ANNUAL REPORT
2018 WWW.FNG.EU The 2018 annual report of FNG NV has been drawn up in Dutch. This is an informal English translation, provided for the comfort of the reader. In the event of any discrepancy between the Dutch text of the annual report and any translation thereof, the Dutch version shall prevail.
Contact For clarifications about the data in this annual report, please contact: Dieter Penninckx | CEO +32 15 293 444
Publisher FNG NV Bautersemstraat 68a 2800 Mechelen Belgium 0697.824.730 www.fng.eu
ANNUAL REPORT — 2018 2 ANNUAL REPORT 2018
ANNUAL REPORT — 2018 3 ANNUAL REPORT — 2018 4 MESSAGE FROM THE CEO AND THE FOUNDERS 6 FAST FACTS 11 REPORT OF THE BOARD OF DIRECTORS 12 1. ABOUT FNG 12 2. KEY FIGURES 14 3. MAJOR EVENTS OF 2018 16 4. SIGNIFICANT EVENTS AFTER THE CLOSE OF THE FINANCIAL YEAR 19 5. BUSINESS STRATEGY 20 6. MARKET POSITION AND MARKET DEVELOPMENT 24 7. REVIEW OF BUSINESS 30 8. MAIN RISKS AND RISK MANAGEMENT 33 9. RESEARCH AND DEVELOPMENT 36 10. EXCEPTIONAL CIRCUMSTANCES 39 11. BRANCHES 39 CORPORATE GOVERNANCE STATEMENT 41 1. BOARD OF DIRECTORS 42 2. EXECUTIVE COMMITTEE AND CEO 45 3. BOARD COMMITTEES 48 4. GENDER DIVERSITY 53 5. MAJOR SHAREHOLDERS 53 6. INTERNAL CONTROL AND RISK MANAGEMENT RELATING TO FINANCIAL REPORTING 54 7. DISCLOSURE STATEMENT IN ACCORDANCE WITH ARTICLE 34 OF THE ROYAL DECREE OF 14 NOVEMBER 2007 54 REMUNERATION REPORT 61 1. REMUNERATION OF DIRECTORS 61 2. REMUNERATION OF THE CEO AND MEMBERS OF THE EXECUTIVE COMMITTEE 62 NON-FINANCIAL INFORMATION STATEMENT 65 1. HOW FNG INCORPORATES CSR INTO ITS ORGANISATION 65 2. HOW FNG IMPLEMENTS ITS CSR POLICY IN PRACTICE AND THE RESULTS THEREOF 70 3. GRI CONTENT INDEX 93 FINANCIAL STATEMENTS 96
ANNUAL REPORT — 2018 5 MESSAGE FROM THE CEO AND THE FOUNDERS
2018 definitely was a challenging year for fashion retail. Even when bad news about the sector kept popping up, FNG unwaveringly remained on course. Concentrating fully on the further expansion of the local heroes in its brand portfolio, with a sharp focus on vertical integration and realisation of deep synergies and with a clear digital plan combined with ‘brick’ shops, FNG reaches remarkable results.
ANNUAL REPORT — 2018 6 While the spending pattern for fashion and shoes in the Benelux remains more or less stable, the sector faces major challenges. Digitalisation continues at a breath-taking pace and fashion retailers are struggling to find the ideal (read: viable) mix of sales channels (optichannel) for clothing and shoes.
Disappointing weather conditions, such as a wet spring and a long Indian summer, had the whole sector on edge. And the impact was not limited to the traditional stores. Online players were also forced to take a big reality check. At the end of the day the million dollar question is whether the business model of free delivery and unlimited shopping and returning might be coming to an end.
During the final quarter of 2018, shareholders of online players clearly indicated that a world where everything is free is no longer sustainable. Conquering a share of the market without any positive results is not viable in the long run. It is time to start making real money.
Was 2018 the end or only a preview of the relentless shakeout in the sector? Consolidation is happening at full speed and will continue in the future. More than ever, economies of scale are important and significant investments in digitalisation are being carried out. It is a world of eat or be eaten.
FNG achieves success in this complicated market by steadfastly continuing its strategy.
First of all, FNG further expands its local retail and fashion brands, the local heroes. Going against the market, FNG achieved success with the development of new Brantano concepts.
FNG further developed its flagship Brantano into a strong showcase for brand fashion and shoes. With the roll-out of the complementary shopping formulas and a new online platform, Brantano is taking important steps to realise its ambition to become the number one online and offline choice for clothing and shoes in Belgium.
Focus on digital growth is another cornerstone of FNG. The continued development of online sales via own platforms as well as via alliances is high on the agenda. The new online platform was further developed by Brantano and is ready to make a difference in tomorrow’s world. In 2019 the other brands will be launched on this platform as well. This new platform opens up possibilities to integrate artificial intelligence algorithms and thus offer a personalised shopping experience. Shopping will become faster, easier and tailored to the consumer. Examples include personal styling, rich product information, intelligent marketing communication and optimisation of the available stock.
ANNUAL REPORT — 2018 7 The third, and maybe most important cornerstone of FNG is its focus on vertical integration and development of deep synergies. The acquisition of Henkelman Schoenen allowed FNG to add the knowhow of shoe manufacturing to its buying platform. FNG moreover strives for maximal synergies in its back office and further rationalises the number of physical shops in smaller cities.
Finally FNG is committed to corporate social responsibility. FNG strives for sustainability in all its processes and has taken major steps to realise this goal. While this work will never be truly finished, FNG, with a clear focus, wants to make a difference.
FNG is confident in the future. FNG is flexible enough to adapt to fickle market conditions, and has grown big enough to fully exploit economies of scale. The possibilities and opportunities are endless.
Because size does matter. After a couple of years of expansion and internal consolidation of the companies acquired in 2016, Miss Etam and Brantano, it is time to play a role in the consolidation wave, which will undoubtedly continue on the sector for the near future.
In the coming years, FNG wants to keep a look out for further acquisition opportunities of “local heroes”, which will strengthen and expand the group both on a local and an international level.
Interesting times are ahead.
Dieter Penninckx | CEO Anja Maes | Director Manu Bracke | Director
ANNUAL REPORT — 2018 8 FNG headquarters CKS
ANNUAL REPORT — 2018 10 FAST FACTS
Company name: Shares outstanding: FNG NV 11,200,663 shares
Legal form: Shares ISIN Code: Public limited liability company under the laws of Belgium BE0974332646– Euronext Symbol: FNG
Registered office: FNG founders: Bautersemstraat 68A, 2800 Mechelen, Belgium Dieter Penninckx Anja Maes Trade register number: Emmanuel Bracke 0697.824.730 (Crossroads Bank of Enterprises) Members of the Board of Directors: Date of incorporation: Eric Verbaere 29/12/1953 Gino Van Ossel Emiel Lathouwers Country of incorporation: Philippe Vandeurzen The Netherlands Roald Borré Elke Kestens Home Member State: Anja Maes Belgium Emmanuel Bracke
Financial year: Members of the Executive Committee: 1 January – 31 December Dieter Penninckx Anja Maes Quotation market: Emmanuel Bracke Euronext Brussels – Euronext Amsterdam (“FNG”)
Share capital: EUR 60,679,208.36
ANNUAL REPORT — 2018 11 REPORT OF THE BOARD OF DIRECTORS
1. ABOUT FNG
The FNG group is a strong growing Benelux-fashion group FNG’s growth figures prove that fashion and quality go with activities in Belgium, the Netherlands, Luxembourg, hand in hand with success. The Benelux fashion group France, Spain and Germany. The FNG group designs and has built a strong diversified brand portfolio with brands distributes clothing and shoes for women, children and such as Fred & Ginger, CKS, Claudia Sträter, Miss Etam, men through its own concept stores at top locations in Expresso, Ginger, Promiss, Baker Bridge, Brantano and Belgium and the Netherlands and through a network of Steps. The brands are sold internationally in more than multi-brand stores on the domestic markets as well as in 500 concept stores, shop-in-shop corners and in more foreign countries. FNG has more than 3,000 employees, than 1,500 multi-brand stores. realising a turnover exceeding EUR 500,000,000.
ANNUAL REPORT — 2018 12 FNG’S BRAND PORTFOLIO
ANNUAL REPORT — 2018 13 2. KEY FIGURES
> 500 > 3,000 ≈ 510,000,000 own concept stores employees turnover
> 10 > 1,500 ≈ 5,000,000 brands multi-brand stores Benelux customers
2018 (kEUR)
Revenue 511,794
Ebitda 54,879
Total assets as of year-end 834,902
Equity attributable to equity holders of the company 342,734
Number of shares as of year-end 11,200,663
ANNUAL REPORT — 2018 14 CKS
ANNUAL REPORT — 2018 15 3. MAJOR EVENTS OF 2018
BRANTANO BECOMES THE FLAGSHIP FOR EARLY REDEMPTION BOND LOAN CLOTHING AND SHOES FOR EVERYONE The bond loan issued by FNG Group NV, an indirect Brantano has become a synonym for brand fashion and subsidiary of FNG, for a total amount of EUR 25,000,000, shoes and wants to become the number one choice for a with an interest rate of 4.625% and maturity date on 15 April wide audience. The idea is to cover the market with its three 2021 (the “Bond Loan”), was fully redeemed by FNG Group complementary retail formulas and a new online platform. NV on 15 April 2018, before reaching its maturity date, in Apart from the well-known, recently refurbished Brantano accordance with the Terms & Conditions, as provided for in stores, two new retail concepts were launched in the the Offering Memorandum of 23 December 2014. course of 2018: high-end fashion boutiques under the name boutik by brantano, with a focus on fashion brands from EMTN PROGRAMME the middle and upper market segments, complemented Via its subsidiary FNG Benelux Holding NV, FNG set by a selection of high-quality shoes, and large fashion up a 100 million Medium Term Note Programme. This and shoe stores under the name Brantano Market. The programme allows FNG to issue notes in a flexible manner. well-known stores with a wide range of shoes and clothing Initially a medium term is envisaged. The programme corners offering a nice selection of brand fashion still carry started on 13 August 2018 and the first series of notes was the name Brantano. In Brantano Market, one can find the issued on 17 August 2018 for an amount of EUR 10 million. full selection: the wide range of shoes from Brantano as well as the high-quality offer of brand fashion from boutik TRANSFER OF THE REGISTERED SEAT FROM by brantano. In other words, the Brantano brand has THE NETHERLANDS TO BELGIUM expanded, in terms of range as well as price positioning. The Extraordinary General Meeting of shareholders of The expanded Brantano range was accompanied by a 22 May 2018 resolved to transfer FNG’s real seat and new state of the art online platform. statutory seat to Mechelen. Following a decision of the Board of Directors of 4 June 2018 the centre of effective FNG ENTERED INTO A SUBSTANTIAL BANK LOAN management was transferred to Belgium as well. As a ON BEHALF OF THE WHOLE GROUP result of this decision, FNG had dual nationality (Dutch and In the context of the (re)financing of the whole group, on Belgian) for a short period of time until the crossborder Wednesday 28 February 2018, FNG Holding NV, a direct conversion was finalised. The transfer of the registered subsidiary of FNG, entered into a new credit facility with seat to Belgium and FNG’s conversion from a public limited BNP Paribas Fortis as Coordinator, Agent and Security liability company under the laws of the Netherlands into a Agent and BNP Paribas Fortis, ING Belgium, ABN Amro public limited liability company under the laws of Belgium Bank and Belfius Bank as Original Lenders (the “Club became effective on 22 June 2018. Deal”). The Total Commitments under the Club Deal amount to maximum EUR 240,000,000. With the financial means available under the Club Deal, a number of existing credit facilities were repaid in order to consolidate all bank loans under the umbrella of one credit facility.
ANNUAL REPORT — 2018 16 Brantano
PUBLIC OFFER AND DUAL LISTING On 26 June 2018 the Board of Directors resolved to conditionally increase FNG’s share capital with maximum EUR 254,702.08 (excluding issue premium and including increase option), with suspension of the existing shareholders’ preferential right, but granting a priority allocation right, by issuing maximum 3,183,776 new shares (including increase option), at a price per share ranging from EUR 26.25 to EUR 29.75. The issue of 2,220,771 new shares subscribed on 9 July 2018 was enacted by notarial deed. The increase of FNG’s share capital by EUR 177,661.68 (EUR 168,184.96 of which by means of contribution in cash and EUR 9,476.72 of which by means of contribution in kind) and the booking of a total issue premium of EUR 59,783,155.32 (EUR 56,594,239.04 of which by means of contribution in cash and EUR 3,188,916.28 of which by contribution on kind) on a non-disposable reserve account were enacted in the same notarial deed.
In addition an application was made for the admission to trading and listing of FNG’s shares on Euronext Brussels, as a result of which FNG’s shares are now listed on Euronext Brussels and Euronext Amsterdam. The market of reference was changed from Euronext Amsterdam to Euronext Brussels.
ACQUISITION OF THE HENKELMAN GROUP On 28 December 2018 the acquisition of the Henkelman group, which was announced on 25 September 2018, was finalised. The Henkelman group is active in the design and production of shoes. This acquisition allows FNG to quickly strengthen its strategically important buying platform for clothing with years of shoe-related knowhow.
ANNUAL REPORT — 2018 17 Brantano 4. SIGNIFICANT EVENTS AFTER THE CLOSE OF THE FINANCIAL YEAR
BRANTANO SETS UP SHOP ON THE ANTWERP MEIR The investments in a web platform driven by artificial AND LAUNCHES A MEDIA CAMPAIGN intelligence are paying off. The brantano.be web shop In 2018 Brantano invested substantially in new retail now also offers personalised styling advice under the formulas and a new web platform. On 1 March 2019 an name Hellow.me. This is a translation of the curated important media campaign with the slogan “Dream. Dare. shopping concept used by Suitcase, the online retailer Change.” was launched, and this summer Brantano opens which was acquired by FNG in 2017. Women and men its doors on the Antwerp shopping street Meir. wishing to use this service can register, select products to their taste and receive styling advice tailored to their The tests of the two new retail formulas boutik by brantano profile, supported by artificial intelligence. They can then and Brantano Market launched in the final quarter of 2018 order recommended items or choose to try them on in a yielded very positive results. In 2019 the boutik by brantano store. Tests show that two-thirds of customers choose to and Brantano Market formulas will each be rolled out in visit a store. This fits within the optichannel principle which three additional stores. combines online shopping with offline services. Customers who visit a boutik by brantano store will moreover have a Brantano is also stepping up its efforts online. The new personal style advisor at their disposal. web platform driven by artificial intelligence brings online shoppers to the checkout 25% faster than before: shoppers now finalise their purchase with an average of 9 clicks compared to 12. Everything goes more smoothly, which leads to a higher conversion rate. During the sales month of January brantano.be achieved a turn-over which was three times higher than in 2018.
ANNUAL REPORT — 2018 19 5. BUSINESS STRATEGY
FNG’s strategy focuses on: Running two, three or more different brand stores in one single city, gives FNG the flexibility to change smoothly I creating value by managing a complementary from one concept to another if necessary. brand portfolio via buy-and-build, II omnichannel sales driven by data and supported by The pricing and style strategy ensure a solid market artifical intelligence (AI), coverage. III optimising corporate processes and achieving synergies, and All FNG brands have their own specific and well defined IV a lean result-focused organisation with a position in the market: they are designed for a specific unique corporate culture. target group. Customers mainly consider two parameters in their purchase decisions: price and style. Based on their In a time when some traditional (mostly mono-brand) preferences, customers can be segmented and identified fashion retailers are struggling, due to increased as a target group. international competition, pressure on the margins and strong growth of online sales, FNG is striving to deliver 5.2. OMNICHANNEL SALES DRIVEN BY value in line with its strategy. DATA AND SUPPORTED BY AI The digital revolution is happening at a very strong pace. 5.1. BUY-AND-BUILD: BRAND VALUE AND FNG keeps up by investing in its digital platforms for BRAND PORTFOLIO MANAGEMENT sales and marketing as well as in a flexible and integrated Every brand has a unique and strong identity tailored to its organisation and supply chain. These investments help target consumer group. Value is created by investing wisely the brands to market and sell their products according in strong brand building by marketing and retail concept to the consumer’s behaviour and preference. Consumer development. behaviour data plays an increasingly crucial role in all aspects of the fashion value chain. FNG’s brand portfolio is very diversified in terms of style groups, sizes and price points. Some brands are primarily Knowing your customer is critical to being successful retail brands (Brantano, Miss Etam), while others are as a fashion retailer. FNG puts a lot of energy and mostly product brands (Fred & Ginger, CKS, Expresso, effort in knowing its customer and managing ‘big data’, Claudia Sträter). which results in a better and more personal service to the customer. Examples include segmented marketing FNG optimises its brands and retail formulas to best serve campaigns (up to one-on-one segmentation), individual the customer. Brands also cross-sell internally and can for web page merchandising, individual styling services, virtual instance be sold in another brand store (e.g. Miss Etam stock that can be sold via different channels, individual products are sold in Brantano’s fashion department). delivery options for online sales, etc.
Brand portfolio management is key in FNG’s risk ‘Big data’ is also used to optimise the collections. For management. Fashion cannot be approached as pure example, information from the 3D scans of customers’ feet science. Therefore, to minimise collection risk, FNG’s is compared to scans of shoes and their sales results in fashion brands release between ten and fifteen collections order to better tailor the fit of the shoes to customers’ feet. a year. Moreover, the complementary brand portfolio gives FNG the advantage to manage its “store liabilities” (lease, social and other contractual liabilities).
ANNUAL REPORT — 2018 20 fred + ginger
In addition, artificial intelligence algorithms are increasingly FNG realises hard synergies by sharing services such used to perform specific predictive tasks based on a large as finance, HR, logistics and IT across brands. amount of data. The more data, the more accurate and HQ (headquarter) and DC (the state-of-the-art Distribution relevant certain AI algorithms become which helps increase Centre) resources are shared as well. conversion rates or reduce the serving cost. This means that retailers who have access to a lot of data from a large Moreover, the purchase of services and non-trading goods number of customers have a strong competitive advantage. in the area of IT, HR, administration and “other costs” The art of maximising relevance for any given customer, (utilities, licenses, rent, maintenance, etc…) are grouped starts as early as in the design process, where all possible and optimised. This leads to economies of scale, creating data insights are used to drive line and collection purchase benefits and hence lower costs. planning processes. More hard synergies are realised in purchasing and sales. In order to anticipate specific consumer demands, which FNG has a buying platform with its own offices in Turkey, can potentially be predicted by algorithms, an efficient India and Hong Kong supporting the brands to source design cycle and supply chain are needed. FNG applies a their products in an efficient way. The group’s buying mixed approach where coordinated collections for a longer platform purchases goods directly from production sites. term are combined with short term and fast time collections Higher combined volumes typically lead to a stronger in order to market items. These items are sourced through negotiation position towards suppliers and to a substantial the group’s own vertically integrated buying organisation. improvement of the gross margin. The main time mix leads to an optimum between fashion level, product quality, margins and coordinated collections. Sales management for larger accounts is coordinated at group level and creates a unique position for these accounts, 5.3. BUSINESS PROCESS OPTIMISATION, i.e. Wehkamp, Zalando, Bol.com, Inno, Bijenkorf, … In retail SYNERGIES AND KNOW-HOW SHARING sales, the focus on in-store productivity results in a maximum impact of the sales force at minimal cost. As store leases The three founders of FNG have a Master in Engineering. are under pressure in a lot of Benelux cities, FNG focuses on Therefore process optimisation has always been a key point negotiating the optimal leases, ensuring that each store will during the development of FNG. provide a healthy contribution to the group. FNG focuses on business process optimisation, realising As far as corporate financing is concerned, FNG centralises synergies and sharing of know-how. the group’s financing, from classic bank financing, to bond It all starts with a determined focus on efficiency with issue and equity funding. The listing of the shares of FNG regard to the back office: inventory accuracy, intelligent NV provides opportunities to attract external capital to allocation of the products, and cost efficient logistics finance the growth of the group. In addition, acquisitions supported by excellent ICT are key. Moreover, FNG’s ICT can be paid in full by shares, or new issues can be placed platform is developed in such a way that it can support to finance acquisitions. future acquired retail chains.
ANNUAL REPORT — 2018 21 5.4. A LEAN RESULT-FOCUSED ORGANISATION WITH The FNG values provide a strong driver to observe A UNIQUE CORPORATE CULTURE corporate social responsibility (CSR). The CSR idea can be FNG believes in inspiring the group’s 3,000 employees. found throughout the whole organisation and is supported Corporate DNA includes key values such as respect, by specific policies with regard to the people who are a “can do” mentality, no-nonsense management and responsible for the manufacturing of goods, the products out-of-the-box thinking. which will be introduced to the market, the ecological impact and the social and economic impact on society. FNG is organised in business units. Each business unit focuses on the core value chain of one brand, including styling, buying, merchandising, sales and marketing.
Important soft synergies between brands can be identified, such as sharing know-how and best practices, human resource management and talent pooling. This approach results in a lean staff at the headquarters, servicing the stores in an efficient and well-organised manner.
ANNUAL REPORT — 2018 22 Baker Bridge
ANNUAL REPORT — 2018 23 6. MARKET POSITION AND MARKET DEVELOPMENT
6.1. GLOBAL FASHION AND FOOTWEAR MARKET FNG is also witnessing the following important In a world where geopolitical turmoil, economic uncertainty, market trends: and unpredictability are the new reality, the fashion market is expected to continue its growth in 2019, albeit at a • The growth of e-commerce is slowing down. slightly slower pace than in 2018. The McKinsey Global Consequently, leading European e-commerce players Fashion Index projects the global fashion industry sales in the fashion world are, for the first time, confronted 7 to grow by 3.5 to 4.5% in 2019, which is barely 0.5% less with lower sales results than expected. Asos , as well as 8 than in 2018.1 Zalando , just like other fashion retailers, have explicitly made reference to the warm summer and autumn. This But the growth is not evenly spread: has never happened before, and might be an indication that e-commerce pure players can no longer escape the • First of all, growth prospects for 2019 are globally higher economic patterns of traditional fashion retailers. This for emerging markets. The highest growth is expected in also explains why they are scaling back their efforts to upcoming Asian markets (+6.5 to 7.5%); which is more than develop own collections and brands9, and invest instead double of the growth projections for mature Asian countries in the further growth of their market places: this allows (2 to 3% growth). In up-coming European markets too, the them to decrease the stock risks. expected growth of 4.5 to 5.5% is much higher than the • At the same time, the rapid growth of e-commerce expected growth for mature markets (only 1.5 to 2.5%).2 goes hand in hand with the declining foot traffic in • Secondly, the polarisation in the market will continue. physical stores. Retailers respond by investing heavily The luxury and discount segments will grow by 3.5 to 5.5% in their omnichannel strategies. The winners see their respectively 4 to 6% in 2019 versus 1.5 to 2.5% by the online sales grow rapidly, while rightsizing their store mid-market segment.3 network, reinventing the role of the store and seamlessly • Thirdly, it is believed that sportswear will continue to integrating the online and offline experience. Weaker outpace overall market growth (6 to 7%), while growth players on the other hand, are unable to carry the expectations for shoes are much lower (2.5 to 3.5%).4 necessary investments. Consequently, there is a market • Finally, the shift towards an online market continues to of winners and losers, in which the winners benefit from accelerate. It is expected that in 2022 e-commerce would the losers’ failure. represent 38% of global fashion revenue, compared to • Sustainability has become more and more important. 27% in 2018 and only 14% in 2014.5 The clear winners are From a mere focus on working conditions in the leading pure players, either generalists like Amazon manufacturing facilities, the market is evolving towards a and Alibaba, or fashion specialists like Zalando, Asos, more integral view. As such sustainability becomes part Net-a-Porter and Farfetch. With a market share of 8%, of the planning system that tries to adopt the principles Amazon is well on the way to becoming the biggest of the circular economy. Moreover, there is a growing fashion retailer in the United States.6 Also remarkable social tendency to buy less (new) clothes, especially low is the fast growth of market places, which allow quality clothes. It is symbolic that the British Parliament e-commerce companies to operate without having to published a report on this topic.10 Second-hand clothing purchase and sell goods, and thus without stock risks, is being presented as a sustainable alternative to fast by authorising third parties to sell on their platform, fashion. Renting clothes by means of a subscription in exchange for a commission. Consequently, in their formula is also becoming increasingly popular. search for growth, fashion brands have to collaborate with these leading online platforms.
ANNUAL REPORT — 2018 24 Miss Etam
• Big data, artificial intelligence and personalisation are BELGIUM NETHERLANDS EU EUROZONE
key trends for the years ahead. The rapid proliferation GDP growth '18 +1.4% +2.5% +1.9% of data has allowed businesses to personalise their marketing communication. Artificial intelligence is GDP growth '19 +1.3% +1.7% +1.3% making its way into the fashion industry, allowing Retail trade '18 -0.6% +3.3% +1,3% true one-to-one marketing, with automated customer Fashion retail trade '18 -2.6% +1.0% n.a. interactions, resulting in cost savings and incremental sales. The ultimate goal is curated commerce, whereby Turnover percentage a tailor-made selection of the full product range is generated by online 17% 30% n.a. sales of clothes '18 presented to the consumer. Turnover percentage 6.2. FNG’S MAIN MARKETS: BENELUX generated by online 20% 38% n.a. shoes and lifestyle '18 The main geographies are the Netherlands (45.6% of FNG sales) and Belgium (52.1% of FNG sales). FNG is also active on the business to business market in Spain, France and This is also reflected in the performance of the retail trade. Germany. The flagships are Miss Etam (women outerwear While in 2018 the Dutch retail trade grew by 3.3%,14 more in the Netherlands) and Brantano (footwear complemented than double of the European average (+1.3%),15 the Belgian with outerwear for the whole family in Belgium). They both retail trade shrunk slightly.16 are omnichannel retailers, operating stores as well as a web shop. The same difference is reflected in the evolution of turnover in fashion sales: the Belgian fashion retail trade shrunk by General -2.6% in 2018,17 while the Dutch fashion retail trade grew by Belgium and the Netherlands are both mature European +1%.18 In both countries, the fashion retail trade performed fashion markets, following global trends, including a slower worse than retail trade in general. growth than upcoming markets.
First of all, the Eurozone is experiencing an important slowdown in economic growth, with a GDP growth of 1.9% in 2018 and a forecasted GDP growth of 1.3% in 2019.11 While the Belgian economy underperformed in 2018, with a GDP growth of only 1.4%, in 2019 a growth of 1.3% is expected, in line with the Eurozone average. Overall the deceleration of growth in Belgium will remain very limited.12 The Dutch economy on the other hand is performing better than the Eurozone average, but will therefore be confronted with a bigger slowdown, with a GDP growth of 2.5% in 2018 and a forecasted growth of 1.7% in 2019.13
ANNUAL REPORT — 2018 25 CKS
E-commerce is more developed in the Netherlands than The steepest decline occurs in medium-sized districts, in Belgium: 26% of all expenditure in the Netherlands is which lose out to smaller as well as larger districts.29 done online19 compared to only 18% in Belgium.20 The At the same time, the number of vacant shopping same goes for the turnover percentage of online sales of premises has decreased, since more and more retail clothes (30%21 versus 17%22) and shoes & lifestyle 38%23 space is being used for other purposes. vs. 20%24). In addition, e-commerce keeps growing faster • Sectors: the increase of the number of establishments in in the Netherlands (+10%25) than in Belgium (+6%26), some service sectors - for example hairdressers, beauty which, however, represents a slowdown of growth in salons and shops where clothing and other products can be both countries. Online growth percentages for the repaired - as well as the increase of the number of second- fashion segment are unfortunately not available, since hand stores (by 46% in a 5-year period) point to changing the barometer methodology in both countries has been consumer behaviour.30 The number of sports shops (-25% in modified. Despite a slowdown of online sales, it is a 5-year period) and shoe shops (-22% in a 5 year period) on expected that e-commerce will continue to grow in the other hand, are in free fall. The turnover in the shoe retail importance, and that Belgium will not be able to catch up, trade decreased by 9% in the same period.31 at least not immediately. • Companies and brands: turnover in the clothing sector increased by 9% in the past 5 years, but remains 8% The shift to online is reflected in the declining foot traffic under the pre-financial crisis level. In the meantime, in physical stores. In 2018, the busiest areas in important retail space has increased by 7%. Fierce competition is shopping districts in the Netherlands saw a decrease of the result, which is only exacerbated by the number of more than 20% in foot traffic compared to 10 years ago, web stores, which doubled in the last 6 years.32 while in Belgium the decrease in foot traffic was just under A further shakeout, in which winners benefit from the 10%. In both countries both the number of stores as the disappearance of weaker players, seems unavoidable. surface of retail space has declined.27 The slowdown of the e-commerce growth, and the fact The Netherlands that each quarter of 2017 and 2018 showed a faster growth I Retail trade of the online turnover of physical retailers compared to FNG is active in the retail trade. This sector comprises that of pure players, is therefore good news to physical companies offering products to consumers. The overall retailers.33 In 2018, physical retailers grew with 26% more economic climate is therefore very important for the than twice as quickly as pure web retailers.34 This confirms retail trade. the importance and the potential of a strong optichannel strategy (see further). It also means that the worldwide Due to the economic boom, the Dutch retail trade grew by consolidation movement, as a result of which a certain 3.3% in 2018. While this represents a decline compared to number of pure players conquer the whole market, the growth of 4.2% in 2017, it is, with the exception of 2017, is not necessarily applicable to the Netherlands. still the strongest growth pace since 2006.28 Nevertheless, this average is the result of big differences, which confirms II Fashion & footwear the image of a market of winners and losers: In the Netherlands FNG is mostly active in women’s clothing. Shoe retail is still in an embryonic stage and • Shopping districts: in addition to a continuing shift happens mostly via own clothing stores and web shops. to online, physical shopping districts are marked by polarisation. In 70% of shopping districts, foot traffic As mentioned before, according to CBS, the turnover for 35 keeps declining, while increasing in other places. clothing has increased by 9% in the past 5 years, but growth has slowed down (+1.2% in 2017 and +1.0% in 2018).36
ANNUAL REPORT — 2018 26 fred + ginger
For 2019 and 2020 ABN Amro predicts a slightly increased In other words, the consolidation movement is less growth (in volume) by 1.5% for each year.37 advanced in Belgium, creating ample opportunity for chains to increase their market share at the expense of Turnover in women’s outerwear has remained stable, independent entrepreneurs. according to GfK, the decrease of volume by -1% being compensated by an increase of +1%.38 The continued growth of e-commerce moreover increases pressure on physical stores. The extent and speed of the Comparing figures from different sources is a dangerous shift to online are hard to estimate. It has been predicted exercise. However, a clear general trend can be identified: for years that Belgium would catch up compared to the the fashion market in general and the women’s fashion Netherlands, but the growth of e-commerce in 2018 was market specifically are stagnating or only experience a still lower in Belgium than in the Netherlands. The divide 39 very limited growth. With 30% of clothing turnover coming between both countries increases, rather than diminishes. from online sales, a percentage that keeps rising, market competition is at an all-time high. The number of physical Finally, compared to the Netherlands, Belgium does not stores will inevitably decrease. have its own dominant e-commerce players, like bol.com, Wehkamp and Coolblue. Belgium I Retail trade II Fashion & footwear With a GDP growth of 1.4% in 2018, the Belgian economy In Belgium FNG is active in both the fashion and the underperformed compared to the Eurozone average. footwear sector. The predicted slowdown of growth for 2019 is expected to hit Belgium less hard than the rest of the Eurozone, In Belgium too fashion retail is underperforming compared the predicted economic growth of 1.3% coinciding with to retail trade in general: in 2018 the shrink even amounted the Eurozone average.40 to 2.6%. The largest shrink occurred in shoe sales (-5.1%). Unfortunately all segments are in decline. The total sales of The less than favourable economic conjuncture translated outerwear for example decreases by -2.0%.46 into a slight shrink of the retail trade during the past 47 year.41 A number of indicators suggest that a further The percentage of turnover generated online of 17% is 48 reorganisation of the physical store network is inevitable: much smaller than in the Netherlands (30%). For shoes and lifestyle the difference is even bigger: 20%49 in Belgium • Vacancy rates have increased to 10.3% compared to versus 38%50 in the Netherlands. only 6.7% in the Netherlands.42 • There are 18 sales points per 1,000 people in Belgium, The Belgian fashion market moreover lacks a leading local compared to 12.9 in the Netherlands.43 online retailer. This is not the case in the Netherlands, where • On the other hand, Belgian sales points are smaller on a large local pure player (Wehkamp – fourth largest web shop average, resulting in a smaller difference in sales surface in the Netherlands) as well as a strong omnichannel retailer per person: respectively 1.88m² compared to 1.79m² (De Bijenkorf – tenth largest web shop of the Netherlands) 51 per person.44 are operating. In Belgium on the other hand, Galeria Inno • This is connected with a lower presence of branches even closed its web shop. Plenty of opportunities remain. in Belgium: 18.1% of sales points are part of a chain, compared to 23.5 in the Netherlands.45
ANNUAL REPORT — 2018 27 Brantano
6.3. FROM OMNICHANNEL TO OPTICHANNEL The combination of bricks and clicks opens up new The steady growth of online sales increases the pressure opportunities: on turnover in physical stores. At the same time e-commerce requires a certain scale, due to the significant • Web-2-store, or click & reserve: customers make their investments in technology. Delivery at home and returns selection online and make a reservation when they will require strict follow-up of the costs of online sales. visit their favourite store to fit the selected clothes and/or shoes. Once the customer visits the store, Successful players do not emulate e-commerce pure additional personal services will be offered. players, but develop their own smart business model in • Store-2-Web: when shopping in the store, customers which the physical store network reinforces online activities choose a product that may not be available in the right size and vice versa. They define the optimal role of each or colour at that time. The customer gets the product in the channel within the customer journey, analyse how to keep right size or colour delivered at home. down costs and responsibly use data to create value. Tomorrow’s winners: FNG therefore believes in the evolution from omnichannel to optichannel. It is important to provide the critical • direct investments towards reinventing the physical store; consumer in the store with expertise, entertainment and • right-size their store network, by aligning store locations service. Incrementing the services level will be crucial. with turnover generated in the different shopping districts; Strict cost management and efficiency on the other hand • optimise online turnover (marketing, conversion and are absolute necessities online. fulfilment, including returns); • manage to grow their online turnover at least as fast as the entire online market, using their own web shops as well as web shops and market places of third parties.
ANNUAL REPORT — 2018 28 1 Source: McKinsey Global Fashion Index as cited in: Business of Fashion & McKinsey Company, The State of Fashion 2019, November 2018, p. 98; 2 Source: McKinsey Global Fashion Index as cited in: Business of Fashion & McKinsey Company, The State of Fashion 2019, November 2018, p. 98; 3 Source: McKinsey Global Fashion Index as cited in: Business of Fashion & McKinsey Company, The State of Fashion 2019, November 2018, p. 98; 4 Source: McKinsey Global Fashion Index as cited in: Business of Fashion & McKinsey Company, The State of Fashion 2019, November 2018, p. 98; 5 Source: Forrester Analytics: Online Fashion Retail Forecast, 2017 To 2022 (Global), November 2018, as cited in: https://www.marketingcharts.com/ industries/retail-and-e-commerce-106623 (accessed on 19 March 2019) 6 Source: Business of Fashion & McKinsey Company, The State of Fashion 2019, November 2018, p. 77; 7 Source: BBC, https://www.bbc.com/news/business-46590130, accessed on 20 March 2019 8 Source: Reuters, https://www.reuters.com/article/us-zalando-outlook/zalando-blames-it-on-the-sunshine-as-cuts-forecasts-again-idUSKCN1LY0HJ, accessed on 20 March 2019 9 Source: RetailDetail, “Zalando zet zijn huismerken-poot stop,” 15 March 2019, https://www.retaildetail.be/nl/news/mode/zalando-zet-zijn-huismerken- poot-stop, accessed on 22 March 2019 10 House of Commons, Environmental Audit Committee, ‘Fixing Fashion: clothin consumption & sustainability’, 19 February 2019 11 Source: European Commission, European Economic Forecast, Winter 2019 (Interim), https://ec.europa.eu/info/sites/info/files/economy-finance/ip096_ en.pdf (accessed on 19 March 2019), p. 1 12 Source: European Commission, European Economic Forecast, Winter 2019 (Interim), https://ec.europa.eu/info/sites/info/files/economy-finance/ip096_ en.pdf (accessed on 19 March 2019), p. 12 13 Source: European Commission, European Economic Forecast, Winter 2019 (Interim), https://ec.europa.eu/info/sites/info/files/economy-finance/ip096_ en.pdf (accessed on 19 March 2019), p. 23 14 Source: CBS, Omzet detailhandel ruim 3 procent hoger in 2018, februari 2019, https://www.cbs.nl/nl-nl/nieuws/2019/07/omzet-detailhandel-ruim-3- procent-hoger-in-2018, geraadpleegd op 20 maart 2019 15 Source: Eurostat Newsrelease 24/2019, https://ec.europa.eu/eurostat/documents/2995521/9550051/4-05022019-AP-EN.pdf/712bc085-6408-4a5d-b88c- 4c64d6436e99, accessed on 20 March 2019 16 Source: eigen berekening op basis van Eurostat, Turnover and volume of sales in wholesale and retail trade - annual data (update 19/3/2019), http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=sts_trtu_a&lang=en, accessed on 20 March 2019 17 Source: GfK Fashion Monitor Belgium, December 2018, ordered by FNG, p. 6 18 Source: CBS, Omzet detailhandel ruim 3 procent hoger in 2018, February 2019, https://www.cbs.nl/nl-nl/nieuws/2019/07/omzet-detailhandel-ruim-3- procent-hoger-in-2018, accessed on 20 March 2019 19 Source: Thuiswinkel Marktmonitor, Q4 2018, p.9 20 Source: BeCommerce Marktmonitor, Q4 2018, p.7 21 Source: Thuiswinkel Marktmonitor, Q4 2018, p.33 22 Source: BeCommerce Marktmonitor, Q4 2018, p.48 23 Source: Thuiswinkel Marktmonitor, Q4 2018, p.33 24 Source: BeCommerce Marktmonitor, Q4 2018, p.49 25 Source: Thuiswinkel Marktmonitor, Q4 2018, p.9 26 Source: BeCommerce Marktmonitor, Q4 2018, p.7 27 Source: Locatus, Factsheet Retaildata Benelux 2019, all dates per 1 January 2019 28 Source: CBS, Omzet detailhandel ruim 3 procent hoger in 2018, February 2019, https://www.cbs.nl/nl-nl/nieuws/2019/07/omzet-detailhandel-ruim-3- procent-hoger-in-2018, accessed on 20 March 2019 29 Source: ABN Amro, Visie op Sectoren – Retail, February 2019, p. 2 30 Source: ABN Amro, Visie op Sectoren – Retail, February 2019, p. 3 31 Source: ABN Amro, Visie op Sectoren – Retail, February 2019, p. 4 32 Source: ABN Amro, Visie op Sectoren – Retail, February 2019, p. 5 33 Source: CBS, Internetverkopen detailhandel stijgen minder hard, 6 March 2019, https://www.cbs.nl/nl-nl/nieuws/2019/10/internetverkopen-detailhandel- stijgen-minder-hard, accessed on 21 March 2019. 34 Source: Twinkle, CBS over 2018: ‘Kwart meer omzet voor multichannelers’, 15 February 2019, https://twinklemagazine.nl/2019/02/omzet-december/index. xml, accessed on 21 March 2019 35 Source: ABN Amro, Visie op Sectoren – Retail, February 2019, p. 5 36 Source: CBS, Omzet detailhandel ruim 3 procent hoger in 2018, February 2019, https://www.cbs.nl/nl-nl/nieuws/2019/07/omzet-detailhandel-ruim-3- procent-hoger-in-2018, accessed on 20 March 2019 37 Source: ABN Amro, Visie op Sectoren – Retail, February 2019, p. 6 38 Source: GfK Retal Audit Fashionscan Nederland, December 2018, ordered by FNG 39 Source: Thuiswinkel Marktmonitor, Q4 2018, p.33 40 Source: European Commission, European Economic Forecast, Winter 2019 (Interim), https://ec.europa.eu/info/sites/info/files/economy-finance/ip096_ en.pdf (accessed on 19 March 2019), p. 12 41 Source: eigen berekening op basis van Eurostat, Turnover and volume of sales in wholesale and retail trade - annual data (update 19/3/2019), http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=sts_trtu_a&lang=en, accessed on 20 March 2019. 42 Source: Locatus, Factsheet Retaildata Benelux 2019, all dates per 1 January 2019, p. 1 43 Source: Locatus, De Benelux in retailcijfers, February 2019, https://locatus.com/blog/de-benelux-in-retailcijfers/, accessed on 22 March 2019 44 Source: Locatus, De Benelux in retailcijfers, February 2019, https://locatus.com/blog/de-benelux-in-retailcijfers/, accessed on 22 March 2019 45 Source: Locatus, De Benelux in retailcijfers, February 2019, https://locatus.com/blog/de-benelux-in-retailcijfers/, accessed on 22 March 2019 46 Source: GfK Fashion Monitor Belgium, December 2018, ordered by FNG, p. 6 47 Source: BeCommerce Marktmonitor, Q4 2018, p.48 48 Source: Thuiswinkel Marktmonitor, Q4 2018, p.33 49 Source: BeCommerce Marktmonitor, Q4 2018, p.49 50 Source: Thuiswinkel Marktmonitor, Q4 2018, p.33 51 Source: Twinkle, ‘Bol.com, Coolblue en Zalando bovenaan de Twinkle100’, September 2018, https://twinkle100.nl/bol-com-coolblue-en-zalando- bovenaan-de-twinkle100/ , accessed on 22 March 2019
ANNUAL REPORT — 2018 29 7. REVIEW OF BUSINESS
The consolidated financial accounts for the financial years Revenue ended 31 December 2017 and 31 December 2018 were In 2018 revenue increased by 6.1%, from EUR 482.4 million prepared in accordance with the International Financial to EUR 511.8 million. With 50.9%, sales of FNG Roots (the Reporting Standards, as prescribed by the European Union brand portfolio of FNG) account for slightly more than half (‘IFRS’) and were audited by Mazars Bedrijfsrevisoren, of total sales. Brantano accounts for 29.7% of total sales hereinafter referred to as ‘Mazars’. and Miss Etam for 19.4%.
Statement of comprehensive income Miss Etam (re)opened a few crucial stores a little later than foreseen and focused on profitable sales. (In thousands of euros) 2018 2017 Revenue 511,794 482,402 Revenue split Cost of merchandise (231,571) (215,329)
Gross profit 280,223 267,074 FNG Roots 50.9% Brantano 29.7%
Employee benefit expense (89,365) (90,861)
Other operating expenses (138,459) (130,832)
Adjusted operating profit/(loss) before amortisation and depreciation expense 52,398 45,381 (Adjusted EBITDA)
Non-recurring items 2,482 (7,516)
Operating profit/(loss) before amortisation 54,879 37,865 and depreciation expense (EBITDA)
Amortisation and depreciation expenses (22,543) (18,777)
Operating profit/(loss) (EBIT) 32,337 19,087
Financial result (17,617) (11,315) Miss Etam 19.4%
Profit/(loss) before taxes 14,720 7,772 Of the total revenue of EUR 511.8 million, EUR 63.3 million Income taxes (3,181) (459) was generated online, being 12.4%. In the graph below, Profit/(loss) for the period 11,538 7,313 the online revenue only represents net revenue for goods ordered online (via own web shops or via online platforms) STATEMENT OF COMPREHENSIVE INCOME and delivered to the customer’s home. Goods reserved and The 2018 results show a revenue of EUR 511.8 million, paid for in a store are not included. an adjusted EBITDA of EUR 52.4 million, an EBITDA of EUR 54.9 million and a net profit of EUR 11.5 million. Compared to the 2017 results, this represents an increase 58.8 63.3 of revenue of 6.1%, an increase of the adjusted EBITDA of 15.5%, an increase of the EBITDA of 44.9% and an increase of the net profits of 57.8%. 423.6 448.5 Online Offline
2017 2018
ANNUAL REPORT — 2018 30 Online revenue increased significantly, for FNG as well as for All business units increased their adjusted EBITDA margins, Brantano. Miss Etam’s revenue increased via its own (more and the total adjusted EBITDA margin exceeded 10%. profitable) web shop, but declined via other platforms.
Online 32.0 37.3 Offline 13.4% 13.6% 9.4% 10.2% 8.0% 2.3 4.4% 4.9% 5.5% 222.5 223.3 1.6 25.2 24.1 149.9 FNG Roots Miss Etam Brantano Totaal 76.7 75.2 124.4 2017 2018 FNG FNG Miss Miss Brantano Brantano Roots Roots Etam Etam 2017 2018 EBITDA 2017 2018 2017 2018 The EBITDA for 2018 amounts to EUR 54.9 million. Adjusted EBITDA1 Compared to 2017, this is an increase of 44.9%. The adjusted EBITDA of 2018 amounts to EUR 52.4 million. This represents an increase of 15.5% compared to 2017. Net results With its adjusted EBITDA of EUR 35.3 million FNG Roots Net results increased from EUR 7.3 million to EUR 11.5 million. accounts for 67.5% of the total adjusted EBITDA, while Brantano with EUR 12.2 million accounts for 23.2% of the Financing total and Miss Etam with EUR 4.9 million for 9.3%. At the end of December 2018 the net financial debt amounted to EUR 167.4 million. This represents a factor 3.0 in relation FNG and Brantano managed to significantly increase the to the EBITDA. If only the senior bank debt is taken into adjusted EBITDA, while Miss Etam only experienced a account, this ratio is lower than 2.0, which is significantly limited increase. Miss Etam chose to focus on profitable lower than the bank covenant for senior bank debt (<3.25). revenue in 2018. For junior debt, the covenant is 4.5 or higher. The net financial debt already takes into account the financing of the Adjusted EBITDA Split acquisition of the Henkelman group at the end of December.
Brantano 23.2% Taxation FNG Roots 67.5% As FNG is present in multiple countries, the group is confronted with different tax regimes. FNG organises its tax affaires in a conservative manner, taking into account what is fiscally permitted under national and international legislation and legal precedents. The effective tax burden for 2018 amounts to 21.6%.
FNG has a number of tax losses carried forward for an amount of EUR 18.6 million. They are recognised as it is expected that they will be realised in the coming years. Miss Etam 9.3%
FNG Roots remains the most profitable business unit, but Brantano’s profitability increased significantly in 2018.
52.4 45.4 34.0 35.3
12.2 4.5 4.9 6.9 FNG Roots Miss Etam Brantano Totaal 1 EBITDA was adjusted in 2018 for the following non-recurring items: gain on transaction of external business funds and other elements. In 2017 the adjustment relates to the loss on a 2017 2018 disposal of business activities, loss on sale of property, plant and equipment and others. See note 6.5 in the financial overview for more information.
ANNUAL REPORT — 2018 31 Claudia Sträter 8. MAIN RISKS AND RISK MANAGEMENT
Value creation and taking risks go hand in hand. RISK APPETITE FNG manages its strategic, operational, financial and Factors which determine FNG’s risk appetite include the reputational risks by carefully weighing the risks and international spread of its business, the robustness of its returns against each other. balance sheet, strength of cash flows, and a commitment to conservative financial management. FNG’s risk appetite Effective risk management is integrated into FNG’s daily varies per objective and risk category: operations. FNG deploys a top-down risk management policy in which strategic risk management is executed • Strategic: Taking strategic risks is an inherent part of how at corporate level and operational risk management by FNG does business. In pursuing growth as a strategic the operational units, with the Board of Directors being ambition, FNG is prepared to take risks in a responsible responsible for reviewing the FNG’s risk management way taking account of the stakeholders’ interests. and control systems in relation to the financial reporting • Operational: Depending on the type of operational risk, by FNG. Responsibility for operational risk management FNG takes a cautious to averse approach. FNG gives the lies primarily with brand and functional management. highest priority to ensuring the safety of its employees The Executive Committee however bears the ultimate and customers, delivering the highest level of service and responsibility for managing the risks the company faces. protecting the company’s reputation. • Financial: FNG pursues a conservative financial strategy, RISK MANAGEMENT AND INTERNAL CONTROL including a balanced combination of self-insurance and The success as a business depends on FNG’s ability to commercial insurance coverage. identify opportunities while assessing and maintaining • Compliance: FNG is averse to the risk of noncompliance an appropriate risk appetite. FNG’s risk management with relevant laws or regulations, or noncompliance with considers a variety of risks, including those related own codes, contractual agreements, and covenants. to the industry and business, those related to the • Fraudulent and unethical behaviour: FNG and all ongoing relationship with FNG’s shareholders and those associates are committed to acting with honesty, related to FNG’s trademarks. FNG’s approach to risk integrity, and respect. FNG is fully averse to risks management is designed to provide reasonable, but not relating to fraudulent behaviour and applies a absolute, assurance that the assets are safeguarded, zero-tolerance policy. the risks facing the business are being assessed and mitigated and all information that may be required to be disclosed is reported to the Executive Committee and, where appropriate, to the Board of Directors. Ongoing identification and assessment of risks is part of FNG’s governance. The Executive Committee and the Board of Directors provide complementary insights into existing and emerging risks that are subsequently included in the policies. FNG’s policies influences the formation of controls and procedures, and the focus of business planning and performance process.
ANNUAL REPORT — 2018 33 MAIN RISKS additional risks which do not constitute a direct threat in the The following risk overview highlights the main risks which short-term, or risks which management deems immaterial or might prevent FNG achieving its strategic, operational, otherwise common to most companies, but which could at and financial objectives. The risks described are not some time have a material adverse effect on FNG’s financial an exhaustive list of the risks FNG faces. There may be position, results, operations, or liquidity.
STRATEGIC RISKS
RISK DESCRIPTION RISK MANAGEMENT
Competitive environment and economic conditions • Invest extensively in online retail platforms • Ensure geographic and brand diversification The environment and economic conditions in the fashion retail market are • Buy-and-build strategy to obtain synergies and lower the base costs characterised by intense competition between existing players. Moreover, competition from online retailing companies are also disrupting the current retail market.
Political environment • Ensure geographic and brand diversification • The use of own purchasing platforms in Turkey, India and Hong Kong The majority of the fabrication and purchases are done in foreign countries, such as Bulgaria, Turkey, China, India and Bangladesh. Changes in the political environment of these countries could impact the business of FNG.
FINANCIAL RISKS
RISK DESCRIPTION RISK MANAGEMENT
Financing and liquidity • Agree long-term loans Access to external financing is crucial for continuity. A liquidity risk • Enable early refinancing and a spread with different expiration dates for external loans could arise if external financing is not available to FNG when refinancing • Consult regularly with external debt providers to discuss the ongoing is required. business, results, and strategy
Interest rate risks • Seek a mix of fixed and variable interest rates for financing operations, FNG has a significant external debt subject to variable interest rates, combined with the use of interest rate instruments thereby exposing the company to fluctuations in interest rates. A significant • Attempt to have at least half of the bank debt covered by interest rate derivatives with a maximum volatility per annum increase in variable interest rates would have a negative impact on results.
ANNUAL REPORT — 2018 34 OPERATIONAL RISKS
RISK DESCRIPTION RISK MANAGEMENT
Safety and liability • Adhere to health and safety procedures relating to employees and Safety of FNG’s clients and employees are one of the top priorities of FNG. customers • Invest in maintenance to ensure clean and secured stores The risk exists that an employee or a client of FNG get harmed during the • Training and development to focus on personal safety and performance of his work or while visiting one of FNG’s stores. safety measures
Obsolete stock • Ensure geographic and brand diversification The products of FNG are highly depending on trends in the market resulting • FNG wide exchange system of inventory in a risk of a high level of inventory which can’t be sold anymore. • Own purchasing platforms in Turkey, India and Hong Kong • Stock take procedures and value assessments • Customer oriented marketing and discount campaigns
Interruptions and business continuity • Comply with PCI DSS (Payment Card Industry Data Security Standard) Given the increasing use of mobile communication and the professionalism • Invest in ICT platform and related security policy of cybercriminals, the company must focus constantly on continuity of ICT • Centralise ICT systems allowing central enforcement of security measures • Take multiple measures to secure confidentiality and integrity of data systems and on ensuring the security of crucial information and sensitive customer data (e.g. payment card details, passwords). The theft of crucial or sensitive data could result in reputation damage, information leakage to competitors, as well as claims against the company.
Fraud and integrity • Implement code of ethics and whistle-blower policy Ethics and integrity are important conditions for confidence. The risk exists • Ensure Executive Board and Board of Directors demonstrate that unethical behaviour will result in loss of money and more-over in the ‘tone at the top’ • Implement a zero tolerance strategy loss of reputation. • Encourage non-cash payments
COMPLIANCE REPORTING RISKS
RISK DESCRIPTION RISK MANAGEMENT
Financial statements do not give a true and fair view • Maintaining common accounting policies, reporting processes, and If misstatements are made such that the financial statements do not standard chart of accounts • Monitor critical access and segregation of duties give a true and fair view of the company’s financial position, financial performance, and cash flows, users of the financial statements would be incorrectly informed.
Non-compliance with European and national laws • Involve local external specialists where necessary (e.g. tax) Changes in the legal and regulatory environment tend to increase the risk of non-compliance with local, national, and international laws and regulations, as well as tax legislation. Failure to comply with applicable regulations could lead to fines, claims, and reputational damage.
ANNUAL REPORT — 2018 35 9. RESEARCH AND DEVELOPMENT
As a result of the swift technological advancement, Initially data is converted into information. The data is used the retail market is changing faster than initially expected. as information to support the design process and work FNG focusses on innovation by investing in the methods in order to create the right product at the right improvement of technology, designing fashion and footwear moment, minimise discounts and maximise margins. and the branding and conceptual design of its stores. In the next phase, the information is converted into FNG invested many of its financial means in the online knowledge, when the data is analysed in real time. In platforms of the different concepts, artificial intelligence recent years, FNG has used self-learning algorithms to tools and efficient solutions, including the automated profile customers during the shopping process in order to logistics platform. These investments give FNG a definite improve conversion rates. After a few clicks customers are edge on the market. being profiled or even recognised based on their “clicking behaviour”. This allows FNG to show or add relevant items Thanks to these investments, FNG can focus fully on during the shopping process. knowing its customers and managing ‘big data’, which allows it to provide better and personalised services to its customers, such as segmented marketing campaigns (up to one-on-one segmentation), individual advertisements via websites, individual styling services, virtual stock which can be sold via different sales channels, individual delivery options for online sales, …
In addition, artificial intelligence algorithms are increasingly used to perform specific predictive tasks based on a large amount of data. The more data, the more accurate and relevant certain AI algorithms become which helps increase conversion rates or reduce the serving cost.
ANNUAL REPORT — 2018 36 Steps
ANNUAL REPORT — 2018 37 fred + ginger 10. EXCEPTIONAL 11. BRANCHES CIRCUMSTANCES
At the date of this report there are no exceptional FNG does not have any branches. circumstances capable of significantly influencing FNG’s development.
ANNUAL REPORT — 2018 39 boutik by brantano
ANNUAL REPORT — 2018 40 CORPORATE GOVERNANCE STATEMENT
FNG aims at high standards of corporate governance FNG has opted for a two-tier governance structure. and uses as its reference code, the Belgian Corporate The principal governance structure is based on a Governance Code of 12 March 2009. distinction between:
On 22 June 2018, FNG has approved a new Corporate • the Executive Committee within the meaning of Article Governance Charter in order to describe the main aspects 524bis of the Belgian Company Code, which is in of its corporate governance policy. This Corporate charge of the management (including daily management) Governance Charter shall be updated from time to time. of FNG, within the framework of the general strategy defined by, and under the supervision of, the The Corporate Governance Charter deviates from the Board of Directors; Corporate Governance Code on specific items. However, • the Board of Directors, which is in charge of the the Board of Directors is of the opinion that it is justified definition of the general strategy of FNG, the supervision that the company does not adhere to certain principles of of the Executive Committee and the exercise of the the Belgian Code on Corporate Governance, considering specific powers attributed to it by the Belgian Company the nature and size of the company. Such deviations Code, the Articles of Association and the Corporate include: Governance Charter.
• directors are appointed for a duration of 6 years instead of In addition, the Board of Directors has established an 4 years (principle 4.6); Audit Committee and a Nomination and Remuneration • the Nomination and Remuneration Committee is currently Committee. These committees have an advisory function. composed of two non-executive directors and the CEO They assist the Board of Directors in specific situations, (principle 5.5); it being understood that the final decision making power • the Audit Committee is currently composed of two remains with the Board of Directors. non-executive directors (principle 5.5); • the Audit Committee should meet at least 2 times a year The Board of Directors has delegated the daily management instead of 4 times a year (principle 5.2/28). of FNG to a managing director (algemeen directeur), who is also referred to as the CEO. The Corporate Governance Charter is available on FNG’s website: www.fng.eu.
ANNUAL REPORT — 2018 41 1. BOARD OF DIRECTORS
1.1. POWERS AND RESPONSIBILITIES With respect to its monitoring responsibilities the The Board of Directors has the power to do all that is Board of Directors shall: necessary or useful for the accomplishment of the purpose of FNG, except with respect to such matters which are • review executive management performance and reserved to the Shareholders’ Meeting or other competent the realisation of the strategy of FNG; corporate body by law or by the Articles of Association. • monitor and review the effectiveness of the board committees; In particular, the Board of Directors is responsible for: • take all necessary measures to ensure the integrity and timely disclosure of the financial statements and other • approving and overseeing the principal objectives and material financial and non-financial information of FNG strategy of FNG, as recommended by the CEO; disclosed to the shareholders and potential shareholders; • appointing and dismissing the managing director(s), • approve a framework of internal control and risk the CEO, the CFO and the Company Secretary and the management set up by the executive management; members of the Executive Committee; • review the implementation of this framework, taking • determining the powers and responsibilities of the into account the review made by the Audit Committee; managing director(s), the CEO and the CFO; • supervise the performance of the external auditor and • appointing and dismissing members of the board supervise the internal audit function, taking into account committees and their chair person; the review made by the Audit Committee; and • reviewing and approving the annual and half-yearly and • describe the main features of the internal control and consolidated financial statements, and where required risk management systems of FNG. by law, presenting those to the Shareholders’ Meeting; • reviewing, evaluating and approving the budget, 1.2. COMPOSITION OF THE BOARD OF DIRECTORS forecasts, major resource allocation and capital In accordance with the Articles of Association, the Board of investments of FNG; Directors shall consist of a minimum of 3 directors. • monitoring and evaluating the performance of FNG against the strategic goals, plans and budgets, etc.; In accordance with the provision of the Belgian Company • determining the structure, the powers and duties of Code, the directors are appointed for a term of no more the Executive Committee and to supervise and evaluate than 6 years. The appointment and reappointment of the Executive Committee’s performance; directors is based on the Nomination and Remuneration • convening the Shareholders’ Meetings and submit Committee’s recommendation to the Board of Directors resolutions for approval; and and subject to the approval of the Shareholders’ Meeting. • overseeing FNG’s policies with respect to corporate communications, it being understood that communication The majority of the directors is appointed amongst the on behalf of the FNG to the outside world is reserved to candidates proposed by the Principal Shareholders the Chairman of the Board of Directors and the CEO, (i.e. Mr Dieter Penninckx, Ms Anja Maes and Mr Emmanuel with the right of delegation. Bracke), for as long as they, individually or jointly, directly or indirectly through affiliated persons or companies within the meaning of Article 11 of the Belgian Company Code, hold at least 15% of the shares in FNG.
ANNUAL REPORT — 2018 42 CKS
If the Principal Shareholders, individually or jointly, directly 1.3. BIOGRAPHIES OF THE MEMBERS OF or indirectly through affiliated persons or companies within THE BOARD OF DIRECTORS the meaning of Article 11 of the Belgian Company Code, Mr Eric Verbaere hold less than 15% of the shares in the FNG, but more Mr Eric Verbaere (Belgian nationality) has a degree in than 5%, they shall have the right to propose candidates economics (UG). For several years he was active in the for at least three directorships. corporate finance department of the University of Ghent (UG) and the Vlerick Management School in Ghent. After a In accordance with the Corporate Governance Code, stint at the National Investment Company and Leasinvest, at least half of the directors must be non-executive he found his way to Investco, the investment company of directors and at least 3 directors must be independent, in the KBC Group, in the late ‘80. In 1993 he started his own accordance with the criteria for independence set out in the independent consultancy firm, and in 1995 together with Belgian Company Code and Corporate Governance Code. Guy De Clercq, he founded VD&P Corporate Finance. He is currently administrator of several companies in At the date of this report, the Board of Directors is Belgium and abroad. Mr Eric Verbaere is the chair of composed as follows: the Board of Directors.
NAME ROLE INDEPENDENT EXECUTIVE TERM Mr Roald Borré Mr Roald Borré (Belgian nationality) obtained a Master in Eric Verbaere Chair Yes No 2018 - 2023 Commercial and Financial Sciences, with a specialisation Anja Maes Member No Yes 2018 - 2023 in Accountancy at the EHSAL Management School.
Emmanuel Member No Yes 2018 - 2023 He started his professional career in the investment world Bracke as a financial analyst at De Belegger NV and Mignon
Roald Borré Member No No 2018 - 2023 Hanaert Declerck. Three years later, he became Senior Fund Manager at Puilaeteco Dewaay Private Bankers Emiel Member No No 2018 - 2023 (1999-2006). In the meantime, he co-founded a company Lathouwers active in e-commerce relating to sports and leisure Philippe Member Yes No 2018 - 2023 (2004-2011). Mr Roald Borré is currently Head of Equity Vandeurzen Investments for ParticipatieMaatschappij Vlaanderen Gino Van Ossel Member Yes No 2018 - 2023 (PMV). He holds various board mandates in a.o. Newtec
Elke Kestens Member Yes No 2018 - 2023 (Innovation ICT), Biocartis (Diagnostica/life Sciences), High Wind NV, Capricorn Cleantech Fund and Kebony (Norway).
Mr Emiel Lathouwers Mr Emiel Lathouwers (Belgian nationality) is the founder of AS Adventures and reference shareholder of Le Pain Quotidien and Vendis Capital.
ANNUAL REPORT — 2018 43 fred + ginger
Mr Philippe Vandeurzen He is a member of the jury of the European Omnichannel Mr Philippe Vandeurzen (Belgian nationality) obtained a Award at the Global E-Commerce Congress in Barcelona. Master of Science in Materials Engineering (KUL) in 1993 He sits also in the jury of the Mercury award (Comeos), and followed by a PhD in Applied Sciences in 1998 (KUL). is chairman the Belgian Omnichannel award (RetailDetail). After working for three years in the petrochemical sector as a technical-commercial engineer at Petrofina NV In April 2014 he published the book “Omnichannel in retail” and Total SA (1997-2000), he completed the Chartered on how to deal with the digital retail revolution. It won both Financial Analyst Program administered by CFA Institute the “marketing book of the year” and “management book of in Charlottesville (USA), and followed the CEDEP Personal the year” awards in the Netherlands. Development Program in Fontainebleau (France), while working as (senior) equity analyst for Fortis Bank NV. After Ms Elke Kestens his stint in the banking sector he turned his attention to the Ms Elke Kestens (Belgian nationality) obtained a Master of investment world, in which he has been active ever since, Science in Mathematics and Statistics at the KU Leuven. working for De Eik NV and its affiliates in various functions. She put her mathematical talents and insight into practice, Having started out as investment manager at De Eik NV, first during her years as a researcher at the Centre for Mr Vandeurzen then became managing director at Belreal Statistics at the KUL (1997-2001), then as a statistical NV, a company which is part of De Eik Group. In 2012 he analyst at Proximus’ Market Intelligence Service (2002- became CFO of De Eik NV, and in 2014 he accepted the 2006), followed by a transfer into Proximus’ Marketing position of CEO of De Eik NV, which he has held since then. Division for Private Clients where she was active as a In 2016, Mr Vandeurzen took time to complete the INSEAD marketing analyst and advisor. Ms Kestens then turned her Advanced Management Program at Fontainebleau (France) attention to management, training and coaching, first by to further develop his leadership skills. managing the Incentive and Fraud Team of Proximus’ and Belgacom’s Indirect Sales Channel (2008-2010), then by Mr Gino Van Ossel leading the training division of Belgacom’s Sales Division, Mr Gino Van Ossel (Belgian nationality) is professor and the department “Commission” at Proximus’ Sales Retail & Trade Marketing at Vlerick Business School and Division, respectively from 2010-2012 and from 2013- is considered as an authority on retail management, 2015. Combining her mathematical and leadership training purchasing behaviour and omnichannel. skills, Ms Kestens founded Modifez in 2015, a company specialised in change management, creative coaching and In recent years, he has worked for AholdDelhaize, sustainable change. Akzo-Nobel, Bosch, Boulanger, Bpost, Brabantia, Carrefour, CBRE, Daikin, DPD, DS Smith Packaging, Euro Shoe Group, The biographies of Ms Anja Maes and Mr Emmanuel Bracke Eurocommerce, Galeria Kaufhof, Hoya, Ikea, ING, JBC, have been included in the description of the Executive KBC, MediaMarkt, VF Corporation (Kipling, Timberland,...), Committee. Philips Avent, PostNL, Proximus, Q8, Steinhoff (Conforama), Shimano, Toyota, Unilever and Visilab.
Gino Van Ossel is non-executive director at FNG and Cryns Carrosserie Center. He is also on the board of the Dutch Trade Marketing Association and member of the advisory board of Sodexo Cards and Tribù, a global leader in high outdoor furniture.
ANNUAL REPORT — 2018 44 2. EXECUTIVE COMMITTEE AND CEO
2.1. EXECUTIVE COMMITTEE 2.2. BIOGRAPHIES OF THE MEMBERS OF The Executive Committee is composed of the CEO, who THE EXECUTIVE COMMITTEE chairs the Executive Committee, and other members of the Mr Dieter Penninckx Executive Committee. Such other members are appointed Mr Dieter Penninckx (Belgian nationality) obtained a Master and removed by the Board of Directors upon advice of the of Science in Civil Engineering, with a major in Mechanical Nomination and Remuneration Committee. and Electro-Technical Engineering at KU Leuven. During his engineering studies, he was also chairperson of VTK, In general, the role of the Executive Committee is to run the engineering students’ association. Mr Penninckx’ FNG in accordance with the values, strategies, policies, entrepreneurial drive manifested early, when he became plans and budgets endorsed by the Board of Directors. co-founder of KULeuven spin-off companies in High Tech, The Executive Committee shall be collectively responsible until 2002. Deciding to further develop his business skills, for the management and the general affairs of the business he then obtained a second master degree in 2003, in of FNG. In discharging its duties, the Executive Committee Financial Economics this time (KULeuven). During the same shall be guided by the interests of the FNG and its business; year, he founded FNG, together with Ms Anja Maes and it shall take into account the relevant interests of all those Mr Emmanuel Bracke. As CEO, he is responsible for the involved in the FNG, including the shareholders. The general management and administration of the group. Executive Committee is responsible for the quality of its own performance. Ms Anja Maes Ms Anja Maes (Belgian nationality) obtained a Master of In the exercise of this role, the Executive Committee is Science in Civil Engineering, with a major in Architecture responsible for complying with all relevant legislation and at KU Leuven. After her studies she completed an regulations, the Articles of Association and this Corporate apprenticeship of two years and became a certified Governance Charter. independent architect in 2002. In 2003, together with Mr Dieter Penninckx and Mr Emmanuel Bracke, she The Executive Committee of the company consists of the founded FNG, entering the world of fashion. As Art 3 founders of the group: Director, Ms Maes is in charge of the creative side of the business, and oversees the collection development, NAME ROLE TERM design and marketing of the group.
Dieter Penninckx CEO 2018 - 2023 Mr Emmanuel Bracke Anja Maes Art Director 2018 - 2023 Mr Emmanuel Bracke (Belgian nationality) obtained a
Emmanuel Bracke Operations Director 2018 - 2023 Master of Science in Civil Engineering, with a major in Mechanical and Electro-Technical Engineering at KU Leuven. After his studies, he was active in the telecom sector and the IT sector for six years. During this period, he also obtained a Postgraduate in Business Management at the Antwerp Management School. In 2003, he founded FNG together with Ms Anja Maes and Mr Dieter Penninckx, changing sectors to the fashion world. In his position of Director of Operations of the group, he is in charge of production and distribution, IT and sales.
ANNUAL REPORT — 2018 45 2.3. CEO • preparing proposals on topics for which decision-making The CEO (Chief Executive Officer), with the assistance is the preserve of the Board of Directors; of the other members of the Executive Committee, • meeting the Chairman of the Board of Directors at regular is responsible for the day-to-day management of FNG. intervals, consulting him/her and involving him/her in He may be granted additional well-defined powers by the strategic projects from the outset; Board of Directors and shall in particular be responsible for: • providing the Board of Directors with all the possible relevant information it needs to exercise its powers. • examining, analysing and proposing to the Board of Directors strategic business opportunities that can The CEO leads the Executive Committee, which contribute to the further growth of the group; reports to him, within the framework established by the • executing the decisions of the Board of Directors; Board of Directors and under its ultimate supervision. • preparing proposals to the Nomination and Remuneration The CEO chairs the Executive Committee. Committee concerning the appointment, remuneration and evaluation of the members of the management team; The CEO is appointed and removed by the Board of • setting up, chairing and leading the management team; Directors and reports directly to it. • managing the members of the management team as they discharge of their individual responsibilities, as determined by the CEO(s); • determining the objectives to be achieved by the management; • communicating with the outside world; • ensuring the day-to-day management of FNG and accounting to the Board of Directors for such management at regular intervals; • maintaining a continuous dialogue and interaction with the members of the Board of Directors in an atmosphere of openness and a climate of trust; • maintaining excellent relationships with important customers, suppliers and the authorities;
ANNUAL REPORT — 2018 46 CKS
ANNUAL REPORT — 2018 47 3. BOARD COMMITTEES
3.1. AUDIT COMMITTEE III Monitors the effectiveness of the company’s internal The Audit Committee supervises financial reporting and the control and risk management systems, as well as, observance of administrative, legal and fiscal procedures if there is an internal audit, monitoring the internal and the follow-up of financial and operational audits and audit and its effectiveness: advises on the choice and remuneration of the external auditor. The Audit Committee, which reports directly to the • the Audit Committee evaluates at least once a year Board of Directors, has a supervisory and advisory role. the effectiveness of the internal control and risk management system installed by the executive The Audit Committee advises the Board of Directors on management; accounting, auditing and internal controlling matters, and in • the Audit Committee also examines the statements particular: relating to internal control and risk management included in the Corporate Governance Statement I Informs the Board of Directors of the result of the of FNG; statutory audit of the (consolidated) annual accounts • the Audit Committee investigates the specific and explaining how the statutory audit of the arrangements to enable staff to express concerns (consolidated) annual accounts has contributed to the in confidence about any irregularities in financial integrity of the financial reporting and the role of the reporting and other areas (whistle-blower Audit Committee in such process. arrangements). The Audit Committee ensures that all the staff of FNG and its subsidiaries are aware of II Monitors the financial reporting process and making such arrangements; recommendations or proposals to ensure the integrity • the Audit Committee decides on the appointment and of the process: dismissal of the internal auditor. The Audit Committee approves annual budgets and the internal audit • the Audit Committee ensures that financial reporting budget. The responsibilities of the Audit Committee gives a truthful, honest and clear picture of the also include evaluation of the effectiveness of the situation and prospects of the company, on both internal audit function and the follow-up given an individual and consolidated basis; by executive management to the findings and • the Audit Committee checks the accuracy, recommendations made by the internal auditor. completeness and consistency of financial information before it is announced; IV Monitors the statutory audit of the annual and • the Audit Committee assesses the choice of consolidated accounts, including the follow-up on accounting policies and the impact of new any questions and recommendations made by the accountancy rules; external auditor: • the Audit Committee discusses significant matters relating to financial reporting both with the • the Audit Committee supervises the relationship executive managers and the external auditor. between FNG and the external auditor and makes recommendations to the Board of Directors concerning the selection, appointment, reappointment, dismissal and terms of engagement of the external auditor;
ANNUAL REPORT — 2018 48 • the Audit Committee monitors the external auditor’s The Audit Committee reports to the Board of Directors schedule and ensures the effectiveness of the regarding the performance of its duties at regular intervals, external audit process. The Audit Committee and identifies the matters where according to it action or examines the extent to which the executive improvement is required, and makes recommendations management complies with the recommendations regarding the steps to be taken. made by the external auditor in its management letter. The Audit Committee consists of at least 2 members, V Reviews and monitors the independence of the appointed for a duration that may not exceed the duration external auditor, in particular in the light of the of his/her directorship. All members of the Audit Committee provisions of the Belgian Company Code: are non-executive directors, with a majority of independent directors. The Chairman of the Audit Committee shall be • the Audit Committee supervises the independence appointed by the Audit Committee, of the external auditor, in particular in the light of the but is not the Chairman of the Board of Directors. provisions of the Belgian Company Code; Executive directors (including the CEO) shall not be part • the Audit Committee examines which additional of the Audit Committee. (non-audit) services have been entrusted to the external auditor and the scope of such services. At the date of this report, the Audit Committee The Audit Committee determines and updates a consists of following directors: Mr Gino Van Ossel and formal policy with regard to the types of additional Mr Eric Verbaere. services that : a) are excluded; b) are permissible after verification by the Audit Committee and Both members of the Audit Committee have confirmed c) are permissible without being referred to the that they meet the criteria laid down in Article 526ter Audit Committee, taking account of the specific 1° to 9° of the Belgian Company Code, and that they act requirements of the Belgian Company Code. as independent directors.
VI Makes recommendations to the Board of Directors The Audit Committee shall gather at least twice a year and with regard to the appointment of the external auditor each time it considers it necessary for the performance of in charge of the statutory audit of the consolidated its duties. annual accounts: 3.2. NOMINATION AND REMUNERATION COMMITTEE • the Audit Committee supervises the relationship The Nomination and Remuneration Committee makes between FNG and the external auditor in charge recommendations to the Board of Directors on the of the statutory audit of the consolidated annual appointment and remuneration of the members of the accounts and makes recommendations to the Board Board of Directors, and members of the Executive of Directors concerning the selection, appointment, Committee, and shall in particular: reappointment, dismissal and terms of engagement of the external auditor in charge of the statutory I for the purpose of appointments and assessments: audit of the consolidated annual accounts. • prepare selection criteria and procedures for the appointment of members of the Board of Directors, the CEO(s), and the other members of the Executive Committee;
ANNUAL REPORT — 2018 49 • review appropriate candidates for vacant the arrangements on early termination, and directorships as proposed by the CEO(s) or a where applicable on the resulting proposals to shareholder in accordance with the Articles of be submitted by the Board of Directors to the Association; Shareholders’ Meeting. • review appropriate candidates for vacant top executive management positions as proposed by The Nomination and Remuneration Committee comprises the CEO(s); at least 2 members. All members of the Nomination and • prepare reappointment proposals; Remuneration Committee must be non-executive directors, • periodically evaluate the size and composition of a majority of whom must be independent, save for the the Board of Directors and, if applicable, prepare CEO. The Chairman of the Nomination and Remuneration recommendations for changes to its size and Committee shall be appointed by the Board of Directors composition. and shall either be the Chairman of the Board of Directors or another non-executive director. II with respect to the remuneration policy : At the date of this report, the Nomination and • prepare proposals to the Board of Directors Remuneration Committee consists of following directors: concerning the remuneration policy for directors, Mr Gino Van Ossel and Mr Eric Verbaere. members of the Executive Committee and persons charged with the daily management of FNG, as well The Nomination and Remuneration Committee shall as, where appropriate, on the resulting proposals gather at least twice a year and each time it considers it to be submitted by the Board of Directors to the necessary for the performance of its duties. Shareholders’ Meeting; • prepare proposals to the Board of Directors concerning the remuneration of directors, members of the Executive Committee and persons charged with the daily management of FNG, including, depending on the situation, variable remuneration and long term incentives, whether or not stock related, in the form of stock options or other financial instruments and regarding
ANNUAL REPORT — 2018 50 Brantano fred + ginger
ANNUAL REPORT — 2018 52 4. GENDER 5. MAJOR DIVERSITY SHAREHOLDERS
The Board of Directors attaches great importance to The following table provides an overview of shareholders gender diversity within the Board of Directors, as well as that have notified the FSMA in accordance with the within the whole group. The Board of Directors strives to applicable transparency rules. have at least 30% of the directorships exercised by women.
At the date of this report, only two of the eight directors are % VOTING RIGHTS of the opposite gender. The Nomination and Remuneration NUMBER OF RELATED TO NAME SHARES THE SHARES Committee strives to select both, men and women for the directorships in order to achieve the objective of having Mr Dieter Penninckx, Ms Anja Maes, 5,100,951 45.54% one third of the directorships exercised by women. Mr Emmanuel Bracke and Mr Emiel Lathouwers, directly and indirectly via Greenway District BVBA, GW2 BVBA, Within the Executive Committee, one third of the members MANco GDM BVBA and 3NG NV are of the opposite gender. In the senior management Belfius Insurance NV 565,625 5.05% positions, FNG also wants to achieve the right balance. Supported by the HR policy, a lot of attention goes to the improvement of employees and provide them with new career opportunities. In this way, a lot of woman have the ability to grow to higher management functions (see the declaration of non-financial information).
% women in the Executive Committee 33%
% women in the Corporate Management and 43% Business Unit Management
% women in the Management Teams of the business units 64%
Scope: all entities of the FNG group, except for the Henkelman group, calculated in FTE %, status 31/12/2018
ANNUAL REPORT — 2018 53 6. INTERNAL CONTROL 7. DISCLOSURE STATEMENT AND RISK MANAGEMENT IN ACCORDANCE RELATING TO FINANCIAL WITH ARTICLE 34 OF REPORTING THE ROYAL DECREE OF 14 NOVEMBER 2007
The internal control of the financial reporting shall be 7.1. CAPITAL AND AUTHORISATION OF THE primarily performed by the Audit Committee. As set out BOARD OF DIRECTORS above in the task description of the Audit Committee, The subscribed share capital amounts to it is their responsibility to monitor the financial reporting, EUR 60,679,208.36. It is represented by 11,200,663 shares, the effectiveness of the internal control and risk without nominal value. management systems and the statutory audit of the (consolidated) annual accounts. The most important tasks Not-fully paid-up shares are registered shares. Fully entrusted to the Audit Committee related to the internal paid-up shares and other securities of the company are control and risk management, is to ensure the integrity registered or dematerialised. Holders may at any time of the financial reporting, ensure that the information and at their own expense request the conversion of their gives a truthful, fair and accurate picture of the situation securities into registered or dematerialised securities. and prospects of the company and the group, ensure the Dematerialised securities are represented by recordation consistency and completeness of financial information in an account, in the name of the owner or the holder, and assess the effectiveness of the internal control with a clearing house or a certified account holder. mechanism of the company. The Board of Directors supervises these activities. Rights attached to the shares The shares shall be indivisible vis-à-vis the company. Per country there is an internal auditor, entrusted with the The company recognises only one owner per share. investigation of potential fraud within the companies and When a share belongs to bare owners and beneficial ad hoc projects. owners, all rights, including voting rights, shall be exercised by the beneficial owner(s). If one share has several owners, the company has the right to suspend the exercise of the rights attached to this share until one person is designated to the company as the shareholder. The same rule shall apply in the event of a split of the right of ownership of a share into bare ownership and usufruct (beneficial ownership), for whatever reason. In the event of disagreement between the successors or in urgent cases, the president of the commercial court may, at the request of one of them, appoint a joint mandatary. The heirs, successors and creditors of a shareholder cannot, under any pretext, instigate the sealing of the assets and securities of the company, nor ask for the distribution or auction of the social fund, nor interfere in any way with its management or administration. Voting rights relating to pledged shares shall be exercised by the owner-pledgor, unless the pledge agreement provides otherwise. These provisions shall also apply to any bonds, founder’s shares and warrants issued by the company. The rights and obligations attached to the shares shall remain attached notwithstanding any transfer thereof.
ANNUAL REPORT — 2018 54 Authorised capital In accordance with Article 607, §2, 2° of the Belgian The Board of Directors is authorised for a period of five Company Code, the General Meeting of 20 November 2018 years from the date of publication in the Annexes to the has also expressly authorised the Board of Directors to Belgian State Gazette of the decision of the General Meeting increase the share capital in one or more times, as from the of 20 November 2018, to increase the share capital one date on which the company receives notification from the or more times up to an amount of EUR 60,679,208.36. Financial Services and Markets Authority that it has been This authorisation of the Board of Directors is also valid notified of a public takeover bid on the securities of the for capital increases effected through the incorporation company, by contributions in cash with the suspension or of reserves. In addition to the issue of shares, convertible restriction of the preferential subscription rights of existing bonds and warrants, the Board of Directors may also decide shareholders or by contributions in kind, and/or by the to increase the capital by issuing non-voting shares, shares issue of securities with voting rights representing the share with preferential right to dividends and liquidation proceeds, capital or otherwise, or of securities giving the right to and convertible shares which, under certain conditions, may subscribe or acquire such securities, even if such securities be converted into a smaller or larger number of ordinary or rights are not offered preferentially to shareholders in shares. This authorisation of the Board of Directors is proportion to the capital represented by their shares. In renewable. such cases, the transaction must meet the conditions set out in Article 607, §2, 2° a) to c) of the Belgian Company The Board of Directors is moreover entitled to restrict Code. This authorisation is granted for a period of 3 years or cancel, in the company’s interest and provided the from 20 November 2018, and is renewable. requirements of Article 595 et seq. of the Belgian Company Code are observed, the preferential subscription rights Acquisition of own shares granted by law to shareholders, even in favour of one or The company may acquire or dispose of its own shares more designated persons, who need not be employees of or bonus shares or depositary receipts relating thereto the company or of its subsidiaries. in accordance with Articles 620 et seq. of the Belgian Company Code. The General Meeting of 20 November On the occasion of a capital increase within the limits of 2018 has expressly authorised the Board of Directors, in the authorised capital, the Board of Directors can order accordance with the provisions of Article 620 et seq. of the the payment of a share premium. In this case, the premium Belgian Company Code, to acquire its own shares, bonus must be booked in a non-distributable reserve which can shares or depositary receipts by purchase or exchange and only be decreased or cancelled pursuant to a decision of transfer, without a prior resolution of the General Meeting the General Meeting at which the quorum and majority being required, directly or through a person acting in their required to amend the articles of association are met. own name but on behalf of the company, or through a direct subsidiary within the meaning of Article 627 of the The Board of Directors is authorised to amend the Belgian Company Code, if the acquisition or transfer is company’s articles of association, in accordance with necessary to avoid imminent serious harm to the company. the capital increases which have been decided upon within This authorisation is valid for a period of 3 years from the the framework of the authorised capital. publication of this decision in the Annexes to the Belgian State Gazette, and may be renewed.
ANNUAL REPORT — 2018 55 fred + ginger
The General Meeting of 20 November 2018 has also 7.2. TRANSFER OF SHARES, VOTING RIGHTS AND authorised the Board of Directors, pursuant to Articles 620 SHAREHOLDERS’ AGREEMENTS §1 and 622 §2 of the Belgian Company Code, to acquire Voting rights the maximum number of shares by purchase or exchange, Each share carries one vote. The holders of bonds, and transfer, directly or through a person acting in their convertible bonds and warrants may attend the General own name but on behalf of the company, or by a direct Meeting, but only in an advisory capacity. subsidiary within the meaning of Article 627 of the Belgian Company Code, for a fee that may not be lower than Except in the cases provided for by law or these Articles 50% of the average closing price of the share during the of Association, the meeting shall deliberate and decide by previous 10 trading days, and that may not be higher than a simple majority of votes cast, regardless of the number 150% of the average closing price of the share during the of shares convened at the meeting. Abstentions shall be previous 10 trading days. The authorisation is valid for a deemed to be negative votes. In the event of a tied vote, the period of 5 years from the date of the General Meeting of proposal shall be rejected. 20 November 2018, and may be renewed. Transfer of shares The Board of Directors is also authorised, in accordance The shares are freely transferable. with Article 630 §1 of the Belgian Company Code, to proceed, directly or indirectly, by a subsidiary or by a person acting in their own name but on behalf of that subsidiary or the company as defined in Article 630 §1 of the Belgian Company Code, to accept as a pledge the own shares, bonus shares or depositary receipts relating thereto in accordance with the conditions and duration set out above for the purchase and transfer of own shares. In accordance with Article 620 §2 of the Belgian Company Code, the company must, as long as it is listed or as long as its securities are admitted to trading on an MTF as referred to in Article 2, 4° of the Law of 2 August 2002 on the supervision of the financial sector and financial services, and insofar as it operates with at least one daily trade and with a central order book, notify the Financial Services and Markets Authority of acquisitions that it is considering pursuant to Article 620 §1 of the Belgian Company Code. The Board of Directors is also authorised to transfer the company’s shares in accordance with Article 622 §2, 1° of the Belgian Company Code.
ANNUAL REPORT — 2018 56 Shareholders’ agreement The purchase price of the shares in 3NG NV will be equal FNG is not aware of any shareholders’ agreements that to their fair market value. The average closing price of may result in a restriction of the exercise of voting rights the company’s shares during a period of ninety trading connected to the shares. days prior to the exercise date of the put/call option rights shall be deemed to be a good indication of the fair In 2016, a shareholders’ agreement was entered into market value of the shares of 3NG NV. between Mr Penninckx, Ms Maes, Mr Bracke and Mr Lathouwers and a few companies directly or indirectly 7.3. AMENDMENT OF THE ARTICLES OF controlled by the aforementioned natural persons. ASSOCIATION AND APPOINTMENT OR This agreement related to their participation in 3NG NV, REPLACEMENT OF DIRECTORS a company incorporated with the purpose of holding shares Amendment of the Articles of Association in FNG. The most important provisions of this agreement, The General Meeting may only validly deliberate and adopt restricting the transferability of the shares in FNG held by resolutions with respect to amendments of the Articles of 3NG NV, can be summarised as follows: Association, if the proposed amendments are reflected in the convocation and if the members present represent at • This shareholders’ agreement is concluded for a least half of the share capital. duration of 10 years and will be automatically renewed for 5 year periods; If the last condition is not fulfilled, a new convocation • In accordance with the provisions of the shareholders’ shall be required and the new meeting shall then validly agreement, 3NG NV is controlled by a board of directors deliberate and adopt resolutions, irrespective of the share composed of at most three directors appointed upon capital represented by present shareholders. binding proposal from Mr Dieter Penninckx, Ms Anja Maes and Mr Emmanuel Bracke and one director An amendment shall only be adopted, if at least three- appointed upon binding proposal from Mr Emiel fourth votes in favour. Lathouwers; • Any decision regarding a transfer of shares in FNG held The registered office may be transferred to any other place by 3NG NV requires the approval of the majority of the in Belgium by simple decision of the Board of Directors, directors, as well as the approval of (i) one director published in the annexes to the Belgian State Gazette, appointed upon proposal from Mr Dieter Penninckx, without amendment of the Articles of Association. Ms Anja Maes and Mr Emmanuel Bracke and (ii) the director appointed upon binding proposal from Mr Emiel Lathouwers; • After a 3 years and 6 months waiting period starting as of the conclusion of the shareholders’ agreement, Mr Emiel Lathouwers will have a put option right to sell the shares he directly or indirectly owns in 3NG NV to Mr Dieter Penninckx, Ms Anja Maes and Mr Emmanuel Bracke. Mr Dieter Penninckx, Ms Anja Maes and Mr Emmanuel Bracke will, as of the passing of Mr Emiel Lathouwers, have a call option right to buy the shares directly or indirectly held by him in 3NG NV.
ANNUAL REPORT — 2018 57 Appointment or replacement of directors Club Deal The company is managed by a Board of Directors In the framework of (re)financing the group, FNG Holding consisting of at least 3 directors, natural persons NV, an indirect subsidiary of FNG, entered into a new credit or legal entities, who need not be shareholders. facility with BNP Paribas Fortis as Coordinator, Security They are appointed for a maximum term of 6 years by Agent and Agent and BNP Paribas Fortis, ING Belgium, the General Meeting of Shareholders who may remove ABN AMRO Bank and Belfius Bank as Original Lenders them at any time. Out-going directors shall be eligible (the “Club Deal”), on Wednesday 28 February 2018. Under for re-election. this credit facility, credit facilities for an amount of EUR 240,000,000 were made available. This agreement contains The majority of the directors shall be appointed among a change-of-control clause providing that all credit facilities the candidates nominated by Mr Dieter Penninckx and/ under this agreement shall be redeemed early. or Ms Anja Maes and/or Mr Emmanuel Bracke (each a “Reference Shareholder”), as long as they hold, Mezzanine Loan individually or jointly, directly or indirectly through persons On 29 March 2016, R&S Finance B.V. (now named or companies affiliated with them within the meaning of Miss Etam Holding B.V.), as borrower, Mezzanine Article 11 of the Belgian Company Code, at least 15% of Partners 1 Comm.VA, as lender, and R&S Retail Group the shares in the company. N.V. (now called FNG NV) as the parent company, entered into a subordinated loan for a principal amount of If the Reference Shareholders (individually or jointly, EUR 10,000,000, with a maturity date of 31 December 2020 directly or indirectly through persons or companies (the “Mezzanine Loan”). On 17 October 2016, R&S Finance affiliated with them within the meaning of Article 11 of the B.V. transferred all of its rights and obligations under the Belgian Company Code) hold less than 15% of the shares Mezzanine Loan to FNG International Holding NV, pursuant in the company, but more than 5%, they shall be entitled to to the provisions set out in the Transfer and Accession nominate candidates for 3 director’s mandates. Agreement entered into between R&S Finance B.V., FNG International Holding NV, FNG NV and Mezzanine Partners 7.4. CHANGE OF CONTROL 1 Comm. VA on 17 October 2016. If the loan is not solely EMTN Programme used for the purposes agreed with the lender or in case FNG has launched, through its subsidiary FNG Benelux of a change of control over Miss Etam Holding B.V. or Holding NV, a EUR 100 million Medium Term Note FNG NV, the lender will have the right to require an early Programme to issue notes in a flexible manner. The terms repayment of the outstanding principal amount of the loan, and conditions of the notes provide for the possibility for including interest accrued, until the early repayment date. the holders of the notes to exercise a Change of Control Put Option (as defined in the Offering Memorandum) if the founders no longer control FNG Benelux Holding NV (controlled by FNG). Meaning that FNG Benelux Holding NV shall redeem the notes from the holders for an amount calculated in accordance with the terms and conditions of the notes.
ANNUAL REPORT — 2018 58 CKS Brantano
ANNUAL REPORT — 2018 60 REMUNERATION REPORT
1. REMUNERATION OF DIRECTORS
Only the non-executive directors shall receive a During the financial year ended on 31 December 2018, remuneration for the fulfilment of their office of director. the remuneration of non-executive directors was determined as follows: The non-executive directors (including the independent directors) cannot receive a performance related • the remuneration for the Chairman of the Board of remuneration in their capacity as director. Upon advice of Directors was set at 4,000 EUR per meeting the Nomination and Remuneration Committee, the Board • the remuneration for other members of the Board of of Directors may propose to the Shareholders’ Meeting to Directors was set at 2,000 EUR per meeting deviate from the latter principle in case in the reasonable • the remuneration of non-executive directors for the opinion of the Board of Directors the granting of any performance of their mandate as member of the Audit performance related remuneration would be necessary Committee was set at 1,000 EUR per meeting, and for to attract or retain independent directors with the most the Chairman at 2,000 EUR per meeting relevant experience and expertise. • the remuneration for non-executive directors for the performance of their mandate as member of the Notwithstanding the above, all directors (including those Nomination and Remuneration Committee was set at who are not independent) may be granted warrants issued 1,000 EUR per meeting, and for the Chairman at by FNG. 2,000 EUR per meeting
The Nomination and Remuneration Committee Directors who are at the same time member of the recommends the level of remuneration for directors, Executive Committee do not receive any remuneration for including the Chairman of the Board of Directors, subject their membership in the Board of Directors. to approval by the Board of Directors and, subsequently, by the Shareholders’ Meeting.
The Nomination and Remuneration Committee benchmarks directors’ compensation against peer companies to ensure that it is competitive.
The Board of Directors sets and revises, from time to time, the rules and level of compensation for directors carrying out a special mandate or sitting on one of the Committees and the rules for reimbursement of director’s business related out-of-pocket expenses.
ANNUAL REPORT — 2018 61 2. REMUNERATION OF THE CEO AND MEMBERS OF THE EXECUTIVE COMMITTEE
The agreements entered into with the CEO or with members The total gross remuneration that was paid to the members of the Executive Committee should mention the criteria of the Executive Committee and CEO, including the applied to determine the variable remuneration, if any. compensation received by the other companies that are Unless expressly approved otherwise by the Shareholders’ part of the group, can be explained as follows: Meeting, in cases where the variable remuneration relates to more than one-fourth of the annual remuneration, at Executive Committee and CEO least one-fourth of the variable remuneration granted to the (per person, in EUR)
CEO and the members of the Executive Committee should Basic remuneration 225,000 be based on predetermined and objectively measurable Variable remuneration 0 performance criteria over a period of at least 2 years, and at least another one-fourth should be based on predetermined Pensions 0 and objectively measurable performance criteria over a Other benefits 0 period of at least 3 years.
In the management agreements concluded with It is not expected that the remuneration policy for executive Mr Dieter Penninckx, Ms Anja Maes and Mr Emmanuel and non-executive directors shall deviate substantially the Bracke, no provisions were adopted with respect to a upcoming years. variable remuneration. In case of early termination of the agreements entered into with the aforementioned persons, the severance pay may not exceed twelve (12) months of basic remuneration.
The compensation for directors for the performance of their mandate as member of the Executive Committee was set at 1,000 EUR per meeting, and for the Chairman at 2,000 EUR per meeting.
ANNUAL REPORT — 2018 62 CKS Promiss
ANNUAL REPORT — 2018 64 NON-FINANCIAL INFORMATION STATEMENT
1. HOW FNG INCORPORATES CSR INTO ITS ORGANISATION
FNG is aware of the potential impact of the clothing and Thanks to FNG’s general business strategy shoe industry on society and the environment. In this (p.20), the group has a number of cards regard, FNG has identified 2 trends in its dialogue with it can play to strengthen the effects of its CSR policy. consumers. On the one hand, consumers are more aware of the societal impact of their lifestyle and purchasing • Its comprehensive optichannel approach provides a behaviour. FNG sees that consumers attribute a portion unique opportunity for the group to distinguish itself. of the responsibility for encouraging sustainability to the The combination of innovative web platforms, supported product manufacturer and distributor. On the other hand, by artificial intelligence technologies, and a vast network consumers also expect the products they wish to acquire of physical sales, pick-up and return locations ensures to be available faster and with the highest level of service, that FNG can carve out a unique niche for itself on the via their preferred channel. retail market. In addition, this approach also ensures that FNG can reduce its ecological footprint through lower Faced with this playing field of challenges, FNG has returns and more efficient delivery procedures. In shops, developed a CSR (Corporate Social Responsibility) policy. the customer experience is The policy sets out the company’s ambition of playing further enhanced through adherence to heightened a strong role on today’s retail landscape, in which CSR service levels. principles are deeply rooted in business processes and • A second trump card is the larger percentage invested corporate culture. by FNG in premium segmentation. The company focuses on producing and purchasing higher quality goods. The policy aims to bring products to customers in a FNG is committed to extending the life of the products it correct, fair and environmentally friendly way, with respect sells to consumers and provides consumers with tips on for the people who invest their time and energy in the how they can enjoy the goods they purchase for longer. FNG organisation. For example, FNG strives to ensure well-being at work for both direct and indirect employees, focuses on reducing its ecological footprint, and wishes to inspire all actors in the fashion and footwear sector to strive for a more liveable society.
ANNUAL REPORT — 2018 65 1.1. CREATING ADDED VALUE THROUGHOUT All brands follow the same business processes and THE VALUE CHAIN measure their results on the basis of the same KPI’s for the FNG has an extensive portfolio of brands. In order to styling, buying, production, distribution, merchandising and maximise synergies between the various parts of its marketing of products. Each brand or concept is supported organisation, the group has created its own business by shared services responsible for financial management, methodology, known as “the way we work”. logistics, ICT services, HR and facilities.
Buying & Styling production Merchandising Sales Marketing
Shared services (Logistics, Finance, IT, Facilities, HR)
FNG’s CSR policy is applied throughout the entire value The CSR policy is based on 5 pillars which can be linked to chain, as a result of which FNG is able to firmly embed the UN’s Sustainable Development Goals: principles of sustainability within its organisation. These ideas are transmitted by the employees, and FNG can also make a difference in cooperation with its partners at home and abroad.
ECONOMIC LEVERS PEOPLE FNG seeks out innovations that FNG cares about its employees, lead to a better client experience regardless of whether they work and greater transparency and directly for FNG or indirectly consumer protection. These contribute to the creation of its initiatives and innovations can products. reduce the negative impact on people, animals and nature.
SOCIETY PRODUCTS Society in Europe and our FNG guarantees a production countries: FNG quality product which is wishes to contribute to a better manufactured, checked society through informing and and delivered to consumers giving back. in accordance with high standards.
THE ENVIRONMENT FNG strives to reduce its ecological footprint throughout the entire value chain and thus to minimise its impact on human beings, animals and the environment.
ANNUAL REPORT — 2018 66 1.2. GOVERNANCE WITH IMPACT coordinators and staff at FNG head offices and local In order to enhance the impact of its CSR policy, in buying offices, FNG maintains physical proximity with particular in relation to the themes of people and the people that make the products and bring them to the high-quality products, FNG invested in 2018 in a CSR market and can thus oversee the quality of the products at coordination structure. Due to the presence of CSR close range.
FNG CORPORATE CSR
CSR CORPORATE POLICY ADVISOR
CSR MANAGER NL CSR MANAGER BE CSR LOCAL OFFICE
CSR COORDINATOR CSR COORDINATOR BE LOCAL CSR OFFICER EXPRESSO / CLAUDIA TURKEY STRÄTER
CSR COORDINATOR LOCAL CSR OFFICER MISS ETAM INDIA
CSR COORDINATOR LOCAL CSR OFFICER STEPS CHINA
THE NETHERLANDS (SALES) OFFICE & WAREHOUSE
CHINA BELGIUM LOCAL BUYING (SALES) OFFICE OFFICE & WAREHOUSE
GERMANY SALES OFFICE & WAREHOUSE
TURKEY SPAIN LOCAL BUYING SALES OFFICE OFFICE
INDIA LOCAL BUYING OFFICE
ANNUAL REPORT — 2018 67 1.3. WHAT REALLY MATTERS FOR OUR FUTURE FNG has already performed a materiality analysis for 2018. In October 2018, FNG published its first sustainability The aspects material for FNG were first determined. To this report, relating to financial year 2017. For financial year end, a selection of topics relevant to FNG was made from 2018, the CSR report is integrated into the annual report, a general set of topics (GRI, UN SDGs, international sector which covers all FNG brands and concepts. If a concept peers, etc.). Next, the longlist topics were rated based on has not been measured against a specific KPI, this is their importance and influence, from the perspective of further explained in the relevant section. The report both FNG and external stakeholders. The report highlights contains no information about the Henkelman group, which those topics that received the highest scores and therefore was not taken over by FNG until the end of December. consistently a score above 5 on a scale of 10, from the perspective of stakeholders and with regard to their For its first full-fledged CSR report, FNG applied the influence on FNG’s business. reporting standards of the Global Reporting Initiative (GRI). This method makes it possible for stakeholders to gain The following GRI reference table can be consulted on objective insight into FNG’s sustainability policy. The first page 93 of the report. integrated annual report was prepared in accordance with the GRI Standards core option. In reporting year 2018, FNG developed new reporting models which it wishes to further expand on in 2019.
10 A Recruitment, development and retention of employees
B Energy consumption N C Product design and development 9 M D L Customer satisfaction K E Screening of suppliers (human rights) 8 F Sustainable marketing and consumer communication H J G G Transparency and traceability of the supply chain I H Product quality and safety 7 F E I Relationship with stakeholders
J Waste management C 6 K Charities B IMPORTANCE FOR STAKEHOLDERS FOR IMPORTANCE A L Employee well-being, health and safety
O D M Communication and transparency 5 5 6 7 8 9 N Purchasing strategy and policy INFLUENCE ON THE SUCCESS OF THE BUSINESS O Transport emissions
FNG 2018 Materiality Matrix
ANNUAL REPORT — 2018 68 1.4. 2018 HIGHLIGHTS • Communication about our sustainability policy • Positive Fair Wear reports, in which the new affiliated • Opening of new shops with a high sustainability grade brands were praised for their in-depth insight at • CSR meeting with local CSR staff in Diemen supplier level. Points to be worked on in 2018 were • Start with the development of a CSR label also clearly stated • Adherence to the Agreement on Sustainable Garments and Textiles
ANNUAL REPORT — 2018 69 2. HOW FNG IMPLEMENTS ITS CSR POLICY IN PRACTICE AND THE RESULTS THEREOF
2.1. FNG RESPECTS THE PEOPLE WHO CONTRIBUTE It is important that the policy be actively implemented TO THE VALUE CHAIN which is why additional efforts are made at various levels As a major player on the Belgian and Dutch retail to ensure a people-driven prevention policy, by and for landscape, with multiple functions throughout our value employees. chain, FNG can offer opportunities to many people but is also responsible for ensuring the safety, satisfaction In 2018, the necessary checks and prevention exercises and wellbeing of the employees and providing them with were carried out at the offices, shops and DCs. development opportunities. In order to ensure the safety of staff while travelling, FNG In addition, FNG recognises its role as a driving force entered into a permanent partnership with a travel agency in the pursuit of better working conditions for the people in 2018. Thanks to this cooperation, FNG is always aware responsible for making our products, both at home of where its employees can be found and can act quickly and abroad. should assistance be required.
2.1.1. The health, safety and happiness of the employees But FNG wants to go a step further which is why, in Employee well-being, health and safety addition to legally required actions, it has implemented A healthy working environment and conditions and good within its organisation supplementary employee welfare- health care for our employees are paramount for FNG as oriented initiatives. happy and healthy employees are the engine that drives our organisation. That’s why FNG keeps an eye on the mental In both Belgium and the Netherlands, employees have the and physical well-being of all employees. option to discuss stress or other work-related concerns. In Belgium, FNG started self coaching sessions in 2016, First of all, it should be noted that FNG is bound by aimed at all head office employees. In four half-day legislation intended to ensure employee safety at the sessions, employees learn how to manage stress, think offices, logistics centres and shops in Belgium and creatively and positively, deal with time constraints, the Netherlands. More specifically, this concerns the establish a good energy balance, achieve goals and sleep occupational health and safety legislation (NL) and the more soundly. general employee welfare act of 1996 (BE). In the context of these obligations, training for employees is provided in FNG also wishes to involve employees in the general both the Netherlands and Belgium. At the foreign offices as goings on of the organisation. Thus, information sessions well, local rules and regulations are respected. are organised several times per year for office staff. These are usually combined with an activity aimed at bringing into The risks to which employees are exposed in the performance contact employees from various departments, brands and of their work are identified, assessed and, in accordance concepts. with the hierarchy of control, eliminated or checked as completely as possible. For locations that present the most Following the example of the Dutch offices, a healthy lunch substantial risks, such as the distribution centres (DC), there buffet was introduced in 2018 for office staff in Belgium. is a strong focus on thorough health and safety monitoring In both countries, the focus is on fresh food, homemade in the workplace. At the shops and head offices, the focus is soup and a wide variety of fruit. The prices of “unhealthy” on follow-up of the topics mentioned in the aforementioned vending machine products were raised in 2018, in order to legislation. Ad hoc assessments are used for secondary encourage employees to drink water and eat fruit, both of prevention to solve problems as quickly as possible. which are offered for free. Continuous improvement of the safety policy is also pursued.
ANNUAL REPORT — 2018 70 Brantano fred + ginger
In order to boost the physical fitness of employees, various 5S stands for Sort, Set In Order, Shine, Standardise and activities are offered such as yoga classes and a fitness Sustain. This programme forms part of the lean philosophy; boot camp. These were organised for the first time in 2018 its objective is to enhance efficiency and improve quality and will be continued in 2019. within the DC. In addition, it leads to greater safety at work and job satisfaction. In Belgium, a similar programme was In Belgium, employees have the possibility to receive the organised within the DC and several training sessions were flu vaccine. provided on safety and prevention (Sirk Sekuur, learning and encouraging safe behaviour, psychosocial risk analysis, Talent development, training and recruitment first-aid training, safety walkabouts by the internal and Multiple interviews with employees show a great need for external services for occupational health and safety). personal development and promotion opportunities. FNG therefore focuses on projects that help employees grow. Finally, learning opportunities are also provided at head Employees who wish to do so are encouraged to advance offices. These occasionally take place externally, but in their career or to grow within their current position. can also be aimed at the sharing of information between various brands and concepts. In this way, the teams For example, the HR departments organise evaluation working on digital transformation regularly come together sessions for employees. These are prepared by the to share knowledge and good working practices. employees and their managers with the support of HR. In this regard, the practice of talent mapping plays FNG has undergone major changes in recent years, owing an important role. In this way, the organisation learns to the integration of new brands and concepts. In 2018, about the potential of its personnel, while managers can the HR teams worked intensively on practices to render identify an employee’s growth path. For this reason, FNG flows between different brands and concepts possible. encourages continuous learning. In this way, FNG retains talent within the organisation and prevents the need to continuously recruit new talent In all countries, there is a strong focus on training shop externally, with the corresponding costs and exit of staff. For all brands, sales training is organised for shop knowledge this entails. For example, when a vacancy managers and team coordinators. They are trained in sales is posted, it is always discussed whether an internal techniques, conversion marketing, customer approach, etc. candidate could have the right profile for the position. Shop staff also receives intensive sales training on location at least twice a year. In addition, they receive continuous When external employees are recruited, the departments training in shops by coaches, shop managers and regional involved use proboarding and onboarding modules and managers. In the Netherlands, an engagement app is used processes so that the new employees quickly feel at home to connect employees and improve internal communication. in their new environment. The new employees receive a A multitude of information can be shared via the app which practical FNG information guide, attend an HR introduction was implemented throughout the entire Dutch network of presentation, are given a tour of their new workplace, shops in the course of 2018. In Spain, an English language provided by the IT team with all necessary tools and have course is offered to shop staff in order to serve non- a follow-up interview with an HR officer, three months after Spanish speaking customers more efficiently. their start date. In the training process for new employees, additional emphasis is placed on cooperation in shops. As Training is also provided at the DCs. For example, more employees of a sales-driven organisation, new co-workers than 100 employees are enrolled in the 5S training form part of a dynamic corporate culture and are able to programme at the logistics centre in Zoetermeer. familiarise themselves immediately with the work processes.
ANNUAL REPORT — 2018 71 Brantano
During the recruitment process of new employees, HEADCOUNT 2017 2018 great importance is attached to the applicant’s fit with Number of persons working at FNG offices in FNG’s values. 640 Belgium, the Netherlands, Spain and buying offices
Number of persons working at shops and In 2018, the General Data Protection Regulation (GDPR) 2,508 entered into force. The HR departments adapted their shops-in-shops work processes and communication lines for applicants Number of persons working at the distribution 155 and employees to the stricter privacy rules through the centres in Zoetermeer and Erembodegem introduction of secure software systems. This also resulted Total number of employees (FTE) 3,298 3,303 in the more efficient handling of incoming applications.
Gender and diversity FULL-TIME EQUIVALENTS (FTE) 2018
Within its organisation, FNG does not tolerate any form Employees working at FNG offices in Belgium, 559 of discrimination based on gender, age, race or religion. the Netherlands, Spain and buying offices Everyone has similar opportunities. Established and Employees working at the shops and shops-in-shops 1,649 reported violations of this policy are dealt with adequately Employees working at the distribution centres in and correctly. 137 Zoetermeer and Erembodegem
No complaints regarding discrimination by employees or Total number of employees (FTE) 2,345 applicants were recorded in 2018.
In 2018, no targets for gender and age distribution were SOCIAL DIALOGUE 2018 applied. FNG notes that the male-to-female ratio varies % of the total workforce (FTE) that falls under a 86% within the organisation and attributes these differences collective bargaining agreement to the nature of the activities performed. At management Scope: all employees working for FNG on 31/12/2018, excluding Henkelman level, the male-to-female ratio is 43%. This includes members of the Corporate Management Team and the Business Unit Managers responsible for daily management of the brands and concepts.
In 2019, FNG will not apply quotas within departments based on gender, age, race or religion but rather focus on the personal development of employees and ensuring equal opportunities for everyone. In recent years, it has been proven that a strong focus on the personal development by employees of their talents has enabled several women to advance and become members of the Management Teams of Business Units or Business Unit Managers.
ANNUAL REPORT — 2018 72 TRAINING 2018 2.1.2. The wellbeing of those who manufacture the products Minimum number of training days for shop staff in 2018 2 As part of FNG’s sustainable purchasing policy, social (excluding on-site training in shops) and environmental factors are taken into account in the Minimum number of training days for CSR employees 2 decision-making process. Suppliers are thus evaluated
Training at DCs: health and safety, first aid, Lean using a scorecard that examines their quality, delivery 2 (5S training) times, craftsmanship and sustainable business practices. It is in part the responsibility of FNG to encourage its GENDER 2018 suppliers to make improvements to these parameters. % of women on the Board of Directors 25% All suppliers with which FNG works are expected to % of women on the Executive Committee 33% adhere to FNG’s Code of Conduct. To support the Code % of women in Corporate Management and Business 43% of Conduct, FNG uses a number of tools to implement, Unit Management monitor and improve this policy. For example, FNG has % of women in Management Teams of the Business Units 64% entered into multiple commitments with partners such as the Fair Wear Foundation, the Dutch Sustainable % of women working at FNG offices in Belgium, 76% the Netherlands, Spain and the buying offices Clothing and Textile Agreement, BSCI (Business Social Compliance Initiative) and MODINT (business network for % of women working at FNG's in-house 39% distribution centres the manufacturers, importers, agents and wholesalers of clothing, fashion accessories, carpets and textiles). % of women working at shops and FNG managed 98% shops-in-shops In 2017, FNG launched intensive screening of suppliers Total % of men (FTE) 11% at the group level. Previously, FNG brands had already
Total % of women (FTE) 89% actively audited suppliers. In this regard, social audits are performed by both external and internal auditors in the Scope: all FNG structures, excluding Henkelman, calculated in FTE % as of 31/12/2018 production countries, where aspects of the FNG Code of Conduct are checked. Where violations are established,
AGE 2018 corrective actions plans are prepared and implemented by the local CSR officers or external partners. An absolute Distribution by age category 30-50 <30 years > 50 years priority in this regard is the screening of countries where years there is a higher risk of violations. The CSR officers share Employees working at FNG offices in this information with all those involved at the head office Belgium, the Netherlands, Spain and 25% 57% 18% buying offices and, together with our buyers, act as ambassadors of FNG’s vision and values. They are also responsible for the Employees working at the shops and 19% 56% 25% shops-in-shops training of employees at suppliers, creating awareness and working together with factory management to implement Employees working at the distribution 25% 48% 26% cor-rective action plans (CAPs). After the preparation of a centres in Zoetermeer and Erembodegem CAP, a follow-up visit is always organised. Scope: all FNG structures, excluding Henkelman, calculated in FTE % as of 31/12/2018
ANNUAL REPORT — 2018 73 For example, a partnership may be terminated if it 2017 appears that the supplier is not prepared to take action against violations or does not guarantee sufficient 5% transparency. If a supplier is willing to cooperate intensively on improvements, even though the action list is long, it is FNG’s policy to support it with guidance and time 36% investment. This is based on the conviction that, in this way, FNG can bring about positive change, which it regards as its responsibility. 59% FNG’s recent experience demonstrates that suppliers are becoming significantly more familiar with corporate social responsibility. In 2017, despite the very recent affiliation of Fair Wear Foundation and BSCI, FNG was able to monitor a high percentage of its clothing suppliers. This trend 2018 continued in 2018, reaching a total percentage of 85% of own brands, compared to 64% in 2017. In 2018, FNG 15% also succeeded in screening a large percentage of shoe producers falling under the Brantano umbrella. With the launch of Brantano Market and boutik by brantano, more external brands entered the FNG organisation. A policy 48% was developed in this regard and shared with the suppliers of these products, with a focus on the topics covered by 38% the Code of Conduct as well as on the quality of the goods purchased. The audits covered the first-line suppliers of CKS, Fred & Ginger, Ginger, Miss Etam, Claudia Sträter, Baker Bridge, Expresso, Steps, Promiss, Limon and Superstar in Turkey, India, China and Bangladesh. No audit performed Suppliers for the Brantano private labels, Steps and Audits by own CSR auditors Miss Etam outside these countries were screened but are not included in the report. Second-line suppliers were Audits by external auditors monitored by CSR employees, but are not yet included in Overview of % of social audits carried out in 2017 and 2018 the report.
ANNUAL REPORT — 2018 74 Following all legal requirements
No forced labour
Legal work contracts
Freedom to join a union
No child labour
No discrimination
Fair treatment of employees
A safe and healthy workplace
A fair remuneration policy
Environmental and product safety
Animal welfare
Code of Conduct FNG
ANNUAL REPORT — 2018 75 CKS
In order to better address potential problems in the supply By means of these actions, rapid improvements are being chain, FNG’s CSR team has developed a country-related made for the benefit of workers. The reported incidents risk matrix. This tool is based on various country studies mainly relate to a lack of age screening. and uses as its starting point all generally known problems at the level of a production country. This information is Forced labour is also a subject to which keen attention is further supplemented by local CSR officers with audit paid. No violations were found, but the auditors remain testimony. Thanks to this matrix, FNG can better detect and vigilant to the possibilities of such issues arising. For measure risks and problems and define actions plans. example, suppliers may not be able to submit a clear contract management policy. In China, there are known The following sections describe the results of the screening practices that relate to not paying wages during holiday for most topics covered by the Code of Conduct. Screening periods, for fear that the employee could change employer in covered all own production suppliers for Miss Etam, the meantime. Such practices were not established in 2018. Superstar, Limon, Baker Bridge, CKS, Fred & Ginger, Ginger, Steps, Claudia Sträter, Expresso and Promiss. The rules on trade union representation and collective If no information was available for a certain brand, this is bargaining differ in the various countries where FNG indicated. The information is based on internal and external purchases the largest volumes. Although no major audit reports. The reporting relates to all audits carried out incidents were reported in 2018, the auditors provide in 2018. If an external audit took place in 2017 but is valid specific advice per country. In China, for example, trade for 2 years, it is also included in the report, provided a unions are prohibited, but the factories are encouraged by follow-up visit took place in 2018. the auditors to appoint employee representatives and to provide procedures for communication between employees When screening for discrimination in the workplace, equal and the employer. In Turkey, trade unions are not required opportunities and treatment are monitored regardless of if fewer than 50 people are employed, but the auditors race, colour, gender, religion, etc. with reference to the encourage the establishment of a work committee with a International Labour Organisation (ILO) Conventions 100 focus on safety at work. In India, trade unions are allowed and 111. Specific attention needs to be paid in Turkey to the and suppliers are advised to improve their procedures for correct treatment of Syrian refugees. No major incidents the election of employee representatives, to document of discrimination were reported in 2018. In 2019, the CSR them properly and to ensure regularity. officers wish to focus on better informing suppliers of the substantive significance of the anti-discrimination policy. In The risks also differ when checking payment of the this way, they can in turn evaluate their own sub-suppliers. statutory minimum wage. In China in particular, wage calculation and observance of the guarantee that workers When screening for violations of the prohibition on receive a correctly calculated minimum wage must be child labour, it is first checked whether the factory in monitored. In the corrective action plans, advice is mainly question has a policy to check the age of its employees. given on the correct calculation of work per hour, rather Factories may not perform background checks of than per item, and the correct application of overtime. potential employees before they are engaged. Lack of age The CSR teams therefore always investigate whether verification is often a problem in Turkish factories, but recourse is had to overtime, caused by a shortage of fortunately this is also easy to solve. FNG urges its partner labour, systematically or only during peak periods. factories to request and collect a copy of an identification Discussions are also held with factory management on document prior to hiring a new employee. how overtime can be avoided, even during peak times.
ANNUAL REPORT — 2018 76 The production process for fashion and shoes can involve 2.2. PURSUIT OF A SUSTAINABLE PRODUCT risks to the health and safety of those who make these 2.2.1. Promote the use of sustainable materials products. FNG believes that many problems can be easily FNG is not only committed to avoiding the adverse effects resolved and avoided in the long term through mutual that can result from the manufacture of its products but support and a commitment to implementing corrective goes one step further and focuses on creating a positive action plans. FNG has learned that many irregularities at social and environmental impact which leads to a cleaner production locations are caused by a lack of information textile industry. For this purpose, FNG provides all suppliers and insufficient knowledge of the design. The role of with its product policy, in which the guidelines, requirements the local CSR officer is therefore to train both local and preferences for the ethical procurement of (sustainable) management and employees through regular factory materials are described. This policy is available to the visits and to share experience and expertise in the field public on FNG’s website (http://www.fng.eu/wp/wp-content/ of health and safety. Most of the violations, which were uploads/2017/05/FNG-Corporate-Product-Policy-Dutch-G.pdf). found mainly in India in 2018, could therefore be discussed and resolved quickly. These concerned, for example, the The policy describes the guidelines, requirements and blocking of passages, the non-use of safety equipment preferences for the ethical purchase of (sustainable) although present, etc. A serious incident occurred at a materials. It contains a list of prohibited materials, including supplier whose factory suffered serious damage. During real fur, exotic animal skins (alligator and snake), angora, the follow-up visit, the problem was checked and found to etc. In addition, recommendations for the use of sustainable be resolved. materials and accompanying certification (e.g. organic cotton and recycled polyester) are added. At the end of 2018, the Dutch and Belgian teams, partly as a result of adherence
Non-respected working hours 16.4% to the Dutch Sustainable Clothing and Textile Agreement, developed a roadmap to take even greater steps to exclude Health and safety 5.3% and encourage the use of certain materials across the
Statutory minimum wage 6.2% various FNG brands.
Trade union representation and collective bargaining 0.0% Several projects were carried out in 2018 on which the design and purchasing teams worked together to encourage and Forced labour 0.0% increase the use of sustainable materials. Thus, the complete Child labour 1.5% basic knitwear collection of Miss Etam is made from organic cotton. In 2018, all Dutch brands agreed to work with the Discrimination 0.2% Vision project. The brands brought to market a number of items of clothing made from recycled polyester, made from % of established violations of the Code of Conduct for which corrective PET bottles collected along the Chinese coast. action plans were prepared across all audits and countries.
Scope: CKS, Fred & Ginger, Ginger, Baker Bridge, Expresso, Claudia Sträter, Limon, Superstar in all countries + Miss Etam, Steps & Promiss in India, Turkey, China and Bangladesh
ANNUAL REPORT — 2018 77 2.2.2. Include sustainability in the purchasing policy The products that FNG places on the market must comply FNG strives to achieve strong, long-term partnerships with the requirements of the REACH legislation (Regulation with its suppliers, based on trust and transparency. The (EC) No 1907/2006 of the European Parliament and of the sourcing strategies of FNG’s brands are based on several Council of 18 December 2006 on the registration, evaluation, important pillars. In order to meet consumer demand for authorisation and restriction of chemicals). This regulation quality products at the price and speed they expect, FNG prohibits the use of hazardous substances and chemicals in is constantly seeking to optimise its supply chain and abide products sold in Europe. To comply with this legislation, FNG by the sustainability principle. has established its own Restricted Substances List (RSL). This document describes prohibited chemicals (such as Thus, suppliers are continually screened in terms of their carcinogenic dyes, biocides and pesticides, fire accelerators policy on social requirements, professional knowledge, and heavy metals) as well as the types of textiles or materials quality assurance and financial stability. FNG can rely on in which they may be found and the approved testing extensive knowledge of specialisations per country, as well methods. FNG’s list goes beyond REACH and is regularly as the associated risks. The purchasing teams at the head updated. Suppliers are obliged to apply these rules. offices and the local buying offices are aware of materials that are harmful to people and the environment and should To monitor compliance, FNG performs random tests on therefore not be used. products upon arrival at its distribution centres, as part of its commitment to REACH compliance. Prior thereto, the Each new supplier must pass the supplier screening CSR team performs a scan of all collections in order to gain process. A vendor set-up procedure also applies for new a better view of the materials used and the processes the suppliers. For existing suppliers, there are external and/or articles have gone through before delivery to shops and internal audits. If the investigated partner is not prepared customers. A selection is made of risky items which are to meet the requirements of the FNG Code of Conduct or sent to an external lab for testing. Most tests are done for abide by the list of prohibited substances and materials AZO dyes, NPEO, cadmium, plastic and chromium VI. The and FNG’s general product policy or refuses to implement RSL of FNG is available at www.fng.eu/wp/wp-content/ a corrective action plan, cooperation with this partner is uploads/2017/05/FNG-RSL-4.0.pdf. ended or not entered into. The CSR officers specialising in local legislation also visit the production sites and conduct 2.2.3. Quality control an initial audit. FNG strives to proactively apply best practices in order to eliminate defects throughout the supply chain. Since 2018, The purchasing department in Europe consists of buyers, quality control has been brought even closer to production product development teams, the styling team and an sites. The advantage of this is that there is less pollution administrative team which supports the department. Buyers and waste. In addition, the delivery process can also be are responsible for selecting the right manufacturers for accelerated without putting additional pressure on internal the right product. Product development determines how and external production teams. products should be manufactured and checks every item of clothing to ensure that the technical requirements are During the product development phase, the parameters met. The local buying offices in Turkey and Asia ensure relating to the quality of the fit and fabric are checked by close contact with suppliers and buyers. They coordinate means of an approval process developed at the head office production planning, quality control in factories and offer and passed on to the foreign buying offices and suppliers. cost analysis to support the buying teams at the head offices. The requirements are checked by on-site technicians at the production sites during the sample and production phase.
ANNUAL REPORT — 2018 78 fred + ginger Brantano
The local teams of quality controllers are busy at all Finally, FNG is also responsible for correctly informing times with inline and final quality controls. These audits consumers. Thus, all brands must respect the labelling are based on international AQL (acceptable quality level) guidelines for the brands distributed by FNG. The relevant standards which ensure that a wide range of samples are legislation on textile composition is Directive 1007/2011/ taken from the finished materials to assess the product EU. In addition to the textile composition, washing and care in terms of size, fabric defects, fit, packaging and colour symbols, the company’s address, the production country variations. No shipments to the logistics centres are and warnings (e.g. the flammability symbol for pyjamas) are accepted until all detected problems have been resolved. also standard.
Auditors also assess the general quality procedures of a An indication of the country of production is not required at factory before production. Suppliers must adhere to certain EU level but is provided as standard. For export, additional internal processes in order to produce FNG brands. The rules apply depending on the country of destination. These standards for testing the quality of fabrics and products are rules are communicated to the producers each season by provided to all suppliers for compliance purposes. the purchasing department and checked. No violations or shortcomings were found in 2018 with regard to the correct It is always possible that after wearing clothing and shoes, labelling of products. consumers experience quality problems. Complaints procedures are provided for all brands and concepts. In addition, in 2018, FNG added the Clevercare symbol to In this way, customers know where to turn when they its care labels and a special tag for delicate clothing. experience problems. Every complaint is investigated by the team responsible for the quality of the product, and No incidents were reported in 2018 relating to the correct an internal follow-up procedure is started. Such problems labelling of FNG clothing and shoes. can range from a single damaged item, a one-off case, to a complete recall of the article in the most exceptional cases. Customer experience and safety are paramount and no risks are taken. In the event of serious production errors that appear after the goods have been used, the supplier is informed. The most common types of complaints after delivery relate to knitwear pilling and changes to the fabric quality after multiple washes. Research shows that incorrect handling by the customer is usually the cause of the damage. Therefore, greater efforts are being made to ensure good communication of instructions relating to the correct washing and care of purchased items.
For the entire purchased production for all FNG brands, a claim relating to quality was made with the supplier or producer for only 0.32% of the goods. Lodging a claim does not automatically result in the withdrawal of the goods from the market and mainly means that the delivered goods do not meet the agreed requirements.
ANNUAL REPORT — 2018 79 Beehives
2.3. WORKING TOWARDS A MORE LIVEABLE PLANET For the renovations of offices and shops, LED lighting is FOR HUMANS, ANIMALS AND PLANT LIFE always used to reduce electricity consumption per m². To minimise its ecological footprint, FNG has drawn up an Furthermore, every renovation or new shop design energy and climate, water and waste management policy. incorporates sustainable or recycled materials. For Further steps were taken in 2018 to achieve improvements example, the renewed Brantano Market concept makes in these areas. More initiatives will be launched in 2019 use of recycled cardboard. The tables, presentation stands based on an analysis of the ecological footprint throughout and checkout counters are all made of vertically stacked the value chain. cardboard elements. The floor covering is constructed from natural raw and recycled materials and is amongst the Sustainable construction, renovation and relocation least harmful raw materials in the carpet industry. Skylights FNG’s head office is located in Mechelen, Belgium. The are installed to allow maximum natural light and additional office was built in 2015 and uses the most sustainable light-maximising measures are implemented. materials and energy systems. The position was strategically chosen, just a few minutes’ walk from the train The Brantano Market in Ternat is part of a retail park station and next to the cycle path (Antwerp - Mechelen - with BREEAM certification. The experience gained in Leuven). The office has no air conditioning as it was built this process will be taken into account in the design and with concrete core activation, meaning the temperature construction or renovation of other shop locations. inside the building remains as constant as possible, regardless of the season. The building also has a rainwater FNG strongly believes that style and sustainability go hand recovery system. Efforts were made in 2018 to reduce the in hand. FNG’s dedication to the environment goes beyond number of office locations. For example, the head office fashion: beehives have been placed on the green roof of staff moved from Concept Fashion to Mechelen while the head office in Mechelen which house more than 80,000 HR and accounting moved from Zoetermeer to the Dutch bees. In this way, FNG hopes to contribute to the reversal head office in Diemen. The latter move was done in the of the honeybee’s decline. context of the creation of a Shared Service Centre in the Netherlands and after receiving a positive opinion from the works councils.
Extra efforts were made at the distribution centre in Belgium to optimise energy consumption by installing a new condensation boiler and mezzanine LED lighting that works with sensors.
ANNUAL REPORT — 2018 80 Energy and Water Consumption
FNG INFO CONSUMPTION TYPE UNIT DC OFFICES SHOPS
Energy consumption from non-renewable sources 1. Electricity KWH 2,339,495 917,308 21,078,550
2. Heating and cooling GJ 1,420
3. Gas m3 342,390 86,041 1,313,405
4. Steam nvt
5. Diesel / fuel oil Liter 844 67,460
Energy that is reinvoiced 1. Electricity Kwhr 94,600
3. Gas Mwhr 76,220
Total energy consumption within the organisation in 45,970,173 KWh Joules or other units
Methods, standards and assumptions used for The calculations are based on the reports provided by the energy suppliers. the calculations Converted to total energy consumption by: CO2logic
Scope: All in-house FNG DCs, the head offices excluding the buying offices and the office in Spain, all shops aside from shops-in-shops
FNG INFO CONSUMPTION TYPE UNIT DC OFFICES SHOPS
Total volume of water consumption Water M³ 2,568 1,383 17,972
Methods, standards and assumptions used for The calculations are based on the reports provided by the suppliers. the calculations For shops for which no information was provided, an extrapolation was made.
Scope: The Belgian DC, the head offices excluding the buying offices and the office in Spain, all shops aside from shops-in-shops
ANNUAL REPORT — 2018 81 Ocean Plastic Project
Waste management In all offices, DCs and shops, cardboard, glass, plastic, FNG creatively seeks new ways of intelligent waste metals and textiles are sorted for recycling. This is done in management. At the head office there is a sustainable cooperation with established partners in Belgium and the alternative to disposable plastic bottles: glass bottles and Netherlands. There is also a clear internal policy regarding jugs are refilled with filtered tap water. Filtered tap water the purchase and use of paper, cardboard and plastic. The is also offered in shops. FNG avoids single-use materials, purchasing and marketing services are hereby encouraged to both at the head office and in shops. In 2018, for example, always purchase recycled paper. For example, the CKS brand all disposable plastic at the head office was replaced with switched completely to clothing bags made from recycled sustainable alternatives, ranging from teaspoons to non- paper. The intention is also to extend this test project to other prepackaged cookies for visitors, stored in glass jars. brands. Clothes hangers and boxes are reused and recycled.
TYPE UNIT DC FNG OFFICES SHOPS
Total generated waste kg 700,809 158,299 929,770
Recycled residual waste kg 37,000 52,000 845,077
Recycled paper and cardboard waste kg 538,000 62,400 21,108
Recycled plastic waste kg 20,280 2,964 10,251
Methods, standards and assumptions Total generated waste calculated on the basis of average weight. Paper and cardboard waste for shops in used for the calculations city centres could not be measured. Further input was provided by partners with which FNG works for the collection and processing of recyclable waste.
Scope: All own FNG DCs, the head offices excluding the buying offices and the office in Spain, all shops aside from shops-in-shops
From the creative angle, window displays and photo shoots With regard to end products, FNG applies a waterfall often give rise to questions regarding the materials to approach to ensure that inventory reaches a final be purchase and used. First and foremost, the creative destination. In addition to own outlets, stock sales are teams take into account the sustainability of the materials organised at the offices or on location. Items that are used. In addition, the materials and objects are recovered not sold on these occasions are sold to retailers in and stored centrally for reuse. Newly purchased material neighbouring countries. should be able to have at least a “second life” before being donated to charities or thrift shops. Finally, defective clothing is also brought into the circular economy. Clothing that is still wearable is donated to When new collections are created, samples are made by charities. For clothing that can no longer be worn, partners suppliers, but unfortunately not all designs make the final were sought in a test project in 2018, which incorporated cut. Samples that are selected for production may also be the items into cleaning materials. produced for showroom sales. For all types of samples, FNG seeks a second life or satisfied owner through in- house sales or locally organised sales in Spain, Turkey and Hong Kong.
ANNUAL REPORT — 2018 82 Transport The constant search for opportunities to reduce CO2 emissions is naturally also reflected in the transport of 52% the goods. FNG is responsible for a share of the transport, 40% 45% 34% while another share is ensured by its suppliers or 15% 14% customers through application of the Delivered Duty Paid
(DDP) Incoterm. Air transport Road transport Boat transport
Pursing the objectives of reducing costs, working more 2017 2018 efficiently and reducing the negative impact on the % of transported items by air, water and road. environment, initiatives were started in 2018 regarding Scope: all shipments, excluding DDP, 2017 versus 2018 FNG’s in-house delivery of goods by water, road and air transport. With regard to transport from distribution centres to shops or customers, efforts are also being made to reduce emissions. For the non-European delivery of goods from the Far East, For example, research is being conducted into the best routes the preferred option is transport by boat, with air transport for delivering goods. The number of deliveries is closely further reduced in 2018. In addition, a tender for boat monitored and planned. Moreover, all brands and concepts transportation was issued, with emissions an important are making substantial efforts to reduce the number of weighting factor. Goods produced in Europe and Turkey are online returns. This is done thanks to technological support, preferably shipped by road. provided by artificial intelligence, on which the newest web platforms are built. These platforms help customers order In 2019, FNG expects to continue to move towards the right size and style of clothing and shoes. For certain more efficient and sustainable transport. For example, concepts, customers can try them on in shops, thereby the management of transport via freight forwarders avoiding “last mile” transportation and returns. selected by FNG itself offers additional opportunities to consolidate full container loads and truck loads. Finally, FNG employees are encouraged to use alternative In addition, FNG expects the current trend of more local means of transportation to commute to work. The location production to continue and lead to shorter transport times of the head office in Mechelen was strategically chosen, in the coming years. This also explains the increased just a few minutes’ walk from the train station and next to volume of road transport in 2018. the cycle path. Employees are encouraged to use public transportation, for which FNG offers a full refund. FNG also makes available to employees a number of company bicycles. Facilities for cyclists include changing rooms, showers and bicycle parking. In 2018, FNG started developing a new mobility policy which will offer flexible mobility solutions to employees and will be rolled out in 2019. A substantial reduction in employee commuter traffic is thus expected in 2019.
ANNUAL REPORT — 2018 83 CKS
Emissions
SCOPE TYPE UNIT DC FNG OFFICES SHOPS
Scope 1 Natural gas Ton of CO² equivalent 620 156 2,377
Fuel oil Ton of CO² equivalent 2 0 177
Diesel and petrol service vehicles Ton of CO² equivalent 7.1 61.18 0
Diesel and petrol transportation to shops and customers Ton of CO² equivalent 432 0 0
Scope 2 Electricity M CO² 880 311 7,177
Heating Ton of CO² equivalent 0 0 29
Scope 3 Natural gas - upstream Ton of CO² equivalent 118 30 453
Fuel oil - upstream Ton of CO² equivalent 0 0 39
Electricity - upstream Ton of CO² equivalent 88 31 718
Heating - upstream Ton of CO² equivalent 0 0 5
Commuter traffic Ton of CO² equivalent 44 652 0
Outsourced diesel and petrol road transport (inbound) Ton of CO² equivalent 2,427 0 0
Outsourced diesel and petrol road transport (outbound) Ton of CO² equivalent 892 0 52
Outsourced air transport (inbound) Ton of CO² equivalent 3,744 0 0
Outsourced boat transport (inbound) Ton of CO² equivalent 216 0 0
Total emissions Ton of CO² equivalent 9,471 1,240 11,027
Methods, standards and assumptions The calculations are based on the reports provided by the energy and transport providers. used for the calculations Converted to total emissions by: CO2logic. Method: Conversion on the basis of the carbon footprint methodology for calculation of the carbon footprint. This methodology is recognised by BSI PAS 2060 for carbon neutrality. The carbon footprint methodology is also compliant with ISO standard 14064 and closely aligned to the GHG Protocol.
Scope: All in-house transportation from DCs in Belgium and the Netherlands, all inbound in-house transportation from FNG (excluding DDP), own fleet and energy use calculated on the basis of consumption from the KPI consumption table. For energy: all own FNG DCs, the head offices excluding the buying office and the office in Spain, all shops aside from shops-in-shops.
ANNUAL REPORT — 2018 84 2.4. CONTRIBUTION TO A BETTER SOCIETY Brand/concept Charitable initiatives
THROUGH THE PROVISION OF INFORMATION AND FNG Donation to Tada GIVING BACK Donation to TicTac - Akabe Scouts Mechelen 2.4.1. Charitable contributions CKS Donation to Red Nose Day/Qmusic Belgium Within the various brands and concepts that fall under Donation to Animal Rights, Belgium and the FNG group, FNG encourages charitable giving and the Netherlands contributions and in doing so wishes to achieve Fred & Ginger, Donation to 38 Volt multiple objectives. Ginger Donation further to the launch of the book Wolvenkinderen • Contribute to initiatives that make efforts to remedy Donation to “The Empty Shop” in Mechelen problems caused in part by the business in which FNG is engaged; Brantano / Old shoes actions: Concept Fashion / - Donations to the Schoenenfonds • Raise awareness amongst employees of the impact FNG, Suitcase - Donations to the Kinderkankerfonds as an organisation, has on society; (Children’s Cancer Fund) • Encourage and support FNG employees to promote School Zonder Pesten (Schools Without Bullying) CSR principles in their professional and personal lives; Dump Your Jeans
• Contribute to a better future with a focus on FNG values; Claudia Sträter Clothing donations, including to • Inspire partners and customers through communication Stichting Oekraïne, KWF Kankerbestrijding about the supported charities; Expresso Clothing donations to the Food Bank, Bont voor • Provide a clearer framework for brands and concepts Dieren (Fur for Animals) and Look Good Feel Better to develop a charitable plan; Miss Etam, Steps, Clothing donations (Limburg and Zoetermeer • Work towards a standard policy for charitable initiatives with Promiss clothing banks, Stichting Oekraïne) the objective of achieving greater impact and synergies. Buying offices Donation to a local initiative in Turkey The brands can decide which charities they wish to support, provided that they take into account certain 2.4.2. Dialogue with stakeholders guidelines. The most important guideline is that the FNG attaches great importance to involving all selected charity or cooperation must have a direct link organisations and individuals that are directly or indirectly with the brand’s DNA. Specifically, the following types of associated with FNG and its brands. For each interest projects are encouraged: group, the form of dialogue and cooperation were determined and implementing initiatives taken in 2018. • Projects that lead to improvements (in working conditions) in production countries, projects related to education and The following overview provides a non-exhaustive list of awareness in production countries; the groups and initiatives taken in 2018 and the important • Projects that contribute to reducing the ecological footprint; topics covered. • Projects that contribute to communication about and awareness of CSR with partners and customers; • Projects related to education.
ANNUAL REPORT — 2018 85 GROUP OBJECTIVE 2018 INITIATIVES RELATED GOALS
Customers Offer clothing and shoes through • Customer centricity project • Customer satisfaction customer-preferred channels. • Update of websites with CSR information • Value chain transparency Ensure availability to customers through • Hello Customer implementation across the group • Marketing and consumer customer-preferred channels. communication • Product quality
Employees and Ensure employee well-being and • Regular social consultation • Health, safety and well-being of unions welfare at work, through the provision • Evaluation opportunities for all employees employees of evaluation opportunities, training and • Regular provision of information to office staff • Recruitment, talent development social dialogue. • Regular training, mainly for shop staff and retention
Shareholders and FNG maintains contact with shareholders • Information on FNG’s website in accordance • Value chain transparency investors and investors in accordance with the with the rules • Marketing and consumer applicable rules and regulations. • Official press releases communication • Meetings with investors in accordance with the rules • VFB membership • Regular presentations
Suppliers FNG focuses on intense screening of • Internal and external audits with CAPs and • Emulation of Code of Conduct its suppliers and engages in continuous follow-up meetings • Use of sustainable materials communication in order to achieve • Day-to-day communication • Sustainable purchasing improvements with them. • Sharing and follow-up of FNG policies with • Product quality suppliers (Code of Conduct, RSL, product policy, anti-fraud, etc.)
Partners, FNG strives to learn and improve its • Close the loop project with FFI • Emulation of Code of Conduct professional organisation and seeks good partners in • Signing of the agreement on sustainable textiles • Use of sustainable materials associations this regard. • Membership in Modint • Sustainable purchasing and NGOs • Various charitable projects with NGO partners • Product quality • Value chain transparency • Marketing and consumer communication
Press, influencers Open communication with the press and • Organisation of multiple press information sessions • Value chain transparency and opinion makers opinion makers is essential in order to • Regular sending of press releases • Marketing and consumer reach other interest groups. • Cooperation with influencers for several communication FNG brands
Schools FNG wishes to contribute to the • Company visit by Antwerp Management School • Value chain transparency development of students and is open • Apprenticeships for students from • Marketing and consumer to opportunities for cooperation and vocational schools communication guidance. • Contacts and knowledge sharing for • Emulation of Code of Conduct master’s theses • Use of sustainable materials • Sustainable materials • Product quality
Local environment FNG takes into account the impact it • Local purchasing • Sustainable purchasing policy has on the immediate environment of its • Support for charitable initiatives • Charitable initiatives offices and shops. • Local sales
By means of honest dialogue, FNG’s partners share with the organisation their knowledge and expertise. FNG is grateful for their active support of sustainable development and strives to keep all stakeholders motivated to go one step further.
ANNUAL REPORT — 2018 86 fred + ginger
ANNUAL REPORT — 2018 87 2.4.3. How FNG wishes to inform and inspire its In addition, shop employees were briefed on FNG’s CSR consumers about sustainability policy at least once during a training session in 2018. FNG considers it its responsibility to inform and inspire the For some concepts, two information sessions were held. users of its products about sustainability. The focus is first On these occasions, employees are informed of the and foremost on the quality of its products regardless of initiatives FNG is taking, detailed information about the their price point. FNG also tries to inform customers how role of FNG’s CSR employees in the production countries to properly maintain their purchases, which can extend the is provided, tips for the proper maintenance of FNG’s life of the goods. This is done in various ways. products are shared, etc. In this way all shop employees can answer customer questions and provide advice. In addition to the classic washing and care instructions that appear on clothing labels, in 2018 all labels of the CSR employees regularly receive emails from customers, Belgian FNG brands were given the Clevercare symbol. the press and schools regarding various aspects of the The Clevercare symbol was developed by Ginitex to organisation’s CSR policy, in particular the sustainable encourage customers to take care of their clothing in a production process. In 2018, several school groups visited more environmentally conscious way. The website http:// FNG’s offices, on which occasion they were provided with clevercare.org/en gives readers tips on how to wash and an explanation of FNG’s CSR approach. care for their clothing with the least possible impact on the environment. For many sustainability actors, this label is an FNG is committed to helping students in the context of indication that a company wishes to promote environmental their master’s thesis or with requests for internships with awareness with both producers and consumers. a fashion company. The applications are screened for relevance to ensure that the experience will have added In 2018, articles made of more sensitive materials (such as value for the student and fits in with the workings of appliqués and delicate fabrics) were given an additional FNG. In this way, FNG was able to offer several students hang tag to inform consumers about the material in order internships in 2018. There was also a company visit by to extend the life of the article through proper care. Master of International Fashion Management students from the Antwerp Management School. In addition, the CSR page on all websites of FNG brands and concepts was updated in 2018. For some brands, the sustainability tips are integrated into frequently asked questions (for example Brantano). Other brands provide a specific information page for consumers where CSR reports can be found and where detailed tips for product care and sustainable living are provided (for example, Fred & Ginger 10 tips for going back to school in a sustainable way on 1 September: https://www.fredginger. com/nlfg/life/mvo/10-duurzame-back-to-school-tips.html).
Furthermore, in 2018, all FNG brands and concepts were instructed to actively communicate about their sustainability policy on their own web and blog channels as well as on social media and through traditional mailings.
ANNUAL REPORT — 2018 88 2.5. HOW ECONOMIC LEVERS STRENGTHEN CSR For the “omnichannel CX” position, it is important that the 2.5.1. Innovation in the context of the customer experience the same service level at all contact optichannel strategy points, regardless of the preferred channel, such as social In 2018, FNG invested heavily in further improving the media, e-mail, chat, in shops, etc. accessibility of its products in accordance with the optichannel strategy. Many consumers seek direction online Customer centricity is measured by analysing and for offline purchases. This results in what is known as the categorising customer questions per department omnichannel dilemma in the customer cycle: on the one responsible for achieving customer solutions, using KPIs, hand, customers explore the market via their smartphone, SLAs and NPS scores. If the NPS score is not satisfactory, tablet or PC. On the other hand, more than 80% of customers the process for the relevant customer question is reviewed. need a bricks-and-mortar shop to actually make a purchase. In this way, every department is involved in the customer The art lies in the optichannel customer approach. process and customer-conscious thinking reaches deep into the internal organisation. FNG first determines the function served by the online channel in the formula, how costs can be contained, how The omnichannel CX is measured by asking customers data can be used responsibly and how offline and online who have made a purchase about their experience with platforms can optimally reinforce each other. the FNG brand, on a scale of 1 to 10. The customer can also leave comments in an open field. For the brands and In this regard, the service level in shops is of the utmost concepts for which the customer survey is already used, importance, and in 2018 the focus was on recruiting and 20% of customers answer the survey, of which 50% leave a training staff who are sensitive to customers. FNG invested comment. This information is categorised via AI into topics in its web platforms so that customers can find products that can be traced to a specific department. For example, in their size. Artificial intelligence techniques are used to it is possible to focus on topics that receive a lower NPS improve ease of use and reduce the cost of the logistics score to improve the customer experience. process. This is done, amongst other things, through initiatives to reduce the percentage of returns. In this way, the NPS score of Brantano improved in 2018 by three NPS points in the last quarter compared to the three 2.5.2. Customer centricity and the preceding quarters, after actions in September were taken consequences thereof based on customer comments. Although the various FNG brands and concepts have been building teams responsible for customer service for years, This method of measuring customer satisfaction was a project was launched in 2018 with the objective of making extended to all Dutch brands and concepts at the end the customer even more central to the organisation. This of 2018. is achieved through a reorganisation of the departments and services involved, in accordance with a vision whereby customer experience is focused on two pillars, namely “customer centricity” and “omnichannel CX”.
With regard to “customer centricity”, it is important that every department within the various brands play a role in the customer’s journey through participation in workflow processes, starting from customer demand, with the departments involved continuously elaborating on and overhauling them.
ANNUAL REPORT — 2018 89 2.5.3. Privacy and GDPR Prior to the GDPR, privacy law provided that customers 2018 saw the entry into force of the General Data should be able to exercise their rights. This is nothing Protection Regulation (GDPR), the new European regulation new. However, the GDPR has created greater awareness which standardised the rules on the processing of personal amongst customers of their rights. data by companies such as FNG at European level and strengthened the rights of data subjects. With the help of Consequently, FNG offers its customers the possibility to specialised consultants, FNG started analysing, planning exercise the additional rights provided for by the GDPR in and implementing in 2017 the steps to be taken to comply a simple manner online. Examples of the impact of the with the GDPR. GDPR include:
FNG’s policy of transparently informing customers, • Appointment of a data protection officer staff and other persons who provide data and adequately • GDPR training for all head office and shop employees protecting these data is based on six pillars: the necessary governance structure, clear policy guidelines, clear procedures, a clear and precise data processing register, contracts with the external parties with which FNG works for data processing, and training and education of employees.
The implementation of the GDPR has required not only significant efforts by the Marketing, IT & HR departments but also greater attention by the entire organisation with regard to the collection, processing and securing of data and has resulted in operational improvements.
ANNUAL REPORT — 2018 90 2.5.4. Transparency and traceability in the supply chain addresses and production processes) with the Fair Wear The production of FNG brands is completely outsourced Foundation. In its three largest production countries - to partner factories around the world. In order to allow Turkey, India and China - production is supported by local efficient oversight of the supply chain, FNG has shared a buying offices. In Europe, the countries are classified into complete list of its production sites (with names, high risk or low risk categories for control purposes.
32% 28% 29% 30% 25%
17% 8% 6% 6% 7% 4% 3% 2% 1% 1% 1%
Turkey China EU Bangladesh India Tunisia Morocco Other
2017 2018
% Buying volumes (EUR) per country in 2017 en 2018
2.5.5. Fraud and the fight against corruption Although the countries where FNG produces goods are FNG employees are trained in how to identify such conduct increasingly monitoring fraud and anti-corruption, it and via the risk matrix can obtain advice on how to deal remains important for FNG to be vigilant. On the basis of with such matters. the aforementioned country risk matrix, local employees as well as employees at the European offices can make At all offices worldwide, the employment contracts, be they a good risk analysis per country and take the necessary permanent or temporary, mention an obligation to comply measures. The matrix specifically addresses corruption with the applicable rules and regulations. To supervise and/or fraud risks per country. compliance, approval and control systems have been set up within the organisation. FNG’s code of conduct for external manufacturers, suppliers, contractors, subcontractors and other workplaces expressly refers to an obligation to comply with ethical business practices, which means they must not be involved in any act of corruption, extortion or embezzlement or in any form of bribery - including but not limited to - promising, offering, giving or accepting an inappropriate monetary or other incentive.
ANNUAL REPORT — 2018 91 Suitcase 3. GRI CONTENT INDEX
GRI GRI STANDARD NUMBER DESCRIPTION SOURCE/INFO
General publications
Organisation profile 102-1 Name of the organisation P. 11
102-2 Activities, brands, products and services P. 12
102-3 Location of headquarters P. 11
102-4 Location of operations P. 11, 67
102-5 Ownership and legal form P. 11, 53
102-6 Markets served P. 25
102-7 Scale of the organisation P. 14
102-8 Information on employees and other workers P. 72
102-9 Supply chain P. 21, 78, 83, 91
102-10 Significant changes to the organisation and its supply chain P. 16
102-11 Application of the precautionary principle or approach by the organisation P. 78, 79
102-12 Description of external charters or other initiatives endorsed by the organisation P. 73, 85
102-13 Membership in associations including interest groups P. 73, 85
Strategy 102-14 CSR statement by senior decision-maker P. 6
102-15 Key impacts, risks and opportunities P. 19, 20, 24, 33
Ethics and integrity 102-16 Values, principles, standards and norms of behaviour P. 22, 41, 65
Governance 102-18 Governance structure P. 41, 67
Stakeholder 102-40 List of stakeholder groups P. 85 engagement
102-41 Collective bargaining agreements P. 70, 72
102-42 Basis for the identification and selection of stakeholders P. 85
102-43 Overview of stakeholder engagement activities P. 85
102-44 Key topics and concerns raised by stakeholders P. 68, 85
Reporting 102-45 Entities included in the consolidated financial statements P. 134 practice
102-46 Defining report content and topic boundaries P. 68
102-47 List of material topics P. 68
102-48 Restatements of information Not applicable
102-49 Changes in reporting1 P. 68
102-50 Reporting period Financial Year 2018
102 -51 Date of most recent report October 18
102 -52 Reporting cycle Yearly
ANNUAL REPORT — 2018 93 102 -53 Contact point for questions about the CSR report Ms Anja Maes
102 -54 Claims of reporting in accordance with the GRI Standards Core
102 -55 GRI content index P. 93
102 -56 External assurance (validation of the report by external persons) P. 142
Selection of material topics
PEOPLE
Wellbeing, health 103 - 1/3 Explanation of the material topic and its boundary P. 70 and safety of our Management approach and its components employees Evaluation of the management approach
403 -1 Management system for health and safety at work P. 70
404 -1 Training and education: explanation of material aspects and scope of application, P. 71, 73 management approach and evaluation + average number of training days per employee
Employee 103 - 1/3 Explanation of material aspects and scope of application P. 71 recruitment, Management approach and components development and Evaluation of management approach retention
405 - 1 Diversity of governance bodies and employees P. 72
406 - 1 Incidents of discrimination and corrective actions taken P. 72
Screening of 103 - 1/3 Explanation of material aspects and scope of application P. 73, 77 suppliers Management approach and components (human rights) Evaluation of management approach
414 - 2 Negative social impacts in the supply chain and actions taken P. 73
408 - 1 Operations and suppliers at significant risk for incidents of child labour P. 76, 77
406 - 1 Incidents of discrimination and corrective actions taken P. 76, 77
409 - 1 Operations and suppliers at significant risk for incidents of forced or compulsory labour P. 76, 77
407 - 1 Freedom of association and collective bargaining P. 76, 77
Own Statutory minimum wage P. 76, 77 indicator
Own Health and safety at suppliers P. 77 indicator
PRODUCTS
Product quality 103 - 1/3 Explanation of material aspects and scope of application P. 77, 78 and safety Management approach and components Evaluation of management approach
Product design 103 - 1/3 Management approach - sustainable purchasing policy P. 77, 78 and development
Own Use of sustainable materials - management approach2 P. 77 indicator
417 - 1 Requirements for product and service information and labelling P. 78
417 - 2 Incidents of noncompliance concerning product and service information and labelling P. 78
Purchasing 103 - 1/3 Management approach P. 73, 77, 83, 91 strategy and policy
ANNUAL REPORT — 2018 94 THE ENVIRONMENT
Energy 103 - 1/3 Explanation of material aspects and scope of application P. 80 consumption Management approach and components Evaluation of management approach
302 - 1 Energy consumption within the organisation P. 81
305 - 1 Direct GHG emissions (GHG - scope 1) P. 84
305 - 2 Indirect GHG emissions (GHG - scope 2) P. 84
305 - 3 Other GHG emissions (GHG - scope 3) P. 84
Transport 103 - 1/3 Explanation of material aspects and scope of application P. 83 emissions Management approach and components Evaluation of management approach
305 - 1 Direct GHG emissions (GHG - scope 1) P. 84
305 - 3 Other GHG emissions (GHG - scope 3) P. 84
Waste 103 - 1/3 Explanation of material aspects and scope of application P. 82 management Management approach and components Evaluation of management approach
303 - 5 Water consumption P. 81
306 - 2 Waste by type and disposal method P. 82
COOPERATION
Relations with 103 - 1/3 Explanation of material aspects and scope of application P. 85 stakeholders Management approach and components Evaluation of management approach
Sustainable 103 - 1/3 Explanation of material aspects and scope of application P. 85 marketing Management approach and components and consumer Evaluation of management approach communication
Charitable Own Explanation of material aspects and scope of application P. 88 initiatives indicator Management approach and components Evaluation of management approach
ECONOMIC LEVERS
Innovation Own Explanation of material aspects and scope of application P. 89 indicator Management approach and components Evaluation of management approach
Customer Own Explanation of material aspects and scope of application P. 89 satisfaction indicator Management approach and components Evaluation of management approach
Communication 103 1/3 Explanation of material aspects and scope of application P. 90 and transparency Management approach and components (GRI 418: customer Evaluation of management approach privacy)
Transparency and Own Explanation of material aspects and scope of application P. 91 traceability of the indicator Management approach and components supply chain Evaluation of management approach
Fraud and 103 1/3 Explanation of material aspects and scope of application P. 91 anti-corruption Management approach and components (GRI 205: anti- Evaluation of management approach corruption)
1 The 2018 report contains more KPIs than 2017. This exercise is being continued with a view to the future. For the first time, a standard was also applied, being GRI. 2 Data not fully available for reporting in accordance with the GRI standard.
ANNUAL REPORT — 2018 95 FINANCIAL STATEMENTS For the year ended 31 December 2018
STATEMENT OF THE BOARD OF DIRECTORS 98 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 100 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 101 CONSOLIDATED STATEMENT OF CASH FLOWS 102 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 104 1. GENERAL INFORMATION 104 2. GROUP ACCOUNTING POLICIES 104 2.1. STATEMENT OF COMPLIANCE AND BASIS FOR PREPARATION 104 2.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 105 3. OPERATING SEGMENTS 112 3.1. SEGMENT REVENUE AND RESULTS 112 3.2. GEOGRAPHICAL INFORMATION 113 3.3. OTHER INFORMATION 113 4. BUSINESS COMBINATIONS AND CHANGES IN CONSOLIDATION SCOPE 113 4.1. 2018 ACQUISITIONS 113 4.2. 2017 ACQUISITIONS 114 4.3. DISPOSAL OF SUBSIDIARIES 115 5. NOTES RELATING TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 116 5.1. GOODWILL 116 5.2. INTANGIBLE ASSETS 117 5.3. PROPERTY, PLANT AND EQUIPMENT 118 5.4. INVENTORIES 119 5.5. TRADE AND OTHER RECEIVABLES 119 5.6. OTHER FINANCIAL ASSETS AND OTHER ASSETS 120 5.7. CASH AND CASH EQUIVALENTS 120 5.8. DEFERRED TAXES 120 5.9. SHARE CAPITAL 121 5.10. PROVISIONS 122 5.11. POST-EMPLOYMENT BENEFIT OBLIGATIONS 123
ANNUAL REPORT — 2018 96 5.12. BORROWINGS 123 5.13. OTHER FINANCIAL LIABILITIES 125 5.14. TRADE AND OTHER PAYABLES 126 5.15. OTHER CURRENT LIABILITIES 126 5.16. DERIVATIVE INSTRUMENTS 126 6. NOTES RELATING TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 127 6.1. REVENUE 127 6.2. EMPLOYEE BENEFIT EXPENSE 127 6.3. OTHER OPERATING EXPENSES 127 6.4. NON-RECURRING ITEMS 128 6.5. AMORTISATION AND DEPRECIATION EXPENSES 128 6.6. FINANCIAL RESULT 128 6.7. INCOME TAXES 128 6.8. EARNINGS PER SHARE 129 7. FINANCIAL INSTRUMENTS AND FINANCIAL RISKS 130 7.1. OVERVIEW OF FINANCIAL INSTRUMENTS AND FAIR VALUES 130 7.2. FINANCIAL RISK MANAGEMENT 132 8. OTHER DISCLOSURES 134 8.1. CONSOLIDATION SCOPE 134 8.2. RELATED PARTY TRANSACTIONS 135 8.3. CONTINGENT ASSETS AND LIABILITIES 136 8.4. COMMITMENTS 136 8.5. AUDIT FEES 137 8.6. EVENTS AFTER THE REPORTING PERIOD 137 FNG NV STATUTORY FINANCIAL STATEMENTS 138 1. CONDENSED BALANCE SHEET AFTER RESULT APPROPRIATION 138 2. CONDENSED INCOME STATEMENT 139 3. SUMMARY OF THE REPORT OF THE BOARD OF DIRECTORS 139 ALTERNATIVE PERFORMANCE MEASURES – GLOSSARY 140
ANNUAL REPORT — 2018 97 STATEMENT OF THE BOARD OF DIRECTORS
The Board of Directors of FNG NV certifies in the name and on behalf of FNG NV, that to the best of their knowledge,
I the consolidated financial statements, established in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, give a true and fair view of the assets, financial position and results of FNG NV and of the entities included in the consolidation;
II the annual review presents a fair overview of the development and the results of the business and the position of FNG NV and of the entities included in the consolidation, as well as a description of the principal risks and uncertainties facing them pursuant Article 12, paragraph 2 of the Royal Decree of November 14, 2007.
ANNUAL REPORT — 2018 98 CKS
ANNUAL REPORT — 2018 99 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS (in thousands of euros) Note 31/12/2018 31/12/2017
Non-current assets 514,070 441,971
Goodwill 5.1. 86,158 80,162
Intangible assets 5.2. 333,102 275,313
Property, plant and equipment 5.3. 76,173 70,175
Deferred tax assets 5.8. 18,636 16,321
Current assets 320,832 255,947
Inventories 5.4. 108,082 82,787
Trade and other receivables 5.5. 72,173 69,601
Income tax receivables 131 0
Other financial assets 5.6. 18,718 9,035
Other current assets 5.6. 3,585 4,053
Cash and cash equivalents 5.7. 118,143 90,470
TOTAL ASSETS 834,902 697,918
EQUITY AND LIABILITIES (in thousands of euros) Note 31/12/2018 31/12/2017
Equity attributable to owners of the parent 342,734 272,096 Share capital 5.9. 60,679 718 Share premium 264,408 265,304
Retained earnings and other reserves 17,646 6,074
Total equity 342,734 272,096
Non-current liabilities 347,804 243,703
Provisions 5.10. 0 357
Post-employment benefit obligations 5.11. 101 154
Borrowings 5.12. 273,763 178,750
Other financial liabilities 5.13. 17,147 17,208
Deferred tax liabilities 5.8. 56,793 47,235
Current liabilities 144,365 182,119
Provisions 5.10. 1,949 1,316
Borrowings 5.12. 11,605 56,596
Trade and other payables 5.14. 113,826 96,287
Current tax liabilities 4,336 1,142
Other financial liabilities 5.13. 5,839 19,877
Other current liabilities 5.15. 6,810 6,901
Total liabilities 492,168 425,822
TOTAL EQUITY AND LIABILITIES 834,902 697,918
ANNUAL REPORT — 2018 100 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands of euros) Note 2018 2017
Revenue 3.1./6.1. 511,794 482,402
Cost of merchandise (231,571) (215,329)
Gross profit 280,223 267,074
Employee benefit expense 6.2. (89,365) (90,861)
Other operating expenses 6.3. (138,459) (130,832)
Adjusted operating profit/(loss) before amortisation and 52,398 45,381 depreciation expense (Adjusted EBITDA)
Non-recurring items1 6.5. 2,482 (7,516)
Operating profit/(loss) before amortisation and depreciation expense (EBITDA) 54,879 37,865
Amortisation and depreciation expenses 6.4. (22,543) (18,777)
Operating profit/(loss) (EBIT) 32,337 19,087
Financial income 6.6. 729 2,548
Financial expenses 6.6. (18,303) (13,216)
Exchange gains/(losses) (43) (647)
Profit/(loss) before taxes 14,720 7,772
Income taxes 6.7. (3,181) (459)
PROFIT/(LOSS) FOR THE PERIOD 11,538 7,313
Other comprehensive income (OCI)
Items of OCI which will never be recycled to P&L
Remeasurement of post-employment benefit plans 29 255
Items of OCI which will be recycled to P&L
Exchange differences upon translation of foreign operations 12 (180)
Income tax relating to components of OCI (-) (7) (64)
Other comprehensive income 34 11
TOTAL COMPREHENSIVE INCOME OF THE PERIOD 11,573 7,324
Basic and diluted earnings/(loss) per share (in €) 6.8. 1.15 0.91
Profit/(loss) for the period attributable to the owners of the Company 11,538 7,313
Profit/(loss) for the period attributable to the non-controlling interests 0 0
Total comprehensive income for the period attributable to the owners of the Company 11,573 7,324
Total comprehensive income for the period attributable to the non-controlling interests 0 0
1 Non-recurring items are either income or expenses which do not occur regularly as part of the normal activities of the company. They are presented separately because they are important for the understanding of the underlying sustainable performance of the Company due to their size or nature.
ANNUAL REPORT — 2018 101 CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of euros) Note 2018 2017
CASH FLOW FROM OPERATING ACTIVITIES
Operating result 32,337 19,087
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortisation expenses 6.4. 22,543 18,776
Provisions 253 (502)
Loss on disposal 4. 0 4,407
Exchange (gains)/losses 43 647
Other (399) 338
Changes in working capital:
Inventories (6,948) 10,643
Trade and other receivables (5,503) (69,135)
Other financial assets 0 70
Other current assets 571 (780)
Trade and other payables 312 10,113
Other current liabilities (1,394) (2,032)
Cash generated from operations 41,815 (8,369)
Taxes received (80) 217 Net cash generated from operating activities 41,735 (8,152)
CASH FLOW FROM INVESTING ACTIVITIES
Interest received 729 2,548
Purchases of PP&E (23,175) (30,938)
Purchases of Intangible assets (3,747) (13,059)
Proceeds from disposal of PPE 3,088 2,629
Proceeds from disposal of intangible assets 21 591
Loans granted (18,718) 0
Disposal of subsidiaries 4.3. (1,351) 17,243
Acquisition of subsidiaries, Deferred consideration 4.2. (19,250) 0
Acquisition of subsidiaries, net of cash acquired 4.1. (37,317) (20,629)
Net cash provided by/(used in) investing activities (99,720) (41,615)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of equity instruments of the Company (net of issue costs) 5.9. 54,867 29,784
Proceeds from borrowings 206,080 83,200
Reimbursements of borrowings (164,559) (26,480)
Reimbursements of financial lease liabilities (888) 0
Interests paid (9,841) (13,174)
Net cash provided by/(used in) financing activities 85,658 73,330
NET INCREASE IN CASH AND CASH EQUIVALENTS 27,673 23,563
Cash and cash equivalents at beginning of year 90,470 66,907
Cash and cash equivalents at end of year 118,143 90,470
ANNUAL REPORT — 2018 102 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent
Reserves TOTAL Currency EQUITY Share Share Retained translation Other capital premium earnings reserve reserves
(In thousands of euros)
Balance at 31 December 2016 643 235,595 (5,178) 0 3,927 234,988
Total comprehensive income of the period 0 0 7,504 (180) 0 7,324 Issue of share capital 75 29,925 0 0 0 30,000
Transaction costs for equity issue 0 (216) 0 0 0 (216)
Balance at 31 December 2017 718 265,304 2,326 (180) 3,927 272,096
Total comprehensive income of the period 0 0 11,561 12 0 11,573 Issue of share capital 169 57,594 0 0 0 57,762
Transaction costs for equity issue 0 (1,896) 0 0 0 (1,896)
Contribution in kind 9 3,189 0 0 0 3,198
Contribution of share premium into share capital 59,783 (59,783) 0 0 0 0
Balance at 31 December 2018 60,679 264,408 13,887 (168) 3,927 342,734
ANNUAL REPORT — 2018 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION 2.1.1. Relevant standards and amendments issued and applicable for the year ended 31 December 2018 FNG NV (the “Company”) is a public limited liability company (naamloze vennootschap) created in the Netherlands and established in Belgium. The The following IFRS standards, interpretations and amendments became registered office is located at Bautersemstraat 68A, 2800 Mechelen, Belgium. effective for the first time for the year ended 31 December 2018: The principal place of business is located in Belgium and the Netherlands. The Company’s shares are listed on Euronext Brussels and Euronext • IFRS 9 Financial instruments Amsterdam and the Group has more than 3,000 employees (in headcounts). • IFRS 9 replaces IAS 39 Financial Instruments: Recognition and The Company’s consolidated financial statements include: Measurement and brings together the following aspects of accounting for financial instruments: classification and measurement, impairment, • the accounts of companies directly or indirectly controlled by the Company, and hedge accounting. IFRS 9 changes the classification and which are fully consolidated; and measurement of financial assets and includes a new model for assessing • its investments in associates, which are accounted for under the the impairment of the financial assets based on expected credit losses. equity method. The first application of IFRS 9 did not have a significant impact on All these economic entities are collectively referred to as the “Group”. the consolidated financial statements. For a detailed analysis of the potential impact of IFRS 9 is refered to the 2017 consolidated financial statements. FNG is a strong growing Benelux-fashion group with activities all over Europe.
The Group designs and distributes clothing and shoes for women, children IFRS 9 was applied according to the modified retrospective approach, and men through own concept-stores at top locations in Belgium and the i.e. without restating the comparative period. Netherlands and through a network of multi-trademark stores in domestic and foreign countries. • IFRS 15 Revenue from Contracts with Customers The Group’s consolidated financial statements at 31 December 2018 were prepared under the responsibility of the Board of Directors and authorised • IFRS 15 supersedes IAS 18 Revenue and IAS 11 Construction Contracts for issue by the Directors at the Board meeting held on 16 April 2019. and establishes a comprehensive framework for determining when to recognize revenue and how much revenue to recognize for all contracts with customers, except for revenue from leases, financial instruments 2. GROUP ACCOUNTING POLICIES and insurance contracts. The timing of the revenue recognition can take place over time or at a point in time, depending on the transfer of 2.1. Statement of compliance and basis for preparation control. The standard also introduces new guidance on costs of fulfilling and obtaining a contract, specifying the circumstances in which such The Group’s consolidated financial statements for the year ended 31 costs should be capitalized or expensed when incurred. Furthermore, December 2018 have been prepared in accordance with International the new disclosures included in IFRS 15 are more detailed than those Financial Reporting Standards as endorsed by the European Union (“IFRS”). applicable under IAS 18.
The consolidated financial statements have been prepared on the basis of IFRS 15 was applied according to the modified retrospective approach, the historical cost method. Any exceptions to the historical cost method are i.e. without restating the comparative period. disclosed in the accounting policies described hereafter. • Improvements to IFRS (2014-2016) The Group’s consolidated financial statements are presented in thousands of Euros, unless stated otherwise. Euro is also the functional currency of the • This set of amendments impacts: IFRS 1 First-time adoption of IFRS, company and all other entities of the Group. regarding the deletion of short-term exemptions for first-time adopters regarding IFRS 7, IAS 19, and IFRS 10; and IAS 28 Investments in These consolidated financial statements do not include any information Associates and Joint Ventures regarding measuring an associate or or disclosures that, not requiring presentation due to their qualitative joint venture at fair value. significance, have been determined as immaterial or of no relevance pursuant to the concepts of materiality or relevance defined in the IFRS • Amendments to IFRS 2 Classification and Measurement of conceptual framework, insofar as the Group’s consolidated financial Share-based Payment Transactions statements, taken as a whole, are concerned. • The amendment clarifies the measurement basis for cash-settled Furthermore, the consolidated financial statements include “Alternative payments and the accounting for modifications that change an award Performance Measures” (APM) which are not defined as such under IFRS. from cash settled to equity settled. It also introduces an exception to The Group uses the Adjusted EBITDA measure in its decision-making, the principles in IFRS 2 that will require an award to be treated as if it because it provides information useful to assess the Group’s performance, was wholly equity-settled, where an employer is obliged to withhold an solvency and liquidity. This measure should not be viewed in isolation or as amount for the employee’s tax obligation associated with a share-based an alternative to the measures presented according to the IFRS. payment and pay the amount to the tax authorities.
Adjusted EBITDA (adjusted earnings before interest and depreciation and • IFRIC 22 Foreign Currency Transactions and Advance Consideration amortisation) is calculated by excluding from the profit/loss for the year before taxes the financial results (detailed in note 6.6.), the depreciation and • This interpretation addresses foreign currency transactions or parts of amortisation expenses and impairment losses on assets and the non-recurring transactions where there is consideration that is denominated or priced items. Non-recurring items are either income or expenses which do not occur in a foreign currency. regularly as part of the normal activities of the company. They are presented separately because they are important for the understanding of the underlying The above-mentioned standards did not have an impact on the sustainable performance of the Company due to their size or nature. financial statements.
ANNUAL REPORT — 2018 104 2.1.2. Relevant standards and amendments issued but not yet effective 2.2. Summary of significant accounting policies
IFRS standards, interpretations and amendments that have been issued but The following accounting methods have been applied consistently through that are not yet effective, have not been applied to the consolidated IFRS all the periods presented in the consolidated financial statements. financial statements for the year ended 31 December 2018. 2.2.1. Significant management judgments and estimates • IFRS 16 Leases The preparation of the consolidated financial statements requires the use of • IFRS 16 supersedes IAS 17 Leases and related interpretations. For judgments, best estimates and assumptions in recognising and measuring lessees, IFRS 16 requires most leases to be recognized on balance assets and liabilities, income and expenses, considering positive and (under a single model), eliminating the distinction between operating negative contingencies existing at year-end. Amounts reported by the and finance leases. In accordance with the new standard, the lessee Group in future financial statements could differ significantly from current will recognize assets and liabilities for the rights and obligations created estimates due to changes in these assumptions or economic conditions. by leases. The standard increases interest-bearing liabilities and non- current assets (new class “Right-of-use assets”) in the consolidated The most significant management judgements and estimates are financial statements. In addition, the rental expenses recognized in described below. profit or loss will decrease and depreciation and amortization as well as interest expenses will increase. As a result of these impacts, adjusted 2.2.1.1. Going concern EBITDA will be impacted significantly. However, net result (profit of the period) will only be impacted to a limited extent. As at 31 December 2018, the Group had a liquidity position of € 118,143 thousands consisting of cash and cash equivalents. Considering this IFRS 16 is effective for the reporting periods beginning on January liquidity position as well as the refinancing facility of € 240,000 thousands 1, 2019. The Group applies the new guidelines for lease accounting entered in February 2018, the Board of Directors is of the opinion that the retrospectively with the cumulative effect of initially applying the liquidity position is sufficient to continue the current operations at least for standard recognized on January 1, 2019 (modified retrospective the next reporting periods. approach) in accordance with the transition requirements of IFRS 16. The comparative statements will not be restated. Upon transition, the 2.2.1.2. Impairment of assets Group uses practical expedients authorized by the standard, such as: using a single discount rate to a portfolio of leases with reasonably The Group reviews the carrying amount of goodwill and intangible assets similar characteristics and not reassessing whether a contract is, or with indefinite lives for potential impairment on an annual basis and also contains, a lease at the date of initial application, for contracts entered whenever events or changes in circumstances indicate the carrying value into before January 1, 2019. of an asset may not be recoverable. The Group reviews the carrying value of tangible assets and intangible assets with definitive lives for potential Furthermore, the Group will use the exemptions not to apply the impairment whenever events or changes in circumstances indicate the recognition requirements of the standard for short-term leases and carrying value of an asset may not be recoverable. The Group determines low-value assets. impairment by comparing the recoverable amount to its carrying value. If impairment is identified, a loss is recorded equal to the excess of the Upon transition, the Group measures the lease liability at the present asset’s carrying amount over its recoverable amount. value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application. The For impaired assets, the Group recognizes a loss equal to the difference related right-of-use assets are measured at an amount equal to the between the carrying amount of the asset and its recoverable amount. The lease liability, adjusted by the amount of any prepaid or accrued lease recoverable amount, being the higher of the fair value less costs to sell payments relating to that lease recognised in the statement of financial and value in use, is based on discounted future cash flows of the asset position per December 31, 2018. using a discounted rate commensurate with the risk. Estimates of future cost savings, based on what we believe to be reasonable and supportable Upon transition date, the right-of-use assets consist mainly of stores assumptions and projections, require management’s judgement. Actual and other buildings and vehicles. As at December 31, 2018, the Group results could vary from these estimates. When it is not possible to estimate has non-cancellable undiscounted operating lease commitments of the recoverable amount of an individual asset, the Group estimates the € 136,661 thousands, which are detailed in note 8.4. recoverable amount of the cash generating unit to which the asset belongs.
• The following new relevant standards, amendments to standards and 2.2.1.3. Pensions and other long-term and post-employment benefits annual improvement cycles have been issued, but are not mandatory The value of pensions and other long-term and post-employment benefit for the first time for the financial periods beginning January 1, 2019 obligations is based on actuarial valuations that are sensitive to all the and are expected not to have a significant impact on the consolidated actuarial assumptions used, particularly concerning discount rates, financial statements: inflation rates and wage increase rates. These assumptions are updated annually. The Group considers the actuarial assumptions used at 31 • Amendments to IFRS 3 Definition of a Business December 2018 appropriate and well-founded, but future changes in (effective January 1, 2020, but not yet endorsed in EU) these assumptions could have a significant effect on the amount of the • Amendments to IAS 1 and IAS 8 Definition of Material obligations and the Group’s equity and net profit. However, as the impact (effective January 1, 2020, but not yet endorsed in EU) on the financial statements is not significant, the Company has decided not • Amendments to IAS 19 Employee Benefits to include all the disclosures in accordance with IAS 19 Employee Benefits (effective January 1, 2019, but not yet endorsed in EU) (see also note 5.11.). • Annual improvements 2015-2017 (effective January 1, 2019, but not yet endorsed in EU) 2.2.1.4. Deferred tax assets • IFRIC 23 Uncertainty over Income Tax Treatments (effective January 1, 2019) Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
ANNUAL REPORT — 2018 105 2.2.1.5. Fair value of financial instruments At the date of acquisition, the identifiable assets acquired and liabilities assumed, measured at fair value, and any non-controlling interests The fair value of financial instruments that are not traded in an active (minority interest) in the company acquired (“acquiree”) are recorded market (for example, over-the-counter derivatives) is determined by using separately from goodwill. valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market Goodwill is measured as the difference between: conditions existing at the end of each reporting period. All derivative financial instruments are, in accordance with IFRS 7, classified as level • the sum of the following items: 2. This means valuation methods are used for which all inputs that have a significant effect on the recorded fair value are observable in the market, either directly or indirectly. • the acquisition-date fair value of the consideration transferred to acquire control, including any contingent consideration (e.g. earn-outs) 2.2.1.6 Measurement of inventories that is measured at fair value at acquisition date, • the value of non-controlling interests in the acquiree being measured Inventories are measured at the lower of cost and net realisable value. either at fair value (full goodwill method) or at their share in the fair The net realisable value is monitored continuously, and impairment losses value of the net assets of the acquiree (partial goodwill method) on a are recognised when the cost of inventories exceed the net realisable value. case-by-case basis, and • for acquisitions achieved in stages, the acquisition-date fair value of the 2.2.2. Consolidation methods Group’s share in the acquired entity before it acquired control; and
A list of subsidiaries and associates is presented in note 8.1. • the net value of the assets acquired and liabilities assumed, measured at fair value at the acquisition date. 2.2.2.1. Subsidiaries When this difference is negative, it is immediately recognised as a gain in the Subsidiaries are companies in which the Group exercises exclusive control statement of profit or loss. and are fully consolidated. The Group controls an entity when the three following conditions are fulfilled: After initial recognition, goodwill is measured at cost less any impairment losses. Goodwill is not amortised, but impairment tests are carried out as • it holds power over the entity; soon as there is an indication of possible impairment, and at least annually • it is exposed, or has rights, to variable returns from its involvement with (including in the year of acquisition), as described in note 2.2.8. the entity; • it has the ability to use its power over the investee to affect the amount Costs incurred by the Group to effect a business combination (acquisition- of the investor’s returns. related costs) are immediately expensed, except with respect to issuance costs of debt or equity securities that are recognised in compliance with IAS The Group considers all facts and circumstances when assessing control. 32 and IFRS 9. All substantive potential voting rights exercisable, including by another party, are also taken into consideration. The Group reassesses whether or The accounting for a business combination, including the fair value not it controls an investee if facts and circumstances indicate that there are measurement of assets acquired and liabilities assumed, is finalised within changes to one or more of the three elements of control. twelve months from the acquisition date.
Consolidation of a subsidiary begins when the Group obtains control over IFRS 3 does not apply to business combinations under common control, the subsidiary and ceases when the Group loses control of the subsidiary. which are examined on a case-by-case basis to determine the appropriate Specifically, income and expenses of a subsidiary acquired or disposed accounting treatment. of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the date the Group gains 2.2.4. Foreign currencies control until the date when the Group ceases to control the subsidiary.
In preparing the financial statements of each individual group entity, When the Group gains control of a subsidiary, the transaction is a business transactions in currencies other than the entity’s functional currency (foreign combination treated in accordance with the policy described in note 2.2.3. currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items When the Group loses control of a subsidiary, the Group derecognises denominated in foreign currencies are retranslated at the rates prevailing at the assets and liabilities of the former subsidiary from the consolidated that date. Non-monetary items carried at fair value that are denominated in statement of financial position with a gain or loss recognised in the foreign currencies are retranslated at the rates prevailing at the date when statement of profit or loss. The Group recognises any investment retained the fair value was determined. Non-monetary items that are measured in in the former subsidiary when control is lost and subsequently accounts for terms of historical cost in a foreign currency are not retranslated. Exchange it under the equity method if the former subsidiary qualifies as an associate differences on monetary items are recognised in profit or loss in the period in or a joint venture, or at fair value if the investment in the former subsidiary which they arise. qualifies as a financial asset.
2.2.5. Intangible assets Any acquisition or disposal of an investment that does not affect control over a subsidiary is considered as a transaction between shareholders with Intangible assets are recognised only if it is probable that the expected any impacts recognised in equity. future economic benefits that are attributable to the asset will flow to the Group and if the cost of the asset can be measured reliably. The probability All intragroup assets and liabilities, income, expenses and cash flows of expected future economic benefits represent management’s best relating to transactions and balances between entities of the Group are estimate of the set of economic conditions that will exist over the useful life eliminated in full in the consolidated financial statements. of the asset using reasonable and supportable assumptions.
2.2.3. Business combinations and goodwill Intangible assets are measured initially at cost. The cost of a separately acquired intangible asset comprises its purchase price, including import In accordance with IFRS 3, business combinations are measured and duties and non-refundable purchase taxes, after deducting trade discounts, recognised under the acquisition method. rebates and any directly attributable cost of preparing the asset for its intended use.
ANNUAL REPORT — 2018 106 If an intangible asset is acquired in a business combination, the cost of that 2.2.6.2. Subsequent measurement intangible asset is its fair value at the acquisition date. Intangible assets under construction are carried at cost, less any recognised impairment losses. After initial recognition, property, plant and equipment owned by the Group are depreciated using the straight-line method and are carried on the After initial recognition, intangible assets are measured at cost less statement of financial position at cost less accumulated depreciation and accumulated amortisation and any accumulated impairment losses. impairment. Depreciation begins when the asset is capable of operating in Intangible assets are amortised on a straight-line basis over their estimated the manner intended by management and is charged to profit or loss, unless useful life. Amortisation begins when the asset is capable of operating in it is included in the carrying amount of another asset. The components of an the manner intended by management. item of property, plant and equipment with a significant cost and different useful lives are recognised separately. The residual value and the useful life of property, plant and equipment are reviewed at least at the end of each The estimated useful life and amortisation method are reviewed at the end reporting period. The depreciation method is also reviewed annually. of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated The expected useful lives for the main facilities are as follows: impairment losses. Recognition of costs in the carrying amount of an intangible asset ceases when the asset is in the condition necessary for it to Buildings 10 to 20 years be capable of operating in the manner intended by the Group. Lease improvements based on underlying lease terms Subsequent expenditure on intangible assets is capitalised only if it Machinery and installations 5 to 10 years increases the future economic benefits associated with the specific asset. Other expenditure is expensed as incurred. Store and other furniture, fixture 5 to 10 years and fittings Intangible assets are derecognised on disposal, or when no future economic benefits are expected from their use or disposal. Gains or losses Motor vehicles 2 to 5 years arising from derecognition, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in An item of property, plant and equipment is derecognised upon disposal or profit or loss when the asset is derecognised. when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of Intangible assets mainly comprise: an item of property, plant and equipment is determined as the difference between the proceeds and the carrying amount of the asset and is • software; recognised in profit or loss. • tradenames and trademarks acquired separately or in the context of business combinations; 2.2.7. Leases • customer and supplier lists; • key money; and In the course of its business, the Group uses assets made available to it under • intangible assets under construction. lease contracts. These contracts are analysed in the light of the situations described and indicators supplied in IAS 17 Leases in order to determine The expected useful lives for the main intangible assets are as follows: whether they are finance leases or operating leases.
Software 3 to 5 years 2.2.7.1. Finance leases
Key money 5 to 10 years Contracts that effectively transfer to the lessee substantially all risks and rewards inherent to ownership of the leased item are classified as finance Tradenames and trademarks indefinite leases. The main indicators examined in determining whether substantially all Customer and supplier lists indefinite the risks and rewards are transferred by an agreement are the following:
2.2.6. Property, plant and equipment • the ratio of the lease term to the leased asset’s economic life; • total discounted future minimum lease payments as a ratio of the fair value 2.2.6.1. Initial measurement of the leased asset; • whether ownership is transferred to the lessee by the end of the lease; Property, plant and equipment are recognised as assets at acquisition or • whether a purchase option is bargain; construction cost if and only if it is probable that future economic benefits • the features specific to the leased asset. associated with the asset will flow to the Group and the cost of the asset can be measured reliably. Assets held under finance leases are derecognised from the lessor’s statement of financial position and included in the relevant category of The cost of an item of property, plant and equipment comprises its property, plant and equipment in the lessee’s financial statements. Such purchase or construction price and any costs directly attributable to assets are depreciated over their useful life, or the term of the lease contract bringing the asset to the location and condition necessary for it to be when this is shorter and it is not expected that the lessee will obtain capable of operating in the manner intended by management. ownership of the asset. A corresponding financial liability is recognised by the lessee, and a financial asset by the lessor. The cost of facilities developed in-house includes all labour and materials costs, and all other production costs attributable to the construction of If the Group enters into a sale and leaseback agreement resulting in a finance the asset. lease, this is recognised in accordance with the principles described above. If the transfer price is higher than the asset’s book value, the surplus is deferred When a part of an asset has a different useful life from the overall asset’s and recognised as income on straight-line basis over the lease term. useful life, it is identified as an asset component and depreciated over a specific period. 2.2.7.2. Operating leases
Borrowing costs attributable to the financing of an asset incurred during Lease agreements that do not qualify as finance leases are classified and the construction period are included in the cost of the asset provided it is a recognised as operating leases. Rental charges are recognised over the lease qualifying asset as defined by IAS 23 Borrowing costs. term on a straight-line basis.
ANNUAL REPORT — 2018 107 In the event that lease incentives are received to enter into operating leases, 2.2.9. Financial assets and liabilities such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis. Financial assets of the Group mainly include cash, trade and other receivables, loans, and the positive fair value of derivatives. Financial assets 2.2.8. Impairment of goodwill, intangible assets and property, are treated consistently with the category to which they belong in accordance plant and equipment with IFRS 9 Financial Instruments: financial assets at fair value and financial assets at amortised cost. At the year-end and at each interim reporting date, in accordance with IAS 36 Impairment of Assets, the Group assesses whether there is an indication Financial liabilities of the Group comprise loans and other financial liabilities, that an asset could have been impaired. If any such indication exists, the trade and other payables, and the negative fair value of financial derivatives. recoverable amount of the asset is estimated in order to determine the extent of Financial liabilities are classified as financial liabilities at fair value through the impairment loss (if any). Where it is not possible to estimate the recoverable profit or loss (including derivatives with a negative fair value, except if the amount of an individual asset, the Group estimates the recoverable amount of derivative is designated as a hedging instrument) and other financial liabilities the cash-generating unit (CGU) to which the asset belongs. A CGU represents (including loans and other financial liabilities and trade and other payables). the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows generated from other assets. Financial assets and liabilities are presented in the statement of financial Where a reasonable and consistent basis of allocation can be identified, position as current if they mature within one year and non-current if they corporate assets are also allocated to individual CGUs, or otherwise they are mature after one year. allocated to the smallest group of CGUs for which a reasonable and consistent allocation can be identified. 2.2.9.1. Financial assets
Recoverable amount is the higher of the fair value less costs of disposal and The classification depends on the entity’s business model for managing the value in use. In assessing value in use, the estimated future cash flows are financial assets and the contractual terms of the cash flows. Management discounted to their present value using a pre-tax discount rate that reflects determines the classification of its financial assets at initial recognition. current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Regular purchases and sales of financial assets are recognised on the trade If the recoverable amount of an asset (or CGU) is estimated to be less than date – the date on which the Group commits to purchase or sell an asset. its carrying amount, an impairment loss is immediately recognised for the difference in the statement of profit or loss. At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, An impairment test is also carried out at least once a year on CGUs or groups transaction costs that are directly attributable to the acquisition of the of CGUs to which goodwill or an intangible asset with an indefinite useful life financial asset. Transaction costs of financial assets carried at fair value has been allocated. In such case, the impairment test is carried out as follows: through profit or loss are expensed in profit or loss.
• The Group measures impairment by comparing the carrying amount of the Financial assets (such as loans, trade and other receivables, cash and CGU(s), including goodwill, with their recoverable amount. The recoverable cash equivalents) are subsequently measured at amortised cost using the amount of the CGU is the higher of fair value less costs of disposal and effective interest method, less any impairment if they are held for collection value in use. of contractual cash flows where those cash flows represent solely payments • Value in use is calculated based on projected future cash flows: of principal and interest. • over a horizon that is coherent with the CGU’s useful life and/or operating life; and • discounted at a rate that reflects the risk profile of the CGU – The effective interest method is a method of calculating the amortized cost the discount rate(s) used are based on the weighted average cost of of a debt instrument and of allocating interest income over the relevant capital (WACC) for each CGU. period. The effective interest rate is the rate that exactly discounts estimated • Fair value is calculated as the asset’s potential selling price less costs future cash receipts (including all fees and points paid or received that form necessary for its sale. an integral part of the effective interest rate, transaction costs and other • When the recoverable amount of a CGU is lower than its carrying amount, premiums or discounts) through the expected life of the debt instrument, an amount equal to the difference is recognised as an impairment loss. or, where appropriate, a shorter period, to the net carrying amount on initial This loss is allocated first to goodwill, and any surplus is allocated to the recognition. other assets of the related CGU. Trade and other receivables after and within one year are recognized initially These calculations may be influenced by several variables: at fair value and subsequently measured at amortised cost, i.e. at the net present value of the receivable amount, using the effective interest rate method, less allowances for impairment. • changes in regulations and market prices; • changes in interest rates and market risk premiums; • market levels and the Group’s market share; Fair value is the price that would be received to sell an asset or paid to • the useful lives of facilities; transfer a liability in an orderly transaction on the principal or the most • the growth rates used beyond the medium-term plans and the terminal advantageous market at the measurement date. values taken into consideration. In accordance with IFRS 13, the hierarchy of fair values reflecting the When an impairment loss subsequently reverses, the carrying amount of importance of data used in valuations comprises the following levels: the asset (or CGU) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the • level 1 (unadjusted quoted prices): prices accessible to the entity at the carrying amount that would have been determined had no impairment measurement date on active markets, for identical assets or liabilities; loss been recognised for the asset (or CGU) in prior years. A reversal of an • level 2 (observable data): data concerning the asset or liability, other impairment loss is recognised immediately in the statement of profit or loss. than the market prices included in initial level 1 input, which are directly An impairment loss allocated to goodwill is irreversible. observable (such as a price) or indirectly observable (i.e. deducted from observable prices); • level 3 (non-observable data): data that are not observable on a market, including observable data that have been significantly adjusted (e.g. extrapolation of interest rate curves over long non-observable periods).
ANNUAL REPORT — 2018 108 In compliance with IFRS 9, the Group analyses all its contracts, of both On the acquisition date, non-controlling interests are either measured at a financial and non-financial nature, to identify the existence of any fair value (full goodwill method) or in proportion to share of non-controlling “embedded” derivatives. Any component of a contract that affects the interests in the identifiable assets acquired and liabilities assumed in cash flows of that contract in the same way as a stand-alone derivative the business combination (partial goodwill method). Subsequently, corresponds to the definition of an embedded derivative. If they cannot be non-controlling interests are adjusted for the appropriate proportion of considered to be closely related to the host contract, embedded derivatives subsequent profits and losses. are accounted for separately from the host contract at inception date. 2.2.12. Provisions other than employee benefits Derivatives are measured at fair value based on quoted prices and market data available from external sources. If no quoted prices are available, the The Group recognises provisions if the Group has a present obligation Group may refer to recent comparable transactions or if no such transactions (legal or constructive) towards a third party that arises from an event prior exist base its valuation on internal models that are recognised by market to the reporting date; it is probable that an outflow of resources embodying participants, giving priority to information directly derived from observable economic benefits will be required to settle the obligation; and the amount data, such as over-the-counter listings. of the obligation can be estimated reliably.
Changes in the fair value of these derivatives are recognised in profit or Provisions are determined based on the Group’s best estimate of the loss, unless they are designated as cash flow hedges. Changes in the fair expected cost necessary to settle the obligation. Estimates are based on value of such hedging instruments are recognised directly in equity (other management data from the information system, assumptions adopted by comprehensive income), excluding the ineffective portion of the hedge. the Group, and if necessary experience of similar transactions, or in some cases based on independent expert reports. The various assumptions are The Group assesses on a forward-looking basis the expected credit losses reviewed for each closing of the accounts. When a provision is measured associated with its financial assets carried at amortised cost. For trade using the cash flows estimated to settle the present obligation, its carrying receivables, the group applies the simplified approach permitted by IFRS amount is the present value of those cash flows (when the effect of the time 9, which requires expected lifetime losses to be recognized from initial value of money is material). recognition of the receivables. Present obligations arising under onerous contracts are recognised and The amount of the allowance is deducted from the carrying amount of the measured as provisions. An onerous contract is considered to exist where asset and is recognised in the income statement. the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be The Group derecognises a financial asset when the contractual rights to received from the contract. the cash flows generated by the asset expire; or the Group transfers the rights to receive contractual cash flows related to the financial asset through A restructuring provision is recognised when the Group has developed a the transfer of substantially all of the risks and rewards associated with detailed formal plan for the restructuring and has raised a valid expectation ownership of the asset. Any interest created or retained by the Group in in those affected that it will carry out the restructuring by starting to transferred financial assets is recorded as a separate asset or liability. implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct Financial liabilities are derecognised when, and only when, it is extinguished, expenditures arising from the restructuring, which are those amounts that that is, when the obligation specified in the contract is either discharged, are both necessarily entailed by the restructuring and not associated with cancelled or expires. the ongoing activities of the entity.
Where there has been an exchange between an existing borrower and lender 2.2.13. Employee benefits of debt instruments with substantially different terms, or there has been a substantial modification of the terms of an existing financial liability, this The Group grants its employees post-employment benefits (pension plans, transaction is accounted for as an extinguishment of the original financial retirement indemnities, etc.) and other long-term benefits. liability and the recognition of a new financial liability. A gain or loss from extinguishment of the original financial liability is recognised in the statement For post-employment benefits, a distinction is made between defined benefit of profit or loss. plans and defined contribution plans.
2.2.13.1. Post-employment benefits – Defined benefit plans 2.2.10. Inventories
The obligations under defined-benefit plans are calculated by the projected Inventories are stated at the lower of cost and net realisable value. Costs of unit credit method, which determines the present value of entitlements earned inventories are determined on a first-in-first-out basis. Net realisable value by employees at year-end under all types of plan, taking into consideration represents the estimated selling price for inventories less all estimated costs estimated future salary increases. of completion and costs necessary to make the sale.
Such post-employment benefit obligations are measured using the following 2.2.11. Equity methods and main assumptions:
2.2.11.1. Share issue expenses • retirement age, determined on the basis of the applicable rules for each plan, and the requirements to qualify for a full pension; Share issue expenses correspond exclusively to external costs expressly • career-end salary levels, with reference to employee seniority, projected related to the capital increase. They are charged against the issue premium salary levels at the time of retirement based on the expected effects of at their net-of-tax value. career advancement, and estimated trends in pension levels; • forecast numbers of pensioners, determined based on employee turnover Other expenses are classified as expenses of the period. rates and applicable mortality tables; • a discount rate that depends on the duration of the obligations, determined 2.2.11.2. Non-controlling interests at the year-end date by reference to the market yield on high-quality corporate bonds or the rate on government bonds whose duration is coherent with the Group’s commitments to employees. Non-controlling interests represent the shares of non-controlling shareholders (minority interests) in the equity of subsidiaries that are not fully owned by the Group.
ANNUAL REPORT — 2018 109 The amount of the provision corresponds to the value of obligations less the Assets that qualify as held for sale and related liabilities are presented fair value of the plan assets that cover those obligations. separately from other assets and liabilities in the statement of financial position. Assets (and disposal groups) classified as held for sale are The net expense recognised during the year for employee benefit obligations measured at the lower of their previous carrying amount and fair value less includes: costs to sell. Any excess of the carrying amount over the fair value less costs to sell is recognised as an impairment loss. Depreciation of such assets is discontinued as from their classification as held for sale. Prior period • in the statement of profit or loss: statements of financial position are not restated to reflect the classification • the current service cost, corresponding to additional benefit of a non-current asset (or disposal groups) as held for sale. entitlements earned during the year; • the net interest expense, corresponding to interest on obligations net of the return on plan assets, which is calculated using the same discount For discontinued operations, a single net amount after taxes is presented rate as for the obligations; in the statement of profit or loss and the comparative period is restated • the past service cost, including the income or expense related to consistently. amendments or settlements of benefit plans or introduction of new plans; 2.2.15. Revenue • the remeasurement gains and losses relating to long-term benefits. • in the statement of other comprehensive income: The Group generates and recognises revenue from the sale of goods to • the remeasurement gains and losses relating to customers and satisfies its performance obligations at a point in time in post-employment benefits; its stores and on delivery of the goods in case of online sales. • the effect of the limitation to the asset ceiling if any. Next to the sale of goods, the Group also generates revenue through the 2.2.13.2. Post-employment benefits – Defined contribution plans render of services for which the group receives a commission or a fee. For such services, revenue is recognised over the service period (over time With respect to defined contribution plans, the contributions payable are recognition). Furthermore, revenue is also generated from the sale of data. recognised when employees have rendered the related services.
2.2.16. Income taxes According to legal requirements applicable in Belgium, defined contribution pension plans are subject to minimum guaranteed rates of return. As such, these plans meet the conditions for classification as defined benefit plan in Income taxes include the current tax expense (income) and the accordance with IAS 19 and they are accounted for as such. deferred tax expense (income), calculated in accordance with the applicable tax legislation. 2.2.13.3. Other long-term benefits In compliance with IAS 12 Income Taxes, current and deferred taxes Other long-term employee benefits, such as service awards, are also are recognised in the statement of profit or loss, other comprehensive accounted for using the projected unit credit method. The accounting income or directly in equity consistently with the accounting for the treatment differs however from the method applied for post-employment underlying transaction. benefits, as actuarial gains and losses are recognised immediately in the statement of profit or loss. The current tax expense (income) is the estimated amount of tax due on the taxable income for the period, calculated using the tax rates enacted 2.2.13.4. Termination benefits at reporting date. A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when Deferred taxes result from temporary differences between the carrying the entity recognises any related restructuring costs. amount of assets and liabilities and their tax basis. No deferred taxes are recognised for temporary differences generated by: 2.2.14. Assets classified as held for sale and related liabilities, and discontinued operation • the initial recognition of goodwill which is not tax deductible; • the initial recognition of an asset or liability in a transaction which is not a business combination and does not affect the accounting profit Assets and disposal groups are classified as held for sale if their carrying or taxable profit (tax loss) at the transaction date; amount will be recovered principally through a sale transaction rather than • investments in subsidiaries and associates, investments in branches through continuing use. This condition is regarded as met only when the and interests in joint arrangements, when the Group controls the timing sale is highly probable and the asset (or disposal group) is available for of reversal of the temporary differences, and it is probable that the immediate sale in its present condition. For a sale to be highly probable, temporary differences will not reverse in the foreseeable future. Company management should be committed to a plan to sell the asset (or disposal group), an active program to locate a buyer and complete the plan should be initiated, the asset (or disposal group) should be actively Deferred tax assets and liabilities are measured at the expected tax rate for the marketed at a price which is reasonable in relation to its current fair value, period in which the asset will be realised or the liability settled, based on tax the sale should be expected to be completed within one year from the date rates (substantively) enacted at reporting date. If the tax rate changes, deferred of classification, and actions required to complete the plan should indicate taxes are adjusted to the new rate and the adjustment is recorded in the that it is unlikely that significant changes to the plan will be made or that statement of profit or loss, unless it relates to an underlying for which changes the plan will be withdrawn. in value are recognised in other comprehensive income or directly in equity.
A discontinued operation is a component of the Group which either Deferred tax liabilities are generally recognised for all taxable temporary has been disposed of or is classified as held for sale, and: represents differences. Deferred tax assets are only recognised when it is probable that a separate major line of business or geographical area of operations; is the Group will have sufficient taxable profit to utilise the benefit of the asset part of a single co-ordinated plan to dispose of a separate major line of in the foreseeable future, or beyond that horizon, if there are deferred tax business or geographical area of operations; or is a subsidiary acquired liabilities with the same maturity. exclusively with a view to resale.
ANNUAL REPORT — 2018 110 2.2.17. Non-recurring items
Non-recurring items are either income or expenses which do not occur regularly as part of the normal activities of the company. They are presented separately because they are important for the understanding of the underlying sustainable performance of the Company due to their size or nature.
The non-recurring items include the following components:
• gain on a bargain purchase (negative goodwill) in the context of a business combination; • gains and losses on the sale of subsidiaries, joint operations, joint ventures, and associates that do not qualify as discontinued operations; • acquisition costs of new businesses; • major restructuring charges; • impairment losses resulting from the shutdown of an activity; • impairment losses resulting from testing of cash-generating units (‘CGUs’) for impairment (a CGU includes tangible assets, intangible assets and allocated goodwill, if any).
2.2.18. Statement of cash flows
The statement of cash flows is prepared according to the indirect method to reconcile the cash flows from operating activities. The cash items disclosed in the cash flow statement comprise cash at banks and in hand except for deposits with a maturity longer than three months. Cash flows denominated in foreign currencies have been translated at average estimated exchange rates. Exchange differences affecting cash items are shown separately in the cash flow statement. Interest paid is presented as cash used in financing activities, while interest received and dividends received are presented as cash from investing activities. Income taxes are included in cash from operating activities. Dividends paid are recognised as cash used in financing activities. The purchase consideration paid for the acquired group company has been recognised as cash used in investing activities where it was settled in cash. Any cash at banks and in hand in the acquired group company have been deducted from the purchase consideration. Transactions not resulting in inflow or outflow of cash, including finance leases, are not recognised in the cash flow statement. Payments of finance lease instalments qualify as repayments of borrowings under cash used in financing activities and as interest paid under cash generated from operating activities.
ANNUAL REPORT — 2018 111 3. OPERATING SEGMENTS
Information reported to the chief operating decision maker (CODM) for the purposes of resource allocation and assessment of segment performance focuses on the different classes of customers. No operating segments have been aggregated in arriving at the reportable segments of the Group. Specifically, the Group’s reportable segments under IFRS 8 – Operating Segments are as follows:
• FNG Roots (the brand portfolio of FNG); • Brantano; and • Miss Etam.
3.1. Segment revenue and results
31/12/2018
Inter-segment Inter-segment revenue between revenue between FNG Roots and FNG Roots and (in thousands of euros) FNG Roots Miss Etam Brantano Miss Etam Brantano Total Group
Revenue 358,373 99,297 151,887 (48,646) (49,117) 511,794 Cost of merchandise (214,548) (37,890) (75,231) 48,628 47,469 (231,571) Gross profit 143,825 61,407 76,656 (18) (1,648) 280,223 Employee benefit expense (39,661) (23,309) (28,699) 0 2,303 (89,365) Other operating expenses (68,816) (33,206) (35,800) 18 (655) (138,459) Adjusted operating profit/(loss) before amortisation 35,349 4,892 12,157 52,398 and depreciation expense (Adjusted EBITDA) Non-recurring items 3,000 0 (519) (2,481) Operating profit/(loss) before amortisation and 38,349 4,892 11,638 54,879 depreciation expense (EBITDA) Amortisation and depreciation expenses (11,199) (3,096) (8,248) (22,543) Operating profit/(loss) (EBIT) 27,150 1,796 3,390 32,337 Financial income 729 Financial expenses (18,303) Exchange gains/(losses) (43) Profit/(loss) before taxes 14,720 Income taxes (3,181) PROFIT/(LOSS) FOR THE PERIOD 11,538
31/12/2017
Inter-segment Inter-segment revenue between revenue between FNG Roots and FNG Roots and (in thousands of euros) FNG Roots Miss Etam Brantano Miss Etam Brantano Total Group
Revenue 363,894 101,888 125,980 (42,304) (67,056) 482,402 Cost of merchandise (220,295) (40,454) (63,940) 42,304 67,056 (215,329) Gross profit 143,599 61,434 62,041 0 0 267,074 Employee benefit expense (39,421) (22,356) (29,084) (90,861) Other operating expenses (70,167) (34,613) (26,052) (130,832) Adjusted operating profit/(loss) before amortisation 34,011 4,465 6,904 45,381 and depreciation expense (Adjusted EBITDA) Non-recurring items (4,986) 0 (2,530) (7,516) Operating profit/(loss) before amortisation and 29,025 4,465 4,374 37,864 depreciation expense (EBITDA) Amortisation and depreciation expenses (8,858) (2,179) (7,740) (18,777) Operating profit/(loss) (EBIT) 20,167 2,286 (3,366) 19,087 Financial income 2,548 Financial expenses (13,216) Exchange gains/(losses) (647) Profit/(loss) before taxes 7,772 Income taxes (459) PROFIT/(LOSS) FOR THE PERIOD 7,313
ANNUAL REPORT — 2018 112 The accounting policies of the reportable segments are the same as the Group’s accounting policies described above. The revenue presented above is at year-end 2018 the only measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. No other detail is reviewed currently by the CODM, which are the Executive Committee.
Information regarding revenue from major products is not relevant as all sales are generated from the same nature of products, being clothing and shoes.
3.2. Geographical information
The Group operates in two principal geographical areas – Belgium (country of domicile) and the Netherlands. The Group’s revenue by location of operations and information about its non-current assets (i.e. property, plant and equipment, intangible assets and goodwill) by location of assets are detailed below.
Revenue Non-current assets
(in thousands of euros) 31/12/2018 31/12/2017 31/12/2018 31/12/2017
Belgium 264,962 209,629 217,045 236,066
The Netherlands 234,671 230,219 268,157 179,731
Other 12,161 42,554 10,232 9,852
Total 511,794 482,402 495,434 425,649
The above-mentioned revenue has been detailed based on the location where revenue is generated and not based on the location of the legal entity. As a result of a more detailed review of the revenue, the 2017 information has been adjusted.
Non-current assets exclude non-current assets classified as held for sale, financial instruments and deferred taxes.
3.3. Other information
Segment revenue includes one customer contributing more than 10% to the Group’s revenue for 2018 (2017: nil).
4. BUSINESS COMBINATIONS AND CHANGES IN CONSOLIDATION SCOPE
4.1. 2018 acquisitions
On 28 December 2017, the Company acquired 100% of the voting rights in Henkelman Group (“Henkelman”). Henkelman is a group operating in the development and production of shoes. As a result of this acquisition, FNG can strengthen its strategic important purchasing platform of clothing with experienced shoe know-how.
The acquirees’ assets acquired and liabilities assumed recognised in the consolidated statement of financial position at acquisition date, the amount of goodwill, as well as the net effect on the statement of cash flows are presented in the table below:
(in thousands of euros) Intangible assets 36,921 Property, plant and equipment 5,578 Deferred tax assets 1,241 Inventories 18,347 Trade and other receivables 22,920 Other current assets 123 Cash and cash equivalents 183 Financial liabilities (7,474) Deferred tax liabilities (8,806) Trade and other payables (33,313) Other current liabilities (167) Net assets acquired 35,553 Total consideration (41,550) Goodwill 5,996
Total consideration 41,550 Financed in cash 37,500 Deferred consideration 4,050 Cash and cash equivalent acquired (183) Net cash outflow in investing activities 183
The amounts above with respect to fair value of net assets acquired and goodwill are provisional as not all fair value measurements have been finalised.
ANNUAL REPORT — 2018 113 As a result of the acquisition accounting, the Company has allocated the purchase price (consideration paid) and has calculated the fair values of the assets acquired and liabilities assumed, in accordance with generally applied valuation rules. The purchase price was mainly allocated to intangible assets (tradenames, supplier list and key-money) and deferred taxes.
Goodwill arose because the consideration for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth and future market development. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. The resulting goodwill is not tax deductible.
The gross contractual amount of the trade receivables and other receivables amounts to € 22,920 thousands.
There were no significant costs related to the business combinations amount.
4.2. 2017 acquisitions
On 31 December 2017, the Company acquired 100% of the voting rights in Mirus Group, a Belgian based retail group consisting of the following subsidiaries: GBO, Concept Fashion and Suitcase. The fair value of the total consideration transferred amounted to € 40,150 thousands, which was determined using a discounted cash flow model based on the expected cash flows to be generated in the new group.
These companies were acquired so as to continue the expansion of the Group’s activities in the fashion retail industry.
The acquirees’ assets acquired and liabilities assumed recognised in the consolidated statement of financial position at acquisition date, the amount of goodwill, as well as the net effect on the statement of cash flows are presented in the table below:
(in thousands of euros) Intangible assets 20,350 Property, plant and equipment 2,103 Deferred tax assets 1,632 Inventories 6,674 Trade and other receivables 561 Current financial assets 56 Other current assets 306 Cash and cash equivalents 271 Provisions 0 Non-current financial liabilities (225) Deferred tax liabilities (5,144) Current financial liabilities (3,184) Trade and other payables (8,921) Other current liabilities (148) Net assets acquired 14,330 Non-controlling interests 0 Total consideration (40,150) Goodwill 25,820
Total consideration 40,150 Financed in cash 20,900 Deferred consideration 19,250 Cash and cash equivalent acquired (271) Net cash outflow in investing activities 20,629
As a result of the acquisition accounting, the Group has allocated the purchase price (consideration paid) and has calculated the fair values of the assets acquired and liabilities assumed, in accordance with generally applied valuation rules. The purchase price was mainly allocated to intangible assets (tradenames, supplier list and key-money).
Goodwill arose because the consideration for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth and future market development. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. The resulting goodwill is not tax deductible.
The gross contractual amount of the trade receivables and other receivables amounts to € 56 thousands.
There were no significant costs related to the business combinations amount.
ANNUAL REPORT — 2018 114 4.3. Disposal of subsidiaries
In the course of 2018, the Group disposed of its 100% interest in Fashion Buying Platform Holding, including the underlying 100% interest in Colveta AG.
The following table details the assets and liabilities over which control was lost, the consideration received, the result on disposal and the net cashflow on disposal:
Fashion Buying (in thousands of euros) Platform Holding
Property, plant and equipment 9
Trade and other receivables 4,472
Other current assets 20
Cash and cash equivalents 1,351
Other financial liabilities (5)
Trade and other payables (16,461)
Other current liabilities (171)
Net assets disposed of (10,784) Total consideration 10,784
Gain on disposal 0
(in thousands of euros) Fashion Buying Platform Holding
Total consideration 10,784
Received in cash 0
Financed through outstanding liability 10,784 Cash and cash equivalent disposed of (1,351)
Net cashflow in investing activities (1,351)
Considering that no goodwill has been allocated to Fashion Buying Platform Holding, there was no impact on the goodwill as a result of this disposal.
In the course of 2017, the Group disposed of Rainbow Garment.
The following table details the assets and liabilities over which control was lost, the consideration received, the loss on disposal and the net cash inflow on disposal:
(in thousands of euros) Rainbow Garment
Goodwill 5,489
Trade and other receivables 25,070
Other current assets 146
Trade and other payables (20)
Net assets disposed of 30,685 Total consideration (26,278)
Loss on disposal (4,407)
(in thousands of euros) Rainbow Garment
Total consideration 26,278
Received in cash 17,243
Deferred consideration 9,035 Cash and cash equivalent disposed of 0
Net cash inflow in investing activities 17,243
The consideration transferred has been determined based on the net asset (mainly consisting of receivables), excluding the goodwill allocated to the business.
The loss on disposal is included in the non-recurring items in the consolidated income statement (see note 6.5.).
ANNUAL REPORT — 2018 115 5. NOTES RELATING TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
5.1. Goodwill
(in thousands of euros) 31/12/2018 31/12/2017
Cost 86,158 80,162 Accumulated impairment losses 0 0
Goodwill 86,158 80,162
(in thousands of euros)
Balance at 31 December 2016 59,831
Additions through business combinations 25,820 Derecognised on disposal (5,489)
Balance at 31 December 2017 80,162
Additions through business combinations 5,996
Balance at 31 December 2018 86,158
The additions in 2018 relate to the acquisition of the Henkelman Group (see note 4.1.), which was allocated to the cash-generating unit FNG Roots.
The additions in 2017 relate to the acquisition of Mirus (see note 4.2.), which was allocated to the cash-generating unit Brantano.
The derecognised component on disposal in 2017 relates to the disposal of Rainbow Garment (see note 4.3.).
Goodwill has been allocated for impairment testing purposes to the following cash-generating units:
• FNG Roots: Fashion clothes and purchasing platforms; and • Brantano: Footwear and fashion clothes for internal and external brands.
The carrying amount of goodwill was allocated to cash-generating units as follows:
(in thousands of euros) 31/12/2018 31/12/2017
FNG Roots 60,338 54,342 Brantano 25,820 25,820
Goodwill 86,158 80,162
The recoverable amount of the cash-generating units is determined based on a value in use calculation which uses cash flow projections based on financial budgets approved by the directors covering a five-year period.
The key assumptions used in the computation of the recoverable amount are as follows:
• FNG Roots • Brantano • Discount rate (WACC): 9.76% • Discount rate (WACC): 9.76% • Growth rate 2019 - 2022: 3.4% • Growth rate 2019 - 2022: 6.4% • LT growth rate: 1.5% • LT growth rate: 1%
The directors believe that any reasonably possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash-generating unit. The sensitivity analysis performed by management consist of following changes to the key assumptions:
• Discount rate: +/- 1.0% • LT Growth rate: +/- 1.0% • LT Growth rate: 0/- 1.0% and discount rate: +/- 0.5% LT growth rate +/- 0.5% and LT growth rate +/- 1.0% Discount rate +/- 1.0% discount rate +/- 0.5% FNG Roots No impairment No impairment No impairment Brantano No impairment No impairment No impairment
As such, management assesses that no impairment risk exists.
ANNUAL REPORT — 2018 116 5.2. Intangible assets
(in thousands of euros) 31/12/2018 31/12/2017
Acquisition cost 340,377 279,560 Accumulated amortisation and impairment (7,275) (4,248)
Intangible assets 333,102 275,313
of which: Software 18,343 7,562
Tradenames and trademarks 248,211 233,970
Customer lists and suppliers lists 63,784 30,942
Key money 2,763 2,838
Software Tradenames and Customer lists Key money Total (in thousands of euros) trademarks and supplier lists
Balance at 31 December 2016 5,858 233,225 2,500 2,673 244,256
Additions 2,965 561 9,533 0 13,059 Additions through business combinations 49 303 18,909 1,089 20,350
Disposals 0 (179) 0 (412) (591)
Amortisation expense (2,279) 0 0 (185) (2,464)
Impairment losses 0 0 0 (327) (327) Other 969 61 0 0 1,030
Balance at 31 December 2017 7,562 233,970 30,942 2,838 275,313
Additions 13,505 9,750 0 122 23,377 Additions through business combinations 0 4,491 32,430 0 36,921
Disposals (21) 0 0 0 (21)
Amortisation expense (2,693) 0 0 (197) (2,889)
Exchange differences 0 0 412 0 412 Other (11) 0 0 0 (11)
Balance at 31 December 2018 18,343 248,211 63,784 2,763 333,102
Tradenames and Customer lists (in thousands of euros) Software trademarks and supplier lists Key money Total
Cost at 31 December 2017 11,022 233,970 30,942 3,626 279,560
Accumulated amortisation and impairments (3,460) 0 0 (788) (4,248)
Carrying amount at 31 December 2017 7,562 233,970 30,942 2,838 275,313
Cost at 31 December 2018 24,571 248,211 63,784 3,810 340,377
Accumulated amortisation and impairments (6,228) 0 0 (1,047) (7,275)
Carrying amount at 31 December 2018 18,343 248,211 63,784 2,763 333,102
“Software” includes software acquired or developed by external suppliers and capitalised internal development costs.
“Tradenames and trademarks” have been either acquired or resulting from business combinations.
The additions in “Customer lists and supplier lists” relate to customer and supplier lists acquired in 2018 and 2017.
“Key money” have been acquired through business combinations and represents the favourable lease conditions of secured store locations.
The additions through business combinations relate to the acquisition of Henkelman Group (see note 4.1.) and Mirus (see note 4.2.).
ANNUAL REPORT — 2018 117 The tradenames, trademarks, customer lists and supplier lists have an indefinite useful life, due to their nature. As such, they are subject to an annual impairment test. The key assumptions were as follows:
• FNG Roots • Discount rate (WACC): 9.76% • Growth rate 2019 - 2022: 3.4% • LT growth rate: 1.5%
• Brantano • Discount rate (WACC): 9.76% • Growth rate 2019 - 2022: 6.4% • LT growth rate: 1%
5.3. Property, plant and equipment
(in thousands of euros) 31/12/2018 31/12/2017
Acquisition cost 124,848 106,119 Accumulated depreciation and impairment (48,675) (35,944)
Property, plant and equipment 76,173 70,175
of which: Buildings 28,916 20,304
Leasehold improvements and other store furniture 34,760 34,703
Machinery and installations 11,881 13,011
Assets under construction 616 2,157
Leasehold improvements Machinery and Assets under Buildings and other store installations construction Total (in thousands of euros) furniture
Balance at 31 December 2016 19,910 16,068 19,918 1,204 57,099
Additions 3,281 23,936 2,456 1,265 30,938 Additions through business combinations 0 2,096 7 0 2,103
Disposals (427) (2,130) (72) 0 (2,629)
Depreciation expense (2,619) (10,856) (2,837) 0 (16,312)
Exchange differences 0 (3) (2) 0 (5) Other 160 5,592 (6,458) (311) (1,017)
Balance at 31 December 2017 20,304 34,703 13,011 2,157 70,175
Additions 6,332 14,654 1,822 366 23,175 Additions through business combinations 4,978 214 386 0 5,578
Disposals (219) (1,430) (45) (1,402) (3,097)
Depreciation expense (2,736) (13,377) (3,541) 0 (19,654)
Exchange differences 0 0 1 0 1 Other 258 (6) 247 (506) (6)
Balance at 31 December 2018 28,916 34,760 11,881 616 76,173
Leasehold improvements Machinery and Assets under Buildings and other store installations construction Total (in thousands of euros) furniture
Cost at 31 December 2017 24,742 55,166 24,054 2,157 106,119 Accumulated amortisation and impairments (4,438) (20,463) (11,044) 0 (35,944)
Carrying amount at 31 December 2017 20,304 34,703 13,011 2,157 70,175
Cost at 31 December 2018 35,788 62,833 25,610 616 124,848 Accumulated amortisation and impairments (6,872) (28,073) (13,729) 0 (48,675)
Carrying amount at 31 December 2018 28,916 34,760 11,881 616 76,173
ANNUAL REPORT — 2018 118 The carrying amount of assets held under finance leases is presented in the following table:
(in thousands of euros)
Balance at 31 December 2017 13,322
Balance at 31 December 2018 14,528
These assets held under finance lease relate to the corporate building in Mechelen, Belgium. The lease term of this building is 15 years and includes a purchase option. The related lease commitments are disclosed in note 5.12. on borrowings.
5.4. Inventories
(in thousands of euros) 31/12/2018 31/12/2017
Raw materials and furniture 1,123 1,184
Work in progress 4,370 2,464 Goods for resale 104,230 82,071
Gross carrying amount 109,724 85,719
Write-downs (impairment) (1,641) (2,932)
Net carrying amount 108,082 82,787
The cost of inventories recognised as an expense during the year was € 231,571 thousands (2017: € 215,329 thousands).
The increase in inventories results from the business combination with Henkelman Group and the launch of the online platform.
The cost of inventories recognised as an expense in 2018 includes € 1,924 thousands of additional write-downs, € 1,859 thousands of reversals of write-downs of inventory in 2017 as they became recoverable and € 1,357 thousands of write-offs.
The cost of inventories recognised as an expense in 2017 includes € 1,318 thousands of additional write-downs and € 3,217 thousands of reversals of write-downs of inventory in 2017 as they became recoverable.
No inventories are expected to be recovered after 12 months.
5.5. Trade and other receivables
(in thousands of euros) 31/12/2018 31/12/2017
Trade receivables
Trade receivables from third parties 67,457 65,429
Write-downs on trade receivables (1,068) (1,140)
Total trade receivables 66,390 64,290
Other receivables
Receivable from third parties 2,643 4,732
Receivables from related parties 3,141 579
Total other receivables 5,784 5,312 Total trade and other receivables 72,174 69,601
All the trade receivables mentioned above are denominated in euros.
The Group has entered into a Group non-recourse syndicate factoring agreement. The Agreement provides the Group with a maximum credit facility of up to 90% of the amount of the approved outstanding receivables on all debtors transfered to the Factor. The remaining 10% of the relevant receivables is paid by the Factor to us upon receipt of payment from the relevant debtor, upon which also the remaining balance of the receivable is derecognised.
Trade receivables disclosed above include amounts that are past due at the end of the reporting period for which the Group has not recognised an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still considered recoverable. The aged analysis of receivables past due but not impaired is presented below:
(in thousands of euros) 31/12/2018 31/12/2017 Not yet due 62,605 60,768 Up to 60 days 1,755 556 61 to 90 days 697 316 > 90 days 1,334 2,650 Total 66,390 64,290
ANNUAL REPORT — 2018 119 The recoverability of the receivables outstanding for more than 90 days should be viewed together with the payables with the same customer or parties related to the customer, which are exceeding these receivables.
For an analysis of the credit risk, see note 7.2.2. below.
The movement in the allowance for doubtful debts can be detailed as follows:
(in thousands of euros) 31/12/2018 31/12/2017
At 1 January (1,140) 0
Impairment write downs (79) (1,140)
Non-recoverable receivables 33 0
Reversal of write downs 29 0
Amounts recovered during the period 89 0
At 31 December (1,068) (1,140)
5.6. Other financial assets and Other assets
The other financial assets for an amount of € 18,718 thousands in 2018 consist of a loan granted to FIPH B.V., which has been transferred to the foundation established by FNG. The objective of the foundation is to, amongst other, grant incentives to employees and independent contractors of the Group.
The other financial assets of € 9,035 thousands in 2017 consist of the remaining amount receivable from the sale of the previous subsidiary of the Group, Rainbow Garment. The consideration for this sale amounts to € 26,278 thousands, of which € 17,243 thousands was already received in cash in 2017. The sale generated a loss on disposal recognised in non-recurring items, see note 6.5.
The other assets (non-current and current) can be detailed as follows:
(in thousands of euros) 31/12/2018 31/12/2017
Rental accruals 956 1,269 Other 2,629 2,784
Total other assets 3,585 4,053
of which: Non-current 0 0
Current 3,585 4,053
The caption “Other” consists mainly of prepaid expenses relating to the operating activities of the Group.
5.7. Cash and cash equivalents
Cash and cash equivalents include following components:
(in thousands of euros) 31/12/2018 31/12/2017 Cash at bank and in hand 118,143 90,470
Total cash and cash equivalents 118,143 90,470
The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
5.8. Deferred taxes
The deferred taxes recognised in the consolidated statement of financial position are as follows:
(in thousands of euros) 31/12/2018 31/12/2017
Deferred tax assets 18,636 16,321
Deferred tax liabilities (56,793) (47,235)
ANNUAL REPORT — 2018 120 The nature of the sources of deferred tax assets and liabilities recognised in the statement of financial position are detailed in the following table:
Assets Liabilities
(in thousands of euros) 31/12/2018 31/12/2017 31/12/2018 31/12/2017 Property, plant and equipment 0 859 (5,458) (3,848)
Intangible assets 527 0 (54,616) (45,943)
Inventories 254 293 (659) (1,447)
Other financial assets 530 565 (77) (196)
Employee Benefits 11 16 0 0 Financial liabilities 3,689 3,152 (995) (685)
Deferred taxes relating to temporary differences 5,011 4,885 (61,804) (52,119)
Tax losses carried forward 18,636 16,321 0 0
Deferred taxes relating to tax losses and tax credits 18,636 16,321 0 0
Total recognised deferred taxes 23,647 21,205 (61,804) (52,119)
Offsetting (5,011) (4,885) 5,011 4,885
Total, net 18,636 16,321 (56,793) (47,234)
The movements in deferred tax assets and liabilities have been recognised as follows:
(in thousands of euros) 2018 2017
Deferred tax assets 16,321 18,000
Deferred tax liabilities (47,235) (45,682)
Balance at 1 January (30,914) (27,681)
Changes:
Recognised in income statement 337 181
Recognised in other comprehensive income (7) (64)
Acquisitions through business combinations (7,566) (3,512)
Other (9) 162
Balance at 31 December (38,158) (30,914)
Of which: Deferred tax assets 18,636 16,321
Deferred tax liabilities (56,793) (47,235)
At closing 2018, the Group has unused tax losses for which no deferred taxes are recognised for a total amount of € 13,429 thousands (2017: € 4,762 thousands). These tax losses do not have an expiry date.
5.9. Share capital
5.9.1. Capital management
The Company manages its capital to maintain a strong level of capital in order to sustain development of the business and confidence of creditors while optimising return on capital for shareholders. This ensures that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of its debt and equity balance and its EBITDA (as defined in note 2.1.).
The Group is not subject to any externally imposed capital requirements except those provided for by law. The Group’s management reviews the capital structure of the Group on a regular basis. As part of this review, management considers the cost of capital and the risks associated with each class of capital. The Group’s objectives, policies and processes for managing capital have remained unchanged over the past few years.
ANNUAL REPORT — 2018 121 5.9.2. Capital transactions
Number of shares
Balance at 31 December 2016 8,042,392
Share issue through contribution in cash 19/12/2017 937,500
Balance at 31 December 2017 8,979,892
Share issue through contribution in cash 9/07/2018 2,220,771
Balance at 31 December 2018 11,200,663
Since January 1, 2017, the following alterations to the Company’s issued capital took place:
• On 9 October 2017, FNG NV converted 1,208,353 class A shares into ordinary shares. As a result of this, FNG N.V. has placed (i) 7,250,119 ordinary shares, (ii) 792,272 class A shares and (ii) 1 Priority Share. • On 19 December 2017, FNG issued 937,500 class A shares and 5 Warrants through a private placement for a total amount of € 30,000 thousands. As a result of this issuance, FNG has placed (i) 7,250,119 ordinary shares, (ii) 1,729,772 class A shares (iii) 1 Priority Share and (iv) 5 Warrants. Each investor who subscribed to the private placement of € 30,000 thousands in December 2017 received 1 Warrant. The Warrants could be exercised by such investors if the highest average closing price of an ordinary share listed on Euronext Amsterdam was lower than EUR 35.20 during any period of five consecutive trading days on Euronext Amsterdam within a specific period. In such case, the investors would have had the right to subscribe to an additional number of class A shares, to be determined in accordance with the terms and conditions of the Warrants. Upon exercise, these warrants could potentially result in 151,429 additional shares. • In January 2018, shares were issued for a total amount of € 1,000 thousands to FIPH, which were paid at the end of December 2017. • On 4 June 2018, at the time of the move of the registered office of the Company to Belgium, resulting in a double nationality of the Company (Dutch and Belgian), the General Meeting of Shareholders decided to convert the Priority share in a class A share and the management board decided to purchase 5 Warrants, as a consequence of which the 5 Warrants ceased to exist and ceased to be exercisable. As a result, FNG has placed (i) 7,250,119 ordinary shares and (ii) 1,729,773 class A shares. The repurchase price amounted to € 4,172 thousands, presented as financial expenses. • On 26 June 2018, the Board of Directors decided to increase conditionally the share capital of FNG to a maximum amount of € 254,702.08 (excluding the share premium and including the increase option), with the cancellation of the preferential rights of the existing shareholders, but with the grant of priority allocation rights, through the issue of maximum 3,183,776 new shares (including increase option), at a price per share between € 26.25 and € 29.75. The issue of the 2,220,771 new shares was underwritten on 9 July 2018 through a notary deed. It was also established that the share capital of FNG was increased by € 177,661.68 (of which € 168,184.96 through a contribution in cash and € 9,476.72 through a contribution in kind) and that a total share premium of € 59,783,155.32 (of which € 56,594,239.04 through a contribution in cash and € 3,188,916.28 through a contribution in kind) was recognised on an unavailable reserve account. Furthermore, the listing of the shares of FNG on Euronext Brussels was requested, which resulted in a dual listing on Euronext Amsterdam and Euronext Brussels. The reference market was also changed from Euronext Amsterdam to Euronext Brussels.
5.9.3. Shareholders
The share capital of the Company amounts to € 60,679 thousands and is represented by 11,200,663 shares.
The shareholders of the Company are detailed as follows:
Shareholder Participatie
Mr. Dieter Penninckx, Mrs. Anja Maes, Mr. Emmanuel Bracke and Mr. Emiel Lathouwers, directly and indirectly through 45.54% Greenway District BVBA, GW2 BVBA, MANco GDM BVBA and 3NG NV
Belfius Insurance NV 5.05%
5.10. Provisions
The provisions presented in the consolidated statement of financial position can be detailed as follows:
(in thousands of euros) Restructuring Other provisions Total
Balance at 31 December 2017 428 1,244 1,672
Additions 0 1,044 1,044 Additions through business combinations 0 455 455
Reversals (12) (534) (547) Uses (416) (259) (675)
Balance at 31 December 2018 0 1,949 1,949
Of which current provisions 0 1,949 1,949 Of which non-current provisions 0 0 0
ANNUAL REPORT — 2018 122 The other provisions relate mainly to claims from employees, individual termination benefits and a provision for expected returns of goods.
5.11. Post-employment benefit obligations
The Group operates defined contribution plans and defined benefit plans.
For the defined contribution plans, see note 6.2. on employee benefit expenses.
The defined contribution plans in Belgium are legally subject to minimum guaranteed returns. As such, these plans meet the conditions for classification as defined benefit plan and are recognised as such in the consolidated statement of financial position. However, due to the insignificant amount, the Group has decided not to disclose all the disclosures as required by IAS 19 Employee Benefits.
The senior employees and management have access to these schemes. The death, disability and healthcare benefits granted to employees of the Company are covered by external insurance companies, where premiums are paid annually and charged to the income statement as they were incurred.
As a consequence of the (Belgian) Law of 18 December 2015, minimum returns are guaranteed by the employer as follows:
• for the contributions paid as from 1 January 2016, a new variable minimum return based on rates of the Belgian government bonds, with a minimum of 1.75% and a maximum of 3.75%. In view of the low rates of the Belgian government bonds in the last years, the return has been initially set to 1.75; • for the contributions paid until end December 2015, the previously applicable legal returns (3.25% and 3.75% respectively on the employer and employee contributions) continue to apply until retirement date of the participants.
5.12. Borrowings
The borrowings as presented in the consolidated statement of financial position consist of the following items:
(in thousands of euros) 31/12/2018 31/12/2017
Bonds 73,758 93,305
Bank debts 201,610 131,904
Other borrowings 10,000 10,138
Total borrowings 285,368 235,346
of which: Non-current 273,763 178,750
Current 11,605 56,596
The Group’s bonds can be detailed as follows:
• On 1 March 2012 FNG Group NV issued 289 senior unsecured and dematerialised bonds with a nominal value of € 50 thousands each (for a total amount of € 14,450 thousands) offered for subscription through a private placement. The general meeting of bondholders of 20 December 2014 decided on several amendments to the bonds, among which amendments to the financial covenants. These bonds are not listed on any market and bear an annual interest rate of 7.45%. • The board of directors of FNG Group NV decided on 29 December 2014 to issue 250 unsubordinated and dematerialised bonds with a nominal value of € 100 thousands each (for a total nominal amount of € 25,000 thousands). The bonds were issued through a private placement and were listed on Euronext Growth Brussels and bear an annual interest rate of 4.625%. These bonds have been reimbursed on 15 April 2018 by FNG Group NV. • The board of directors of FNG Group NV decided on 26 January 2015 to issue 100 subordinated registered bonds with a nominal value of € 50 thousands each (for a total nominal amount of € 5,000 thousands). The bonds were issued through a private placement and are not listed on any market and bear an annual interest rate of 7.45%. On 16 July 2018, 87 of the 100 bonds have been reimbursed. • The board of directors of FNG Group NV decided on 20 March 2015 to issue 1,000 subordinated dematerialised bonds with a nominal value of € 5 thousands each (for a total nominal amount of € 5,000 thousands). The bonds were issued through a private placement and are not listed on any market and bear an annual interest rate of 7.45%. • The board of directors of FNG Benelux Holding NV decided on 7 July 2016 to issue 200 senior unsecured bonds with a nominal value of € 100 thousands each (for a total nominal amount of € 20,000 thousands. The maturity date of those bonds is 17 July 2023 and the bonds bear an annual interest rate of 5.50%. • Next to the previous issue of bonds, the board of directors of FNG Benelux Holding decided on 19 June 2017 to issue additional senior unsecured bonds for a total nominal value of € 25,000 thousands. The bonds issued have the same characteristics as the ones issued in July 2016 (a so-called “tap” under the existing bonds issued on 7 July 2016). The bonds represent a total amount of € 45,000 thousands. The bonds were issued through a private placement and are listed on Euronext Growth Brussels. • In June 2018, FNG Benelux Holding NV launched a Euro Medium Term Note program (the “EMTN Program”) with FNG Benelux Holding NV as Issuer and Belfius as Arranger, Dealer and Agent. Under the EMTN Program, Euro Medium Term Notes (“Notes”) can be issued up to an aggregate nominal amount of € 100,000 thousands (the maximum size of the EMTN Program). The Notes will have a nominal value of € 100 thousands each and will be issued in series. The program started on 13 August 2018 and the first series of notes was issued on 17 August 2018 for an amount of € 10,000 thousands. The notes have a duration of 5 years and grant a gross actuarial return of 5%.
ANNUAL REPORT — 2018 123 The bank debts consist mainly of the Club Deal:
• FNG Group NV and other members of the Group entered into a € 131,000 thousands facilities agreement, originally dated 28 July 2014 and as amended and restated on 19 June 2015 and as further amended on 24 March 2016 and as further amended and restated on 29 March 2017 with ING Belgium NV/ SA, Rabobank, BNP Paribas Fortis NV/SA, Belfius Bank NV/SA and ING Bank N.V. In 2018, this facility has been refinanced in the context of the Club Deal (see below). • Brantano had a credit facility with BNP Paribas Fortis for a maximal amount of € 37,000 thousands, Miss Etam had a credit facility with ABN Amro Bank and ING Netherlands for an amount of € 22,500 thousands and Concept Fashion Group had a credit facility of € 2,452 thousands. In 2018, these credit facilities have been refinanced in the framework of the Club Deal (see below).
At the end of February 2018, FNG Holding NV, an indirect subsidiary of FNG NV, entered into a credit facility (the Club Deal) with BNP Paribas Fortis as Coordinator, Security Agent and Agent and BNP Paribas Fortis, ING Belgium, ABN AMRO Bank and Belfius Bank as Original Lenders. Under this credit facility, facilities for an amount of € 240,000 thousands were made available. Following this credit facility, (i) certain existing financial indebtedness of the Group has been refinanced, (ii) the payment of the transaction costs in relation to the Club Deal transaction has been financed, and (iii) additional financing has been provided for general corporate and working capital purposes and future capital expenditure of FNG Holding NV and its subsidiaries. On 15 April 2018, the facilities of the Club Deal (capex) were used to finance the early redemption of the € 25,000 thousands, 4.625% bonds issued by FNG Group NV, which were in principle due on 15 April 2021.
The financing of the early redemption of these bonds with funds drawn under the Club Deal is temporarily, since the early redemption of this bond will be (re)financed with the proceeds of the future EMTN program. Nevertheless, the capex facility drawn under the Club Deal will not be repaid and used for the Company’s investment program.
Other borrowings consist mainly of the following loans:
• In October 2016, the Group entered into mezzanine loan for a total amount of € 10,000 thousands with external partners carrying a floating interest rate (EURIBOR 3M + margin) and with a maturity date in December 2020.
For additional information on liquidity risk, see note 7.2.3.
For information regarding the pledges, see note 8.4.2.
Reconciliation to statement of cash flows:
Other movements Opening Closing 31/12/2018 carrying Cash Business carrying (in thousands of euros) amount flows combination Reclasses Other amount
Non-current borrowings
Bonds 93,305 (19,547) 0 0 0 73,758
Bank debts 75,308 114,002 0 (52) 747 190,005
Other borrowings 10,138 (225) 0 87 0 10,000
Current borrowings
Bonds 0 0 0 0 0 0
Bank debts 56,596 (52,709) 7,474 (35) 279 11,605 Other borrowings 0 0 0 0 0 0
Total liabilities from financing activities 235,346 41,521 7,474 0 1,025 285,368
Other movements Opening Closing 31/12/2017 carrying Cash Business carrying (in thousands of euros) amount flows combination Reclasses Other amount
Non-current borrowings
Bonds 68,137 25,000 0 0 168 93,305
Bank debts 58,273 16,809 225 0 0 75,308
Other borrowings 16,004 (3,138) 0 (2,729) 0 10,138
Current borrowings Bank debts 35,363 18,049 3,184 0 0 56,596
Total liabilities from financing activities 177,777 56,720 3,409 (2,729) 168 235,346
ANNUAL REPORT — 2018 124 5.13. Other financial liabilities
The other financial liabilities as presented in the consolidated statement of financial position consist of the following items:
(in thousands of euros) 31/12/2018 31/12/2017
Finance lease liabilities 14,528 12,431
Deferred consideration business combination 4,050 19,250
Other loans 2,128 4,453
Derivative instruments 1,307 951 Total other financial liabilities 972 0
of which: 22,986 37,085
Non-current Current 17,147 17,208
Finance lease liabilities 5,839 19,877
The deferred consideration related to business combination relates to the acquisition of Henkelman in 2018, see also note 4.1., and Mirus in 2017, see also note 4.2.
The other loans comprise a carrying amount of € 2,128 thousands with a maturity of 5 years and an initial nominal amount of € 5,000 thousands, of which € 2,500 thousands has been reimbursed in 2018 (Coltaparte loan). This loan carries an embedded derivative relating to the return on the loan, which is separated and measured at fair value through profit or loss (see note 5.16.). The main conditions of this loan are as follows:
• The loan is subordinated to all existing and future non-subordinated debt obligations of Miss Etam Holding B.V., subject to certain conditions. • The return payable to the debtor depends on the realised EBITDA of the Company in the financial year prior to loan repayment. Payment of the return is done only if the EBITDA exceeds € 5,000 thousands in the previous financial year. The return is equal to the realised EBITDA less € 5,000 thousands, multiplied by 1.4. The maximum return will be no more than € 7,000 thousands. • The loan has a maturity of 5 years until 31 May 2020 and must be repaid at maturity. The shareholder can as from 1 June 2018 (up to no more than 3 months after the annual financial statements of the Company are made available for the previous financial year) as well as from 1 June 2019 (up to no more than 3 months after the annual financial statements of the Company are made available for the previous financial year) ask for repayment of up to 50% of the loan (and the pro rata return). • In certain exceptional circumstances, the debtor can choose to convert its loan (principal plus return) to shares in the Company, which will apply (i) if the Company realises a negative EBITDA in the second year (2016/2017) or in a subsequent year; (ii) if the management of the Company does not fulfil its task in a way that can reasonably be expected from it; or (iii) if there is failure to comply with the information obligation contained in the agreement (after notice of default and a recovery period). The conversion into shares would occur in such a way that the share interest of the debtor in the Company resulting from the conversion, will by 33.3% of the total interest in the Company.
For more details regarding the derivative instruments, see note 5.16.
The finance lease commitments, which includes the bargain purchase option, relating to the building in Mechelen are disclosed in the following table:
(in thousands of euros) 31/12/2018 31/12/2017
Not later than 1 year 1,095 894
Later than 1 year and not later than 5 years 4,518 4,472
Later than 5 years 11,046 9,368
Less: future finance charges (2,131) (2,304)
Present value of minimum lease payments 14,528 12,431
(in thousands of euros) 31/12/2018 31/12/2017
Not later than 1 year 874 627
Later than 1 year and not later than 5 years 3,557 3,349
Later than 5 years 10,098 8,456
Present value of minimum lease payments 14,528 12,431
For additional information on liquidity risk, see note 7.2.3.
ANNUAL REPORT — 2018 125 5.14. Trade and other payables
The trade and other payables can be detailed as follows:
(in thousands of euros) 31/12/2018 31/12/2017
Trade payables 92,904 77,486
Payables relating to fixed assets 108 240
Other payables relating to employees 9,866 8,359
Tax payables, other than income tax 9,966 5,737
Customer loyalty liabilities 982 565
Other payables to related parties 0 1,922
Other 0 1,978
Total trade and other payables 113,826 96,287
The customer loyalty liabilities relate to the estimate of awards granted to customers.
The increase in trade payables is mainly a result of the business combination with the Henkelman Group and favourable credit terms obtained from suppliers.
5.15. Other current liabilities
The other current liabilities consist of the following components:
(in thousands of euros) 31/12/2018 31/12/2017
Accrued expenses and deferred income 6,810 6,901
Other 0 0
Total other liabilities 6,810 6,901
5.16. Derivative instruments
The derivative instruments recognised in the consolidated statement of financial position under “Other financial assets” and “Other financial liabilities” can be detailed as follows:
Fair value Notional amounts
(in thousands of euros) 31/12/2018 31/12/2017 31/12/2018 31/12/2017
Embedded derivative - Coltaparte 1,075 775 2,500 5,000
Interest rate swap 232 176 22,603 26,328
Total other financial liabilities 1,307 951 25,103 31,328
of which: Non-current 1,303 951 23,353 31,328
Current 4 0 1,750 0
The embedded derivative relates to the shareholder’s loan disclosed in note 5.13.
These derivative instruments are used to hedge the interest rate risk of the borrowings presented in note 5.12. As these instruments do not exactly meet the conditions for hedge accounting in accordance with IFRS 9 Financial Instruments, they are classified as instruments at fair value through profit or loss.
ANNUAL REPORT — 2018 126 6. NOTES RELATING TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
6.1. Revenue
Revenue increased from € 482,402 thousands at year-end 2017 to € 511,794 thousands at year-end 2018 as a result of the continued integration of all the business and the continuing development of online sales, the roll-out of the remodelling programme and the increase in revenue from fees and sales from data.
6.2. Employee benefit expense
Employee benefit expense can be detailed as follows:
(in thousands of euros) 31/12/2018 31/12/2017
Short-term benefits 86,746 88,514
Defined contribution plans 2,619 2,347
Total employee benefit expense 89,365 90,861
The majority of the employees of the Group are covered by defined contribution pension plans. The contributions are calculated based on the annual salary or, the annual salary up to a ceiling and the annual salary in excess of this ceiling.
The defined contribution plans in Belgium are legally subject to minimum guaranteed returns. As such, these plans meet the conditions for classification as defined benefit plan in accordance with IAS 19 – Employee Benefits (see note 5.11.).
The number of full-time equivalents is detailed below:
31/12/2018 31/12/2017
Belgium 1,010 1,082
The Netherlands 1,152 1,189
Other 60 72
Total FTE 2,222 2,343
6.3. Other operating expenses
Other operating expenses can be detailed as follows:
(in thousands of euros) 31/12/2018 31/12/2017 Rental expenses 45,201 44,541
Expenses related to sales 33,220 32,191
Marketing expenses 14,858 13,309
Logistics 13,489 12,254
Maintenance expenses 1,986 1,842
IT expenses 4,437 4,227
Office expense 5,448 4,200
Consultancy and advisory fees 7,263 4,973
Housing expenses 7,679 8,622
Other expenses 4,877 4,674
Total other operating expenses 138,459 130,832
Rental expenses mainly relate to rent of buildings in which the individual stores are located. See note 8.4.1. for more information the operating lease commitments.
The expenses relating to sales refers to fixed and variable fees in the context of shop-in-shop systems. The Company enters into strategic alliances which enables the Company to optimize its position in all the markets in which it operates.
ANNUAL REPORT — 2018 127 6.4. Non-recurring items
Non-recurring items can be detailed as follows:
(in thousands of euros) 31/12/2018 31/12/2017
Loss on disposal of business 0 (4,407)
Loss on disposal of fixed assets 0 (2,712)
Gain on transaction of external business funds 3,000 0 Other (519) (397)
Total non-recurring items 2,482 (7,516)
The gain on transaction of external business funds relates to the realisation of the Group through the sale of an external business fund which mainly consists of inventories and other assets. An amount of € 3,850 thousands is considered as non-recurring relating to the share of the gain realised on inventories and an amount of € 3,000 thousands as recurring relating to the share of the gain realised on a combination of inventories and other assets.
In 2017, the loss on disposal of business related to the disposal of the subsidiary Rainbow Garment, see note 4.3. for more information.
6.5. Amortisation and depreciation expenses
(in thousands of euros) 31/12/2018 31/12/2017
Amortisation of intangible assets 2,889 2,464
Depreciation of property, plant and equipment 19,654 16,312
Total amortisation and depreciation expenses 22,543 18,777
6.6. Financial result
(in thousands of euros) 31/12/2018 31/12/2017
Interest income 1 2,452
Fair value changes related to derivative instruments 26 0
Other financial income 702 96
Total financial income 729 2,548
Interest income in 2017 relate to a one-time release of interests due which was recognised as liability in the statement of financial position.
(in thousands of euros) 31/12/2018 31/12/2017
Interest expenses on bonds (4,868) (3,021)
Interest expenses on bank debts (5,053) (5,996)
Interest expenses on finance lease liabilities (299) (450)
Fair value changes related to derivative instruments (124) (126)
Expenses related to warrants (4,172) 0 Other financial expenses (3,786) (3,623)
Total financial expenses (18,303) (13,216)
In 2018 , the expenses related to warrants concern the repurchase of warrants issued at the end of 2017, see also note 5.9.2. for additional information.
6.7. Income taxes
Income tax recognised in the statement of comprehensive income can be detailed as follows:
(in thousands of euros) 31/12/2018 31/12/2017
Current taxes in respect of the current year (3,468) (1,063)
Current taxes in respect of prior years (51) 423
Deferred taxes 337 181
Total income taxes (3,181) (459)
ANNUAL REPORT — 2018 128 The income tax expense for the year can be reconciled to the accounting profit as follows:
(in thousands of euros) 31/12/2018 31/12/2017
Profit/(Loss) before taxes 14,720 7,772
Income tax expense calculated at 25% (3,680) (1,943)
Adjustments recognised in the current year in relation to the current tax of prior years (51) 423
Effect of expenses that are not deductible (1,043) (273)
Effect of unused tax losses and tax offsets not recognised as deferred tax assets 0 (4,708)
Effect of different tax rates in foreign jurisdictions 1,923 4,604
Effect of change in tax rates on deferred tax balances 0 1,238
Other (331) 200
Total income taxes (3,181) (459)
6.8. Earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
(in thousands of euros) 31/12/2017 31/12/2017
Net profit attributable to ordinary shares - Basic earnings per share 11,538 7,313
Effect of dilutive instruments 0 0
Net profit attributable to ordinary shares - Diluted earnings per share 11,538 7,313
Weighted average number of ordinary shares outstanding during the year - Basic earnings per share 10,044,645 8,073,214
Effect of dilutive instruments 0 4,978
Weighted average number of ordinary shares outstanding during the year - Dilutive earnings per share 10,044,645 8,078,192
Earnings per share (in Euros):
Basic earnings per share 1.15 0.91
Diluted earnings per share 1.15 0.91
At closing 2017, the Company issued 5 warrants in the context of the share issue effected in December 2017 (see note 5.9.). However, these warrants have been cancelled in the context of the IPO in Brussels in June 2018.
ANNUAL REPORT — 2018 129 7. FINANCIAL INSTRUMENTS AND FINANCIAL RISKS
7.1. Overview of financial instruments and fair values
7.1.1. Categories of financial instruments
The following table provides the category in which financial assets and financial liabilities are classified in accordance with IAS 39 Financial Instruments.
(in thousands of euros) IFRS 9 category 31/12/2018 31/12/2017
Trade receivables At amortised cost 66,390 64,290
Other financial assets
Deferred consideration - Sale of business At amortised cost 0 9,035
Derivative instruments At amortised cost 18,718 0
Cash and cash equivalents At amortised cost 118,015 90,470
Total financial assets 203,122 163,795
Non-current borrowings
Bonds At amortised cost 73,758 93,305
Bank debts At amortised cost 190,005 75,308
Other borrowings At amortised cost 10,000 10,138
Current borrowings
Bank debts At amortised cost 11,605 56,596
Trade and other payables
Trade payables At amortised cost 92,806 77,486
Payables relating to fixed assets At amortised cost 108 240
Other financial liabilities
Finance lease liabilities At amortised cost 14,528 12,431
Deferred consideration - business combination At fair value through P&L 4,050 19,250
Other loans At amortised cost 2,128 4,453
Derivative instruments At fair value through P&L 1,307 951
Total financial liabilities 400,294 350,158
7.1.2. Fair value of financial instruments
The only financial instruments carried at fair value in the statement of financial position are the derivative instruments, measured at fair value through profit or loss (see note 5.15.) and the deferred consideration upon acquisition of the Henkelman Group (see note 4).
The derivative instruments recognised as financial liabilities in the statement of financial position consist of interest rate swaps and an embedded derivative instrument relating to the Coltaparte loan (as mentioned in note 5.16.).
The fair value of the interest rate swaps is categorised as a level 2 fair value measurement and is computed using a discounted cash flow analysis. Future cash flows are estimated based on forward rates and yield curves derived from quoted rates matching the characteristics of the contracts (quoted forward exchange rates and/or quoted interest rates), discounted at a rate that reflects the credit risk of the counterparties, which meet the criteria for classifications as level 2 inputs (directly or indirectly observable inputs).
The fair value of the embedded derivative instrument is a level 3 fair value measurement as the main inputs used in the valuation are not observable. A 1% increase/decrease in the probability-adjusted revenues and profits while holding all other variables constant would increase/decrease the carrying amount of the derivative liability by € 76 thousands.
The fair value of the deferred consideration upon acquisitions is considered to approximate its nominal amount as the consideration is payable within the next twelve months.
ANNUAL REPORT — 2018 130 Except as detailed in the following table, the Group considers that the carrying amounts of financial assets and financial liabilities recognised in the consolidated financial statements approximate their fair values:
31/12/2018
(in thousands of euros) Carrying amount Fair value Fair value level
Non-current financial liabilities
Bonds 73,758 69,883 niveau 2
Bank debts 190,005 190,005 niveau 2
Other borrowings 10,000 10,000 niveau 2
Finance lease liabilities 13,717 10,517 niveau 2
Other loans 2,128 2,128 niveau 2
Current financial liabilities
Bank debts 11,605 11,605 niveau 2 Finance lease liabilities 811 1,789 niveau 2
Total 302,024 295,927
31/12/2017
(in thousands of euros) Carrying amount Fair value Fair value level
Non-current financial liabilities
Bonds 93,305 95,959 niveau 2
Bank debts 75,308 75,308 niveau 2
Other borrowings 10,138 10,138 niveau 2
Finance lease liabilities 11,804 11,597 niveau 2
Other loans 4,453 4,453 niveau 2
Current financial liabilities
Bank debts 56,596 56,596 niveau 2 Finance lease liabilities 627 627 niveau 2
Total 252,231 254,678
The fair values of the financial liabilities included in the level 2 categories above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.
Reconciliation of Level 3 fair value measurements:
(in thousands of euros)
Balance at 1 January 2016 475
Change in fair value 300 Balance at 31 December 2017 775
Change in fair value 300 Balance at 31 December 2018 1,075
ANNUAL REPORT — 2018 131 7.2. Financial risk management
7.2.1. Market risk
7.2.1.1. Interest rate risk
The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts and floor contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied.
The following table presents a breakdown of the financial liabilities based on the nature of the interest rate:
(in thousands of euros) 31/12/2018 31/12/2017
Fixed rate 100,414 120,327
Floating rate 201,610 131,904
Total financial liabilities 302,024 252,231
The sensitivity analyses below have been determined based on the exposure to interest rates at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit and equity for the year ended 31 December 2018 would decrease/increase by € 1,008 thousands (2017: € 409 thousands). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.
7.2.1.2. Foreign exchange risk
The Company is currently only exposed to limited foreign currency risk, mainly the USD (less than 10% of total purchases of materials).
At December 31, 2018, if the EUR had weakened 1% against the USD with all other variables held constant, the impact on the consolidated statement of comprehensive income would not be significant.
7.2.2. Credit risk
Credit risk is the risk that one party to an agreement will cause a financial loss to another party by failing to discharge its obligation. Credit risk covers trade receivables, cash and cash equivalents, short-term deposits and derivative instruments.
The Company believes that the credit risk relating to retail is limited because sales in the stores are immediately settled in cash. Credit risk is limited to wholesale operations from which the majority of the accounts receivable is insured (with a credit insurer). Furthermore, the company is not exposed to any material credit risk with regard to any individual customer of counterparty, as no single customer claims a dominant part of total revenue. As such, no impairment is recognised for these receivables.
Cash and cash equivalent and short-term deposits are invested with highly reputable banks and financial institutions.
The maximum credit risk to which the Group is theoretically exposed as at the balance sheet date is the carrying amount of the financial assets.
For an analysis of the ageing of the receivables, see note 5.5.
7.2.3. Liquidity risk
The Company manages liquidity risk by maintaining adequate reserves and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The Company’s main sources of cash inflows are currently obtained through capital increases and external financing through bond issues and bank debts.
ANNUAL REPORT — 2018 132 The following table details the Company’s remaining contractual maturity of its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows.
31/12/2018
(in thousands of euros) Finance lease Other borrowings Bonds Bank debts liabilities Other loans Total
Within one year 4,297 16,141 1,095 0 21,533
>1 and <5 years 82,183 201,380 4,518 12,500 300,581 >5 and <10 years 197 0 11,046 11,243
31/12/2017
(in thousands of euros) Finance lease Other borrowings Bonds Bank debts liabilities Other loans Total
Within one year 5,453 51,096 894 0 57,444
>1 and <5 years 66,402 15,101 3,578 15,138 100,218
>5 and <10 years 46,435 60,433 3,578 0 110,445 >10 and <15 years 0 0 6,685 0 6,685
The Group has access to financing facilities as described in note 5.13. Furthermore, the Group has access to undrawn facilities for a total amount € 24,144 thousands for working capital financing.
All liabilities mentioned in the tables above are secured liabilities.
The bonds and the bank debts are subject to covenants, mainly relating to financial ratios such as net senior debt to EBITDA, leverage ratio, interest cover ratio and the level of equity. At closing 2018, there was no breach of covenants (nor in 2017).
ANNUAL REPORT — 2018 133 8. OTHER DISCLOSURES
8.1. Consolidation scope
The companies included in the consolidation scope at the end of the reporting period are presented in the following table based on the operating segments to which they relate:
% equity interest Name Country 31/12/2018 31/12/2017 FNG Roots FNG NV Belgium 100% 100% FNG Finance Belgium BVBA Belgium 100% 100% FNG Beheer NL BVBA Belgium 100% 100% FNG Beheer BE B.V. The Netherlands 100% 100% FNG International Holding NV Belgium 100% 100% FNG Benelux Holding NV Belgium 100% 100% FNG Group NV Belgium 100% 100% FNG Holding NV Belgium 100% 100% FNG SH BVBA Belgium 100% 100% FNG Roots NV Belgium 100% 100% NS Development NV Belgium 100% 100% FNG Finance B.V. The Netherlands 100% 100% Fashion IP B.V. The Netherlands 100% 100% FNG International NV Belgium 100% 100% Van Hassels BVBA Belgium 100% 100% Fred & Ginger Retail Belgium NV Belgium 100% 100% Claudia Sträter Belgium BVBA Belgium 100% 100% CKS Retail Belgium NV Belgium 100% 100% CKS Brand Stores BVBA Belgium 100% 100% CKS SIS BVBA Belgium 100% 100% CKS TZ BVBA Belgium 100% 100% M.A.D. Collections NV Belgium 100% 100% Expresso Belgium BVBA Belgium 100% 100% Steps Retail Belgium BVBA Belgium 100% 100% FNG Spain SL Spain 100% 100% 2BUY CS B.V. The Netherlands 100% 100% CS Modehuizen B.V. The Netherlands 100% 100% CKS Retail NL B.V. The Netherlands 100% 100% CS Luxembourg S.A. Luxemburg 100% 100% FNG Group Nederland NV Belgium 100% 100% Steps Nederland B.V. The Netherlands 100% 100% Steps Onroerend Goed B.V. The Netherlands 100% 100% Steps Huur B.V. The Netherlands 100% 100% Superstar B.V. The Netherlands 100% 100% FNG Group Nederland B.V. The Netherlands 100% 100% Expresso Fashion B.V. The Netherlands 100% 100% New Fashions B.V. The Netherlands 100% 100% Expresso Fashion Web B.V. The Netherlands 100% 100% Fashion Buying Platform Holding BVBA Belgium 0% 100% Colveta AG Switzerland 0% 100% Colveta Ltd Hong Kong 100% 100% Apparel Buying Platform Holding BVBA Belgium 100% 0% Shoe Buying Platform Holding BVBA Belgium 100% 0% THS Outlet BVBA Belgium 100% 0% Beheermaatschappij Marith Weert B.V. The Netherlands 100% 0% Theo Henkelman Schoenen B.V. The Netherlands 100% 0% Only a Shoes B.V. The Netherlands 100% 0%
ANNUAL REPORT — 2018 134 % equity interest Name Country 31/12/2018 31/12/2017 Miss Etam Miss Etam Holding B.V. The Netherlands 100% 100% Miss Etam Group B.V. The Netherlands 100% 100% Miss Etam Services B.V. The Netherlands 100% 100% Miss Etam Operations B.V. The Netherlands 100% 100% ME&P Retail Rent B.V. The Netherlands 100% 100% ME&P Retail IP B.V. The Netherlands 100% 100% FNG Retail Services B.V. The Netherlands 100% 100% Brantano Brantnew BVBA Belgium 100% 100% Brantano NV Belgium 100% 100% Market Retail Belgium BVBA Belgium 100% 0% FNG Boutique Holding NV Belgium 100% 100% Suitcase NV Belgium 100% 100% Concept Fashion Group NV Belgium 100% 100% Concept Fashion Store BVBA Belgium 100% 100% Concept Fashion Store XL BVBA Belgium 100% 100% Fashion Buying Services Ltd Hong Kong 100% 100%
8.2. Related party transactions
FNG NV is the parent of the Group (“the Company”).
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. The amounts payable to, and receivable from, related parties are based on market conditions.
The related parties presented below are identified as:
• The shareholders of the Company; • Other related parties, i.e. companies (jointly) controlled by the parent or a member of key management; and • Key management personnel.
8.2.1. Trading transactions
The following transactions occurred during the reporting periods:
Purchase of services
(in thousands of euros) 31/12/2018 31/12/2017
Shareholders 0 568
Other related parties 1,023 821
Total 1,023 1,388
These services mainly relate to consulting services and rental payments.
The following balances with related parties were outstanding at the end of the reporting period:
Amounts owed by related parties Amounts owed to related parties
(in thousands of euros) 31/12/2018 31/12/2017 31/12/2018 31/12/2017
Shareholders 0 579 0 1,905
Other related parties 3,141 0 0 17
Total 3,141 579 0 1,922
ANNUAL REPORT — 2018 135 The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No expense has been recognised in the current or prior years for bad or doubtful debts in respect of the amounts owed by related parties.
8.2.2. Loans from and to related parties
Loans to related parties Loans from related parties
(in thousands of euros) 31/12/2018 31/12/2017 31/12/2018 31/12/2017
Shareholders 0 0 14,528 12,431
Other related parties 0 0 0 0
Key Management 0 0 0 0 Total 0 0 14,528 12,431
The shareholder’s loan relates to the finance lease of the building in Mechelen. See note 5.13. for more detailed information on the finance lease liability.
8.2.3. Compensation of key management personnel
Key management personnel of the Group include all members of the Board of Directors of the Company, as well as the Executive Committee.
The members of the Executive Committee are responsible for the management, the organisation and the control of their respective department, within the limits of the budget and the strategy approved by the Board of Directors. The Executive Committee is also in charge of the preparation of the strategic planning. The Executive Committee is entrusted with the management of the Company and the execution of the Board of Director’s decisions. The Executive Committee is composed of 3 members and includes the chief executive officer (CEO), the art director and the operations director.
The table below presents the compensation of all members of key management personnel by type of compensation:
(in thousands of euros) 31/12/2018 31/12/2017
Short-term benefits 675 573
Post-employment benefits 0 0
Total 675 573
8.3. Contingent assets and liabilities
At 31 December 2018 and 2017, there were no material contingent assets or liabilities. Total exposure does not exceed € 500 thousands.
8.4. Commitments
8.4.1. Operating lease commitments
Operating leases relate to leases of stores (average lease term of 6 years), company cars (average lease term of 4 years) and IT equipment. The Company does not have an option to purchase the leased assets at the expiry of the lease periods. For the period ended 31 December 2018, minimum lease payments for a total amount of € 45,201 thousands have been recognised in the statement of comprehensive income (2017: € 44,541 thousands). There were no significant contingent rentals, nor sub-lease payments received.
The following table presents the non-cancellable operating lease commitments:
(in thousands of euros) 31/12/2018 31/12/2017
Not later than 1 year 47,818 53,263
Later than 1 year and not later than 5 years 77,517 96,794
Later than 5 years 11,326 18,925
Total 136,661 168,983
ANNUAL REPORT — 2018 136 8.4.2. Facilities and guarantees
The Group has access to facilities for bank guarantees and financing of working capital with a maximum of € 25,000 thousands. As per reporting date, bank guarantees relating to the lease of real estate (mainly stores) had been issued at the request of the Group for a total amount of € 23,251 thousands.
Furthermore, in the context of the borrowings, following elements are pledged for a total amount of € 131,686 thousands:
• Shares in subsidiaries; • Inventories; • Receivables; • Property, plant and equipment; • IP rights; • Bank deposits.
8.4.3. Other commitment
There were no other commitments at year-end 2018, nor 2017.
8.5. Audit fees
(in thousands of euros) 31/12/2018 31/12/2017
Audit Fees 140 265
Additional Services rendered by the auditor's mandate:
Audit related fees 0 0
Tax advisory & compliance services 0 11
Due diligence fees 0 0
Other Services 36 0
Total 176 276
8.6. Events after the reporting period
In 2018, Brantano invested heavily in the new store concepts and a new internet platform. On March 1, 2019, a major marketing campaign “Dream. Dare. Change.” was launched to emphasise this. Furthermore, Brantano announced the opening of a new store on the Antwerp Meir (first store in the centre city).
ANNUAL REPORT — 2018 137 FNG NV STATUTORY FINANCIAL STATEMENTS
EXTRACT FROM THE SEPARATE (NON-CONSOLIDATED) FINANCIAL STATEMENTS OF FNG NV
The following information is extracted from the separate Belgian GAAP financial statements of FNG NV and is included as required by article 105 of the Belgian Company Code. The separate financial statements, together with the annual report of the Board of Directors to the General Meeting of Shareholders as well as the auditors’ report, will be filed with the National Bank of Belgium within the legally foreseen time limits.
The statutory auditor’s report is unqualified and certifies that the non-consolidated financial statements of FNG NV prepared in accordance with Belgian GAAP for the year ended December 31, 2018 give a true and fair view of the financial position and results of FNG NV in accordance with the legal and regulatory dispositions applicable in Belgium.
1. CONDENSED BALANCE SHEET AFTER RESULT APPROPRIATION
ASSETS (in thousands of euros) 31/12/2018 31/12/2017
Fixed assets 313,688 260,013 Formation expenses Intangible assets Tangible assets Financial fixed assets 313,688 260,013 Participating interests 185,849 185,849 Amounts receivable 127,839 74,169
Current assets 27,985 25,167 Amounts receivable after one year 25,000 25,000 Amounts receivable within one year 2,943 154 Cash at bank and in hand 42 13
TOTAL ASSETS 341,673 285,180
EQUITY AND LIABILITIES (in thousands of euros) 31/12/2018 31/12/2017
Equity 338,718 282,298 Capital 60,679 718 Share premium 266,356 266,356 Retained earnings 11,683 15,224
Amounts payable 2,955 2,882 Amounts payable after more than one year 380 0 Financial debt 380 0 Other debts 2,575 2,857 Amounts payable within one year 668 1,098 Trade debts 223 947 Taxes, remunerations and social security 1,684 812 Other liabilities 0 25
TOTAL EQUITY AND LIABILITIES 341,673 285,180
As a result of the change in nationality of FNG NV in 2018, the accounting rules have also changed. The 2017 figures are therefore restated from Dutch GAAP to Belgian GAAP.
ANNUAL REPORT — 2018 138 The impact of this change on 2017 is presented below:
Financial fixed assets – Participating interests - Dutch GAAP 176,788
Cumulative results of the investments (7,786) Result from the restructuring of shares 16,847
Financial fixed assets – Participating interests - Belgian GAAP 185,849
2. CONDENSED INCOME STATEMENT
(in thousands of euros) 2018 2017
Operating income 0 0 Operating charges (1,408) (981) Services and other goods (1,354) (981) Other operating charges (53) 0 Operating loss (1,408) (981) Financial income 2,670 4,662 Financial charges (4,815) (55) Profit/(loss) for the period before taxes (3,553) 3,626 Income taxes 13 (955) Profit/(loss) for the period (3,541) 2,670
3. SUMMARY OF THE REPORT OF THE BOARD OF DIRECTORS
3.1. Results of the Company
Considering the holding activities of the Company, no commercial revenue has been realised during the accounting period ended on 31 December 2018. Total balance sheet for the year ended on 31 December 2018 amounts to € 341,673 thousands compared € 285,180 thousands for 2017. The year ended with a loss of € 3,541 thousands compared to a profit of € 2,670 thousands last year. A profit of € 15,224 thousands was carried forward to the current year. As such, the profit to be appropriated amounts to € 11,683 thousands.
3.2. Analysis and discussion of the development of the Company
The Company is a consolidating entity. The development of the Group is discussed in the consolidated annual report.
Specifically to the statutory financial statements of the Company, a non-recurring financial charge of € 4,171 thousands was recognised. As a result of the private placement on 19 December 2017, FNG issued 937,500 class A shares and 5 warrants for a total amount of € 30,000 thousands. Considering that the warrants were not allowed according to the Belgian Company Law, the Company has repurchased these 5 warrants on 4 June 2018, preceding the move of the registered office of the Company from the Netherlands to Belgium on 5 June 2018. As a consequence, the 5 warrants ceased to exist and ceased to be exercisable. The repurchase price amounted to € 4,171 thousands.
3.3. Appropriation of the result
The Board of Directors propose to allocate the result as follows:
• Result to be appropriated • Loss of the year: € 3,540,613.59 • Profit carried forward from preceding years: € 15,223,590.04
• Result to be carried over to the next year: € 11,682,976.45
ANNUAL REPORT — 2018 139 ALTERNATIVE PERFORMANCE MEASURES – GLOSSARY
Terminology Definition
Adjusted EBIT Earnings before interest and taxes and before non-recurring items, also called adjusted operating result
Adjusted EBIT as a % of revenue Adjusted EBIT divided by total revenue
Adjusted EBITDA Earnings before interest, taxes, depreciations and amortisations and non-recurring items, also called adjusted operating cash flow
Adjusted EBITDA as a % of revenue Adjusted EBITDA divided by total revenue
EBIT Earnings before interest and taxes, also called operating result
EBIT as a % of revenue EBIT divided by total revenue
EBITDA Earnings before interest, taxes, depreciations and amortisations, also called operating cash flow
EBITDA as a % of revenue Adjusted EBITDA divided by total revenue
Gross profit The difference between revenue and cost of goods sold
Gross profit margin The Gross profit divided by total revenue
Leverage ratio Net financial debt divided by Adjusted EBITDA
Net financial debt The sum of current and non-current borrowings minus cash and cash equivalents. Other financial liabilities are not included in this KPI.
Non-recurring items Non-recurring items are either income or expenses which do not occur regularly as part of the normal activities of the company. They are presented separately because they are important for the understanding of the underlying sustainable performance of the Company due to their size or nature.
ANNUAL REPORT — 2018 140 fred + ginger
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VERSLAG VAN DE COMMISSARIS AAN DE ALGEMENE VERGADERING VAN DE VENNOOTSCHAP FNG NV OVER HET BOEKJAAR AFGESLOTEN OP 31 DECEMBER 2018
In het kader van de wettelijke controle van de geconsolideerde jaarrekening van de vennootschap FNG NV (de “vennootschap”) en haar filialen (samen “de Groep”), leggen wij u ons commissarisverslag voor. Dit bevat ons verslag over de geconsolideerde jaarrekening en de overige door wet- en regelgeving gestelde eisen. Dit vormt een geheel en is ondeelbaar.
Wij werden benoemd in onze hoedanigheid van commissaris door de algemene vergadering van 5 juni 2018, overeenkomstig het voorstel van het bestuursorgaan. Ons mandaat loopt af op de datum van de algemene vergadering die beraadslaagt over de jaarrekening afgesloten op 31 december 2020. Wij rapporteren thans voor het eerst over de wettelijke controle van de geconsolideerde jaarrekening van de vennootschap.
Verslag over de geconsolideerde jaarrekening
Oordeel zonder voorbehoud
Wij hebben de wettelijke controle uitgevoerd van de geconsolideerde jaarrekening van de Groep, die de geconsolideerde balans op 31 december 2018 omvat, alsook het geconsolideerd overzicht van het totaalresultaat, het geconsolideerd mutatieoverzicht van het eigen vermogen en het geconsolideerd kasstroomoverzicht over het boekjaar afgesloten op die datum en de toelichting, met de belangrijkste gehanteerde grondslagen voor financiële verslaggeving en overige informatieverschaffing, waarvan het totaal van de geconsolideerde balans KEUR 834.902 bedraagt en waarvan het geconsolideerd overzicht van het totaalresultaat afsluit met een winst van het boekjaar (aandeel van de Groep) van KEUR 11.538.
Naar ons oordeel geeft de geconsolideerde jaarrekening een getrouw beeld van het vermogen en van de financiële toestand van de Groep op 31 december 2018 alsook van zijn geconsolideerde resultaten en van zijn geconsolideerde kasstromen over het boekjaar dat op die datum is afgesloten, in overeenstemming met de International Financial Reporting Standards (IFRS) zoals goedgekeurd door de Europese Unie en met de in België van toepassing zijnde wettelijke en reglementaire voorschriften.
Basis voor het oordeel zonder voorbehoud
Wij hebben onze controle uitgevoerd volgens de internationale controlestandaarden (ISA’s) zoals van toepassing in België. Onze verantwoordelijkheden op grond van deze standaarden zijn verder beschreven in de sectie “Verantwoordelijkheden van de commissaris voor de controle van de geconsolideerde jaarrekening” van ons verslag. Wij hebben alle deontologische vereisten die relevant zijn voor de controle van de geconsolideerde jaarrekening in België nageleefd, met inbegrip van deze met betrekking tot de onafhankelijkheid.
Wij hebben van het bestuursorgaan en van de aangestelden van de vennootschap de voor onze controle vereiste ophelderingen en inlichtingen verkregen.
Wij zijn van mening dat de door ons verkregen controle-informatie voldoende en geschikt is als basis voor ons oordeel.
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Benadrukking van bepaalde aangelegenheden
Zonder afbreuk te doen aan het hierboven tot uitdrukking gebracht oordeel , vestigen we de aandacht op (i) de geconsolideerde jaarrekening per 31 december 2018 die Goodwill voor KEUR 86.158 en Immateriële vaste activa met een onbeperkte gebruiksduur voor KEUR 302.245 vertoont. In punt toelichting 5.1 en 5.2 van de geconsolideerde jaarrekening worden door het bestuursorgaan de assumpties van de impairment analyse en de resultaten van de sensitiviteitsoefening inzake voormelde posten uiteengezet. Voormelde assumpties en boekhoudkundige ramingen bevatten elementen van beoordeling die inherent onzekerheden bevatten.
(ii) toelichting 6.5 “Niet-recurrente elementen” waarin de transactie met betrekking tot een extern handelsfonds dewelke voornamelijk voorraden alsook andere activa betreft, wordt toegelicht. De winst op deze transactie van KEUR 6.850, werd voor het gedeelte gerelateerd aan voorraden opgenomen onder omzet voor een bedrag van KEUR 3.850 en voor het gedeelte gerelateerd aan voorraden en andere activa opgenomen als niet- recurrente elementen voor een bedrag van KEUR 3.000.
Overige aangelegenheid
De jaarrekening van de vennootschap voor het boekjaar afgesloten op 31 december 2017 werd door een andere commissaris gecontroleerd die op 30 april 2018 een oordeel zonder voorbehoud over deze jaarrekening tot uitdrukking heeft gebracht.
Kernpunten van de controle
Kernpunten van onze controle betreffen die aangelegenheden die naar ons professioneel oordeel het meest significant waren bij de controle van de geconsolideerde jaarrekening van de huidige verslagperiode. Deze aangelegenheden zijn behandeld in de context van onze controle van de geconsolideerde jaarrekening als geheel en bij het vormen van ons oordeel hierover, en wij verschaffen geen afzonderlijk oordeel over deze aangelegenheden.
▪ Verwerving van groepsentiteiten Verwijzging naar de toelichtingen van de geconsolideerde jaarrekening: punt 4.1
Beschrijving van het kernpunt van de controle
Per 31 december 2018 heeft FNG NV de Theo Henkelman groep overgenomen, een Nederlandse retailgroep bestaande uit de volgende dochterondernemingen: Theo Henkelman Schoenen BV, Only A Shoes BV en Beheersmaatschappij Marith Weert BV.
De beoordeling van de overname is van groot belang voor onze controle gezien de aard en omvang van de bedragen, alsook de beoordeling van het management omtrent datum waarop de controle over de voormelde entiteiten werd verworven. Het management heeft de purchase price allocation (PPA) per entiteit voorbereid, waarbij subjectieve elementen zijn betrokken om de reële waarden te bepalen van de onderliggende activa zoals onder meer de handelsnamen, leverancierslijst en de actualisatievoet van de ingeschatte toekomstige kasstromen (gewogen gemiddelde kosten van kapitaal - WACC).
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Hoe het kernpunt werd aangepakt tijdens de controle
We hebben de onderliggende overeenkomsten van de acquisitie beoordeeld om de datum van verwerving van de controle vast te stellen, rekening houdend met alle bekende feiten en omstandigheden. Voor de PPA hebben we de redelijkheid van de veronderstellingen die door het management worden gebruikt, beoordeeld. Ons werk omvatte onder meer het instrueren van de auditor van het groepsonderdeel om auditcomfort te bieden op de beginsaldo (boekwaarde) per acquisitiedatum (inclusief de IFRS-conversie) en we hebben het uitgevoerde werk beoordeeld. Verder hebben we geëvalueerd of de acquisitie op de juiste wijze is weergegeven en in de jaarrekening is opgenomen in overeenstemming met IFRS.
▪ Waardering van immateriële vaste activa inclusief goodwill Verwijzging naar de toelichtingen van de geconsolideerde jaarrekening: toelichting 5.1 en 5.2
Beschrijving van het kernpunt van de controle De bedragen aan goodwill en immateriële vaste activa met een onbepaalde gebruiksduur worden onderworpen aan een jaarlijkse impairment test onder IFRS die is opgenomen in de toelichtingen betreffende goodwill (toelichting 5.1) en immateriële vaste activa (toelichting 5.2). We zijn van mening dat de waardering van immateriële vaste activa (incl. goodwill) een kernpunt is van onze controle gezien de belangrijkheid van de bedragen en de complexiteit van het beoordelingsproces, dewelke ook inschatting van het management over de onderliggende hypotheses omvat.
Hoe het kernpunt werd aangepakt tijdens de controle We hebben onder andere de juiste allocatie van de immateriële activa aan de kasstroomgenererende eenheden beoordeeld, de vergelijking gemaakt met de veronderstellingen die vorig jaar werden gebruikt met de actuele resultaten (de zogenaamde 'backtesting'), de redelijkheid van de door het management gehanteerde veronderstellingen en de volatiliteit ervan in de sensitiviteitsanalyse beoordeeld.
Verantwoordelijkheden van het bestuursorgaan voor het opstellen van de geconsolideerde jaarrekening
Het bestuursorgaan is verantwoordelijk voor het opstellen van de geconsolideerde jaarrekening die een getrouw beeld geeft in overeenstemming met de International Financial Reporting Standards (IFRS) zoals goedgekeurd door de Europese Unie en met de in België van toepassing zijnde wettelijke en reglementaire voorschriften, alsook voor de interne beheersing die het bestuursorgaan noodzakelijk acht voor het opstellen van de geconsolideerde jaarrekening die geen afwijking van materieel belang bevat die het gevolg is van fraude of van fouten.
Bij het opstellen van de geconsolideerde jaarrekening is het bestuursorgaan verantwoordelijk voor het inschatten van de mogelijkheid van de Groep om zijn continuïteit te handhaven, het toelichten, indien van toepassing, van aangelegenheden die met continuïteit verband houden en het gebruiken van de continuïteitsveronderstelling, tenzij het bestuursorgaan het voornemen heeft om de Groep te liquideren of om de bedrijfsactiviteiten te beëindigen of geen realistisch alternatief heeft dan dit te doen.
Verantwoordelijkheden van de commissaris voor de controle van de geconsolideerde jaarrekening
Onze doelstellingen zijn het verkrijgen van een redelijke mate van zekerheid over de vraag of de geconsolideerde jaarrekening als geheel geen afwijking van materieel belang bevat die het gevolg is
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van fraude of van fouten en het uitbrengen van een commissarisverslag waarin ons oordeel is opgenomen. Een redelijke mate van zekerheid is een hoog niveau van zekerheid, maar is geen garantie dat een controle die overeenkomstig de ISA’s is uitgevoerd altijd een afwijking van materieel belang ontdekt wanneer die bestaat. Afwijkingen kunnen zich voordoen als gevolg van fraude of fouten en worden als van materieel belang beschouwd indien redelijkerwijs kan worden verwacht dat zij, individueel of gezamenlijk, de economische beslissingen genomen door gebruikers op basis van deze geconsolideerde jaarrekening, beïnvloeden.
Bij de uitvoering van onze controle leven wij het wettelijk, reglementair en normatief kader dat van toepassing is op de controle van de jaarrekening in België na.
Als deel van een controle uitgevoerd overeenkomstig de ISA’s, passen wij professionele oordeelsvorming toe en handhaven wij een professioneel-kritische instelling gedurende de controle. We voeren tevens de volgende werkzaamheden uit: • het identificeren en inschatten van de risico’s dat de geconsolideerde jaarrekening een afwijking van materieel belang bevat die het gevolg is van fraude of van fouten, het bepalen en uitvoeren van controlewerkzaamheden die op deze risico’s inspelen en het verkrijgen van controle-informatie die voldoende en geschikt is als basis voor ons oordeel. Het risico van het niet detecteren van een van materieel belang zijnde afwijking is groter indien die afwijking het gevolg is van fraude dan indien zij het gevolg is van fouten, omdat bij fraude sprake kan zijn van samenspanning, valsheid in geschrifte, het opzettelijk nalaten om transacties vast te leggen, het opzettelijk verkeerd voorstellen van zaken of het doorbreken van de interne beheersing; • het verkrijgen van inzicht in de interne beheersing die relevant is voor de controle, met als doel controlewerkzaamheden op te zetten die in de gegeven omstandigheden geschikt zijn maar die niet zijn gericht op het geven van een oordeel over de effectiviteit van de interne beheersing van de Groep; • het evalueren van de geschiktheid van de gehanteerde grondslagen voor financiële verslaggeving en het evalueren van de redelijkheid van de door het bestuursorgaan gemaakte schattingen en van de daarop betrekking hebbende toelichtingen ; • het concluderen of de door het bestuursorgaan gehanteerde continuïteitsveronderstelling aanvaardbaar is, en het concluderen, op basis van de verkregen controle-informatie, of er een onzekerheid van materieel belang bestaat met betrekking tot gebeurtenissen of omstandigheden die significante twijfel kunnen doen ontstaan over de mogelijkheid van de Groep om zijn continuïteit te handhaven. Indien wij concluderen dat er een onzekerheid van materieel belang bestaat, zijn wij ertoe gehouden om de aandacht in ons commissarisverslag te vestigen op de daarop betrekking hebbende toelichtingen in de geconsolideerde jaarrekening, of, indien deze toelichtingen inadequaat zijn, om ons oordeel aan te passen. Onze conclusies zijn gebaseerd op de controle- informatie die verkregen is tot de datum van ons commissarisverslag. Toekomstige gebeurtenissen of omstandigheden kunnen er echter toe leiden dat de Groep zijn continuïteit niet langer kan handhaven. De wettelijke controle biedt geen zekerheid omtrent de toekomstige levensvatbaarheid van de vennootschap, noch van de efficiëntie of de doeltreffendheid waarmee het bestuursorgaan de bedrijfsvoering van de vennootschap ter hand heeft genomen of zal nemen ; • het evalueren van de algehele presentatie, structuur en inhoud van de geconsolideerde jaarrekening, en van de vraag of de geconsolideerde jaarrekening de onderliggende transacties en gebeurtenissen weergeeft op een wijze die leidt tot een getrouw beeld; • het verkrijgen van voldoende en geschikte controle-informatie met betrekking tot de financiële informatie van de entiteiten of bedrijfsactiviteiten binnen de Groep gericht op het tot uitdrukking brengen van een oordeel over de geconsolideerde jaarrekening. Wij zijn verantwoordelijk voor de aansturing van, het toezicht op en de uitvoering van de groepscontrole. Wij blijven ongedeeld verantwoordelijk voor ons oordeel.
Wij communiceren met het bestuursorgaan onder meer over de geplande reikwijdte en timing van de controle en over de significante controlebevindingen, waaronder eventuele significante tekortkomingen in de interne beheersing die wij identificeren gedurende onze controle.
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Wij verschaffen aan het bestuursorgaan tevens een verklaring dat wij de relevante deontologische voorschriften over onafhankelijkheid hebben nageleefd, en wij communiceren met hen over alle relaties en andere zaken die redelijkerwijs onze onafhankelijkheid kunnen beïnvloeden en, waar van toepassing, over de daarmee verband houdende maatregelen om onze onafhankelijkheid te waarborgen.
Uit de aangelegenheden die met het bestuursorgaan zijn gecommuniceerd bepalen wij die zaken die het meest significant waren bij de controle van de geconsolideerde jaarrekening van de huidige verslagperiode, en die derhalve de kernpunten van onze controle uitmaken. Wij beschrijven deze aangelegenheden in ons verslag, tenzij het openbaar maken van deze aangelegenheden is verboden door wet- of regelgeving.
Overige door wet- en regelgeving gestelde eisen
Verantwoordelijkheden van het bestuursorgaan Het bestuursorgaan is verantwoordelijk voor het opstellen en de inhoud van het jaarverslag over de geconsolideerde jaarrekening, de verklaring van niet-financiële informatie gehecht aan dit jaarverslag en de andere informatie opgenomen in het jaarrapport over de geconsolideerde jaarrekening.
Verantwoordelijkheden van de commissaris
In het kader van ons mandaat en overeenkomstig de Belgische bijkomende norm (herzien in 2018) bij de in België van toepassing zijnde internationale controlestandaarden (ISA’s), is het onze verantwoordelijkheid om, in alle van materieel belang zijnde opzichten, het jaarverslag over de geconsolideerde jaarrekening, de verklaring van niet-financiële informatie gehecht aan dit jaarverslag en de andere informatie opgenomen in het jaarrapport te verifiëren, alsook verslag over deze aangelegenheden uit te brengen.
Aspecten betreffende het jaarverslag over de geconsolideerde jaarrekening en andere informatie opgenomen in het jaarrapport over de geconsolideerde jaarrekening
Na het uitvoeren van specifieke werkzaamheden op het jaarverslag over de geconsolideerde jaarrekening, zijn wij van oordeel dat dit jaarverslag overeenstemt met de geconsolideerde jaarrekening voor hetzelfde boekjaar en is opgesteld overeenkomstig het artikel 119 van het Wetboek van vennootschappen.
In de context van onze controle van de geconsolideerde jaarrekening zijn wij tevens verantwoordelijk voor het overwegen, in het bijzonder op basis van de kennis verkregen in de controle, of het jaarverslag over de geconsolideerde jaarrekening en de andere informatie opgenomen in het jaarrapport over de geconsolideerde jaarrekening, zijnde:
- Verklaring inzake deugdelijk bestuur - Remuneratieverslag
een afwijking van materieel belang bevatten, hetzij informatie die onjuist vermeld is of anderszins misleidend is. In het licht van de werkzaamheden die wij hebben uitgevoerd, hebben wij geen afwijking van materieel belang te melden.
Wij drukken geen enkele mate van zekerheid uit over het jaarverslag.
De niet-financiële informatie zoals vereist op grond van artikel 119, § 2 van het Wetboek van vennootschappen, werd opgenomen in een afzonderlijk verslag gevoegd bij het jaarverslag over de geconsolideerde jaarrekening dat deel uitmaakt van het jaarrapport. Dit verslag van niet-financiële
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informatie bevat de door artikel 119, § 2 van het Wetboek van vennootschappen vereiste inlichtingen en is in overeenstemming met de geconsolideerde jaarrekening voor hetzelfde boekjaar. De vennootschap heeft zich bij het opstellen van deze niet-financiële informatie gebaseerd op het Global Reporting Initiative. Overeenkomstig artikel 148, § 1, 5° van het Wetboek van vennootschapen spreken wij ons niet uit over de vraag of deze niet-financiële informatie is opgesteld in overeenstemming met het in het jaarverslag over de geconsolideerde jaarrekening vermelde Global Reporting Initiative. Verder drukken wij geen enkele mate van zekerheid uit over individuele elementen opgenomen in deze niet- financiële informatie.
Vermeldingen betreffende de onafhankelijkheid
− Ons bedrijfsrevisorenkantoor en ons netwerk hebben geen opdrachten verricht die onverenigbaar zijn met de wettelijke controle van de geconsolideerde jaarrekening en is in de loop van ons mandaat onafhankelijk gebleven tegenover de Groep. − De honoraria voor de bijkomende opdrachten die verenigbaar zijn met de wettelijke controle bedoeld in artikel 134 van het Wetboek van vennootschappen werden correct vermeld en uitgesplitst in de toelichting bij de geconsolideerde jaarrekening.
Andere vermeldingen
− Huidig verslag is consistent met onze aanvullende verklaring aan het bestuursorgaan bedoeld in artikel 11 van de verordening (EU) nr. 537/2014. − Wij werden ingelicht dat bepaalde ondernemingen binnen de groep geen gebruik maken van orderrekeningen. Ten aanzien van de volledigheid en de beoordeling van de verplichtingen buiten balans, wordt daarom door de betrokken revisoren gesteund op de bevestiging van de bedrijfsleiding en derden terzake.
Antwerpen, 30 april 2019
Mazars Bedrijfsrevisoren Commissaris
Vertegenwoordigd door
Anton Nuttens Bedrijfsrevisor
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