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ANNUAL REPORT 2014 French Connection Group PLC French Connection Group PLC FRENCH CONNECTION • GREAT PLAINS • TOAST • YMC The French Connection Group designs, produces and distributes branded fashion clothing for men and women to more than 60 countries around the world CONTENTS STRATEGIC REPORT Consolidated Statement Chairman’s Statement 2 of Financial Position 32 Our Business 3 Consolidated Statement Corporate Social Responsibilty 7 of Changes in Equity 33 Financial Review 9 Consolidated Statement GOVERNANCE of Cash Flows 34 Board of Directors 11 Notes to the Group Accounts 35 Directors’ Report 12 Company Balance Sheet 54 Corporate Governance Statement 14 Audit Committee Report 16 Notes to the Company Accounts 55 Directors’ Remuneration Report 19 SHAREHOLDER INFORMATION Statement of Directors’ Responsibilities 27 Five Year Record 60 Independent Auditor’s Report 28 Advisers 61 FINANCIAL STATEMENTS Financial Calendar 61 Consolidated Statement of Comprehensive Income 30 Notice of Meeting 62 CHAIRMAN’S STATEMENT Dear Shareholders, In the Annual Report last year I set out the initiatives we put Toast performed well during the year and continues in place to drive a turnaround in our trading performance. to leverage on its primarily online business model, I am pleased that the initiatives have delivered improved complemented by a small retail portfolio. results during the year and that they are continuing to gain In International markets, in our Joint Ventures in China traction as our business performance further strengthens. and Hong Kong, additional stores were opened and After delivering a reduction in losses in H1, the Group reports with positive LFL’s, the share of profit from joint ventures an underlying operating profit in H2 of £1.7m (2013: H2 loss increased. In North America, the apparel market has been of £(0.9)m). As a consequence, the overall Group underlying weak in 2014 and we have not been immune to the effects operating loss before taxation (and excluding store closure of this. costs) for the year was therefore better than expectations at Global Licensing continues to be a very important part of £(4.4)m, an encouraging improvement compared with the the business highlighting the strength of the brand, with the loss of £(7.2)m last year. new licenses for furniture, shoes, and bags performing well. The majority of the improvement in the Group financial The Group remains debt free and ended the year with performance was from our Retail division which reduced a strong cash position of £28.2m (2013: £28.5m). operating losses by £3.8m over the year. This was driven To conserve working capital the Board has decided that out of our UK/Europe business, through enhanced margins no dividend shall be paid for the year (2013: Nil). The particularly in the latter part of H2, lower underlying labour shareholder distribution policy will be kept under review costs and the closure of 9 non-contributing stores. In the during the year. Wholesale division, better UK/Europe trading was offset by tough trading conditions in North America. Group Overall, there has been significant positive change across management and common overheads were reduced the business during the year. We have felt the benefit of the by 11.7% . new team who have now been in place for over a year and have made considerable impact across many areas. More The UK/Europe retail performance continues to strengthen recently we have been pleased with the reception to our following the implementation of the retail initiatives. At Spring range. the operational level focus has been placed on process re-engineering and staff scheduling, which have resulted We have accomplished a great deal in the past year and in both cost savings and better time management. This has will build on that momentum to deliver further improvements. been in conjunction with a push to improve full price sales There is still much to do and I am confident that we are on evidenced by positive LFL’s in H2. the right path and have the right strategy to drive further progress. The improved collections under the control of the new design team have shown a positive impact. Significantly, Finally on behalf of the Board, I would like to thank all our changes in our retail buying resulted in higher full price sell staff around the world for their continuing efforts and hard through, lower levels of discounting during the sale period, work which is contributing to the success and delivery of much better stock control and consequently reduced the improved performance we have seen over the past year. working capital consumption. This has further enabled us to continue to improve the brand equity by having shorter sale periods in the UK at the end of the last two seasons. Stephen Marks Chairman and Chief Executive During the year our ecommerce business has continued to perform well and has grown by 8%, benefiting from 12 March 2014 the continued investment in our multi-channel offering. It is clear that we will need to maintain this investment in order to ensure we provide high levels of functionality to customers. We continued to rationalise the UK/Europe store portfolio with a total of 9 non-contributing stores closed during the year. We plan to close a further 3-5 non-contributing stores during the current year. As the year progressed the UK wholesale business built momentum as the benefits of the changes to the collections fed through, resulting in an improved second half performance. Orders for the Spring 2014 collections are ahead of last year. A good initial reaction to the Winter 2014 collections, linked to an improved sell through of the previous season, has resulted in further progress. 2 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2014 OUR BUSINESS Business objectives, strategy, Great Plains: a fashion basics range designed in-house and and business model supplied through wholesale to multi-brand retailers mainly At the heart of our business is a passion for the clothes. in the UK; and In 1972, when French Connection was conceived, we set YMC: a fledgling, edgy, contemporary fashion brand for out to create well-designed, stylish clothing that appealed to men and women with two stores in London and a growing a broad market. We have since worked hard to build on that wholesale base. vision and as a result, French Connection is synonymous with fashion and style. Each brand targets a different audience and has achieved high levels of recognition for style and design reflecting the creative It remains our prime goal to create distinctiveness in a crowded passion and skill poured into the design and manufacture of market place through focus on design. The brand’s strength their products. lies in balancing new, exciting ideas with consistent quality and affordability and in a world of “fast fashion” we are proud Our operations of our commitment to the creative process. We design, produce and distribute branded fashion clothing With a passionate focus on fashion underpinning the business for men and women from our business premises in London, our aim is to generate increased shareholder value through the Swansea, New York, Paris, Dusseldorf, Hong Kong and sale of fashion products and the extension of our brands into Toronto. We operate retail stores and concessions in the other lucrative markets through licensing. We continually assess UK, Europe, US and Canada and also operate ecommerce markets and relationships for new opportunities to broaden our businesses in each of those territories. Further, we wholesale customer reach. our products to retailers operating in over 60 countries around the world and have licensed partners operating French Founded by Chairman and Chief Executive Stephen Marks, Connection stores across Asia, Australia and the Middle East. French Connection’s long history of success has been based Other branded products, such as toiletries, shoes and eyewear, on design quality and innovative fashion, supported by a strong are produced under licence. market presence resulting in one of the most highly recognised and respected clothing brands in the UK and across the world. Our design teams are based in London and we arrange for the We seek to ensure that products are presented for sale in products to be manufactured in specialist third part factories in contemporary surroundings by knowledgeable and friendly Europe and Asia supervised by local buying offices. The main staff who are in-tune with our customers. We recognise that countries where manufacturing takes place are China, India our products are the core element of our business and that our and Turkey. ability to produce fashionable clothing to match our customers’ The Group retails garments through a network of stores on high expectation has been, and continues to be, the key to our streets and in shopping malls across the UK, Europe and North continued success. America and through concessions within leading department We seek to ensure that our resources are deployed effectively stores such as House of Fraser. We also operate ecommerce and efficiently to support our business. Design and production internet sites through which our products are available for home of the ranges and maintenance of our operating standards are delivery in the UK, Europe and North America. paramount for all our business managers who have broad The product ranges are also offered for sale at wholesale responsibility for their area of operations. through our showrooms in London, New York, Paris, Dusseldorf and Hong Kong to selected customers operating Brands department stores, multi-brand fashion stores or ecommerce Our principal brand is French Connection which accounts sites around the world. for 87% of the Group’s revenues. To further extend retail distribution we have granted franchises The French Connection brand operates in the fashion- and licences to quality retailers allowing them to operate French orientated market place offering a fashion-forward range of Connection branded retail stores in Europe, the Middle East, quality products at affordable prices.

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