ABOUT THE FRENCH CONNECTION GROUP: JUNE 2015 FRENCH CONNECTION
2 FRENCH CONNECTION
/ A globally recognised brand / Strong international presence, representing 37% of Group revenue / A unique blend of fashion know-how, production capability and distribution channels / Growing license business with market leading partners / Business strengthened with planned return to profit / Highly operationally geared with growth opportunities clearly identified / Strong Balance Sheet with valuable assets
3 THE FRENCH CONNECTION GROUP
£450m+
1
1 Direct and third party Gross Transaction Value 4 FRENCH CONNECTION GROUP KEY NUMBERS 2015
Total Group Revenue £178.5m Retail/Wholesale Rev Split 58%/42% Retail/Wholesale GM% 57.6%/32.3% Ecommerce as a % of Retail 23% Womens/Mens Rev. split 80%/20% Total International Rev. 37% Licence Income £6.5m Closing Net Cash £23.2m Capex as a % of Revenue 0.5% Total employees 2,500
SS15 Press Day, London Showroom 5 FRENCH CONNECTION GROUP A VALUABLE PORTFOLIO OF BRANDS
French Connection- the core brand / Instantly recognisable / Iconic campaigns / Thought provoking, visionary design approach
French Connection- sub brands / FCUK brand used very selectively / “F” icon used for younger target market
Other brands (14% of Group Rev.)
Toast: Crafted ladies, mens and homeware
YMC: Edgy, contemporary fashion
Great Plains: Fashion basics range designed in house
6 FRENCH CONNECTION T H E B R A N D
/ The Brand is built on a reputation for fashion, design and quality
‘In 1 or 2 words what do you like most about French Connection Brand. Top scoring Premium High Street Brand, AW14 Word size indicates volume of responses Drapers, November 2014 Internally Commissioned Research, 2014
Main feature “How to Wear Uniform Jackets” with French Connection French Connection Dresses Feature, Look Cotton Canvas Jacket Magazine, May 2015 Elle Magazine, May 2015
7 FRENCH CONNECTION T H E B R A N D
/ Brand awareness and consideration is high
Commissioned Research Commissioned Research
SS15 Collection AW15 Collection 8 FRENCH CONNECTION T H E B R A N D
/ French Connection is placed in the bridge brand bracket sitting between premium and mainstream fashion retailers
£7,000 Comparable Baskets Analysis £6,000
£5,000
£4,000
£3,000 5772
£2,000 3482 £1,000 1413 1534 848 1077 447 498 792 £0 240 278 413
Edison Research, 2014
SS15 Press Day 9 FRENCH CONNECTION THE CUSTOMER
/ Core customer 25 – 34 years old, aspirational and fashion conscious / Core customer builds their look from a wide range of retailers / Core customer looking for clothes which are elegant, sophisticated and smart / To appeal to a wider spread of customers Classic “never out of fashion” basics and Fashion forward edgier styles are offered as part of the range / Design and mix of products are adapted for local country tastes where necessary
Commissioned Research
10 FRENCH CONNECTION THE COLLECTION
/ French Connection very strong in Dresses and Knitwear
Isla Ripple Flared Dress Effie Knits Jumper
£120 £85
Unique pattern Made in Italy
11 FRENCH CONNECTION THE COLLECTION
/ With a growing separates business capitalising on changing customer tastes
Polly Plains Pocket Top Rebound Denim
£29 £69
Made in China Extended denim line launched 2015 12 FRENCH CONNECTION THE COLLECTION
/ And driving the accessories category to grow average transaction value
Hexagon Tile Bracelet Quanna Mesh Ankle Boots
£30 £125
13 FRENCH CONNECTION HOMEWARE
SS15 Homeware
/ Launched in the second half of 2013 the direct homeware business generated over £1m in first full year / New product lines resonating strongly with customers / Designed in house and available in store and online. / Launch of DFS licensing deal in 2014, high growth from partner store expansion and additional ranges
Zinc Sofa, DFS, Summer 2015 Flint Sofa, DFS, Summer 2015 Quartz Sofa, DFS, Summer 2015 14 FRENCH CONNECTION HOW WE DO IT
Design / A design-led company with an in-house design team at the Head Office in London / Fashion forward inspiration has led to iconic pieces of apparel
Production / No owned manufacturing / Production split China 43%, India 23%, Turkey 15%, Other 19% / Local buying offices in Hong Kong, India, Turkey and Poland to source and coordinate production / Very stable and flexible supply chain / Unique in-house pattern room to ensure fit and quality / Know-how and supply chain ensure a stable input margin
15 FRENCH CONNECTION HOW WE DO IT
React to new trends / Flexibility of supply chain enables the business to order on short lead times / Testing of new styles, re-orders of successful styles
The Effie Knits Story / Test style delivered to Oxford Street to trial for Winter ‘15 / Daily sales reporting highlight style as strong performer / Production team notified, style put into ‘Fast Track’ / Order placed with Italian factory and back into store in 6 weeks
16 FRENCH CONNECTION HOW WE DO IT / Iconic imagery, unique partnerships and sponsorship
SS15 Campaign, Rankin
17 FRENCH CONNECTION HOW WE DO IT
/ Engaging social media content, with unique in store events and strong PR
695k
71k
36k
18 FRENCH CONNECTION HOW WE DO IT
/ Launch of capsule collection with Olympic gold medallist & professional heavyweight boxer Anthony Joshua Engaging Customers Leveraging store assets Maximising Press Impact
@LiamTsmith Gonna have to get myself a @anthonyjoshua @FCUK top for the 30th @EddieHearn #fcukfear
@jkwfung87 With @ChloeSi15592290 to meet @anthonyfjoshua what a great guy 1 of @AttitudeCetnre finest #fcukfear Not Just Another Outfit
danielrhone Was a pleasure having a chat again with the big man @Anthony_Joshua for @frenchconnection_ official collection launch Shortlist Magazine 19 FRENCH CONNECTION GROUP ROUTES TO MARKET
Direct Indirect
Retail Wholesale Partnerships
/ Owned Stores / Department Stores / Country Licenses
/ Concessions / Pure play E-tailers / Joint Ventures
/ Direct Ecommerce / Independent Retailers / Franchised Retail
/ Product Licenses
20 F R E N C H CONNECTION GROUP RETAIL
Concession Partners
21 FRENCH CONNECTION GROUP RETAIL
Retail / 143 own operated locations across UK, Europe and North America
/ 75 French Connection stores, 48 French Connection concessions, 7 Great Plains concessions, 11 Toast stores and 2 YMC stores
/ Recent improvements to store operations, and customer focus
/ The store estate supports the brand and customer engagement (e.g. click and collect and upsell)
/ Store numbers continue to fall as marginal stores are closed
/ Profitable concession model
French Connection Amsterdam Store French Connection Pop Up Store, Old Street Station 22 FRENCH CONNECTION RETAIL
Multi channel / French Connection heritage in the catalogue business enabled a swift transition to ecommerce and subsequent enhancements e.g. a fully responsive website launched in 2013
/ Integration of retail and ecommerce departments under single management and merchandising
/ Click and collect 23% of orders and mobile and tablet 43% of sales
/ Greater personalisation being implemented to drive engagement and conversion
/ Exposed to ecommerce growth with multi brand partners (e.g. Next, House of Fraser, John Lewis, Zalando, ASOS)
Store image
23 F R E N C H CONNECTION GROUP WHOLESALE
Paris Showroom Bloomingdales, Beverley Centre Los Angeles 24 FRENCH CONNECTION WHOLESALE Wholesale / Sales through dedicated teams working out of International showrooms / Key account management with marketing and PR support / Work with partners to tailor range to local tastes
New York Dusseldorf
London Paris
Manchester Hong Kong
John Lewis, Liverpool Bloomingdales, San Fransisco French Connection, Adelaide 25 FRENCH CONNECTION GROUP PARTNERSHIPS
Dubai Image India Image
Dubai franchise store Prague franchise store 26 FRENCH CONNECTION GROUP PARTNERSHIPS
Product Licenses / Product license well established (since the 1980’s), an expanding business with high profile partners / Very stable income stream with very low costs required to support / 17 Licence agreements / Products and partners chosen for fit with French Connection brand ethos / French Connection design team work side by side with the partners to develop product
/ Global Licenses: Shoes, watches, childrenswear, jewellery
/ Multi-Territory: Bags, prescription eyewear, eyewear, sunglasses, hotel amenities, fragrance
/ Territory-specific: Sofas, grooming/toiletries, suiting, coats
/ Additional license opportunities e.g. underwear and hosiery
Product Images Product Images Sofa Sofa
Sofas, DFS Prescription Eyewear, Specsavers Shoes, Highline Toiletries, Boots 27 F R E N C H CONNECTION GROUP HISTORY / Founded in 1969 and floated on the London Stock Exchange in 1995 following strong growth in both retail and wholesale the brand rose to global prominence during the early 2000’s with the FCUK brand. / Initiatives launched in 2013 have strengthened performance following a period of weaker trading
Launch of retail Prominence of FCUK US & Japan store Softer sell through & rationalisation increasing rents initiatives Softening of FCUK International expansion Leading to strengthened Sale of Nicole Farhi performance £300m
£200m Revenue
£200m
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E £(10)m Retail Initiatives: Store Operations – sales effectiveness and operational efficiency Customer Focused Product – ranges that match core customer need Merchandise management – structured approach to buying, speed Portfolio management – disposals of loss making stores Management team – strengthen through key appointments 28 FRENCH CONNECTION GROUP CURRENT PERFORMANCE
Wholesale Licensing
PROFIT £14.6m PROFIT £6.5m
/ Growth at constant currency +7.3% / Growth in net income at constant currency +7.4%
/ GM% stable 32.3% / Newer licenses performing strongly
/ Forward orders up year on year / Launch of 8 branded shoe locations in China
Common Overheads Retail
TOTAL £10.7m LOSS £11.3m
/ HQ costs and marketing / 11% decline in Revenue: stores closures & disappointing H2 trading / Underlying savings / Focus on full price sales
/ H1 2016 challenging market and trading
29 FRENCH CONNECTION GROUP N E X T S T E P S
/ Focus on 3 key phases to return to sustainable profit
EBITDA margin
Time Return to profit
Cautious expansion
Investment
30 FRENCH CONNECTION GROUP N E X T S T E P S
EBITDA margin
Time Return to profit
/ Continued stable growth in wholesale / Continued growth in licensing / Reduce losses in retail Drive full price LFL Store Rationalisation / Costs under control
Main Campaign SS14 31 FRENCH CONNECTION GROUP N E X T S T E P S
EBITDA margin
Time Cautious expansion
/New category growth e.g. Homeware / New territory licenses e.g. Mexico (signed 2015) / New stores EU/UK / Sub-brand expansion: Toast / New franchise partners
Can’t help my selfie campaign, AW14 32 FRENCH CONNECTION GROUP N E X T S T E P S EBITDA margin
Time Investment
/ Return to dividend payment / Support International expansion Localised ecommerce sites Support infrastructure Partner support / Stores – new, refit program / Systems investment
Main Campaign AW14 33 FRENCH CONNECTION GROUP FIXING RETAIL
/ Continue to close stores, seek to accelerate closures where possible / Focus on retail divisional costs as store estate rationalised / Return to LFL growth seen in SS14 FC Stores % Leases due by 75 100% 90% 70 80% 70% 65 60% 50% 40% 60 30% 20% 55 10% FY13 FY14 FY15 FY16 FY17 0% FY16 FY17 FY18 FY20 Store Segmentation
Non-contributing Marginal Profitable/Brand
Sales performance 15/20 stores and rent dependent Growth focus
Target closures Keep under review Future investment
34 FRENCH CONNECTION GROUP ASSETS
/ Strong brand / Unique fashion know-how / Multi channel distribution / International distribution span and brand awareness / Very stable supply chain / “Stable Annuity like” License income / Strong relationships with key global partners / Strong Balance Sheet: Cash, a number of valuable store leases, £13.8m tax losses / Exposure to emerging markets and ecommerce growth (retail and wholesale)
35 FRENCH CONNECTION GROUP CONCLUSION AND VISION
/ Strong brand and valuable assets / Planned return to profit / Right-size the store estate / Support the profitable wholesale and licensing businesses / Set for an investment and growth phase
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APPENDIX 5 YEAR KEY FINANCIAL SUMMARY
FY11 FY12 FY13 FY14 FY15 £m's £m's £m's £m's £m's Retail 134.0 133.2 123.4 117.5 103.3 Wholesale 71.0 82.2 73.9 71.9 75.2 Total Revenue 205.0 215.4 197.3 189.4 178.5
Retail Margin % 59.7% 55.9% 55.8% 56.9% 57.2% Wholesale Margin % 33.1% 31.3% 34.9% 32.5% 32.3% Total Margin % 50.5% 46.5% 47.9% 47.6% 46.7%
Underlying operating profit/(Loss) Retail (0.2) (7.3) (15.4) (11.6) (11.3) Wholesale 12.5 14.6 13.9 11.7 14.6 Licence Income 5.8 8.5 6.5 6.1 6.5 Common and Group overheads (12.5) (12.5) (12.8) (11.3) (10.7) Finance income 0.2 0.9 0.2 0.1 0.1 Share of profit from Joint ventures 1.5 0.8 0.4 0.6 0.0 Group Operating profit/(loss) 7.3 5.0 (7.2) (4.4) (0.8)
38 APPENDIX LAST FINANCIAL YEAR END BALANCE SHEET 2015 2014 £m £m
Assets Non-current assets Intangible assets 0.4 0.4 Property, plant and equipment 3.9 4.5 Investments in joint ventures 3.1 3.1 Deferred tax assets 4.8 4.8
Total non-current assets 12.2 12.8
Current assets Inventories 35.5 38.5 Trade and other receivables 23.5 22.7 Cash and cash equivalents 23.2 28.2 Derivative financial instruments 0.3 -
Total current assets 82.5 89.4
Total assets 94.7 102.2
Non-current liabilities Deferred tax liabilities 0.2 0.5
Total non-current liabilities 0.2 0.5
Current liabilities Trade and other payables 36.5 43.1 Current tax payable 0.2 0.2 Provisions 1.0 1.7 Derivative financial instruments - 0.2
Total current liabilities 37.7 45.2
Total liabilities 37.9 45.7
Net assets 56.8 56.5
39 Equity Called-up share capital 1.0 1.0 Share premium account 9.6 9.4 Other reserves 6.0 4.3 Retained earnings 39.4 40.9
Total equity attributable to equity holders of the Company 56.0 55.6 Non-controlling interests 0.8 0.9
Total equity 56.8 56.5
APPENDIX LAST FINANCIAL YEAR END RETAIL ESTATE
31 January 2015 31 January 2014 Locations sq ft Locations sq ft
Operated locations UK/Europe French Connection Stores 62 183,358 66 202,770 French Connection/Great Plains Concessions 55 35,363 51 33,560 Toast Stores 11 13,425 12 15,384 YMC Stores 2 1,355 2 1,355
130 233,501 131 253,069
North America French Connection US Stores 6 19,719 7 22,841 French Connection Canada Stores 7 18,125 9 24,325
13 37,844 16 47,166
Total operated locations 143 271,345 147 300,235
French Connection licensed and franchised UK/Europe 7 8,527 7 7,994 North America 1 2,000 1 2,000 Middle East 9 17,895 6 9,805 Australia 74 75,544 72 72,112 Hong Kong 8 12,892 5 6,062 China 27 31,959 23 34,960 India 89 47,712 110 60,782 Other 35 32,347 48 44,516
Total licensed and franchised locations 250 228,876 272 238,231
Total branded locations 393 500,221 419 538,466
40 41