 3.3
Share of loss of joint ventures - - 0.1
Finance expense 0.8 0.6 0.8
Adjusting items - 1.0 1.0
Operating cash flows before changes in
working capital
and provisions 1.6 (7.8) 1.1
(Increase)/decrease in inventories (1.3) 0.8 (4.0)
(Increase)/decrease in trade and other
receivables (1.0) 4.3 0.8
Increase in trade and other payables 7.1 6.4 3.3
Cash flows from operations 6.4 3.7 1.2
Income tax paid - - (0.1)
Cash flows from operating activities 6.4 3.7 1.1
Investing activities
Acquisition of property, plant and equipment (0.2) (0.2) (0.6)
Net costs from store and head office
restructuring (0.2) (0.4) (0.9)
Cash flows from investing activities (0.4) (0.6) (1.5)
Financing activities
Proceeds from working capital facilities
and loans 1.2 - -
Payment of lease liabilities (2.9) (5.0) (5.0)
Interest paid on lease liabilities (0.5) (0.6) (0.8)
Interest paid on loans (0.3) - -
Refinancing costs - (0.5) -
Cash flows from financing activities (2.5) (6.1) (5.8)
---------------------------------------------- ------- ------- -------
Net increase/(decrease) in cash and cash
equivalents 3.5 (3.0) (6.2)
Cash and cash equivalents at 1 February 5.2 8.1 16.2
Exchange rate fluctuations on cash held - 0.1 -
Cash and cash equivalents at period end 8.7 5.2 10.0
---------------------------------------------- ------- ------- -------
Cash and cash equivalents 8.7 5.2 10.0
Bank loans (7.7) - -
-------------------------------------- ----- --- ----
Net cash and borrowings at period end 1.0 5.2 10.0
-------------------------------------- ----- --- ----
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;
-- the interim management report includes a fair review of the information required by:
(a) DTR 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) DTR 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
Neil Williams Lee Williams
Chief Operating Officer Chief Financial Officer
12 October 2021
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months 31 July Six months 31 July Year ended 31 Jan
2021 2020 2021
Before Before Before
adjusting Adjusting adjusting Adjusting adjusting Adjusting
items items* Total items items* Total items items* Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ ---- ---------- ---------- ------- ---------- ---------- ------- ---------- ----------- -------
Revenue 2 40.2 - 40.2 23.9 - 23.9 71.5 - 71.5
Cost of
sales (27.5) - (27.5) (20.3) - (20.3) (53.1) - (53.1)
------------ ---- ---------- ---------- ------- ---------- ---------- ------- ---------- ----------- -------
Gross profit 2 12.7 - 12.7 3.6 - 3.6 18.4 - 18.4
Operating
expenses (15.2) - (15.2) (16.7) (1.0) (17.7) (32.7) (8.0) (40.7)
Other
operating
income 4 2.4 - 2.4 1.5 - 1.5 3.9 - 3.9
Finance
expense (0.8) - (0.8) (0.6) - (0.6) (1.3) - (1.3)
------------ ---- ---------- ---------- ------- ---------- ---------- ------- ---------- ----------- -------
Loss before
taxation 3 (0.9) - (0.9) (12.2) (1.0) (13.2) (11.7) (8.0) (19.7)
Taxation - - - - - - - - -
------------ ---- ---------- ---------- ------- ---------- ---------- ------- ---------- ----------- -------
Loss for the
period (0.9) - (0.9) (12.2) (1.0) (13.2) (11.7) (8.0) (19.7)
------------ ---- ---------- ---------- ------- ---------- ---------- ------- ---------- ----------- -------
* Adjusting items (Note 3).
The Group's results were entirely from continuing
operations.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(continued)
Six Six Year ended
months months 31 Jan
31 July 31 July 2021
2021 2020 GBPm
Note GBPm GBPm
------------------------------------------ ------ -------- -------- ----------
Loss for the period (0.9) (13.2) (19.7)
Other comprehensive income
Currency translation differences for overseas
operations (0.1) - (0.3)
Currency translation differences on foreign
currency loans, net of tax (0.1) 0.3 0.4
Other comprehensive income for the period,
net of tax (0.2) 0.3 0.1
-------------------------------------------------- -------- -------- ----------
Total comprehensive income for the period (1.1) (12.9) (19.6)
------------------------------------------ ------ -------- -------- ----------
Loss attributable to:
Equity holders of the Company 5 (0.9) (13.1) (19.7)
Non-controlling interests - (0.1) -
------------------------------------------ ------ -------- -------- ----------
Loss for the period (0.9) (13.2) (19.7)
Total comprehensive income attributable
to:
Equity holders of the Company (1.1) (12.8) (19.6)
Non-controlling interests - (0.1) -
------------------------------------------ ------ -------- -------- ----------
Total income and expense recognised for the
period (1.1) (12.9) (19.6)
-------------------------------------------------- -------- -------- ----------
Losses per share
Basic and diluted losses per share 5 (0.9)p (13.6)p (20.4)p
------------------------------------------ ------ -------- -------- ----------
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 July 31 July 31 Jan
2021 2020 2021
Note GBPm GBPm GBPm
------------------------------------- ------- ------- ------- ------
Assets
Non-current assets
Intangible assets 0.2 0.2 0.2
Property, plant and equipment 0.7 1.6 1.0
Right-of-use asset 9.1 14.4 6.6
Deferred tax assets 4.5 4.5 4.5
Total non-current assets 14.5 20.7 12.3
Current assets
Inventories 24.9 26.0 23.7
Trade and other receivables 18.9 15.3 17.9
Cash and cash equivalents 6 8.7 5.2 5.2
Total current assets 52.5 46.5 46.8
------------------------------------- ------- ------- ------- ------
Total assets 67.0 67.2 59.1
Non-current liabilities
Loans and borrowings 6 4.7 - 6.5
Lease liabilities 6 15.6 17.7 15.0
Provisions 7 0.6 0.2 0.7
Total non-current liabilities 20.9 17.9 22.2
Current liabilities
Loans and borrowings 6 3.0 - -
Trade and other payables 28.4 25.3 21.5
Lease liabilities 6 5.6 7.1 5.1
Provisions 7 0.7 0.7 0.8
Total current liabilities 37.7 33.1 27.4
Total liabilities 58.6 51.0 49.6
Net assets 8.4 16.2 9.5
Equity
Called-up share capital 1.0 1.0 1.0
Share premium account 9.8 9.8 9.8
Translation reserve 6.3 6.7 6.5
Retained deficit (8.8) (1.3) (7.9)
Total equity attributable to equity holders
of the Company 8.3 16.2 9.4
Non-controlling interests 0.1 - 0.1
Total equity 8.4 16.2 9.5
------------------------------------- ------- ------- ------- ------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-controlling
Six months Share Share Translation Retained interests Total
31 July 2021 capital premium reserve (deficit)/ Total GBPm equity
GBPm GBPm GBPm earnings GBPm GBPm
GBPm
---------------- ---------- ---------- -------------- -------------------- --------- ---------------- ---------
Balance at 31
January
2021 1.0 9.8 6.5 (7.9) 9.4 0.1 9.5
Loss for the
period
ended 31 July
2021 (0.9) (0.9) - (0.9)
Other
comprehensive
income
Currency
translation
differences for
overseas
operations (0.1) (0.1) (0.1)
Currency
translation
differences
on foreign
currency
loans, net of
tax (0.1) (0.1) (0.1)
Balance at 31
July 2021 1.0 9.8 6.3 (8.8) 8.3 0.1 8.4
Non-controlling
Six months Share Share Translation Retained interests Total
31 July 2020 capital premium reserve earnings/(deficit) Total GBPm equity
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------- ---------- -------------- -------------------- --------- ---------------- ---------
Balance at 31
January
2020 1.0 9.8 6.4 11.8 29.0 0.1 29.1
Loss for the
period
ended 31 July
2020 (13.1) (13.1) (0.1) (13.2)
Other
comprehensive
income
Currency
translation
differences for
overseas - - -
operations
Currency
translation
differences
on foreign
currency
loans, net of
tax 0.3 0.3 0.3
Balance at 31
July 2020 1.0 9.8 6.7 (1.3) 16.2 - 16.2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Six Year
months months ended
31 July 31 July 31 Jan
2021 2020 2021
Note GBPm GBPm GBPm
---------------------------------------------- ------ -------- -------- -------
Operating activities
Loss for the period (0.9) (13.2) (19.7)
Adjustments for:
Depreciation of property, plant and equipment 0.5 0.6 1.0
Depreciation of right-of-use asset 1.2 3.2 5.5
Rent concessions - - (1.1)
Finance expense 0.8 0.6 1.3
Adjusting items 3 - 1.0 8.0
Operating cash flows before changes in working
capital
and provisions 1.6 (7.8) (5.0)
(Increase)/decrease in inventories (1.3) 0.8 2.8
(Increase)/decrease in trade and other
receivables (1.0) 4.3 1.1
Increase/(decrease) in trade and other
payables 7.1 6.4 (1.1)
Cash flows from operations 6.4 3.7 (2.2)
Income tax paid - - -
Cash flows from operating activities 6.4 3.7 (2.2)
Investing activities
Acquisition of property, plant and equipment (0.2) (0.2) (0.2)
Net costs from store and head office
restructuring (0.2) (0.4) (1.1)
Cash flows from investing activities (0.4) (0.6) (1.3)
Financing activities
Proceeds from working capital facilities
and loans 1.2 - 6.5
Payment of lease liabilities (2.9) (5.0) (4.1)
Interest paid on lease liabilities (0.5) (0.6) (1.1)
Interest paid on loans (0.3) - (0.2)
Refinancing costs - (0.5) (0.6)
Cash flows from financing activities (2.5) (6.1) 0.5
---------------------------------------------- ------ -------- -------- -------
Net increase/(decrease) in cash and cash
equivalents 6 3.5 (3.0) (3.0)
Cash and cash equivalents at 1 February 6 5.2 8.1 8.1
Exchange rate fluctuations on cash held 6 - 0.1 0.1
Cash and cash equivalents at period end 6 8.7 5.2 5.2
---------------------------------------------- ------ -------- -------- -------
Cash and cash equivalents 6 8.7 5.2 5.2
Bank loans 6(7.7) - (6.5)
Net cash and borrowings at period end 1.0 5.2 (1.3)
-------------------------------------- ----- --- -----
NOTES TO THE HALF-YEAR STATEMENT
1. Statutory accounts and basis of preparation of half-year financial statements
Reporting entity
French Connection Group PLC (the "Company") is a company
domiciled in the United Kingdom, whose shares are publicly traded
on the London Stock Exchange. These financial statements are
presented in millions of pounds sterling rounded to the nearest one
decimal place. These condensed consolidated half-year financial
statements of the Company as at and for the six months ended 31
July 2021 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 2021 are available upon request from the
Company's registered office at First Floor, Centro One, 39 Plender
Street, London NW1 0DT 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 UK. As required by
the Disclosure and Transparency Rules ("the DTR") of the Financial
Conduct Authority, 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 2021, which were prepared in accordance with International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union.
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
2021 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 and (ii) 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 12 October 2021.
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 2021.
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 2021.
Principal risks and uncertainties
Refer to Note 8 for 'COVID-19' impact.
Like all retailers the Group is susceptible to volatility in the
propensity of consumers to spend, which is affected by
macro-economic issues. As a wholesaler, the Group also faces the
risk of default from its customers and manage this through active
relationship management by its dedicated customer accounts
team.
The Group's approach to the management of risks was the same as
that which applied to the consolidated financial statements of the
Group for the year ended 31 January 2021. The Board confirms that
there are ongoing procedures in place for identifying, evaluating
and managing significant risks faced by the Group. There has been
no change since the year end to the major risks faced by the
Group.
Related party transactions
In the six months to 31 July 2021, there were no material
changes in related parties nor any related party transactions. The
Group's related party transactions and relationships were disclosed
in the Notes to the Annual Report for the year ended 31 January
2021. All transactions with related parties are conducted on an
arm's length basis and in accordance with normal business terms.
Transactions between related parties that are Group subsidiaries
are eliminated on consolidation.
NOTES TO THE HALF-YEAR STATEMENT
1. Statutory accounts and basis of preparation of half-year financial statements (continued)
Going concern
On 24 July 2020, the Group secured a two-year GBP15 million
asset based working capital facility with Hilco Capital.
Furthermore, in December 2020, our US business secured additional
funding of $6.5m through the government sponsored Main Street
Lending Programme. The US loan, through Flushing Bank, Uniondale is
for a period of five years with repayments commencing from the end
of the third year.
Given the Group and the Company's new liquidity, together with
the actions being taken to optimise sales, tightly manage costs and
preserve cash, the Board is confident that the Group and the
Company are well positioned to navigate an extended period of
uncertain consumer demand which will cover at least 12 months from
the date of approval of these financial statements. The Board has
therefore concluded that it is appropriate to prepare the interim
accounts on a going concern basis.
The Group has a debt facility from Hilco which expires in
January 2022 with an option to extend the facility to July 2022 at
the Company's sole discretion. Furthermore, Hilco has offered the
Company an option to extend this facility further to July 2024.
Given the announcement on 4 October 2021 by MIP Holdings Ltd, a
company owned and controlled by, among others, Apinder Singh Ghura
(the second largest shareholder in French Connection with a holding
representing approximately 25.4% of the issued share capital of the
Company) of an intention to make an offer for the Company at 30p
per share , and the subsequent publication of the scheme document
setting out the full terms and conditions of that offer, and given
that MIP Holdings Ltd has secured irrevocable commitments in
support of its offer from shareholders holding in aggregate 43.6%
of the issued share capital of the Company which, together with the
shares already owned by Apinder Singh Ghura, amount in total to
approximately 69% of the issued share capital of the Company, the
Company has elected to defer exercising the option offered by
Hilco, pending the outcome of the offer. Hilco have confirmed that
the offer of the option remains in place at the date of this
announcement and that it is not their intention to withdraw the
offer of the option until such time that control of the business
might pass to the bidder and include the forthcoming renewal of the
UK credit facility in July 2022.
The Board believes that the combined secured circa GBP20 million
UK and US asset based working capital facilities are expected to be
sufficient to cover the Company's foreseeable future cash
requirements.
The Board is also of the opinion that the outcome of the current
offer for the Company by MIP Holdings Ltd is likely to see the
current financing arrangements amended with alternative funding
arrangements put in place, but is unlikely to affect the going
concern basis of these financial statements.
NOTES TO THE HALF-YEAR STATEMENT
2. Segment revenue and results
Six Six Year
months months ended
31 July 31 July 31 Jan
2021 2020 2021
Income Statement GBPm GBPm GBPm
------------------------------------ --------- --------- --------
Revenue
Retail 11.4 10.1 22.5
Wholesale 28.8 13.8 49.0
Group revenue 40.2 23.9 71.5
Gross profit 12.7 3.6 18.4
Retail 44.7% 18.8% 32.9%
Wholesale 26.4% 12.3% 22.4%
Group gross margin 31.6% 15.1% 25.7%
Underlying operating (loss)/profit
Retail (2.5) (7.5) (10.4)
Wholesale 4.5 (1.3) 5.0
Licence income 2.4 1.5 3.9
Common and Group overheads (4.5) (4.3) (8.9)
Finance expense (0.8) (0.6) (1.3)
Underlying Group operating loss* (0.9) (12.2) (11.7)
Underlying operating margin
Retail (21.9)% (74.3)% (46.2)%
Wholesale 15.6% (9.4)% 10.2%
Underlying Group operating margin (2.2)% (51.0)% (16.4)%
Geographical information
Revenue
UK/Europe 72.2% 67.0% 64.8%
North America 26.6% 30.5% 33.8%
Rest of the World 1.2% 2.5% 1.4%
Divisional operating profit/(loss)
UK/Europe 1.0 (7.2) (5.8)
North America 1.8 (1.6) 1.1
Rest of the World (0.4) (0.5) (0.9)
Group overheads and finance expense (3.3) (2.9) (6.1)
Underlying Group operating loss* (0.9) (12.2) (11.7)
* excludes adjusting items (Note 3)
NOTES TO THE HALF-YEAR STATEMENT
3. Loss before taxation
Six Six Year
months months ended
31 July 31 July 31 Jan
2021 2020 2021
Reconciliation of loss before tax to underlying GBPm GBPm GBPm
operating loss
-------------------------------------------------- --------- --------- --------
Loss before tax (0.9) (13.2) (19.7)
Adjusting items:
Provisions for bad debts and bad debt
write-offs - 0.1 0.4
Fixed asset impairments - - 0.2
Right of use asset impairment - - 4.9
Store and head office restructuring costs - 0.4 0.9
Dilapidation costs - - 1.0
Other professional fees - 0.5 0.6
-------------------------------------------------- --------- --------- --------
- 1.0 8.0
-------------------------------------------------- --------- --------- --------
Underlying operating loss (0.9) (12.2) (11.7)
-------------------------------------------------- --------- --------- --------
Other professional fees GBP0.5m in the prior year relate to
refinancing costs expensed with regards to securing working capital
funding for the Group.
4. Other operating income
Six Six Year
months months ended
31 July 31 July 31 Jan
2021 2020 2021
GBPm GBPm GBPm
------------------- -------- -------- -------
Licensing income 2.4 1.5 3.9
------------------- -------- -------- -------
NOTES TO THE HALF-YEAR STATEMENT
5. Losses per share
Basic and diluted losses per share are calculated on the
following weighted average number of ordinary shares during the
period.
Six Six Year
months months ended
31 July 31 July 31 Jan
2021 2020 2021
------------------------------------- ----------- ----------- -----------
Weighted average number of ordinary
shares 96,612,934 96,612,934 96,612,934
Basic and diluted losses per share of 0.9 pence per share (2020:
losses of 13.6 pence) is based on losses of GBP0.9m (2020: losses
of GBP13.1m) attributable to equity shareholders.
The reconciliation from basic and diluted losses per share to
adjusted losses per share is as follows:
Six months Six months Year ended
31 July 2021 31 July 2020 31 Jan 2021
pence pence pence
per per per
GBPm share GBPm share* GBPm share
----------------------------- -------- --------- --------- ---------- --------- ----------
Loss attributable to equity
shareholders (0.9) (0.9)p (13.1) (13.6)p (19.7) (20.4)p
Adjusting items (Note 3) - - 1.0 1.0p 8.0 8.3p
Adjusted loss (0.9) (0.9)p (12.1) (12.6)p (11.7) (12.1)p
----------------------------- -------- --------- --------- ---------- --------- ----------
6. Net debt
31 January Cash Non cash 31 July 31 July
2021 flow changes 2021 2020
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 5.2 3.5 - 8.7 5.2
Loans (6.5) (1.2) - (7.7) -
Lease liabilities (23.8) 2.9 (0.3) (21.2) (24.8)
-------------------------- ----------- ------ --------- -------- --------
Net debt (25.1) 5.2 (0.3) (20.2) (19.6)
-------------------------- ----------- ------ --------- -------- --------
Loans of GBP4.7m (2020: GBPNil) are repayable after more than
one year.
Lease liabilities of GBP15.6m (2020: GBP17.7m) are repayable
after more than one year.
NOTES TO THE HALF-YEAR STATEMENT
7. Provisions
Six Six Year
months months ended
31 July 31 July 31 Jan
2021 2020 2021
Dilapidations GBPm GBPm GBPm
--------------------------- -------- -------- -------
Balance at 1 February 1.5 0.7 0.7
Utilised during the period (0.2) - (0.2)
Charged during the period - 0.2 1.0
Balance at period end 1.3 0.9 1.5
Current liabilities 0.7 0.7 0.8
Non-current liabilities 0.6 0.2 0.7
Current year provision relates to future dilapidation costs with
regards to contractual obligations to reinstate stores to their
original condition. The associated costs are forecast to be
incurred over the remaining lease period of the respective
stores.
8. COVID-19
The prior financial year witnessed extraordinary events caused
by the COVID-19 pandemic which has had a substantial impact on
businesses and on the fashion Retail sector in particular.
On 11 March 2020, the World Health Organization declared
COVID-19 a pandemic. In line with Government advice from 18 March
all French Connection head office staff were encouraged to work
from home where this was possible. Our Retail stores were closed on
Sunday 22 March 2020 and our concessions were closed on Monday 23
March 2020. These closures were not limited to the UK. All our
stores and concessions in Ireland, the Netherlands, Spain,
Portugal, France and the USA were closed and our operations in the
USA, Hong Kong, India, Turkey and Portugal were all restricted by
national government measures to contain the Coronavirus (COVID-19)
virus.
These closures and restrictions, together with the squeeze on
our Wholesale business from customers who were initially in a
challenging financial position, led to a drastic reduction in our
daily cash income in a dramatically short period of time. The
economic impact of this global health crisis on the French
Connection Group, at a time when we were focused on doing all we
could to return our business to a sustainable level of
profitability, required significant action to secure the financial
stability of the business.
From 24 March 2020, we asked all store and concession staff to
accept the "furloughing" of their employment at a reduced level of
pay so that we could sign up to the UK Coronavirus Job Retention
Scheme and implemented similar measures in our Retail operations
around the world.
In addition, from 7 April 2020, we asked those head office
staff, both in the UK and globally, who had a significant reduction
in their regular work load either due to the nature of their role,
or because they were unable to perform their role effectively
remotely to accept the "furloughing" of their employment and a
reduced level of pay.
Our E-commerce business continued to operate, initially at lower
levels to those before the outbreak although subsequently with
online sales significantly up. Our Wholesale customers, in
particular, the 'bricks and mortar' customers were in a similar
position and revenues significantly declined. However, the impact
was mitigated by our large Wholesale 'pure play' customer base
which continued to trade, and in some cases, trade strongly.
NOTES TO THE HALF-YEAR STATEMENT
8. COVID-19 (continued)
We worked hard planning for the stores to reopen, ensuring they
did so safely and in line with all Government guidance. The
majority of the stores opened from mid-June and we ensured that our
customers and colleagues were able to shop and work confidently in
a safe and healthy environment. However, when stores did reopen we
saw that our smaller stores in more provincial locations performed
more strongly than those in the traditionally bustling city
centres. Trading at the beginning of the second half of the year
was in line with our expectations, however, as a consequence of the
subsequent tightening of COVID-19 guidance from September, footfall
declined again and conditions became more difficult across the
Retail channels. This was then compounded by the full closure
required during the second lock down in November and the subsequent
third lock down at the start of January 2021.
We once again worked hard to reopen our stores from mid-April
2021.
As a direct consequence of the above, we enacted some of the
following to safeguard the continued future of the Company and
ensure that the business remains a going concern.
- Furloughing of all global Retail staff and a substantial
proportion of global head office employees whose workload had been
significantly impacted. We registered for applicable national
schemes to enable us to recoup employment salaries and taxes where
applicable.
- Liaising with our Retail, office and warehouse landlords with
regards to the attainment of rent payment holidays. We are in
continued discussions about the payment arrangements of future rent
quarter payments and the settlement profile of these deferred
amounts.
- Discussions with suppliers regarding renegotiation of existing payment terms .
- Dialogue with key Wholesale customers, including agreement on
early payment settlement discounts to ensure continued Wholesale
revenue cash income.
- Correspondence with the relevant government authorities to
defer any local or national taxes due including business rates,
duty, employment and VAT related taxes.
All of the above factors have had a significant impact on the
short-term cash income stream of the business. In the light of the
Company's current cash position and the continued expected weak
trading environment, we were in active discussions with a number of
potential funding partners. On 24 July 2020, the Group put in place
a GBP15 million working capital facility with Hilco Capital for the
next 2 years. In addition, our US business, based in New York
secured US$6.5million of additional funding through the government
backed Main Street Lending Programme to support our US based
operations and employees. The US loan is for a period of 5 years
with repayments commencing from the end of the 3(rd) year. The
Directors expect these new funding facilities to be sufficient to
cover the Company's cash requirements, based on its current
conservative expectations of future trade.
Given the Company's new liquidity, together with the actions
being taken to optimise sales, tightly manage costs and preserve
cash, the Board is confident that the Company is well positioned to
continue to navigate an extended period of uncertain consumer
demand.
The welfare, health and safety of our stakeholders, and in
particular our colleagues and our customers, has been our top
priority, while taking decisive actions to protect the business and
its long-term financial position.
NOTES TO THE HALF-YEAR STATEMENT
9. Retail locations
31 July 2021 31 January 2021 31 July 2020
Locations sq ft Locations sq ft Locations sq ft
Operated locations
UK/Europe
French Connection Stores 24 64,315 26 71,385 28 72,240
French Connection/Great
Plains Concessions 38 35,362 38 35,097 40 37,458
YMC Stores 2 1,355 3 1,805 3 1,805
---------------------------- ------------------- ------ -------- ---------- -------- ---------- --------
Total UK/Europe 64 101,032 67 108,287 71 111,503
------------------------------------------- ------------ -------- ---------- -------- ---------- --------
North America
French Connection US Store - - - - 1 6,000
Total North America - - - - 1 6,000
------------------------------------------- ------------ -------- ---------- -------- ---------- --------
Total operated locations 64 101,032 67 108,287 72 117,503
French Connection licensed and franchised
UK/Europe 1 1,100 1 1,100 1 1,100
North America 1 2,346 1 2,346 1 2,346
Middle East 2 1,614 2 1,614 2 1,614
Australasia 149 77,633 146 70,282 143 66,728
Other 11 10,802 11 10,802 15 11,327
Total licensed and franchised
locations 164 93,495 161 86,144 162 83,115
Total branded locations 228 194,527 228 194,431 234 200,618
------------------------------------------- ------------ -------- ---------- -------- ---------- --------
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END
IR BLBDGXSBDGBB
(END) Dow Jones Newswires
October 12, 2021 02:00 ET (06:00 GMT)
French Connection (LSE:FCCN)
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French Connection (LSE:FCCN)
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