Description
The French Connection Group designs, produces and distributes branded fashion clothing for men and women to more than 60 countries around the world.
ANNUAL REPORT 2014
French Connection Group PLC
The French Connection Group designs, produces and
distributes branded fashion clothing for men and women
to more than 60 countries around the world
French Connection Group PLC
FRENCH CONNECTION • GREAT PLAINS • TOAST • YMC
CONTENTS
STRATEGIC REPORT
Chairman’s Statement 2
Our Business 3
Corporate Social Responsibilty 7
Financial Review 9
GOVERNANCE
Board of Directors 11
Directors’ Report 12
Corporate Governance Statement 14
Audit Committee Report 16
Directors’ Remuneration Report 19
Statement of Directors’ Responsibilities 27
Independent Auditor’s Report 28
FINANCIAL STATEMENTS
Consolidated Statement
of Comprehensive Income 30
Consolidated Statement
of Financial Position 32
Consolidated Statement
of Changes in Equity 33
Consolidated Statement
of Cash Flows 34
Notes to the Group Accounts 35
Company Balance Sheet 54
Notes to the Company Accounts 55
SHAREHOLDER INFORMATION
Five Year Record 60
Advisers 61
Financial Calendar 61
Notice of Meeting 62
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 2
Dear Shareholders,
In the Annual Report last year I set out the initiatives we put
in place to drive a turnaround in our trading performance.
I am pleased that the initiatives have delivered improved
results during the year and that they are continuing to gain
traction as our business performance further strengthens.
After delivering a reduction in losses in H1, the Group reports
an underlying operating profit in H2 of £1.7m (2013: H2 loss
of £(0.9) m). As a consequence, the overall Group underlying
operating loss before taxation (and excluding store closure
costs) for the year was therefore better than expectations at
£(4.4) m, an encouraging improvement compared with the
loss of £(7.2) m last year.
The majority of the improvement in the Group financial
performance was from our Retail division which reduced
operating losses by £3.8m over the year. This was driven
out of our UK/Europe business, through enhanced margins
particularly in the latter part of H2, lower underlying labour
costs and the closure of 9 non-contributing stores. In the
Wholesale division, better UK/Europe trading was offset
by tough trading conditions in North America. Group
management and common overheads were reduced
by 11.7%.
The UK/Europe retail performance continues to strengthen
following the implementation of the retail initiatives. At
the operational level focus has been placed on process
re-engineering and staff scheduling, which have resulted
in both cost savings and better time management. This has
been in conjunction with a push to improve full price sales
evidenced by positive LFL’s in H2.
The improved collections under the control of the new
design team have shown a positive impact. Significantly,
changes in our retail buying resulted in higher full price sell
through, lower levels of discounting during the sale period,
much better stock control and consequently reduced
working capital consumption. This has further enabled us
to continue to improve the brand equity by having shorter
sale periods in the UK at the end of the last two seasons.
During the year our ecommerce business has continued
to perform well and has grown by 8%, benefiting from
the continued investment in our multi-channel offering. It is
clear that we will need to maintain this investment in order to
ensure we provide high levels of functionality to customers.
We continued to rationalise the UK/Europe store portfolio
with a total of 9 non-contributing stores closed during the
year. We plan to close a further 3-5 non-contributing stores
during the current year.
As the year progressed the UK wholesale business
built momentum as the benefits of the changes to the
collections fed through, resulting in an improved second
half performance. Orders for the Spring 2014 collections
are ahead of last year. A good initial reaction to the Winter
2014 collections, linked to an improved sell through of the
previous season, has resulted in further progress.
Toast performed well during the year and continues
to leverage on its primarily online business model,
complemented by a small retail portfolio.
In International markets, in our Joint Ventures in China
and Hong Kong, additional stores were opened and
with positive LFL’s, the share of profit from joint ventures
increased. In North America, the apparel market has been
weak in 2014 and we have not been immune to the effects
of this.
Global Licensing continues to be a very important part of
the business highlighting the strength of the brand, with the
new licenses for furniture, shoes, and bags performing well.
The Group remains debt free and ended the year with
a strong cash position of £28.2m (2013: £28.5m).
To conserve working capital the Board has decided that
no dividend shall be paid for the year (2013: Nil). The
shareholder distribution policy will be kept under review
during the year.
Overall, there has been significant positive change across
the business during the year. We have felt the benefit of the
new team who have now been in place for over a year and
have made considerable impact across many areas. More
recently we have been pleased with the reception to our
Spring range.
We have accomplished a great deal in the past year and
will build on that momentum to deliver further improvements.
There is still much to do and I am confident that we are on
the right path and have the right strategy to drive further
progress.
Finally on behalf of the Board, I would like to thank all our
staff around the world for their continuing efforts and hard
work which is contributing to the success and delivery of
the improved performance we have seen over the past year.
Stephen Marks
Chairman and Chief Executive
12 March 2014
CHAIRMAN’S STATEMENT
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 3
OUR BUSINESS
Business objectives, strategy,
and business model
At the heart of our business is a passion for the clothes.
In 1972, when French Connection was conceived, we set
out to create well-designed, stylish clothing that appealed to
a broad market. We have since worked hard to build on that
vision and as a result, French Connection is synonymous
with fashion and style.
It remains our prime goal to create distinctiveness in a crowded
market place through focus on design. The brand’s strength
lies in balancing new, exciting ideas with consistent quality
and affordability and in a world of “fast fashion” we are proud
of our commitment to the creative process.
With a passionate focus on fashion underpinning the business
our aim is to generate increased shareholder value through the
sale of fashion products and the extension of our brands into
other lucrative markets through licensing. We continually assess
markets and relationships for new opportunities to broaden our
customer reach.
Founded by Chairman and Chief Executive Stephen Marks,
French Connection’s long history of success has been based
on design quality and innovative fashion, supported by a strong
market presence resulting in one of the most highly recognised
and respected clothing brands in the UK and across the world.
We seek to ensure that products are presented for sale in
contemporary surroundings by knowledgeable and friendly
staff who are in-tune with our customers. We recognise that
our products are the core element of our business and that our
ability to produce fashionable clothing to match our customers’
expectation has been, and continues to be, the key to our
continued success.
We seek to ensure that our resources are deployed effectively
and efficiently to support our business. Design and production
of the ranges and maintenance of our operating standards are
paramount for all our business managers who have broad
responsibility for their area of operations.
Brands
Our principal brand is French Connection which accounts
for 87% of the Group’s revenues.
The French Connection brand operates in the fashion-
orientated market place offering a fashion-forward range of
quality products at affordable prices. Our customers, typically
aged 18-35, appreciate that the brand is at the leading edge of
high street fashion and offers quality and style in its products.
We design ranges of products for both men and women from
underwear to outerwear, casual wear to suits, denim and
accessories.
Our other brands include:
TOAST: a range of beautifully crafted ladies’ and men’s clothing
and unique homeware, available on-line, in selected John Lewis
stores and through a growing number of dedicated high-street
stores;
Great Plains: a fashion basics range designed in-house and
supplied through wholesale to multi-brand retailers mainly
in the UK; and
YMC: a fledgling, edgy, contemporary fashion brand for
men and women with two stores in London and a growing
wholesale base.
Each brand targets a different audience and has achieved high
levels of recognition for style and design reflecting the creative
passion and skill poured into the design and manufacture of
their products.
Our operations
We design, produce and distribute branded fashion clothing
for men and women from our business premises in London,
Swansea, New York, Paris, Dusseldorf, Hong Kong and
Toronto. We operate retail stores and concessions in the
UK, Europe, US and Canada and also operate ecommerce
businesses in each of those territories. Further, we wholesale
our products to retailers operating in over 60 countries
around the world and have licensed partners operating French
Connection stores across Asia, Australia and the Middle East.
Other branded products, such as toiletries, shoes and eyewear,
are produced under licence.
Our design teams are based in London and we arrange for the
products to be manufactured in specialist third part factories in
Europe and Asia supervised by local buying offices. The main
countries where manufacturing takes place are China, India
and Turkey.
The Group retails garments through a network of stores on high
streets and in shopping malls across the UK, Europe and North
America and through concessions within leading department
stores such as House of Fraser. We also operate ecommerce
internet sites through which our products are available for home
delivery in the UK, Europe and North America.
The product ranges are also offered for sale at wholesale
through our showrooms in London, New York, Paris,
Dusseldorf and Hong Kong to selected customers operating
department stores, multi-brand fashion stores or ecommerce
sites around the world.
To further extend retail distribution we have granted franchises
and licences to quality retailers allowing them to operate French
Connection branded retail stores in Europe, the Middle East,
Asia and Australia. These customers are supplied through our
wholesale channels in the UK and Hong Kong. Our licensees
operating stores in Hong Kong and China are 50% Joint Venture
businesses operated by our local partners in those territories.
Brand extensions
Our globally recognised French Connection and fcuk brands
have been extended successfully into complementary licensed
products including men’s and women’s toiletries and fragrances,
shoes, watches, jewellery, furniture and eyewear which together
generate another major profit stream for the Group: licence
royalty income.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 4
Current trends
The continued growth of multi-channel retailing is a clear focus
for French Connection. We will continue to invest in the people
and systems to support this growth opportunity to ensure our
customers can shop with us however they wish and get the
very best multi-channel experience. The success of our click
and collect program is an example of this investment.
Principal risks and uncertainties
Our success depends on our ability to produce ranges
of garments which are sufficiently attractive to potential
customers. We seek to achieve this through retention of
experienced and skilled designers and merchandisers and
by remaining as operationally flexible as possible.
The nature of fashion retail, however, means that it is not always
possible to predict customers’ reactions to each season’s new
ranges. Our customers’ propensity to spend on clothing is
affected by their personal financial situation and other macro-
economic factors which impact the total size of the retail
markets in which we operate. We have been able to mitigate
this somewhat by developing our licensing businesses which
provide a more stable and predictable income stream.
We consider that as a small operator at the upper end of the
middle market the impact on our business of macro-economic
elements is considerably smaller than the impact of the
success of our designers in producing attractive products.
Each year the brands produce two main seasonal fashion
ranges and the success of each of these is largely dependent
on the ability of our designers to reflect attractively the
emerging trends in fashion. We utilise a mix of experience
and fresh thinking in our design studios under the consistent
guidance of the senior management to ensure continuity of
the brand attitudes.
Like all retailers we are susceptible to volatility in the propensity
of consumers to spend, which is affected by macro-economic
issues. The design process and our retail businesses in
particular have a significant proportion of fixed costs giving rise
to operational gearing and this is exacerbated by upward-only
rent reviews. To mitigate cost pressures we have focused on
reducing retail operating costs and have achieved considerable
savings by optimising our rostering timetables in store.
Our brands and the way they are perceived in their respective
markets is very important to us. We are therefore very
protective of the brands and work to ensure that they are
presented in appropriate ways and that they are not misused.
A main driver for brand perception is the products themselves
and therefore our reputational risk is closely linked to our sales
success.
As a wholesaler we also face the risk of default from our
customers and manage this through active relationship
management by our dedicated customer accounts team.
Our experience of bad debts has been very low over many
years due to this close management. We also insure certain
debt risks, mainly overseas.
The Group maintains a positive net cash balance throughout
the year and we are conscious to manage the Group’s working
capital effectively.
The principal treasury risks to the Group arise from exchange
rate and interest rate fluctuations. The Board has approved
policies for managing these risks, which are reviewed on
a regular basis, including the use of financial instruments,
principally forward foreign exchange contracts. No transactions
of a speculative nature are undertaken.
The most significant exposure to foreign exchange fluctuations
relates to purchases made in foreign currencies, principally the
Hong Kong Dollar and Euro. The Group’s policy is to reduce
substantially the risk associated with purchases denominated
in currencies other than Sterling by using forward fixed rate
currency purchase contracts. There has been no change since
the year end to the major treasury risks faced by the Group or
the Group’s approach to the management of these risks.
The Group is dependent on reliable IT systems for managing
and controlling its business and for providing efficiency and
speed in the supply chain. Our IT function oversees all the
systems and has policies and procedures to protect the
software, hardware and data and to prevent unauthorised
access to the systems.
The Group’s approach to the management of risks is further
discussed in the Corporate Governance Statement.
Key Performance Indicators
The Board considers that the key performance indicators
for the businesses are:
• total sales achieved in the retail channels; including
LFL sales growth;
• total sales achieved in the wholesale channels;
• total sales by geography;
• overall gross margin;
• net operating margin for the retail and wholesale
channels in total and across all geographies.
Each of the above is discussed in more detail in the
Financial Review.
OUR BUSINESS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 5
WORLDWIDE OPERATIONS
UK/Europe North America Rest of the World
LOCATI ON LOCATI ON LOCATI ON
London, Swansea,
Paris, Dusseldorf
New York Toronto Hong Kong
TERRI TORI ES TERRI TORI ES TERRI TORI ES
UK,
Europe,
Middle East
USA Canada Hong Kong,
China
Australia, Asia,
South Africa
RETAI L OPERATI ONS RETAI L OPERATI ONS RETAI L OPERATI ONS
Retail stores
and concessions,
e-commerce
Retail stores,
e-commerce
Retail stores,
e-commerce
Retail
stores and
concessions
through joint
ventures
WHOLESALE CUSTOMERS WHOLESALE CUSTOMERS WHOLESALE CUSTOMERS
Department stores,
multi-brand stores,
franchise operators
Department
stores,
multi-brand
stores
Multi-brand
stores
Department
stores
and
concessions
LI CENSI NG LI CENSI NG LI CENSI NG
Product and country licensing Product
licensing
Product
licensing
Product
licensing
BRANDS BRANDS BRANDS
French Connection,
Great Plains,
Toast, YMC
French
Connection,
YMC
French
Connection
French
Connection
French
Connection
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 5
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 6
RETAIL LOCATIONS
31 January 2014 31 January 2013
Locations sq ft Locations sq ft
Operated locations
UK/Europe
French Connection Stores
French Connection/Great Plains Concessions
Toast Stores
YMC Stores
66
51
12
2
202,770
33,560
15,384
1,355
74
54
11
2
218,115
36,134
11,407
1,355
131 253,069 141 267,011
North America
French Connection US Stores
French Connection Canada Stores
7
9
22,841
24,325
8
9
33,900
24,325
16 47,166 17 58,225
Total operated locations 147 300,235 158 325,236
French Connection licensed and franchised
UK/Europe
North America
Middle East
Australia
Hong Kong
China
India
Other
7
1
6
72
5
23
110
48
7,994
2,000
9,805
72,112
6,062
34,960
60,782
44,516
10
1
13
92
6
21
89
51
14,821
2,000
23,842
96,329
7,031
31,556
56,129
45,240
Total licensed and franchised locations 272 238,231 283 276,948
Total branded locations 419 538,466 441 602,184
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 7
CORPORATE SOCIAL RESPONSIBILITY
The Board recognises that the long term profitability of the
business depends, amongst other things, on appropriate
protection of the Group’s assets, reputation and brand names
and is subject to the long-term sustainability of the supply chain.
Impact on the environment
The use of resources to manufacture and supply our products
utilise finite global resources. The source of the raw materials and
the manufacture of the finished products is spread globally and
provides employment, income and personal security at many
different points in the process. We recognise, however, that
our products utilise global resources some of which are limited
in their nature.
Some of the initiatives we have implemented include:
• In the UK, the business meets its responsibilities under the
packaging waste regulations through membership of Valpak;
• Wooden hangers are sourced from sustainable sources
and we do not give them away with the products;
• Reduction in packaging materials for finished goods
i.e. no plastic banding, no inner cartons;
• Plastic returnable tote bins for shipping to our own
UK stores to reduce cardboard;
• Plastic and cardboard waste is collected from our
UK stores for recycling;
• In our US operations, corrugated cartons are re-used
whenever possible and ultimately recycled using a band
machine so they are crushed into bails for collection; and
• In Canada we are participants in ‘Stewardship Ontario’,
paying a fee for all point of sale materials to be recycled.
Carbon emissions Tonnes of CO
2
e
Emissions from
Scope 1 (vehicles, fugitive emissions, gas) 428
Scope 2 (electricity) 5,139
Total footprint 5,567
Group chosen intensity measurement £m
Turnover 189
Emissions reported above
per £m of turnover 29
This is our first greenhouse gas (GHG) emissions report in line
with UK mandatory reporting requirements, set out by the
Department for Environment, Food and Rural Affairs (DEFRA).
There is no year on year comparison.
The mandatory requirement is for the disclosure of scope 1
and 2 emissions only. We have captured all material qualifying
emissions from around the Group. Some extrapolation and
estimation techniques have been used to calculate the Group
CO
2
e in respect of less than 5% of our stores and the final
month of our data.
The reported sources fall within our consolidated financial
statements. We do not have responsibility for any emission
sources that are not included in our consolidated financial
statements. We have computed our emissions using the
DEFRA Environmental Reporting Guidelines: Including
mandatory greenhouse gas emissions reporting guidance
issued in June 2013.
Our total GHG footprint in line with these guidelines is
5,567 tonnes CO
2
e.
Supply chain
The Group has used third party manufacturing facilities around
the world for over thirty years but has specifically avoided
suppliers or regions where the employment or environmental
practices are known to be below acceptable standards. The
Group requires all of its product suppliers to abide by its
guidelines contained in the Supplier Guide. Our staff visit the
factories we use for garment production on a regular basis
and consider the environment and work practices during those
visits, however currently our ability to formally audit the facilities
is limited. Our Supplier Guide and the employment standards
required of our suppliers accord with industry standards
including inter alia that employees should: be given a safe
and healthy environment to work in; be given the right to free
association; be paid a fair wage; have freedom of association;
not be forced or bonded labour; be of an appropriate age;
and work only reasonable hours.
The Board recognises that it is not possible to provide absolute
assurance that standards expected of our suppliers are adhered
to. Where transgressions are identified we would work with the
supplier to develop an appropriate remediation programme.
However we will not hesitate to stop using any supplier who
we identify is persistently operating in contravention of our
standards or failing to implement agreed remediation
programmes.
There are a number of other CSR topics, such as business
ethics, anti-bribery, animal testing and use of chemicals,
which are subject to set standards within the business,
examples of which are as follows:
Our suppliers have previously confirmed to us that all of our
angora is carefully collected by shearing and cutters which
does not cause any harm or distress to the animals.
Toast supports the non-use of animals in testing and challenge
our suppliers on this matter – our glycerine soaps as an example,
do not contain any animal derived ingredients and are suitable
for use by vegetarian and vegans.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 8
Tax
The Board is committed to ensuring full compliance with the
law and making all tax payments timeously.
The Board are committed to ensuring that openness, honesty
and transparency will be paramount in all dealings with the tax
authorities and other relevant bodies.
People
We are committed to providing equal opportunities for all of our
employees.
We ensure that every employee, without exception, is treated
equally and fairly and that all employees are aware of their
responsibilities.
We run cycle to work and childcare voucher schemes in the UK
for our employees.
The breakdown of the gender of Directors and employees at
the end of the financial year is as follows:
Men
Number
Women
Number
Company Directors 4 1
Other senior managers 8 7
All other employees 500 1,639
Total 512 1,647
Notes
Company Directors consist of the Company’s Board.
Other senior managers is as defined in The Companies Act
2006 (Strategic Report and Directors’ Report) Regulations
2013, and includes: i) persons responsible for planning,
directing or controlling the activities of the Company, or a
strategically significant part of the Company, other than
Company Directors; and ii) any other Directors of undertakings
included in the consolidated accounts.
The business complies with locally applicable health and safety
regulations in the countries in which it operates. This includes
the provision and maintenance of safe environments for our
employees, appropriate design of our stores, health and safety
training for appropriate personnel, electrical installation reviews,
risk assessments and risk monitoring in our offices, stores and
warehouses.
CORPORATE SOCIAL RESPONSIBILITY
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 9
FINANCIAL REVIEW
The improvement in the financial results reported at the half-year
has continued into H2, with all key metrics showing improved
trends.
Financial results overview
After reporting reduced losses at the half-year, the Group made
further improvements in H2, reversing the loss incurred in the
previous year. H2 underlying Group operating profit was £1.7m
(2013: loss of £(0.9)m).
For the full year ended 31 January 2014 underlying Group
operating loss was reduced to £(4.4)m (2013: loss of £(7.2)m).
After taking into account the cost of disposal and closure of
under-performing stores the total loss before tax was £(6.1)m
(2013: loss of £(10.5)m).
Revenue overview
Total revenue in H2 was 1.8% lower than H2 2013, an
improvement in trend from H1 which was 6.4% lower than
H1 2013.
Total revenue for the year at £189.4m was 4% lower than
2013. The lower revenue was the result of the closure of non-
contributing UK/Europe stores, negative H1 UK/Europe Retail
LFL’s and lower Wholesale revenue in North America in what
was a very challenging trading environment. These reductions
were offset partly by strong revenue performances in
ecommerce, Toast and UK/Europe Wholesale.
Gross margin
Group gross margin was broadly flat at 47.6% (2013: 47.9%).
Notable was the improvement in gross margin in both UK/
Europe Wholesale and Retail due to lower markdowns. This
improvement was offset by the need for increased discounting
in North America due to the tough trading environment.
Operating expenses
Total Group operating expenses of £101.4m were 6.9% lower
than last year. After adjusting for store closures, operating
expenses were 3.7% lower than last year, thanks to a range
of cost reduction measures.
Segment revenue and results
2014
£m
2013
£m
Revenue
Retail 117.5 123.4
Wholesale 71.9 73.9
Group revenue 189.4 197.3
Gross profit 90.2 94.6
Retail 56.9% 55.8%
Wholesale 32.5% 34.9%
Group gross margin 47.6% 47.9%
Underlying operating (loss)/profit
Retail (11.6) (15.4)
Wholesale 11.7 13.9
License income 6.1 6.5
Common and Group overheads (11.3) (12.8)
Finance income 0.1 0.2
Share of pro?t from joint ventures 0.6 0.4
Underlying Group operating loss (4.4) (7.2)
Underlying operating margin
Retail (9.9)% (12.5)%
Wholesale 16.3% 18.8%
Underlying Group operating margin (2.3)% (3.6)%
Geographical information
2014
£m
2013
£m
Revenue
UK/Europe 71% 70%
North America 24% 25%
Rest of the World 5% 5%
Divisional operating (loss)/pro?t
UK/Europe (3.9) (9.4)
North America 2.4 5.5
Rest of the World 1.6 1.8
Group overheads and finance income (4.5) (5.1)
Underlying Group operating loss (4.4) (7.2)
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 10
FINANCIAL REVIEW
Continued
Trading segments
In prior years, we have reported segments based on
geographies including UK/Europe, North America and
Hong Kong and where relevant analysed the performance
between Retail and Wholesale. The Board continues to focus
on the key metrics for Retail and Wholesale and across the key
territories in which the Group operates and has presented the
results for the year across these businesses sectors together
with the geographical analysis. There is no change to the
metrics that are reviewed by the Board to monitor the overall
performance of the Group, but the segmental note has been
simplified to highlight the key metrics that the Board focuses
on (see Note 2).
Retail
Group retail revenues of £117.5m were 4.8% lower than the
prior year. The decline in revenue was primarily due to the
closure of a number of UK/Europe non-contributing stores
and the reduced summer and Christmas sale periods. North
America retail was impacted by the tough trading environment
in the market, extreme weather conditions towards the end of
the year and the closure of one store.
H2 UK/Europe LFL’s retail gross sales were 1.4% (H1: fall of
-4.5%). Overall LFL retail gross sales for the full year therefore
fell -1.4% (2013: fall of -7%). The better trend was driven by
strong store performance in the last 8 weeks of the year and
better ecommerce stock availability compared to the prior year.
The retail gross margin of 56.9% (2013: 55.8%) reflected
a strong performance in UK/Europe retail where lower
discounting and higher full price sales delivered an
improvement in margin of 240 basis points offset by
higher discounting to clear inventory in North America.
The retail underlying loss of £(11.6)m was an improvement
of £3.8m compared to prior year. This improvement was
all driven out of UK/Europe through improving LFL’s, better
margins, lower underlying operating expenses and the closure
of non-contributing stores.
Ecommerce sales grew in the year by 8.1% and now represent
20% of total Group retail sales (2013: 18%).
Wholesale
Group wholesale revenues of £71.9m were 2.7% lower than
prior year. A 2.9% improvement in UK/Europe revenue was
offset by a reduction in North America revenue where trading
continued to be difficult in H2. These dynamics also impacted
gross margin by £(2.3)m, with a small improvement in UK/
Europe offset by the need for additional discounting in North
America.
Overall wholesale underlying operating profit was a £11.7m
profit, a reduction of £2.2m caused by the tough trading
conditions in North America, offset by a stronger UK/Europe,
and overall lower operating expenses.
Geographical analysis
The geographical revenue break-down is largely unchanged
with UK/Europe representing 71% of Group revenues (2013:
70%). The combination of strong performance in both Retail
and Wholesale in UK/Europe led to an improvement of £5.5m
in divisional operating contribution whilst the difficult conditions
in North America led to a reduction of £3.1m. Rest of the world
was slightly down.
Other Income
The net income received from Global licensing was £6.1m
in the year. This represented a decline of £0.4m compared to
last year, largely as a result of the termination of the licence to
supply product to the Sears department stores in the US and
the buying office fees previously charged to Nicole Farhi. These
will no longer be a drag on comparatives in 2015. The new
licences brought on-stream in UK and North America during
the year (furniture, shoes and bags) demonstrate the continued
strength of the brand and are growing well.
Our retail Joint Ventures in Hong Kong and China have delivered
an improvement in trading performance both in LFL retail
performance and an increased number of stores. The share
of profit of these joint ventures was £0.6m (2013: £0.4m).
Balance sheet and cash flow
The Group balance sheet at 31 January 2014 remains strong
with £28.2m of cash (2013: £28.5m), no bank borrowings and
a minimum cash position during the year of £9.9m (2013: £10.6m).
The trading operations of the Group generated cash of £1.8m
(2013: cash consumed £(3.7)m) as a result of a release of cash
utilised within working capital, notably a further decrease in
inventory of £2.3m reflecting the continued improvements in
the efficiency of merchandising and buying.
Capital expenditure of £0.8m (2013: £1.7m) was reduced
as the prior year included the fit-out of two new outlet stores,
two other store re-sites, as well as investment in infrastructure
within our IT estate. In the year the restructuring costs of
closing under-performing stores was £1.7m. We plan to
spend a similar amount in the current year as we continue
to target the closure of non-contributing stores when
economically viable.
Taxation
The tax credit for the year of £0.1m (2013: £Nil) represents a
reduction in the tax potentially payable on deferred capital gains
less the tax payable on current profits generated in Hong Kong
and the US (as reduced by past losses).
Dividends
The Board of Directors remains 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 a dividend. The Board intend to keep the
shareholder distribution policy under close review during
the year.
Going concern
Having reviewed the cash forecasts and the sources of cash
funding available to the Group, the Board has concluded that
it is appropriate to prepare the Group financial statements on
a going concern basis.
Adam Castleton
Group Finance Director
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 11
BOARD OF DIRECTORS
Stephen Marks
Chairman and
Chief Executive
Stephen (aged 67) founded the Company in 1969 and has managed the Group’s
development since then in the position of Chairman and Chief Executive.
Adam Castleton A.C.A.
Group Finance Director
Adam (aged 49) was appointed to the Board on 12 August 2013. He is a chartered
accountant having qualified at Price Waterhouse, Manchester. He holds a bachelor's
degree in Economics from Manchester University. He has over 25 years of financial
experience and has held leadership roles at a number of international consumer-facing
companies, including eBay, Shopping.com, Polo Ralph Lauren (Europe), and The Walt
Disney Company. He joined French Connection from O2 UK, where he was Finance
Director of the O2 Business Division, and previously acting CFO of O2 UK.
Neil Williams A.C.A.
Operations Director
Neil (aged 49) joined the Group from KPMG in 1992 and was appointed to the Board
in May 1994.
Dean Murray
Independent
Non-Executive
Director
Dean (aged 51) was appointed to the Board on 6 February 2008. He qualified as a
chartered accountant with KPMG and was Chief Executive of Myriad Childrenswear
Group Limited. Myriad was the leading UK specialist multi-brand and multi-channel
childrenswear business with over 1,000 distribution outlets including the Adams
Kidswear brand. He is currently Chairman of Neville Johnson Limited, a UK based
bespoke furniture designer, and Gear4music, an online retailer of musical instruments.
Claire Kent
Independent
Non-Executive
Director
Claire (aged 50) was appointed to the Board on 3 October 2008. She was formerly a
Managing Director with Morgan Stanley where she was ranked number one in luxury
goods European retailing analysis for nine consecutive years. Working in the sector
since the early 1990’s she has accumulated an in-depth understanding of the operation
of luxury and apparel brands and has worked very closely with some of the most
respected brands in the sector. Since leaving Morgan Stanley, Claire has focused on
advising companies on their IPOs (Prada in 2011; Pandora in 2010) and playing a role in
the sale of private equity-owned companies (Cath Kidston, Original Additions). She is
also an advisory Director of Investcorp, a consultant for Prada and a Board member
of Georg Jensen.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 12
The Directors of French Connection Group PLC (“the
Company”) present their Annual Report for the year
ended 31 January 2014.
Principal activity
The Group designs and supplies branded fashion clothing
and accessories as more fully described in the section
entitled Our Business.
Business review
The principal operating subsidiaries of the Group for the
period under review were French Connection Limited, French
Connection UK Limited, French Connection (London) Limited,
French Connection Group Inc, French Connection (Hong Kong)
Limited, Toast (Mail Order) Limited, French Connection (Canada)
Limited and YMC Limited. The Companies Act 2006 requires
that the Directors’ Report contains a fair review of the business
and a description of the principal risks and uncertainties facing
the Group. A review of the business strategy and a commentary
on the performance of the business is set out in the Financial
Review and the Chairman’s Statement. The principal risks
facing the business are detailed in the section entitled Our
Business and the corporate and social responsibilities of
the Group are outlined in the Corporate Social Responsibility
Statement. The disclosures contained in those reports form
part of this Directors’ Report.
Fair, balanced and understandable
The Board has considered the regulatory changes impacting
corporate reporting and Executive remuneration and believes
this Annual report and Accounts complies with these changes
taking into account emerging best practice. Notably the Board
has determined that the 2014 Annual Report and Accounts,
taken as a whole is fair, balanced and understandable. It
provides the information necessary for shareholders to assess
the performance, strategy and operating model of the Group
and Company in accordance with the Code requirements.
Corporate Governance
The Corporate Governance Statement on pages 14 to 15
forms part of the Directors’ Report.
Dividend
The Directors are recommending that no dividend should
be paid for the year.
Directors
The Directors of the Company are set out in the Board
of Directors.
Neil Williams and Claire Kent, Directors, retire by rotation
in accordance with the Articles of Association and offer
themselves for re-election at the AGM. Adam Castleton,
following his appointment as a Director during the year, in
accordance with the Articles of Association, offers himself for
election at the AGM. The Board considers that Mr Williams,
Ms Kent and Mr Castleton continue to make a major
contribution to the strategy and operations of the Group and
therefore recommend their re-election as Directors. Details of
Mr Williams’, Ms Kent’s and Mr Castleton’s remuneration and
contracts are set out in the Directors' Remuneration Report.
The Board has considered whether there are any factors which
might compromise the independent judgement of either of
the non-Executive Directors and concluded there was none.
The Board therefore considers both Mr Murray and Ms Kent to
be independent of the Company.
At 31 January 2014, none of the Directors or their families held
any beneficial interests in the issued capital of the Company other
than Stephen Marks whose shareholding is disclosed below
and Adam Castleton whose shareholding is disclosed in the
Directors’ Remuneration Report.
The details of share options held by Directors are set out in the
Directors’ Remuneration Report. There have been no changes
in the Directors’ interests in the shares of the Company since
the end of the financial year.
Significant shareholdings
As at 12 March 2014 the Company is aware of the following
substantial interests in its ordinary shares:
Shares
Percentage
of Issued
Share
Capital
Stephen Marks 40,094,190 41.8%
of which:
– held in family trusts 1,506,500
– held by family members 775,000
Schroder Investment Management 11,551,302 12.0%
OTK Holding 6,000,000 6.3%
Liad Meidar 4,837,000 5.0%
Contractual arrangements
The Company has no contractual or other arrangements which
are essential to the business of the Company nor any key
customers or major suppliers on which it is dependent.
Supplier payment
The majority of the Group's creditors are suppliers with whom
payment terms and conditions are agreed in advance. Where
the supply of goods and services is satisfactory, it is the policy
of the Group to pay creditors when they fall due for payment.
For the year ended 31 January 2014, the Group’s average trade
creditors represented 33 days purchases (2013: 31 days). The
Company has minimal third party creditors.
Employees
It is the Group's established practice that all employees have
access to their immediate superiors and ultimately to the Chief
Executive to discuss matters of concern to them as employees
and that the views of employees are sought and taken into
account in making decisions which are likely to affect their
interests.
Furthermore the Group seeks to encourage both the involvement
of employees in its performance and a common awareness on
the part of all employees of factors affecting its performance.
The Group provides equal opportunities to all employees and
prospective employees including those who are disabled.
DIRECTORS’ REPORT
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 13
Carbon emissions
The Group has disclosed carbon emissions data within the
Corporate Social Responsibility Report.
Property, plant and equipment
The changes in intangible and tangible fixed assets during the
year are set out in Notes 11 and 12 to the Group accounts.
Financial instruments
The financial instrument policies are set out in Note 26 to the
Group accounts.
Joint Ventures
The Group is a member of two 50:50 Joint Ventures operating
retail stores in China and Hong Kong. Both joint ventures are
managed by committees with equal representation from the
members. The Group’s share of the results of these businesses
is included in these accounts for the whole of the financial year.
Charitable and political donations
Charitable donations of £14,051 (2013: £20,659) were made
during the year. No political donations were made in either
2014 or 2013.
Share capital
The share capital of the Company comprises ordinary shares
of 1p each; each share carries the right to one vote at general
meetings of the Company. The issued share capital of the
Company, together with movements in the Company’s issued
share capital during the year, are shown in Note 21.
Takeovers directive
Section 992 of the Companies Act 2006, which implements
the EU Takeovers Directive, requires the Company to disclose
certain information. Most of these requirements are dealt
with elsewhere in the Annual Report, however the following
additional disclosures are required:
The Company’s Articles of Association may be amended
by special resolution of the shareholders.
The Board of Directors is responsible for the management
of the business of the Company and may exercise all the
powers of the Company subject to the provisions of the
relevant statutes, the Company’s Memorandum and Articles
of Association. The Articles contain specific provisions and
restrictions regarding the Company’s power to borrow money.
Powers relating to the issuing of shares are also included in
the Articles and such authorities are renewed by shareholders
each year at the AGM.
There are a small number of agreements that take effect, alter
or terminate upon a change of control of the Group following
a takeover, such as shareholder agreements with the minority
shareholders in certain subsidiaries and the Company share
option schemes. None of these is deemed to be significant in
terms of their potential impact on the business of the Group
as a whole.
AGM
The AGM of the Company will be held at 10.00 am on 15 May
2014 and a notice of meeting has been sent to shareholders
setting out details of the business to be conducted.
Explanatory notes on all the business to be considered at this
year’s AGM appear on pages 63 to 64 of this document.
At our forthcoming AGM, a resolution will be put to
shareholders to approve a new long term incentive share option
plan, the previous plan having expired.
Disclosure of information to auditors
The Directors who were members of the Board on the date the
Directors’ Report was approved have confirmed the following:
• to the best of each Director’s knowledge and belief there is
no information relevant to their report of which the auditor
is unaware; and
• each Director has taken all the steps a Director might
reasonably be expected to take to be aware of relevant audit
information and to establish that it has been communicated
to the auditor.
Auditors
Our auditors, KPMG Audit Plc have instigated an orderly wind
down of business. The Board has decided to put KPMG LLP
forward to be appointed as auditors and resolution concerning
their appointment will be put to the forthcoming AGM of the
Company.
By order of the Board
Adam Castleton
Company Secretary
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 14
Compliance with the UK Corporate
Governance Code
The Board is responsible for ensuring compliance with the new
edition of UK Corporate Governance Code (the ‘Code’), which
was published by the Financial Reporting Council in September
2012 and applies to reporting periods beginning on or after
1 October 2012. It is available at www.frc.org.uk.
Except as referred to below, the Company has complied with
all relevant provisions of the Code throughout the year ended
31 January 2014 and from that date up to the date of
publication of this Annual Report.
Mr Marks is both Chairman and Chief Executive and is also the
founder and the major shareholder. The culture of the business,
led by the Chief Executive, is one of detailed involvement and a
need for speedy reaction times. Mr Marks has led this culture
and defined the character of the business throughout its
existence.
Constructive challenge by the independent non-Executive
Directors, as well as the effective functioning of the committees
ensures that authority is suitably balanced.
The Board contains two non-Executive Directors, each of which
chairs one of the three committees of the Board and therefore
has specific responsibilities. The Board has concluded that
there would be no benefit in nominating a senior non-Executive
Director. Both are utilised as sounding boards for the Chairman
and both are available to other Executive Directors or
shareholders as necessary.
There were no non-Executive Board appointments made
or contemplated during the year. It is our intention to form a
Nominations Committee comprising the two non-Executive
Directors when any appointment is contemplated. The
appointment of the Group Finance Director was considered
by the main Board.
The Chairman believes that the Board and its Committees
functioned well during the year and supported the strategy and
development of the Company. A detailed and formal evaluation
was therefore not carried out during the year. It is expected that
during the coming financial year the Company Secretary will
review the most appropriate method for conducting any
additional internal or external evaluation with the Board.
The Board and its composition
The Board reserves to itself certain key matters to approve
or monitor on behalf of the shareholders the strategic direction,
development and control of the Group. It approves strategic
plans and annual capital and revenue budgets. It reviews
significant investment proposals and the performance of past
investments and maintains an overview and control of the
Group’s operating and financial performance. It monitors the
Group’s overall system of internal controls, governance and
compliance and ensures that the necessary financial and
human resources are in place for the Company to meet
its objectives.
The Board delegates responsibility for the day-to-day operation
of the business to the Executive Directors within the framework
of agreed prudent and effective controls.
The Company Secretary’s responsibilities include ensuring
good information flows to the Board and between senior
management and the non-Executive Directors. The
appointment and removal of the Company Secretary is a matter
reserved for the Board. The Company Secretary is responsible,
through the Chairman, for advising the Board on all corporate
governance matters and for assisting the Directors with their
professional development.
All Directors are briefed by the use of comprehensive papers
circulated in advance of Board meetings and by presentations
at the meetings in addition to receiving minutes of previous
meetings.
The training needs of Directors are formally considered on an
annual basis and are also monitored throughout the year with
appropriate training being provided if required.
Any member of the Board may take independent professional
advice at the Company’s expense. All Directors have access to
the advice and services of the Company Secretary. All Directors
of the Company are covered by a comprehensive Directors and
Officers insurance policy.
The Company’s Articles of Association give power to the Board
to appoint Directors, but require Directors to submit themselves
for election at the first AGM following their appointment. One
third of the Board is subject to re-election annually.
The Board of Directors at the date of this report comprises
three Executive Directors and two independent non-Executive
Directors. The biographical details of each Board member are
set out in the Board of Directors, including their main
commitments outside the Company.
During FY 2014 there were nine scheduled Board meetings
which were all fully attended.
The non-Executive Directors are considered to be independent
in that they remain free from any business or other relationship
which could materially influence their judgement and represent
a strong source of advice and independent challenge.
Roy Naismith left the Board as Group Finance Director in April
2013 and was replaced by Adam Castleton in August 2013.
Adam Castleton was appointed as Company Secretary on
12 August 2013. Adam has the necessary recent and relevant
financial experience for the role as Group Finance Director and
is also knowledgeable on governance and the management of
risk required for the Company Secretary role. A full biography
is set out in the Board of Directors.
Neil Williams and Claire Kent are required to stand for annual
re-election in accordance with B.71 of the Code and the
Company’s Articles of Association.
Committees
Each Board Committee has written terms of reference approved
by the Board, which are available on the Company’s website.
Audit committee
The Audit Committee comprises Dean Murray who is Chair
and Claire Kent, the two independent non-Executive Directors.
The Committee met twice during the year and each meeting
was fully attended.
CORPORATE GOVERNANCE STATEMENT
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 15
Details of the Audit Committee are included in the Audit
Committee Report.
Remuneration committee
The Remuneration Committee comprises Claire Kent who is
Chair and Dean Murray.
The Committee met twice during the year and each meeting
was fully attended.
Details of the Remuneration Committee are included in the
Directors’ Remuneration Report.
The Disclosure Committee
The Disclosure Committee was established in October 2013 to
assist and inform the Chief Executive in his decisions concerning
the identification of inside information and its Disclosure. The
Disclosure Committee comprises the Chief Executive, Group
Finance Director and Chief Operating Officer.
The Disclosure Committee met once during the year and was
fully attended.
Code of ethics
The Group operates under the detailed and entrepreneurial
guidance of Stephen Marks (the founder of the business),
the Executive Directors and a broad range of operational
managers. As noted above the Board includes two non-
Executive Directors who provide independent challenge
and input into the overall governance of the Group.
The culture established by Mr Marks and the senior
management is to expect a high standard of behaviour from
everybody working for the Company.
The Board has considered the risks associated with the issues
raised by the Bribery Act 2010 as part of the broader review of
risks faced by the Group and has reviewed the processes and
controls in place to prevent offences under the Act.
The Company also offers a confidential, whistle blowing hotline
for any employee wishing to report any concern that they feel is
inappropriate to raise with their line manager. All whistle blowing
allegations are reported to and considered by the Executive
Committee and Board. No instances were made during the
financial year.
Going concern
The Group has considerable cash resources, ending the year
with £28.2m (2013: £28.5m) and with a minimum Group cash
balance during the year of £9.9m (2013: £10.6m). The Group
has no debt.
Having reviewed the cash forecasts and the sources of
cash funding available to the Group, the Board has concluded
that the Group has a reasonable expectation to continue in
operational existence for the foreseeable future. For this reason,
the Board continues to adopt the going concern basis in
preparing the accounts.
Tax
Board level oversight of tax matters is part of the Company’s
tax risk governance process.
All significant tax matters are reported to the Board by the
Group Finance Director and tax matters are governed by
the Group tax strategy.
Internal control and risk management
The Board supported by the Audit Committee confirms that
there are ongoing procedures in place for identifying, evaluating
and managing significant risks faced by the Group and that
these have been in place for the year under review and up to
the date of approval of the Annual report and Accounts. The
procedures have been reviewed by the Audit Committee and
accord with the requirements of the UK Corporate Governance
Code.
The Board conducts an annual review of the major risks
affecting the business and the effectiveness of the system
of internal control. The culture of the business results in the
Executive Directors being closely involved in managing the
business at a detailed level. This provides a high degree of
direct monitoring of risks and control processes, conducted
against the background of a culture of integrity, quality and high
levels of communication. This is supported by reviews of daily,
weekly and monthly detailed analyses of the performance of
the business, the key performance indicators associated with
the trading risks facing the Company and the detailed
operational results.
The Group does not have a separate internal audit function
although during the year the Audit Committee considered
whether there is a need for such a function, concluding that the
benefits, when compared to the potential benefits of deploying
additional resources in other areas, are not sufficiently clear.
Certain elements of internal audit work are conducted or
coordinated by the existing finance and accounting functions.
These include reviews of financial controls internationally,
externally facilitated reviews of procurement transactions
and support for system developments between the separate
accounting functions.
Communication with shareholders
Communication with shareholders is generally conducted
through one-to-one meetings with the Executive Directors
(and the non-Executive Directors if requested) for which there
is an open invitation to all shareholders and proactive invitation
made to shareholders with more than 1% of the share capital.
Meetings typically occur shortly after the announcements of
half year and full year results. The opinions expressed by
shareholders are gathered by the Company Broker and passed
directly to the Board.
The AGM and the resolutions proposed for consideration at the
meeting are another focus of communication with shareholders.
Discussions are held prior to the meeting with shareholders
where they have views on the resolutions. The level of proxy
votes received is considered by the Board and published on
the Group’s website.
By order of the Board
Adam Castleton
Company Secretary
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 16
AUDIT COMMITTEE REPORT
Introduction from the Audit Committee Chair
Since my appointment as Chair of the Audit Committee
in October 2009 I have focused on using my financial and
commercial expertise to ensure the Committee fulfils its
duties properly, including challenging the Company’s finance
personnel in terms of key judgements applied in preparing the
financial statements and the external auditors with regard to the
audit plan, scope and audit effectiveness. The Audit Committee
is responsible for ensuring that the financial integrity of the
Group is effective, through the regular review of its financial
performance. It is also responsible for ensuring that the Group
has appropriate risk management processes and internal
controls, and that the external audit process is robust. I explain
in more detail the Committee’s activities in this report.
The Audit Committee provides effective governance over
external financial reporting, risk management and internal
controls and reports its findings and recommendations to the
Board. In my capacity as Chairman of the Audit Committee,
I am pleased to report on the operations of the Committee
during the past year, with emphasis on the specific matters we
have considered, including compliance with the UK Corporate
Governance (the Code) and associated Guidance on Audit
Committees. I confirm that we have fully complied with the
requirements of the Code as issued in September 2012
and which applies to financial years beginning on or after
1 October 2012.
Roy Naismith, the Group Finance Director left the Company
in April 2013, and was replaced by Adam Castleton in August
2013. During the interim period, Neil Williams (Operations
Director) combined his role with that of Interim Group Finance
Director. Neil qualified as a Chartered Accountant with KPMG.
The Company’s financial operations and controls continued
to run smoothly during this period and I would like to thank
Neil for his diligence and for the Finance team’s continued
professionalism during what might otherwise have been an
unsettling time.
This is the final year of the Audit Partner’s five year rotation
and I would personally like to thank Robert Brent for his
responsiveness and professionalism. We expect to agree the
placement of the new Audit Partner before the next AGM.
In the coming year I expect the Committee to put in place
additional and extended policies and guidelines covering
tendering of the external audit, hiring of staff from the external
audit firm, review of risk management framework and reviewing
the effectiveness of the external audit process.
I thank my fellow Committee member Claire Kent for all her
work and input to the Committee and have welcomed the
openness of KPMG and French Connection personnel
throughout the year.
Dean Murray
Chair of the Audit Committee
Membership and remit of the Audit Committee
The Committee considers financial reporting and reviews
the Group’s accounting policies and annual statements. In
particular, any major accounting issues of a subjective nature
are discussed by the Committee.
The Committee also reviews audit activity including the
recommendation to the Board regarding the appointment of
the external auditor, their remuneration and scope of work,
including non-audit services.
The Audit Committee is also responsible for considering the
independence, objectivity and effectiveness of the external
auditor, for monitoring the level of non-audit services provided
by the external auditor and for assessing the effectiveness of
the risk management process.
At the date of the 2014 Annual Report, the Audit Committee
comprises two independent non-Executive Directors: Dean
Murray (Chair) and Claire Kent. In accordance with Code
provision C.3.1, the Board considers that Dean Murray
has significant, recent and relevant financial experience.
Biographies of all of the members of the Audit Committee,
including a summary of their experience, appear within the
Board of Directors.
The Audit Committee normally meets at least three times
a year. Audit Committee meetings are also attended by the
Group Finance Director, who is Secretary to the Committee
and by invitation the Group Financial Controller and Partner and
other senior staff of the external auditor. The Committee met
twice during the year and each meeting was fully attended.
Terms of reference
Significant risk issues identified are referred to the Board
for further consideration. The terms of reference of the Audit
Committee are available on the Company’s website.
The Audit Committee is authorised by the Board to review
any activity within the business. It is authorised to seek any
information it requires from, and require the attendance at any
of its meetings of, any Director or member of management, and
all employees are expected to co-operate with any request
made by the Audit Committee.
The Audit Committee is authorised by the Board to obtain, at
the Company’s expense, outside legal or other independent
professional advice and secure the attendance of outsiders
with relevant experience and expertise if it considers this
necessary.
The Chair of the Audit Committee reports to the subsequent
Board meeting on the Committee’s work and the Board
receives a copy of the minutes of each meeting.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 17
Significant issues considered by
the Audit and Risk Committee
The Committee considered the significant accounting issues,
matters and judgements in relation to the Group’s financial
statements and disclosures for the year ended 31 January
2014. As part of the half year and full year reporting process,
management present an accounting paper to the Committee,
and the external auditors are asked to also comment on the key
areas of accounting judgement and disclosure. The information
presented is used by the Committee to critically review and
assess the key policies and judgements that have been applied,
the consistency of policy application from year to year and
the appropriateness of key disclosures made, together with
compliance with the applicable accounting standards.
After discussion with both management and the external
auditor, the Committee determined that the key risks of
misstatement of the Group’s financial statements related to:
Net realisable value of inventories (NRV)
Net realisable value was discussed with management
during the year and with the auditor at the time the Committee
reviewed and agreed the auditors’ Group audit plan, and also
at the conclusion of the audit of the financial statements.
The Audit Committee required the Group Financial Controller
to present a detailed summary of inventory and to describe the
methodology for calculating the inventory provision which was
considered in detail by the Committee. The Group Financial
Controller was also required to describe the stock taking
procedures and to explain any significant adjustments made
during the year.
The Committee interrogated management’s key assumptions
made regarding Net Realisable Value and was satisfied that
the significant assumptions had been appropriately scrutinised,
challenged and were sufficiently robust.
The auditor explained their audit procedures to test
management’s assumptions and calculations and considered
the Group’s disclosures on the subject. On the basis of their
audit work, the auditor considered that the carrying value of
inventory was materially appropriate in the context of the
financial statements as a whole.
Risk management framework
The risk management framework is considered by the Board
during the year. It is expected that the Audit Committee will
also consider additional review procedures to further strengthen
the control environment and enhance corporate governance.
The Group did not have a separate internal audit function
during the year. The Audit Committee considered whether
there was a need for such a function, concluding that the
benefits, when compared to the potential benefits of deploying
additional resources in other areas, were not sufficiently clear.
It is expected that this matter will be reviewed again during
FY 2015.
Confidential reporting
The Group’s whistle blowing policy enables staff, in confidence,
to raise concerns about possible improprieties in financial and
other matters and to do so without fear of reprisal.
The Audit Committee receives quarterly reports on whistle
blowing incidents and remains satisfied that the procedures
in place are satisfactory to enable independent investigation
and follow up action of all matters reported.
No issues have been reported in the current year.
Reporting of other matters
All significant insurance claims and incidents of fraud or
theft are reported to the Committee.
There have been no significant incidents during the year.
External auditor appointment
KPMG Audit PLC was re-appointed as external auditors in
the financial year.
The Audit Committee considers that the relationship with the
auditors is working well and is satisfied with their effectiveness.
KPMG has acted as the Company’s external auditor since
1990 and the Company complies with the requirement to rotate
the audit partner every five years. The current audit partner,
Robert Brent, completes his five year rotation following this
year end and a new partner has been introduced.
We have assessed the effectiveness of the annual audit by
KPMG. This included reviewing their audit approach, the
strength of the audit team and their knowledge of the business,
the quality of the audit work and the robustness of their
challenge. We concluded that KPMG had completed the
external audit effectively and in accordance with auditing
standards.
Our auditor, KPMG Audit PLC has instigated an orderly wind
down of business. The Board has decided to put KPMG LLP
forward to be appointed as auditors. Resolutions will be
proposed at the AGM on 15 May 2014 to appoint KPMG LLP
as the Company’s external auditor and to authorise the
Directors to agree their remuneration for the 2014/2015 audit.
The Audit Committee has considered the new Code, and
recognises the Competition Commission’s proposal that
FTSE350 companies must tender the external audit at
least every ten years. While this is not applicable to French
Connection, the Committee nevertheless recognises this to be
best practice. The Committee is also aware of the EU proposals
that may come into force during 2014 and that will be relevant
for all listed companies, which as currently drafted introduce
mandatory firm rotation.
The Audit Committee will continue to monitor these
developments during the coming year as these may determine
the year in which an external audit tender should be undertaken
by the Company. The Committee will develop an appropriate
Audit tendering policy during the year in the light of any new
guidelines.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 18
AUDIT COMMITTEE REPORT
Continued
External auditor’s independence
The Committee has adopted a policy in relation to the
appointment of the external auditors to conduct non-audit
services for the Group.
The policy identifies three categories of work: that which is
closely related to the statutory audit work, such as tax planning
and compliance, and which is therefore pre-approved by the
committee, that which it is inappropriate for the auditors to
conduct, such as internal accounting work, IT services, or
internal auditing, and from which the auditors are therefore
excluded and all other types of work for which prior approval is
required from the Audit Committee where the costs are greater
than £5,000.
The objective of this policy is to protect the independence of
the auditors while retaining the benefits to be gained from
synergies with existing work areas.
In 2013/2014 the ratio of audit to non-audit fees was 1:0.88.
This is higher than we would expect on a going forward basis
and reflected significant tax advisory work which is not
expected to recur.
The Audit Committee has considered the independence of the
external auditor, including the non-audit services performed,
and has concluded that those non-audit services provided do
not impair the auditor’s independence.
External audit annual assessment
The Group Finance Director, and the Audit Committee meet
with the external auditors to discuss the audit strategy and any
key issues included on the Audit Committee’s agenda during
the year.
After formal discussion, the Audit Committee considers that the
relationship with the auditors is working well and is satisfied
with their effectiveness.
During 2014/2015 the Audit Committee will consider putting in
place more detailed guidelines and policies under the heading
reviewing the effectiveness of the external audit process, to
make the review process more detailed and to require input
from a wider constituency e.g. the Company’s finance team.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 19
DIRECTORS’ REMUNERATION REPORT
Annual Statement by the Chairman
of the Remuneration Committee
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 January 2014.
In my report as Chairman of the Remuneration Committee,
I set out the Committee’s approach to Directors’ remuneration.
The Committee’s objective is to set a remuneration policy
that is clearly understood by our shareholders and employees,
and that drives the right behaviour in terms of incentivising
Executive Directors to deliver growing long-term shareholder
value.
Mr Roy Naismith stepped down from the Board of French
Connection and ceased to serve as Group Finance Director in
April 2013. He was replaced by Mr Adam Castleton in August
2013.
The Remuneration Committee considered and approved the
appropriate termination payment for Mr Naismith and contract
of employment and remuneration package for Mr Castleton in
accordance with the Group remuneration policy and the details
of both are contained within this report.
There were no other substantial changes relating to Directors’
remuneration made during the year.
As required by law, at the 2014 AGM we are seeking
shareholders’ approval of our Directors’ remuneration policy,
as set out in the next section of this report.
We are happy to discuss any remuneration matters with
shareholders and hope that we can enjoy your support
on the remuneration-related resolutions at the 2014 AGM.
Claire Kent
Chairman, Remuneration Committee
Directors’ Remuneration Report
The Directors’ Remuneration Report sets out details of the
remuneration policy (Section 1) for Executive and non-Executive
Directors, describes the implementation of that policy (Section
2) and discloses the amounts paid relating to the year ended
31 January 2014.
The report complies with the provisions of the Companies
Act 2006 and Schedule 8 of The Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013. The report has been prepared in line with the
recommendations of the UK Corporate Governance Code and
the requirements of the UKLA Listing Rules, as well as the
GC100 and Investor Group.
The Directors’ remuneration policy set out within this report
will be put to shareholders for approval in a binding vote at
the forthcoming AGM. The policy remains consistent with that
operated during the 2013 financial year and approved at the
2013 AGM under the previous reporting framework.
The Remuneration Committee comprises Claire Kent as Chair
and Dean Murray. Adam Castleton acts as Secretary to the
Committee (since his appointment in August 2013, previously
Roy Naismith until his ceasing to hold office in April 2013).
The Committee met twice during the year to consider the
Directors’ and senior managers’ remuneration.
When setting the policy for Executive Directors’ remuneration,
the Committee takes into account total remuneration levels
operating in companies of a similar size and complexity, the
responsibilities of each individual role, individual performance
and an individual’s experience. Our overall policy, having had
due regard to the factors noted, is to weight remuneration
towards variable pay. This is typically achieved through setting
base pay, pension and benefits up to market median levels,
with a variable pay opportunity linked to the achievement of
Company and personal performance targets.
In setting remuneration for the Executive Directors, the
Committee does take note of the overall approach to reward
for employees in the Group and salaries increases will ordinarily
be (in percentage of salary terms) in line with those of the wider
workforce.
We remain committed to shareholder dialogue and take
an active interest in voting outcomes. There have been no
significant policy changes or other substantial matter which
required dialogue with shareholders during the year. If any
of the shareholders are opposed to our policy we would
endeavour to meet with them to understand and respond
to any issues they may have.
The Committee considers developments in institutional
investors’ best practice expectations and the views expressed
by shareholders during any dialogue. The Committee does not
formally consult directly with employees on Executive pay.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 20
DIRECTORS’ REMUNERATION REPORT
Continued
Terms of reference for the Remuneration
Committee
1. Membership
The members of the Committee shall be at least two non-
Executive Directors who are independent of management and
free of any business or other relationship (including, without
limitation, cross-directorships or day to day involvement in the
management of the business) which could interfere with the
exercise of their independent judgement.
The Chairman of the Committee shall be appointed by the
Board. The quorum of the Committee shall be at least two
members.
2. Secretary
The secretary of the Company shall be the secretary
of the Committee.
3. Attendance
The Chief Executive may be invited to attend meetings to
discuss the performance of Executive Directors and make
proposals as necessary.
The Group Finance Director will report to the Committee on
significant Group-wide changes in salary structure and terms
and conditions affecting other employees at senior Executive
level.
4. Frequency of meetings
Meetings shall be held not less than twice a year.
5. Advisers
The Committee is authorised by the Board to seek appropriate
professional advice inside and outside the Group as and when
it considers this necessary.
6. Duties
The duties of the Committee shall be to:
• make recommendations to the Board on the Company’s
framework of Executive remuneration and its cost and to
determine on behalf of the Board specific remuneration
packages and conditions of employment (including pension
rights) for Executive Directors;
• approve any contract of employment or related contract with
Executive Directors on behalf of the Company;
• determine the terms of any compensation package in the
event of early termination of the contract of any Executive
Director;
• ensure that the content of the Board’s annual report to
shareholders on Directors’ remuneration reflect the
enhanced regulations and amendments to CA2006 which
were introduced for financial years ending after 30 October
2013.
7. Minutes
The minutes of meetings of the Committee shall be circulated
to all members of the Board.
Section 1: Remuneration Policy
The objective of the policy is to ensure it is appropriate to the
Group’s needs and reward Executives for creating shareholder
value. It is the Remuneration Committee’s intention to maintain
incentive arrangements which are subject to challenging
performance targets, reflect the Company’s objectives and which
motivate Executives to focus on both annual and longer term
performance.
The Company’s policy is:
• to provide remuneration packages for the Executive
Directors and other senior managers in the Group which are
appropriate to the size and nature of the Group’s business
and which will attract, retain and motivate high calibre
Executives;
• to balance the fixed and performance-related elements of
remuneration appropriately and to provide both short-term
and longer-term incentives to achieve the strategic aims of
the Group.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 21
Structure of remuneration
Element
Purpose and link
to strategy
Operation
(including maximum levels)
Framework used to assess performance and
provisions for the recovery of sums paid
Salary
and fees
To provide the core reward
for the role
Sufficient to attract, retain
and motivate high calibre
Executives
Basic salaries are reviewed annually, with changes
effective from 1 February
Salaries are typically set having regard to competitive
market practice, each Director’s contribution to the
business, general inflation rates and the conditions
within the Group
Salaries may be adjusted and any increase will ordinarily
be (in percentage of salary terms) in line with those of the
wider workforce
Increases beyond those granted to the wider workforce
(in percentage of salary terms) may be awarded in
certain circumstances such as where there is a change
in responsibility, progression in the role, experience or a
significant increase in the scale of the role and/or size,
value and/or complexity of the Group
Salary levels for current incumbents for the 2014 financial
year are as follows:
Chairman/CEO: £299,477
Group Finance Director: £215,000
Operations Director: £226,204
The Committee considers individual salaries at
the appropriate Committee meeting each year
after having due regard to the factors noted in
operating the salary policy
No recovery provisions apply to salary
Benefits
in kind
In line with the Company’s
strategy to keep
remuneration simple and
consistent with practices
in the market
Executive Directors receive car benefit, medical cover and
life cover in line with other senior management
Executive Directors also receive personal accident and
sickness cover
The cost to the Company of providing these benefits may
vary from year to year depending on the cost of insuring
the benefit
Not applicable
No recovery provisions apply to benefits
Pension To provide post-retirement
remuneration and market
typical benefits to ensure
that the overall remuneration
package is competitive
Defined contribution plan with up to 10% monthly
employer contributions
A cash alternative may be considered
For tax and wealth planning, the Company may make
payments of pension benefits due in advance for
Executive Directors
Not applicable
No recovery provisions apply to pension benefits
Annual
Bonus
To incentivise and recognise
execution of the business
strategy on an annual basis
Rewards the achievement
of annual financial,
operational and individual
goals
Bonuses are capped at 100% of basic salary
Bonus payments are proposed to the Board after
the end of each financial year and approved by the
Committee for payment in March
The bonus is calculated using pro-rata base salary
if the Director joined the Company during the year
If the Director resigns or has his/her employment
terminated before the payment date, no bonus will
normally be payable
The annual grant of bonuses is based on the
financial performance of the Group in relation to
initial budgets, prior year performance and market
conditions, as well as operational and individual
goals
The current Group Finance Director’s service
contract has specific criteria for the payment
of an annual bonus based on Group Financial
targets, with a sliding scale applicable for
2013/14 only
After that time the general policy noted above
comes into operation for the Group Finance
Director
No recovery provisions apply to the Annual Bonus
Long-
term
incentive
plans
(LTIPs)
To align the interests of
the Executive Directors
with the performance of the
business and the interests
of the shareholders through
the use of share option
schemes
To incentivise and recognise
execution of the business
strategy over the longer
term
Rewards strong financial
performance
At the discretion of the Board and approval of the
Remuneration Committee the Company may issue share
options to Directors up to a maximum of two times salary
in each year
In exceptional circumstances the Board has the discretion
to issue options up to four times salary although this
power has not been used in the last ten years
Options will normally be granted at market value on the
date of grant unless otherwise stated in a Service
Agreement
Options may be granted at a discount to the market value
only in circumstances where the grant of options is agreed
as part of a recruitment package in which case the
exercise price of the option may be determined by
reference to the market value on the date on which the
individual’s employment commenced
The share option schemes include an upper limit on the
number of shares which can be issued of 10% of the total
share capital in any ten year period
Share Awards vest based on three year
performance against a challenging range
of financial targets
No recovery provisions apply to the LTIP
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 22
The Committee has not been required to apply any discretion
during 2014 outside the stated Remuneration Policy, other
than consideration of the specific terms of the Service
Contract of the incoming Group Finance Director.
Any use of the above discretions would, where relevant, be
explained in the Annual Directors’ Remuneration Report and
may, as appropriate, be the subject of consultation with the
Company’s major shareholders.
The performance metrics that are used for our annual bonus
and LTIP are to reflect the Group’s key performance
indicators, notably ‘Profit before Tax’.
The Executive remuneration policy is broadly in line with other
French Connection employees, with the main difference that
there is no share scheme below senior Executive level and
some variation of benefits offered.
Any loss of office payment will be approved by the Group
Board and Remuneration Committee. Any payment will
be made at discretion and on a case by case basis. Any
payments made beyond contractual and statutory obligations
would be exceptional in nature either due to additional
obligations taken on by the departing Director or due to
specific circumstance and always benchmarked against
market practice.
Illustration of application of policy
The bar charts below represents the variations in
remuneration at different levels of performance for the first
year of application of the remuneration policy for the Executive
Directors. Long-term incentive plans have been excluded from
the illustrations below because options are normally granted
at market value on the date of grant and therefore have no
immediate intrinsic value.
700,000
600,000
500,000
400,000
200,000
300,000
100,000
0
Fixed On-target Maximum
100% 70% 54%
30%
46%
Stephen Marks
Annual incentives
Fixed only
Base Benefit Pension Total
Fixed (£) 299,477 22,520 29,948 351,945
On-target On-target is assumed to be an annual
bonus equal to 50% of maximum
Maximum Full payout of annual variable pay
i.e. 100% of base salary
600,000
500,000
400,000
200,000
300,000
100,000
0
Fixed On-target Maximum
100% 70% 54%
30%
46%
Neil Williams
Annual incentives
Fixed only
Base Benefit Pension Total
Fixed (£) 226,204 17,182 21,962 265,348
On-target On-target is assumed to be an annual
bonus equal to 50% of maximum
Maximum Full payout of annual variable pay
i.e. 100% of base salary
DIRECTORS’ REMUNERATION REPORT
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 23
500,000
400,000
200,000
300,000
100,000
0
Fixed On-target Maximum
100% 70% 54%
30%
46%
Adam Castleton
Annual incentives
Fixed only
Base Benefit Pension Total
Fixed (£) 215,000 12,000 22,700 249,700
On-target On-target is assumed to be an annual
bonus equal to 50% of maximum
Maximum Full payout of annual variable pay
i.e. 100% of base salary
Executive Director’s terms of employment
Neil Williams’ service contract is dated 17 April 1996, has an
indefinite term, and includes provision for a notice period of
twelve months by either party.
Adam Castleton’s service contract is dated 26 April 2013, has
an indefinite term, and includes provision for a notice period of
12 months during the first year of employment and thereafter
six months by either party.
The service agreements can be inspected at the Group
registered office.
Stephen Marks has no service contract.
Non-Executive Directors
Non-Executive Directors have specific terms of engagement
and the Board determines their remuneration.
Dean Murray’s terms of engagement are dated 7 March 2008,
have an indefinite term and allow for a notice period of one
month.
Claire Kent’s terms of engagement are dated 3 October 2008,
have an indefinite term and allow for a notice period of one
month.
The non-Executive Directors each receive total annual fees
of £30,000.
No detailed disclosures have been provided for non-Executive
Directors other than for that relating to their fees, as this is the
only form of remuneration the non-Executive Directors receive.
Section 2: Application of the remuneration
policy for 2015
The Executive Directors’ salaries will be reviewed with effect
from 1 March 2014 and will be increased as follows:
Stephen Marks +3%
Neil Williams +3%
Adam Castleton +0%
The annual bonus for the 2015 financial year will operate
on the same basis as for the 2014 financial year and will
be consistent with the policy detailed in the Remuneration
policy section of this report in terms of the maximum
bonus opportunity. The measures have been selected
to reflect goals that support the key strategic objectives
of the Company.
The Remuneration Committee will exercise their discretion
to grant share options according to the Remuneration Policy
during the Financial Year 2015 dependent upon the financial
position of the Group and the personal contribution of each
Executive Director.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 24
DIRECTORS’ REMUNERATION REPORT
Continued
Directors’ single figure of total remuneration (audited)
The following table sets out the single figure of total remuneration for Directors for the financial years ended
31 January 2014 and 2013:
Director’s earnings
Directors’ emoluments
Year ended 31 January 2014
Salary
& fees
£000
Benefits
in kind
£000
Annual
bonus
£000
Loss of
office
£000
Pension
£000
Total
£000
Executive Directors
Stephen Marks 299 23 50 – 30 402
Neil Williams 226 17 40 – 22 305
Adam Castleton 102 9 45 – 10 166
Roy Naismith 50 4 – 188 5 247
Non-Executive Directors
Dean Murray 30 – – – – 30
Claire Kent 30 – – – – 30
737 53 135 188 67 1,180
The annual bonus shown above was accrued in respect of the performance for the year ended 31 January 2014.
Year ended 31 January 2013
Salary
& fees
£000
Benefits
in kind
£000
Annual
bonus
£000
Loss of
office
£000
Pension
£000
Total
£000
Executive Directors
Stephen Marks 299 23 – – 30 352
Neil Williams 226 14 – – 22 262
Roy Naismith 194 14 – – 19 227
Non-Executive Directors
Dean Murray 30 – – – – 30
Claire Kent 30 – – – – 30
779 51 – – 71 901
The comparative annual bonuses reported in the 2013 Directors Remuneration Report included amounts payable in 2013 but
related to the performance for the year ended 31 January 2012. No bonuses were paid in 2013 in relation to the year ended
31 January 2013 and accordingly no amounts are included in the 2013 table above.
Percentage change in remuneration of Chief Executive
The Chief Executive received no pay increase in 2014 in line with the rest of the eligible Group employees. Annual bonus paid
to the Chief Executive was higher than the previous year (no bonus paid in 2013). Employee annual incentives have not been
finalised at the signing date of the Annual Report.
Relative importance of spend on pay
Remuneration paid to all employees of the Group during 2014 was £38.9m which represented 38% of the total overheads of
the Group (2013: £41.1m (38%)).
The table below shows the total pay for all of the Group’s employees compared to distributions and other significant spend.
2014
£m
2013
£m % change
Employee costs 38.9 41.1 (5)%
Dividends – – –
Overheads 101.4 108.9 (7)%
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 25
Payments for loss of office (audited)
Roy Naismith ceased to be an Executive Director and the Group Finance Director of the Company on 26 April 2013.
In line with his service agreement and statutory entitlements, Mr Naismith was entitled to an aggregate payment of £178,000.
Mr Naismith also agreed to abide by extended confidentiality, restrictive covenants and other restrictions for a period of
12 months from leaving the Group compared to those set out in his contract of employment.
A pension contribution was made of £9,711, and family health cover was extended until 31 October 2013.
Mr Naismith’s share options detailed below lapsed on 26 April 2013.
Directors’ shareholding and share interests (audited)
Directors’ share options
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire shares in the Company
granted to or held by the Directors. Details of options to subscribe for ordinary shares of 1p each in the Company held by
Directors who served during the year are as follows:
1 February
2013
No. of
options
Issued/
(lapsed)
during the
year
31 January
2014
No. of
options
Exercise
price (p)
Dates of
grant
Dates from
which
exercisable
Dates of
expiry
Stephen Marks 376,700 – 376,700 56.2
29 Oct
2008
29 Oct
2011
29 Oct
2018
Neil Williams 284,500 – 284,500 56.2
29 Oct
2008
29 Oct
2011
29 Oct
2018
Adam Castleton – 600,000 600,000 29.25
4 Nov
2013
4 Nov
2016
4 Nov
2023
Roy Naismith 244,300 (244,300) – 56.2
29 Oct
2008
29 Oct
2011
29 Oct
2018
No options were exercised during the year.
The options awarded to Adam Castleton during the year have targeted performance conditions attached (50% of the share options
will vest if the minimum performance criteria is met) and a three year service condition. The face value of these options based on the
share price at the date of grant was £240,780.
The market price of the shares at 31 January 2014 was 36.5p and the range during the year was 24.5p to 42.5p. The average market
share price during the year was 31.6p. The options granted are exercisable between three and ten years after the date of grant and
were subject to performance conditions described above.
Statement of Directors’ shareholding and share interests
Year ended 31 January 2014
Share
options* with
performance
conditions
No.
Vested but
unexercised
No.
Shares
beneficially
owned
No.
Total interest
in shares
No.
Stephen Marks – 376,700 40,094,190 40,470,890
Neil Williams – 284,500 – 284,500
Adam Castleton 600,000 – 33,000 633,000
600,000 661,200 40,127,190 41,388,390
* outstanding service conditions
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 26
Review of past performance and total shareholder return
This graph below demonstrates the Company’s performance, measured by total shareholder return, compared with the
performance of the FTSE Small Cap Index also measured by total shareholder return. This index has been selected for the
comparison because it reflects the market sector in which the Company is reported. The graph has been compiled on annual
data at 31 January of each year.
350
300
250
200
100
150
50
0
31 Jan-09 31 Jan-10 31 Jan-11 31 Jan-12 31 Jan-13 31 Jan-14
Total cumulative shareholder return for the five-year period to 31 January 2014 French Connection
FTSE Small Cap
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
Total CEO remuneration 330 505 342 352 402
Annual variable element award rates against
maximum opportunity 0% 62% 0% 0% 17%
Approval
This report was approved by the Board of Directors on 12 March 2014 and signed on its behalf by:
Adam Castleton
Company Secretary
Company Number: 1410568
12 March 2014
DIRECTORS’ REMUNERATION REPORT
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 27
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent Company financial statements in accordance with UK Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice).
Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of
the Group and parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• for the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the parent Company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the
parent Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
These Reports were all approved by the Board of Directors.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
By order of the Board
Stephen Marks Adam Castleton
Chairman and Chief Executive Group Finance Director
12 March 2014
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
In respect of the Annual Report and the Financial Statements
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 28
INDEPENDENT AUDITOR’S REPORT
To the members of French Connection Group plc
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of French Connection Group PLC for the year ended 31 January 2014 set out on pages
30 to 59. In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at
31 January 2014 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with UK Accounting Standards; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risk of material misstatement that had the greatest effect on
our audit was as follows:
Carrying value of inventory (£38.5m)
Refer to page 17 (Audit Committee Report), page 37 (accounting policy) and page 53 (financial disclosures).
• The risk – Inventory is carried in the financial statements at the lower of cost and net realisable value. The fashion industry can
be extremely volatile with consumer demand changing significantly based on current trends. As a result there is a risk that the
cost of inventory exceeds its net realisable value.
• Our response – Our audit procedures included, among others, the following procedures:
• We tested the Group’s controls over inventory by attending inventory counts at both warehouse and retail sites, testing
controls over the calculation of inventory loss allowances, inventory provisions and standard costs, and testing reconciliations
between the inventory ledger and the general ledger.
• We challenged the adequacy of the Group's provisions against inventory by seasonal collection and overall. We assessed the
Directors' assumptions on net realisable value of inventory, taking into account our knowledge of the industry and of current
and forecast future performance of the Group, and considered the historical accuracy of provisioning as a tool for evaluating
the adequacy of the control environment in setting the current provisions.
• We considered the adequacy of the Group's disclosures about the degree of estimation involved in arriving at the provision.
3 Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £2.775m. This has been determined with reference
to a benchmark of Group revenue (of which it represents 1.5%), which we consider to be one of the principal considerations for
members of the Company in assessing the financial performance of the Group, and is a less volatile measure than profit or loss.
We agreed with the audit committee to report to it all corrected and uncorrected misstatements we identified through our audit with
a value in excess of £0.135m, in addition to other audit misstatements below that threshold that we believe warranted reporting on
qualitative grounds.
Audits for Group reporting purposes were performed by component auditors at three reporting components in the United Kingdom
and by the Group audit team at nine components in the United Kingdom. In addition the Group audit team undertook a review of
the financial information of the components in Canada and Hong Kong. Specified audit procedures were performed by component
auditors in the USA. The combined effect of this approach covered 96% of total Group revenue; 95% of the total profits and losses
that made up Group loss before tax; and 97% of total Group assets. The segment disclosures in Note 2 set out the individual
significance of a specific country.
The audits undertaken for Group reporting purposes at the key reporting components of the Group were all performed to materiality
levels set by, or agreed with, the Group audit team. Materiality for these components was set at £1.2m.
Detailed audit instructions were sent to the component auditors in the United Kingdom and the USA. These instructions covered the
significant audit areas that should be covered by these audits (which included the relevant risks of material misstatement detailed
above) and set out the information required to be reported back to the Group audit team. The Group audit team held telephone
meetings with the auditors at these locations.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 29
4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the information given in the Corporate Governance Statement set out on pages 14 to 15 with respect to internal control and
risk management systems in relation to financial reporting processes and about share capital structures is consistent with the
financial statements.
5 We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ statement
that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s performance, business model and strategy; or
• the Audit Committee Report does not appropriately address matters communicated by us to the Audit Committee.
• Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 10, in relation to going concern; and
• the part of the Corporate Governance Statement on pages 14 to 15 relating to the Company’s compliance with the
ten provisions of the UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 27, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an
audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This
report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding
our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report
as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and
the basis of our opinions.
Robert Brent (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square, London E14 5GL
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 30
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 January 2014
Note
2014
£m
2013
£m
Revenue 2 189.4 197.3
Cost of sales (99.2) (102.7)
Gross profit 2 90.2 94.6
Operating expenses 3 (101.4) (108.9)
Other operating income 4 6.1 6.5
Finance income 6 0.1 0.2
Share of pro?t of joint ventures, net of tax 13 0.6 0.4
Underlying operating loss (4.4) (7.2)
Net loss on store disposals and closures (1.7) (1.3)
Impairment of goodwill – (2.0)
Loss before taxation 7 (6.1) (10.5)
Income tax credit – UK 0.4 –
Income tax expense – overseas (0.3) –
Total income tax credit 8 0.1 –
Loss for the year (6.0) (10.5)
The Group’s results were entirely from continuing operations.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 31
Note
2014
£m
2013
£m
Loss for the year (6.0) (10.5)
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Currency translation differences for overseas operations 0.3 (0.2)
Currency translation differences on foreign currency loans, net of tax (1.0) 0.1
Effective portion of changes in fair value of cash flow hedges (0.3) –
Other comprehensive income for the year, net of tax (1.0) (0.1)
Total comprehensive income for the year (7.0) (10.6)
Loss attributable to:
Equity holders of the Company (6.1) (10.3)
Non-controlling interests 0.1 (0.2)
Loss for the year (6.0) (10.5)
Total comprehensive income attributable to:
Equity holders of the Company (7.1) (10.4)
Non-controlling interests 0.1 (0.2)
Total income and expense recognised for the year (7.0) (10.6)
Losses per share
Basic and diluted losses per share 10 (6.4)p (10.7)p
The notes on pages 35 to 53 form part of these accounts.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 32
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 January 2014
Note
2014
£m
2013
£m
Assets
Non-current assets
Intangible assets 11 0.4 0.4
Property, plant and equipment 12 4.5 5.7
Investments in joint ventures 13 3.1 3.0
Deferred tax assets 20 4.8 4.4
Total non-current assets 12.8 13.5
Current assets
Inventories 14 38.5 41.5
Trade and other receivables 15 22.7 23.7
Cash and cash equivalents 16 28.2 28.5
Derivative ?nancial instruments 26 – 0.1
Total current assets 89.4 93.8
Total assets 102.2 107.3
Non-current liabilities
Deferred tax liabilities 20 0.5 0.9
Total non-current liabilities 0.5 0.9
Current liabilities
Trade and other payables 17 43.1 41.2
Current tax payable 19 0.2 –
Provisions 18 1.7 1.7
Derivative ?nancial instruments 26 0.2 –
Total current liabilities 45.2 42.9
Total liabilities 45.7 43.8
Net assets 56.5 63.5
Equity
Called-up share capital 21 1.0 1.0
Share premium account 9.4 9.4
Other reserves 4.3 5.3
Retained earnings 40.9 47.0
Total equity attributable to equity holders of the Company 55.6 62.7
Non-controlling interests 0.9 0.8
Total equity 56.5 63.5
The notes on pages 35 to 53 form part of these accounts.
These accounts were approved by the Board of Directors on 12 March 2014 and were signed on its behalf by:
Stephen Marks Adam Castleton
Director Director
Company Number: 1410568
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 33
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
£m
Share
premium
£m
Hedging
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Total
equity
£m
Balance at 31 January 2012 1.0 9.4 0.1 5.3 58.3 74.1 1.0 75.1
Loss for the year ended 31 January 2013 (10.3) (10.3) (0.2) (10.5)
Other comprehensive income
Currency translation differences for
overseas operations (0.2) (0.2) (0.2)
Currency translation differences
on foreign currency loans, net of tax 0.1 0.1 0.1
Transactions with owners recorded
directly in equity
Dividends (1.0) (1.0) (1.0)
Balance at 31 January 2013 1.0 9.4 0.1 5.2 47.0 62.7 0.8 63.5
Loss for the year ended 31 January 2014 (6.1) (6.1) 0.1 (6.0)
Other comprehensive income
Currency translation differences for
overseas operations 0.3 0.3 0.3
Currency translation differences
on foreign currency loans, net of tax (1.0) (1.0) (1.0)
Effective portion of changes in fair
value of cash ?ow hedges (0.3) (0.3) (0.3)
Balance at 31 January 2014 1.0 9.4 (0.2) 4.5 40.9 55.6 0.9 56.5
Translation reserve
The translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign
operations as well as from the translation of foreign currency loans.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 34
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 January 2014
Note
2014
£m
2013
£m
Operating activities
Loss for the period (6.0) (10.5)
Adjustments for:
Depreciation and impairment 1.9 3.1
Impairment of goodwill – 2.0
Finance income (0.1) (0.1)
Currency translation differences – (0.1)
Share of pro?t of joint ventures (0.6) (0.4)
Non-operating loss on store disposals and closures 1.7 1.3
Income tax credit (0.1) –
Operating loss before changes in working capital and provisions (3.2) (4.7)
Decrease in inventories 2.3 5.4
Decrease in trade and other receivables 0.8 2.4
Increase/(decrease) in trade and other payables 1.9 (6.8)
Cash flows from operations 1.8 (3.7)
Income tax paid (0.2) (0.5)
Cash flows from operating activities 1.6 (4.2)
Investing activities
Interest received 0.1 0.1
Proceeds from investment in joint ventures 0.4 0.9
Acquisition of property, plant and equipment (0.8) (1.7)
Net costs from store closures (1.7) (0.2)
Disposal of discontinued operations – 0.4
Cash flows from investing activities (2.0) (0.5)
Financing activities
Dividends paid 9 – (1.0)
Cash flows from financing activities – (1.0)
Net decrease in cash and cash equivalents 23 (0.4) (5.7)
Cash and cash equivalents at 1 February 23 28.5 34.2
Exchange rate ?uctuations on cash held 23 0.1 –
Cash and cash equivalents at 31 January 23 28.2 28.5
The notes on pages 35 to 53 form part of these accounts.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 35
NOTES TO THE GROUP ACCOUNTS
1 Accounting policies
a) Basis of preparation
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.
The consolidated financial statements have been prepared and approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the European Union (“adopted IFRS”). The Company has elected to prepare its
parent Company financial statements in accordance with UK Generally Accepted Accounting Practice; these are presented on
pages 54 to 59.
The consolidated financial statements have been prepared under the historical cost accounting rules, except for derivative financial
instruments measured at fair value.
The Group’s business activities, together with the factors likely to affect its future development, performance and position are
set out in the Financial Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
described in the Financial Review. In addition Note 26 to the financial statements includes the Group’s objectives, policies and
processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging
activities and its exposures to credit risk and liquidity risk.
The Group has considerable cash resources and as a consequence, the Directors believe that the Group is well placed to manage
its business risks successfully.
The Group ended the year with £28.2m of net cash and no borrowings. Over the cycle of the year the Group had minimum
net cash of £9.9m. Based on this and the forecast performance for the Group over the next 18 months, the Directors have a
reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
For this reason, the Board continues to adopt the going concern basis in preparing the accounts.
The preparation of the financial statements in conformity with adopted IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual
results may differ from these assumptions. The estimates and assumptions are based on historical experience and are reviewed
on an ongoing basis and are disclosed in Note 29. Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both
current and future periods.
The accounting policies set out below have been applied consistently to all periods in the consolidated financial statements.
There were no revisions to Adopted IFRS that became applicable in the year ended 31 January 2014 which had a significant
impact on the Group’s financial statements.
The Group does not consider that there are any standards, amendments or interpretations issued by the IASB, but not yet
applicable, that will have a significant impact on the financial statements.
b) Basis of consolidation
The consolidated financial statements of the Group comprise the accounts of the Company and all its subsidiary undertakings,
the accounts of which are all made up to 31 January each year end. The results of companies acquired or disposed of in the year
are dealt with from or up to the date control commences or ceases. The net assets of companies acquired are incorporated in the
consolidated accounts at their fair values to the Group at the date of acquisition. Intra-Group balances and any unrealised gains
or losses or income and expenses arising from intra-Group transactions are eliminated in preparing the consolidated financial
statements.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently
are exercisable are taken into account.
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and
requiring unanimous consent for strategic financial and operating decisions. Joint ventures are accounted for using the equity
method. The consolidated financial statements include the Group’s share of the income and expenses of joint ventures, after
adjustments to align the accounting policies with those of the Group, from the date that joint control commences until the date that
joint control ceases. When the Group’s share of losses exceeds its interest in a joint venture, the carrying amount of that interest
(including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent
that the Group has an obligation or has made payments on behalf of the investee. Unrealised gains arising from transactions with
joint ventures are eliminated against the investment to the extent of the Group’s interest in the entity.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 36
1 Accounting policies continued
c) Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill arising on business combinations
represents the difference between the cost of the acquisition and the fair value of the identifiable assets, liabilities and contingent
liabilities acquired. In respect of acquisitions prior to the IFRS transition date, 1 February 2004, goodwill is included on the basis
of its deemed cost based on the amount recognised under UK GAAP.
Goodwill is stated at cost less any accumulated impairment losses as discussed in Note j) below. Goodwill is tested annually for
impairment. Negative goodwill arising on an acquisition is recognised directly in the income statement.
The impairment calculations use cash flow projections based on actual operating results extrapolated forward for five years.
An appropriate pre-tax discount rate has been used in discounting the projected cash flows based on the weighted average cost
of capital applicable to the cash generating units concerned. For the purpose of impairment testing, goodwill is allocated to the
lowest level of cash generating unit within the Group at which the goodwill is monitored for internal management purposes. Where
goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated
with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal.
Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the
portion of the cash generating unit retained.
d) Foreign currency
Transactions effected by companies in foreign currencies are translated into their functional currency at the foreign exchange rate
ruling at the date of transaction. Monetary assets and liabilities of companies denominated in currencies other than the functional
currency of the Company are translated at the foreign exchange rate ruling at the balance sheet date. Foreign exchange
differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities denominated in
foreign currencies that are measured in terms of historical cost are translated using the exchange rate at the date of transaction.
Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at the foreign
exchange rates ruling at the dates the fair value was determined.
Long term monetary assets and liabilities receivable from or payable to a foreign operation, the settlement of which is not planned
or expected to occur in the foreseeable future, are considered to represent part of the Group’s net investment in a foreign
operation. Therefore, exchange gains and losses arising from these amounts are included in equity in the foreign currency
translation reserve.
On consolidation, the assets and liabilities of foreign operations which have a functional currency other than Sterling are translated
into Sterling at foreign exchange rates ruling at the balance sheet date. The income and expenses of these subsidiary undertakings
are translated into Sterling at the average rates applicable to the period. All resulting exchange differences are taken to reserves.
Any exchange differences that have arisen since 1 February 2004 are presented as a separate component of equity within a
translation reserve. Such exchange differences taken to reserves as from the date of transition to IFRS are recognised in the
income statement upon disposal of the subsidiary.
e) Derivative financial instruments
Derivative financial instruments in the form of forward foreign exchange contracts are used to manage the risk associated with
purchases denominated in foreign currencies as described in the section entitled Our Business.
Derivative financial instruments are initially measured at fair value. Any changes in the fair value of the forward contracts during
the period in which the hedge is in effect are reflected as a component of equity within the hedging reserve to the extent that
the hedge is effective. The ineffective part of the hedge is recognised in the income statement immediately.
f) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents,
loans and borrowings and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value including any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less any impairment
losses.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group
transfers the financial asset. Purchases and sales of financial assets are accounted for at trade date, i.e., the date that the
Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified
in the contract expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 37
1 Accounting policies continued
g) Property, plant and equipment
Property, plant and equipment is stated at cost (which from 1 February 2009 includes capitalised borrowing costs where appropriate)
less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition
of the asset.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the assets. Residual values
are reviewed at each reporting date. The estimated useful lives are as follows:
Leasehold improvements : period of the lease
Plant, equipment, fixtures and fittings : 3 to 10 years
h) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases.
Finance lease assets are stated at an amount equal to the lower of its fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated depreciation and impairment losses. Leased assets are depreciated over
the shorter of the lease term and their estimated useful lives unless it is reasonably certain that the Group will obtain ownership
by the end of the lease term. Operating leases are leases where substantially all of the risks and rewards of ownership have not
been transferred.
i) Inventories
Inventories and work in progress are stated at the lower of cost and net realisable value. Cost includes the purchase price of
manufactured products, materials, direct labour, transport costs and a proportion of attributable design and production overheads
calculated on a first in, first out basis. Net realisable value is the estimated selling price in the ordinary course of business.
Provision is made for obsolete, slow moving or defective items where appropriate.
j) Impairment
The carrying amount of the Group’s assets, other than inventories and deferred tax assets, are reviewed each balance sheet
date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount
is estimated. An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its
recoverable amount. For tangible fixed assets, the recoverable amount is determined with reference to the cash generating unit
to which the asset belongs. The impairment calculations use cash flow projections based on actual operating results extrapolated
forward for five years. An appropriate pre-tax discount rate has been used in discounting the projected cash flows based on the
weighted average cost of capital applicable to the individual assets concerned. Further details are provided in Note 11.
Impairment policy relating to goodwill is referred to in Note 1c).
k) Revenue
Revenue is measured at the fair value of the consideration received or receivable for goods sold to external customers, less returns
and value added tax. The revenue arises from the sale of fashion clothing and accessories. Revenue from the sale of goods is
recognised in the statement of income when the significant risks and rewards of ownership have been transferred. For retail sales,
this occurs at the time the sale is recorded at the store. For wholesale and ecommerce sales, this normally occurs at the time the
goods are shipped from the warehouse. Licensing revenue is included within other operating income and is recognised on an
accruals basis.
l) Lease payments
Operating lease rentals are charged to the income statement on a straight-line basis over the term of the lease. Lease incentives
received are recognised in the income statement on a straight-line basis over the term of the lease.
Rentals receivable under operating leases are included in the income statement on a straight-line basis.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
m) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantially enacted at the
balance sheet date, plus any adjustment to tax payable in respect of previous years.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 38
1 Accounting policies continued
m) Income tax continued
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised
for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit and differences relating to investments in
subsidiaries and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. Deferred tax is
measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantially enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax benefit will be realised.
n) Pensions
The Group only has defined contribution pension schemes. Pension costs charged to the income statement represent the amount
of contributions payable to defined contribution and personal pension schemes in respect of the period.
o) Share-based payment
The Group operates share option incentive schemes for Directors and key employees. The fair value of options granted is
recognised as an employee expense in the income statement with a corresponding increase in equity. The fair value is measured
at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair
value of the options is measured using the “Black-Scholes” option valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognised in the income statement is adjusted at each balance sheet date
to reflect the number of share options that are expected to vest revised for expected leavers and estimated achievement of
non-market based vesting conditions. The Group has adopted the exemption to apply IFRS 2 only to equity instruments granted
after 7 November 2002.
p) Segment reporting
An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn
revenues and incur expenses and whose operating results are reviewed regularly by the Chief Operating Decision Maker to make
decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information
is available.
Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered
by the Board to be appropriately designated as reportable segments. Segment results represent the operating profits of each
division and exclude tax and financing items. Overheads represent the direct costs of the divisional operations, common
overheads shared between the divisions within geographic locations, in particular the costs of local management, advertising,
finance and accounting and Group management overheads including the costs of Group management, legal, insurance and
IT costs.
q) Capital management
Details of capital risk management are set out in Note 26 to the Group accounts.
r) Financial risk management
Details of financial risk management are set out in Note 26 to the Group accounts.
s) Guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of fellow subsidiaries or of third parties,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make
a payment under the guarantee.
t) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at
an amount equal to the best estimate of the expenditure required to settle the Group’s liability. Obligations arising from restructuring
plans are recognised when detailed formal plans have been established and when there is a valid expectation that such a plan will
be carried out.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 39
2 Operating segments
a) Segment reporting
The Group’s operating segments have been determined based on the key monthly information reviewed by the Board of Directors
(deemed to be the Chief Operating Decision Maker). The key metric reviewed cover the Retail and Wholesale sectors in totality,
with the performance by key geographies also reviewed.
In prior years the segment reporting has included the results of five reportable segments, including UK/Europe Retail, UK/Europe
Wholesale, North America Retail, North America Wholesale and Hong Kong Wholesale. The Board has revised the segment
reporting to more fully align with the key metrics that are focused on monthly to monitor the business performance. This includes
the global performance for Retail and Wholesale with regards to revenue and gross margins achieved, and the underlying profit/
loss. Other items below this profit measure are reviewed on a line by line basis for the Group in total.
The segment note below reflects the information used by the Board and better reflects the ‘management approach’ as it includes
the key metrics used. Accordingly the prior year information has been represented on this basis.
In addition to the information provided below, detailed commentary on the results of Retail and Wholesale, together with an
analysis of the geographical performance, can be found in the Financial Review.
b) Segment revenue and results
Income statement
2014
£m
2013
£m
Revenue
Retail 117.5 123.4
Wholesale 71.9 73.9
Group revenue 189.4 197.3
Gross pro?t 90.2 94.6
Retail 56.9% 55.8%
Wholesale 32.5% 34.9%
Group gross margin 47.6% 47.9%
Underlying operating (loss)/pro?t
Retail (11.6) (15.4)
Wholesale 11.7 13.9
License income 6.1 6.5
Common and Group overheads (11.3) (12.8)
Finance income 0.1 0.2
Share of profit from joint ventures 0.6 0.4
Underlying Group operating loss (4.4) (7.2)
Underlying operating margin
Retail (9.9)% (12.5)%
Wholesale 16.3% 18.8%
Underlying Group operating margin (2.3)% (3.6)%
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 40
2 Operating segments continued
c) Geographical information
2014
£m
2013
£m
Revenue
UK/Europe 71% 70%
North America 24% 25%
Rest of the World 5% 5%
Divisional operating (loss)/pro?t
UK/Europe (3.9) (9.4)
North America 2.4 5.5
Rest of the World 1.6 1.8
Group overheads and finance income (4.5) (5.1)
Underlying Group operating loss (4.4) (7.2)
d) Revenue from external customers
2014
£m
2013
£m
UK 119.5 121.5
US 34.6 37.5
Canada 10.8 11.7
Other 24.5 26.6
189.4 197.3
e) Non-current assets
2014
£m
2013
£m
UK 8.9 9.4
US 0.4 0.6
Canada – 0.1
Other 3.5 3.4
12.8 13.5
No single customer represents more than 10% of the Group’s total revenue.
3 Operating expenses
2014
£m
Restated
2013
£m
Selling and distribution costs 92.8 99.5
Administration costs 8.6 9.4
101.4 108.9
The comparatives have been restated to present an improved representation of operating expenses.
4 Other operating income
2014
£m
2013
£m
Licensing income 6.1 6.5
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 41
5 Staff numbers and costs
The average number of people employed by the Group during the year, including Directors, was as follows:
2014
Number
2013
Number
Selling, distribution and retail 1,909 2,097
Design, development and production management 211 209
Administration 138 138
2,258 2,444
The aggregate payroll costs of these people were as follows:
2014
£m
2013
£m
Wages and salaries 35.4 37.6
Social security costs 3.0 3.0
De?ned contribution pension costs 0.5 0.5
38.9 41.1
Included within the total staff cost above is the remuneration of the Directors totalling £1.2m (2013: £0.9m). Details of Directors’
remuneration, share options and pension entitlements are disclosed in the Directors’ Remuneration Report. Details of pension
costs are disclosed in Note 28 to the Group accounts.
6 Finance income and expense
Recognised in the income statement
2014
£m
2013
£m
Finance income
Interest receivable on bank balances 0.1 0.1
Currency translation differences – 0.1
0.1 0.2
7 Loss before taxation
The Group’s loss before taxation is stated after charging/(crediting) the following:
2014
£m
2013
£m
Fees payable to the Company’s auditors and its associates in respect of
the audit of the Group’s annual accounts 0.1 0.1
the audit of the Company’s subsidiaries, pursuant to legislation 0.1 0.1
tax and other assurance services 0.2 0.2
Depreciation and impairment of owned assets 1.9 3.1
Loss on sale of items of property, plant and equipment – 0.2
Store closure provisions 1.7 1.1
Impairment of goodwill – 2.0
Operating lease rentals
Plant and machinery 0.3 0.3
Leasehold properties 26.6 28.4
Rent receivable (1.5) (1.4)
The auditor’s remuneration in respect of the audit of the Company was £37,000 (2013: £40,000).
During the year, the fees payable to the auditors and their associates for non-audit services was £168,000 (2013: £182,000) in
respect of tax compliance and advisory services (£146,000 (2013: £162,000)), royalty and turnover reviews (£15,000 (2013: £14,000))
and other services (£7,000 (2013: £6,000)).
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 42
8 Income tax credit
a) Recognised in the income statement
2014
£m
2013
£m
Current tax
Overseas tax 0.3 0.5
Adjustment in respect of previous periods – (0.5)
Total current tax 0.3 –
Deferred tax – origination and reversal of
UK temporary differences – (0.2)
Effect of change in tax rates – 0.2
Adjustment in respect of previous periods (0.4) –
Total deferred tax (0.4) –
Tax on loss (Note 8b) (0.1) –
b) Factors affecting tax credit for year
The tax credited for the year is different to the standard 23% (2013: 24%) rate of corporation tax in the UK. The differences
are explained below:
2014
£m
2013
£m
Loss before taxation (6.1) (10.5)
Loss multiplied by the standard rate of corporation tax in the UK of 23% (2013: 24%) (1.4) (2.5)
Effects of:
Expenses not deductible 0.2 0.3
Impairment of goodwill – 0.4
Losses for which no deferred tax asset has been recognised 1.6 1.8
Current year temporary differences and deferred capital allowances
for which deferred tax has been recognised (0.1) 0.5
Difference in effective tax rates on overseas earnings (0.2) (0.1)
Adjustments to tax charge in respect of previous periods (0.4) (0.5)
Share of joint venture tax charge which has been netted off within share of pro?t of joint ventures (0.1) (0.1)
Deferred tax charge relating to reduction in UK tax (23% to 21% effective from 1 April 2014) 0.3 0.2
Total tax credit for the year (Note 8a) (0.1) –
The effective tax rate in the future will be affected by the proportion of any profits or losses generated in the different tax
jurisdictions and the ability to utilise accumulated losses.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 43
8 Income tax credit continued
c) Income tax recognised in other comprehensive income
Before
tax
2014
£m
Tax
credit
2014
£m
Net of
tax
2014
£m
Before
tax
2013
£m
Tax
credit
2013
£m
Net of
tax
2013
£m
Currency translation differences
on foreign currency net investments 0.3 – 0.3 (0.2) – (0.2)
Currency translation differences
on foreign currency loans (1.4) 0.4 (1.0) 0.1 – 0.1
Effective portion of changes in fair
value of cash ?ow hedges (0.3) – (0.3) – – –
(1.4) 0.4 (1.0) (0.1) – (0.1)
9 Dividends – equity
2014
£m
Pence
per share
2013
£m
Pence
per share
Final paid for prior ?nancial year – – 1.0 1.0p
Total dividends paid during the year – – 1.0 1.0p
The Board is proposing that no dividend should be paid for the year. No dividends were paid during the year to the minority shareholders
of a subsidiary undertaking of the Group (2013: Nil).
10 Losses per share
Basic losses per share are calculated on 95,899,754 (2013: 95,899,754) shares being the weighted average number of ordinary
shares during the year.
Diluted losses per share are calculated on 95,989,627 shares being the weighted average number of ordinary shares adjusted
to assume the exercise of dilutive options (2013: 95,983,319).
Basic and diluted losses per share of (6.4) pence per share (2013: losses of (10.7) pence) is based on losses of £(6.1)m (2013:
losses of £(10.3)m) attributable to equity shareholders.
The reconciliation to adjusted earnings per share is as follows:
2014
£m
2014
pence
per share
2013
£m
2013
pence
per share
Loss attributable to equity shareholders (6.1) (6.4)p (10.3) (10.7)p
Net loss on store disposals and closures 1.7 1.8p 1.3 1.3p
Impairment of goodwill – – 2.0 2.1p
Adjusted loss (4.4) (4.6)p (7.0) (7.3)p
The adjusted losses per share relates to the underlying operations and in the opinion of the Directors, gives a better measure of the
Group's underlying performance than the basic losses per share.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 44
11 Intangible assets
Goodwill
2014
£m
2013
£m
Cost
At 1 February and 31 January 14.3 14.3
Impairment
At 1 February 13.9 11.9
During the year – 2.0
At 31 January 13.9 13.9
Net book value at 31 January 0.4 0.4
In the prior year, as a result of the downturn in retail trade, goodwill of £2.0m relating to the acquisition of retail franchise operations
in the UK was impaired. No impairment has been made in the current year.
Given the similar nature of the activities of each cash generating unit, a consistent methodology is applied across the Group in
assessing cash generating unit recoverable amounts. The recoverable amount is the higher of the value in use and the fair value
less the costs to sell. The value in use is the present value of the cash flows expected to be generated by the cash generating
unit over a projection period together with a terminal value. Cash flows are projected based on actual operating results and the
Directors’ five year forward forecasts which are based on Directors’ knowledge, historical experience and economic growth
forecasts for the fashion industry, including maximum sales growth forecasts of 2% per annum. A pre-tax discount rate of 15%
(2013: 15%) has been applied to the value in use calculations reflecting market assessments of the time value of money at the
balance sheet date. A terminal growth rate of 2% (2013: 2%) has been used based on industry growth rates. As discussed in
Our Business, like all retailers, the Group is susceptible to volatility in the propensity of consumers to spend, which is affected by
macro-economic issues. Further, both the Group’s retail and wholesale businesses have largely inflexible cost bases giving rise
to substantial operational gearing. Accordingly the key sensitivity with regard to future cash flows and value in use relates to the
assumed sales growth. As noted above this has been set at a maximum of 2% per annum.
12 Property, plant and equipment
2014
Short
leasehold
property
£m
Plant
equipment
fixtures and
fittings
£m
Total
£m
Cost
At 1 February 2013 10.4 62.0 72.4
Currency movements (0.2) (0.9) (1.1)
Additions – 0.8 0.8
Disposals (2.3) (4.2) (6.5)
At 31 January 2014 7.9 57.7 65.6
Depreciation
At 1 February 2013 9.6 57.1 66.7
Currency movements (0.2) (0.9) (1.1)
Charge for year 0.1 1.8 1.9
Disposals (2.3) (4.1) (6.4)
At 31 January 2014 7.2 53.9 61.1
Net book value
At 31 January 2014 0.7 3.8 4.5
At 31 January 2013 0.8 4.9 5.7
The Group has no plant and equipment held under finance leases in both the current and prior years and no depreciation was
charged during either year.
The impairment loss recognised in the year of £Nil (2013: £0.5m) is a result of a review of the carrying value of the store portfolio
assets.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 45
12 Property, plant and equipment continued
Property, plant and equipment with a net book value of £0.1m (2013: £Nil) was disposed of during the year. Net costs incurred
on disposal were £Nil (2013: £(0.2)m) resulting in a loss on disposal of £(0.1)m (2013: £(0.2)m) which was charged to the store
closures provision during the year.
The Group has £54.0m (2013: £53.9m) of gross assets with a £Nil net book value.
13 Investments
The Group’s investments in joint ventures are as follows:
2014
£m
2013
£m
Share of current assets 3.9 4.8
Share of non-current assets 0.5 0.5
Share of current liabilities (1.3) (2.3)
3.1 3.0
Share of revenue 6.4 6.9
Share of expense (5.7) (6.4)
Share of income tax expense (0.1) (0.1)
0.6 0.4
The investments are accounted for using the equity method of accounting.
14 Inventories
2014
£m
2013
£m
Raw materials and consumables 0.1 0.4
Work in progress 0.2 0.5
Finished goods 38.2 40.6
38.5 41.5
During the year, inventory write-downs of £2.9m (2013: £6.8m) were expensed within cost of sales. The amount of inventory
recognised as an expense during both the current and prior years is equal to the amount recognised within cost of sales.
All inventory is valued at the lower of cost and net realisable value. There is no inventory carried at fair value less costs to sell either
in the current or prior year.
15 Trade and other receivables
2014
£m
Restated
2013
£m
Trade receivables 13.7 14.1
Other receivables 1.1 1.5
Prepayments and accrued income 7.9 8.1
22.7 23.7
The comparatives have been restated to present a clearer representation of trade and other receivables. There is no net impact on
the total balance.
No receivables are due in more than one year and are non-interest bearing. Standard credit terms provided to customers differ, but
are typically between 30 and 60 days. Included within trade receivables is a bad debt provision of £0.3m (2013: £0.3m). During the
year, £0.2m (2013: £0.3m) of bad debt write-offs were incurred.
The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed in
Note 26.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 46
16 Cash and cash equivalents
2014
£m
2013
£m
Cash and cash equivalents in the balance sheet and cash flow 28.2 28.5
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in Note 26.
17 Current trade and other payables
2014
£m
2013
£m
Trade payables 21.7 19.7
Bills of exchange payable 1.6 1.9
Other taxation and social security 4.2 3.8
Accruals and deferred income 15.6 15.8
43.1 41.2
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 26.
18 Provisions
Store closures
2014
£m
2013
£m
Balance at 1 February 1.7 0.6
Utilised during the year (1.7) –
Increase during the year 1.7 1.1
Balance at 31 January 1.7 1.7
Provisions are recorded to reflect the estimated committed closure costs of identified underperforming retail stores. The associated costs
are forecast to be incurred over a period of two years.
19 Current tax payable
2014
£m
2013
£m
Overseas tax 0.2 –
20 Deferred tax
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities
2014
£m
2013
£m
2014
£m
2013
£m
Property, plant and equipment 3.3 3.1 – –
Deferred rent 0.3 0.3 – –
Provisions 0.5 0.3 – –
Deferred capital gains – – 0.5 0.9
Trading losses 0.7 0.7 – –
4.8 4.4 0.5 0.9
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 47
20 Deferred tax continued
The Group has a potential deferred tax asset, principally relating to past years’ trading losses of £14.9m. As the Group returns to
profit, this value will be realised.
2014
£m
2013
£m
Trading losses 13.1 13.7
Property, plant and equipment 1.1 1.6
Capital losses – 1.8
Other temporary differences 0.7 0.4
14.9 17.5
21 Share capital
Ordinary shares of 1 pence each
2014
Number
2014
£m
2013
Number
2013
£m
Allotted, called up and fully paid shares at the beginning and
end of the year 95,899,754 1.0 95,899,754 1.0
At 31 January 2014, the following equity settled options have been granted and remain outstanding in respect of ordinary shares
of 1p each in the Company:
Date of grant Options Option price
Contractual
life of
options
29 October 2008 (vested 29 October 2011) 1,836,000 56.20p 10 years
27 April 2011 50,000 102.30p 10 years
1 November 2012 400,000 24.50p 10 years
4 November 2013 600,000 29.25p 10 years
Share options granted are subject to detailed performance conditions. The performance conditions for the outstanding option
grants are based on a target profit before tax and hurdles are set in order to reward strong financial performance. Options which
do not vest following the application of the performance conditions lapse and become unavailable for exercise.
Weighted
average
exercise
price
Number of
options
2014
Weighted
average
exercise
price
Number of
options
2013
Outstanding at the beginning of the period 52.61p 2,886,500 79.97p 3,214,387
Forfeited during the period 56.20p (600,500) 97.60p (128,442)
Lapsed during the period – – 170.95p (599,445)
Granted during the period 29.25p 600,000 24.50p 400,000
Outstanding at the end of the period 47.00p 2,886,000 52.61p 2,886,500
The number of share options exercisable at the year end is 1,836,000 (2013: 2,436,500).
The fair value of the share options granted is not considered to be material to the accounts in the current and prior years.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 48
22 Reconciliation of decrease in cash to movement in net funds
2014
£m
2013
£m
Change in net funds from cash ?ows (0.4) (5.7)
Translation differences 0.1 –
Movement in net funds (0.3) (5.7)
Net funds at beginning of year 28.5 34.2
Net funds at end of year 28.2 28.5
23 Analysis of net funds
1 February
2013
£m
Cash
flow
£m
Non cash
changes
£m
31 January
2014
£m
Cash and cash equivalents in the balance sheet and cash ?ow 28.5 (0.4) 0.1 28.2
Net funds 28.5 (0.4) 0.1 28.2
24 Commitments
Aggregate future rental commitments payable under non-cancellable operating leases at 31 January 2014 for which no provision
has been made in these accounts, were as follows:
Leasehold property Other
2014
£m
2013
£m
2014
£m
2013
£m
Operating leases which expire:
Within one year 0.9 4.1 – –
Within two to ?ve years 24.5 25.1 0.3 0.4
After ?ve years 134.9 165.1 – –
160.3 194.3 0.3 0.4
Aggregate future rentals receivable under non-cancellable operating leases at 31 January 2014 for which no accrual has been
made in these accounts were as follows:
Leasehold property
2014
£m
2013
£m
Operating leases which expire:
Within two to ?ve years 1.8 3.1
After ?ve years 0.5 0.6
2.3 3.7
At 31 January 2014 the Group had contracted capital commitments not provided for in the accounts of £0.2m (2013: £0.3m).
At 31 January 2014 the Group had commitments on foreign exchange contracts amounting to £4.5m (2013: £4.5m).
In addition, the Group had commitments in respect of letters of credit of £1.4m (2013: £1.1m).
25 Contingent liabilities
The Group has a number of sublet and assigned properties. In the event that the tenants of these properties default, the Group
may be liable. At the year end, the total annual commitment amounted to £Nil (2013: £0.4m).
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 49
26 Financial instruments
Details of financial risk management, treasury policies and use of financial instruments are set out in the section entitled
‘Principal risks and uncertainties’ within Our Business.
Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. Derivative financial
instruments are used to hedge exposure to fluctuations in foreign exchange rates.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach
to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s
reputation. The Group monitors its cash position on a regular basis through the use of regularly updated cash flow forecasts,
and believes that it has sufficient and appropriate net funds and facilities available.
Interest rate risk
The Group does not use interest rate financial instruments. The Group regularly monitors and reacts accordingly to any exposure
to fluctuations in interest rates and the impact on its monetary assets and liabilities.
Foreign currency risk
The Group is exposed to foreign currency risks on sales, purchases and cash holdings that are denominated in a currency
other than Sterling. The currency giving rise to this risk is primarily the Hong Kong Dollar. The Group’s policy is to reduce the
risk associated with purchases denominated in foreign currencies, by using forward fixed rate currency purchase contracts
up to a maximum of one year forward, taking into account any forecast foreign currency cash flows.
In respect of other monetary assets and liabilities held in currencies other than the Hong Kong Dollar, the Group ensures that
the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address
short-term imbalances.
The Group’s policy is not to hedge the translational exposure that arises on consolidation of the statement of income at overseas
subsidiaries.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group’s main credit
risk is primarily attributable to its trade receivables. Credit evaluations are performed on all customers requiring credit over a
certain amount. The Group does not require collateral in respect of financial assets. The amounts recognised in the balance sheet
are net of appropriate allowances for doubtful receivables, estimated by the Group’s management based on prior experience
and their assessment of the current economic environment. At the balance sheet date, there were no significant concentrations
of credit risk by customer or by geography. Quantitative analysis of credit risk to receivables is presented below.
Credit risk associated with cash balances and derivative financial instruments is managed by transacting with an existing relationship
bank with strong investment grade rating. The maximum exposure to credit risk is represented by the carrying amount of each
financial asset, including derivative financial instruments, in the balance sheet.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the
reporting date was:
Carrying amount
2014
£m
2013
£m
Trade and other receivables 14.8 15.6
Cash and cash equivalents 28.2 28.5
43.0 44.1
The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:
Carrying amount
2014
£m
2013
£m
UK/Europe 8.8 8.0
North America 2.4 3.9
Hong Kong 3.6 3.7
14.8 15.6
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 50
26 Financial instruments continued
The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
2014
£m
Restated
2013
£m
Wholesale customers 13.7 14.1
The ageing of gross trade receivables at the reporting date was:
Gross
2014
£m
Impairment
2014
£m
Restated
Gross
2013
£m
Impairment
2013
£m
Current 10.1 – 11.5 –
30 days 1.7 – 1.0 –
60 days 0.3 – 0.4 –
More than 60 days 1.9 (0.3) 1.5 (0.3)
14.0 (0.3) 14.4 (0.3)
The comparatives have been restated to present a clearer representation of trade and other receivables. There is no net impact on
the total balance.
An impairment has been recorded against the trade receivables that the Group believes may not be recoverable. Based on past
experience, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due.
The movement in impairment in respect of trade receivables during the year was as follows:
2014
£m
2013
£m
At 1 February 0.3 0.6
Movement during year – (0.3)
At 31 January 0.3 0.3
Interest rate profile of financial assets
The interest rate profile of the financial assets of the Group at 31 January 2014 was as follows:
Financial assets
on which no
interest is received
Floating rate
financial assets Total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
Sterling 0.1 0.2 16.3 15.3 16.4 15.5
US Dollar – – 7.8 7.5 7.8 7.5
Hong Kong Dollar – – 1.4 2.9 1.4 2.9
Other – – 2.6 2.6 2.6 2.6
Total 0.1 0.2 28.1 28.3 28.2 28.5
Financial assets comprise cash and short term deposits. The effective interest rate on floating rate financial assets during the year
was 0.5% (2013: 1.3%).
There were no fixed rate or floating rate financial liabilities at the end of the current or prior year.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 51
26 Financial instruments continued
Currency exposure
Net monetary assets and liabilities of the Group that are not denominated in the local functional currency were as follows:
At 31 January 2014
Net foreign currency
monetary assets/(liabilities)
Sterling
£m
US
Dollar
£m
Canadian
Dollar
£m
Hong Kong
Dollar
£m
Euro
£m
Other
£m
Total
£m
Trade and other receivables 2.0 0.3 – – 0.7 0.1 3.1
Cash and overdraft 0.5 5.0 – – 1.9 0.1 7.5
Trade and other payables (1.2) (1.7) – – (0.9) – (3.8)
Intercompany balances – (1.8) 9.9 (11.0) 10.2 – 7.3
Total 1.3 1.8 9.9 (11.0) 11.9 0.2 14.1
At 31 January 2013
Net foreign currency
monetary assets/(liabilities)
Sterling
£m
US
Dollar
£m
Canadian
Dollar
£m
Hong Kong
Dollar
£m
Euro
£m
Other
£m
Total
£m
Trade and other receivables 2.2 0.3 – – 0.9 0.1 3.5
Cash and overdraft 0.4 4.9 – 1.1 1.7 0.1 8.2
Trade and other payables (1.2) (1.5) – – (2.3) – (5.0)
Intercompany balances (0.1) 2.9 9.7 (9.6) 9.0 – 11.9
Total 1.3 6.6 9.7 (8.5) 9.3 0.2 18.6
Forward foreign exchange contracts have not been taken into consideration above. As at 31 January 2014, the Group has committed
forward foreign exchange contracts of £4.5m (2013: £4.5m).
The following significant exchange rates applied during the year:
Average rate
Reporting date
spot rate
2014 2013 2014 2013
US Dollar 1.568 1.589 1.644 1.586
Canadian Dollar 1.629 1.587 1.832 1.584
Hong Kong Dollar 12.166 12.321 12.761 12.296
Euro 1.179 1.232 1.219 1.168
Sensitivity analysis
A 10% strengthening of Sterling against the following currencies at 31 January would have increased/(decreased) equity and profit
and loss by the amounts shown below. This analysis assumes that all other variables, in particular, interest rates, remain constant.
This analysis is performed on the same basis for the prior year.
Equity
2014
£m
Profit
and loss
2014
£m
Equity
2013
£m
Profit
and loss
2013
£m
US Dollar – (0.1) – (0.6)
Canadian Dollar (0.8) (0.2) (0.6) (0.4)
Hong Kong Dollar – 1.0 – 0.8
Euro (0.3) (0.9) (0.4) (0.6)
(1.1) (0.2) (1.0) (0.8)
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 52
26 Financial instruments continued
Borrowing facilities
Working capital and letter of credit facilities of £4.2m were available to the Group at 31 January 2014 (31 January 2013: £4.2m).
The facilities are subject to an annual review and were most recently renewed in July 2013.
Fair values
The fair value of the Group’s financial instruments at 31 January 2014 were as follows:
31 January 2014 31 January 2013
Carrying
amount
£m
Estimated
fair value
£m
Carrying
amount
£m
Estimated
fair value
£m
Primary financial instruments used to finance the Group’s operations:
Cash and cash equivalents 28.2 28.2 28.5 28.5
Trade receivables 13.7 13.7 14.1 14.1
Trade payables (21.7) (21.7) (19.7) (19.7)
Derivative financial instruments (0.2) (0.2) 0.1 0.1
The fair value of forward exchange contracts outstanding as at 31 January 2014 is a liability of £0.2m (2013: asset of £0.1m).
£0.3m has been debited to the hedging reserve (2013: £Nil).
These contracts mature in the next 12 months, therefore the cash flows and resulting effect on profit and loss are expected
to occur within the next 12 months.
The fair value of derivative financial instruments is determined using discounted cash flow techniques based on readily available
market data and represent a Level 2 measurement in the fair value hierarchy under IFRS 7. Level 2 is defined as inputs other
than quoted prices in active markets that are observable for the asset or liability.
Capital management
The capital structure of the Group consists of net funds and equity attributable to the equity holders of the parent Company,
comprising issued share capital, reserves and retained earnings. The Group manages its capital with the objective that all
entities within the Group continue as going concerns. The Group is not subject to any externally imposed capital management.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business. To achieve this the Board of Directors monitors the balance sheet, the working capital, the
cash flows and the level of dividends paid to shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and
the advantages and security afforded by a sound capital position.
At present employees, including the Chairman, hold 41.8 percent of ordinary shares. Share options have been issued amounting
to just over three percent of the issued share capital.
The Company will request permission from shareholders if deemed necessary to purchase its own shares.
There were no changes in the Group’s approach to capital management during the year.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
27 Directors’ interests and related party transactions
The Group made sales of £1.5m (2013: £1.7m) to FCUK IT Company and £0.8m (2013: £1.1m) to FCIT China Limited during the year,
both of which are joint ventures. The closing liabilities due from the respective joint ventures are £0.3m (2013: £0.4m) and £0.3m
(2013: £0.4m).
There are no related party transactions between French Connection Group PLC and the non-controlling interest subsidiary
undertakings.
French Connection Group was invoiced directly for property costs relating to 202 Westbourne Grove, London and recharged these
costs to SAM Corporation Limited. Stephen Marks, Chairman and Chief Executive of French Connection Group PLC is a Director
of French Connection Group PLC and is the sole shareholder of SAM Corporation Limited. The total costs invoiced and recharged
during the year was £534,546 and was conducted at arm’s length.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 53
27 Directors’ interests and related party transactions continued
At 31 January 2014, Stephen Marks, Chairman and Chief Executive had an interest in 40,094,190 ordinary shares (2013: 40,094,190)
of which 2,281,500 shares (2013: 2,281,500) were held by family members or in family trusts, representing in aggregate 41.8%
(2013: 41.8%) of the total issued ordinary share capital of the Company. At 31 January 2014, Adam Castleton, Group Finance
Director, had an interest in 33,000 ordinary shares (2013: nil) representing 0.03% of total issued ordinary share capital of the
Company.
Details of the Directors’ remuneration, being the key management personnel, are disclosed in the Directors’ Remuneration Report.
28 Pension costs
The Group operates a Group defined contribution scheme and contributes towards a number of personal pension plans. The assets
of these schemes are held separately from those of the Group in independently administered funds.
The pension cost charge for the year was £0.5m (2013: £0.5m). At 31 January 2014 and 31 January 2013 there were no
outstanding amounts payable to the schemes.
29 Accounting estimates and judgements
The Directors have made significant accounting estimates and judgements in applying the Group’s accounting policies in the
following area:
Inventory valuation – the Directors have used their knowledge and experience of the fashion industry in determining the level and
rates of provisioning required to calculate the appropriate inventory carrying values. Provision is made for obsolete, slow moving or
defective items where appropriate. Provisions are considered on a seasonal basis taking into consideration the various channels
that are available to the Group to sell existing inventory and the estimated prices that can be achieved.
30 Principal subsidiary undertakings
Details of the principal subsidiary undertakings at 31 January 2014 are set out below. Unless otherwise stated, the Company directly
owned all the issued ordinary shares.
Company
Country of Incorporation,
Registration and Operation Principal Activity
French Connection Limited England Brand management
French Connection UK Limited England Supply of fashion merchandise
French Connection (London) Limited England Supply of fashion merchandise
French Connection (Hong Kong) Limited British Virgin Islands
(operates in Hong Kong)
Supply of fashion merchandise
French Connection No. 2 Pour Hommes Sarl* France Supply of fashion merchandise
PreTex Textilhandels GmbH* Germany Supply of fashion merchandise
French Connection Holdings Inc USA Holding Company
French Connection Group Inc* USA Supply of fashion merchandise
Louisiana Connection Limited* USA Supply of fashion merchandise
Roosevelt Connection Limited* USA Supply of fashion merchandise
Soho Connection Limited* USA Supply of fashion merchandise
French Connection (Canada) Limited (75%) Canada Supply of fashion merchandise
Toast (Mail Order) Limited (75%) Wales Supply of fashion merchandise
YMC Limited (75%) England Supply of fashion merchandise
FCUK IT Company (50% partnership)* Hong Kong Supply of fashion merchandise
FCIT China Limited (50%)* Hong Kong Supply of fashion merchandise
FCUK IT Company’s principal place of business is Block 1, 7th Floor, Enterprise Square, 9 Sheung Yuet Road, Kowloon, Hong Kong.
FCIT China Limited’s principal place of business is 31/F, Tower A, Southmark, 11 Yip Hing Street, Wong Chuk Hang, Hong Kong.
* Shares are held by subsidiary undertakings.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 54
COMPANY BALANCE SHEET
At 31 January 2014
Note
2014
£m
2013
£m
Fixed assets
Tangible assets 3 0.5 0.6
Investments 4 24.5 25.7
25.0 26.3
Current assets
Debtors 5 47.5 40.5
Cash at bank and in hand – –
Derivative ?nancial instruments – 0.1
47.5 40.6
Current liabilities
Creditors 6 (2.5) (1.5)
Derivative ?nancial instruments (0.2) –
(2.7) (1.5)
Net current assets 44.8 39.1
Total assets less current liabilities 69.8 65.4
Deferred tax liability 7 (0.6) (0.7)
Net assets 69.2 64.7
Capital and reserves
Called-up share capital 8 1.0 1.0
Share premium account 8 9.4 9.4
Pro?t and loss account 8 59.0 54.2
Other reserves 8 (0.2) 0.1
Equity shareholders’ funds 9 69.2 64.7
The notes on pages 55 to 59 form part of these accounts.
These accounts were approved by the Board of Directors on 12 March 2014 and were signed on its behalf by:
Stephen Marks Adam Castleton
Director Director
Company Number: 1410568
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 55
NOTES TO THE COMPANY ACCOUNTS
1 Accounting policies
a) Basis of preparation
The Company has elected to prepare its parent Company financial statements in accordance with UK GAAP and these are
presented on pages 54 to 59.
b) Basis of accounting
The accounts have been prepared under the historical cost accounting rules, except for derivative financial instruments measured
at fair value, and in accordance with applicable accounting standards. As permitted by Section 408 of the Companies Act 2006,
the profit and loss account under UK GAAP of the Company is not presented. No new standards have been adopted in this year’s
financial statements. The Company has taken the exemption granted by FRS 8 Related Party disclosures not to disclose transactions
with wholly owned subsidiaries of the Group.
c) Depreciation
Depreciation is provided to write off the cost less estimated residual value of fixed assets by equal annual instalments over their
useful lives, which are estimated to be as follows:
Plant, equipment, fixtures and fittings : 3 to 10 years
d) Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences
between the treatment of certain items for taxation and accounting purposes. Full provision has been made for deferred taxation
arising from timing differences between the recognition of income and expenditure for taxation and accounting purposes. Deferred
tax amounts are not discounted.
e) Foreign exchange
Monetary assets and liabilities denominated in foreign currencies are translated into Sterling at rates of exchange ruling at
the balance sheet date. Transactions in the period are translated into Sterling at the rates of exchange ruling on the date of
transaction or at hedged rates. Resulting exchange differences are taken to the profit and loss account. Forward fixed rate
currency purchase contracts are used.
f) Leased assets
Operating lease rentals are charged to the profit and loss account in the period to which they relate. Rentals receivable under
operating leases are included in the profit and loss account on an accruals basis. There are no finance leases in the current year.
g) Pension cost
Pension costs charged to the profit and loss account represent the amount of contributions payable to defined contribution and
personal pension schemes in respect of the period.
h) Share-based payment
The Group operates share option incentive schemes for Directors and key employees. The fair value of options granted is recognised
as an employee expense in the income statement with a corresponding increase in equity. The fair value is measured at grant date
and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options
is measured using the “Black-Scholes” option valuation model, taking into account the terms and conditions upon which the options
were granted. The amount recognised in the income statement is adjusted at each balance sheet date to reflect the number of share
options that are expected to vest revised for expected leavers and estimated achievement of non-market based vesting conditions.
The Group has adopted the exemption to apply FRS 20 only to equity instruments granted after 7 November 2002. The fair value
of the share options granted is not considered to be material in the current or prior years.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 56
NOTES TO THE COMPANY ACCOUNTS
Continued
1 Accounting policies continued
i) Derivative financial instruments
Derivative financial instruments in the form of forward foreign exchange contracts are used to manage the risk associated with
purchases denominated in foreign currencies as described in the section entitled Our Business. Any changes in the fair value of
the forward contracts during the period in which the hedge is in effect will be reflected as a component of reserves within a hedging
reserve to the extent that the hedge is effective. The ineffective part of the hedge is recognised in the profit and loss account.
Financial Reporting Standard 29 “Financial Instruments: Disclosures” (FRS 29) sets out the requirements for the presentation
of, and disclosures relating to, financial instruments and replaces the requirements of FRS 25 “Financial Instruments: Disclosure
and Presentation”. The Company is exempt from the requirements of FRS 29 as the financial statements for the Group include
disclosures that comply with IFRS 7, the equivalent International Financial Reporting Standard.
j) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity trade and other receivables, cash and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value including any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less any impairment losses.
A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the Company’s contractual rights to the cash flows from the financial assets expire or if the Company
transfers the financial asset. Purchases and sales of financial assets are accounted for at trade date, i.e., the date that the
Company commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Company’s obligations specified
in the contract expire or are discharged or cancelled.
Cash comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement
of cash flows.
k) Investments
Investments are stated at cost less provision for permanent diminution in value.
l) Share capital
When new shares are issued, they are recorded in share capital at their par value. The excess of the issue price over the par value
is recorded in the share premium reserve. The cost of own shares purchased to satisfy the exercise of employee share options
is charged to total equity and the proceeds of their reissue are credited to total equity.
m) Dividends on shares presented within shareholders’ funds
Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed
in the notes to the financial statements.
n) Guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of fellow subsidiaries or of third parties,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make
a payment under the guarantee.
2 Staff numbers and operating costs
All Directors and staff are employed by French Connection (London) Limited, a subsidiary undertaking. Details of staff numbers
and costs are shown in that Company’s accounts. Directors’ remuneration is disclosed in the Directors’ Remuneration Report.
The audit fee of the Company is disclosed in Note 7 to the Group accounts.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 57
3 Property, plant and equipment
Plant
equipment
fixtures
and fittings
£m
Cost or valuation
At 1 February 2013 3.2
Additions 0.1
Disposals (0.2)
At 31 January 2014 3.1
Depreciation
At 1 February 2013 2.6
Charge for year 0.2
Disposals (0.2)
At 31 January 2014 2.6
Net book value
At 31 January 2014 0.5
At 31 January 2013 0.6
4 Investments
The Company’s investments in subsidiary undertakings is as follows:
Total
£m
Cost
At 1 February 2013 and 31 January 2014 70.8
Provision
At 1 February 2013 45.1
Charge for year 1.2
At 31 January 2014 46.3
Carrying amount
At 31 January 2014 24.5
At 31 January 2013 25.7
The Directors have conducted an impairment review comprising a comparison of the carrying amount of the investment with its
recoverable amount being the higher of net realisable value and value in use. The recoverable amount has been determined as the
net realisable value. To the extent that the carrying amount exceeds the recoverable amount, the investment is impaired and has
been provided against. The impairment loss has been recognised in the profit and loss account in the year.
Impairment of £1.2m (2013: £Nil) relating to the Group’s investment in subsidiary company, French Connection Holdings Inc. has
been provided in the current year.
The principal subsidiaries of the Company are set out in Note 30 to the Group accounts.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 58
NOTES TO THE COMPANY ACCOUNTS
Continued
5 Debtors
2014
£m
2013
£m
Amounts owed by subsidiary undertakings 47.0 39.8
Deferred tax (Note 7) 0.2 0.3
Other debtors 0.1 0.1
Prepayments and accrued income 0.2 0.3
47.5 40.5
Included within debtors are amounts due within one year of £0.3m (2013: £0.4m).
6 Creditors: amounts falling due within one year
2014
£m
2013
£m
Trade creditors 0.2 0.4
Accruals and deferred income 2.3 1.1
2.5 1.5
7 Deferred tax
Deferred tax asset (Note 5)
2014
£m
2013
£m
Deferred capital allowances and short-term timing differences 0.2 0.3
Deferred tax liability
2014
£m
2013
£m
Deferred capital gains 0.6 0.7
Any movement during the year has been processed entirely through the profit and loss account.
8 Reserves
Hedging
reserve
£m
Share
premium
account
£m
Profit
and loss
account
£m
At 1 February 2013 0.1 9.4 54.2
Loss for the ?nancial year (0.7)
Dividends received during the year from subsidiaries 5.5
Effective portion of changes in fair value of cash ?ow hedges (0.3)
At 31 January 2014 (0.2) 9.4 59.0
Share capital and share option information is set out in Note 21 in the Group accounts.
The profit before taxation dealt within the accounts of the Company was £4.8m (2013: £0.8m).
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 59
9 Reconciliation of movements in equity shareholders’ funds
2014
£m
2013
£m
(Loss)/pro?t for the ?nancial year (0.7) 0.8
Dividends paid during the year – (1.0)
Dividends received during the year from subsidiaries 5.5 –
Effective portion of changes in fair value of cash ?ow hedges (0.3) –
Net movement in equity shareholders’ funds 4.5 (0.2)
Opening equity shareholders’ funds 64.7 64.9
Closing equity shareholders’ funds 69.2 64.7
10 Commitments
Leasehold property Other
2014
£m
2013
£m
2014
£m
2013
£m
Operating leases which expire:
Within two to ?ve years – – 0.2 0.2
After ?ve years 0.9 0.8 – –
0.9 0.8 0.2 0.2
At 31 January 2014 the Company had commitments on foreign exchange contracts amounting to £4.5m (2013: £4.5m). The fair
value of forward exchange contracts outstanding as at 31 January 2014 is a liability of £0.2m (2013: asset of £0.1m). £0.3m has
been charged to the hedging reserve (2013: £Nil).
11 Contingent liabilities
The Company raises finance for and guarantees the bank borrowings of certain subsidiary undertakings which, at 31 January 2014,
amounted to £Nil (2013: £Nil).
12 Related party disclosures
There are no related party transactions between the Company and the non-controlling interest subsidiary undertakings.
Details of DIrector related party transactions are disclosed in Note 27 to the Group accounts.
Management has identified the Directors of the Company as related parties for the purpose of FRS8 ‘Related Party Disclosures’.
Details of the relevant relationships with these individuals are disclosed in the Directors’ Remuneration Report as set out in the Group
financial statements.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 60
FIVE YEAR RECORD
Years ended 31 January
2010
£
2011
£
2012
£
2013
£
2014
£
Revenue 249.2m 223.8m 216.0m 197.3m 189.4m
(Loss)/pro?t before taxation (9.0)m 8.9m 5.0m (10.5)m (6.1)m
Discontinued operations (15.7)m (11.1)m 0.8m – –
Basic (losses)/earnings per share (26.0)p (2.4)p 5.5p (10.7)p (6.4)p
Adjusted earnings/(losses) per share 0.5p 7.5p 4.3p (7.3)p (4.6)p
Dividends per share 0.5p 1.5p 1.6p – –
Net assets 72.3m 71.8m 75.1m 63.5m 56.5m
Operated retail trading space 000 sq ft 458 337 330 325 300
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 61
ADVISERS
FINANCIAL CALENDAR
HEAD OFFICE
Centro 1
39 Camden Street
London NW1 0DX
STOCKBROKERS
Numis Securities Ltd
10 Paternoster Square
London EC4M 7LT
PRINCIPAL BANKERS
Barclays Bank Plc
London Corporate Banking
1 Churchill Place
London E14 5HP
SECRETARY AND REGISTERED OFFICE
Adam Castleton
20-22 Bedford Row
London WC1R 4JS
AUDITORS
KPMG Audit Plc
15 Canada Square
Canary Wharf
London E14 5GL
REGISTRARS AND TRANSFER OFFICE
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
REGISTERED NUMBER
1410568, England
2014
15 May
AGM and
Interim Management Statement (provisional)
18 September
(provisional)
Half-Year Statement
20 November
(provisional)
Interim Management Statement
2015
31 January
Financial Year End
19 March
(provisional)
Preliminary Announcement of Results
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 62
NOTICE OF MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to the action you should take, you are recommended to seek your own personal advice from your stockbroker,
accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold
or otherwise transferred all of your ordinary shares in French Connection Group PLC, you should forward this document and other
documents enclosed (except the personalised form of proxy) as soon as possible to the stockbroker, bank or other agent through
whom the sale or transfer was effected for transmission to the purchaser or transferee.
Notice is hereby given that the Annual General Meeting of the Company will be held at 10.00 am on Thursday 15 May 2014 at
the offices of French Connection Group PLC, Centro 1, 39 Camden Street, London NW1 0DX to consider and, if thought fit, pass
the following resolutions:
Ordinary Resolutions
1 To receive and adopt the audited accounts and the report of the Directors and of the auditors for the financial year ended
31 January 2014.
2 To approve the Directors’ Remuneration Report for the financial year ended 31 January 2014, other than the part containing
the Directors’ Remuneration Policy in the form set out in the Company’s annual report and accounts for the financial year ended
31 January 2014.
3 To approve the Directors’ Remuneration Policy in the form set out in the Directors’ Remuneration Report in the Company’s annual
report and accounts for the financial year ended 31 January 2014.
4 To elect Adam Castleton as a Director of the Company.
5 To re-elect Neil Williams as a Director of the Company.
6 To re-elect Claire Kent as a Director of the Company.
7 To appoint KPMG LLP as auditors to hold office from the conclusion of this meeting until the conclusion of the next Annual General
Meeting at which accounts are laid and to authorise the Directors to determine their remuneration.
8 THAT:
the Directors be and they are hereby generally and unconditionally authorised pursuant to Section 551, Companies Act 2006 (the "Act") to
exercise all powers of the Company to allot shares in the Company and grant rights to subscribe for or to convert any security into shares
of the Company (such shares and rights to subscribe for shares or to convert any security into shares of the Company being "relevant
securities") up to an aggregate nominal amount of £287,699 (being 30% of the issued share capital) PROVIDED THAT unless previously
revoked, varied or extended, this authority shall expire on the date of the next Annual General Meeting of the Company after the passing
of this Resolution SAVE THAT the Company may before such expiry make an offer or agreement which would or might require relevant
securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such an offer or agreement as
if the authority conferred hereby had not expired.
9 THAT:
the French Connection Group Plc Company Share Option Plan 2014 (the “2014 Plan”), a summary of which is set out in Appendix 2
to this Notice be adopted and established and the Directors be and they are hereby authorised to do all things which they may consider
necessary or desirable in order to carry the 2014 Plan into effect, including the making of non-material or consequential amendments
thereto.
Special Resolution
To consider and, if thought fit, pass resolutions 10 and 11 below as Special Resolutions of the Company:
10 THAT:
if resolution 8 is passed, the Directors be and they are hereby empowered pursuant to Section 570(1) of the Act to allot equity securities
(as defined in Section 560(1) of the Act) of the Company wholly for cash pursuant to the authority under Section 551 of the Act conferred
by resolution 8 above and/or by way of a sale of treasury shares for cash (by virtue of Section 573 of the Act) in each case as if
Section 561(1) of the said Act did not apply to any such allotment provided that:
(a) the power conferred by this resolution shall be limited to:
(i) the allotment of equity securities and sale of treasury shares for cash in connection with an offer of, or invitation to apply for,
equity securities:
(A) in favour of holders of ordinary shares in the capital of the Company, where the equity securities respectively attributable
to the interests of all such holders are proportionate (as nearly as practicable) to the respective number of ordinary shares
in the capital of the Company held by them; and
(B) to the holders of any other equity securities as required by the rights of those securities or as the Directors otherwise consider
necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal
with treasury shares, fractional entitlements or legal, regulatory or practical problems arising under the laws or requirements
of any overseas territory or by virtue of shares being represented by depository receipts or the requirements of any regulatory
body or stock exchange or any other matter whatsoever; and
(ii) the allotment (otherwise than under sub-paragraph (i) above) of equity securities or sale of treasury shares up to an aggregate
nominal value equal to £47,950 (representing 5% of the issued share capital for the time being); and
(b) unless previously revoked, varied or extended, this power shall expire on the date of the next Annual General Meeting of the
Company after the passing of this Resolution SAVE THAT the Company may before such expiry make an offer or agreement which
would or might require equity securities to be allotted (and treasury shares to be sold) after such expiry in pursuance of such an
offer or agreement and the Directors may allot relevant securities in pursuance of such an offer or agreement as if the authority
conferred hereby had not expired.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 63
11 THAT a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice, provided that this
authority shall expire at the end of the next annual general meeting of the Company.
By order of the Board
Adam Castleton
Secretary
20-22 Bedford Row
London WC1R 4JS
9 April 2014
Resolution 1 – Approval of the annual report and accounts
The Directors are required by the Companies Act 2006 (the “Act”) to
lay before the Company at this Annual General Meeting the accounts
of the Company for the financial year ended 31 January 2014, the report
of the Directors, the Directors’ Remuneration Report and the report of the
Company’s auditor on those accounts.
Resolutions 2 and 3 – Directors’ Remuneration Report
and Directors’ Remuneration Policy
Resolution 2 is the ordinary resolution to approve the Directors’
Remuneration Report, other than the part containing the Directors’
Remuneration Policy. The vote of this resolution is advisory and no Director’s
remuneration is conditional upon the passing of this resolution.
Resolution 3 is the ordinary resolution to approve the Directors’ Remuneration
Policy, which is set out in the Directors’ Remuneration Report. Once the
Directors’ Remuneration Policy is approved, the Company will not be able
to make a remuneration payment to a current or prospective Director unless
that payment is consistent with the Directors’ Remuneration Policy.
Resolutions 4 to 6 – Election and Re-election of Directors
In accordance with the Company’s articles of association, any Director
newly appointed by the Board is required to retire and submit him/herself
for re-appointment at the first annual general meeting following his/her
appointment. Accordingly, Adam Castleton, who was appointed as Finance
Director during the year, retires and, being eligible, offers himself for election.
The articles of association of the Company require the nearest number
to one third of the Directors to retire at each annual general meeting.
Neil Williams and Claire Kent are subject to rotation and being eligible,
offer themselves for re-election.
Resolution 7 – Appointment of auditors
The Company is required to appoint an auditor at each general meeting at
which accounts are laid before the Company, to hold office until the next
such meeting. KPMG Audit Plc has informed the Company that it has
instigated an orderly wind down of its business and has therefore informed
the Company that the entity which conducts audit services in the future
is to change from KPMG Audit Plc to KPMG LLP. As such, KPMG Audit Plc
has notified the Company that it is not seeking re-appointment as the
Company's auditor and has provided the Company with a statement
of circumstances confirming its resignation as auditor of the Company
pursuant to this process. A copy of this statement of circumstances is set
out in Appendix 1 to this Notice. Consequently, the Audit Committee has
recommended, and the Board has approved, the resolution to appoint
KPMG LLP as auditor of the Company.
Resolution 8 – Authority to allot shares
Under section 551 of the Act, Directors require shareholders’ authority for
the allotment of shares. Shareholders last granted such general authority
to the Directors at the annual general meeting of the Company held in 2013.
Such authority will expire at the end of this Annual General Meeting and
Resolution 8 seeks to renew it (although the Directors have no current
plans to utilise the authority, except in relation to the issue of new shares
pursuant to the Company’s share incentive schemes). Accordingly,
Resolution 8 would renew this authority until the next annual general
meeting by authorising the Directors to allot shares up to an aggregate
nominal amount equal to approximately one third of the current issued
share capital of the Company.
Resolution 9 – Approval of adoption of the French Connection Group
Plc Company Share Option Plan 2014 (the “2014 Plan”)
Please refer to Appendix 2 which summarises the rules/provisions of the
2014 Plan.
Resolution 10 – Disapplication of statutory pre-emption rights
This resolution seeks to disapply the pre-emption rights provisions of
section 561 of the Act, which requires Directors wishing to allot shares to
offer them in the first instance to existing ordinary shareholders in proportion
to their ordinary shareholding. There may be occasions, however, when the
Directors will need the flexibility to finance business opportunities by the
issue of ordinary shares without a pre-emptive offer to existing ordinary
shareholders. Shareholders last granted authority to Directors to dis-apply
pre-emptive rights at the annual general meeting held in 2013. Such
authority will expire at the end of this Annual General Meeting and
Resolution 10 seeks to renew it. Except in relation to the issue of new
ordinary shares pursuant to the Company’s share incentive schemes,
the Directors have no present intention of issuing any shares pursuant
to this disapplication.
Resolution 11 – Notice of general meetings
Pursuant to the Shareholders’ Rights Regulations the notice period for
general meetings of a company has been extended to 21 clear days unless
certain requirements are satisfied. The Directors believe it is in the best
interests of the shareholders of the Company to enable general meetings to
be called on 14 clear days’ notice. It is intended that this flexibility will only
be used for non-routine business and, where merited, in the interests of
shareholders as a whole. The approval will be effective until the Company’s
next annual general meeting, when it is expected that a similar resolution will
be proposed.
General notes to the AGM Notice
1. Holders of ordinary shares, or their duly appointed representatives, are
entitled to attend and vote at the AGM. Shareholders are entitled to appoint
a proxy to exercise all or any of their rights to attend and speak and vote on
their behalf at the meeting. A shareholder can appoint the Chairman of the
meeting or anyone else to be his/her proxy at the meeting. A proxy need not
be a shareholder. More than one proxy can be appointed in relation to the
AGM provided that each proxy is appointed to exercise the rights attached
to a different ordinary share or shares held by that shareholder. To appoint
more than one proxy, the Proxy Form enclosed should be photocopied and
completed for each proxy holder. The proxy holder’s name should be written
on the Proxy Form together with the number of shares in relation to which
the proxy is authorised to act. The box on the Proxy Form must also be
ticked to indicate that the proxy instruction is one of multiple instructions
being given. All Proxy Forms must be signed and, to be effective, must be
lodged with Capita so as to arrive no later than 10 am on 13 May 2014.
2. The return of a completed Proxy Form, other such instrument or
any CREST Proxy Instruction (as described in Note 1) will not prevent a
shareholder attending the AGM and voting in person if he/she wishes to
do so (although voting in person at the AGM will terminate the proxy
appointment).
3. In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message (a CREST Proxy Instruction)
must be properly authenticated in accordance with Euroclear UK & Ireland
Limited’s specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message must be
transmitted so as to be received by Capita (ID RA10) not later than 48 hours
before the time fixed for the AGM. For this purpose, the time of receipt will
be taken to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which Capita is able to
retrieve the message by enquiry to CREST. After this time any change of
Explanatory notes to the AGM Notice
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 64
instructions to proxies appointed through CREST should be communicated
to the appointee through other means. Euroclear UK & Ireland Limited
does not make available special procedures in CREST for any particular
messages and normal system timings and limitations will apply in relation to
the input of a CREST Proxy Instruction. It is the responsibility of the CREST
member concerned to take such action as shall be necessary to ensure that
a message is transmitted by means of the CREST system by any particular
time. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
4. Any person to whom this Notice is sent who is a person nominated under
Section 146 of the CA 2006 to enjoy information rights (a Nominated Person)
may, under an agreement between him/her and the shareholder by whom
he/she was nominated, have a right to be appointed (or to have someone
else appointed) as a proxy for the AGM. If a Nominated Person has no such
proxy appointment right or does not wish to exercise it, he/she may, under
any such agreement, have a right to give instructions to the shareholder as
to the exercise of voting rights.
5. The statement of the rights of shareholders in relation to the appointment
of proxies in Note 1 does not apply to Nominated Persons. The rights
described in that note can only be exercised by shareholders of the
Company.
6. As at 8 April 2014, being the latest practicable date prior to the publication
of this document, the Company’s issued share capital consists of 95,899,754
ordinary shares, carrying one vote each. Therefore the total voting rights in
the Company as at 8 April 2014 are 95,899,754.
7. In accordance with Regulation 41 of the Uncertificated Securities
Regulations 2001, only those members entered on the Company’s register of
members at 6 pm on 13 May 2014 or, if the meeting is adjourned, shareholders
entered on the Company’s register of members at 6 pm on the day two days
before the date of any adjournment shall be entitled to attend and vote at
the AGM.
8. Any member attending the meeting has the right to ask questions.
The Company has to answer any questions raised by members at the
meeting which relate to the business being dealt with at the meeting unless:
• to do so would interfere unduly with the preparation for the meeting
or involve the disclosure of confidential information;
• the answer has already been given on a website in the form of an
answer to a question, or;
• it is undesirable in the interests of the Company or the good order
of the meeting to answer the question.
9. Copies of the Directors’ service contracts and letters of appointment
along with a copy of the Company’s articles of association and the draft
rules of the French Connection Group Plc Company Share Option Plan
2014 are available for inspection at the registered office of the Company
during normal business hours on any business day and will be available for
inspection at the place where the meeting is being held from 15 minutes
prior to and during the meeting.
10. A copy of this notice, and other information required by s311A of the
Companies Act 2006, can be found at www.frenchconnection.com.
11. In the case of a member which is a company, your proxy form must be
executed under its common seal or signed on its behalf by a duly authorised
officer of the company or an attorney for the company.
12. Any power of attorney or any other authority under which your proxy
form is signed (or a duly certified copy of such power or authority) must
be included with your proxy form.
13. In the case of joint holders of shares, the vote of the first named in the
register of members who tenders a vote, whether in person or by proxy,
shall be accepted to the exclusion of the votes of other joint holders.
14. It is possible that, pursuant to requests made by members of the
Company under section 527 of the Companies Act 2006, the Company
may be required to publish on a website a statement setting out any matter
relating to: (a) the audit of the Company's accounts (including the auditor's
report and the conduct of the audit) that are to be laid before the AGM;
or (b) any circumstance connected with an auditor of the Company ceasing
to hold office since the previous meeting at which annual accounts and
reports were laid in accordance with section 437 of the Companies Act
2006. The Company may not require the members requesting any such
website publication to pay its expenses in complying with sections 527 or
528 of the Companies Act 2006. Where the Company is required to place a
statement on a website under section 527 of the Companies Act 2006, it
must forward the statement to the Company's auditor not later than the time
when it makes the statement available on the website. The business which
may be dealt with at the AGM includes any statement that the Company has
been required under section 527 of the Companies Act 2006 to publish on
a website.
15. In accordance with section 338 of the Companies Act 2006, a member
or members of the Company may (provided that the criteria set out in
section 338(3) of the Companies Act 2006 are met) require the Company
to give to members notice of a resolution which may properly be moved and
is intended to be moved at the AGM, provided that: (a) the resolution must
not be, if passed, ineffective (whether by reason of inconsistency with any
enactment or the Company's constitution or otherwise); and (b) the
resolution must not be defamatory of any person, frivolous or vexatious.
Such a request may be in hard copy form or in electronic form, must be
authenticated by the person or persons making it, must identify the
resolution of which notice is to be given and must be received by the
Company not later than 6 weeks before the AGM, or, if later, the time at
which notice is given of the AGM. (In the foregoing sentence, the terms
"hard copy form", "electronic form" and "authenticated" bear their respective
meanings set out in the Companies Act 2006 in relation to a communication,
or a document or information sent or supplied, to a company.)
16. In accordance with section 338A of the Companies Act 2006, a member
or members of the Company may (provided that the criteria set out in
section 338A(3) of the Companies Act 2006 are met) require the Company
to include in the business to be dealt with at the AGM a matter (other than a
proposed resolution) which may properly be included in the business of the
AGM, provided that the matter is not defamatory of any person, frivolous or
vexatious. A request may be in hard copy form or electronic form, must
identify the matter to be included in the business, must be accompanied by
a statement setting out the grounds for the request, must be authenticated
by the person or persons making it and must be received by the Company
not later than 6 weeks before the AGM, or, if later, the time at which notice
is given of the AGM. (In the foregoing sentence, the terms "hard copy form",
"electronic form" and "authenticated" bear the respective meanings set out
in the Companies Act 2006 in relation to a communication, or a document
or information sent or supplied, to a company.)
Appendix 1 – Statement of circumstances
received from KPMG Audit Plc
“1 April 2014
Statement to French Connection Group Plc (no. 01410568) on
ceasing to hold office as auditors pursuant to section 519 of the
Companies Act 2006
The circumstances connected with our ceasing to hold office are that our
company, KPMG Audit Plc, has instigated an orderly wind down of business.
KPMG LLP, an intermediate parent, will immediately be seeking appointment
as statutory auditor.
We request that any correspondence in relation to this statement be sent to
our registered office 15 Canada Square, London, E14 5GL marked for the
attention of the Audit Regulation Department.”
Appendix 2 – summary of the French Connection
Group Company Share Option Plan 2014
(the “2014 Plan”)
Following the expiry of the existing French Connection Group Plc Approved
Share Option Scheme and French Connection Group Plc Unapproved
Share Option Scheme, the Board would like to replace both plans this year.
Accordingly, shareholders are asked to approve the new 2014 Plan for the
benefit of employees and full time directors.
1 General
The 2014 Plan will be administered by the Board of Directors of the
Company or a duly constituted committee of the Board (the “Board”).
The 2014 plan is in two parts: Part I will satisfy the requirements of
Schedule 4 to the Income Tax (Earnings and Pensions) Act 2003 so
that employees may be granted options over Ordinary Shares worth up
to £30,000 and income tax will not generally be payable on the exercise
of those options (previously known as “approved options”); and Part II
will allow the grant of options over a greater number of Ordinary Shares,
but without relief from income tax (“unapproved options”).
Benefits under the 2014 Plan are not transferable (except on death)
and are not pensionable.
2 Plan limits
The total number of unissued Ordinary Shares over which options may
be granted when aggregated with the total number of Ordinary Shares
issued pursuant to share awards or made issuable pursuant to options
granted under any employees’ share scheme in the ten years immediately
preceding the date upon which an option is granted, shall not exceed
ten per cent of the Company’s issued Ordinary Shares at the date of grant.
NOTICE OF MEETING
continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 65
3 Individual limits
In any twelve month period, a participant may be granted options over
Ordinary Shares with an aggregate market value, measured on their
dates of grant, of up to two times his remuneration (annual basic rate
of pay). The Board may increase this to four times his remuneration
under exceptional circumstances.
The maximum value of Ordinary Shares (as at the relevant dates of
grant) over which an individual may at any time hold approved options
under Part I of the 2014 Plan and any other tax compliant Company
Share Option Plan shall not exceed £30,000 (or such other limit as
appears from time to time in the relevant legislation).
4 Grant of options
Options may be granted during a 42 day period following shareholders’
approval and any announcement of the Company’s interim and final
results, and outside these periods if the Board resolves that exceptional
circumstances exist.
No options may be granted when there is a restriction on dealing
pursuant to the Model Code on Directors’ dealings in securities as set
out in the Listing Rules.
No options may be granted more than 10 years after the approval of
the 2014 Plan by shareholders.
Eligible employees are all employees and Executive Directors of the
Group who are required to work at least 25 hours per week for the
Group.
5 Option Exercise Price
The price per Ordinary Share at which options may be exercised is
the higher of the nominal value of an Ordinary Share and the average
market value of an Ordinary Share over the three dealing days
preceding the date of grant in the case of options to subscribe for
shares and market value on the date of grant in the case of options
to purchase.
6 Performance Conditions
The exercise of options will be subject to the achievement of a
performance condition.
Options will vest if the performance condition is satisfied. The
performance condition will be determined at the date of grant and
will require sustained financial growth of the Company. The Board
has determined that any performance condition will be challenging
and the performance condition relating to the first grant of options
will be based on improvements in profit before tax. Options will vest
on a sliding scale, depending on the extent to which the performance
condition is met.
7 Renunciation of options
Any option may be renounced in whole or in part by the participant by
giving notice to that effect and returning the relevant option certificate
to the Company no later than 30 days after the date of grant of that
option.
8 Exercise of options
Options may be exercised in whole or in part on or after the third
anniversary of the date of grant if the performance condition has been
met. Options may be exercised earlier:
• if a participant dies;
• if a participant ceases to be employed by a Group company due
to injury, ill-health, disability, redundancy or retirement;
• if the participant’s employing company or business is transferred
outside the Group;
• if the participant ceases employment with the Group for any other
reason and the Board consents before the expiry of 30 days after
the date on which he ceases employment, to the exercise of his
options; or
• if the Company is taken over, or there is a scheme of arrangement
or a voluntary winding up.
Where an option becomes exercisable before the third anniversary
of the date of grant, the Board will take into account the proportion of
the performance period that has expired and the extent to which the
performance conditions have been met in determining the extent to
which the option may be exercised.
9 Lapse
Options lapse on the earliest of the following events:
• the tenth anniversary of the date of grant;
• the first anniversary of the participant’s death;
• six months after the date on which the participant ceased
employment with the Group if cessation was by reason of
redundancy, retirement, injury or disability;
• six months after the date on which the participant ceased
employment with the Group if cessation was by reason that
the participant’s employing company or business is transferred
outside the Group;
• six months after the participant ceases employment with the
Group for any other reason and the Board consents to the exercise
before the expiry of 30 days after the date on which he ceases
employment;
• on the date of cessation of employment for any other reason;
• the Participant being adjudicated bankrupt;
• upon a resolution being passed or an order being made by the
Court for the compulsory winding up of the Company;
• immediately upon the participant purporting to transfer, assign
or charge his option; or
• following a change of control of the Company unless the option
is exchanged as described in paragraph 10 below.
10 Change in Control
If there is a change of control of the Company, participants may, with
the consent of the acquiring company, exchange options over Ordinary
Shares for new options of an equivalent value over shares in the
acquiring company.
11 Variation of share capital
Options granted under the 2014 Plan may be adjusted to reflect
variations in the Company’s share capital.
12 Administration and Amendments
The Board may amend the rules of the 2014 Plan, provided that:
• no amendments may adversely affect a participant as regards
options granted before the date of amendment without the consent
of the holders of not less than three-quarters of the Ordinary Shares
then subject to option; and
• provisions relating to eligible employees, the limits on the number
of Ordinary Shares which may be issued under the 2014 Plan,
the maximum entitlement of any participant and the basis on
which options may be adjusted to the advantage of participants
may only be amended with the prior approval of shareholders in
general meeting (except for minor amendments which benefit the
administration of the 2014 Plan, or to take account of changes in
legislation or to maintain favourable tax, regulatory or exchange
control treatment).
13 General
Options may not be assigned, charged or transferred (except on death).
Ordinary Shares issued under the 2014 Plan shall rank pari passu with
existing Ordinary Shares and the Company.
FrenchConnection.Com
doc_767216421.pdf
The French Connection Group designs, produces and distributes branded fashion clothing for men and women to more than 60 countries around the world.
ANNUAL REPORT 2014
French Connection Group PLC
The French Connection Group designs, produces and
distributes branded fashion clothing for men and women
to more than 60 countries around the world
French Connection Group PLC
FRENCH CONNECTION • GREAT PLAINS • TOAST • YMC
CONTENTS
STRATEGIC REPORT
Chairman’s Statement 2
Our Business 3
Corporate Social Responsibilty 7
Financial Review 9
GOVERNANCE
Board of Directors 11
Directors’ Report 12
Corporate Governance Statement 14
Audit Committee Report 16
Directors’ Remuneration Report 19
Statement of Directors’ Responsibilities 27
Independent Auditor’s Report 28
FINANCIAL STATEMENTS
Consolidated Statement
of Comprehensive Income 30
Consolidated Statement
of Financial Position 32
Consolidated Statement
of Changes in Equity 33
Consolidated Statement
of Cash Flows 34
Notes to the Group Accounts 35
Company Balance Sheet 54
Notes to the Company Accounts 55
SHAREHOLDER INFORMATION
Five Year Record 60
Advisers 61
Financial Calendar 61
Notice of Meeting 62
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 2
Dear Shareholders,
In the Annual Report last year I set out the initiatives we put
in place to drive a turnaround in our trading performance.
I am pleased that the initiatives have delivered improved
results during the year and that they are continuing to gain
traction as our business performance further strengthens.
After delivering a reduction in losses in H1, the Group reports
an underlying operating profit in H2 of £1.7m (2013: H2 loss
of £(0.9) m). As a consequence, the overall Group underlying
operating loss before taxation (and excluding store closure
costs) for the year was therefore better than expectations at
£(4.4) m, an encouraging improvement compared with the
loss of £(7.2) m last year.
The majority of the improvement in the Group financial
performance was from our Retail division which reduced
operating losses by £3.8m over the year. This was driven
out of our UK/Europe business, through enhanced margins
particularly in the latter part of H2, lower underlying labour
costs and the closure of 9 non-contributing stores. In the
Wholesale division, better UK/Europe trading was offset
by tough trading conditions in North America. Group
management and common overheads were reduced
by 11.7%.
The UK/Europe retail performance continues to strengthen
following the implementation of the retail initiatives. At
the operational level focus has been placed on process
re-engineering and staff scheduling, which have resulted
in both cost savings and better time management. This has
been in conjunction with a push to improve full price sales
evidenced by positive LFL’s in H2.
The improved collections under the control of the new
design team have shown a positive impact. Significantly,
changes in our retail buying resulted in higher full price sell
through, lower levels of discounting during the sale period,
much better stock control and consequently reduced
working capital consumption. This has further enabled us
to continue to improve the brand equity by having shorter
sale periods in the UK at the end of the last two seasons.
During the year our ecommerce business has continued
to perform well and has grown by 8%, benefiting from
the continued investment in our multi-channel offering. It is
clear that we will need to maintain this investment in order to
ensure we provide high levels of functionality to customers.
We continued to rationalise the UK/Europe store portfolio
with a total of 9 non-contributing stores closed during the
year. We plan to close a further 3-5 non-contributing stores
during the current year.
As the year progressed the UK wholesale business
built momentum as the benefits of the changes to the
collections fed through, resulting in an improved second
half performance. Orders for the Spring 2014 collections
are ahead of last year. A good initial reaction to the Winter
2014 collections, linked to an improved sell through of the
previous season, has resulted in further progress.
Toast performed well during the year and continues
to leverage on its primarily online business model,
complemented by a small retail portfolio.
In International markets, in our Joint Ventures in China
and Hong Kong, additional stores were opened and
with positive LFL’s, the share of profit from joint ventures
increased. In North America, the apparel market has been
weak in 2014 and we have not been immune to the effects
of this.
Global Licensing continues to be a very important part of
the business highlighting the strength of the brand, with the
new licenses for furniture, shoes, and bags performing well.
The Group remains debt free and ended the year with
a strong cash position of £28.2m (2013: £28.5m).
To conserve working capital the Board has decided that
no dividend shall be paid for the year (2013: Nil). The
shareholder distribution policy will be kept under review
during the year.
Overall, there has been significant positive change across
the business during the year. We have felt the benefit of the
new team who have now been in place for over a year and
have made considerable impact across many areas. More
recently we have been pleased with the reception to our
Spring range.
We have accomplished a great deal in the past year and
will build on that momentum to deliver further improvements.
There is still much to do and I am confident that we are on
the right path and have the right strategy to drive further
progress.
Finally on behalf of the Board, I would like to thank all our
staff around the world for their continuing efforts and hard
work which is contributing to the success and delivery of
the improved performance we have seen over the past year.
Stephen Marks
Chairman and Chief Executive
12 March 2014
CHAIRMAN’S STATEMENT
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 3
OUR BUSINESS
Business objectives, strategy,
and business model
At the heart of our business is a passion for the clothes.
In 1972, when French Connection was conceived, we set
out to create well-designed, stylish clothing that appealed to
a broad market. We have since worked hard to build on that
vision and as a result, French Connection is synonymous
with fashion and style.
It remains our prime goal to create distinctiveness in a crowded
market place through focus on design. The brand’s strength
lies in balancing new, exciting ideas with consistent quality
and affordability and in a world of “fast fashion” we are proud
of our commitment to the creative process.
With a passionate focus on fashion underpinning the business
our aim is to generate increased shareholder value through the
sale of fashion products and the extension of our brands into
other lucrative markets through licensing. We continually assess
markets and relationships for new opportunities to broaden our
customer reach.
Founded by Chairman and Chief Executive Stephen Marks,
French Connection’s long history of success has been based
on design quality and innovative fashion, supported by a strong
market presence resulting in one of the most highly recognised
and respected clothing brands in the UK and across the world.
We seek to ensure that products are presented for sale in
contemporary surroundings by knowledgeable and friendly
staff who are in-tune with our customers. We recognise that
our products are the core element of our business and that our
ability to produce fashionable clothing to match our customers’
expectation has been, and continues to be, the key to our
continued success.
We seek to ensure that our resources are deployed effectively
and efficiently to support our business. Design and production
of the ranges and maintenance of our operating standards are
paramount for all our business managers who have broad
responsibility for their area of operations.
Brands
Our principal brand is French Connection which accounts
for 87% of the Group’s revenues.
The French Connection brand operates in the fashion-
orientated market place offering a fashion-forward range of
quality products at affordable prices. Our customers, typically
aged 18-35, appreciate that the brand is at the leading edge of
high street fashion and offers quality and style in its products.
We design ranges of products for both men and women from
underwear to outerwear, casual wear to suits, denim and
accessories.
Our other brands include:
TOAST: a range of beautifully crafted ladies’ and men’s clothing
and unique homeware, available on-line, in selected John Lewis
stores and through a growing number of dedicated high-street
stores;
Great Plains: a fashion basics range designed in-house and
supplied through wholesale to multi-brand retailers mainly
in the UK; and
YMC: a fledgling, edgy, contemporary fashion brand for
men and women with two stores in London and a growing
wholesale base.
Each brand targets a different audience and has achieved high
levels of recognition for style and design reflecting the creative
passion and skill poured into the design and manufacture of
their products.
Our operations
We design, produce and distribute branded fashion clothing
for men and women from our business premises in London,
Swansea, New York, Paris, Dusseldorf, Hong Kong and
Toronto. We operate retail stores and concessions in the
UK, Europe, US and Canada and also operate ecommerce
businesses in each of those territories. Further, we wholesale
our products to retailers operating in over 60 countries
around the world and have licensed partners operating French
Connection stores across Asia, Australia and the Middle East.
Other branded products, such as toiletries, shoes and eyewear,
are produced under licence.
Our design teams are based in London and we arrange for the
products to be manufactured in specialist third part factories in
Europe and Asia supervised by local buying offices. The main
countries where manufacturing takes place are China, India
and Turkey.
The Group retails garments through a network of stores on high
streets and in shopping malls across the UK, Europe and North
America and through concessions within leading department
stores such as House of Fraser. We also operate ecommerce
internet sites through which our products are available for home
delivery in the UK, Europe and North America.
The product ranges are also offered for sale at wholesale
through our showrooms in London, New York, Paris,
Dusseldorf and Hong Kong to selected customers operating
department stores, multi-brand fashion stores or ecommerce
sites around the world.
To further extend retail distribution we have granted franchises
and licences to quality retailers allowing them to operate French
Connection branded retail stores in Europe, the Middle East,
Asia and Australia. These customers are supplied through our
wholesale channels in the UK and Hong Kong. Our licensees
operating stores in Hong Kong and China are 50% Joint Venture
businesses operated by our local partners in those territories.
Brand extensions
Our globally recognised French Connection and fcuk brands
have been extended successfully into complementary licensed
products including men’s and women’s toiletries and fragrances,
shoes, watches, jewellery, furniture and eyewear which together
generate another major profit stream for the Group: licence
royalty income.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 4
Current trends
The continued growth of multi-channel retailing is a clear focus
for French Connection. We will continue to invest in the people
and systems to support this growth opportunity to ensure our
customers can shop with us however they wish and get the
very best multi-channel experience. The success of our click
and collect program is an example of this investment.
Principal risks and uncertainties
Our success depends on our ability to produce ranges
of garments which are sufficiently attractive to potential
customers. We seek to achieve this through retention of
experienced and skilled designers and merchandisers and
by remaining as operationally flexible as possible.
The nature of fashion retail, however, means that it is not always
possible to predict customers’ reactions to each season’s new
ranges. Our customers’ propensity to spend on clothing is
affected by their personal financial situation and other macro-
economic factors which impact the total size of the retail
markets in which we operate. We have been able to mitigate
this somewhat by developing our licensing businesses which
provide a more stable and predictable income stream.
We consider that as a small operator at the upper end of the
middle market the impact on our business of macro-economic
elements is considerably smaller than the impact of the
success of our designers in producing attractive products.
Each year the brands produce two main seasonal fashion
ranges and the success of each of these is largely dependent
on the ability of our designers to reflect attractively the
emerging trends in fashion. We utilise a mix of experience
and fresh thinking in our design studios under the consistent
guidance of the senior management to ensure continuity of
the brand attitudes.
Like all retailers we are susceptible to volatility in the propensity
of consumers to spend, which is affected by macro-economic
issues. The design process and our retail businesses in
particular have a significant proportion of fixed costs giving rise
to operational gearing and this is exacerbated by upward-only
rent reviews. To mitigate cost pressures we have focused on
reducing retail operating costs and have achieved considerable
savings by optimising our rostering timetables in store.
Our brands and the way they are perceived in their respective
markets is very important to us. We are therefore very
protective of the brands and work to ensure that they are
presented in appropriate ways and that they are not misused.
A main driver for brand perception is the products themselves
and therefore our reputational risk is closely linked to our sales
success.
As a wholesaler we also face the risk of default from our
customers and manage this through active relationship
management by our dedicated customer accounts team.
Our experience of bad debts has been very low over many
years due to this close management. We also insure certain
debt risks, mainly overseas.
The Group maintains a positive net cash balance throughout
the year and we are conscious to manage the Group’s working
capital effectively.
The principal treasury risks to the Group arise from exchange
rate and interest rate fluctuations. The Board has approved
policies for managing these risks, which are reviewed on
a regular basis, including the use of financial instruments,
principally forward foreign exchange contracts. No transactions
of a speculative nature are undertaken.
The most significant exposure to foreign exchange fluctuations
relates to purchases made in foreign currencies, principally the
Hong Kong Dollar and Euro. The Group’s policy is to reduce
substantially the risk associated with purchases denominated
in currencies other than Sterling by using forward fixed rate
currency purchase contracts. There has been no change since
the year end to the major treasury risks faced by the Group or
the Group’s approach to the management of these risks.
The Group is dependent on reliable IT systems for managing
and controlling its business and for providing efficiency and
speed in the supply chain. Our IT function oversees all the
systems and has policies and procedures to protect the
software, hardware and data and to prevent unauthorised
access to the systems.
The Group’s approach to the management of risks is further
discussed in the Corporate Governance Statement.
Key Performance Indicators
The Board considers that the key performance indicators
for the businesses are:
• total sales achieved in the retail channels; including
LFL sales growth;
• total sales achieved in the wholesale channels;
• total sales by geography;
• overall gross margin;
• net operating margin for the retail and wholesale
channels in total and across all geographies.
Each of the above is discussed in more detail in the
Financial Review.
OUR BUSINESS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 5
WORLDWIDE OPERATIONS
UK/Europe North America Rest of the World
LOCATI ON LOCATI ON LOCATI ON
London, Swansea,
Paris, Dusseldorf
New York Toronto Hong Kong
TERRI TORI ES TERRI TORI ES TERRI TORI ES
UK,
Europe,
Middle East
USA Canada Hong Kong,
China
Australia, Asia,
South Africa
RETAI L OPERATI ONS RETAI L OPERATI ONS RETAI L OPERATI ONS
Retail stores
and concessions,
e-commerce
Retail stores,
e-commerce
Retail stores,
e-commerce
Retail
stores and
concessions
through joint
ventures
WHOLESALE CUSTOMERS WHOLESALE CUSTOMERS WHOLESALE CUSTOMERS
Department stores,
multi-brand stores,
franchise operators
Department
stores,
multi-brand
stores
Multi-brand
stores
Department
stores
and
concessions
LI CENSI NG LI CENSI NG LI CENSI NG
Product and country licensing Product
licensing
Product
licensing
Product
licensing
BRANDS BRANDS BRANDS
French Connection,
Great Plains,
Toast, YMC
French
Connection,
YMC
French
Connection
French
Connection
French
Connection
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 5
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 6
RETAIL LOCATIONS
31 January 2014 31 January 2013
Locations sq ft Locations sq ft
Operated locations
UK/Europe
French Connection Stores
French Connection/Great Plains Concessions
Toast Stores
YMC Stores
66
51
12
2
202,770
33,560
15,384
1,355
74
54
11
2
218,115
36,134
11,407
1,355
131 253,069 141 267,011
North America
French Connection US Stores
French Connection Canada Stores
7
9
22,841
24,325
8
9
33,900
24,325
16 47,166 17 58,225
Total operated locations 147 300,235 158 325,236
French Connection licensed and franchised
UK/Europe
North America
Middle East
Australia
Hong Kong
China
India
Other
7
1
6
72
5
23
110
48
7,994
2,000
9,805
72,112
6,062
34,960
60,782
44,516
10
1
13
92
6
21
89
51
14,821
2,000
23,842
96,329
7,031
31,556
56,129
45,240
Total licensed and franchised locations 272 238,231 283 276,948
Total branded locations 419 538,466 441 602,184
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 7
CORPORATE SOCIAL RESPONSIBILITY
The Board recognises that the long term profitability of the
business depends, amongst other things, on appropriate
protection of the Group’s assets, reputation and brand names
and is subject to the long-term sustainability of the supply chain.
Impact on the environment
The use of resources to manufacture and supply our products
utilise finite global resources. The source of the raw materials and
the manufacture of the finished products is spread globally and
provides employment, income and personal security at many
different points in the process. We recognise, however, that
our products utilise global resources some of which are limited
in their nature.
Some of the initiatives we have implemented include:
• In the UK, the business meets its responsibilities under the
packaging waste regulations through membership of Valpak;
• Wooden hangers are sourced from sustainable sources
and we do not give them away with the products;
• Reduction in packaging materials for finished goods
i.e. no plastic banding, no inner cartons;
• Plastic returnable tote bins for shipping to our own
UK stores to reduce cardboard;
• Plastic and cardboard waste is collected from our
UK stores for recycling;
• In our US operations, corrugated cartons are re-used
whenever possible and ultimately recycled using a band
machine so they are crushed into bails for collection; and
• In Canada we are participants in ‘Stewardship Ontario’,
paying a fee for all point of sale materials to be recycled.
Carbon emissions Tonnes of CO
2
e
Emissions from
Scope 1 (vehicles, fugitive emissions, gas) 428
Scope 2 (electricity) 5,139
Total footprint 5,567
Group chosen intensity measurement £m
Turnover 189
Emissions reported above
per £m of turnover 29
This is our first greenhouse gas (GHG) emissions report in line
with UK mandatory reporting requirements, set out by the
Department for Environment, Food and Rural Affairs (DEFRA).
There is no year on year comparison.
The mandatory requirement is for the disclosure of scope 1
and 2 emissions only. We have captured all material qualifying
emissions from around the Group. Some extrapolation and
estimation techniques have been used to calculate the Group
CO
2
e in respect of less than 5% of our stores and the final
month of our data.
The reported sources fall within our consolidated financial
statements. We do not have responsibility for any emission
sources that are not included in our consolidated financial
statements. We have computed our emissions using the
DEFRA Environmental Reporting Guidelines: Including
mandatory greenhouse gas emissions reporting guidance
issued in June 2013.
Our total GHG footprint in line with these guidelines is
5,567 tonnes CO
2
e.
Supply chain
The Group has used third party manufacturing facilities around
the world for over thirty years but has specifically avoided
suppliers or regions where the employment or environmental
practices are known to be below acceptable standards. The
Group requires all of its product suppliers to abide by its
guidelines contained in the Supplier Guide. Our staff visit the
factories we use for garment production on a regular basis
and consider the environment and work practices during those
visits, however currently our ability to formally audit the facilities
is limited. Our Supplier Guide and the employment standards
required of our suppliers accord with industry standards
including inter alia that employees should: be given a safe
and healthy environment to work in; be given the right to free
association; be paid a fair wage; have freedom of association;
not be forced or bonded labour; be of an appropriate age;
and work only reasonable hours.
The Board recognises that it is not possible to provide absolute
assurance that standards expected of our suppliers are adhered
to. Where transgressions are identified we would work with the
supplier to develop an appropriate remediation programme.
However we will not hesitate to stop using any supplier who
we identify is persistently operating in contravention of our
standards or failing to implement agreed remediation
programmes.
There are a number of other CSR topics, such as business
ethics, anti-bribery, animal testing and use of chemicals,
which are subject to set standards within the business,
examples of which are as follows:
Our suppliers have previously confirmed to us that all of our
angora is carefully collected by shearing and cutters which
does not cause any harm or distress to the animals.
Toast supports the non-use of animals in testing and challenge
our suppliers on this matter – our glycerine soaps as an example,
do not contain any animal derived ingredients and are suitable
for use by vegetarian and vegans.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 8
Tax
The Board is committed to ensuring full compliance with the
law and making all tax payments timeously.
The Board are committed to ensuring that openness, honesty
and transparency will be paramount in all dealings with the tax
authorities and other relevant bodies.
People
We are committed to providing equal opportunities for all of our
employees.
We ensure that every employee, without exception, is treated
equally and fairly and that all employees are aware of their
responsibilities.
We run cycle to work and childcare voucher schemes in the UK
for our employees.
The breakdown of the gender of Directors and employees at
the end of the financial year is as follows:
Men
Number
Women
Number
Company Directors 4 1
Other senior managers 8 7
All other employees 500 1,639
Total 512 1,647
Notes
Company Directors consist of the Company’s Board.
Other senior managers is as defined in The Companies Act
2006 (Strategic Report and Directors’ Report) Regulations
2013, and includes: i) persons responsible for planning,
directing or controlling the activities of the Company, or a
strategically significant part of the Company, other than
Company Directors; and ii) any other Directors of undertakings
included in the consolidated accounts.
The business complies with locally applicable health and safety
regulations in the countries in which it operates. This includes
the provision and maintenance of safe environments for our
employees, appropriate design of our stores, health and safety
training for appropriate personnel, electrical installation reviews,
risk assessments and risk monitoring in our offices, stores and
warehouses.
CORPORATE SOCIAL RESPONSIBILITY
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 9
FINANCIAL REVIEW
The improvement in the financial results reported at the half-year
has continued into H2, with all key metrics showing improved
trends.
Financial results overview
After reporting reduced losses at the half-year, the Group made
further improvements in H2, reversing the loss incurred in the
previous year. H2 underlying Group operating profit was £1.7m
(2013: loss of £(0.9)m).
For the full year ended 31 January 2014 underlying Group
operating loss was reduced to £(4.4)m (2013: loss of £(7.2)m).
After taking into account the cost of disposal and closure of
under-performing stores the total loss before tax was £(6.1)m
(2013: loss of £(10.5)m).
Revenue overview
Total revenue in H2 was 1.8% lower than H2 2013, an
improvement in trend from H1 which was 6.4% lower than
H1 2013.
Total revenue for the year at £189.4m was 4% lower than
2013. The lower revenue was the result of the closure of non-
contributing UK/Europe stores, negative H1 UK/Europe Retail
LFL’s and lower Wholesale revenue in North America in what
was a very challenging trading environment. These reductions
were offset partly by strong revenue performances in
ecommerce, Toast and UK/Europe Wholesale.
Gross margin
Group gross margin was broadly flat at 47.6% (2013: 47.9%).
Notable was the improvement in gross margin in both UK/
Europe Wholesale and Retail due to lower markdowns. This
improvement was offset by the need for increased discounting
in North America due to the tough trading environment.
Operating expenses
Total Group operating expenses of £101.4m were 6.9% lower
than last year. After adjusting for store closures, operating
expenses were 3.7% lower than last year, thanks to a range
of cost reduction measures.
Segment revenue and results
2014
£m
2013
£m
Revenue
Retail 117.5 123.4
Wholesale 71.9 73.9
Group revenue 189.4 197.3
Gross profit 90.2 94.6
Retail 56.9% 55.8%
Wholesale 32.5% 34.9%
Group gross margin 47.6% 47.9%
Underlying operating (loss)/profit
Retail (11.6) (15.4)
Wholesale 11.7 13.9
License income 6.1 6.5
Common and Group overheads (11.3) (12.8)
Finance income 0.1 0.2
Share of pro?t from joint ventures 0.6 0.4
Underlying Group operating loss (4.4) (7.2)
Underlying operating margin
Retail (9.9)% (12.5)%
Wholesale 16.3% 18.8%
Underlying Group operating margin (2.3)% (3.6)%
Geographical information
2014
£m
2013
£m
Revenue
UK/Europe 71% 70%
North America 24% 25%
Rest of the World 5% 5%
Divisional operating (loss)/pro?t
UK/Europe (3.9) (9.4)
North America 2.4 5.5
Rest of the World 1.6 1.8
Group overheads and finance income (4.5) (5.1)
Underlying Group operating loss (4.4) (7.2)
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 10
FINANCIAL REVIEW
Continued
Trading segments
In prior years, we have reported segments based on
geographies including UK/Europe, North America and
Hong Kong and where relevant analysed the performance
between Retail and Wholesale. The Board continues to focus
on the key metrics for Retail and Wholesale and across the key
territories in which the Group operates and has presented the
results for the year across these businesses sectors together
with the geographical analysis. There is no change to the
metrics that are reviewed by the Board to monitor the overall
performance of the Group, but the segmental note has been
simplified to highlight the key metrics that the Board focuses
on (see Note 2).
Retail
Group retail revenues of £117.5m were 4.8% lower than the
prior year. The decline in revenue was primarily due to the
closure of a number of UK/Europe non-contributing stores
and the reduced summer and Christmas sale periods. North
America retail was impacted by the tough trading environment
in the market, extreme weather conditions towards the end of
the year and the closure of one store.
H2 UK/Europe LFL’s retail gross sales were 1.4% (H1: fall of
-4.5%). Overall LFL retail gross sales for the full year therefore
fell -1.4% (2013: fall of -7%). The better trend was driven by
strong store performance in the last 8 weeks of the year and
better ecommerce stock availability compared to the prior year.
The retail gross margin of 56.9% (2013: 55.8%) reflected
a strong performance in UK/Europe retail where lower
discounting and higher full price sales delivered an
improvement in margin of 240 basis points offset by
higher discounting to clear inventory in North America.
The retail underlying loss of £(11.6)m was an improvement
of £3.8m compared to prior year. This improvement was
all driven out of UK/Europe through improving LFL’s, better
margins, lower underlying operating expenses and the closure
of non-contributing stores.
Ecommerce sales grew in the year by 8.1% and now represent
20% of total Group retail sales (2013: 18%).
Wholesale
Group wholesale revenues of £71.9m were 2.7% lower than
prior year. A 2.9% improvement in UK/Europe revenue was
offset by a reduction in North America revenue where trading
continued to be difficult in H2. These dynamics also impacted
gross margin by £(2.3)m, with a small improvement in UK/
Europe offset by the need for additional discounting in North
America.
Overall wholesale underlying operating profit was a £11.7m
profit, a reduction of £2.2m caused by the tough trading
conditions in North America, offset by a stronger UK/Europe,
and overall lower operating expenses.
Geographical analysis
The geographical revenue break-down is largely unchanged
with UK/Europe representing 71% of Group revenues (2013:
70%). The combination of strong performance in both Retail
and Wholesale in UK/Europe led to an improvement of £5.5m
in divisional operating contribution whilst the difficult conditions
in North America led to a reduction of £3.1m. Rest of the world
was slightly down.
Other Income
The net income received from Global licensing was £6.1m
in the year. This represented a decline of £0.4m compared to
last year, largely as a result of the termination of the licence to
supply product to the Sears department stores in the US and
the buying office fees previously charged to Nicole Farhi. These
will no longer be a drag on comparatives in 2015. The new
licences brought on-stream in UK and North America during
the year (furniture, shoes and bags) demonstrate the continued
strength of the brand and are growing well.
Our retail Joint Ventures in Hong Kong and China have delivered
an improvement in trading performance both in LFL retail
performance and an increased number of stores. The share
of profit of these joint ventures was £0.6m (2013: £0.4m).
Balance sheet and cash flow
The Group balance sheet at 31 January 2014 remains strong
with £28.2m of cash (2013: £28.5m), no bank borrowings and
a minimum cash position during the year of £9.9m (2013: £10.6m).
The trading operations of the Group generated cash of £1.8m
(2013: cash consumed £(3.7)m) as a result of a release of cash
utilised within working capital, notably a further decrease in
inventory of £2.3m reflecting the continued improvements in
the efficiency of merchandising and buying.
Capital expenditure of £0.8m (2013: £1.7m) was reduced
as the prior year included the fit-out of two new outlet stores,
two other store re-sites, as well as investment in infrastructure
within our IT estate. In the year the restructuring costs of
closing under-performing stores was £1.7m. We plan to
spend a similar amount in the current year as we continue
to target the closure of non-contributing stores when
economically viable.
Taxation
The tax credit for the year of £0.1m (2013: £Nil) represents a
reduction in the tax potentially payable on deferred capital gains
less the tax payable on current profits generated in Hong Kong
and the US (as reduced by past losses).
Dividends
The Board of Directors remains 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 a dividend. The Board intend to keep the
shareholder distribution policy under close review during
the year.
Going concern
Having reviewed the cash forecasts and the sources of cash
funding available to the Group, the Board has concluded that
it is appropriate to prepare the Group financial statements on
a going concern basis.
Adam Castleton
Group Finance Director
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 11
BOARD OF DIRECTORS
Stephen Marks
Chairman and
Chief Executive
Stephen (aged 67) founded the Company in 1969 and has managed the Group’s
development since then in the position of Chairman and Chief Executive.
Adam Castleton A.C.A.
Group Finance Director
Adam (aged 49) was appointed to the Board on 12 August 2013. He is a chartered
accountant having qualified at Price Waterhouse, Manchester. He holds a bachelor's
degree in Economics from Manchester University. He has over 25 years of financial
experience and has held leadership roles at a number of international consumer-facing
companies, including eBay, Shopping.com, Polo Ralph Lauren (Europe), and The Walt
Disney Company. He joined French Connection from O2 UK, where he was Finance
Director of the O2 Business Division, and previously acting CFO of O2 UK.
Neil Williams A.C.A.
Operations Director
Neil (aged 49) joined the Group from KPMG in 1992 and was appointed to the Board
in May 1994.
Dean Murray
Independent
Non-Executive
Director
Dean (aged 51) was appointed to the Board on 6 February 2008. He qualified as a
chartered accountant with KPMG and was Chief Executive of Myriad Childrenswear
Group Limited. Myriad was the leading UK specialist multi-brand and multi-channel
childrenswear business with over 1,000 distribution outlets including the Adams
Kidswear brand. He is currently Chairman of Neville Johnson Limited, a UK based
bespoke furniture designer, and Gear4music, an online retailer of musical instruments.
Claire Kent
Independent
Non-Executive
Director
Claire (aged 50) was appointed to the Board on 3 October 2008. She was formerly a
Managing Director with Morgan Stanley where she was ranked number one in luxury
goods European retailing analysis for nine consecutive years. Working in the sector
since the early 1990’s she has accumulated an in-depth understanding of the operation
of luxury and apparel brands and has worked very closely with some of the most
respected brands in the sector. Since leaving Morgan Stanley, Claire has focused on
advising companies on their IPOs (Prada in 2011; Pandora in 2010) and playing a role in
the sale of private equity-owned companies (Cath Kidston, Original Additions). She is
also an advisory Director of Investcorp, a consultant for Prada and a Board member
of Georg Jensen.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 12
The Directors of French Connection Group PLC (“the
Company”) present their Annual Report for the year
ended 31 January 2014.
Principal activity
The Group designs and supplies branded fashion clothing
and accessories as more fully described in the section
entitled Our Business.
Business review
The principal operating subsidiaries of the Group for the
period under review were French Connection Limited, French
Connection UK Limited, French Connection (London) Limited,
French Connection Group Inc, French Connection (Hong Kong)
Limited, Toast (Mail Order) Limited, French Connection (Canada)
Limited and YMC Limited. The Companies Act 2006 requires
that the Directors’ Report contains a fair review of the business
and a description of the principal risks and uncertainties facing
the Group. A review of the business strategy and a commentary
on the performance of the business is set out in the Financial
Review and the Chairman’s Statement. The principal risks
facing the business are detailed in the section entitled Our
Business and the corporate and social responsibilities of
the Group are outlined in the Corporate Social Responsibility
Statement. The disclosures contained in those reports form
part of this Directors’ Report.
Fair, balanced and understandable
The Board has considered the regulatory changes impacting
corporate reporting and Executive remuneration and believes
this Annual report and Accounts complies with these changes
taking into account emerging best practice. Notably the Board
has determined that the 2014 Annual Report and Accounts,
taken as a whole is fair, balanced and understandable. It
provides the information necessary for shareholders to assess
the performance, strategy and operating model of the Group
and Company in accordance with the Code requirements.
Corporate Governance
The Corporate Governance Statement on pages 14 to 15
forms part of the Directors’ Report.
Dividend
The Directors are recommending that no dividend should
be paid for the year.
Directors
The Directors of the Company are set out in the Board
of Directors.
Neil Williams and Claire Kent, Directors, retire by rotation
in accordance with the Articles of Association and offer
themselves for re-election at the AGM. Adam Castleton,
following his appointment as a Director during the year, in
accordance with the Articles of Association, offers himself for
election at the AGM. The Board considers that Mr Williams,
Ms Kent and Mr Castleton continue to make a major
contribution to the strategy and operations of the Group and
therefore recommend their re-election as Directors. Details of
Mr Williams’, Ms Kent’s and Mr Castleton’s remuneration and
contracts are set out in the Directors' Remuneration Report.
The Board has considered whether there are any factors which
might compromise the independent judgement of either of
the non-Executive Directors and concluded there was none.
The Board therefore considers both Mr Murray and Ms Kent to
be independent of the Company.
At 31 January 2014, none of the Directors or their families held
any beneficial interests in the issued capital of the Company other
than Stephen Marks whose shareholding is disclosed below
and Adam Castleton whose shareholding is disclosed in the
Directors’ Remuneration Report.
The details of share options held by Directors are set out in the
Directors’ Remuneration Report. There have been no changes
in the Directors’ interests in the shares of the Company since
the end of the financial year.
Significant shareholdings
As at 12 March 2014 the Company is aware of the following
substantial interests in its ordinary shares:
Shares
Percentage
of Issued
Share
Capital
Stephen Marks 40,094,190 41.8%
of which:
– held in family trusts 1,506,500
– held by family members 775,000
Schroder Investment Management 11,551,302 12.0%
OTK Holding 6,000,000 6.3%
Liad Meidar 4,837,000 5.0%
Contractual arrangements
The Company has no contractual or other arrangements which
are essential to the business of the Company nor any key
customers or major suppliers on which it is dependent.
Supplier payment
The majority of the Group's creditors are suppliers with whom
payment terms and conditions are agreed in advance. Where
the supply of goods and services is satisfactory, it is the policy
of the Group to pay creditors when they fall due for payment.
For the year ended 31 January 2014, the Group’s average trade
creditors represented 33 days purchases (2013: 31 days). The
Company has minimal third party creditors.
Employees
It is the Group's established practice that all employees have
access to their immediate superiors and ultimately to the Chief
Executive to discuss matters of concern to them as employees
and that the views of employees are sought and taken into
account in making decisions which are likely to affect their
interests.
Furthermore the Group seeks to encourage both the involvement
of employees in its performance and a common awareness on
the part of all employees of factors affecting its performance.
The Group provides equal opportunities to all employees and
prospective employees including those who are disabled.
DIRECTORS’ REPORT
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 13
Carbon emissions
The Group has disclosed carbon emissions data within the
Corporate Social Responsibility Report.
Property, plant and equipment
The changes in intangible and tangible fixed assets during the
year are set out in Notes 11 and 12 to the Group accounts.
Financial instruments
The financial instrument policies are set out in Note 26 to the
Group accounts.
Joint Ventures
The Group is a member of two 50:50 Joint Ventures operating
retail stores in China and Hong Kong. Both joint ventures are
managed by committees with equal representation from the
members. The Group’s share of the results of these businesses
is included in these accounts for the whole of the financial year.
Charitable and political donations
Charitable donations of £14,051 (2013: £20,659) were made
during the year. No political donations were made in either
2014 or 2013.
Share capital
The share capital of the Company comprises ordinary shares
of 1p each; each share carries the right to one vote at general
meetings of the Company. The issued share capital of the
Company, together with movements in the Company’s issued
share capital during the year, are shown in Note 21.
Takeovers directive
Section 992 of the Companies Act 2006, which implements
the EU Takeovers Directive, requires the Company to disclose
certain information. Most of these requirements are dealt
with elsewhere in the Annual Report, however the following
additional disclosures are required:
The Company’s Articles of Association may be amended
by special resolution of the shareholders.
The Board of Directors is responsible for the management
of the business of the Company and may exercise all the
powers of the Company subject to the provisions of the
relevant statutes, the Company’s Memorandum and Articles
of Association. The Articles contain specific provisions and
restrictions regarding the Company’s power to borrow money.
Powers relating to the issuing of shares are also included in
the Articles and such authorities are renewed by shareholders
each year at the AGM.
There are a small number of agreements that take effect, alter
or terminate upon a change of control of the Group following
a takeover, such as shareholder agreements with the minority
shareholders in certain subsidiaries and the Company share
option schemes. None of these is deemed to be significant in
terms of their potential impact on the business of the Group
as a whole.
AGM
The AGM of the Company will be held at 10.00 am on 15 May
2014 and a notice of meeting has been sent to shareholders
setting out details of the business to be conducted.
Explanatory notes on all the business to be considered at this
year’s AGM appear on pages 63 to 64 of this document.
At our forthcoming AGM, a resolution will be put to
shareholders to approve a new long term incentive share option
plan, the previous plan having expired.
Disclosure of information to auditors
The Directors who were members of the Board on the date the
Directors’ Report was approved have confirmed the following:
• to the best of each Director’s knowledge and belief there is
no information relevant to their report of which the auditor
is unaware; and
• each Director has taken all the steps a Director might
reasonably be expected to take to be aware of relevant audit
information and to establish that it has been communicated
to the auditor.
Auditors
Our auditors, KPMG Audit Plc have instigated an orderly wind
down of business. The Board has decided to put KPMG LLP
forward to be appointed as auditors and resolution concerning
their appointment will be put to the forthcoming AGM of the
Company.
By order of the Board
Adam Castleton
Company Secretary
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 14
Compliance with the UK Corporate
Governance Code
The Board is responsible for ensuring compliance with the new
edition of UK Corporate Governance Code (the ‘Code’), which
was published by the Financial Reporting Council in September
2012 and applies to reporting periods beginning on or after
1 October 2012. It is available at www.frc.org.uk.
Except as referred to below, the Company has complied with
all relevant provisions of the Code throughout the year ended
31 January 2014 and from that date up to the date of
publication of this Annual Report.
Mr Marks is both Chairman and Chief Executive and is also the
founder and the major shareholder. The culture of the business,
led by the Chief Executive, is one of detailed involvement and a
need for speedy reaction times. Mr Marks has led this culture
and defined the character of the business throughout its
existence.
Constructive challenge by the independent non-Executive
Directors, as well as the effective functioning of the committees
ensures that authority is suitably balanced.
The Board contains two non-Executive Directors, each of which
chairs one of the three committees of the Board and therefore
has specific responsibilities. The Board has concluded that
there would be no benefit in nominating a senior non-Executive
Director. Both are utilised as sounding boards for the Chairman
and both are available to other Executive Directors or
shareholders as necessary.
There were no non-Executive Board appointments made
or contemplated during the year. It is our intention to form a
Nominations Committee comprising the two non-Executive
Directors when any appointment is contemplated. The
appointment of the Group Finance Director was considered
by the main Board.
The Chairman believes that the Board and its Committees
functioned well during the year and supported the strategy and
development of the Company. A detailed and formal evaluation
was therefore not carried out during the year. It is expected that
during the coming financial year the Company Secretary will
review the most appropriate method for conducting any
additional internal or external evaluation with the Board.
The Board and its composition
The Board reserves to itself certain key matters to approve
or monitor on behalf of the shareholders the strategic direction,
development and control of the Group. It approves strategic
plans and annual capital and revenue budgets. It reviews
significant investment proposals and the performance of past
investments and maintains an overview and control of the
Group’s operating and financial performance. It monitors the
Group’s overall system of internal controls, governance and
compliance and ensures that the necessary financial and
human resources are in place for the Company to meet
its objectives.
The Board delegates responsibility for the day-to-day operation
of the business to the Executive Directors within the framework
of agreed prudent and effective controls.
The Company Secretary’s responsibilities include ensuring
good information flows to the Board and between senior
management and the non-Executive Directors. The
appointment and removal of the Company Secretary is a matter
reserved for the Board. The Company Secretary is responsible,
through the Chairman, for advising the Board on all corporate
governance matters and for assisting the Directors with their
professional development.
All Directors are briefed by the use of comprehensive papers
circulated in advance of Board meetings and by presentations
at the meetings in addition to receiving minutes of previous
meetings.
The training needs of Directors are formally considered on an
annual basis and are also monitored throughout the year with
appropriate training being provided if required.
Any member of the Board may take independent professional
advice at the Company’s expense. All Directors have access to
the advice and services of the Company Secretary. All Directors
of the Company are covered by a comprehensive Directors and
Officers insurance policy.
The Company’s Articles of Association give power to the Board
to appoint Directors, but require Directors to submit themselves
for election at the first AGM following their appointment. One
third of the Board is subject to re-election annually.
The Board of Directors at the date of this report comprises
three Executive Directors and two independent non-Executive
Directors. The biographical details of each Board member are
set out in the Board of Directors, including their main
commitments outside the Company.
During FY 2014 there were nine scheduled Board meetings
which were all fully attended.
The non-Executive Directors are considered to be independent
in that they remain free from any business or other relationship
which could materially influence their judgement and represent
a strong source of advice and independent challenge.
Roy Naismith left the Board as Group Finance Director in April
2013 and was replaced by Adam Castleton in August 2013.
Adam Castleton was appointed as Company Secretary on
12 August 2013. Adam has the necessary recent and relevant
financial experience for the role as Group Finance Director and
is also knowledgeable on governance and the management of
risk required for the Company Secretary role. A full biography
is set out in the Board of Directors.
Neil Williams and Claire Kent are required to stand for annual
re-election in accordance with B.71 of the Code and the
Company’s Articles of Association.
Committees
Each Board Committee has written terms of reference approved
by the Board, which are available on the Company’s website.
Audit committee
The Audit Committee comprises Dean Murray who is Chair
and Claire Kent, the two independent non-Executive Directors.
The Committee met twice during the year and each meeting
was fully attended.
CORPORATE GOVERNANCE STATEMENT
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 15
Details of the Audit Committee are included in the Audit
Committee Report.
Remuneration committee
The Remuneration Committee comprises Claire Kent who is
Chair and Dean Murray.
The Committee met twice during the year and each meeting
was fully attended.
Details of the Remuneration Committee are included in the
Directors’ Remuneration Report.
The Disclosure Committee
The Disclosure Committee was established in October 2013 to
assist and inform the Chief Executive in his decisions concerning
the identification of inside information and its Disclosure. The
Disclosure Committee comprises the Chief Executive, Group
Finance Director and Chief Operating Officer.
The Disclosure Committee met once during the year and was
fully attended.
Code of ethics
The Group operates under the detailed and entrepreneurial
guidance of Stephen Marks (the founder of the business),
the Executive Directors and a broad range of operational
managers. As noted above the Board includes two non-
Executive Directors who provide independent challenge
and input into the overall governance of the Group.
The culture established by Mr Marks and the senior
management is to expect a high standard of behaviour from
everybody working for the Company.
The Board has considered the risks associated with the issues
raised by the Bribery Act 2010 as part of the broader review of
risks faced by the Group and has reviewed the processes and
controls in place to prevent offences under the Act.
The Company also offers a confidential, whistle blowing hotline
for any employee wishing to report any concern that they feel is
inappropriate to raise with their line manager. All whistle blowing
allegations are reported to and considered by the Executive
Committee and Board. No instances were made during the
financial year.
Going concern
The Group has considerable cash resources, ending the year
with £28.2m (2013: £28.5m) and with a minimum Group cash
balance during the year of £9.9m (2013: £10.6m). The Group
has no debt.
Having reviewed the cash forecasts and the sources of
cash funding available to the Group, the Board has concluded
that the Group has a reasonable expectation to continue in
operational existence for the foreseeable future. For this reason,
the Board continues to adopt the going concern basis in
preparing the accounts.
Tax
Board level oversight of tax matters is part of the Company’s
tax risk governance process.
All significant tax matters are reported to the Board by the
Group Finance Director and tax matters are governed by
the Group tax strategy.
Internal control and risk management
The Board supported by the Audit Committee confirms that
there are ongoing procedures in place for identifying, evaluating
and managing significant risks faced by the Group and that
these have been in place for the year under review and up to
the date of approval of the Annual report and Accounts. The
procedures have been reviewed by the Audit Committee and
accord with the requirements of the UK Corporate Governance
Code.
The Board conducts an annual review of the major risks
affecting the business and the effectiveness of the system
of internal control. The culture of the business results in the
Executive Directors being closely involved in managing the
business at a detailed level. This provides a high degree of
direct monitoring of risks and control processes, conducted
against the background of a culture of integrity, quality and high
levels of communication. This is supported by reviews of daily,
weekly and monthly detailed analyses of the performance of
the business, the key performance indicators associated with
the trading risks facing the Company and the detailed
operational results.
The Group does not have a separate internal audit function
although during the year the Audit Committee considered
whether there is a need for such a function, concluding that the
benefits, when compared to the potential benefits of deploying
additional resources in other areas, are not sufficiently clear.
Certain elements of internal audit work are conducted or
coordinated by the existing finance and accounting functions.
These include reviews of financial controls internationally,
externally facilitated reviews of procurement transactions
and support for system developments between the separate
accounting functions.
Communication with shareholders
Communication with shareholders is generally conducted
through one-to-one meetings with the Executive Directors
(and the non-Executive Directors if requested) for which there
is an open invitation to all shareholders and proactive invitation
made to shareholders with more than 1% of the share capital.
Meetings typically occur shortly after the announcements of
half year and full year results. The opinions expressed by
shareholders are gathered by the Company Broker and passed
directly to the Board.
The AGM and the resolutions proposed for consideration at the
meeting are another focus of communication with shareholders.
Discussions are held prior to the meeting with shareholders
where they have views on the resolutions. The level of proxy
votes received is considered by the Board and published on
the Group’s website.
By order of the Board
Adam Castleton
Company Secretary
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 16
AUDIT COMMITTEE REPORT
Introduction from the Audit Committee Chair
Since my appointment as Chair of the Audit Committee
in October 2009 I have focused on using my financial and
commercial expertise to ensure the Committee fulfils its
duties properly, including challenging the Company’s finance
personnel in terms of key judgements applied in preparing the
financial statements and the external auditors with regard to the
audit plan, scope and audit effectiveness. The Audit Committee
is responsible for ensuring that the financial integrity of the
Group is effective, through the regular review of its financial
performance. It is also responsible for ensuring that the Group
has appropriate risk management processes and internal
controls, and that the external audit process is robust. I explain
in more detail the Committee’s activities in this report.
The Audit Committee provides effective governance over
external financial reporting, risk management and internal
controls and reports its findings and recommendations to the
Board. In my capacity as Chairman of the Audit Committee,
I am pleased to report on the operations of the Committee
during the past year, with emphasis on the specific matters we
have considered, including compliance with the UK Corporate
Governance (the Code) and associated Guidance on Audit
Committees. I confirm that we have fully complied with the
requirements of the Code as issued in September 2012
and which applies to financial years beginning on or after
1 October 2012.
Roy Naismith, the Group Finance Director left the Company
in April 2013, and was replaced by Adam Castleton in August
2013. During the interim period, Neil Williams (Operations
Director) combined his role with that of Interim Group Finance
Director. Neil qualified as a Chartered Accountant with KPMG.
The Company’s financial operations and controls continued
to run smoothly during this period and I would like to thank
Neil for his diligence and for the Finance team’s continued
professionalism during what might otherwise have been an
unsettling time.
This is the final year of the Audit Partner’s five year rotation
and I would personally like to thank Robert Brent for his
responsiveness and professionalism. We expect to agree the
placement of the new Audit Partner before the next AGM.
In the coming year I expect the Committee to put in place
additional and extended policies and guidelines covering
tendering of the external audit, hiring of staff from the external
audit firm, review of risk management framework and reviewing
the effectiveness of the external audit process.
I thank my fellow Committee member Claire Kent for all her
work and input to the Committee and have welcomed the
openness of KPMG and French Connection personnel
throughout the year.
Dean Murray
Chair of the Audit Committee
Membership and remit of the Audit Committee
The Committee considers financial reporting and reviews
the Group’s accounting policies and annual statements. In
particular, any major accounting issues of a subjective nature
are discussed by the Committee.
The Committee also reviews audit activity including the
recommendation to the Board regarding the appointment of
the external auditor, their remuneration and scope of work,
including non-audit services.
The Audit Committee is also responsible for considering the
independence, objectivity and effectiveness of the external
auditor, for monitoring the level of non-audit services provided
by the external auditor and for assessing the effectiveness of
the risk management process.
At the date of the 2014 Annual Report, the Audit Committee
comprises two independent non-Executive Directors: Dean
Murray (Chair) and Claire Kent. In accordance with Code
provision C.3.1, the Board considers that Dean Murray
has significant, recent and relevant financial experience.
Biographies of all of the members of the Audit Committee,
including a summary of their experience, appear within the
Board of Directors.
The Audit Committee normally meets at least three times
a year. Audit Committee meetings are also attended by the
Group Finance Director, who is Secretary to the Committee
and by invitation the Group Financial Controller and Partner and
other senior staff of the external auditor. The Committee met
twice during the year and each meeting was fully attended.
Terms of reference
Significant risk issues identified are referred to the Board
for further consideration. The terms of reference of the Audit
Committee are available on the Company’s website.
The Audit Committee is authorised by the Board to review
any activity within the business. It is authorised to seek any
information it requires from, and require the attendance at any
of its meetings of, any Director or member of management, and
all employees are expected to co-operate with any request
made by the Audit Committee.
The Audit Committee is authorised by the Board to obtain, at
the Company’s expense, outside legal or other independent
professional advice and secure the attendance of outsiders
with relevant experience and expertise if it considers this
necessary.
The Chair of the Audit Committee reports to the subsequent
Board meeting on the Committee’s work and the Board
receives a copy of the minutes of each meeting.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 17
Significant issues considered by
the Audit and Risk Committee
The Committee considered the significant accounting issues,
matters and judgements in relation to the Group’s financial
statements and disclosures for the year ended 31 January
2014. As part of the half year and full year reporting process,
management present an accounting paper to the Committee,
and the external auditors are asked to also comment on the key
areas of accounting judgement and disclosure. The information
presented is used by the Committee to critically review and
assess the key policies and judgements that have been applied,
the consistency of policy application from year to year and
the appropriateness of key disclosures made, together with
compliance with the applicable accounting standards.
After discussion with both management and the external
auditor, the Committee determined that the key risks of
misstatement of the Group’s financial statements related to:
Net realisable value of inventories (NRV)
Net realisable value was discussed with management
during the year and with the auditor at the time the Committee
reviewed and agreed the auditors’ Group audit plan, and also
at the conclusion of the audit of the financial statements.
The Audit Committee required the Group Financial Controller
to present a detailed summary of inventory and to describe the
methodology for calculating the inventory provision which was
considered in detail by the Committee. The Group Financial
Controller was also required to describe the stock taking
procedures and to explain any significant adjustments made
during the year.
The Committee interrogated management’s key assumptions
made regarding Net Realisable Value and was satisfied that
the significant assumptions had been appropriately scrutinised,
challenged and were sufficiently robust.
The auditor explained their audit procedures to test
management’s assumptions and calculations and considered
the Group’s disclosures on the subject. On the basis of their
audit work, the auditor considered that the carrying value of
inventory was materially appropriate in the context of the
financial statements as a whole.
Risk management framework
The risk management framework is considered by the Board
during the year. It is expected that the Audit Committee will
also consider additional review procedures to further strengthen
the control environment and enhance corporate governance.
The Group did not have a separate internal audit function
during the year. The Audit Committee considered whether
there was a need for such a function, concluding that the
benefits, when compared to the potential benefits of deploying
additional resources in other areas, were not sufficiently clear.
It is expected that this matter will be reviewed again during
FY 2015.
Confidential reporting
The Group’s whistle blowing policy enables staff, in confidence,
to raise concerns about possible improprieties in financial and
other matters and to do so without fear of reprisal.
The Audit Committee receives quarterly reports on whistle
blowing incidents and remains satisfied that the procedures
in place are satisfactory to enable independent investigation
and follow up action of all matters reported.
No issues have been reported in the current year.
Reporting of other matters
All significant insurance claims and incidents of fraud or
theft are reported to the Committee.
There have been no significant incidents during the year.
External auditor appointment
KPMG Audit PLC was re-appointed as external auditors in
the financial year.
The Audit Committee considers that the relationship with the
auditors is working well and is satisfied with their effectiveness.
KPMG has acted as the Company’s external auditor since
1990 and the Company complies with the requirement to rotate
the audit partner every five years. The current audit partner,
Robert Brent, completes his five year rotation following this
year end and a new partner has been introduced.
We have assessed the effectiveness of the annual audit by
KPMG. This included reviewing their audit approach, the
strength of the audit team and their knowledge of the business,
the quality of the audit work and the robustness of their
challenge. We concluded that KPMG had completed the
external audit effectively and in accordance with auditing
standards.
Our auditor, KPMG Audit PLC has instigated an orderly wind
down of business. The Board has decided to put KPMG LLP
forward to be appointed as auditors. Resolutions will be
proposed at the AGM on 15 May 2014 to appoint KPMG LLP
as the Company’s external auditor and to authorise the
Directors to agree their remuneration for the 2014/2015 audit.
The Audit Committee has considered the new Code, and
recognises the Competition Commission’s proposal that
FTSE350 companies must tender the external audit at
least every ten years. While this is not applicable to French
Connection, the Committee nevertheless recognises this to be
best practice. The Committee is also aware of the EU proposals
that may come into force during 2014 and that will be relevant
for all listed companies, which as currently drafted introduce
mandatory firm rotation.
The Audit Committee will continue to monitor these
developments during the coming year as these may determine
the year in which an external audit tender should be undertaken
by the Company. The Committee will develop an appropriate
Audit tendering policy during the year in the light of any new
guidelines.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 18
AUDIT COMMITTEE REPORT
Continued
External auditor’s independence
The Committee has adopted a policy in relation to the
appointment of the external auditors to conduct non-audit
services for the Group.
The policy identifies three categories of work: that which is
closely related to the statutory audit work, such as tax planning
and compliance, and which is therefore pre-approved by the
committee, that which it is inappropriate for the auditors to
conduct, such as internal accounting work, IT services, or
internal auditing, and from which the auditors are therefore
excluded and all other types of work for which prior approval is
required from the Audit Committee where the costs are greater
than £5,000.
The objective of this policy is to protect the independence of
the auditors while retaining the benefits to be gained from
synergies with existing work areas.
In 2013/2014 the ratio of audit to non-audit fees was 1:0.88.
This is higher than we would expect on a going forward basis
and reflected significant tax advisory work which is not
expected to recur.
The Audit Committee has considered the independence of the
external auditor, including the non-audit services performed,
and has concluded that those non-audit services provided do
not impair the auditor’s independence.
External audit annual assessment
The Group Finance Director, and the Audit Committee meet
with the external auditors to discuss the audit strategy and any
key issues included on the Audit Committee’s agenda during
the year.
After formal discussion, the Audit Committee considers that the
relationship with the auditors is working well and is satisfied
with their effectiveness.
During 2014/2015 the Audit Committee will consider putting in
place more detailed guidelines and policies under the heading
reviewing the effectiveness of the external audit process, to
make the review process more detailed and to require input
from a wider constituency e.g. the Company’s finance team.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 19
DIRECTORS’ REMUNERATION REPORT
Annual Statement by the Chairman
of the Remuneration Committee
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 January 2014.
In my report as Chairman of the Remuneration Committee,
I set out the Committee’s approach to Directors’ remuneration.
The Committee’s objective is to set a remuneration policy
that is clearly understood by our shareholders and employees,
and that drives the right behaviour in terms of incentivising
Executive Directors to deliver growing long-term shareholder
value.
Mr Roy Naismith stepped down from the Board of French
Connection and ceased to serve as Group Finance Director in
April 2013. He was replaced by Mr Adam Castleton in August
2013.
The Remuneration Committee considered and approved the
appropriate termination payment for Mr Naismith and contract
of employment and remuneration package for Mr Castleton in
accordance with the Group remuneration policy and the details
of both are contained within this report.
There were no other substantial changes relating to Directors’
remuneration made during the year.
As required by law, at the 2014 AGM we are seeking
shareholders’ approval of our Directors’ remuneration policy,
as set out in the next section of this report.
We are happy to discuss any remuneration matters with
shareholders and hope that we can enjoy your support
on the remuneration-related resolutions at the 2014 AGM.
Claire Kent
Chairman, Remuneration Committee
Directors’ Remuneration Report
The Directors’ Remuneration Report sets out details of the
remuneration policy (Section 1) for Executive and non-Executive
Directors, describes the implementation of that policy (Section
2) and discloses the amounts paid relating to the year ended
31 January 2014.
The report complies with the provisions of the Companies
Act 2006 and Schedule 8 of The Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013. The report has been prepared in line with the
recommendations of the UK Corporate Governance Code and
the requirements of the UKLA Listing Rules, as well as the
GC100 and Investor Group.
The Directors’ remuneration policy set out within this report
will be put to shareholders for approval in a binding vote at
the forthcoming AGM. The policy remains consistent with that
operated during the 2013 financial year and approved at the
2013 AGM under the previous reporting framework.
The Remuneration Committee comprises Claire Kent as Chair
and Dean Murray. Adam Castleton acts as Secretary to the
Committee (since his appointment in August 2013, previously
Roy Naismith until his ceasing to hold office in April 2013).
The Committee met twice during the year to consider the
Directors’ and senior managers’ remuneration.
When setting the policy for Executive Directors’ remuneration,
the Committee takes into account total remuneration levels
operating in companies of a similar size and complexity, the
responsibilities of each individual role, individual performance
and an individual’s experience. Our overall policy, having had
due regard to the factors noted, is to weight remuneration
towards variable pay. This is typically achieved through setting
base pay, pension and benefits up to market median levels,
with a variable pay opportunity linked to the achievement of
Company and personal performance targets.
In setting remuneration for the Executive Directors, the
Committee does take note of the overall approach to reward
for employees in the Group and salaries increases will ordinarily
be (in percentage of salary terms) in line with those of the wider
workforce.
We remain committed to shareholder dialogue and take
an active interest in voting outcomes. There have been no
significant policy changes or other substantial matter which
required dialogue with shareholders during the year. If any
of the shareholders are opposed to our policy we would
endeavour to meet with them to understand and respond
to any issues they may have.
The Committee considers developments in institutional
investors’ best practice expectations and the views expressed
by shareholders during any dialogue. The Committee does not
formally consult directly with employees on Executive pay.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 20
DIRECTORS’ REMUNERATION REPORT
Continued
Terms of reference for the Remuneration
Committee
1. Membership
The members of the Committee shall be at least two non-
Executive Directors who are independent of management and
free of any business or other relationship (including, without
limitation, cross-directorships or day to day involvement in the
management of the business) which could interfere with the
exercise of their independent judgement.
The Chairman of the Committee shall be appointed by the
Board. The quorum of the Committee shall be at least two
members.
2. Secretary
The secretary of the Company shall be the secretary
of the Committee.
3. Attendance
The Chief Executive may be invited to attend meetings to
discuss the performance of Executive Directors and make
proposals as necessary.
The Group Finance Director will report to the Committee on
significant Group-wide changes in salary structure and terms
and conditions affecting other employees at senior Executive
level.
4. Frequency of meetings
Meetings shall be held not less than twice a year.
5. Advisers
The Committee is authorised by the Board to seek appropriate
professional advice inside and outside the Group as and when
it considers this necessary.
6. Duties
The duties of the Committee shall be to:
• make recommendations to the Board on the Company’s
framework of Executive remuneration and its cost and to
determine on behalf of the Board specific remuneration
packages and conditions of employment (including pension
rights) for Executive Directors;
• approve any contract of employment or related contract with
Executive Directors on behalf of the Company;
• determine the terms of any compensation package in the
event of early termination of the contract of any Executive
Director;
• ensure that the content of the Board’s annual report to
shareholders on Directors’ remuneration reflect the
enhanced regulations and amendments to CA2006 which
were introduced for financial years ending after 30 October
2013.
7. Minutes
The minutes of meetings of the Committee shall be circulated
to all members of the Board.
Section 1: Remuneration Policy
The objective of the policy is to ensure it is appropriate to the
Group’s needs and reward Executives for creating shareholder
value. It is the Remuneration Committee’s intention to maintain
incentive arrangements which are subject to challenging
performance targets, reflect the Company’s objectives and which
motivate Executives to focus on both annual and longer term
performance.
The Company’s policy is:
• to provide remuneration packages for the Executive
Directors and other senior managers in the Group which are
appropriate to the size and nature of the Group’s business
and which will attract, retain and motivate high calibre
Executives;
• to balance the fixed and performance-related elements of
remuneration appropriately and to provide both short-term
and longer-term incentives to achieve the strategic aims of
the Group.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 21
Structure of remuneration
Element
Purpose and link
to strategy
Operation
(including maximum levels)
Framework used to assess performance and
provisions for the recovery of sums paid
Salary
and fees
To provide the core reward
for the role
Sufficient to attract, retain
and motivate high calibre
Executives
Basic salaries are reviewed annually, with changes
effective from 1 February
Salaries are typically set having regard to competitive
market practice, each Director’s contribution to the
business, general inflation rates and the conditions
within the Group
Salaries may be adjusted and any increase will ordinarily
be (in percentage of salary terms) in line with those of the
wider workforce
Increases beyond those granted to the wider workforce
(in percentage of salary terms) may be awarded in
certain circumstances such as where there is a change
in responsibility, progression in the role, experience or a
significant increase in the scale of the role and/or size,
value and/or complexity of the Group
Salary levels for current incumbents for the 2014 financial
year are as follows:
Chairman/CEO: £299,477
Group Finance Director: £215,000
Operations Director: £226,204
The Committee considers individual salaries at
the appropriate Committee meeting each year
after having due regard to the factors noted in
operating the salary policy
No recovery provisions apply to salary
Benefits
in kind
In line with the Company’s
strategy to keep
remuneration simple and
consistent with practices
in the market
Executive Directors receive car benefit, medical cover and
life cover in line with other senior management
Executive Directors also receive personal accident and
sickness cover
The cost to the Company of providing these benefits may
vary from year to year depending on the cost of insuring
the benefit
Not applicable
No recovery provisions apply to benefits
Pension To provide post-retirement
remuneration and market
typical benefits to ensure
that the overall remuneration
package is competitive
Defined contribution plan with up to 10% monthly
employer contributions
A cash alternative may be considered
For tax and wealth planning, the Company may make
payments of pension benefits due in advance for
Executive Directors
Not applicable
No recovery provisions apply to pension benefits
Annual
Bonus
To incentivise and recognise
execution of the business
strategy on an annual basis
Rewards the achievement
of annual financial,
operational and individual
goals
Bonuses are capped at 100% of basic salary
Bonus payments are proposed to the Board after
the end of each financial year and approved by the
Committee for payment in March
The bonus is calculated using pro-rata base salary
if the Director joined the Company during the year
If the Director resigns or has his/her employment
terminated before the payment date, no bonus will
normally be payable
The annual grant of bonuses is based on the
financial performance of the Group in relation to
initial budgets, prior year performance and market
conditions, as well as operational and individual
goals
The current Group Finance Director’s service
contract has specific criteria for the payment
of an annual bonus based on Group Financial
targets, with a sliding scale applicable for
2013/14 only
After that time the general policy noted above
comes into operation for the Group Finance
Director
No recovery provisions apply to the Annual Bonus
Long-
term
incentive
plans
(LTIPs)
To align the interests of
the Executive Directors
with the performance of the
business and the interests
of the shareholders through
the use of share option
schemes
To incentivise and recognise
execution of the business
strategy over the longer
term
Rewards strong financial
performance
At the discretion of the Board and approval of the
Remuneration Committee the Company may issue share
options to Directors up to a maximum of two times salary
in each year
In exceptional circumstances the Board has the discretion
to issue options up to four times salary although this
power has not been used in the last ten years
Options will normally be granted at market value on the
date of grant unless otherwise stated in a Service
Agreement
Options may be granted at a discount to the market value
only in circumstances where the grant of options is agreed
as part of a recruitment package in which case the
exercise price of the option may be determined by
reference to the market value on the date on which the
individual’s employment commenced
The share option schemes include an upper limit on the
number of shares which can be issued of 10% of the total
share capital in any ten year period
Share Awards vest based on three year
performance against a challenging range
of financial targets
No recovery provisions apply to the LTIP
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 22
The Committee has not been required to apply any discretion
during 2014 outside the stated Remuneration Policy, other
than consideration of the specific terms of the Service
Contract of the incoming Group Finance Director.
Any use of the above discretions would, where relevant, be
explained in the Annual Directors’ Remuneration Report and
may, as appropriate, be the subject of consultation with the
Company’s major shareholders.
The performance metrics that are used for our annual bonus
and LTIP are to reflect the Group’s key performance
indicators, notably ‘Profit before Tax’.
The Executive remuneration policy is broadly in line with other
French Connection employees, with the main difference that
there is no share scheme below senior Executive level and
some variation of benefits offered.
Any loss of office payment will be approved by the Group
Board and Remuneration Committee. Any payment will
be made at discretion and on a case by case basis. Any
payments made beyond contractual and statutory obligations
would be exceptional in nature either due to additional
obligations taken on by the departing Director or due to
specific circumstance and always benchmarked against
market practice.
Illustration of application of policy
The bar charts below represents the variations in
remuneration at different levels of performance for the first
year of application of the remuneration policy for the Executive
Directors. Long-term incentive plans have been excluded from
the illustrations below because options are normally granted
at market value on the date of grant and therefore have no
immediate intrinsic value.
700,000
600,000
500,000
400,000
200,000
300,000
100,000
0
Fixed On-target Maximum
100% 70% 54%
30%
46%
Stephen Marks
Annual incentives
Fixed only
Base Benefit Pension Total
Fixed (£) 299,477 22,520 29,948 351,945
On-target On-target is assumed to be an annual
bonus equal to 50% of maximum
Maximum Full payout of annual variable pay
i.e. 100% of base salary
600,000
500,000
400,000
200,000
300,000
100,000
0
Fixed On-target Maximum
100% 70% 54%
30%
46%
Neil Williams
Annual incentives
Fixed only
Base Benefit Pension Total
Fixed (£) 226,204 17,182 21,962 265,348
On-target On-target is assumed to be an annual
bonus equal to 50% of maximum
Maximum Full payout of annual variable pay
i.e. 100% of base salary
DIRECTORS’ REMUNERATION REPORT
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 23
500,000
400,000
200,000
300,000
100,000
0
Fixed On-target Maximum
100% 70% 54%
30%
46%
Adam Castleton
Annual incentives
Fixed only
Base Benefit Pension Total
Fixed (£) 215,000 12,000 22,700 249,700
On-target On-target is assumed to be an annual
bonus equal to 50% of maximum
Maximum Full payout of annual variable pay
i.e. 100% of base salary
Executive Director’s terms of employment
Neil Williams’ service contract is dated 17 April 1996, has an
indefinite term, and includes provision for a notice period of
twelve months by either party.
Adam Castleton’s service contract is dated 26 April 2013, has
an indefinite term, and includes provision for a notice period of
12 months during the first year of employment and thereafter
six months by either party.
The service agreements can be inspected at the Group
registered office.
Stephen Marks has no service contract.
Non-Executive Directors
Non-Executive Directors have specific terms of engagement
and the Board determines their remuneration.
Dean Murray’s terms of engagement are dated 7 March 2008,
have an indefinite term and allow for a notice period of one
month.
Claire Kent’s terms of engagement are dated 3 October 2008,
have an indefinite term and allow for a notice period of one
month.
The non-Executive Directors each receive total annual fees
of £30,000.
No detailed disclosures have been provided for non-Executive
Directors other than for that relating to their fees, as this is the
only form of remuneration the non-Executive Directors receive.
Section 2: Application of the remuneration
policy for 2015
The Executive Directors’ salaries will be reviewed with effect
from 1 March 2014 and will be increased as follows:
Stephen Marks +3%
Neil Williams +3%
Adam Castleton +0%
The annual bonus for the 2015 financial year will operate
on the same basis as for the 2014 financial year and will
be consistent with the policy detailed in the Remuneration
policy section of this report in terms of the maximum
bonus opportunity. The measures have been selected
to reflect goals that support the key strategic objectives
of the Company.
The Remuneration Committee will exercise their discretion
to grant share options according to the Remuneration Policy
during the Financial Year 2015 dependent upon the financial
position of the Group and the personal contribution of each
Executive Director.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 24
DIRECTORS’ REMUNERATION REPORT
Continued
Directors’ single figure of total remuneration (audited)
The following table sets out the single figure of total remuneration for Directors for the financial years ended
31 January 2014 and 2013:
Director’s earnings
Directors’ emoluments
Year ended 31 January 2014
Salary
& fees
£000
Benefits
in kind
£000
Annual
bonus
£000
Loss of
office
£000
Pension
£000
Total
£000
Executive Directors
Stephen Marks 299 23 50 – 30 402
Neil Williams 226 17 40 – 22 305
Adam Castleton 102 9 45 – 10 166
Roy Naismith 50 4 – 188 5 247
Non-Executive Directors
Dean Murray 30 – – – – 30
Claire Kent 30 – – – – 30
737 53 135 188 67 1,180
The annual bonus shown above was accrued in respect of the performance for the year ended 31 January 2014.
Year ended 31 January 2013
Salary
& fees
£000
Benefits
in kind
£000
Annual
bonus
£000
Loss of
office
£000
Pension
£000
Total
£000
Executive Directors
Stephen Marks 299 23 – – 30 352
Neil Williams 226 14 – – 22 262
Roy Naismith 194 14 – – 19 227
Non-Executive Directors
Dean Murray 30 – – – – 30
Claire Kent 30 – – – – 30
779 51 – – 71 901
The comparative annual bonuses reported in the 2013 Directors Remuneration Report included amounts payable in 2013 but
related to the performance for the year ended 31 January 2012. No bonuses were paid in 2013 in relation to the year ended
31 January 2013 and accordingly no amounts are included in the 2013 table above.
Percentage change in remuneration of Chief Executive
The Chief Executive received no pay increase in 2014 in line with the rest of the eligible Group employees. Annual bonus paid
to the Chief Executive was higher than the previous year (no bonus paid in 2013). Employee annual incentives have not been
finalised at the signing date of the Annual Report.
Relative importance of spend on pay
Remuneration paid to all employees of the Group during 2014 was £38.9m which represented 38% of the total overheads of
the Group (2013: £41.1m (38%)).
The table below shows the total pay for all of the Group’s employees compared to distributions and other significant spend.
2014
£m
2013
£m % change
Employee costs 38.9 41.1 (5)%
Dividends – – –
Overheads 101.4 108.9 (7)%
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 25
Payments for loss of office (audited)
Roy Naismith ceased to be an Executive Director and the Group Finance Director of the Company on 26 April 2013.
In line with his service agreement and statutory entitlements, Mr Naismith was entitled to an aggregate payment of £178,000.
Mr Naismith also agreed to abide by extended confidentiality, restrictive covenants and other restrictions for a period of
12 months from leaving the Group compared to those set out in his contract of employment.
A pension contribution was made of £9,711, and family health cover was extended until 31 October 2013.
Mr Naismith’s share options detailed below lapsed on 26 April 2013.
Directors’ shareholding and share interests (audited)
Directors’ share options
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire shares in the Company
granted to or held by the Directors. Details of options to subscribe for ordinary shares of 1p each in the Company held by
Directors who served during the year are as follows:
1 February
2013
No. of
options
Issued/
(lapsed)
during the
year
31 January
2014
No. of
options
Exercise
price (p)
Dates of
grant
Dates from
which
exercisable
Dates of
expiry
Stephen Marks 376,700 – 376,700 56.2
29 Oct
2008
29 Oct
2011
29 Oct
2018
Neil Williams 284,500 – 284,500 56.2
29 Oct
2008
29 Oct
2011
29 Oct
2018
Adam Castleton – 600,000 600,000 29.25
4 Nov
2013
4 Nov
2016
4 Nov
2023
Roy Naismith 244,300 (244,300) – 56.2
29 Oct
2008
29 Oct
2011
29 Oct
2018
No options were exercised during the year.
The options awarded to Adam Castleton during the year have targeted performance conditions attached (50% of the share options
will vest if the minimum performance criteria is met) and a three year service condition. The face value of these options based on the
share price at the date of grant was £240,780.
The market price of the shares at 31 January 2014 was 36.5p and the range during the year was 24.5p to 42.5p. The average market
share price during the year was 31.6p. The options granted are exercisable between three and ten years after the date of grant and
were subject to performance conditions described above.
Statement of Directors’ shareholding and share interests
Year ended 31 January 2014
Share
options* with
performance
conditions
No.
Vested but
unexercised
No.
Shares
beneficially
owned
No.
Total interest
in shares
No.
Stephen Marks – 376,700 40,094,190 40,470,890
Neil Williams – 284,500 – 284,500
Adam Castleton 600,000 – 33,000 633,000
600,000 661,200 40,127,190 41,388,390
* outstanding service conditions
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 26
Review of past performance and total shareholder return
This graph below demonstrates the Company’s performance, measured by total shareholder return, compared with the
performance of the FTSE Small Cap Index also measured by total shareholder return. This index has been selected for the
comparison because it reflects the market sector in which the Company is reported. The graph has been compiled on annual
data at 31 January of each year.
350
300
250
200
100
150
50
0
31 Jan-09 31 Jan-10 31 Jan-11 31 Jan-12 31 Jan-13 31 Jan-14
Total cumulative shareholder return for the five-year period to 31 January 2014 French Connection
FTSE Small Cap
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
Total CEO remuneration 330 505 342 352 402
Annual variable element award rates against
maximum opportunity 0% 62% 0% 0% 17%
Approval
This report was approved by the Board of Directors on 12 March 2014 and signed on its behalf by:
Adam Castleton
Company Secretary
Company Number: 1410568
12 March 2014
DIRECTORS’ REMUNERATION REPORT
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 27
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent Company financial statements in accordance with UK Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice).
Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of
the Group and parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• for the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the parent Company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the
parent Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
These Reports were all approved by the Board of Directors.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
By order of the Board
Stephen Marks Adam Castleton
Chairman and Chief Executive Group Finance Director
12 March 2014
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
In respect of the Annual Report and the Financial Statements
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 28
INDEPENDENT AUDITOR’S REPORT
To the members of French Connection Group plc
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of French Connection Group PLC for the year ended 31 January 2014 set out on pages
30 to 59. In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at
31 January 2014 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with UK Accounting Standards; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
2 Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements the risk of material misstatement that had the greatest effect on
our audit was as follows:
Carrying value of inventory (£38.5m)
Refer to page 17 (Audit Committee Report), page 37 (accounting policy) and page 53 (financial disclosures).
• The risk – Inventory is carried in the financial statements at the lower of cost and net realisable value. The fashion industry can
be extremely volatile with consumer demand changing significantly based on current trends. As a result there is a risk that the
cost of inventory exceeds its net realisable value.
• Our response – Our audit procedures included, among others, the following procedures:
• We tested the Group’s controls over inventory by attending inventory counts at both warehouse and retail sites, testing
controls over the calculation of inventory loss allowances, inventory provisions and standard costs, and testing reconciliations
between the inventory ledger and the general ledger.
• We challenged the adequacy of the Group's provisions against inventory by seasonal collection and overall. We assessed the
Directors' assumptions on net realisable value of inventory, taking into account our knowledge of the industry and of current
and forecast future performance of the Group, and considered the historical accuracy of provisioning as a tool for evaluating
the adequacy of the control environment in setting the current provisions.
• We considered the adequacy of the Group's disclosures about the degree of estimation involved in arriving at the provision.
3 Our application of materiality and an overview of the scope of our audit
The materiality for the Group financial statements as a whole was set at £2.775m. This has been determined with reference
to a benchmark of Group revenue (of which it represents 1.5%), which we consider to be one of the principal considerations for
members of the Company in assessing the financial performance of the Group, and is a less volatile measure than profit or loss.
We agreed with the audit committee to report to it all corrected and uncorrected misstatements we identified through our audit with
a value in excess of £0.135m, in addition to other audit misstatements below that threshold that we believe warranted reporting on
qualitative grounds.
Audits for Group reporting purposes were performed by component auditors at three reporting components in the United Kingdom
and by the Group audit team at nine components in the United Kingdom. In addition the Group audit team undertook a review of
the financial information of the components in Canada and Hong Kong. Specified audit procedures were performed by component
auditors in the USA. The combined effect of this approach covered 96% of total Group revenue; 95% of the total profits and losses
that made up Group loss before tax; and 97% of total Group assets. The segment disclosures in Note 2 set out the individual
significance of a specific country.
The audits undertaken for Group reporting purposes at the key reporting components of the Group were all performed to materiality
levels set by, or agreed with, the Group audit team. Materiality for these components was set at £1.2m.
Detailed audit instructions were sent to the component auditors in the United Kingdom and the USA. These instructions covered the
significant audit areas that should be covered by these audits (which included the relevant risks of material misstatement detailed
above) and set out the information required to be reported back to the Group audit team. The Group audit team held telephone
meetings with the auditors at these locations.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 29
4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the information given in the Corporate Governance Statement set out on pages 14 to 15 with respect to internal control and
risk management systems in relation to financial reporting processes and about share capital structures is consistent with the
financial statements.
5 We have nothing to report in respect of the matters on which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our audit and the Directors’ statement
that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s performance, business model and strategy; or
• the Audit Committee Report does not appropriately address matters communicated by us to the Audit Committee.
• Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 10, in relation to going concern; and
• the part of the Corporate Governance Statement on pages 14 to 15 relating to the Company’s compliance with the
ten provisions of the UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities Statement set out on page 27, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an
audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This
report is made solely to the Company’s members as a body and is subject to important explanations and disclaimers regarding
our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report
as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and
the basis of our opinions.
Robert Brent (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square, London E14 5GL
12 March 2014
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 30
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 January 2014
Note
2014
£m
2013
£m
Revenue 2 189.4 197.3
Cost of sales (99.2) (102.7)
Gross profit 2 90.2 94.6
Operating expenses 3 (101.4) (108.9)
Other operating income 4 6.1 6.5
Finance income 6 0.1 0.2
Share of pro?t of joint ventures, net of tax 13 0.6 0.4
Underlying operating loss (4.4) (7.2)
Net loss on store disposals and closures (1.7) (1.3)
Impairment of goodwill – (2.0)
Loss before taxation 7 (6.1) (10.5)
Income tax credit – UK 0.4 –
Income tax expense – overseas (0.3) –
Total income tax credit 8 0.1 –
Loss for the year (6.0) (10.5)
The Group’s results were entirely from continuing operations.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 31
Note
2014
£m
2013
£m
Loss for the year (6.0) (10.5)
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Currency translation differences for overseas operations 0.3 (0.2)
Currency translation differences on foreign currency loans, net of tax (1.0) 0.1
Effective portion of changes in fair value of cash flow hedges (0.3) –
Other comprehensive income for the year, net of tax (1.0) (0.1)
Total comprehensive income for the year (7.0) (10.6)
Loss attributable to:
Equity holders of the Company (6.1) (10.3)
Non-controlling interests 0.1 (0.2)
Loss for the year (6.0) (10.5)
Total comprehensive income attributable to:
Equity holders of the Company (7.1) (10.4)
Non-controlling interests 0.1 (0.2)
Total income and expense recognised for the year (7.0) (10.6)
Losses per share
Basic and diluted losses per share 10 (6.4)p (10.7)p
The notes on pages 35 to 53 form part of these accounts.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 32
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 January 2014
Note
2014
£m
2013
£m
Assets
Non-current assets
Intangible assets 11 0.4 0.4
Property, plant and equipment 12 4.5 5.7
Investments in joint ventures 13 3.1 3.0
Deferred tax assets 20 4.8 4.4
Total non-current assets 12.8 13.5
Current assets
Inventories 14 38.5 41.5
Trade and other receivables 15 22.7 23.7
Cash and cash equivalents 16 28.2 28.5
Derivative ?nancial instruments 26 – 0.1
Total current assets 89.4 93.8
Total assets 102.2 107.3
Non-current liabilities
Deferred tax liabilities 20 0.5 0.9
Total non-current liabilities 0.5 0.9
Current liabilities
Trade and other payables 17 43.1 41.2
Current tax payable 19 0.2 –
Provisions 18 1.7 1.7
Derivative ?nancial instruments 26 0.2 –
Total current liabilities 45.2 42.9
Total liabilities 45.7 43.8
Net assets 56.5 63.5
Equity
Called-up share capital 21 1.0 1.0
Share premium account 9.4 9.4
Other reserves 4.3 5.3
Retained earnings 40.9 47.0
Total equity attributable to equity holders of the Company 55.6 62.7
Non-controlling interests 0.9 0.8
Total equity 56.5 63.5
The notes on pages 35 to 53 form part of these accounts.
These accounts were approved by the Board of Directors on 12 March 2014 and were signed on its behalf by:
Stephen Marks Adam Castleton
Director Director
Company Number: 1410568
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 33
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
£m
Share
premium
£m
Hedging
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Total
equity
£m
Balance at 31 January 2012 1.0 9.4 0.1 5.3 58.3 74.1 1.0 75.1
Loss for the year ended 31 January 2013 (10.3) (10.3) (0.2) (10.5)
Other comprehensive income
Currency translation differences for
overseas operations (0.2) (0.2) (0.2)
Currency translation differences
on foreign currency loans, net of tax 0.1 0.1 0.1
Transactions with owners recorded
directly in equity
Dividends (1.0) (1.0) (1.0)
Balance at 31 January 2013 1.0 9.4 0.1 5.2 47.0 62.7 0.8 63.5
Loss for the year ended 31 January 2014 (6.1) (6.1) 0.1 (6.0)
Other comprehensive income
Currency translation differences for
overseas operations 0.3 0.3 0.3
Currency translation differences
on foreign currency loans, net of tax (1.0) (1.0) (1.0)
Effective portion of changes in fair
value of cash ?ow hedges (0.3) (0.3) (0.3)
Balance at 31 January 2014 1.0 9.4 (0.2) 4.5 40.9 55.6 0.9 56.5
Translation reserve
The translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign
operations as well as from the translation of foreign currency loans.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 34
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 January 2014
Note
2014
£m
2013
£m
Operating activities
Loss for the period (6.0) (10.5)
Adjustments for:
Depreciation and impairment 1.9 3.1
Impairment of goodwill – 2.0
Finance income (0.1) (0.1)
Currency translation differences – (0.1)
Share of pro?t of joint ventures (0.6) (0.4)
Non-operating loss on store disposals and closures 1.7 1.3
Income tax credit (0.1) –
Operating loss before changes in working capital and provisions (3.2) (4.7)
Decrease in inventories 2.3 5.4
Decrease in trade and other receivables 0.8 2.4
Increase/(decrease) in trade and other payables 1.9 (6.8)
Cash flows from operations 1.8 (3.7)
Income tax paid (0.2) (0.5)
Cash flows from operating activities 1.6 (4.2)
Investing activities
Interest received 0.1 0.1
Proceeds from investment in joint ventures 0.4 0.9
Acquisition of property, plant and equipment (0.8) (1.7)
Net costs from store closures (1.7) (0.2)
Disposal of discontinued operations – 0.4
Cash flows from investing activities (2.0) (0.5)
Financing activities
Dividends paid 9 – (1.0)
Cash flows from financing activities – (1.0)
Net decrease in cash and cash equivalents 23 (0.4) (5.7)
Cash and cash equivalents at 1 February 23 28.5 34.2
Exchange rate ?uctuations on cash held 23 0.1 –
Cash and cash equivalents at 31 January 23 28.2 28.5
The notes on pages 35 to 53 form part of these accounts.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 35
NOTES TO THE GROUP ACCOUNTS
1 Accounting policies
a) Basis of preparation
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.
The consolidated financial statements have been prepared and approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the European Union (“adopted IFRS”). The Company has elected to prepare its
parent Company financial statements in accordance with UK Generally Accepted Accounting Practice; these are presented on
pages 54 to 59.
The consolidated financial statements have been prepared under the historical cost accounting rules, except for derivative financial
instruments measured at fair value.
The Group’s business activities, together with the factors likely to affect its future development, performance and position are
set out in the Financial Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
described in the Financial Review. In addition Note 26 to the financial statements includes the Group’s objectives, policies and
processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging
activities and its exposures to credit risk and liquidity risk.
The Group has considerable cash resources and as a consequence, the Directors believe that the Group is well placed to manage
its business risks successfully.
The Group ended the year with £28.2m of net cash and no borrowings. Over the cycle of the year the Group had minimum
net cash of £9.9m. Based on this and the forecast performance for the Group over the next 18 months, the Directors have a
reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
For this reason, the Board continues to adopt the going concern basis in preparing the accounts.
The preparation of the financial statements in conformity with adopted IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual
results may differ from these assumptions. The estimates and assumptions are based on historical experience and are reviewed
on an ongoing basis and are disclosed in Note 29. Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both
current and future periods.
The accounting policies set out below have been applied consistently to all periods in the consolidated financial statements.
There were no revisions to Adopted IFRS that became applicable in the year ended 31 January 2014 which had a significant
impact on the Group’s financial statements.
The Group does not consider that there are any standards, amendments or interpretations issued by the IASB, but not yet
applicable, that will have a significant impact on the financial statements.
b) Basis of consolidation
The consolidated financial statements of the Group comprise the accounts of the Company and all its subsidiary undertakings,
the accounts of which are all made up to 31 January each year end. The results of companies acquired or disposed of in the year
are dealt with from or up to the date control commences or ceases. The net assets of companies acquired are incorporated in the
consolidated accounts at their fair values to the Group at the date of acquisition. Intra-Group balances and any unrealised gains
or losses or income and expenses arising from intra-Group transactions are eliminated in preparing the consolidated financial
statements.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently
are exercisable are taken into account.
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and
requiring unanimous consent for strategic financial and operating decisions. Joint ventures are accounted for using the equity
method. The consolidated financial statements include the Group’s share of the income and expenses of joint ventures, after
adjustments to align the accounting policies with those of the Group, from the date that joint control commences until the date that
joint control ceases. When the Group’s share of losses exceeds its interest in a joint venture, the carrying amount of that interest
(including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent
that the Group has an obligation or has made payments on behalf of the investee. Unrealised gains arising from transactions with
joint ventures are eliminated against the investment to the extent of the Group’s interest in the entity.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 36
1 Accounting policies continued
c) Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill arising on business combinations
represents the difference between the cost of the acquisition and the fair value of the identifiable assets, liabilities and contingent
liabilities acquired. In respect of acquisitions prior to the IFRS transition date, 1 February 2004, goodwill is included on the basis
of its deemed cost based on the amount recognised under UK GAAP.
Goodwill is stated at cost less any accumulated impairment losses as discussed in Note j) below. Goodwill is tested annually for
impairment. Negative goodwill arising on an acquisition is recognised directly in the income statement.
The impairment calculations use cash flow projections based on actual operating results extrapolated forward for five years.
An appropriate pre-tax discount rate has been used in discounting the projected cash flows based on the weighted average cost
of capital applicable to the cash generating units concerned. For the purpose of impairment testing, goodwill is allocated to the
lowest level of cash generating unit within the Group at which the goodwill is monitored for internal management purposes. Where
goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated
with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal.
Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the
portion of the cash generating unit retained.
d) Foreign currency
Transactions effected by companies in foreign currencies are translated into their functional currency at the foreign exchange rate
ruling at the date of transaction. Monetary assets and liabilities of companies denominated in currencies other than the functional
currency of the Company are translated at the foreign exchange rate ruling at the balance sheet date. Foreign exchange
differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities denominated in
foreign currencies that are measured in terms of historical cost are translated using the exchange rate at the date of transaction.
Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at the foreign
exchange rates ruling at the dates the fair value was determined.
Long term monetary assets and liabilities receivable from or payable to a foreign operation, the settlement of which is not planned
or expected to occur in the foreseeable future, are considered to represent part of the Group’s net investment in a foreign
operation. Therefore, exchange gains and losses arising from these amounts are included in equity in the foreign currency
translation reserve.
On consolidation, the assets and liabilities of foreign operations which have a functional currency other than Sterling are translated
into Sterling at foreign exchange rates ruling at the balance sheet date. The income and expenses of these subsidiary undertakings
are translated into Sterling at the average rates applicable to the period. All resulting exchange differences are taken to reserves.
Any exchange differences that have arisen since 1 February 2004 are presented as a separate component of equity within a
translation reserve. Such exchange differences taken to reserves as from the date of transition to IFRS are recognised in the
income statement upon disposal of the subsidiary.
e) Derivative financial instruments
Derivative financial instruments in the form of forward foreign exchange contracts are used to manage the risk associated with
purchases denominated in foreign currencies as described in the section entitled Our Business.
Derivative financial instruments are initially measured at fair value. Any changes in the fair value of the forward contracts during
the period in which the hedge is in effect are reflected as a component of equity within the hedging reserve to the extent that
the hedge is effective. The ineffective part of the hedge is recognised in the income statement immediately.
f) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents,
loans and borrowings and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value including any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less any impairment
losses.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group
transfers the financial asset. Purchases and sales of financial assets are accounted for at trade date, i.e., the date that the
Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified
in the contract expire or are discharged or cancelled.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 37
1 Accounting policies continued
g) Property, plant and equipment
Property, plant and equipment is stated at cost (which from 1 February 2009 includes capitalised borrowing costs where appropriate)
less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition
of the asset.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the assets. Residual values
are reviewed at each reporting date. The estimated useful lives are as follows:
Leasehold improvements : period of the lease
Plant, equipment, fixtures and fittings : 3 to 10 years
h) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases.
Finance lease assets are stated at an amount equal to the lower of its fair value and the present value of the minimum lease
payments at inception of the lease, less accumulated depreciation and impairment losses. Leased assets are depreciated over
the shorter of the lease term and their estimated useful lives unless it is reasonably certain that the Group will obtain ownership
by the end of the lease term. Operating leases are leases where substantially all of the risks and rewards of ownership have not
been transferred.
i) Inventories
Inventories and work in progress are stated at the lower of cost and net realisable value. Cost includes the purchase price of
manufactured products, materials, direct labour, transport costs and a proportion of attributable design and production overheads
calculated on a first in, first out basis. Net realisable value is the estimated selling price in the ordinary course of business.
Provision is made for obsolete, slow moving or defective items where appropriate.
j) Impairment
The carrying amount of the Group’s assets, other than inventories and deferred tax assets, are reviewed each balance sheet
date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount
is estimated. An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its
recoverable amount. For tangible fixed assets, the recoverable amount is determined with reference to the cash generating unit
to which the asset belongs. The impairment calculations use cash flow projections based on actual operating results extrapolated
forward for five years. An appropriate pre-tax discount rate has been used in discounting the projected cash flows based on the
weighted average cost of capital applicable to the individual assets concerned. Further details are provided in Note 11.
Impairment policy relating to goodwill is referred to in Note 1c).
k) Revenue
Revenue is measured at the fair value of the consideration received or receivable for goods sold to external customers, less returns
and value added tax. The revenue arises from the sale of fashion clothing and accessories. Revenue from the sale of goods is
recognised in the statement of income when the significant risks and rewards of ownership have been transferred. For retail sales,
this occurs at the time the sale is recorded at the store. For wholesale and ecommerce sales, this normally occurs at the time the
goods are shipped from the warehouse. Licensing revenue is included within other operating income and is recognised on an
accruals basis.
l) Lease payments
Operating lease rentals are charged to the income statement on a straight-line basis over the term of the lease. Lease incentives
received are recognised in the income statement on a straight-line basis over the term of the lease.
Rentals receivable under operating leases are included in the income statement on a straight-line basis.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
m) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantially enacted at the
balance sheet date, plus any adjustment to tax payable in respect of previous years.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 38
1 Accounting policies continued
m) Income tax continued
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised
for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit and differences relating to investments in
subsidiaries and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. Deferred tax is
measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantially enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax benefit will be realised.
n) Pensions
The Group only has defined contribution pension schemes. Pension costs charged to the income statement represent the amount
of contributions payable to defined contribution and personal pension schemes in respect of the period.
o) Share-based payment
The Group operates share option incentive schemes for Directors and key employees. The fair value of options granted is
recognised as an employee expense in the income statement with a corresponding increase in equity. The fair value is measured
at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair
value of the options is measured using the “Black-Scholes” option valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognised in the income statement is adjusted at each balance sheet date
to reflect the number of share options that are expected to vest revised for expected leavers and estimated achievement of
non-market based vesting conditions. The Group has adopted the exemption to apply IFRS 2 only to equity instruments granted
after 7 November 2002.
p) Segment reporting
An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn
revenues and incur expenses and whose operating results are reviewed regularly by the Chief Operating Decision Maker to make
decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information
is available.
Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered
by the Board to be appropriately designated as reportable segments. Segment results represent the operating profits of each
division and exclude tax and financing items. Overheads represent the direct costs of the divisional operations, common
overheads shared between the divisions within geographic locations, in particular the costs of local management, advertising,
finance and accounting and Group management overheads including the costs of Group management, legal, insurance and
IT costs.
q) Capital management
Details of capital risk management are set out in Note 26 to the Group accounts.
r) Financial risk management
Details of financial risk management are set out in Note 26 to the Group accounts.
s) Guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of fellow subsidiaries or of third parties,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make
a payment under the guarantee.
t) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at
an amount equal to the best estimate of the expenditure required to settle the Group’s liability. Obligations arising from restructuring
plans are recognised when detailed formal plans have been established and when there is a valid expectation that such a plan will
be carried out.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 39
2 Operating segments
a) Segment reporting
The Group’s operating segments have been determined based on the key monthly information reviewed by the Board of Directors
(deemed to be the Chief Operating Decision Maker). The key metric reviewed cover the Retail and Wholesale sectors in totality,
with the performance by key geographies also reviewed.
In prior years the segment reporting has included the results of five reportable segments, including UK/Europe Retail, UK/Europe
Wholesale, North America Retail, North America Wholesale and Hong Kong Wholesale. The Board has revised the segment
reporting to more fully align with the key metrics that are focused on monthly to monitor the business performance. This includes
the global performance for Retail and Wholesale with regards to revenue and gross margins achieved, and the underlying profit/
loss. Other items below this profit measure are reviewed on a line by line basis for the Group in total.
The segment note below reflects the information used by the Board and better reflects the ‘management approach’ as it includes
the key metrics used. Accordingly the prior year information has been represented on this basis.
In addition to the information provided below, detailed commentary on the results of Retail and Wholesale, together with an
analysis of the geographical performance, can be found in the Financial Review.
b) Segment revenue and results
Income statement
2014
£m
2013
£m
Revenue
Retail 117.5 123.4
Wholesale 71.9 73.9
Group revenue 189.4 197.3
Gross pro?t 90.2 94.6
Retail 56.9% 55.8%
Wholesale 32.5% 34.9%
Group gross margin 47.6% 47.9%
Underlying operating (loss)/pro?t
Retail (11.6) (15.4)
Wholesale 11.7 13.9
License income 6.1 6.5
Common and Group overheads (11.3) (12.8)
Finance income 0.1 0.2
Share of profit from joint ventures 0.6 0.4
Underlying Group operating loss (4.4) (7.2)
Underlying operating margin
Retail (9.9)% (12.5)%
Wholesale 16.3% 18.8%
Underlying Group operating margin (2.3)% (3.6)%
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 40
2 Operating segments continued
c) Geographical information
2014
£m
2013
£m
Revenue
UK/Europe 71% 70%
North America 24% 25%
Rest of the World 5% 5%
Divisional operating (loss)/pro?t
UK/Europe (3.9) (9.4)
North America 2.4 5.5
Rest of the World 1.6 1.8
Group overheads and finance income (4.5) (5.1)
Underlying Group operating loss (4.4) (7.2)
d) Revenue from external customers
2014
£m
2013
£m
UK 119.5 121.5
US 34.6 37.5
Canada 10.8 11.7
Other 24.5 26.6
189.4 197.3
e) Non-current assets
2014
£m
2013
£m
UK 8.9 9.4
US 0.4 0.6
Canada – 0.1
Other 3.5 3.4
12.8 13.5
No single customer represents more than 10% of the Group’s total revenue.
3 Operating expenses
2014
£m
Restated
2013
£m
Selling and distribution costs 92.8 99.5
Administration costs 8.6 9.4
101.4 108.9
The comparatives have been restated to present an improved representation of operating expenses.
4 Other operating income
2014
£m
2013
£m
Licensing income 6.1 6.5
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 41
5 Staff numbers and costs
The average number of people employed by the Group during the year, including Directors, was as follows:
2014
Number
2013
Number
Selling, distribution and retail 1,909 2,097
Design, development and production management 211 209
Administration 138 138
2,258 2,444
The aggregate payroll costs of these people were as follows:
2014
£m
2013
£m
Wages and salaries 35.4 37.6
Social security costs 3.0 3.0
De?ned contribution pension costs 0.5 0.5
38.9 41.1
Included within the total staff cost above is the remuneration of the Directors totalling £1.2m (2013: £0.9m). Details of Directors’
remuneration, share options and pension entitlements are disclosed in the Directors’ Remuneration Report. Details of pension
costs are disclosed in Note 28 to the Group accounts.
6 Finance income and expense
Recognised in the income statement
2014
£m
2013
£m
Finance income
Interest receivable on bank balances 0.1 0.1
Currency translation differences – 0.1
0.1 0.2
7 Loss before taxation
The Group’s loss before taxation is stated after charging/(crediting) the following:
2014
£m
2013
£m
Fees payable to the Company’s auditors and its associates in respect of
the audit of the Group’s annual accounts 0.1 0.1
the audit of the Company’s subsidiaries, pursuant to legislation 0.1 0.1
tax and other assurance services 0.2 0.2
Depreciation and impairment of owned assets 1.9 3.1
Loss on sale of items of property, plant and equipment – 0.2
Store closure provisions 1.7 1.1
Impairment of goodwill – 2.0
Operating lease rentals
Plant and machinery 0.3 0.3
Leasehold properties 26.6 28.4
Rent receivable (1.5) (1.4)
The auditor’s remuneration in respect of the audit of the Company was £37,000 (2013: £40,000).
During the year, the fees payable to the auditors and their associates for non-audit services was £168,000 (2013: £182,000) in
respect of tax compliance and advisory services (£146,000 (2013: £162,000)), royalty and turnover reviews (£15,000 (2013: £14,000))
and other services (£7,000 (2013: £6,000)).
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 42
8 Income tax credit
a) Recognised in the income statement
2014
£m
2013
£m
Current tax
Overseas tax 0.3 0.5
Adjustment in respect of previous periods – (0.5)
Total current tax 0.3 –
Deferred tax – origination and reversal of
UK temporary differences – (0.2)
Effect of change in tax rates – 0.2
Adjustment in respect of previous periods (0.4) –
Total deferred tax (0.4) –
Tax on loss (Note 8b) (0.1) –
b) Factors affecting tax credit for year
The tax credited for the year is different to the standard 23% (2013: 24%) rate of corporation tax in the UK. The differences
are explained below:
2014
£m
2013
£m
Loss before taxation (6.1) (10.5)
Loss multiplied by the standard rate of corporation tax in the UK of 23% (2013: 24%) (1.4) (2.5)
Effects of:
Expenses not deductible 0.2 0.3
Impairment of goodwill – 0.4
Losses for which no deferred tax asset has been recognised 1.6 1.8
Current year temporary differences and deferred capital allowances
for which deferred tax has been recognised (0.1) 0.5
Difference in effective tax rates on overseas earnings (0.2) (0.1)
Adjustments to tax charge in respect of previous periods (0.4) (0.5)
Share of joint venture tax charge which has been netted off within share of pro?t of joint ventures (0.1) (0.1)
Deferred tax charge relating to reduction in UK tax (23% to 21% effective from 1 April 2014) 0.3 0.2
Total tax credit for the year (Note 8a) (0.1) –
The effective tax rate in the future will be affected by the proportion of any profits or losses generated in the different tax
jurisdictions and the ability to utilise accumulated losses.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 43
8 Income tax credit continued
c) Income tax recognised in other comprehensive income
Before
tax
2014
£m
Tax
credit
2014
£m
Net of
tax
2014
£m
Before
tax
2013
£m
Tax
credit
2013
£m
Net of
tax
2013
£m
Currency translation differences
on foreign currency net investments 0.3 – 0.3 (0.2) – (0.2)
Currency translation differences
on foreign currency loans (1.4) 0.4 (1.0) 0.1 – 0.1
Effective portion of changes in fair
value of cash ?ow hedges (0.3) – (0.3) – – –
(1.4) 0.4 (1.0) (0.1) – (0.1)
9 Dividends – equity
2014
£m
Pence
per share
2013
£m
Pence
per share
Final paid for prior ?nancial year – – 1.0 1.0p
Total dividends paid during the year – – 1.0 1.0p
The Board is proposing that no dividend should be paid for the year. No dividends were paid during the year to the minority shareholders
of a subsidiary undertaking of the Group (2013: Nil).
10 Losses per share
Basic losses per share are calculated on 95,899,754 (2013: 95,899,754) shares being the weighted average number of ordinary
shares during the year.
Diluted losses per share are calculated on 95,989,627 shares being the weighted average number of ordinary shares adjusted
to assume the exercise of dilutive options (2013: 95,983,319).
Basic and diluted losses per share of (6.4) pence per share (2013: losses of (10.7) pence) is based on losses of £(6.1)m (2013:
losses of £(10.3)m) attributable to equity shareholders.
The reconciliation to adjusted earnings per share is as follows:
2014
£m
2014
pence
per share
2013
£m
2013
pence
per share
Loss attributable to equity shareholders (6.1) (6.4)p (10.3) (10.7)p
Net loss on store disposals and closures 1.7 1.8p 1.3 1.3p
Impairment of goodwill – – 2.0 2.1p
Adjusted loss (4.4) (4.6)p (7.0) (7.3)p
The adjusted losses per share relates to the underlying operations and in the opinion of the Directors, gives a better measure of the
Group's underlying performance than the basic losses per share.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 44
11 Intangible assets
Goodwill
2014
£m
2013
£m
Cost
At 1 February and 31 January 14.3 14.3
Impairment
At 1 February 13.9 11.9
During the year – 2.0
At 31 January 13.9 13.9
Net book value at 31 January 0.4 0.4
In the prior year, as a result of the downturn in retail trade, goodwill of £2.0m relating to the acquisition of retail franchise operations
in the UK was impaired. No impairment has been made in the current year.
Given the similar nature of the activities of each cash generating unit, a consistent methodology is applied across the Group in
assessing cash generating unit recoverable amounts. The recoverable amount is the higher of the value in use and the fair value
less the costs to sell. The value in use is the present value of the cash flows expected to be generated by the cash generating
unit over a projection period together with a terminal value. Cash flows are projected based on actual operating results and the
Directors’ five year forward forecasts which are based on Directors’ knowledge, historical experience and economic growth
forecasts for the fashion industry, including maximum sales growth forecasts of 2% per annum. A pre-tax discount rate of 15%
(2013: 15%) has been applied to the value in use calculations reflecting market assessments of the time value of money at the
balance sheet date. A terminal growth rate of 2% (2013: 2%) has been used based on industry growth rates. As discussed in
Our Business, like all retailers, the Group is susceptible to volatility in the propensity of consumers to spend, which is affected by
macro-economic issues. Further, both the Group’s retail and wholesale businesses have largely inflexible cost bases giving rise
to substantial operational gearing. Accordingly the key sensitivity with regard to future cash flows and value in use relates to the
assumed sales growth. As noted above this has been set at a maximum of 2% per annum.
12 Property, plant and equipment
2014
Short
leasehold
property
£m
Plant
equipment
fixtures and
fittings
£m
Total
£m
Cost
At 1 February 2013 10.4 62.0 72.4
Currency movements (0.2) (0.9) (1.1)
Additions – 0.8 0.8
Disposals (2.3) (4.2) (6.5)
At 31 January 2014 7.9 57.7 65.6
Depreciation
At 1 February 2013 9.6 57.1 66.7
Currency movements (0.2) (0.9) (1.1)
Charge for year 0.1 1.8 1.9
Disposals (2.3) (4.1) (6.4)
At 31 January 2014 7.2 53.9 61.1
Net book value
At 31 January 2014 0.7 3.8 4.5
At 31 January 2013 0.8 4.9 5.7
The Group has no plant and equipment held under finance leases in both the current and prior years and no depreciation was
charged during either year.
The impairment loss recognised in the year of £Nil (2013: £0.5m) is a result of a review of the carrying value of the store portfolio
assets.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 45
12 Property, plant and equipment continued
Property, plant and equipment with a net book value of £0.1m (2013: £Nil) was disposed of during the year. Net costs incurred
on disposal were £Nil (2013: £(0.2)m) resulting in a loss on disposal of £(0.1)m (2013: £(0.2)m) which was charged to the store
closures provision during the year.
The Group has £54.0m (2013: £53.9m) of gross assets with a £Nil net book value.
13 Investments
The Group’s investments in joint ventures are as follows:
2014
£m
2013
£m
Share of current assets 3.9 4.8
Share of non-current assets 0.5 0.5
Share of current liabilities (1.3) (2.3)
3.1 3.0
Share of revenue 6.4 6.9
Share of expense (5.7) (6.4)
Share of income tax expense (0.1) (0.1)
0.6 0.4
The investments are accounted for using the equity method of accounting.
14 Inventories
2014
£m
2013
£m
Raw materials and consumables 0.1 0.4
Work in progress 0.2 0.5
Finished goods 38.2 40.6
38.5 41.5
During the year, inventory write-downs of £2.9m (2013: £6.8m) were expensed within cost of sales. The amount of inventory
recognised as an expense during both the current and prior years is equal to the amount recognised within cost of sales.
All inventory is valued at the lower of cost and net realisable value. There is no inventory carried at fair value less costs to sell either
in the current or prior year.
15 Trade and other receivables
2014
£m
Restated
2013
£m
Trade receivables 13.7 14.1
Other receivables 1.1 1.5
Prepayments and accrued income 7.9 8.1
22.7 23.7
The comparatives have been restated to present a clearer representation of trade and other receivables. There is no net impact on
the total balance.
No receivables are due in more than one year and are non-interest bearing. Standard credit terms provided to customers differ, but
are typically between 30 and 60 days. Included within trade receivables is a bad debt provision of £0.3m (2013: £0.3m). During the
year, £0.2m (2013: £0.3m) of bad debt write-offs were incurred.
The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed in
Note 26.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 46
16 Cash and cash equivalents
2014
£m
2013
£m
Cash and cash equivalents in the balance sheet and cash flow 28.2 28.5
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in Note 26.
17 Current trade and other payables
2014
£m
2013
£m
Trade payables 21.7 19.7
Bills of exchange payable 1.6 1.9
Other taxation and social security 4.2 3.8
Accruals and deferred income 15.6 15.8
43.1 41.2
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 26.
18 Provisions
Store closures
2014
£m
2013
£m
Balance at 1 February 1.7 0.6
Utilised during the year (1.7) –
Increase during the year 1.7 1.1
Balance at 31 January 1.7 1.7
Provisions are recorded to reflect the estimated committed closure costs of identified underperforming retail stores. The associated costs
are forecast to be incurred over a period of two years.
19 Current tax payable
2014
£m
2013
£m
Overseas tax 0.2 –
20 Deferred tax
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities
2014
£m
2013
£m
2014
£m
2013
£m
Property, plant and equipment 3.3 3.1 – –
Deferred rent 0.3 0.3 – –
Provisions 0.5 0.3 – –
Deferred capital gains – – 0.5 0.9
Trading losses 0.7 0.7 – –
4.8 4.4 0.5 0.9
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 47
20 Deferred tax continued
The Group has a potential deferred tax asset, principally relating to past years’ trading losses of £14.9m. As the Group returns to
profit, this value will be realised.
2014
£m
2013
£m
Trading losses 13.1 13.7
Property, plant and equipment 1.1 1.6
Capital losses – 1.8
Other temporary differences 0.7 0.4
14.9 17.5
21 Share capital
Ordinary shares of 1 pence each
2014
Number
2014
£m
2013
Number
2013
£m
Allotted, called up and fully paid shares at the beginning and
end of the year 95,899,754 1.0 95,899,754 1.0
At 31 January 2014, the following equity settled options have been granted and remain outstanding in respect of ordinary shares
of 1p each in the Company:
Date of grant Options Option price
Contractual
life of
options
29 October 2008 (vested 29 October 2011) 1,836,000 56.20p 10 years
27 April 2011 50,000 102.30p 10 years
1 November 2012 400,000 24.50p 10 years
4 November 2013 600,000 29.25p 10 years
Share options granted are subject to detailed performance conditions. The performance conditions for the outstanding option
grants are based on a target profit before tax and hurdles are set in order to reward strong financial performance. Options which
do not vest following the application of the performance conditions lapse and become unavailable for exercise.
Weighted
average
exercise
price
Number of
options
2014
Weighted
average
exercise
price
Number of
options
2013
Outstanding at the beginning of the period 52.61p 2,886,500 79.97p 3,214,387
Forfeited during the period 56.20p (600,500) 97.60p (128,442)
Lapsed during the period – – 170.95p (599,445)
Granted during the period 29.25p 600,000 24.50p 400,000
Outstanding at the end of the period 47.00p 2,886,000 52.61p 2,886,500
The number of share options exercisable at the year end is 1,836,000 (2013: 2,436,500).
The fair value of the share options granted is not considered to be material to the accounts in the current and prior years.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 48
22 Reconciliation of decrease in cash to movement in net funds
2014
£m
2013
£m
Change in net funds from cash ?ows (0.4) (5.7)
Translation differences 0.1 –
Movement in net funds (0.3) (5.7)
Net funds at beginning of year 28.5 34.2
Net funds at end of year 28.2 28.5
23 Analysis of net funds
1 February
2013
£m
Cash
flow
£m
Non cash
changes
£m
31 January
2014
£m
Cash and cash equivalents in the balance sheet and cash ?ow 28.5 (0.4) 0.1 28.2
Net funds 28.5 (0.4) 0.1 28.2
24 Commitments
Aggregate future rental commitments payable under non-cancellable operating leases at 31 January 2014 for which no provision
has been made in these accounts, were as follows:
Leasehold property Other
2014
£m
2013
£m
2014
£m
2013
£m
Operating leases which expire:
Within one year 0.9 4.1 – –
Within two to ?ve years 24.5 25.1 0.3 0.4
After ?ve years 134.9 165.1 – –
160.3 194.3 0.3 0.4
Aggregate future rentals receivable under non-cancellable operating leases at 31 January 2014 for which no accrual has been
made in these accounts were as follows:
Leasehold property
2014
£m
2013
£m
Operating leases which expire:
Within two to ?ve years 1.8 3.1
After ?ve years 0.5 0.6
2.3 3.7
At 31 January 2014 the Group had contracted capital commitments not provided for in the accounts of £0.2m (2013: £0.3m).
At 31 January 2014 the Group had commitments on foreign exchange contracts amounting to £4.5m (2013: £4.5m).
In addition, the Group had commitments in respect of letters of credit of £1.4m (2013: £1.1m).
25 Contingent liabilities
The Group has a number of sublet and assigned properties. In the event that the tenants of these properties default, the Group
may be liable. At the year end, the total annual commitment amounted to £Nil (2013: £0.4m).
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 49
26 Financial instruments
Details of financial risk management, treasury policies and use of financial instruments are set out in the section entitled
‘Principal risks and uncertainties’ within Our Business.
Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. Derivative financial
instruments are used to hedge exposure to fluctuations in foreign exchange rates.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach
to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s
reputation. The Group monitors its cash position on a regular basis through the use of regularly updated cash flow forecasts,
and believes that it has sufficient and appropriate net funds and facilities available.
Interest rate risk
The Group does not use interest rate financial instruments. The Group regularly monitors and reacts accordingly to any exposure
to fluctuations in interest rates and the impact on its monetary assets and liabilities.
Foreign currency risk
The Group is exposed to foreign currency risks on sales, purchases and cash holdings that are denominated in a currency
other than Sterling. The currency giving rise to this risk is primarily the Hong Kong Dollar. The Group’s policy is to reduce the
risk associated with purchases denominated in foreign currencies, by using forward fixed rate currency purchase contracts
up to a maximum of one year forward, taking into account any forecast foreign currency cash flows.
In respect of other monetary assets and liabilities held in currencies other than the Hong Kong Dollar, the Group ensures that
the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address
short-term imbalances.
The Group’s policy is not to hedge the translational exposure that arises on consolidation of the statement of income at overseas
subsidiaries.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group’s main credit
risk is primarily attributable to its trade receivables. Credit evaluations are performed on all customers requiring credit over a
certain amount. The Group does not require collateral in respect of financial assets. The amounts recognised in the balance sheet
are net of appropriate allowances for doubtful receivables, estimated by the Group’s management based on prior experience
and their assessment of the current economic environment. At the balance sheet date, there were no significant concentrations
of credit risk by customer or by geography. Quantitative analysis of credit risk to receivables is presented below.
Credit risk associated with cash balances and derivative financial instruments is managed by transacting with an existing relationship
bank with strong investment grade rating. The maximum exposure to credit risk is represented by the carrying amount of each
financial asset, including derivative financial instruments, in the balance sheet.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the
reporting date was:
Carrying amount
2014
£m
2013
£m
Trade and other receivables 14.8 15.6
Cash and cash equivalents 28.2 28.5
43.0 44.1
The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:
Carrying amount
2014
£m
2013
£m
UK/Europe 8.8 8.0
North America 2.4 3.9
Hong Kong 3.6 3.7
14.8 15.6
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 50
26 Financial instruments continued
The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
2014
£m
Restated
2013
£m
Wholesale customers 13.7 14.1
The ageing of gross trade receivables at the reporting date was:
Gross
2014
£m
Impairment
2014
£m
Restated
Gross
2013
£m
Impairment
2013
£m
Current 10.1 – 11.5 –
30 days 1.7 – 1.0 –
60 days 0.3 – 0.4 –
More than 60 days 1.9 (0.3) 1.5 (0.3)
14.0 (0.3) 14.4 (0.3)
The comparatives have been restated to present a clearer representation of trade and other receivables. There is no net impact on
the total balance.
An impairment has been recorded against the trade receivables that the Group believes may not be recoverable. Based on past
experience, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due.
The movement in impairment in respect of trade receivables during the year was as follows:
2014
£m
2013
£m
At 1 February 0.3 0.6
Movement during year – (0.3)
At 31 January 0.3 0.3
Interest rate profile of financial assets
The interest rate profile of the financial assets of the Group at 31 January 2014 was as follows:
Financial assets
on which no
interest is received
Floating rate
financial assets Total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
Sterling 0.1 0.2 16.3 15.3 16.4 15.5
US Dollar – – 7.8 7.5 7.8 7.5
Hong Kong Dollar – – 1.4 2.9 1.4 2.9
Other – – 2.6 2.6 2.6 2.6
Total 0.1 0.2 28.1 28.3 28.2 28.5
Financial assets comprise cash and short term deposits. The effective interest rate on floating rate financial assets during the year
was 0.5% (2013: 1.3%).
There were no fixed rate or floating rate financial liabilities at the end of the current or prior year.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 51
26 Financial instruments continued
Currency exposure
Net monetary assets and liabilities of the Group that are not denominated in the local functional currency were as follows:
At 31 January 2014
Net foreign currency
monetary assets/(liabilities)
Sterling
£m
US
Dollar
£m
Canadian
Dollar
£m
Hong Kong
Dollar
£m
Euro
£m
Other
£m
Total
£m
Trade and other receivables 2.0 0.3 – – 0.7 0.1 3.1
Cash and overdraft 0.5 5.0 – – 1.9 0.1 7.5
Trade and other payables (1.2) (1.7) – – (0.9) – (3.8)
Intercompany balances – (1.8) 9.9 (11.0) 10.2 – 7.3
Total 1.3 1.8 9.9 (11.0) 11.9 0.2 14.1
At 31 January 2013
Net foreign currency
monetary assets/(liabilities)
Sterling
£m
US
Dollar
£m
Canadian
Dollar
£m
Hong Kong
Dollar
£m
Euro
£m
Other
£m
Total
£m
Trade and other receivables 2.2 0.3 – – 0.9 0.1 3.5
Cash and overdraft 0.4 4.9 – 1.1 1.7 0.1 8.2
Trade and other payables (1.2) (1.5) – – (2.3) – (5.0)
Intercompany balances (0.1) 2.9 9.7 (9.6) 9.0 – 11.9
Total 1.3 6.6 9.7 (8.5) 9.3 0.2 18.6
Forward foreign exchange contracts have not been taken into consideration above. As at 31 January 2014, the Group has committed
forward foreign exchange contracts of £4.5m (2013: £4.5m).
The following significant exchange rates applied during the year:
Average rate
Reporting date
spot rate
2014 2013 2014 2013
US Dollar 1.568 1.589 1.644 1.586
Canadian Dollar 1.629 1.587 1.832 1.584
Hong Kong Dollar 12.166 12.321 12.761 12.296
Euro 1.179 1.232 1.219 1.168
Sensitivity analysis
A 10% strengthening of Sterling against the following currencies at 31 January would have increased/(decreased) equity and profit
and loss by the amounts shown below. This analysis assumes that all other variables, in particular, interest rates, remain constant.
This analysis is performed on the same basis for the prior year.
Equity
2014
£m
Profit
and loss
2014
£m
Equity
2013
£m
Profit
and loss
2013
£m
US Dollar – (0.1) – (0.6)
Canadian Dollar (0.8) (0.2) (0.6) (0.4)
Hong Kong Dollar – 1.0 – 0.8
Euro (0.3) (0.9) (0.4) (0.6)
(1.1) (0.2) (1.0) (0.8)
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 52
26 Financial instruments continued
Borrowing facilities
Working capital and letter of credit facilities of £4.2m were available to the Group at 31 January 2014 (31 January 2013: £4.2m).
The facilities are subject to an annual review and were most recently renewed in July 2013.
Fair values
The fair value of the Group’s financial instruments at 31 January 2014 were as follows:
31 January 2014 31 January 2013
Carrying
amount
£m
Estimated
fair value
£m
Carrying
amount
£m
Estimated
fair value
£m
Primary financial instruments used to finance the Group’s operations:
Cash and cash equivalents 28.2 28.2 28.5 28.5
Trade receivables 13.7 13.7 14.1 14.1
Trade payables (21.7) (21.7) (19.7) (19.7)
Derivative financial instruments (0.2) (0.2) 0.1 0.1
The fair value of forward exchange contracts outstanding as at 31 January 2014 is a liability of £0.2m (2013: asset of £0.1m).
£0.3m has been debited to the hedging reserve (2013: £Nil).
These contracts mature in the next 12 months, therefore the cash flows and resulting effect on profit and loss are expected
to occur within the next 12 months.
The fair value of derivative financial instruments is determined using discounted cash flow techniques based on readily available
market data and represent a Level 2 measurement in the fair value hierarchy under IFRS 7. Level 2 is defined as inputs other
than quoted prices in active markets that are observable for the asset or liability.
Capital management
The capital structure of the Group consists of net funds and equity attributable to the equity holders of the parent Company,
comprising issued share capital, reserves and retained earnings. The Group manages its capital with the objective that all
entities within the Group continue as going concerns. The Group is not subject to any externally imposed capital management.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business. To achieve this the Board of Directors monitors the balance sheet, the working capital, the
cash flows and the level of dividends paid to shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and
the advantages and security afforded by a sound capital position.
At present employees, including the Chairman, hold 41.8 percent of ordinary shares. Share options have been issued amounting
to just over three percent of the issued share capital.
The Company will request permission from shareholders if deemed necessary to purchase its own shares.
There were no changes in the Group’s approach to capital management during the year.
Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
27 Directors’ interests and related party transactions
The Group made sales of £1.5m (2013: £1.7m) to FCUK IT Company and £0.8m (2013: £1.1m) to FCIT China Limited during the year,
both of which are joint ventures. The closing liabilities due from the respective joint ventures are £0.3m (2013: £0.4m) and £0.3m
(2013: £0.4m).
There are no related party transactions between French Connection Group PLC and the non-controlling interest subsidiary
undertakings.
French Connection Group was invoiced directly for property costs relating to 202 Westbourne Grove, London and recharged these
costs to SAM Corporation Limited. Stephen Marks, Chairman and Chief Executive of French Connection Group PLC is a Director
of French Connection Group PLC and is the sole shareholder of SAM Corporation Limited. The total costs invoiced and recharged
during the year was £534,546 and was conducted at arm’s length.
NOTES TO THE GROUP ACCOUNTS
Continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 53
27 Directors’ interests and related party transactions continued
At 31 January 2014, Stephen Marks, Chairman and Chief Executive had an interest in 40,094,190 ordinary shares (2013: 40,094,190)
of which 2,281,500 shares (2013: 2,281,500) were held by family members or in family trusts, representing in aggregate 41.8%
(2013: 41.8%) of the total issued ordinary share capital of the Company. At 31 January 2014, Adam Castleton, Group Finance
Director, had an interest in 33,000 ordinary shares (2013: nil) representing 0.03% of total issued ordinary share capital of the
Company.
Details of the Directors’ remuneration, being the key management personnel, are disclosed in the Directors’ Remuneration Report.
28 Pension costs
The Group operates a Group defined contribution scheme and contributes towards a number of personal pension plans. The assets
of these schemes are held separately from those of the Group in independently administered funds.
The pension cost charge for the year was £0.5m (2013: £0.5m). At 31 January 2014 and 31 January 2013 there were no
outstanding amounts payable to the schemes.
29 Accounting estimates and judgements
The Directors have made significant accounting estimates and judgements in applying the Group’s accounting policies in the
following area:
Inventory valuation – the Directors have used their knowledge and experience of the fashion industry in determining the level and
rates of provisioning required to calculate the appropriate inventory carrying values. Provision is made for obsolete, slow moving or
defective items where appropriate. Provisions are considered on a seasonal basis taking into consideration the various channels
that are available to the Group to sell existing inventory and the estimated prices that can be achieved.
30 Principal subsidiary undertakings
Details of the principal subsidiary undertakings at 31 January 2014 are set out below. Unless otherwise stated, the Company directly
owned all the issued ordinary shares.
Company
Country of Incorporation,
Registration and Operation Principal Activity
French Connection Limited England Brand management
French Connection UK Limited England Supply of fashion merchandise
French Connection (London) Limited England Supply of fashion merchandise
French Connection (Hong Kong) Limited British Virgin Islands
(operates in Hong Kong)
Supply of fashion merchandise
French Connection No. 2 Pour Hommes Sarl* France Supply of fashion merchandise
PreTex Textilhandels GmbH* Germany Supply of fashion merchandise
French Connection Holdings Inc USA Holding Company
French Connection Group Inc* USA Supply of fashion merchandise
Louisiana Connection Limited* USA Supply of fashion merchandise
Roosevelt Connection Limited* USA Supply of fashion merchandise
Soho Connection Limited* USA Supply of fashion merchandise
French Connection (Canada) Limited (75%) Canada Supply of fashion merchandise
Toast (Mail Order) Limited (75%) Wales Supply of fashion merchandise
YMC Limited (75%) England Supply of fashion merchandise
FCUK IT Company (50% partnership)* Hong Kong Supply of fashion merchandise
FCIT China Limited (50%)* Hong Kong Supply of fashion merchandise
FCUK IT Company’s principal place of business is Block 1, 7th Floor, Enterprise Square, 9 Sheung Yuet Road, Kowloon, Hong Kong.
FCIT China Limited’s principal place of business is 31/F, Tower A, Southmark, 11 Yip Hing Street, Wong Chuk Hang, Hong Kong.
* Shares are held by subsidiary undertakings.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 54
COMPANY BALANCE SHEET
At 31 January 2014
Note
2014
£m
2013
£m
Fixed assets
Tangible assets 3 0.5 0.6
Investments 4 24.5 25.7
25.0 26.3
Current assets
Debtors 5 47.5 40.5
Cash at bank and in hand – –
Derivative ?nancial instruments – 0.1
47.5 40.6
Current liabilities
Creditors 6 (2.5) (1.5)
Derivative ?nancial instruments (0.2) –
(2.7) (1.5)
Net current assets 44.8 39.1
Total assets less current liabilities 69.8 65.4
Deferred tax liability 7 (0.6) (0.7)
Net assets 69.2 64.7
Capital and reserves
Called-up share capital 8 1.0 1.0
Share premium account 8 9.4 9.4
Pro?t and loss account 8 59.0 54.2
Other reserves 8 (0.2) 0.1
Equity shareholders’ funds 9 69.2 64.7
The notes on pages 55 to 59 form part of these accounts.
These accounts were approved by the Board of Directors on 12 March 2014 and were signed on its behalf by:
Stephen Marks Adam Castleton
Director Director
Company Number: 1410568
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 55
NOTES TO THE COMPANY ACCOUNTS
1 Accounting policies
a) Basis of preparation
The Company has elected to prepare its parent Company financial statements in accordance with UK GAAP and these are
presented on pages 54 to 59.
b) Basis of accounting
The accounts have been prepared under the historical cost accounting rules, except for derivative financial instruments measured
at fair value, and in accordance with applicable accounting standards. As permitted by Section 408 of the Companies Act 2006,
the profit and loss account under UK GAAP of the Company is not presented. No new standards have been adopted in this year’s
financial statements. The Company has taken the exemption granted by FRS 8 Related Party disclosures not to disclose transactions
with wholly owned subsidiaries of the Group.
c) Depreciation
Depreciation is provided to write off the cost less estimated residual value of fixed assets by equal annual instalments over their
useful lives, which are estimated to be as follows:
Plant, equipment, fixtures and fittings : 3 to 10 years
d) Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences
between the treatment of certain items for taxation and accounting purposes. Full provision has been made for deferred taxation
arising from timing differences between the recognition of income and expenditure for taxation and accounting purposes. Deferred
tax amounts are not discounted.
e) Foreign exchange
Monetary assets and liabilities denominated in foreign currencies are translated into Sterling at rates of exchange ruling at
the balance sheet date. Transactions in the period are translated into Sterling at the rates of exchange ruling on the date of
transaction or at hedged rates. Resulting exchange differences are taken to the profit and loss account. Forward fixed rate
currency purchase contracts are used.
f) Leased assets
Operating lease rentals are charged to the profit and loss account in the period to which they relate. Rentals receivable under
operating leases are included in the profit and loss account on an accruals basis. There are no finance leases in the current year.
g) Pension cost
Pension costs charged to the profit and loss account represent the amount of contributions payable to defined contribution and
personal pension schemes in respect of the period.
h) Share-based payment
The Group operates share option incentive schemes for Directors and key employees. The fair value of options granted is recognised
as an employee expense in the income statement with a corresponding increase in equity. The fair value is measured at grant date
and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options
is measured using the “Black-Scholes” option valuation model, taking into account the terms and conditions upon which the options
were granted. The amount recognised in the income statement is adjusted at each balance sheet date to reflect the number of share
options that are expected to vest revised for expected leavers and estimated achievement of non-market based vesting conditions.
The Group has adopted the exemption to apply FRS 20 only to equity instruments granted after 7 November 2002. The fair value
of the share options granted is not considered to be material in the current or prior years.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 56
NOTES TO THE COMPANY ACCOUNTS
Continued
1 Accounting policies continued
i) Derivative financial instruments
Derivative financial instruments in the form of forward foreign exchange contracts are used to manage the risk associated with
purchases denominated in foreign currencies as described in the section entitled Our Business. Any changes in the fair value of
the forward contracts during the period in which the hedge is in effect will be reflected as a component of reserves within a hedging
reserve to the extent that the hedge is effective. The ineffective part of the hedge is recognised in the profit and loss account.
Financial Reporting Standard 29 “Financial Instruments: Disclosures” (FRS 29) sets out the requirements for the presentation
of, and disclosures relating to, financial instruments and replaces the requirements of FRS 25 “Financial Instruments: Disclosure
and Presentation”. The Company is exempt from the requirements of FRS 29 as the financial statements for the Group include
disclosures that comply with IFRS 7, the equivalent International Financial Reporting Standard.
j) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity trade and other receivables, cash and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value including any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less any impairment losses.
A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the Company’s contractual rights to the cash flows from the financial assets expire or if the Company
transfers the financial asset. Purchases and sales of financial assets are accounted for at trade date, i.e., the date that the
Company commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Company’s obligations specified
in the contract expire or are discharged or cancelled.
Cash comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement
of cash flows.
k) Investments
Investments are stated at cost less provision for permanent diminution in value.
l) Share capital
When new shares are issued, they are recorded in share capital at their par value. The excess of the issue price over the par value
is recorded in the share premium reserve. The cost of own shares purchased to satisfy the exercise of employee share options
is charged to total equity and the proceeds of their reissue are credited to total equity.
m) Dividends on shares presented within shareholders’ funds
Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed
in the notes to the financial statements.
n) Guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of fellow subsidiaries or of third parties,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make
a payment under the guarantee.
2 Staff numbers and operating costs
All Directors and staff are employed by French Connection (London) Limited, a subsidiary undertaking. Details of staff numbers
and costs are shown in that Company’s accounts. Directors’ remuneration is disclosed in the Directors’ Remuneration Report.
The audit fee of the Company is disclosed in Note 7 to the Group accounts.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 57
3 Property, plant and equipment
Plant
equipment
fixtures
and fittings
£m
Cost or valuation
At 1 February 2013 3.2
Additions 0.1
Disposals (0.2)
At 31 January 2014 3.1
Depreciation
At 1 February 2013 2.6
Charge for year 0.2
Disposals (0.2)
At 31 January 2014 2.6
Net book value
At 31 January 2014 0.5
At 31 January 2013 0.6
4 Investments
The Company’s investments in subsidiary undertakings is as follows:
Total
£m
Cost
At 1 February 2013 and 31 January 2014 70.8
Provision
At 1 February 2013 45.1
Charge for year 1.2
At 31 January 2014 46.3
Carrying amount
At 31 January 2014 24.5
At 31 January 2013 25.7
The Directors have conducted an impairment review comprising a comparison of the carrying amount of the investment with its
recoverable amount being the higher of net realisable value and value in use. The recoverable amount has been determined as the
net realisable value. To the extent that the carrying amount exceeds the recoverable amount, the investment is impaired and has
been provided against. The impairment loss has been recognised in the profit and loss account in the year.
Impairment of £1.2m (2013: £Nil) relating to the Group’s investment in subsidiary company, French Connection Holdings Inc. has
been provided in the current year.
The principal subsidiaries of the Company are set out in Note 30 to the Group accounts.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 58
NOTES TO THE COMPANY ACCOUNTS
Continued
5 Debtors
2014
£m
2013
£m
Amounts owed by subsidiary undertakings 47.0 39.8
Deferred tax (Note 7) 0.2 0.3
Other debtors 0.1 0.1
Prepayments and accrued income 0.2 0.3
47.5 40.5
Included within debtors are amounts due within one year of £0.3m (2013: £0.4m).
6 Creditors: amounts falling due within one year
2014
£m
2013
£m
Trade creditors 0.2 0.4
Accruals and deferred income 2.3 1.1
2.5 1.5
7 Deferred tax
Deferred tax asset (Note 5)
2014
£m
2013
£m
Deferred capital allowances and short-term timing differences 0.2 0.3
Deferred tax liability
2014
£m
2013
£m
Deferred capital gains 0.6 0.7
Any movement during the year has been processed entirely through the profit and loss account.
8 Reserves
Hedging
reserve
£m
Share
premium
account
£m
Profit
and loss
account
£m
At 1 February 2013 0.1 9.4 54.2
Loss for the ?nancial year (0.7)
Dividends received during the year from subsidiaries 5.5
Effective portion of changes in fair value of cash ?ow hedges (0.3)
At 31 January 2014 (0.2) 9.4 59.0
Share capital and share option information is set out in Note 21 in the Group accounts.
The profit before taxation dealt within the accounts of the Company was £4.8m (2013: £0.8m).
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 59
9 Reconciliation of movements in equity shareholders’ funds
2014
£m
2013
£m
(Loss)/pro?t for the ?nancial year (0.7) 0.8
Dividends paid during the year – (1.0)
Dividends received during the year from subsidiaries 5.5 –
Effective portion of changes in fair value of cash ?ow hedges (0.3) –
Net movement in equity shareholders’ funds 4.5 (0.2)
Opening equity shareholders’ funds 64.7 64.9
Closing equity shareholders’ funds 69.2 64.7
10 Commitments
Leasehold property Other
2014
£m
2013
£m
2014
£m
2013
£m
Operating leases which expire:
Within two to ?ve years – – 0.2 0.2
After ?ve years 0.9 0.8 – –
0.9 0.8 0.2 0.2
At 31 January 2014 the Company had commitments on foreign exchange contracts amounting to £4.5m (2013: £4.5m). The fair
value of forward exchange contracts outstanding as at 31 January 2014 is a liability of £0.2m (2013: asset of £0.1m). £0.3m has
been charged to the hedging reserve (2013: £Nil).
11 Contingent liabilities
The Company raises finance for and guarantees the bank borrowings of certain subsidiary undertakings which, at 31 January 2014,
amounted to £Nil (2013: £Nil).
12 Related party disclosures
There are no related party transactions between the Company and the non-controlling interest subsidiary undertakings.
Details of DIrector related party transactions are disclosed in Note 27 to the Group accounts.
Management has identified the Directors of the Company as related parties for the purpose of FRS8 ‘Related Party Disclosures’.
Details of the relevant relationships with these individuals are disclosed in the Directors’ Remuneration Report as set out in the Group
financial statements.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 60
FIVE YEAR RECORD
Years ended 31 January
2010
£
2011
£
2012
£
2013
£
2014
£
Revenue 249.2m 223.8m 216.0m 197.3m 189.4m
(Loss)/pro?t before taxation (9.0)m 8.9m 5.0m (10.5)m (6.1)m
Discontinued operations (15.7)m (11.1)m 0.8m – –
Basic (losses)/earnings per share (26.0)p (2.4)p 5.5p (10.7)p (6.4)p
Adjusted earnings/(losses) per share 0.5p 7.5p 4.3p (7.3)p (4.6)p
Dividends per share 0.5p 1.5p 1.6p – –
Net assets 72.3m 71.8m 75.1m 63.5m 56.5m
Operated retail trading space 000 sq ft 458 337 330 325 300
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 61
ADVISERS
FINANCIAL CALENDAR
HEAD OFFICE
Centro 1
39 Camden Street
London NW1 0DX
STOCKBROKERS
Numis Securities Ltd
10 Paternoster Square
London EC4M 7LT
PRINCIPAL BANKERS
Barclays Bank Plc
London Corporate Banking
1 Churchill Place
London E14 5HP
SECRETARY AND REGISTERED OFFICE
Adam Castleton
20-22 Bedford Row
London WC1R 4JS
AUDITORS
KPMG Audit Plc
15 Canada Square
Canary Wharf
London E14 5GL
REGISTRARS AND TRANSFER OFFICE
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
REGISTERED NUMBER
1410568, England
2014
15 May
AGM and
Interim Management Statement (provisional)
18 September
(provisional)
Half-Year Statement
20 November
(provisional)
Interim Management Statement
2015
31 January
Financial Year End
19 March
(provisional)
Preliminary Announcement of Results
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 62
NOTICE OF MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to the action you should take, you are recommended to seek your own personal advice from your stockbroker,
accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold
or otherwise transferred all of your ordinary shares in French Connection Group PLC, you should forward this document and other
documents enclosed (except the personalised form of proxy) as soon as possible to the stockbroker, bank or other agent through
whom the sale or transfer was effected for transmission to the purchaser or transferee.
Notice is hereby given that the Annual General Meeting of the Company will be held at 10.00 am on Thursday 15 May 2014 at
the offices of French Connection Group PLC, Centro 1, 39 Camden Street, London NW1 0DX to consider and, if thought fit, pass
the following resolutions:
Ordinary Resolutions
1 To receive and adopt the audited accounts and the report of the Directors and of the auditors for the financial year ended
31 January 2014.
2 To approve the Directors’ Remuneration Report for the financial year ended 31 January 2014, other than the part containing
the Directors’ Remuneration Policy in the form set out in the Company’s annual report and accounts for the financial year ended
31 January 2014.
3 To approve the Directors’ Remuneration Policy in the form set out in the Directors’ Remuneration Report in the Company’s annual
report and accounts for the financial year ended 31 January 2014.
4 To elect Adam Castleton as a Director of the Company.
5 To re-elect Neil Williams as a Director of the Company.
6 To re-elect Claire Kent as a Director of the Company.
7 To appoint KPMG LLP as auditors to hold office from the conclusion of this meeting until the conclusion of the next Annual General
Meeting at which accounts are laid and to authorise the Directors to determine their remuneration.
8 THAT:
the Directors be and they are hereby generally and unconditionally authorised pursuant to Section 551, Companies Act 2006 (the "Act") to
exercise all powers of the Company to allot shares in the Company and grant rights to subscribe for or to convert any security into shares
of the Company (such shares and rights to subscribe for shares or to convert any security into shares of the Company being "relevant
securities") up to an aggregate nominal amount of £287,699 (being 30% of the issued share capital) PROVIDED THAT unless previously
revoked, varied or extended, this authority shall expire on the date of the next Annual General Meeting of the Company after the passing
of this Resolution SAVE THAT the Company may before such expiry make an offer or agreement which would or might require relevant
securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such an offer or agreement as
if the authority conferred hereby had not expired.
9 THAT:
the French Connection Group Plc Company Share Option Plan 2014 (the “2014 Plan”), a summary of which is set out in Appendix 2
to this Notice be adopted and established and the Directors be and they are hereby authorised to do all things which they may consider
necessary or desirable in order to carry the 2014 Plan into effect, including the making of non-material or consequential amendments
thereto.
Special Resolution
To consider and, if thought fit, pass resolutions 10 and 11 below as Special Resolutions of the Company:
10 THAT:
if resolution 8 is passed, the Directors be and they are hereby empowered pursuant to Section 570(1) of the Act to allot equity securities
(as defined in Section 560(1) of the Act) of the Company wholly for cash pursuant to the authority under Section 551 of the Act conferred
by resolution 8 above and/or by way of a sale of treasury shares for cash (by virtue of Section 573 of the Act) in each case as if
Section 561(1) of the said Act did not apply to any such allotment provided that:
(a) the power conferred by this resolution shall be limited to:
(i) the allotment of equity securities and sale of treasury shares for cash in connection with an offer of, or invitation to apply for,
equity securities:
(A) in favour of holders of ordinary shares in the capital of the Company, where the equity securities respectively attributable
to the interests of all such holders are proportionate (as nearly as practicable) to the respective number of ordinary shares
in the capital of the Company held by them; and
(B) to the holders of any other equity securities as required by the rights of those securities or as the Directors otherwise consider
necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal
with treasury shares, fractional entitlements or legal, regulatory or practical problems arising under the laws or requirements
of any overseas territory or by virtue of shares being represented by depository receipts or the requirements of any regulatory
body or stock exchange or any other matter whatsoever; and
(ii) the allotment (otherwise than under sub-paragraph (i) above) of equity securities or sale of treasury shares up to an aggregate
nominal value equal to £47,950 (representing 5% of the issued share capital for the time being); and
(b) unless previously revoked, varied or extended, this power shall expire on the date of the next Annual General Meeting of the
Company after the passing of this Resolution SAVE THAT the Company may before such expiry make an offer or agreement which
would or might require equity securities to be allotted (and treasury shares to be sold) after such expiry in pursuance of such an
offer or agreement and the Directors may allot relevant securities in pursuance of such an offer or agreement as if the authority
conferred hereby had not expired.
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 63
11 THAT a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice, provided that this
authority shall expire at the end of the next annual general meeting of the Company.
By order of the Board
Adam Castleton
Secretary
20-22 Bedford Row
London WC1R 4JS
9 April 2014
Resolution 1 – Approval of the annual report and accounts
The Directors are required by the Companies Act 2006 (the “Act”) to
lay before the Company at this Annual General Meeting the accounts
of the Company for the financial year ended 31 January 2014, the report
of the Directors, the Directors’ Remuneration Report and the report of the
Company’s auditor on those accounts.
Resolutions 2 and 3 – Directors’ Remuneration Report
and Directors’ Remuneration Policy
Resolution 2 is the ordinary resolution to approve the Directors’
Remuneration Report, other than the part containing the Directors’
Remuneration Policy. The vote of this resolution is advisory and no Director’s
remuneration is conditional upon the passing of this resolution.
Resolution 3 is the ordinary resolution to approve the Directors’ Remuneration
Policy, which is set out in the Directors’ Remuneration Report. Once the
Directors’ Remuneration Policy is approved, the Company will not be able
to make a remuneration payment to a current or prospective Director unless
that payment is consistent with the Directors’ Remuneration Policy.
Resolutions 4 to 6 – Election and Re-election of Directors
In accordance with the Company’s articles of association, any Director
newly appointed by the Board is required to retire and submit him/herself
for re-appointment at the first annual general meeting following his/her
appointment. Accordingly, Adam Castleton, who was appointed as Finance
Director during the year, retires and, being eligible, offers himself for election.
The articles of association of the Company require the nearest number
to one third of the Directors to retire at each annual general meeting.
Neil Williams and Claire Kent are subject to rotation and being eligible,
offer themselves for re-election.
Resolution 7 – Appointment of auditors
The Company is required to appoint an auditor at each general meeting at
which accounts are laid before the Company, to hold office until the next
such meeting. KPMG Audit Plc has informed the Company that it has
instigated an orderly wind down of its business and has therefore informed
the Company that the entity which conducts audit services in the future
is to change from KPMG Audit Plc to KPMG LLP. As such, KPMG Audit Plc
has notified the Company that it is not seeking re-appointment as the
Company's auditor and has provided the Company with a statement
of circumstances confirming its resignation as auditor of the Company
pursuant to this process. A copy of this statement of circumstances is set
out in Appendix 1 to this Notice. Consequently, the Audit Committee has
recommended, and the Board has approved, the resolution to appoint
KPMG LLP as auditor of the Company.
Resolution 8 – Authority to allot shares
Under section 551 of the Act, Directors require shareholders’ authority for
the allotment of shares. Shareholders last granted such general authority
to the Directors at the annual general meeting of the Company held in 2013.
Such authority will expire at the end of this Annual General Meeting and
Resolution 8 seeks to renew it (although the Directors have no current
plans to utilise the authority, except in relation to the issue of new shares
pursuant to the Company’s share incentive schemes). Accordingly,
Resolution 8 would renew this authority until the next annual general
meeting by authorising the Directors to allot shares up to an aggregate
nominal amount equal to approximately one third of the current issued
share capital of the Company.
Resolution 9 – Approval of adoption of the French Connection Group
Plc Company Share Option Plan 2014 (the “2014 Plan”)
Please refer to Appendix 2 which summarises the rules/provisions of the
2014 Plan.
Resolution 10 – Disapplication of statutory pre-emption rights
This resolution seeks to disapply the pre-emption rights provisions of
section 561 of the Act, which requires Directors wishing to allot shares to
offer them in the first instance to existing ordinary shareholders in proportion
to their ordinary shareholding. There may be occasions, however, when the
Directors will need the flexibility to finance business opportunities by the
issue of ordinary shares without a pre-emptive offer to existing ordinary
shareholders. Shareholders last granted authority to Directors to dis-apply
pre-emptive rights at the annual general meeting held in 2013. Such
authority will expire at the end of this Annual General Meeting and
Resolution 10 seeks to renew it. Except in relation to the issue of new
ordinary shares pursuant to the Company’s share incentive schemes,
the Directors have no present intention of issuing any shares pursuant
to this disapplication.
Resolution 11 – Notice of general meetings
Pursuant to the Shareholders’ Rights Regulations the notice period for
general meetings of a company has been extended to 21 clear days unless
certain requirements are satisfied. The Directors believe it is in the best
interests of the shareholders of the Company to enable general meetings to
be called on 14 clear days’ notice. It is intended that this flexibility will only
be used for non-routine business and, where merited, in the interests of
shareholders as a whole. The approval will be effective until the Company’s
next annual general meeting, when it is expected that a similar resolution will
be proposed.
General notes to the AGM Notice
1. Holders of ordinary shares, or their duly appointed representatives, are
entitled to attend and vote at the AGM. Shareholders are entitled to appoint
a proxy to exercise all or any of their rights to attend and speak and vote on
their behalf at the meeting. A shareholder can appoint the Chairman of the
meeting or anyone else to be his/her proxy at the meeting. A proxy need not
be a shareholder. More than one proxy can be appointed in relation to the
AGM provided that each proxy is appointed to exercise the rights attached
to a different ordinary share or shares held by that shareholder. To appoint
more than one proxy, the Proxy Form enclosed should be photocopied and
completed for each proxy holder. The proxy holder’s name should be written
on the Proxy Form together with the number of shares in relation to which
the proxy is authorised to act. The box on the Proxy Form must also be
ticked to indicate that the proxy instruction is one of multiple instructions
being given. All Proxy Forms must be signed and, to be effective, must be
lodged with Capita so as to arrive no later than 10 am on 13 May 2014.
2. The return of a completed Proxy Form, other such instrument or
any CREST Proxy Instruction (as described in Note 1) will not prevent a
shareholder attending the AGM and voting in person if he/she wishes to
do so (although voting in person at the AGM will terminate the proxy
appointment).
3. In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message (a CREST Proxy Instruction)
must be properly authenticated in accordance with Euroclear UK & Ireland
Limited’s specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message must be
transmitted so as to be received by Capita (ID RA10) not later than 48 hours
before the time fixed for the AGM. For this purpose, the time of receipt will
be taken to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which Capita is able to
retrieve the message by enquiry to CREST. After this time any change of
Explanatory notes to the AGM Notice
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 64
instructions to proxies appointed through CREST should be communicated
to the appointee through other means. Euroclear UK & Ireland Limited
does not make available special procedures in CREST for any particular
messages and normal system timings and limitations will apply in relation to
the input of a CREST Proxy Instruction. It is the responsibility of the CREST
member concerned to take such action as shall be necessary to ensure that
a message is transmitted by means of the CREST system by any particular
time. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
4. Any person to whom this Notice is sent who is a person nominated under
Section 146 of the CA 2006 to enjoy information rights (a Nominated Person)
may, under an agreement between him/her and the shareholder by whom
he/she was nominated, have a right to be appointed (or to have someone
else appointed) as a proxy for the AGM. If a Nominated Person has no such
proxy appointment right or does not wish to exercise it, he/she may, under
any such agreement, have a right to give instructions to the shareholder as
to the exercise of voting rights.
5. The statement of the rights of shareholders in relation to the appointment
of proxies in Note 1 does not apply to Nominated Persons. The rights
described in that note can only be exercised by shareholders of the
Company.
6. As at 8 April 2014, being the latest practicable date prior to the publication
of this document, the Company’s issued share capital consists of 95,899,754
ordinary shares, carrying one vote each. Therefore the total voting rights in
the Company as at 8 April 2014 are 95,899,754.
7. In accordance with Regulation 41 of the Uncertificated Securities
Regulations 2001, only those members entered on the Company’s register of
members at 6 pm on 13 May 2014 or, if the meeting is adjourned, shareholders
entered on the Company’s register of members at 6 pm on the day two days
before the date of any adjournment shall be entitled to attend and vote at
the AGM.
8. Any member attending the meeting has the right to ask questions.
The Company has to answer any questions raised by members at the
meeting which relate to the business being dealt with at the meeting unless:
• to do so would interfere unduly with the preparation for the meeting
or involve the disclosure of confidential information;
• the answer has already been given on a website in the form of an
answer to a question, or;
• it is undesirable in the interests of the Company or the good order
of the meeting to answer the question.
9. Copies of the Directors’ service contracts and letters of appointment
along with a copy of the Company’s articles of association and the draft
rules of the French Connection Group Plc Company Share Option Plan
2014 are available for inspection at the registered office of the Company
during normal business hours on any business day and will be available for
inspection at the place where the meeting is being held from 15 minutes
prior to and during the meeting.
10. A copy of this notice, and other information required by s311A of the
Companies Act 2006, can be found at www.frenchconnection.com.
11. In the case of a member which is a company, your proxy form must be
executed under its common seal or signed on its behalf by a duly authorised
officer of the company or an attorney for the company.
12. Any power of attorney or any other authority under which your proxy
form is signed (or a duly certified copy of such power or authority) must
be included with your proxy form.
13. In the case of joint holders of shares, the vote of the first named in the
register of members who tenders a vote, whether in person or by proxy,
shall be accepted to the exclusion of the votes of other joint holders.
14. It is possible that, pursuant to requests made by members of the
Company under section 527 of the Companies Act 2006, the Company
may be required to publish on a website a statement setting out any matter
relating to: (a) the audit of the Company's accounts (including the auditor's
report and the conduct of the audit) that are to be laid before the AGM;
or (b) any circumstance connected with an auditor of the Company ceasing
to hold office since the previous meeting at which annual accounts and
reports were laid in accordance with section 437 of the Companies Act
2006. The Company may not require the members requesting any such
website publication to pay its expenses in complying with sections 527 or
528 of the Companies Act 2006. Where the Company is required to place a
statement on a website under section 527 of the Companies Act 2006, it
must forward the statement to the Company's auditor not later than the time
when it makes the statement available on the website. The business which
may be dealt with at the AGM includes any statement that the Company has
been required under section 527 of the Companies Act 2006 to publish on
a website.
15. In accordance with section 338 of the Companies Act 2006, a member
or members of the Company may (provided that the criteria set out in
section 338(3) of the Companies Act 2006 are met) require the Company
to give to members notice of a resolution which may properly be moved and
is intended to be moved at the AGM, provided that: (a) the resolution must
not be, if passed, ineffective (whether by reason of inconsistency with any
enactment or the Company's constitution or otherwise); and (b) the
resolution must not be defamatory of any person, frivolous or vexatious.
Such a request may be in hard copy form or in electronic form, must be
authenticated by the person or persons making it, must identify the
resolution of which notice is to be given and must be received by the
Company not later than 6 weeks before the AGM, or, if later, the time at
which notice is given of the AGM. (In the foregoing sentence, the terms
"hard copy form", "electronic form" and "authenticated" bear their respective
meanings set out in the Companies Act 2006 in relation to a communication,
or a document or information sent or supplied, to a company.)
16. In accordance with section 338A of the Companies Act 2006, a member
or members of the Company may (provided that the criteria set out in
section 338A(3) of the Companies Act 2006 are met) require the Company
to include in the business to be dealt with at the AGM a matter (other than a
proposed resolution) which may properly be included in the business of the
AGM, provided that the matter is not defamatory of any person, frivolous or
vexatious. A request may be in hard copy form or electronic form, must
identify the matter to be included in the business, must be accompanied by
a statement setting out the grounds for the request, must be authenticated
by the person or persons making it and must be received by the Company
not later than 6 weeks before the AGM, or, if later, the time at which notice
is given of the AGM. (In the foregoing sentence, the terms "hard copy form",
"electronic form" and "authenticated" bear the respective meanings set out
in the Companies Act 2006 in relation to a communication, or a document
or information sent or supplied, to a company.)
Appendix 1 – Statement of circumstances
received from KPMG Audit Plc
“1 April 2014
Statement to French Connection Group Plc (no. 01410568) on
ceasing to hold office as auditors pursuant to section 519 of the
Companies Act 2006
The circumstances connected with our ceasing to hold office are that our
company, KPMG Audit Plc, has instigated an orderly wind down of business.
KPMG LLP, an intermediate parent, will immediately be seeking appointment
as statutory auditor.
We request that any correspondence in relation to this statement be sent to
our registered office 15 Canada Square, London, E14 5GL marked for the
attention of the Audit Regulation Department.”
Appendix 2 – summary of the French Connection
Group Company Share Option Plan 2014
(the “2014 Plan”)
Following the expiry of the existing French Connection Group Plc Approved
Share Option Scheme and French Connection Group Plc Unapproved
Share Option Scheme, the Board would like to replace both plans this year.
Accordingly, shareholders are asked to approve the new 2014 Plan for the
benefit of employees and full time directors.
1 General
The 2014 Plan will be administered by the Board of Directors of the
Company or a duly constituted committee of the Board (the “Board”).
The 2014 plan is in two parts: Part I will satisfy the requirements of
Schedule 4 to the Income Tax (Earnings and Pensions) Act 2003 so
that employees may be granted options over Ordinary Shares worth up
to £30,000 and income tax will not generally be payable on the exercise
of those options (previously known as “approved options”); and Part II
will allow the grant of options over a greater number of Ordinary Shares,
but without relief from income tax (“unapproved options”).
Benefits under the 2014 Plan are not transferable (except on death)
and are not pensionable.
2 Plan limits
The total number of unissued Ordinary Shares over which options may
be granted when aggregated with the total number of Ordinary Shares
issued pursuant to share awards or made issuable pursuant to options
granted under any employees’ share scheme in the ten years immediately
preceding the date upon which an option is granted, shall not exceed
ten per cent of the Company’s issued Ordinary Shares at the date of grant.
NOTICE OF MEETING
continued
FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 65
3 Individual limits
In any twelve month period, a participant may be granted options over
Ordinary Shares with an aggregate market value, measured on their
dates of grant, of up to two times his remuneration (annual basic rate
of pay). The Board may increase this to four times his remuneration
under exceptional circumstances.
The maximum value of Ordinary Shares (as at the relevant dates of
grant) over which an individual may at any time hold approved options
under Part I of the 2014 Plan and any other tax compliant Company
Share Option Plan shall not exceed £30,000 (or such other limit as
appears from time to time in the relevant legislation).
4 Grant of options
Options may be granted during a 42 day period following shareholders’
approval and any announcement of the Company’s interim and final
results, and outside these periods if the Board resolves that exceptional
circumstances exist.
No options may be granted when there is a restriction on dealing
pursuant to the Model Code on Directors’ dealings in securities as set
out in the Listing Rules.
No options may be granted more than 10 years after the approval of
the 2014 Plan by shareholders.
Eligible employees are all employees and Executive Directors of the
Group who are required to work at least 25 hours per week for the
Group.
5 Option Exercise Price
The price per Ordinary Share at which options may be exercised is
the higher of the nominal value of an Ordinary Share and the average
market value of an Ordinary Share over the three dealing days
preceding the date of grant in the case of options to subscribe for
shares and market value on the date of grant in the case of options
to purchase.
6 Performance Conditions
The exercise of options will be subject to the achievement of a
performance condition.
Options will vest if the performance condition is satisfied. The
performance condition will be determined at the date of grant and
will require sustained financial growth of the Company. The Board
has determined that any performance condition will be challenging
and the performance condition relating to the first grant of options
will be based on improvements in profit before tax. Options will vest
on a sliding scale, depending on the extent to which the performance
condition is met.
7 Renunciation of options
Any option may be renounced in whole or in part by the participant by
giving notice to that effect and returning the relevant option certificate
to the Company no later than 30 days after the date of grant of that
option.
8 Exercise of options
Options may be exercised in whole or in part on or after the third
anniversary of the date of grant if the performance condition has been
met. Options may be exercised earlier:
• if a participant dies;
• if a participant ceases to be employed by a Group company due
to injury, ill-health, disability, redundancy or retirement;
• if the participant’s employing company or business is transferred
outside the Group;
• if the participant ceases employment with the Group for any other
reason and the Board consents before the expiry of 30 days after
the date on which he ceases employment, to the exercise of his
options; or
• if the Company is taken over, or there is a scheme of arrangement
or a voluntary winding up.
Where an option becomes exercisable before the third anniversary
of the date of grant, the Board will take into account the proportion of
the performance period that has expired and the extent to which the
performance conditions have been met in determining the extent to
which the option may be exercised.
9 Lapse
Options lapse on the earliest of the following events:
• the tenth anniversary of the date of grant;
• the first anniversary of the participant’s death;
• six months after the date on which the participant ceased
employment with the Group if cessation was by reason of
redundancy, retirement, injury or disability;
• six months after the date on which the participant ceased
employment with the Group if cessation was by reason that
the participant’s employing company or business is transferred
outside the Group;
• six months after the participant ceases employment with the
Group for any other reason and the Board consents to the exercise
before the expiry of 30 days after the date on which he ceases
employment;
• on the date of cessation of employment for any other reason;
• the Participant being adjudicated bankrupt;
• upon a resolution being passed or an order being made by the
Court for the compulsory winding up of the Company;
• immediately upon the participant purporting to transfer, assign
or charge his option; or
• following a change of control of the Company unless the option
is exchanged as described in paragraph 10 below.
10 Change in Control
If there is a change of control of the Company, participants may, with
the consent of the acquiring company, exchange options over Ordinary
Shares for new options of an equivalent value over shares in the
acquiring company.
11 Variation of share capital
Options granted under the 2014 Plan may be adjusted to reflect
variations in the Company’s share capital.
12 Administration and Amendments
The Board may amend the rules of the 2014 Plan, provided that:
• no amendments may adversely affect a participant as regards
options granted before the date of amendment without the consent
of the holders of not less than three-quarters of the Ordinary Shares
then subject to option; and
• provisions relating to eligible employees, the limits on the number
of Ordinary Shares which may be issued under the 2014 Plan,
the maximum entitlement of any participant and the basis on
which options may be adjusted to the advantage of participants
may only be amended with the prior approval of shareholders in
general meeting (except for minor amendments which benefit the
administration of the 2014 Plan, or to take account of changes in
legislation or to maintain favourable tax, regulatory or exchange
control treatment).
13 General
Options may not be assigned, charged or transferred (except on death).
Ordinary Shares issued under the 2014 Plan shall rank pari passu with
existing Ordinary Shares and the Company.
FrenchConnection.Com
doc_767216421.pdf