Annual Report 2013

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 50 countries around the world
 Contents

Chairman’s Statement 2 Consolidated Statement

of Financial Position 26
Our Business 4
Consolidated Statement
Business Review 8
of Changes in Equity 27
Directors’ Report 12 Consolidated Statement
Directors 14 of Cash Flows 28
Notes to the Group Accounts 29
Corporate Governance Report 15
Company Balance Sheet 51
Corporate Responsibility 18
Notes to the Company Accounts 52
Directors’ Remuneration Report 19
Five Year Record 57
Statement of Directors’ Responsibilities 22 Retail Locations 57
Independent Auditor’s Report 23 Notice of Meeting 58
Consolidated Statement Advisers 61
of Comprehensive Income 24 Financial Calendar 61
CHAIRMAN’S STATEMENT
Dear Shareholders,

After a difficult trading year, I am pleased to be able to Customer focused product

tell you about the changes we have made in our business. • our product ranges are now being developed within a
Many of the initiatives we have taken are beginning to show revised framework designed to meet the aspirations and
interesting results and while it is still early days, we see value perceptions of our core customers more accurately;
some good progress and feel that we are moving in the
• our new design team, including five new members, has
right direction.
created a Winter collection which is more customer focused
As you will be aware, we implemented a review of our and will provide great value;
retail business in March of last year. We announced a set • the new collection has been well received by our Wholesale
of detailed initiatives with the Interim Results in September customers and our new retail team are confident that we
and I commented then that we expect that the changes will are going forward with the right product;
have a growing positive impact on our trading performance
• the pricing architecture of these new ranges is now more
over the next two financial years but would have a limited
focused; and
impact on trading in the remaining part of the year to
31 January 2013. Today we are announcing our financial • with our new head of accessory design, we are beginning
results for that year. to see improvements and exciting new products.

In the year to 31 January 2013, Group revenue fell 8% to Merchandise management

£197.3 million as a result of declines in sales volumes in both • we have implemented a total change in our buying patterns
our retail and wholesale businesses in UK/Europe. Gross to give more flexibility and this has resulted in a 30%
margin was little changed at 47.9% and overheads continue reduction in new season inventory levels;
to be tightly controlled. Group loss before taxation, goodwill • the reaction speed to our best selling lines has been
impairment and store disposal costs was £(7.2) million, improved by changing the structure and processes
compared with a profit of £4.6 million last year. However, we of the relevant departments; and
ended the year with a strong balance sheet with £28.5 million
of cash and no bank debt. • we have worked hard on our gross margin and will be
changing our sale periods. By reducing our buying we
The initiatives we have taken have resulted in some major expect to generate a better level of gross margin.
changes and are progressing well. The changes will help
provide a new impetus to sales growth in both the retail Portfolio management
and wholesale businesses. The programme includes: • in a very difficult property market we have successfully
negotiated the disposal of two stores in UK/Europe and three
Store operations stores in North America. We are in the process of closing one
• we have re-engineered a number of in-store processes further store and six concessions and we are likely to close
resulting in a saving in labour hours; two further stores during the new year. We continue to search
• a revised approach to labour rostering has been developed for potential tenants for other targeted under-performing
and is being applied with an emphasis on ensuring the most stores; and
effective staff coverage in-store; and • we are in on-going discussions with landlords to vacate
• our training programmes have been developed to focus other stores or to make realistic agreements on future rents.
specifically on selling skills along with improved customer Strengthened management team
service and this is being rolled out across our store portfolio. • all the new senior management appointments have been made
including the Head of Design who joined in May, Head of Retail
who joined in September, Head of Production and Director of
Multi-channel Marketing who both joined in October. There
have also been important changes at other levels.

2 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

The initial impact on trading of these changes has been The Group remains debt-free and ended the year with a cash
positive, although it is still early days. The changes to in-store position of £28.5 million after payment of last year’s dividend
operations are beginning to demonstrate benefit and the during the year. We monitor and manage our working capital
Spring/Summer 2013 ranges, which have been supplemented very closely and we have more than sufficient resources to
and amended to reflect our revised positioning, have performed see us through our recovery programme. However, in order
better. This has been achieved on significantly lower inventory to conserve working capital, the Board has decided that
levels, therefore giving us the ability to respond and move no dividend should be paid for the year (2012: 1.6 pence
more quickly. per share).

It is clear from our market research that the French Connection The changes we have made and continue to make will improve
brand continues to have significant strength and with the our financial performance in this most difficult and competitive
improvements in ranges, selling skills and inventory management of markets. We are managing the business cautiously in
outlined above I am confident we will achieve steady and order to increase full-price sales volumes, limit discounting,
significant improvement in our trading performance and manage inventory levels, control cash and build confidence
Group profitability over the next two financial years. with our customers.

During the year our e-commerce business has continued to I would like to thank all our staff around the world for their
perform well and has grown significantly, benefiting from our continuing efforts and hard work.
continued investment in this area. The introduction of “click-
and-collect” and allowing web sales to be returned to stores
have been taken up enthusiastically by our customers and over
10% of our French Connection retail sales in UK/Europe are
now through our web store.

Licensing continues to be a very important part of the business Stephen Marks

highlighting the strength of the brand. Our licensees continue to Chairman and Chief Executive
be very successful and generate a strong revenue stream for
the Group. During the later part of the year we introduced new 12 March 2013
licensees in the UK for shoes, children’s wear and furniture and
in the US for coats, bags and hosiery. As reported last year, a
change in strategy at Sears resulted in the termination of our
licence to supply fashion clothing to their stores, but despite
this, net royalty income in the year was significant at £6.5 million
(2012: £8.5 million). Looking forward, we expect our new
licensees to make a significant contribution to income.

We are continuing to build our international distribution network

with additional stores opening in Asia, India and Eastern Europe
in the new year. The new shop fit concept, which we have recently
been developing, has successfully launched in China and Hong
Kong and will be used for this new expansion.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 3

OUR BUSINESS

Fashion can be a tough game. It is a fast-paced business macro-economic factors which impact the total size of the
requiring constant creative drive in order to keep ahead of retail markets in which we operate. We have been able to
customer expectations. This speed of change causes volatility mitigate this somewhat by developing our wholesale and
which in turn creates the excitement which draws people into licensing businesses which provide a more stable and
this most dynamic of businesses. predictable income stream. We consider that as a small
operator at the upper end of the middle market the impact
After over 40 years in that environment, French Connection
on our business of macro-economic elements is considerably
has succeeded in becoming one of the most recognised
smaller than the impact of the success of our designers
fashion brands on the high street. The brand has a global
in producing attractive products.
reach, operating in over 30 countries through more than 1,000
stockists and with over £400 million of branded retail sales Brands
worldwide, either directly through our own retail chain, through Our principal brand is French Connection which accounts
wholesale channels or generated from licensed arrangements. for 88% of the Group’s revenues.
At the heart of our business is a passion for the clothes. In 1972, Our other brands include:
when French Connection was conceived, we set out to create
well-designed, stylish clothing that appealed to a broad market. TOAST: a range of beautifully crafted ladies’ and men’s clothing
We have since worked hard to build on that vision and as and unique homeware, available on-line, in selected John Lewis
a result, French Connection is synonymous with fashion stores and through a growing number of dedicated high-street
and style. stores;

It remains our prime goal to create distinctiveness in a crowded Great Plains: a fashion basics range produced in-house and
market place through focus on design. The brand’s strength supplied through wholesale to multi-brand retailers mainly in
lies in balancing new, exciting ideas with consistent quality and the UK; and
affordability and in a world of “fast fashion” we are proud of our YMC: a fledgling, edgy, contemporary fashion brand for men
commitment to the creative process. and women with two stores in London and a growing
wholesale base.
Business aims and operations
With a passionate focus on fashion underpinning the business Each brand targets a different audience and has achieved high
our aim is to generate increased shareholder value through the levels of recognition for style and design reflecting the creative
sale of fashion products and the extension of our brands into passion and skill poured into the design and manufacture of
other lucrative markets through licensing. We continually assess their products.
markets and relationships for new opportunities to broaden our
customer reach. French Connection
The French Connection brand operates in the fashion-
We design, produce and distribute branded fashion clothing orientated market place offering a fashion-forward range of
for men and women from our business premises in London, quality products at affordable prices. Our customers, typically
Swansea, New York, Paris, Hong Kong and Toronto. We aged 18-35, appreciate that the brand is at the leading edge of
operate retail stores and concessions in the UK, Ireland, high street fashion and offers quality and style in its products.
Europe, US and Canada and also operate e-commerce We design ranges of products for both men and women from
businesses in each of those territories. Further, we wholesale underwear to outerwear, casual wear to suits, denim and
our products to retailers operating in over 30 countries accessories.
around the world and have licensed partners operating French
Connection stores across Asia, Australia and the Middle East. Our design teams are based in London and we arrange for the
Other branded products, such as toiletries, shoes and eyewear, products to be manufactured in specialist facilities in Europe
are produced under licence. and Asia. The Group retails garments through a network of
retail stores on high streets and in shopping malls across the
Principal risks UK, Ireland and North America and through concessions within
Our success depends on our ability to produce ranges leading department stores such as House of Fraser and El Corte
of garments which are sufficiently attractive to potential Inglés in Spain. We also operate e-commerce internet sites
customers. We seek to achieve this through retention of through which our products are available for home delivery
experienced and skilled designers and merchandisers in the UK, Ireland, Europe and North America.
and by remaining as operationally flexible as possible. The
The product ranges are also offered for sale at wholesale
nature of fashion retail, however, means that it is not always
through our showrooms in London, New York, Paris and
possible to predict customers’ reactions to each season’s
Hong Kong to selected customers operating department
new ranges. Our customers’ propensity to spend on clothing
stores, multi-brand fashion stores or e-commerce sites
is affected by their personal financial situation and other
around the world.

4 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

To further extend retail distribution we have granted franchises appropriate ways and that they are not misused. A main driver
and licences to quality retailers allowing them to operate French for brand perception is the products themselves and therefore
Connection branded retail stores in Europe, the Middle East, our reputational risk is closely linked to our sales success.
Asia and Australia. These customers are supplied through our
As a wholesaler we also face the risk of default from our
wholesale channels in the UK and Hong Kong. Our licensees
customers and manage this through active relationship
operating stores in Hong Kong and China are 50% joint venture
management by our dedicated customer accounts team.
businesses operated by our local partners in those territories.
Our experience of bad debts has been very low over many
Brand extensions years due to this close management. We also insure certain
Our globally recognised French Connection and fcuk brands debt risks, mainly overseas.
have been extended successfully into complementary licensed The Group maintains a positive net cash balance throughout
products including men’s and women’s toiletries and fragrances, the year and we are conscious to manage the Group’s working
shoes, watches, jewellery, furniture and eyewear which together capital effectively.
generate another major profit stream for the Group: licence
royalty income. The principal treasury risks to the Group arise from exchange
rate and interest rate fluctuations. The Board has approved
Management of the business policies for managing these risks, which are reviewed on
Founded by Chairman and Chief Executive Stephen Marks, a regular basis, including the use of financial instruments,
French Connection’s long history of success has been based principally forward foreign exchange contracts. No transactions
on design quality and innovative fashion, supported by a strong of a speculative nature are undertaken.
market presence resulting in one of the most highly recognised The most significant exposure to foreign exchange fluctuations
and respected clothing brands in the UK and across the world. relates to purchases made in foreign currencies, principally the
We seek to ensure that products are presented for sale in Hong Kong Dollar and Euro. The Group’s policy is to reduce
contemporary surroundings by knowledgeable and friendly substantially the risk associated with purchases denominated
staff who are in-tune with our customers. We recognise that in currencies other than Sterling by using forward fixed rate
our products are the core element of our business and that our currency purchase contracts. There has been no change since
ability to produce fashionable clothing to match our customers’ the year end to the major treasury risks faced by the Group
expectation has been, and continues to be, the key to our or the Group’s approach to the management of these risks.
continued success.
The Group is dependent on reliable IT systems for managing
We seek to ensure that our resources are deployed effectively and controlling its business and for providing efficiency and
and efficiently to support our unitary business. Design and speed in the supply chain. Our IT function oversees all the
production of the ranges and maintenance of our operating systems and has policies and procedures to protect the
standards are paramount for all our business managers who software, hardware and data and to prevent unauthorised
have broad responsibility for their area of operations. access to the systems.

Management of risks The Group’s approach to the management of risks is further

Each year the brands produce two main seasonal fashion discussed in the Corporate Governance Report.
ranges and the success of each of these is largely dependent
on the ability of our designers to reflect attractively the emerging Key Performance Indicators
trends in fashion. We utilise a mix of experience and fresh The Board considers that the key performance indicators
thinking in our design studios under the consistent guidance for the businesses are:
of the senior management to ensure continuity of the brand • year-on-year comparison of retail sales on a same-store
attitudes. basis known as like-for-like sales growth;
Like all retailers we are susceptible to volatility in the propensity • total sales achieved in the wholesale channels;
of consumers to spend, which is affected by macro-economic
• gross margin by division;
issues. The design process and our retail businesses in
particular have a significant proportion of fixed costs giving rise • net operating contribution by division, being gross profit
to operational gearing and this is exacerbated by upward-only of the division, less the direct costs of the divisional
rent reviews for our retail store portfolio which have recently operation; and
seen cost increases well ahead of general inflation. • net operating margin by division, being the operating profit
before financing as a percentage of revenue.
Our brands and the way they are perceived in their respective
markets is very important to us. We are therefore very protective Each of the above is discussed in more detail in the
of the brands and work to ensure that they are presented in Business Review.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 5

OUR BUSINESS
Continued

Growth and development plans The overall aim is to improve sales densities and achieved
Following a restructuring of the business implemented in 2010 gross margin in our retail stores which will be evidenced by
the Group traded profitably up to July 2011 at which point the our key performance indicators of growth in like-for-like sales
UK/Europe retail business started to experience a decline in and gross margin percentage. Underperforming stores will,
sales volumes. This had a significant effect on Group profitability where possible, be closed. We will also continue to expand
despite continued growth in wholesale, licensing and our our e-commerce operation which is now a significant sales
international businesses. As a result the Board implemented an channel.
extensive review of the UK retail business. This review resulted
In our wholesale business we aim to improve volumes with
in a broad range of significant initiatives which were announced
both existing wholesale customers and through recruiting new
in September 2012.
outlets, reported through the growth in total wholesale turnover.
The initiatives focus on the following main areas: Our key performance indicators in this area are the sales, gross
margins and net operating margins reported for each business
Store operations
segment.
• develop better selling skills and improve customer service
to increase basket size and average transaction values; We will continue to work to nurture and develop our other
brands. Further, we aim to extend the reach of the French
• improve efficiency in-store by re-engineering processes; and
Connection brand through additional licensing in new product
• optimise effectiveness of labour hours through more flexible segments and territories and to support and nurture our
labour management. existing licensees for further growth, the result of which
Customer focused product will be seen in increases in licence royalty income.
• develop our ranges to better meet the aspirations
of our core customers;
• ensure product pricing matches customers’ value
perceptions; and
• improve accessories and ancillary product ranges.
Merchandise management
• implement a more carefully structured approach to buying;
• improve reaction speed to best selling lines and changing
trends; and
• continue to carefully manage gross margin during
sale periods.
Portfolio management
• target the disposal of loss making stores where
economically viable; and
• engage external property agents working with landlords
and potential tenants.
Strengthened management team
• made a number of new senior management appointments
in design, retail and multi-channel functions.
Details of progress in implementing these initiatives is provided
in the Chairman’s Statement. We are confident that the
initiatives will result in a steady and significant improvement in
the revenue and gross margins in the UK/Europe retail business
and therefore have a positive impact on Group profitability over
the next two financial years and beyond.

6 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

WORLDWIDE OPERATIONS

UK/Europe North America Rest of the World

LOCATION LOCATION LOCATION

London, Paris, Dusseldorf New York Toronto Hong Kong

TERRITORIES TERRITORIES TERRITORIES

UK, Ireland, USA Canada Hong Kong, Australia,

Europe, China Asia, India,
Middle East South Africa
and Asia etc.

RE TAIL OPER ATIONS RE TAIL OPER ATIONS RE TAIL OPER ATIONS

Retail stores Retail stores, Retail stores, Retail

and concessions, e-commerce e-commerce stores and
e-commerce concessions
through joint
ventures

WHOLESALE CUSTOMERS WHOLESALE CUSTOMERS WHOLESALE CUSTOMERS

Department stores, Department Multi-brand Brand

multi-brand stores, stores, stores licensees,
franchise operators multi-brand department
stores stores

BR ANDS BR ANDS BR ANDS

French Connection, French French French French

Great Plains, Connection, Connection Connection Connection
Toast, YMC YMC

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 7

BUSINESS REVIEW

Overview of Group Results The net income received from our licensees was £6.5 million in
In the year ended 31 January 2013 the financial performance of the year. This represented a decline of £2.0 million compared to
the Group reflected a continuation of the poor trading experienced last year, largely as a result of the termination of the licence to
in the UK/Europe retail channel from the autumn of 2011 along supply product to the Sears department stores in the US. For
with a decline in volumes through the UK/Europe wholesale the new year we have agreed a number of new licences which
channel. Conversely, the North America region achieved good will provide growth.
growth in wholesale volumes and a robust performance in retail,
The resulting loss from operating activities was £(9.1) million
but the decline in volumes and consequent decline in gross profit
(2012: operating profit of £3.3 million).
margins in UK/Europe had a significant effect on the Group result.
The Group incurred a loss before taxation, goodwill impairment As a consequence of the poor retail trading experienced
and the cost of store closures of £(7.2) million. This compared to in recent seasons, an impairment charge of £2.0 million has
a profit before tax of £4.6 million in the previous year. After taking been made in relation to goodwill previously carried on the
into account an impairment of goodwill and the cost of disposal balance sheet.
of under-performing stores, the total loss before tax was
Net finance income in the prior year benefited from a one-off
£(10.5) million (2012: profit of £5.0 million).
£0.8 million credit arising from exchange gains on the repayment
Total revenue was 8% lower than last year reflecting continued of intra-group financing. The net income in the year to
good growth in wholesale volumes in North America but declines 31 January 2013 of £0.2 million represents interest income
in all other channels. Like-for-like sales in Retail in UK/Europe on cash deposits held and foreign currency exchange gains.
declined by 7.4% and in North America by 4.1% over the year.
Our retail joint ventures in Hong Kong and China have seen a
Group gross margin was broadly flat at 47.9% with increases tightening in their respective markets and while total revenue
in the total value of discounting offset by an increased increased in these joint ventures by 3%, the effect of the
proportion of sales in the higher-margin retail channel. increased costs from additional trading space resulted in
a small decline in the contribution from these businesses.
Total Group operating expenses were slightly lower than last
year, but included charges arising from the retail review and United Kingdom and Europe – Retail
asset impairments relating to under-performing stores. Total retail revenue in the UK/Europe division declined by 7%
The underlying costs declined by 1.3% despite additional in the year, both in total and on a like-for-like basis; average
investment in the e-commerce channel. retail space barely changed.

Divisional analysis
These tables set out the segmental analysis of the continuing operations for the two years ended 31 January 2013.

Rest of Intra
UK/Europe North America the World Group Total

Whole- Whole- Whole-

Retail sale Total Retail sale Total sale
Year ended 31 January 2013 £m £m £m £m £m £m £m £m £m

Revenue 103.4 34.2 137.6 20.0 29.0 49.0 10.7 197.3

Gross profit 56.7 10.6 67.3 11.2 11.5 22.7 2.0 2.6 94.6

Gross margin 54.8% 31.0% 48.9% 56.0% 39.7% 46.3% 18.7% 47.9%

Trading overheads (71.6) (6.7) (78.3) (12.6) (3.7) (16.3) (1.5) (96.1)

Store disposals and closures (1.1) (1.1) (0.2) (0.2) (1.3)

Operating contribution (16.0) 3.9 (12.1) (1.6) 7.8 6.2 0.5 2.6 (2.8)

Common overhead costs (4.3) (3.2) (7.5)

Other income 6.8 0.7 1.6 (2.6) 6.5

Divisional operating (loss)/profit (9.6) 3.7 2.1 – (3.8)

Group management overheads (5.3)

Operating loss before financing

  and goodwill impairment (9.1)

8 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

As previously reported, this performance was a continuation of Toast’s total revenue during the year was little changed on
the marked decline first noted in Autumn 2011. This prompted last year, which was disappointing given the previous rate of
an extensive review of the UK retail business with the help growth. The new Spring season has started very well, however.
of external consultants and gave rise to a series of initiatives
Overall the UK/Europe retail business generated a loss of
discussed further in the Chairman’s Statement.
£(16.0) million in the year (2012: £(7.5) million).
The decline in revenue in recent seasons has resulted in higher
levels of discounting and greater volumes of product sold during United Kingdom and Europe – Wholesale
our end-of-season sales. An important strand of our improvement Revenue in the wholesale business in UK/Europe declined by
initiatives is to protect the gross margin rate by reducing the scale 19% during the year. A large portion of the decline arose from
of the sale periods. To this end, the winter sale was delayed by one the closure of three high-volume stores operated by our former
week compared to last year. The effect of this and other changes franchisee in Russia. The remaining decline reflected decreases
to levels of discounting was to reduce revenue but increase the in orders as a result of disappointing sales performances in the
gross margin rate in the end of season sale. However, total gross previous seasons. We expect that the initiatives implemented in
margin in the UK/Europe retail business across the year was a little relation to the product ranges as part of the retail review will
lower at 54.8% compared to 56.2% last year. The decrease was have a beneficial impact on the wholesale channel in due course.
caused by a combination of slightly lower core margins and the With much of the decline in volumes arising from full-price
effect of a higher proportion of sales during the spring sale, earlier customers, the gross margin declined to 31.0% (2012: 32.8%).
in the year.
Our forward orders for Spring/Summer 2013, a proportion
Retail operating overheads increased by £1.0 million in the year of which was delivered in January 2013, were lower than the
including an impairment charge of £0.5 million (2012: £nil) in relation equivalent orders for last year. Orders for Autumn/Winter 2013
to underperforming stores. Overheads have been managed are still being taken and the reaction to the range has been
prudently and the underlying increase in the cost base has arisen positive. However the value of orders is affected by the previous
from continued investment in our e-commerce businesses and seasons’ sales performance in our customers’ outlets and to
new stores. In addition, the store portfolio management process date the buyers are being cautious. The forward orders so far
generated a charge of £1.1 million comprising premiums paid in are broadly flat on the level achieved at the same time last year.
relation to the assignment or provisions for the cost of closure
of underperforming stores. In contrast, in the previous year, Overhead costs within the division have been tightly controlled
store disposals generated net income of £0.7 million. during the year, resulting in a 7% reduction.

Divisional analysis continued

Hong Intra
UK/Europe North America Kong Group Total

Whole- Whole- Whole-

Retail sale Total Retail sale Total sale
Year ended 31 January 2012 £m £m £m £m £m £m £m £m £m

Revenue 111.0 42.1 153.1 22.2 24.3 46.5 15.8 215.4

Gross profit 62.4 13.8 76.2 13.2 9.3 22.5 2.1 2.8 103.6

Gross margin 56.2% 32.8% 49.8% 59.5% 38.3% 48.4% 13.3% 48.1%

Trading overheads (70.6) (7.2) (77.8) (13.7) (3.6) (17.3) (1.5) (96.6)

Store disposals and closures 0.7 0.7 (0.3) (0.3) 0.4

Operating contribution (7.5) 6.6 (0.9) (0.8) 5.7 4.9 0.6 2.8 7.4

Common overhead costs (4.7) (3.1) (7.8)

Other income 7.4 2.0 1.9 (2.8) 8.5

Divisional operating profit 1.8 3.8 2.5 – 8.1

Group management overheads (4.8)

Operating profit before financing 3.3

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 9

BUSINESS REVIEW
Continued

This combination of factors lead to a decrease in profit and new customers. Forward orders for the new seasons,
generated by the division to £3.9 million (2012: £6.6 million). however, are weaker, and current indications suggest that some
of the growth achieved last year will be reversed. We anticipate
United Kingdom and Europe region that this will be corrected with revised ranges for later in 2013
Together, the retail and wholesale businesses in UK/Europe and beyond.
incurred an operating loss of £(12.1) million in the year (2012:
£(0.9) million). Common overhead costs for the region include North America division
shared accounting services and brand advertising and marketing. Together the two North America divisions generated a contribution
The advertising budget for the year was cut back from the of £6.2 million (2012: £4.9 million) in the year. Common overhead
previous year resulting in over 8% savings. costs were similar to last year resulting in a trading profit of
£3.0 million, compared to £1.8 million last year.
Other income in the UK/Europe region of £6.8 million
(2012: £7.4 million) includes both royalty receipts from Last year we reported £2.0 million of licensing income
external licensees and intra-group royalties which are generated from the North America division. This included a
eliminated from the Group result. The licence income from royalty contribution arising from our licence with Li & Fung to
external sources in the UK was broadly steady at £5.3 million supply the “UK Style” range of clothing to Sears department
with continued good contributions from Boots in relation to stores across the US. As previously reported this licence has
their toiletries licence, Specsavers in relation to their eyewear since been terminated, resulting in a significant decrease in
licence, and our suiting, jewellery and watch licensees licence income in the year to 31 January 2013.
amongst others.
Despite the reduction in royalty income, the North America
The operating result for the entire UK/Europe division was a division generated an operating profit of £3.7 million compared
loss of £(9.6) million compared to a profit of £1.8 million in the to £3.8 million last year.
previous year. Clearly we are entirely focused on improving the
performance of this division of our business and in particular Rest of World – Wholesale
the retail channel. We are confident that the combination of Revenue from our wholesale business based in Hong Kong fell
the broad-ranging changes, strong cash position and highly to £10.7 million in the year (2012: £15.8 million) as a result of
regarded brand will return this business to growth for the reductions in deliveries to our licensee in Australia in a difficult
long-term. retail market. The gross margin generated by this business is
affected by the mix of the different supply arrangements with
North America – Retail customers and while core margins were unchanged, the
Revenue in our retail stores in North America fell to £20.0 blended gross margin increased to 18.7% from 13.3%. With
million from £22.2 million, mainly due to the impact of the overhead costs unchanged the operating contribution was
closure of three stores during the year but also reflecting a £0.5 million (2012: £0.6 million).
decline in like-for-like sales of 4.1%. Higher levels of discounting
Other income in Hong Kong includes both buying office
caused the gross margin to be lower at 56.0% compared to
commission paid by Group companies in relation to shipments
59.5% last year. Retail trading overheads were £1.1 million, 8%
from Hong Kong to other divisions and buying office commissions
lower, partly due to the closure of stores. The store closures
and royalties receivable from third parties. Of the £1.6 million
were implemented at a cost of £0.2 million and will have a
income, £1.1 million is generated from intra group business and
positive impact on profit in the new financial year. The retail
is eliminated within the Group results. The remainder reflects
operating loss for the year was £(1.6) million compared to
royalty and buying office commission from third parties.
£(0.8) million in the previous year.
Overall the Hong Kong business generated an operating profit
Sales through our North America e-commerce sites now
of £2.1 million (2012: £2.5 million).
represent 10% of our retail revenue in the region with continuing
good growth in the period. Group management overheads
As with the UK we are working to increase the revenue in our The overheads arising from Group management functions
stores in North America and this will focus on ensuring that the amounted to £5.3 million (2012: £4.8 million) including the
products we offer are attractive to our customers and ensuring costs associated with the review of the retail business conducted
that operationally we maximise our opportunities. We also by specialist consultants. Underlying costs were reduced.
continue to review the store portfolio in order to deal with
underperforming locations where possible. Operating result
The Group’s trading divisions generated an operating loss
North America – Wholesale of £(9.1) million in the year (2012: profit of £3.3 million). The
The operating contribution from our North America wholesale significant decline reflects the sharp down-turn in both retail
division made a further good step forward to £7.8 million for the and wholesale revenues in the year and the magnifying effect
year compared to £5.7 million in the previous year on revenue of structural operating leverage within the business: the majority
19% ahead at £29.0 million. Increases came from both existing of our cost base, being store costs and the costs of creating
our product ranges, are largely fixed.

10 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

Impairment, net finance income and Non-controlling interests
joint ventures The non-controlling interest of £(0.2) million (2012: £0.0 million)
A charge of £2.0 million has been recorded in the year in reported in the income statement represents the net share
relation to the impairment of goodwill. The goodwill originally of results attributable to the 25% ownership held by local
arose as a result of the acquisition of three of our UK franchises management in Canada, Toast and YMC.
over a number of years up to 2009. As a result of the depressed
store trading results the goodwill arising from these acquisitions Earnings and dividend
has been impaired to nil. There is no cash impact of this charge. Net earnings attributable to equity shareholders amounted to
a loss of £(10.3) million (2012: profit of £4.5 million from the core
Net finance income in the year was £0.2 million (2012: £0.9 million continuing operations) and a loss per share of (10.7) pence
including a one-off exchange gain of £0.8 million). The core (2012: earnings of 4.7 pence).
finance income represents the continued low interest rates
earned on our cash balances. The Board has concluded that no dividend should be paid
for the year (2012: dividend of 1.6 pence per share).
The Group is party to two joint ventures, each operating
French Connection retail stores, one in Hong Kong and the Balance sheet and cash flow
other in China. The joint ventures are directly managed by local The Group balance sheet at 31 January 2013 remains strong
management teams with strategic input from the Group. From with £28.5 million of cash (2012: £34.2 million), no bank
the perspective of the French Connection Group we benefit borrowings and a minimum cash position during the year
from not only our share of the profits generated by the joint of £10.6 million. The trading operations of the Group utilised
venture but also from gross profit generated from supplying cash of only £3.7 million as a result of a release of cash utilised
product to the businesses and the receipt of brand royalties. within working capital, in particular a decrease in inventory
of £5.4 million.
The Group’s share of net profits generated by the joint ventures
during the year was £0.4 million, net of local taxes (2012: £0.8 Additional investment in fixed assets has been low in recent
million) and cash dividends received amounted to £0.9 million. periods and this year the Group invested £1.7 million (2012:
Profitability has declined as a result of both changes in the £1.6 million), being mainly in respect of stores and IT equipment,
portfolio of stores and a softening of retail sales performance particularly in relation to the e-commerce business. The restricted
in Hong Kong. capital expenditure over recent years has resulted in a relatively
low depreciation charge of £2.6 million (2012: £2.8 million).
Group result In addition, store fixed assets have been impaired in the year
The Group incurred a loss before tax for the year of £(10.5) million creating an additional charge of £0.5 million.
(2012: profit of £5.0 million). Excluding the impairment charge
and the cost of disposal of underperforming stores the loss Our development and growth plans focus on developing the
before tax was £(7.2) million (2012: profit of £4.6 million). products and customer service and therefore are not capital-
intensive. However should any store refurbishments be
Taxation implemented then the level of capital expenditure would
The tax charge in the year of £0.0 million (2012: £0.5 million) increase. It is expected that capital expenditure in the current
reflects tax charged on profits generated in Hong Kong and financial year will be in the region of £2.0 million.
minimum taxes payable in the US offset by prior year credits.
The Board’s policy is to maintain a strong capital base,
No benefit has been recorded for tax losses incurred in the
including liquid funds, in order to maintain investor, creditor
UK in the year. Historical tax losses generated in the US (which
and market confidence and to sustain future development of
were not previously recognised in the accounts) are being
the business. The initiatives taken in order to return the Group
utilised to offset most of the tax charge arising on profits in
to profitability will take some time to implement and then will
the US.
have a growing impact over a number of periods. The Board’s
The effective tax rate in future years will vary depending on the aim is to achieve at least break-even in the year ending
level of profit generated and the different geographic locations 31 January 2015 and then to grow in profitability thereafter.
where it is taxed since the three principal countries of operation The initiatives are not capital intensive, but trading losses in the
have different tax rates and the Group has substantial tax losses intervening period will result in a reduction in cash resources
which should be available to offset profits earned in the UK until such time as the Group returns to profitability. Having
and US. reviewed the cash forecasts and the sources of cash funding
available to the Group, including detailed discussions with our
Discontinued operations bankers, Barclays, the Board has concluded that the Group
The Group disposed of the Nicole Farhi business in July 2010. has access to more than sufficient funds to see it through
The “discontinued operations” reported in the income statement the implementation of the recovery initiatives over the next
for the year ended 31 January 2012 reflect the residual impact two years.
of this transaction.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 11

DIRECTORS’ REPORT

The Directors of French Connection Group PLC (“the Significant shareholdings

Company”) present their Annual Report for the year As at 12 March 2013 the Company is aware of the following
ended 31 January 2013. substantial interests in its ordinary shares:
Percentage
Principal activity of Issued
The Group designs and supplies branded fashion clothing Share
and accessories as more fully described in the section Shares Capital
entitled Our Business.
Stephen Marks 40,094,190 41.8%
Business review   of which:
The principal operating subsidiaries of the Group for the period   – held in family trusts 1,506,500
under review were French Connection Limited, French Connection   – held by family members 775,000
UK Limited, French Connection (London) Limited, French
Schroder Investment Management 14,317,880 14.9%
Connection Group Inc, French Connection (Hong Kong)
Limited, Toast (Mail Order) Limited, French Connection OTK Holding 6,000,000 6.3%
(Canada) Limited and YMC Limited. The Companies Act
2006 requires that the Directors’ Report contains a fair review Standard Life Investments 3,677,869 3.8%
of the business and a description of the principal risks and
uncertainties facing the Group. A review of the business Contractual arrangements
strategy and a commentary on the performance of the The Company has no contractual or other arrangements which
business is set out in the Business Review and the Chairman’s are essential to the business of the Company nor any key
Statement. The principal risks facing the business are detailed customers or major suppliers on which it is dependent.
in the section entitled Our Business and the corporate and
social responsibilities of the Group are outlined in the Corporate Supplier payment
Responsibility Statement. The disclosures contained in those The majority of the Group's creditors are suppliers with whom
reports form part of this Directors’ Report. payment terms and conditions are agreed in advance. Where
the supply of goods and services is satisfactory, it is the policy
Dividend of the Group to pay creditors when they fall due for payment.
The Directors are recommending that no dividend should
For the year ended 31 January 2013, the Group’s average trade
be paid for the year.
creditors represented 31 days purchases (2012: 33 days). The
Directors method of calculation of average creditor days has changed
The Directors of the Company are set out on page 14. and the prior year has been restated. The Company has
minimal third party creditors.
Roy Naismith and Dean Murray, Directors, retire by rotation in
accordance with the Articles of Association and offer themselves Employees
for re-election at the Annual General Meeting. The Board It is the Group's established practice that all employees have
considers that both Mr Naismith and Mr Murray continue to access to their immediate superiors and ultimately to the Chief
make a major contribution to the strategy and operations of the Executive to discuss matters of concern to them as employees
Group and therefore recommend their re-election as Directors. and that the views of employees are sought and taken into
Details of Mr Naismith’s and Mr Murray’s remuneration and account in making decisions which are likely to affect their
contracts are set out in the Directors’ Remuneration Report. interests.
The Board has considered whether there are any factors which Furthermore the Group seeks to encourage both the involvement
might compromise the independent judgement of either of the of employees in its performance and a common awareness on
non-executive Directors and concluded there was none. The the part of all employees of factors affecting its performance.
Board therefore considers both Mr Murray and Ms Kent to be The Group provides equal opportunities to all employees and
independent of the Company. prospective employees including those who are disabled.
At 31 January 2013, none of the Directors or their families held
Property, plant and equipment
any beneficial interests in the issued capital of the Company other
The changes in intangible and tangible fixed assets during the
than Stephen Marks whose shareholding is disclosed below.
year are set out in Notes 13 and 14 to the Group accounts.
The details of share options held by Directors are set out
on page 21. There have been no changes in the Directors’ Financial instruments
interests in the shares of the Company since the end of the The financial instrument policies are set out in Note 28 to the
financial year. Group accounts.

12 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

Joint ventures Articles of Association
The Group is a member of two 50:50 joint ventures operating We are asking shareholders to approve a number of
retail stores in China and Hong Kong. Both joint ventures are amendments to our articles of association primarily to reflect
managed by committees with equal representation from the the provisions of the Companies Act 2006. An explanation
members. The Group’s share of the results of these businesses of the main changes between the proposed and the existing
is included in these accounts for the whole of the financial year. articles of association is set out on page 59 of this document.

Charitable and political donations Disclosure of information to auditors

Charitable donations of £20,659 (2012: £8,370) were made The Directors who were members of the Board on the date the
during the year. No political donations were made in either Directors’ Report was approved have confirmed the following:
2013 or 2012.
• to the best of each Director’s knowledge and belief there is
Share capital no information relevant to their report of which the auditor
The share capital of the Company comprises ordinary shares is unaware; and
of 1p each; each share carries the right to one vote at general • each Director has taken all the steps a Director might
meetings of the Company. The issued share capital of the reasonably be expected to take to be aware of relevant audit
Company, together with movements in the Company’s issued information and to establish that it has been communicated
share capital during the year, are shown in Note 23. to the auditor.

Takeovers directive Auditors

Section 992 of the Companies Act 2006, which implements In accordance with section 485 of the Companies Act 2006,
the EU Takeovers Directive, requires the Company to disclose a resolution to re-appoint KPMG Audit Plc as auditors to
certain information. Most of these requirements are dealt the Company will be proposed at the forthcoming Annual
with elsewhere in the Annual Report, however the following General Meeting.
additional disclosures are required:

The Company’s Articles of Association may be amended By order of the Board

by special resolution of the shareholders.

The Board of Directors is responsible for the management

of the business of the Company and may exercise all the
powers of the Company subject to the provisions of the Roy Naismith
relevant statutes, the Company’s Memorandum and Articles Company Secretary
of Association. The Articles contain specific provisions and
12 March 2013
restrictions regarding the Company’s power to borrow money.
Powers relating to the issuing of shares are also included in
the Articles and such authorities are renewed by shareholders
each year at the Annual General Meeting.

There are a small number of agreements that take effect, alter

or terminate upon a change of control of the Group following
a takeover, such as shareholder agreements with the minority
shareholders in certain subsidiaries and the Company share
option schemes. None of these is deemed to be significant in
terms of their potential impact on the business of the Group
as a whole.

Annual General Meeting

The Annual General Meeting of the Company will be held at
10.00 am on 15 May 2013 and a notice of meeting has been
sent to shareholders setting out details of the business to
be conducted.

Explanatory notes on all the business to be considered at this

year’s AGM appear on pages 59 and 60 of this document.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 13

DIRECTORS

Stephen Marks Stephen (aged 66) founded the Company in 1969 and has managed the Group’s
Chairman and development since then in the position of Chairman and Chief Executive.
Chief Executive

Roy Naismith C.A. Roy (aged 51) joined the Group in January 2001 as Finance Director. He was previously
Finance Director Finance Director at Starbucks Coffee Company and Group Head of Finance and
Company Secretary at Capital Radio PLC.

Neil Williams A.C.A. Neil (aged 48) joined the Group from KPMG in 1992 and was appointed to the Board
Operations Director in May 1994.

Dean Murray Dean (aged 50) was appointed to the Board on 6 February 2008. He qualified as a
Independent chartered accountant with KPMG and was Chief Executive of Myriad Childrenswear
Non-executive Group Limited. Myriad was the leading UK specialist multi-brand and multi-channel
Director childrenswear business with over 1,000 distribution outlets including the Adams
Kidswear brand. He is currently Chairman of Neville Johnson Limited, a UK based
bespoke furniture designer, of Gear4music, an online retailer of musical instruments
and of Flyers Limited, a multi-channel childrenswear business.

Claire Kent Claire (aged 49) was appointed to the Board on 3 October 2008. She was formerly a
Independent Managing Director with Morgan Stanley where she was ranked number one in luxury
Non-executive goods European retailing analysis for nine consecutive years. Working in the sector
Director since the early 1990’s she has accumulated an in-depth understanding of the operation
of luxury and apparel brands and has worked very closely with some of the most
respected brands in the sector. Since leaving Morgan Stanley, Claire has focused on
advising companies on their IPOs (Prada in 2011; Pandora in 2010) and playing a role in
the sale of private equity-owned companies (Cath Kidston, Original Additions). She is
also an advisory Director of Investcorp, a consultant for Prada and a Board member
of Georg Jensen.

14 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

CORPORATE GOVERNANCE REPORT

The Company is required by the Listing Rules issued by the The Board met nine times during the year to consider the
Financial Services Authority to set out how it has applied the development of the business and all of the Directors attended
Main Principles set out in the UK Corporate Governance Code every meeting except one meeting which Ms Kent was unable
published by the UK Financial Reporting Council in June 2010 to attend. An agenda with supporting information is distributed
(“UK Corporate Governance Code”, available on the FRC’s in advance of each meeting, the detailed nature of which reflects
website, www.frc.co.uk.) This section of the report, in two the management approach. The Board reserves to itself certain
parts, sets out how the Company has applied the principles key matters to approve or monitor, including the Group’s strategic
and the extent of our compliance with the detailed provisions plans, annual operating budget, major capital expenditure,
contained in the UK Corporate Governance Code throughout treasury policies, financial performance and external financial
2012 and up to the date of this report. reporting. The Board delegates responsibility for the day-to-day
operation of the business to the executive Directors and
Part one: Application of the principles recognises its responsibility for ensuring that the Company
Operational culture operates within a framework of prudent and effective controls,
The Group operates under the detailed and entrepreneurial to set the Company’s strategic aims and to ensure that the
guidance of Stephen Marks (the founder of the business), the necessary resources are in place.
executive Directors and a broad range of operational managers.
The cultural focus of the business is on the design, production The Company’s articles of association give power to the Board
and sale of fashionable products in a highly demanding and to appoint Directors, but require Directors to submit themselves
fast-moving environment. All managers and staff are expected for election at the first Annual General Meeting following their
to be intimately familiar with the operations they are involved appointment. One third of the Board is subject to re-election
with, to take responsibility for them, to monitor them daily and annually. Any member of the Board may take independent
to act to improve business performance promptly and effectively. professional advice at the Company’s expense. All Directors
This culture is led by the executive Board members who act have access to the advice and services of the Company
in the same way taking counsel among themselves and with Secretary.
others, including external advisers, as necessary. Audit committee
The Board of Directors The Audit Committee comprises Dean Murray as Chairman
The Board of Directors at the date of this report comprises and Claire Kent. The Committee’s terms of reference indicate
three executive Directors and two non-executive Directors. that it should meet at least three times in each year and should
Details of their employment terms and remuneration are set out consult with the external auditors and senior management where
in the Directors’ Remuneration Report. The Board is chaired by appropriate. The Committee considers financial reporting and
Stephen Marks, Chief Executive, founder of the business and a reviews the Group’s accounting policies and annual statements.
significant shareholder. Dean Murray has served on the Board In particular, any major accounting issues of a subjective nature
for five years, has trained as an accountant and had a career are discussed by the Committee. The Committee also reviews
in clothing retail as finance director and chief executive of audit activity including the recommendation to the Board
Myriad Childrenswear Group which operated the Adams regarding the appointment of the external auditor, their
Kidswear brand. Based on this and his current involvement remuneration and scope of work, including non-audit services.
in retail businesses, the Board considers that Mr Murray has The Audit Committee is also responsible for considering the
appropriate recent and relevant financial experience. Claire independence and objectivity of the external auditor, for
Kent has served on the Board for four years and was formerly monitoring the level of non-audit services provided by the
a Managing Director with Morgan Stanley, specialising in European external auditor and for assessing the effectiveness of the
luxury goods retailing analysis. Neil Williams is the Operations risk management process. Significant risk issues identified
Director and has worked in the business for twenty-one years are referred to the Board for further consideration. The terms
following a training in finance and accounting. Roy Naismith of reference of the Audit Committee are available on the
joined the Board twelve years ago as Finance Director and Company’s website.
previously held senior finance positions at Starbucks Coffee The Committee met three times during the year and each
Company and Capital Radio PLC. Roy Naismith is also the meeting was fully attended.
Company Secretary.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 15

CORPORATE GOVERNANCE REPORT
Continued

The Committee has adopted a policy in relation to the Internal control

appointment of the external auditors to conduct non-audit The Directors acknowledge their overall responsibility for
services for the Group. The policy identifies three categories the Group’s system of internal control and for reviewing its
of work: that which is closely related to the statutory audit effectiveness. A system of internal control cannot provide
work, such as tax planning and compliance, and which is absolute assurance against material misstatement or loss
therefore pre-approved by the committee, that which it is and the Group’s systems are designed to manage rather
inappropriate for the auditors to conduct, such as internal than eliminate the risk of failure to meet business objectives.
accounting work, IT services, or internal auditing, and from The systems can only provide the Directors with reasonable
which the auditors are therefore excluded and all other types assurance that material errors and irregularities are either
of work for which prior approval is required from the Audit prevented or detected on a timely basis and dealt with
Committee where the costs are greater than £5,000. The appropriately.
objective of this policy is to protect the independence of
The Board confirms that there are ongoing procedures in place
the auditors while retaining the benefits to be gained from
for identifying, evaluating and managing significant risks faced
synergies with existing work areas.
by the Group and that these have been in place for the year
The Audit Committee has considered the independence of the under review and up to the date of approval of the annual
external auditor, including the non-audit services performed, report and accounts. The procedures have been reviewed
and has concluded that those non-audit services provided do by the Audit Committee and accord with the requirements
not impair the auditor’s independence. of the UK Corporate Governance Code.

Remuneration committee The Board conducts an annual review of the major risks
The Remuneration Committee comprises Claire Kent as Chair affecting the business and the effectiveness of the system
and Dean Murray. The Committee met twice during the year of internal control. The culture of the business results in the
to consider the Directors’ and senior managers’ remuneration. executive Directors being closely involved in managing the
A Remuneration Report is included in this Annual Report. business at a detailed level. This provides a high degree of
The terms of reference of the Remuneration Committee direct monitoring of risks and control processes, conducted
are available on the Company’s website. against the background of a culture of integrity, quality and high
levels of communication. This is supported by reviews of daily,
Communication with shareholders
weekly and monthly detailed analyses of the performance
Communication with shareholders, brokers and analysts is
of the business, the key performance indicators associated
generally conducted through one-to-one meetings with the
with the trading risks facing the Company and the detailed
executive Directors (and the non-executive Directors if requested)
operational results.
for which there is an open invitation to shareholders to arrange
but which typically occur shortly after the announcements of The Group does not have a separate internal audit function
results. The opinions expressed by shareholders are passed although during the year the Audit Committee considered
to the Board as necessary. whether there is a need for such a function, concluding that the
benefits, when compared to the potential benefits of deploying
The Annual General Meeting and the resolutions proposed for
additional resources in other areas, are not sufficiently clear.
consideration at the meeting are another focus of communication
Certain elements of internal audit work are conducted or
with shareholders. Discussions are held prior to the meeting
coordinated by the existing finance and accounting functions.
with shareholders where they have views on the resolutions.
These include reviews of financial controls internationally,
The level of proxy votes received is considered by the Board
externally facilitated reviews of procurement transactions
and published on the Group’s website.
and support for system developments between the separate
accounting functions.

16 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

Part two: Compliance with the detailed code Going concern
provisions The Group has considerable cash resources, ending the year
The UK Corporate Governance Code recommends that there with £28.5 million and with a minimum Group cash balance
should be a division of responsibility between the Chairman during the year of £10.6 million.
and the Chief Executive. Mr Marks is both Chairman and Chief Having reviewed the cash forecasts and the sources of cash
Executive and is also the founder and the major shareholder. funding available to the Group, including detailed discussions
The culture of the business, led by the Chief Executive, is one with our bankers, Barclays, the Board has concluded that
of detailed involvement and speedy reaction times and Mr Marks the Group has access to more than sufficient funds to see
has led this culture and defined the character of the business it through the implementation of the recovery initiatives over
throughout its existence. the next two years.
The Code recommends that one of the non-executive Directors Based on this and the forecast performance for the Group, the
should be appointed as the senior independent Director. The Directors have a reasonable expectation that the Group has
Board contains two non-executive Directors, each of which adequate resources to continue in operational existence for
chairs one of the two committees of the Board and therefore the foreseeable future. For this reason, the Board continues
has specific responsibilities. The Board has concluded that to adopt the going concern basis in preparing the accounts.
there would be no benefit in nominating a senior non-executive
Director. Both are utilised as sounding boards for the Chairman
and both are available to other executive Directors or shareholders By order of the Board
as necessary.

The UK Corporate Governance Code also recommends

the formation of a nomination committee. It is our intention
to form a nominations committee comprising the two
non-executive Directors when any appointment is contemplated. Roy Naismith
No appointments were made or contemplated during the year. Company Secretary

The Board adheres to the remuneration principles set out in 12 March 2013
the UK Corporate Governance Code in establishing levels and
forms of remuneration as detailed in the Directors’ Remuneration
Report. The Board has reviewed the standards expected
of employees in relation to business ethics and also the
arrangements for staff to raise concerns about possible
improprieties in matters of financial reporting or other
matters and is satisfied that they are appropriate.

There is no formal procedure for the evaluation of the

performance of the Board or the Chairman.

Other than described above, the Company complied with the

requirements of the UK Corporate Governance Code provisions
throughout the accounting period.

Bribery Act
The Board has considered the risks associated with the issues
raised by the Bribery Act 2010 as part of the broader review of
risks faced by the Group and has reviewed the processes and
controls in place to prevent offences under the Act.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 17

CORPORATE RESPONSIBILITY

The Board recognises that the long term profitability of the Supply chain
business depends, amongst other things, on appropriate The Group has used third party manufacturing facilities around
protection of the Group’s assets, reputation and brand names the world for over thirty years but has specifically avoided
and is subject to the long-term sustainability of the supply suppliers or regions where the employment or environmental
chain. The risk register and the process for the review of practices are known to be below acceptable standards. The
internal controls therefore include these issues and the potential Group requires all of its product suppliers to abide by its
impact on the business of Corporate Responsibility (“CR”) guidelines contained in the Supplier Guide. Our staff visit the
and sustainability issues. factories we use for garment production on a regular basis
and consider the environment and work practices during those
The Board considers that the principal CR issues which face
visits, however currently our ability to formally audit the facilities
the French Connection Group are:
is limited. Our Supplier Guide and the employment standards
• the provision of a safe and healthy environment for our required of our suppliers accord with industry standards
employees and retail customers; including inter alia that employees should: be given a safe
• the business’s direct and indirect impact on the and healthy environment to work in; be given the right to free
environment; and association; be paid a fair wage; have freedom of association;
not be forced or bonded labour; be of an appropriate age;
• the employment, environmental and social practices of
and work only reasonable hours.
the business’s suppliers.
The Board recognises that it is not possible to provide absolute
Safe and healthy environment assurance that standards expected of our suppliers are adhered
The business complies with locally applicable health and safety to. Where transgressions are identified we would work with the
regulations in the countries in which it operates. This includes supplier to develop an appropriate remediation programme.
the provision and maintenance of safe environments for our However we will not hesitate to stop using any supplier who
employees, appropriate design of our stores, health and safety we identify is persistently operating in contravention of our
training for appropriate personnel, electrical installation reviews, standards or failing to implement agreed remediation
risk assessments and risk monitoring in our offices, stores programmes.
and warehouses.
There are a number of other CR topics, such as business
Impact on the environment ethics, anti-bribery, animal testing and use of chemicals,
The use of resources to manufacture and supply our products which are subject to set standards within the business.
generates the major impact on the environment of our business.
The source of the raw materials and the manufacture of the
finished products is spread globally and provides employment,
income and personal security at many different points in the
process. We recognise, however, that our products utilise
global resources some of which are limited in their nature.
Manufactured items of clothing utilise similar amounts of
resource, irrespective of the final retail price and we are proud
that our products are designed to be of a quality that will
provide repeated use over an extended time-frame therefore
making good use of the resources invested.

In terms of environmental impacts at the point of delivery of our

products we are aware that the use of disposable packaging
and the use of power in our premises can be managed. In the
UK, the business meets its responsibilities under the packaging
waste regulations through membership of Valpak. The use of
packaging internally has been reviewed and re-useable boxes
have now replaced the use of disposable cardboard boxes for
internal distribution. Further, we source our wooden hangers
from sustainable sources and do not give them away with the
products. Power for the business’s larger stand-alone sites in
the UK is bought from suppliers whose power generation has
a limited impact on the environment through use of wind power,
bio-mass and other environmentally low-impact generation
sources.

18 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

DIRECTORS’ REMUNERATION REPORT

This report has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002. The report also meets the
relevant requirements of the Listing Rules of the Financial Services Authority. As required by the Regulations, a resolution to approve
the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be considered.

The regulations require the auditors to report to the Company’s members on the “auditable part” of the Directors’ remuneration report.
The report has therefore been divided into two sections for audited and unaudited information.

Unaudited information
Remuneration policy
The Company’s policy is:

• to provide remuneration packages for the executive Directors and other senior managers in the Group which are appropriate
to the size and nature of the Group’s business and which will attract, retain and motivate high calibre executives; and
• to balance the fixed and performance-related elements of remuneration appropriately and to provide both short-term and
longer-term incentives to achieve the strategic aims of the Group.
The objective is to ensure this policy is appropriate to the Group’s needs and rewards executives for creating shareholder value.

Basic Salary
Basic salaries are reviewed annually by the Remuneration Committee having regard to competitive market practice, each Director’s
contribution to the business, general inflation rates and the conditions within the Group. The salaries of the executive Directors
were increased by 3% on 1 February 2012 in line with the increase granted generally within the UK head office. No increase has
been implemented for 2013.

Annual Bonus
The annual grant of bonuses is based on the financial performance of the Group in relation to initial budgets, prior year performance
and market conditions. Bonuses are capped at 100 per cent of basic salary. The bonuses paid in the year related to the performance
of the Group in the previous year to 31 January 2012. In that year the profits of the Group fell below the level achieved for the core
continuing operations in the previous year. On that basis the bonuses were granted at one half of the level granted in the previous
year, when a restructuring had been successfully implemented and a significant improvement in operating profit had been achieved.
No bonus has been granted in relation to the year ended 31 January 2013 as a result of the significant decline in operating profit
experienced in the year.

For the year ending 31 January 2014 the Board’s objective is to implement the retail initiatives and to maximise the initial effect of
those on the trading results. Given that the impact of the changes will not be immediate, the Board does not expect the Group to
return to break-even until the following year at the earliest. Before any bonus is considered for the new financial year, the executive
Directors will be expected to have generated a substantial improvement in operating results and to beat the internal budgets.

Benefits
Benefits include such items as company cars, medical expense insurance, pension contributions and life assurance and are
provided with reference to practices in the competitive market.

Long-term incentives
It is the Remuneration Committee’s intention to develop incentive arrangements which are subject to challenging performance
targets, reflect the Company’s objectives and which motivate executives to focus on both annual and longer term performance.
At present, the only long-term incentives in place is the share option scheme as described below. The Committee intends to
consider implementation of other clear, uncomplicated long-term incentives during 2013 with a focus on the long term recovery
in financial performance.

Pension contributions
All executive Directors are entitled to contributions into personal pension plans for the benefit of the Director at up to 10%
of basic salary. There are no elements of remuneration, other than basic salary, which are treated as being pensionable.
There are no defined benefit pension schemes.

Share schemes
The Company considers that it is appropriate to align the interests of the executive Directors and key employees with the
performance of the business and the interests of the shareholders through the use of share option schemes.

At the discretion of the Board the Company issues share options to senior managers and Directors up to a maximum of two
times salary in each year. In exceptional circumstances the Board has the discretion to issue options up to four times salary
although this power has not been utilised in the last ten years. Options are granted at market value on the date of grant. Options
may be granted at a discount to the market value only in circumstances where the grant of options is agreed as part of a recruitment
package in which case the exercise price of the option may be determined by reference to the market value on the date on
which the individual’s employment commenced.

The share option schemes include an upper limit on the number of shares which can be issued of 10% of the total share capital
in any ten year period. No options have been granted to Directors since October 2008.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 19

DIRECTORS’ REMUNERATION REPORT
Continued

In respect of the share options granted on 29 October 2008 the performance condition was based on the profit before tax and
exceptional items of the continuing operations for the year ended 31 January 2011. This target was set to represent a significant
recovery in the financial performance of the business. The results of the Group for the year ended 31 January 2011 exceeded
the target and therefore 100% of the options granted in October 2008 vested in October 2011.

The Company does not operate any long-term incentive schemes other than the share option schemes described above.

Performance graph
This graph shows the Company’s performance, measured by total shareholder return, compared with the performance of the FTSE
Small Cap Index also measured by total shareholder return. This index has been selected for the comparison because it reflects the
market sector in which the Company is reported. The graph has been compiled on annual data at 31 January of each year.

Total cumulative shareholder return for the five-year period to 31 January 2013 French Connection
160 FTSE Small Cap

140

120
100
80
60

40
20
0 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013

Executive Directors’ contracts

Neil Williams’ service contract is dated 17 April 1996, has an indefinite term, and includes provision for a notice period of twelve
months. Roy Naismith’s service contract is dated 4 December 2001, has an indefinite term, and includes provision for a notice
period of six months. Stephen Marks has no service contract. In the event of any termination payment being made to a Director,
the Remuneration Committee will take full account of that Director’s duty to mitigate any loss.

Non-executive Directors
Non-executive Directors have specific terms of engagement and the Board determines their remuneration. Dean Murray’s terms
of engagement are dated 7 March 2008, have an indefinite term and allow for a notice period of one month. Claire Kent’s terms
of engagement are dated 3 October 2008, have an indefinite term and allow for a notice period of one month.

Audited information
Aggregate Directors’ remuneration
The total amounts for Directors’ remuneration were as follows:
2013 2012
£000 £000

Emoluments 1,032 1,212

Money purchase pension contributions 71 70

1,103 1,282

Directors’ emoluments 2013 total 2012 total

Salary Benefits Annual (excluding (excluding
and fees in kind bonus pension) pension)
Year ended 31 January 2013 £000 £000 £000 £000 £000

Executive Directors
Stephen Marks 299 23 87 409 487
Neil Williams 226 14 66 306 365
Roy Naismith 194 14 49 257 300
Non-executive Directors
Dean Murray 30 – – 30 30
Claire Kent 30 – – 30 30

779 51 202 1,032 1,212

The annual bonus shown above was paid in May 2012 in respect of the performance for the year ended 31 January 2012. No bonus
will be paid in relation to the year ended 31 January 2013.

20 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

Directors’ pension contributions
2013 2012
Year ended 31 January 2013 £000 £000

Executive Directors
Stephen Marks 30 29
Neil Williams 22 22
Roy Naismith 19 19
Non-executive Directors
Dean Murray – –
Claire Kent – –

71 70

Directors’ share options

Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire shares in the Company
granted to or held by the Directors. Details of options to subscribe for ordinary shares of 1p each in the Company held by Directors
who served during the year are as follows:
Lapsed Dates from
1 Feb 2012 during 31 Jan 2013 Exercise Dates of which Dates of
No. of options the year No. of options price (p) grant exercisable expiry

Stephen Marks 376,700 – 376,700 56.2 29 Oct 2008 29 Oct 2011 29 Oct 2018

Total 376,700 – 376,700

Neil Williams 257,561 (257,561) – 177.2 1 Nov 2002 1 Nov 2005 1 Nov 2012
284,500 – 284,500 56.2 29 Oct 2008 29 Oct 2011 29 Oct 2018

Total 542,061 (257,561) 284,500

Roy Naismith 105,000 (105,000) – 141.5 1 Nov 2002 1 Nov 2005 1 Nov 2012
98,759 (98,759) – 177.2 1 Nov 2002 1 Nov 2005 1 Nov 2012
244,300 – 244,300 56.2 29 Oct 2008 29 Oct 2011 29 Oct 2018

Total 448,059 (203,759) 244,300

No share options were granted to Directors during the year.

The market price of the shares at 31 January 2013 was 27.0p and the range during the year was 19.5p to 58.8p. The average
market share price during the year was 31.0p. The options granted are exercisable between three and ten years after the date
of grant and were subject to performance conditions described above.

Approval
This report was approved by the Board of Directors on 12 March 2013 and signed on its behalf by:

Roy Naismith
Company Secretary

Company Number: 1410568

12 March 2013

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 21

STATEMENT OF DIRECTORS’ RESPONSIBILITIES
In respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance
with applicable law and regulations.

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent Company financial statements in accordance with UK Accounting Standards and
applicable law (UK Generally Accepted Accounting Practice).

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the
Group and parent Company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;
• for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• for the parent Company financial statements, state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the parent Company financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent
Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to
ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.

By order of the Board

Stephen Marks Roy Naismith
Chairman and Chief Executive Finance Director

12 March 2013

22 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

INDEPENDENT AUDITOR’S REPORT
To the members of French Connection Group plc

We have audited the financial statements of French Connection Group PLC for the year ended 31 January 2013 set out on pages 24
to 56. The financial reporting framework that has been applied in their preparation of the Group financial statements is applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been
applied in the preparation of the parent Company financial statements is applicable law and UK Accounting Standards (UK Generally
Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page 22, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and to express
an opinion, on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at
31 January 2013 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the parent Company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting
Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006; and
• the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent
with the financial statements; and
• the information given in the Corporate Governance Statement set out on pages 15 to 17 with respect to internal control and
risk management systems in relation to financial reporting processes and about share capital structures is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
• a Corporate Governance Statement has not been prepared by the Company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 17, in relation to going concern;
• the part of the Corporate Governance Statement on page 17 in relating to the Company’s compliance with the nine provisions
of the UK Corporate Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on Directors’ remuneration.

Robert Brent (Senior Statutory Auditor)

for and behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants, 15 Canada Square, London E14 5GL
12 March 2013

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 23

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 January 2013

2013 2012
Note £m £m

Continuing operations
Revenue 4 197.3 215.4

Cost of sales (102.7) (111.8)

Gross profit 4 94.6 103.6

Operating expenses 5 (108.9) (109.2)

Other operating income 6 6.5 8.5
Net (loss)/gain on store disposals and closures (1.3) 0.4

Operating (loss)/profit before financing and impairments (9.1) 3.3

Impairment of goodwill 13 (2.0) –

Finance income 0.2 0.9

Finance expenses – –

Operating (loss)/profit (10.9) 4.2

Share of profit of joint ventures, net of tax 15 0.4 0.8

(Loss)/profit before taxation, store disposals, closures and impairment of goodwill (7.2) 4.6

Net (loss)/gain on store disposals and closures (1.3) 0.4

Impairment of goodwill (2.0) –

(Loss)/profit before taxation 9 (10.5) 5.0

Income tax credit – UK – –

Income tax expense – overseas – (0.5)

Total income tax expense 10 – (0.5)

(Loss)/profit for the year from continuing operations (10.5) 4.5

Discontinued operations
Profit from discontinued operations, net of tax 3 – 0.8

(Loss)/profit for the year (10.5) 5.3

24 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Continued

2013 2012
Note £m £m

(Loss)/profit for the year (10.5) 5.3

Other comprehensive income

Currency translation differences for overseas operations (0.2) 0.3
Currency translation differences on foreign currency loans, net of tax 0.1 (0.2)
Currency translation differences transferred to profit and loss, net of tax – (0.5)
Effective portion of changes in fair value of cash flow hedges – 0.1

Other comprehensive income for the year, net of tax (0.1) (0.3)

Total comprehensive income for the year (10.6) 5.0

(Loss)/profit attributable to:

Equity holders of the Company (10.3) 5.3
Non-controlling interests (0.2) –

(Loss)/profit for the year (10.5) 5.3

Total comprehensive income attributable to:

Equity holders of the Company (10.4) 5.0
Non-controlling interests (0.2) –

Total income and expense recognised for the year (10.6) 5.0

Earnings per share

Basic and diluted (losses)/earnings per share 12 (10.7)p 5.5p

Continuing operations

Basic and diluted (losses)/earnings per share 12 (10.7)p 4.7p

The notes on pages 29 to 50 form part of these accounts.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 25

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 January 2013

2013 2012
Note £m £m

Assets
Non-current assets
Intangible assets 13 0.4 2.4
Property, plant and equipment 14 5.7 7.1
Investments in joint ventures 15 3.0 3.5
Deferred tax assets 22 4.4 4.4

Total non-current assets 13.5 17.4

Current assets
Inventories 16 41.5 46.9
Trade and other receivables 17 23.7 26.5
Cash and cash equivalents 18 28.5 34.2
Derivative financial instruments 28 0.1 0.1

Total current assets 93.8 107.7

Total assets 107.3 125.1

Non-current liabilities
Deferred tax liabilities 22 0.9 0.9

Total non-current liabilities 0.9 0.9

Current liabilities
Trade and other payables 19 41.2 48.0
Current tax payable 21 – 0.5
Provisions 20 1.7 0.6

Total current liabilities 42.9 49.1

Total liabilities 43.8 50.0

Net assets 63.5 75.1

Equity
Called-up share capital 23 1.0 1.0
Share premium account 9.4 9.4
Other reserves 5.3 5.4
Retained earnings 47.0 58.3

Total equity attributable to equity holders of the Company 62.7 74.1

Non-controlling interests 0.8 1.0

Total equity 63.5 75.1

The notes on pages 29 to 50 form part of these accounts.

These accounts were approved by the Board of Directors on 12 March 2013 and were signed on its behalf by:

Stephen Marks Roy Naismith
Director Director
Company Number: 1410568

26 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Non-
Share Share Hedging Translation Retained controlling Total
capital premium reserve reserve earnings Total interests equity
£m £m £m £m £m £m £m £m

Balance at 31 January 2011 1.0 9.4 – 5.7 54.6 70.7 1.1 71.8

Profit for the year ended 31 January 2012 5.3 5.3 – 5.3

Other comprehensive income

Currency translation differences for
overseas operations 0.3 0.3 0.3
Currency translation differences
on foreign currency loans, net of tax (0.2) (0.2) (0.2)
Currency translation differences
transferred to profit and loss, net of tax (0.5) (0.5) (0.5)
Effective portion of changes in fair
value of cash flow hedges 0.1 0.1 0.1

Transactions with owners recorded

directly in equity
Dividends (1.6) (1.6) (1.6)

Transactions with non-controlling

interests, recorded directly in equity
Dividends (0.1) (0.1)

Balance at 31 January 2012 1.0 9.4 0.1 5.3 58.3 74.1 1.0 75.1

Loss for the year ended 31 January 2013 (10.3) (10.3) (0.2) (10.5)

Other comprehensive income

Currency translation differences for
overseas operations (0.2) (0.2) (0.2)
Currency translation differences
on foreign currency loans, net of tax 0.1 0.1 0.1
Effective portion of changes in fair
value of cash flow hedges – – –

Transactions with owners recorded

directly in equity
Dividends (1.0) (1.0) (1.0)

Balance at 31 January 2013 1.0 9.4 0.1 5.2 47.0 62.7 0.8 63.5

Translation reserve
The translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign
operations as well as from the translation of foreign currency loans.

Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
related to hedged transactions that have not yet occurred.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 27

CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 January 2013

2013 2012
Note £m £m

Operating activities
(Loss)/profit for the period (10.5) 5.3
Adjustments for:
Depreciation and impairment 3.1 2.8
Impairment of goodwill 2.0 –
Gain on disposal of discontinued operation, net of tax – (0.9)
Finance income (0.1) (0.3)
Currency translation differences (0.1) (0.6)
Share of profit of joint ventures (0.4) (0.8)
Non-operating loss/(profit) on store disposals and closures 1.3 (0.4)
Income tax expense – 0.5

Operating (loss)/profit before changes in working capital and provisions (4.7) 5.6
Decrease/(increase) in inventories 5.4 (6.9)
Decrease/(increase) in trade and other receivables 2.4 (1.0)
(Decrease)/increase in trade and other payables (6.8) 3.4

Cash flows from operations (3.7) 1.1

Income tax paid (0.5) (0.7)

Cash flows from operating activities (4.2) 0.4

Investing activities
Interest received 0.1 0.3
Proceeds from investment in joint ventures 0.9 0.8
Acquisition of property, plant and equipment (1.7) (1.6)
Net (costs)/proceeds from sale of property, plant and equipment (0.2) 0.7
Disposal of discontinued operations 3 0.4 1.3

Cash flows from investing activities (0.5) 1.5

Financing activities
Dividends paid 11 (1.0) (1.7)

Cash flows from financing activities (1.0) (1.7)

Net (decrease)/increase in cash and cash equivalents 25 (5.7) 0.2

Cash and cash equivalents at 1 February 25 34.2 34.1
Exchange rate fluctuations on cash held 25 – (0.1)

Cash and cash equivalents at 31 January 25 28.5 34.2

The notes on pages 29 to 50 form part of these accounts.

28 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

NOTES TO THE GROUP ACCOUNTS

1 Accounting policies
a) Basis of preparation
French Connection Group PLC (the “Company”) is a company domiciled in the United Kingdom, whose shares are publicly traded
on the London Stock Exchange. These financial statements are presented in millions of pounds sterling rounded to the nearest
one decimal place.

The consolidated financial statements have been prepared and approved by the Directors in accordance with International
Financial Reporting Standards as adopted by the European Union (“adopted IFRS”). The Company has elected to prepare its
parent Company financial statements in accordance with UK Generally Accepted Accounting Practice; these are presented on
pages 51 to 56.

The consolidated financial statements have been prepared under the historical cost accounting rules, except for derivative financial
instruments measured at fair value.

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set
out in the Business Review on pages 8 to 11. The financial position of the Group, its cash flows, liquidity position and borrowing
facilities are described in the Business Review on pages 8 to 11. In addition Note 28 to the financial statements includes the Group’s
objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments
and hedging activities and its exposures to credit risk and liquidity risk.

The Group has considerable cash resources and as a consequence, the Directors believe that the Group is well placed to manage
its business risks successfully despite the current uncertain economic outlook.

The Group ended the year with £28.5 million of net cash and no borrowings. Over the cycle of the year the Group had minimum
net cash of £10.6 million. Based on this and the forecast performance for the Group over the next 18 months, the Directors have
a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
For this reason, the Board continues to adopt the going concern basis in preparing the accounts.

The preparation of the financial statements in conformity with adopted IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual
results may differ from these assumptions. The estimates and assumptions are based on historical experience and are reviewed
on an ongoing basis and are disclosed in Note 31. Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both
current and future periods.

The accounting policies set out below have been applied consistently to all periods in the consolidated financial statements.

There were no revisions to Adopted IFRS that became applicable in the year ended 31 January 2013 which had a significant
impact on the Group’s financial statements.

The Group does not consider that there are any standards, amendments or interpretations issued by the IASB, but not yet
applicable, that will have a significant impact on the financial statements.

b) Basis of consolidation
The consolidated financial statements of the Group comprise the accounts of the Company and all its subsidiary undertakings,
the accounts of which are all made up to 31 January each year end. The results of companies acquired or disposed of in the year
are dealt with from or up to the date control commences or ceases. The net assets of companies acquired are incorporated in the
consolidated accounts at their fair values to the Group at the date of acquisition. Intra-group balances and any unrealised gains or
losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable
are taken into account.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 29

NOTES TO THE GROUP ACCOUNTS
Continued

1 Accounting policies continued

b) Basis of consolidation continued
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring
unanimous consent for strategic financial and operating decisions. Joint ventures are accounted for using the equity method. The
consolidated financial statements include the Group’s share of the income and expenses of joint ventures, after adjustments to
align the accounting policies with those of the Group, from the date that joint control commences until the date that joint control
ceases. When the Group’s share of losses exceeds its interest in a joint venture, the carrying amount of that interest (including any
long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group
has an obligation or has made payments on behalf of the investee. Unrealised gains arising from transactions with joint ventures
are eliminated against the investment to the extent of the Group’s interest in the entity.

c) Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill arising on business combinations represents
the difference between the cost of the acquisition and the fair value of the identifiable assets, liabilities and contingent liabilities
acquired. In respect of acquisitions prior to the IFRS transition date, 1 February 2004, goodwill is included on the basis of its
deemed cost based on the amount recognised under UK GAAP.

Goodwill is stated at cost less any accumulated impairment losses as discussed in Note j) below. Goodwill is tested annually for
impairment. Negative goodwill arising on an acquisition is recognised directly in the income statement.

The impairment calculations use cash flow projections based on actual operating results extrapolated forward for five years.
An appropriate pre-tax discount rate has been used in discounting the projected cash flows based on the weighted average
cost of capital applicable to the cash generating units concerned. For the purpose of impairment testing, goodwill is allocated to
the lowest level of cash generating unit within the Group at which the goodwill is monitored for internal management purposes.
Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated
with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal.
Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the
portion of the cash generating unit retained.

d) Foreign currency
Transactions effected by companies in foreign currencies are translated into their functional currency at the foreign exchange rate
ruling at the date of transaction. Monetary assets and liabilities of companies denominated in currencies other than the functional
currency of the company are translated at the foreign exchange rate ruling at the balance sheet date. Foreign exchange differences
arising on translation are recognised in the income statement. Non-monetary assets and liabilities denominated in foreign currencies
that are measured in terms of historical cost are translated using the exchange rate at the date of transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are stated at fair value are translated at the foreign exchange rates
ruling at the dates the fair value was determined.

Long term monetary assets and liabilities receivable from or payable to a foreign operation, the settlement of which is not
planned or expected to occur in the foreseeable future, are considered to represent part of the Group’s net investment in
a foreign operation. Therefore, exchange gains and losses arising from these amounts are included in equity in the foreign
currency translation reserve.

On consolidation, the assets and liabilities of foreign operations which have a functional currency other than Sterling are translated
into Sterling at foreign exchange rates ruling at the balance sheet date. The income and expenses of these subsidiary undertakings
are translated into Sterling at the average rates applicable to the period. All resulting exchange differences are taken to reserves.
Any exchange differences that have arisen since 1 February 2004 are presented as a separate component of equity within a
translation reserve. Such exchange differences taken to reserves as from the date of transition to IFRS are recognised in the
income statement upon disposal of the subsidiary.

e) Derivative financial instruments

Derivative financial instruments in the form of forward foreign exchange contracts are used to manage the risk associated with
purchases denominated in foreign currencies as described in the section entitled ‘Management of risks’ within Our Business.

Derivative financial instruments are initially measured at fair value. Any changes in the fair value of the forward contracts during
the period in which the hedge is in effect are reflected as a component of equity within the hedging reserve to the extent that
the hedge is effective. The ineffective part of the hedge is recognised in the income statement immediately.

30 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

1 Accounting policies continued
f) Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents,
loans and borrowings and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value including any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less any impairment losses.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets
are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the
financial asset. Purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself
to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are
discharged or cancelled.

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form
an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose
of the statement of cash flows.

g) Property, plant and equipment

Property, plant and equipment is stated at cost (which from 1 February 2009 includes capitalised borrowing costs where appropriate)
less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition
of the asset.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the assets. Residual values
are reviewed at each reporting date. The estimated useful lives are as follows:

Leasehold improvements : period of the lease

Plant, equipment, fixtures and fittings : 3 to 10 years

h) Leased assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases.
Finance lease assets are stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments
at inception of the lease, less accumulated depreciation and impairment losses. Leased assets are depreciated over the shorter of
the lease term and their estimated useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the
lease term. Operating leases are leases where substantially all of the risks and rewards of ownership have not been transferred.

i) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary
course of business. Cost includes the purchase price of manufactured products, materials, direct labour, transport costs and a
proportion of attributable design and production overheads calculated on a first in, first out basis.

j) Impairment
The carrying amount of the Group’s assets, other than inventories and deferred tax assets, are reviewed each balance sheet date
to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable
amount. For tangible fixed assets, the recoverable amount is determined with reference to the cash generating unit to which the
asset belongs. The impairment calculations use cash flow projections based on actual operating results extrapolated forward for
five years. An appropriate pre-tax discount rate has been used in discounting the projected cash flows based on the weighted
average cost of capital applicable to the individual assets concerned. Further details are provided in Note 13.

Impairment policy relating to goodwill is referred to in Note 1c).

k) Revenue
Revenue is measured at the fair value of the consideration received or receivable for goods sold to external customers, less returns
and value added tax. The revenue arises from the sale of fashion clothing and accessories. Revenue from the sale of goods is
recognised in the statement of income when the significant risks and rewards of ownership have been transferred. For retail sales,
this occurs at the time the sale is recorded at the store. For wholesale and e-commerce sales, this normally occurs at the time the
goods are shipped from the warehouse. Licensing revenue is included within other operating income and is recognised on an
accruals basis.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 31

NOTES TO THE GROUP ACCOUNTS
Continued

1 Accounting policies continued

l) Lease payments
Operating lease rentals are charged to the income statement on a straight-line basis over the term of the lease. Lease incentives
received are recognised in the income statement on a straight-line basis over the term of the lease.

Rentals receivable under operating leases are included in the income statement on a straight-line basis.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.

m) Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantially enacted at the
balance sheet date, plus any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised
for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting nor taxable profit and differences relating to investments in
subsidiaries and jointly controlled entities to the extent that they will probably not reverse in the foreseeable future. Deferred tax is
measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantially enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax benefit will be realised.

n) Pensions
The Group only has defined contribution pension schemes. Pension costs charged to the income statement represent the amount
of contributions payable to defined contribution and personal pension schemes in respect of the period.

o) Share-based payment
The Group operates share option incentive schemes for Directors and key employees. The fair value of options granted is
recognised as an employee expense in the income statement with a corresponding increase in equity. The fair value is measured
at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair
value of the options is measured using the “Black-Scholes” option valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognised in the income statement is adjusted at each balance sheet date
to reflect the number of share options that are expected to vest revised for expected leavers and estimated achievement of
non-market based vesting conditions. The Group has adopted the exemption to apply IFRS 2 only to equity instruments granted
after 7 November 2002.

p) Segment reporting
An operating segment is a distinguishable component of the Group that is engaged in business activities from which it may earn
revenues and incur expenses and whose operating results are reviewed regularly by the Chief Operating Decision Maker to make
decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information
is available.

Reportable segments are operating segments that either meet the thresholds and conditions set out in IFRS 8 or are considered
by the Board to be appropriately designated as reportable segments. Segment results represent the operating profits of each
division and exclude tax and financing items. The segment results of the Group distinguishes three separate overhead categories.
Trading overheads represent the direct costs of the divisional operations. Common overheads comprise costs shared between
the divisions within geographic locations, in particular the costs of local management, advertising, finance and accounting.
Group management overheads include the costs of Group management, legal, insurance and IT costs.

Intra-group transactions relate to internal licensing income and expense.

Segment assets comprise goodwill, other intangible assets, property, plant and equipment, inventories, trade and other receivables.
Segment liabilities comprise trade and other payables, provisions and other payables. Unallocated items represent corporate and
deferred taxation balances and all components of net funds.

32 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

1 Accounting policies continued
q) Capital management
Details of capital risk management are set out in Note 28 to the Group accounts.

r) Financial risk management

Details of financial risk management are set out in Note 28 to the Group accounts.

s) Guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of fellow subsidiaries or of third parties,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make
a payment under the guarantee.

t) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recognised at
an amount equal to the best estimate of the expenditure required to settle the Group’s liability. Obligations arising from restructuring
plans are recognised when detailed formal plans have been established and when there is a valid expectation that such a plan will
be carried out.

2 Operating segments
a) Operating segments
The Group’s operating segments have been determined based on the management accounts reviewed by the Board of Directors.

The Group has five key reportable segments which are the Group’s strategic units. These strategic business units service different
customer markets within specific geographical locations and are managed separately since they require different business and
geographic strategies.

Monthly internal management reports are prepared for each of the strategic business units and reviewed by the Board. The Chief
Operating Decision Maker as defined by IFRS 8 is deemed to be the Board. The following summary describes the operations in each
of the Group’s reportable segments:

• UK/Europe Retail – sale of fashion garments and accessories through retail stores, concessions and e-commerce in the
United Kingdom, Ireland and Continental Europe.
• UK/Europe Wholesale – sale of fashion garments and accessories through department stores, multi-brand stores and
franchise operators in the United Kingdom, Ireland, Continental Europe, the Middle East and Asia.
• North America Retail – sale of fashion garments and accessories through retail stores and e-commerce in the US and Canada.
• North America Wholesale – sale of fashion garments and accessories through multi-brand stores in the US and Canada.
• Hong Kong Wholesale – sale of fashion garments and accessories through our Hong Kong office to department stores and
licensed operators primarily in Australia, Asia, India and South Africa.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment
operating profit before financing costs, as included in the internal management reports that are reviewed by the Board. Segment
profit is used to measure performance as the Board believes that such information is the most relevant in evaluating the results
of the segments relative to other entities that operate within this industry. Inter-segment pricing is determined on an arm’s length
basis. Finance income and expenses are not included within the reportable segments as these are managed centrally. The operating
segments below are those used by the Board to review performance and to make resource allocations between segments.
The performance in the year for each segment is detailed in the Business Review on pages 8 to 11. Within this the Directors have
outlined the key factors underlying the results for the year including the contribution from individual brands and licensing income
where relevant.

The segment analysis below covers the Group as a whole. This includes both continuing and discontinued activities. The results
of the discontinued activities are set out in Note 3.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 33

NOTES TO THE GROUP ACCOUNTS
Continued

2 Operating segments continued

a) Operating segments continued
Rest
of the Intra
UK/Europe North America World Group Total

Whole- Whole- Whole-

Retail sale Total Retail sale Total sale
Year ended 31 January 2013 £m £m £m £m £m £m £m £m £m

Revenue (Note 4) 103.4 34.2 137.6 20.0 29.0 49.0 10.7 197.3
Gross profit (Note 4) 56.7 10.6 67.3 11.2 11.5 22.7 2.0 2.6 94.6
Gross margin 54.8% 31.0% 48.9% 56.0% 39.7% 46.3% 18.7% 47.9%
Trading overheads (71.6) (6.7) (78.3) (12.6) (3.7) (16.3) (1.5) (96.1)
Store disposals and closures (1.1) (1.1) (0.2) (0.2) (1.3)
Operating contribution (16.0) 3.9 (12.1) (1.6) 7.8 6.2 0.5 2.6 (2.8)
Common overhead costs (4.3) (3.2) (7.5)
Other income 6.8 0.7 1.6 (2.6) 6.5
Divisional operating (loss)/profit (9.6) 3.7 2.1 – (3.8)
Group management overheads (5.3)
Operating loss before financing and
  goodwill impairment (9.1)

Represented by:
Loss from continuing operations (9.1)
Loss from discontinued operations (Note 3) –
(9.1)

Total assets 31.2 48.8 80.0 7.7 12.8 20.5 6.8 – 107.3
Total liabilities 16.9 15.9 32.8 3.0 3.4 6.4 4.6 – 43.8
Non-current asset additions 1.1 0.2 1.3 0.4 – 0.4 – 1.7
Depreciation 1.3 0.8 2.1 0.5 – 0.5 – 2.6
Impairment losses 0.5 – 0.5 – – – – 0.5

The share of the results of the joint venture operations of £0.4 million (2012: £0.8 million) relate to retail operations in the rest of the
world and are not disclosed in the information above (see Note 15).

34 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

2 Operating segments continued
a) Operating segments continued
Rest
of the Intra
UK/Europe North America World Group Total

Whole- Whole- Whole-

Retail sale Total Retail sale Total sale
Year ended 31 January 2012 £m £m £m £m £m £m £m £m £m

Revenue (Note 4) 111.5 42.1 153.6 22.3 24.3 46.6 15.8 216.0
Gross profit (Note 4) 62.5 13.8 76.3 13.3 9.3 22.6 2.1 2.8 103.8
Gross margin 56.1% 32.8% 49.7% 59.6% 38.3% 48.5% 13.3% 48.1%
Trading overheads (70.9) (7.2) (78.1) (13.7) (3.6) (17.3) (1.5) (96.9)
Store disposals and closures 0.7 0.7 (0.3) (0.3) 0.4
Operating contribution (7.7) 6.6 (1.1) (0.7) 5.7 5.0 0.6 2.8 7.3
Common overhead costs (4.7) (3.1) (7.8)
Other income 7.4 2.0 1.9 (2.8) 8.5
Divisional operating profit 1.6 3.9 2.5 – 8.0
Group management overheads (4.8)
Operating profit before financing 3.2

Represented by:
Profit from continuing operations 3.3
Profit from discontinued operations (Note 3) (0.1)
3.2

Total assets 41.8 56.0 97.8 8.6 9.7 18.3 9.0 – 125.1
Total liabilities 18.1 17.9 36.0 2.0 2.9 4.9 9.1 – 50.0
Non-current asset additions 1.0 0.4 1.4 0.1 – 0.1 0.1 1.6
Depreciation 1.4 0.8 2.2 0.6 – 0.6 – 2.8

The divisional table for the year ended 31 January 2012 has been amended for changes to the intercompany charges, none of which
impact upon the Group’s pre-tax results.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 35

NOTES TO THE GROUP ACCOUNTS
Continued

2 Operating segments continued

b) Revenue from external customers
2013 2012
£m £m

UK 121.5 133.9
US 37.5 34.2
Canada 11.7 12.7
Other 26.6 35.2

197.3 216.0

c) Non-current assets
2013 2012
£m £m

UK 9.4 12.9
US 0.6 0.3
Canada 0.1 0.4
Hong Kong 0.8 1.4
China 2.0 1.8
Other 0.6 0.6

13.5 17.4

No single customer represents more than 10% of the Group’s total revenue.

3 Discontinued operations
There were no discontinued operations in the current financial year.

In the year ended 31 January 2012 a profit of £0.8 million arose from discontinued operations as a result of the disposal of the
Nicole Farhi business in 2010 as follows:

The Group received a payment of £0.6 million from OpenGate Capital (“OpenGate”) relating to the release of the Group’s charge
over certain intellectual property rights. Then, in January 2012, following an onward disposal of the Nicole Farhi business, the Group
recorded the final deferred consideration amount of £0.4 million from OpenGate. This amount was received in October 2012.

The total income arising in relation to the disposal of the Nicole Farhi business in the year ended 31 January 2012 was therefore
£1.0 million. In addition, the Group incurred trading and disposal losses of £(0.2) million in relation to the sale of the final two stores
formerly operated by the Nicole Farhi business.
2013 2012
Results of discontinued operations £m £m

Revenue – 0.6
Expenses – (0.7)

Results from operating activities before taxation – (0.1)

Income tax – –

Results from operating activities, net of tax – (0.1)

Profit on sale of discontinued operation – 0.9

Effect on (loss)/profit for the period – 0.8

2013 2012
Cash flows from discontinued operations £m £m

Net cash utilised in operating activities – (0.3)

Net cash from investing activities 0.4 1.3

Net cash from discontinued operations 0.4 1.0

36 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

3 Discontinued operations continued 31 January 31 January
2013 2012
Effect of disposal of the Nicole Farhi business on the financial position of the Group £m £m

Inventories – (0.3)

Net assets and liabilities – (0.3)

Cash consideration net of costs of disposal – 1.2

Profit on sale of discontinued operation – 0.9

4 Revenue and gross profit

Continuing Discontinued Consolidated
operations operations operations
2013 2012 2013 2012 2013 2012
Sale of goods £m £m £m £m £m £m

Revenue 197.3 215.4 – 0.6 197.3 216.0

Gross profit 94.6 103.6 – 0.2 94.6 103.8

The revenue from external customers is derived from the sale of clothing and accessories.

5 Operating expenses
2013 2012
£m £m

Selling and distribution costs 98.2 99.0

Administration costs 10.7 10.2

108.9 109.2

Included within discontinued operations (refer to Note 3) are £nil (2012: £0.3 million) of operating expenses.

6 Other operating income

2013 2012
£m £m

Licensing income and buying office commission 6.5 8.5

7 Staff numbers and costs

The average number of people employed by the Group during the year, including Directors, was as follows:
2013 2012
Number Number

Selling, distribution and retail 2,097 2,214

Design, development and production management 209 215
Administration 138 129

2,444 2,558

The aggregate payroll costs of these people were as follows:

2013 2012
£m £m

Wages and salaries 37.6 38.9

Social security costs 3.0 3.3
Defined contribution pension costs 0.5 0.4

41.1 42.6

Included within the total staff cost above is the remuneration of the Directors totalling £1.1 million (2012: £1.3 million). Details of Directors’
remuneration, share options and pension entitlements are disclosed in the Directors’ Remuneration Report. Details of pension costs
are disclosed in Note 30 to the Group accounts.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 37

NOTES TO THE GROUP ACCOUNTS
Continued

8 Finance income and expense

2013 2012
Recognised in the income statement £m £m

Finance income
Interest receivable on bank balances 0.1 0.3
Currency translation differences 0.1 0.6
Finance expense
Interest payable on bank loans and overdrafts – –

0.2 0.9

Included within currency translation differences are £nil (2012: £0.8 million) of currency translation differences recycled from reserves
to the income statement.

9 (Loss)/profit before taxation

The Group’s (loss)/profit before taxation is stated after charging/(crediting) the following:
2013 2012
£m £m

Fees payable to the Company’s auditors and its associates in respect of

the audit of the Group’s annual accounts 0.1 0.1
the audit of the Company’s subsidiaries, pursuant to legislation 0.1 0.2
tax and other assurance services 0.2 0.3
Depreciation and impairment of owned assets 3.1 2.8
Loss/(profit) on sale of items of property, plant and equipment 0.2 (0.4)
Store closure provisions 1.1 –
Impairment of goodwill 2.0 –
Operating lease rentals
Plant and machinery 0.3 0.2
Leasehold properties 28.4 28.1
Rent receivable (1.4) (1.5)

The auditor’s remuneration in respect of the audit of the Company was £40,000 (2012: £40,000).

During the year, the fees payable to the auditors and their associates for non-audit services was £182,000 (2012: £284,000) in
respect of tax compliance and advisory services (£162,000 (2012: £268,000)), royalty and turnover reviews (£14,000 (2012: £16,000))
and other services (£6,000 (2012: £nil)).

10 Income tax expense

a) Recognised in the income statement
2013 2012
£m £m

Current tax
UK corporation tax – –
Overseas tax 0.5 0.9
Adjustment in respect of previous periods (0.5) (0.4)

Total current tax – 0.5

Deferred tax – origination and reversal of

UK temporary differences (0.2) (0.2)
Effect of change in tax rates 0.2 0.2

Total deferred tax – –

Tax on (loss)/profit (Note 10b) – 0.5

38 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

10 Income tax expense continued
b) Factors affecting tax charge for year
The tax charged for the year is different to the standard 24% (2012: 26%) rate of corporation tax in the UK. The differences
are explained below:
2013 2012
£m £m

(Loss)/profit before taxation (10.5) 5.8

(Loss)/profit multiplied by the standard rate of corporation tax in the UK of 24% (2012: 26%) (2.5) 1.5
Effects of:
Expenses not deductible 0.3 0.3
Impairment of goodwill 0.4 –
Disposal of discontinued operations – (0.2)
Losses for which no deferred tax asset has been recognised 1.8 (1.0)
Current year temporary differences and deferred capital allowances
for which deferred tax has not been recognised 0.5 0.7
Difference in effective tax rates on overseas earnings (0.1) (0.4)
Adjustments to tax charge in respect of previous periods (0.5) (0.4)
Share of joint venture tax charge which has been netted off within share of profit of joint ventures (0.1) (0.2)
Deferred tax charge relating to reduction in UK tax (25% to 23% effective from 1 April 2013) 0.2 0.2

Total tax charge for the year (Note 10a) – 0.5

The effective tax rate in the future will be affected by the proportion of any profits or losses generated in the different tax
jurisdictions and the ability to utilise accumulated losses.

c) Income tax recognised in other comprehensive income

Before Tax Net of Before Tax Net of
tax credit tax tax credit tax
2013 2013 2013 2012 2012 2012
£m £m £m £m £m £m

Currency translation differences

on foreign currency net investments (0.2) – (0.2) 0.3 – 0.3
Currency translation differences
on foreign currency loans 0.1 – 0.1 (0.2) – (0.2)
Currency translation differences
transferred to profit and loss – – – (0.8) 0.3 (0.5)
Effective portion of changes in fair
value of cash flow hedges – – – 0.1 – 0.1

(0.1) – (0.1) (0.6) 0.3 (0.3)

11 Dividends – equity
2013 Pence 2012 Pence
£m per share £m per share

Final paid for prior financial year 1.0 1.0p 1.0 1.0p
Interim paid for current financial year – – 0.6 0.6p

Total dividends paid during the year 1.0 1.0p 1.6 1.6p

The Board is proposing that no dividend should be paid for the year. No dividends were paid during the year to the minority shareholders
of a subsidiary undertaking of the Group (2012: £0.1 million).

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 39

NOTES TO THE GROUP ACCOUNTS
Continued

12 (Losses)/earnings per share

Basic (losses)/earnings per share are calculated on 95,899,754 (2012: 95,884,740) shares being the weighted average number
of ordinary shares during the year.

Diluted (losses)/earnings per share are calculated on 95,983,319 shares being the weighted average number of ordinary shares
adjusted to assume the exercise of dilutive options (2012: 96,632,850).

Basic and diluted (losses)/earnings per share of (10.7) pence per share (2012: earnings of 5.5 pence) is based on losses
of £(10.3) million (2012: profits of £5.3 million) attributable to equity shareholders.

On continuing operations the basic (losses)/earnings per share of (10.7) pence per share (2012: earnings of 4.7 pence) is based
on £(10.3) million (2012: £4.5 million) being the (loss)/profit relating to continuing operations.

On discontinuing operations the basic earnings per share of nil pence per share (2012: 0.8 pence) is based on £nil (2012: £0.8 million)
being the profit relating to discontinued operations.

The reconciliation to adjusted earnings per share is as follows:

2012
2013 2012 Continuing
2013 Pence Continuing pence
£m per share £m per share

(Loss)/profit attributable to equity shareholders (10.3) (10.7)p 4.5 4.7p

Net loss/(gain) on store disposals and closures 1.3 1.3p (0.4) (0.4)p
Impairment of goodwill 2.0 2.1p – –

Adjusted (loss)/profit (7.0) (7.3)p 4.1 4.3p

The adjusted earnings per share relates to the core continuing operations and in the opinion of the Directors, gives a better measure
of the Group's underlying performance than the basic losses per share.

13 Intangible assets
Goodwill
2013
£m

Cost
At 1 February 2012 and 31 January 2013 14.3

Impairment
At 1 February 2012 (11.9)
During the year (2.0)

At 31 January 2013 (13.9)

Net book value at 31 January 2013 0.4

Net book value at 31 January 2012 2.4

As a result of the downturn in retail trade, goodwill of £2.0 million (2012: £nil) relating to the acquisition of retail franchise operations
in the UK has been impaired during the year.

Given the similar nature of the activities of each cash generating unit, a consistent methodology is applied across the Group in
assessing cash generating unit recoverable amounts. The recoverable amount is the higher of the value in use and the fair value
less the costs to sell. The value in use is the present value of the cash flows expected to be generated by the cash generating unit
over a projection period together with a terminal value. Cash flows are projected based on actual operating results and the
Directors’ five year forward forecasts which are based on Directors’ knowledge, historical experience and economic growth
forecasts for the fashion industry, including maximum sales growth forecasts of 2% per annum. A pre-tax discount rate of 15%
(2012: 15%) has been applied to the value in use calculations reflecting market assessments of the time value of money at the
balance sheet date. A terminal growth rate of 2% (2012: 2%) has been used based on industry growth rates. As discussed in
Our Business on pages 4 to 6, like all retailers, the Group is susceptible to volatility in the propensity of consumers to spend,
which is affected by macro-economic issues. Further, both the Group’s retail and wholesale businesses have largely inflexible
cost bases giving rise to substantial operational gearing. Accordingly the key sensitivity with regard to future cash flows and value
in use relates to the assumed sales growth. As noted above this has been set at a maximum of 2% per annum.

40 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

14 Property, plant and equipment
Plant
Short equipment
leasehold fixtures and
property fittings Total
2013 £m £m £m

Cost
At 1 February 2012 10.6 64.0 74.6
Currency movements – (0.2) (0.2)
Additions 0.3 1.4 1.7
Disposals (0.5) (3.2) (3.7)

At 31 January 2013 10.4 62.0 72.4

Depreciation
At 1 February 2012 10.0 57.5 67.5
Currency movements – (0.2) (0.2)
Impairment – 0.5 0.5
Charge for year 0.1 2.5 2.6
Disposals (0.5) (3.2) (3.7)

At 31 January 2013 9.6 57.1 66.7

Net book value

At 31 January 2013 0.8 4.9 5.7

At 31 January 2012 0.6 6.5 7.1

The Group has no plant and equipment held under finance leases in both the current and prior years and no depreciation was
charged during either year.

The impairment loss recognised in the year of £0.5 million (2012: £nil) is a result of a review of the carrying value of the store
portfolio assets.

Property, plant and equipment with a net book value of £nil (2012: £0.3 million) was disposed of during the year. Net costs
incurred on disposal were £0.2 million (2012: proceeds of £0.7 million) resulting in a loss on disposal of £(0.2) million
(2012: profit of £0.4 million).

The Group has £53.9 million (2012: £48.7 million) of gross assets with a £nil net book value.
Plant
Short equipment
leasehold fixtures and
property fittings Total
2012 £m £m £m

Cost
At 1 February 2011 12.0 64.5 76.5
Currency movements 0.1 0.1 0.2
Additions 0.2 1.4 1.6
Disposals (1.7) (2.0) (3.7)

At 31 January 2012 10.6 64.0 74.6

Depreciation
At 1 February 2011 11.5 56.5 68.0
Currency movements 0.1 – 0.1
Charge for year 0.1 2.7 2.8
Disposals (1.7) (1.7) (3.4)

At 31 January 2012 10.0 57.5 67.5

Net book value

At 31 January 2012 0.6 6.5 7.1

At 31 January 2011 0.5 8.0 8.5

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 41

NOTES TO THE GROUP ACCOUNTS
Continued

15 Investments
The Group’s investments in joint ventures are as follows:
2013 2012
£m £m

Share of current assets 4.8 4.8

Share of non-current assets 0.5 0.3
Share of current liabilities (2.3) (1.6)

3.0 3.5

Share of revenue 6.9 6.7

Share of expense (6.4) (5.7)
Share of income tax expense (0.1) (0.2)

0.4 0.8

The investments are accounted for using the equity method of accounting.

16 Inventories
2013 2012
£m £m

Raw materials and consumables 0.4 0.7

Work in progress 0.5 0.9
Finished goods 40.6 45.3

41.5 46.9

During the year, inventory write-downs of £6.8 million (2012: £6.0 million) were expensed within cost of sales. The amount of inventory
recognised as an expense during both the current and prior years is equal to the amount recognised within cost of sales.

All inventory is valued at the lower of cost and net realisable value. There is no inventory carried at fair value less costs to sell either
in the current or prior year.

17 Trade and other receivables

2013 2012
£m £m

Trade receivables 10.9 11.1

Other receivables 4.7 5.1
Prepayments and accrued income 8.1 10.3

23.7 26.5

No receivables are due in more than one year and are non-interest bearing. Standard credit terms provided to customers differ, but
are typically between 30 and 60 days. Included within trade receivables is a bad debt provision of £0.3 million (2012: £0.6 million).
During the year, £0.3 million (2012: £0.1 million) of bad debt write-offs were incurred.

The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed
in Note 28.

18 Cash and cash equivalents

2013 2012
£m £m

Cash and cash equivalents in the balance sheet and cash flow 28.5 34.2

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities is disclosed in Note 28.

42 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

19 Current trade and other payables
2013 2012
£m £m

Trade payables 19.7 23.8

Bills of exchange payable 1.9 2.6
Other taxation and social security 3.8 4.5
Accruals and deferred income 15.8 17.1

41.2 48.0

The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 28.

20 Provisions
2013 2012
Store closures £m £m

Balance at 1 February 0.6 1.5

Increase during the year 1.1 –
Utilised during the year – (0.9)

Balance at 31 January 1.7 0.6

Provisions are recorded to reflect the estimated committed closure costs of identified underperforming UK retail stores. The associated
costs are forecast to be incurred over a period of two years.

21 Current tax payable

2013 2012
£m £m

Overseas tax – 0.5

22 Deferred tax
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities
2013 2012 2013 2012
£m £m £m £m

Property, plant and equipment 3.1 3.1 – –

Deferred rent 0.3 0.3 – –
Provisions 0.3 0.3 – –
Deferred capital gains – – 0.9 0.9
Trading losses 0.7 0.7 – –

4.4 4.4 0.9 0.9

Deferred tax assets have not been recognised on the following temporary differences due to the degree of uncertainty of the time
period over which the underlying tax losses and deductions will be utilised in our UK and US businesses.
2013 2012
£m £m

Trading losses 13.7 13.2

Property, plant and equipment 1.6 1.3
Capital losses 1.8 1.7
Other temporary differences 0.4 0.5

17.5 16.7

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 43

NOTES TO THE GROUP ACCOUNTS
Continued

23 Share capital
2013 2013 2012 2012
Ordinary shares of 1 pence each Number £m Number £m

Allotted, called up and fully paid shares at the beginning of the year 95,899,754 1.0 95,879,754 1.0

Shares issued during the year in respect of share options – – 20,000 –

Allotted, called up and fully paid shares at the end of the year 95,899,754 1.0 95,899,754 1.0

At 31 January 2013, the following equity settled options have been granted and remain outstanding in respect of ordinary shares
of 1p each in the Company:
Contractual
life of
Date of grant Options Option price options

29 October 2008 (vested 29 October 2011) 2,436,500 56.20p 10 years

27 April 2011 50,000 102.30p 10 years
1 November 2012 400,000 24.50p 10 years

Share options granted are subject to detailed performance conditions. The performance conditions for the outstanding option
grants are based on a target profit before tax and hurdles are set in order to reward strong financial performance. Options which
do not vest following the application of the performance conditions lapse and become unavailable for exercise.
Weighted Weighted
average Number of average Number of
exercise options exercise options
price 2013 price 2012

Outstanding at the beginning of the period 79.97p 3,214,387 79.04p 3,596,555

Forfeited during the period 97.60p (128,442) 75.68p (412,168)
Lapsed during the period 170.95p (599,445) – –
Exercised during the period – – 56.20p (20,000)
Granted during the period 24.50p 400,000 102.30p 50,000

Outstanding at the end of the period 52.61p 2,886,500 79.97p 3,214,387

The number of share options exercisable at the year end is 2,436,500 (2012: 3,164,387).

The fair value of the share options granted is not considered to be material to the accounts in the current and prior years.

24 Reconciliation of (decrease)/increase in cash to movement in net funds

2013 2012
£m £m

Change in net funds from cash flows (5.7) 0.2

Translation differences – (0.1)

Movement in net funds (5.7) 0.1

Net funds at beginning of year 34.2 34.1

Net funds at end of year 28.5 34.2

25 Analysis of net funds

1 February Cash Non cash 31 January
2012 flow changes 2013
£m £m £m £m

Cash and cash equivalents in the balance sheet and cash flow 34.2 (5.7) – 28.5

Net funds 34.2 (5.7) – 28.5

44 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

26 Commitments
Aggregate future rental commitments payable under non-cancellable operating leases at 31 January 2013 for which no provision
has been made in these accounts, were as follows:
Leasehold property Other
2013 2012 2013 2012
£m £m £m £m

Operating leases which expire:

Within one year 4.1 5.8 – –
Within two to five years 25.1 28.4 0.4 0.6
After five years 165.1 183.0 – –

194.3 217.2 0.4 0.6

Aggregate future rentals receivable under non-cancellable operating leases at 31 January 2013 for which no accrual has been
made in these accounts were as follows:
Leasehold property
2013 2012
£m £m

Operating leases which expire:

Within two to five years 3.1 4.3
After five years 0.6 –

3.7 4.3

At 31 January 2013 the Group had contracted capital commitments not provided for in the accounts of £0.3 million (2012: £0.1 million).

At 31 January 2013 the Group had commitments on foreign exchange contracts amounting to £4.5 million (2012: £1.0 million).
In addition, the Group had commitments in respect of letters of credit of £1.1 million (2012: £0.8 million).

27 Contingent liabilities
The Group has a number of sublet and assigned properties. In the event that the tenants of these properties default, the Group
may be liable. At the year end, the total annual commitment amounted to £0.4 million (2012: £0.4 million).

28 Financial instruments
Details of financial risk management, treasury policies and use of financial instruments are set out in the section entitled
‘Management of risks’ within Our Business.

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s business. Derivative financial
instruments are used to hedge exposure to fluctuations in foreign exchange rates.

Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach
to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group monitors its cash position on a regular basis through the use of regularly updated cash flow forecasts, and believes
that it has sufficient and appropriate net funds and facilities available.

Interest rate risk

The Group does not use interest rate financial instruments. The Group regularly monitors and reacts accordingly to any exposure
to fluctuations in interest rates and the impact on its monetary assets and liabilities.

Foreign currency risk

The Group is exposed to foreign currency risks on sales, purchases and cash holdings that are denominated in a currency
other than Sterling. The currency giving rise to this risk is primarily the Hong Kong Dollar. The Group’s policy is to reduce the
risk associated with purchases denominated in foreign currencies, by using forward fixed rate currency purchase contracts
up to a maximum of one year forward, taking into account any forecast foreign currency cash flows.

In respect of other monetary assets and liabilities held in currencies other than the Hong Kong Dollar, the Group ensures that
the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address
short-term imbalances.

The Group’s policy is not to hedge the translational exposure that arises on consolidation of the statement of income at overseas
subsidiaries.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 45

NOTES TO THE GROUP ACCOUNTS
Continued

28 Financial instruments continued

Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group’s main credit
risk is primarily attributable to its trade receivables. Credit evaluations are performed on all customers requiring credit over a
certain amount. The Group does not require collateral in respect of financial assets. The amounts recognised in the balance sheet
are net of appropriate allowances for doubtful receivables, estimated by the Group’s management based on prior experience
and their assessment of the current economic environment. At the balance sheet date, there were no significant concentrations
of credit risk by customer or by geography. Quantitative analysis of credit risk to receivables is presented below.

Credit risk associated with cash balances and derivative financial instruments is managed by transacting with an existing relationship
bank with strong investment grade rating. The maximum exposure to credit risk is represented by the carrying amount of each
financial asset, including derivative financial instruments, in the balance sheet.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the
reporting date was:
Carrying amount
2013 2012
£m £m

Trade and other receivables 15.6 16.2

Cash and cash equivalents 28.5 34.2

44.1 50.4

The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was:
Carrying amount
2013 2012
£m £m

United Kingdom and Europe 8.0 9.4

North America 3.9 3.1
Hong Kong 3.7 3.7

15.6 16.2

The maximum exposure to credit risk for trade receivables at the reporting date by type of customer was:
2013 2012
£m £m

Wholesale customers 10.9 11.1

The ageing of gross trade receivables at the reporting date was:

Gross Impairment Gross Impairment
2013 2013 2012 2012
£m £m £m £m

Current 9.7 – 9.9 –

30 days 0.6 – 0.8 –
60 days 0.2 – 0.3 –
More than 60 days 0.7 (0.3) 0.7 (0.6)

11.2 (0.3) 11.7 (0.6)

An impairment has been recorded against the trade receivables that the Group believes may not be recoverable. Based on past
experience, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due.

The movement in impairment in respect of trade receivables during the year was as follows:
2013 2012
£m £m

At 1 February 0.6 0.4

Movement during year (0.3) 0.2

At 31 January 0.3 0.6

46 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

28 Financial instruments continued
Interest rate profile of financial assets
The interest rate profile of the financial assets of the Group at 31 January 2013 was as follows:
Financial assets
on which no Floating rate
interest is received financial assets Total
2013 2012 2013 2012 2013 2012
£m £m £m £m £m £m

Sterling 0.2 0.2 15.3 22.7 15.5 22.9

US Dollar – – 7.5 4.4 7.5 4.4
Hong Kong Dollar – – 2.9 3.2 2.9 3.2
Other – – 2.6 3.7 2.6 3.7

Total 0.2 0.2 28.3 34.0 28.5 34.2

Financial assets comprise cash and short term deposits. The effective interest rate on floating rate financial assets during the year
was 1.3% (2012: 1.6%).

There were no fixed rate or floating rate financial liabilities at the end of the current or prior year.

Currency exposure
Net monetary assets and liabilities of the Group that are not denominated in the local functional currency were as follows:
At 31 January 2013 US Canadian Hong Kong
Net foreign currency Sterling Dollar Dollar Dollar Euro Other Total
monetary assets/(liabilities) £m £m £m £m £m £m £m

Trade and other receivables 2.2 0.3 – – 0.9 0.1 3.5

Cash and overdraft 0.4 4.9 – 1.1 1.7 0.1 8.2
Trade and other payables (1.2) (1.5) – – (2.3) – (5.0)
Intercompany balances (0.1) 2.9 9.7 (9.6) 9.0 – 11.9

Total 1.3 6.6 9.7 (8.5) 9.3 0.2 18.6

At 31 January 2012 US Canadian Hong Kong

Net foreign currency Sterling Dollar Dollar Dollar Euro Other Total
monetary assets/(liabilities) £m £m £m £m £m £m £m

Trade and other receivables 2.0 0.4 – – 1.2 0.1 3.7

Cash and overdraft 1.3 1.9 – 0.5 2.4 – 6.1
Trade and other payables (1.2) (1.5) – – (2.2) – (4.9)
Intercompany balances (2.5) – 9.3 (9.6) 7.5 – 4.7

Total (0.4) 0.8 9.3 (9.1) 8.9 0.1 9.6

Forward foreign exchange contracts have not been taken into consideration above. As at 31 January 2013, the Group has committed
forward foreign exchange contracts of £4.5 million (2012: £1.0 million).

The following significant exchange rates applied during the year:

Reporting date
Average rate spot rate
2013 2012 2013 2012

US Dollar 1.589 1.602 1.586 1.578

Canadian Dollar 1.587 1.579 1.584 1.583
Hong Kong Dollar 12.321 12.469 12.296 12.237
Euro 1.232 1.155 1.168 1.206

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 47

NOTES TO THE GROUP ACCOUNTS
Continued

28 Financial instruments continued

Sensitivity analysis
A 10% strengthening of Sterling against the following currencies at 31 January would have increased/(decreased) equity and profit
and loss by the amounts shown below. This analysis assumes that all other variables, in particular, interest rates, remain constant.
This analysis is performed on the same basis for the prior year.
Profit Profit
Equity and loss Equity and loss
2013 2013 2012 2012
£m £m £m £m

US Dollar – (0.6) – (0.1)

Canadian Dollar (0.6) (0.4) (0.6) (0.3)
Hong Kong Dollar – 0.8 – 0.9
Euro (0.4) (0.6) (0.4) (0.5)

(1.0) (0.8) (1.0) –

Borrowing facilities
Working capital and letter of credit facilities of £3.3 million were available to the Group at 31 January 2013 (31 January 2012: £3.3 million).
The facilities are subject to an annual review and were most recently renewed in July 2012.

Fair values
The fair value of the Group’s financial instruments at 31 January 2013 were as follows:
31 January 2013 31 January 2012
Carrying Estimated Carrying Estimated
amount fair value amount fair value
£m £m £m £m

Primary financial instruments used to finance the Group’s operations:

Cash and cash equivalents 28.5 28.5 34.2 34.2
Trade receivables 10.9 10.9 11.1 11.1
Trade payables (19.7) (19.7) (23.8) (23.8)
Derivative financial instruments 0.1 0.1 0.1 0.1

The fair value of forward exchange contracts outstanding as at 31 January 2013 is an asset of £0.1 million (2012: £0.1 million).
£nil has been credited to the hedging reserve (2012: £0.1 million).

These contracts mature in the next 12 months, therefore the cash flows and resulting effect on profit and loss are expected
to occur within the next 12 months.

The fair value of derivative financial instruments is determined using discounted cash flow techniques based on readily available
market data and represent a Level 2 measurement in the fair value hierarchy under IFRS 7. Level 2 is defined as inputs other
than quoted prices in active markets that are observable for the asset or liability.

Capital management
The capital structure of the Group consists of net funds and equity attributable to the equity holders of the parent Company,
comprising issued share capital, reserves and retained earnings. The Group manages its capital with the objective that all
entities within the Group continue as going concerns. The Group is not subject to any externally imposed capital management.

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business. To achieve this the Board of Directors monitors the balance sheet, the working capital, the
cash flows and the level of dividends paid to shareholders.

The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and
the advantages and security afforded by a sound capital position.

At present employees, including the Chairman, hold 41.8 percent of ordinary shares. Share options have been issued amounting
to just over three percent of the issued share capital.

The Company does not have permission from shareholders to purchase its own shares.

There were no changes in the Group’s approach to capital management during the year.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

48 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

29 Directors’ interests and related party transactions
The Group made sales of £1.7 million (2012: £2.4 million) to FCUK IT Company and £1.1 million (2012: £1.3 million) to FCIT China
Limited during the year, both of which are joint ventures. The closing liabilities due from the respective joint ventures are £0.4 million
(2012: £0.7 million) and £0.4 million (2012: £0.6 million).

In the prior year on 21 April 2011, French Connection UK Limited and NF Restaurants Limited, subsidiary undertakings of
French Connection Group PLC, completed the sale of their “202” café business in London to SAM Corporation Limited for a
nominal consideration. Stephen Marks, Chairman and Chief Executive of French Connection Group PLC is a Director of French
Connection UK Limited, NF Restaurants Limited and SAM Corporation Limited and is the sole shareholder of SAM Corporation
Limited. The impact of this transaction on French Connection Group PLC was a disposal of net assets with a net book value of
£0.3 million generating a loss on disposal of £0.3 million.

There are no related party transactions between French Connection Group PLC and the non-controlling interest subsidiary undertakings.

At 31 January 2013, Stephen Marks, Chairman and Chief Executive had an interest in 40,094,190 ordinary shares (2012: 40,094,190)
of which 2,281,500 shares (2012: 2,281,500) were held by family members or in family trusts, representing in aggregate 41.8%
(2012: 41.8%) of the total issued ordinary share capital of the Company.

Details of the Directors’ remuneration, being the key management personnel, are disclosed in the Directors’ Remuneration Report.

30 Pension costs
The Group operates a Group defined contribution scheme and contributes towards a number of personal pension plans. The assets
of these schemes are held separately from those of the Group in independently administered funds.

The pension cost charge for the year was £0.5 million (2012: £0.4 million). At 31 January 2013 and 31 January 2012 there were
no outstanding amounts payable to the schemes.

31 Accounting estimates and judgements

The Directors have made significant accounting estimates and judgements in applying the Group’s accounting policies in the
following areas:

Impairment – the Group is required to test, at least annually, whether goodwill has suffered any impairment. The Group also
reviews the carrying value of property, plant and equipment where events or changes in circumstances indicate any potential
impairment. The Directors have used five year forecast models and an appropriate pre-tax weighted average cost of capital in
its goodwill and fixed asset impairment calculations. Growth assumptions are based on Directors’ knowledge and historical
experience. The discount rate used is based on the weighted average cost of capital applicable to the individual assets concerned.

Inventory valuation – the Directors have used their knowledge and experience of the fashion industry in determining the level and
rates of provisioning required to calculate the appropriate inventory carrying values.

Discontinued operations – the Directors have applied judgement in determining which entities to classify and present as
discontinued, taking into account the criteria and guidance set out in IFRS and also with consideration of the size and
contribution of the entities. This includes an assessment of how best to present the results for the Group to aid the reader
to understand the contribution from those businesses that are being closed and disposed and those that are retained as
continuing core businesses.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 49

NOTES TO THE GROUP ACCOUNTS
Continued

32 Principal subsidiary undertakings

Details of the principal subsidiary undertakings at 31 January 2013 are set out below. Unless otherwise stated, the Company directly
owned all the issued ordinary shares.
Country of Incorporation,
Company Registration and Operation Principal Activity

French Connection Limited England Brand management

French Connection UK Limited England Supply of fashion merchandise

French Connection (London) Limited England Supply of fashion merchandise

French Connection (Hong Kong) Limited British Virgin Islands Supply of fashion merchandise
(operates in Hong Kong)

French Connection No. 2 Pour Hommes Sarl* France Supply of fashion merchandise

PreTex Textilhandels GmbH* Germany Supply of fashion merchandise

French Connection Holdings Inc USA Holding Company

French Connection Group Inc* USA Supply of fashion merchandise

Louisiana Connection Limited* USA Supply of fashion merchandise

Roosevelt Connection Limited* USA Supply of fashion merchandise

Soho Connection Limited* USA Supply of fashion merchandise

French Connection (Canada) Limited (75%) Canada Supply of fashion merchandise

Toast (Mail Order) Limited (75%) Wales Supply of fashion merchandise

YMC Limited (75%) England Supply of fashion merchandise

FCUK IT Company (50% partnership)* Hong Kong Supply of fashion merchandise

FCIT China Limited (50%)* Hong Kong Supply of fashion merchandise

FCUK IT Company’s principal place of business is Block 1, 7th Floor, Enterprise Square, 9 Sheung Yuet Road, Kowloon, Hong Kong.

FCIT China Limited’s principal place of business is 31/F, Tower A, Southmark, 11 Yip Hing Street, Wong Chuk Hang, Hong Kong.
* Shares are held by subsidiary undertakings.

50 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

COMPANY BALANCE SHEET
At 31 January 2013

2013 2012
Note £m £m

Fixed assets
Tangible assets 3 0.6 0.5
Investments 4 25.7 25.7

26.3 26.2

Current assets
Debtors 5 40.5 41.3
Cash at bank and in hand – –
Derivative financial instruments 0.1 0.1

40.6 41.4

Current liabilities
Creditors 6 (1.5) (2.0)

(1.5) (2.0)

Net current assets 39.1 39.4

Total assets less current liabilities 65.4 65.6

Deferred tax liability 7 (0.7) (0.7)

Net assets 64.7 64.9

Capital and reserves

Called-up share capital 8 1.0 1.0
Share premium account 8 9.4 9.4
Profit and loss account 8 54.2 54.4
Other reserves 8 0.1 0.1

Equity shareholders’ funds 9 64.7 64.9

The notes on pages 52 to 56 form part of these accounts.

These accounts were approved by the Board of Directors on 12 March 2013 and were signed on its behalf by:

Stephen Marks Roy Naismith
Director Director

Company Number: 1410568

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 51

NOTES TO THE COMPANY ACCOUNTS

1 Accounting policies
a) Basis of preparation
The Company has elected to prepare its parent Company financial statements in accordance with UK GAAP and these are
presented on pages 51 to 56.

b) Basis of accounting
The accounts have been prepared under the historical cost accounting rules, except for derivative financial instruments measured
at fair value, and in accordance with applicable accounting standards. As permitted by Section 408 of the Companies Act 2006,
the profit and loss account under UK GAAP of the Company is not presented. No new standards have been adopted in this year’s
financial statements. The Company has taken the exemption granted by FRS 8 Related Party disclosures not to disclose transactions
with wholly owned subsidiaries of the Group.

c) Depreciation
Depreciation is provided to write off the cost less estimated residual value of fixed assets by equal annual instalments over their
useful lives, which are estimated to be as follows:

Plant, equipment, fixtures and fittings : 3 to 10 years

d) Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences
between the treatment of certain items for taxation and accounting purposes. Full provision has been made for deferred taxation
arising from timing differences between the recognition of income and expenditure for taxation and accounting purposes. Deferred
tax amounts are not discounted.

e) Foreign exchange
Monetary assets and liabilities denominated in foreign currencies are translated into Sterling at rates of exchange ruling at
the balance sheet date. Transactions in the period are translated into Sterling at the rates of exchange ruling on the date of
transaction or at hedged rates. Resulting exchange differences are taken to the profit and loss account. Forward fixed rate
currency purchase contracts are used.

f) Leased assets
Operating lease rentals are charged to the profit and loss account in the period to which they relate. Rentals receivable under
operating leases are included in the profit and loss account on an accruals basis. There are no finance leases in the current year.

g) Pension cost
Pension costs charged to the profit and loss account represent the amount of contributions payable to defined contribution and
personal pension schemes in respect of the period.

h) Share-based payment
The Group operates share option incentive schemes for Directors and key employees. The fair value of options granted is recognised
as an employee expense in the income statement with a corresponding increase in equity. The fair value is measured at grant date
and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options
is measured using the “Black-Scholes” option valuation model, taking into account the terms and conditions upon which the options
were granted. The amount recognised in the income statement is adjusted at each balance sheet date to reflect the number of share
options that are expected to vest revised for expected leavers and estimated achievement of non-market based vesting conditions.
The Group has adopted the exemption to apply FRS 20 only to equity instruments granted after 7 November 2002. The fair value of
the share options granted is not considered to be material in the current or prior years.

52 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

1 Accounting policies continued
i) Derivative financial instruments
Derivative financial instruments in the form of forward foreign exchange contracts are used to manage the risk associated with
purchases denominated in foreign currencies as described in the section entitled ‘Management of risks’ within Our Business.
Any changes in the fair value of the forward contracts during the period in which the hedge is in effect will be reflected as a component
of reserves within a hedging reserve to the extent that the hedge is effective. The ineffective part of the hedge is recognised
in the profit and loss account.

Financial Reporting Standard 29 “Financial Instruments: Disclosures” (FRS 29) sets out the requirements for the presentation
of, and disclosures relating to, financial instruments and replaces the requirements of FRS 25 “Financial Instruments: Disclosure
and Presentation”. The Company is exempt from the requirements of FRS 29 as the financial statements for the Group include
disclosures that comply with IFRS 7, the equivalent International Financial Reporting Standard.

j) Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity trade and other receivables, cash and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value including any directly attributable transaction costs.
Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost less any impairment losses.

A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument. Financial
assets are derecognised if the Company’s contractual rights to the cash flows from the financial assets expire or if the Company
transfers the financial asset. Purchases and sales of financial assets are accounted for at trade date, i.e., the date that the
Company commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Company’s obligations specified
in the contract expire or are discharged or cancelled.

Cash comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement
of cash flows.

k) Investments
Investments are stated at cost less provision for permanent diminution in value.

l) Share capital
When new shares are issued, they are recorded in share capital at their par value. The excess of the issue price over the par value
is recorded in the share premium reserve. The cost of own shares purchased to satisfy the exercise of employee share options
is charged to total equity and the proceeds of their reissue are credited to total equity.

m) Dividends on shares presented within shareholders’ funds

Dividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed
in the notes to the financial statements.

n) Guarantees
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of fellow subsidiaries or of third parties,
the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make
a payment under the guarantee.

2 Staff numbers and operating costs

All Directors and staff are employed by French Connection (London) Limited, a subsidiary undertaking. Details of staff numbers
and costs are shown in that Company’s accounts. Directors’ remuneration is disclosed in the Directors’ Remuneration Report.

The audit fee of the Company is disclosed in Note 9 to the Group accounts.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 53

NOTES TO THE COMPANY ACCOUNTS
Continued

3 Property, plant and equipment

Plant
equipment
fixtures
and fittings Total
£m £m

Cost or valuation
At 1 February 2012 3.3 3.3
Additions 0.2 0.2
Disposals (0.3) (0.3)

At 31 January 2013 3.2 3.2

Depreciation
At 1 February 2012 2.8 2.8
Charge for year 0.1 0.1
Disposals (0.3) (0.3)

At 31 January 2013 2.6 2.6

Net book value

At 31 January 2013 0.6 0.6

At 31 January 2012 0.5 0.5

4 Investments
The Company’s investments in subsidiary undertakings is as follows:
Total
£m

Cost
At 1 February 2012 and 31 January 2013 70.8

Provision
At 1 February 2012 and 31 January 2013 (45.1)

Carrying amount
At 31 January 2013 and 31 January 2012 25.7

The Directors have conducted an impairment review comprising a comparison of the carrying amount of the investment with its
recoverable amount being the higher of net realisable value and value in use. The recoverable amount has been determined as the
net realisable value. To the extent that the carrying amount exceeds the recoverable amount, the investment is impaired and has
been provided against. The impairment loss has been recognised in the profit and loss account in the year.

Impairment of £nil (2012: £16.4 million) relating to the Group’s investment in subsidiary company, French Connection Holdings Inc.
has been provided in the current year.

The principal subsidiaries of the Company are set out in Note 32 to the Group accounts.

54 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

5 Debtors
2013 2012
£m £m

Amounts owed by subsidiary undertakings 39.8 40.3

Deferred tax (Note 7) 0.3 0.3
Other debtors 0.1 0.1
Prepayments and accrued income 0.3 0.6

40.5 41.3

Included within debtors are amounts due within one year of £0.4 million (2012: £0.7 million).

6 Creditors: amounts falling due within one year

2013 2012
£m £m

Trade creditors 0.4 0.5

Accruals and deferred income 1.1 1.5

1.5 2.0

7 Deferred tax
2013 2012
Deferred tax asset (Note 5) £m £m

Deferred capital allowances 0.3 0.3

2013 2012
Deferred tax liability £m £m

Deferred capital gains 0.7 0.7

Any movement during the year has been processed entirely through the profit and loss account.

8 Reserves
Share Profit
Hedging premium and loss
reserve account account
£m £m £m

At 1 February 2012 0.1 9.4 54.4

Profit for the financial year – – 0.8
Dividends paid during the year – – (1.0)

At 31 January 2013 0.1 9.4 54.2

Share capital and share option information is set out in Note 23 in the Group accounts.

The profit/(loss) before taxation dealt with in the accounts of the Company was £0.8 million (2012: £(14.7) million).

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 55

NOTES TO THE COMPANY ACCOUNTS
Continued

9 Reconciliation of movements in equity shareholders’ funds

2013 2012
£m £m

Profit/(loss) for the financial year 0.8 (14.7)

Dividends paid during the year (1.0) (1.6)
Dividends received during the year from subsidiaries – 20.4
Effective portion of changes in fair value of cash flow hedges – 0.1

Net movement in equity shareholders’ funds (0.2) 4.2

Opening equity shareholders’ funds 64.9 60.7

Closing equity shareholders’ funds 64.7 64.9

10 Commitments
Leasehold property Other
2013 2012 2013 2012
£m £m £m £m

Operating leases which expire:

Within two to five years – – 0.2 0.2
After five years 0.8 0.8 – –

0.8 0.8 0.2 0.2

At 31 January 2013 the Company had commitments on foreign exchange contracts amounting to £4.5 million (2012: £1.0 million).
The fair value of forward exchange contracts outstanding as at 31 January 2013 is an asset of £0.1 million (2012: £0.1 million).
£nil has been credited to the hedging reserve (2012: £0.1 million).

11 Contingent liabilities
The Company raises finance for and guarantees the bank borrowings of certain subsidiary undertakings which, at 31 January 2013,
amounted to £nil (2012: £nil).

12 Related party disclosures

There are no related party transactions between the Company and the non-controlling interest subsidiary undertakings.

At 31 January 2013, Stephen Marks, Chairman and Chief Executive had an interest in 40,094,190 ordinary shares (2012: 40,094,190)
of which 2,281,500 shares (2012: 2,281,500) were held by family members or in family trusts, representing in aggregate 41.8%
(2012: 41.8%) of the total issued ordinary share capital of the Company.

Management has identified the Directors of the Company as related parties for the purpose of FRS8 ‘Related Party Disclosures’.
Details of the relevant relationships with these individuals are disclosed in the Directors’ Remuneration Report as set out in the
Group financial statements.

56 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

FIVE YEAR RECORD

2009 2010 2011 2012 2013

Years ended 31 January £ £ £ £ £

Revenue 248.0m 249.2m 223.8m 216.0m 197.3m

Profit/(loss) before taxation (11.8)m (9.0)m 8.9m 5.0m (10.5)m

Discontinued operations (5.6)m (15.7)m (11.1)m 0.8m –

Basic earnings/(losses) per share (17.3)p (26.0)p (2.4)p 5.5p (10.7)p

Adjusted earnings/(losses) per share 0.9p 0.5p 7.5p 4.3p (7.3)p

Dividends per share 1.7p 0.5p 1.5p 1.6p –

Net assets 100.9m 72.3m 71.8m 75.1m 63.5m

Operated retail trading space 000 sq ft 490 458 337 330 325

The 2010 results above reflect the results for that year as disclosed in the 2011 Annual Report and the 2009 results reflect the results
for that year as disclosed in the 2010 Annual Report. Each has, respectively, been adjusted to exclude discontinued operations.

The Adjusted Earnings Per Share has been amended to reflect the core continuing operations by excluding the trading of the
discontinued and closed operations and excluding the costs of closure and losses on disposal.

RETAIL LOCATIONS

31 January 2013 31 January 2012

Locations sq ft Locations sq ft

Operated locations
UK/Europe
French Connection Stores 74 218,115 71 214,468
French Connection/Great Plains Concessions 54 36,134 46 32,550
Toast Stores 11 11,407 9 10,578
YMC Stores 2 1,355 2 1,355

141 267,011 128 258,951

North America
French Connection US Stores 8 33,900 8 37,227
French Connection Canada Stores 9 24,325 12 33,935

17 58,225 20 71,162

Total operated locations 158 325,236 148 330,113

French Connection licensed and franchised

UK/Europe 10 14,821 11 15,791
North America 1 2,000 1 2,000
Middle East 13 23,842 12 21,797
Australia 92 96,329 85 91,919
Hong Kong 6 7,031 7 9,521
China 21 31,556 18 25,383
India 89 56,129 32 27,645
Other 51 45,240 41 41,416

Total licensed and franchised locations 283 276,948 207 235,472

Total branded locations 441 602,184 355 565,585

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 57

NOTICE OF MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to the action you should take, you are recommended to seek your own personal advice from your stockbroker,
accountant or other independent professional adviser authorised under the Financial Services and Markets Act 2000. If you have sold
or otherwise transferred all of your ordinary shares in French Connection Group PLC, you should forward this document and other
documents enclosed (except the personalised form of proxy) as soon as possible to the stockbroker, bank or other agent through
whom the sale or transfer was effected for transmission to the purchaser or transferee.
Notice is hereby given that the Annual General Meeting of the Company will be held at 10.00 am on 15 May 2013 at the offices
of French Connection Group PLC, Centro 1, 39 Camden Street, London NW1 0DX:
Ordinary Resolutions
1 To receive and adopt the audited accounts and the report of the Directors and of the auditors for the financial year ended
31 January 2013.
2 To approve the Directors’ Remuneration Report for the financial year ended 31 January 2013.
3 To re-elect Roy Naismith as a Director of the Company. Mr Naismith is required to retire from the office of Director by rotation
in accordance with the provisions of the Articles of Association of the Company.
4 To re-elect Dean Murray as a Director of the Company. Mr Murray is required to retire from the office of non-executive Director
by rotation in accordance with the provisions of the Articles of Association of the Company.
5 To re-appoint KPMG Audit Plc as auditors and to authorise the Directors to determine their remuneration.
6 THAT:
the Directors be and they are hereby generally and unconditionally authorised pursuant to Section 551, Companies Act 2006 (the “Act”)
to exercise all powers of the Company to allot shares in the Company and grant rights to subscribe for or to convert any security into
shares of the Company (such shares and rights to subscribe for shares or to convert any security into shares of the Company being
“relevant securities”) up to an aggregate nominal amount of £288,000 (being 30% of the issued share capital) PROVIDED THAT unless
previously revoked, varied or extended, this authority shall expire on the date of the next Annual General Meeting of the Company
after the passing of this Resolution SAVE THAT the Company may before such expiry make an offer or agreement which would or
might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such
an offer or agreement as if the authority conferred hereby had not expired.
Special Resolution
To consider and, if thought fit, pass resolutions 7 and 8 below as Special Resolutions of the Company:
7 THAT:
if resolution 6 is passed, the Directors be and they are hereby empowered pursuant to Section 570(1) of the Act to allot equity securities
(as defined in Section 560(1) of the Act) of the Company wholly for cash pursuant to the authority under Section 551 of the Act conferred
by resolution 6 above and/or by way of a sale of treasury shares for cash (by virtue of Section 573 of the Act) in each case as if
Section 561(1) of the said Act did not apply to any such allotment provided that:
(a) the power conferred by this resolution shall be limited to:
(i) the allotment of equity securities and sale of treasury shares for cash in connection with an offer of, or invitation to apply for,
equity securities:
(A) in favour of holders of ordinary shares in the capital of the Company, where the equity securities respectively attributable
to the interests of all such holders are proportionate (as nearly as practicable) to the respective number of ordinary shares
in the capital of the Company held by them; and
(B) to the holders of any other equity securities as required by the rights of those securities or as the Directors otherwise consider
necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal
with treasury shares, fractional entitlements or legal, regulatory or practical problems arising under the laws or requirements
of any overseas territory or by virtue of shares being represented by depository receipts or the requirements of any regulatory
body or stock exchange or any other matter whatsoever; and
(ii) the allotment (otherwise than under sub-paragraph (i) above) of equity securities or sale of treasury shares up to an aggregate
nominal value equal to £47,950 (representing 5% of the issued share capital for the time being); and
(b) unless previously revoked, varied or extended, this power shall expire on the date of the next Annual General Meeting of the
Company after the passing of this Resolution SAVE THAT the Company may before such expiry make an offer or agreement which
would or might require equity securities to be allotted (and treasury shares to be sold) after such expiry in pursuance of such an
offer or agreement and the Directors may allot relevant securities in pursuance of such an offer or agreement as if the authority
conferred hereby had not expired.
8 THAT:
the Articles of Association produced to the meeting and initialled by the Chairman of the meeting for the purpose of identification be
adopted as the Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association.

By order of the Board

Roy Naismith
Company Secretary
20-22 Bedford Row
London WC1R 4JS
12 March 2013

58 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

NOTICE OF MEETING
Explanatory notes to the AGM Notice

1. Inspection of documents viii Votes of members

Copies of the Directors’ service contracts and letters of appointment Under the Companies Act 2006 proxies are entitled to vote on a show
and the proposed new articles of association (as well as the current of hands whereas under the Current Articles proxies are only entitled to
articles of association marked to show the changes being proposed vote on a poll. The time limits for the appointment or termination of a
in the new articles of association) are available for inspection at the proxy appointment have been altered by the Companies Act 2006 so
registered office of the Company during normal business hours on any that the articles cannot provide that they should be received more than
business day and will be available for inspection at the place where the 48 hours before the meeting or in the case of a poll taken more than
meeting is being held from 15 minutes prior to and during the meeting. 48 hours after the meeting, more than 24 hours before the time for the
2. Explanatory notes regarding resolution 8 taking of a poll, with weekends and bank holidays being permitted to be
It is proposed in resolution 8 to adopt new articles of association (the excluded for this purpose. Multiple proxies may be appointed provided
“New Articles”) in order to update the Company’s current articles of that each proxy is appointed to exercise the rights attached to a different
association (the “Current Articles”) primarily to take account of changes share held by the shareholder. Multiple corporate representatives may be
in English company law brought about by the Companies Act 2006. The appointed (but if they purport to exercise their rights in different ways,
principal changes introduced in the New Articles are summarised in the then the power is treated as not being exercised). The New Articles
Notes below. Other changes, which are of a minor, technical or clarifying reflect all of these new provisions.
nature and also some more minor changes which merely reflect changes Under the Current Articles, the chairman has a casting vote at general
made by the Companies Act 2006 have not been noted. The New Articles meetings of the Company. Under the Companies Act 2006, the chairman
(and Current Articles marked to show the changes being proposed of a traded company is not entitled to a casting vote at a general meeting
in the New Articles) are available for inspection, as noted above. and, accordingly, this power has been removed from the New Articles.
3. Resolution 8: Principal changes to the Company’s Articles ix Number of Directors
of Association Under the Current Articles, the maximum number of Directors is 20.
i Articles which duplicate statutory provisions This has been reduced to 15 Directors under the New Articles.
Provisions in the Current Articles which replicate provisions contained x Age of Directors on appointment
in the Companies Act 2006 are in the main amended to bring them into The Current Articles contain a provision requiring a Director’s age
line with the Companies Act 2006. Certain examples of such provisions to be disclosed if he has attained the age of 70 years or more in
include provisions as to the form of resolutions, the variation of class the notice convening a meeting at which the Director is proposed
rights, the requirement to keep accounting records and provisions to be elected or re-elected. Such provision could now fall foul of the
regarding the period of notice required to convene general meetings. Employment Rights Act 1996 and the Equality Act 2010 so has been
The main changes made to reflect this approach are detailed below. removed from the New Articles.
ii Authorised share capital xi Directors’ fees
The Companies Act 2006 abolished the concept of authorised share Under the Current Articles (which were adopted in 1996), the maximum
capital. The Current Articles contains a statement of the Company’s aggregate level of Directors’ fees is £150,000 per annum. It is proposed
authorised share capital. The reference to authorised share capital to increase this level to £300,000 per annum in the New Articles.
has been removed from the New Articles. This means that there is
no prescribed maximum number of shares which the Company may xii Conflicts of interest
issue. Notwithstanding this amendment, however, the Directors will The Companies Act 2006 set out Directors’ general duties which largely
still be required to be authorised by shareholders under Section 551 codified the existing law but with some changes. Under the Companies
of the Companies Act 2006 in order to allot shares in the Company Act, from 1 October 2008 a Director must avoid a situation where he
or grant rights to subscribe for or to convert securities into shares has, or can have, a direct or indirect interest that conflicts, or possibly
of the Company. may conflict with the company’s interests. The requirement is very broad
and could apply, for example, if a Director becomes a Director of another
iii Change of name company or a trustee of another organisation. The Companies Act 2006
The Companies Act 2006 provides that a company may change its allows Directors of public companies to authorise conflicts and potential
name by any means permitted by its articles of association. The New conflicts, where appropriate, where the articles of association contain a
Articles enable the Company to change its name by resolution of the provision to this effect. The Companies Act 2006 also allows the articles
Board of Directors. of association to contain other provisions for dealing with Directors’
iv Form of resolution conflicts of interest to avoid a breach of duty. The New Articles give
The Current Articles contain a provision that, where for any purpose an the Directors authority to approve such situations and to include other
ordinary resolution is required, a special or extraordinary resolution is provisions to allow conflicts of interest to be dealt with in a similar way
also effective and that, where an extraordinary resolution is required, a to the current position.
special resolution is also effective. This provision is being removed as There are safeguards which will apply when Directors decide whether
the concept of extraordinary resolutions has not been retained under to authorise a conflict or potential conflict. First, only Directors who
the Companies Act 2006. Further, the remainder of the provision is have no interest in the matter being considered will be able to take the
reflected in full in the Companies Act 2006. The Current Articles enable relevant decision, and secondly, in taking the decision the Directors must
members to act by written resolution. Under the Companies Act 2006, act in a way they consider, in good faith, will be most likely to promote
public companies can no longer pass written resolutions. These provisions the company’s success. The Directors will be able to impose limits or
have therefore been removed in the New Articles. conditions when giving authorisation if they think this is appropriate.
v Variation of class rights It is also proposed that the New Articles should contain provisions
The Current Articles contain provisions regarding the variation of class relating to confidential information, attendance at board meetings
rights. The proceedings and specific quorum requirements for a meeting and availability of board papers to protect a Director being in breach
convened to vary class rights are contained in the Companies Act 2006. of duty if a conflict of interest or potential conflict of interest arises.
The relevant provisions have therefore been amended in the New Articles. These provisions will only apply where the position giving rise to the
vi Uncertificated shares potential conflict has previously been authorised by the Directors.
The Current Articles do not contain any provisions explicitly dealing with xiii Electronic and web communications
shares held in uncertificated, paperless form (for example, in CREST). Provisions of the Companies Act 2006 which came into force in January
The New Articles have been amended to ensure compliance with the 2007 enable companies to communicate with members by electronic
requirements of the UK Listing Authority’s Listing Rules relating to and/or website communications. The New Articles allow communications
electronic settlement, as well as the Uncertificated Securities Regulations to members in electronic form and, in addition, they also permit the
2001 and the Companies Act 2006 (Consequential Amendments) Company to take advantage of the provisions relating to website
(Uncertificated Securities) Order 2009. The New Articles contain specific communications. Before the Company can communicate with a member
provisions relating to, amongst other things, transfers of uncertificated by means of website communication, the relevant member must be
shares and payment of dividends on uncertificated shares. asked individually by the Company to agree that the Company may send
vii Convening extraordinary and annual general meetings or supply documents or information to him by means of a website. The
The provisions in the Current Articles dealing with the convening of Company is asking its members to make an election in this respect in
general meetings and the length of notice required to convene general the letter accompanying this document. In order to communicate with
meetings are being amended to conform to new provisions in the a member by means of website communication, the Company must
Companies Act 2006. In particular an extraordinary general meeting either have received a positive response or have received no response
to consider a special resolution can be convened on 14 days’ notice within the period of 28 days beginning with the date on which the request
whereas previously 21 days’ notice was required. was sent. The Company will notify the member (either in writing, or by
other permitted means) when a relevant document or information is
placed on the website and a member can always request a hard
copy version of the document or information.

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 59

NOTICE OF MEETING
Explanatory notes to the AGM Notice continued

xiv Directors’ indemnities and loans to fund expenditure 11. Any member attending the meeting has the right to ask questions.
The Companies Act 2006 has in some areas widened the scope of the The Company has to answer any questions raised by members at
powers of a company to indemnify Directors and to fund expenditure the meeting which relate to the business being dealt with at the
incurred in connection with certain actions against Directors. In particular, meeting unless:
a company that is a trustee of an occupational pension scheme can • to do so would interfere unduly with the preparation for the
now indemnify a Director against liability incurred in connection with meeting or involve the disclosure of confidential information;
the company’s activities as trustee of the scheme. In addition, the
existing exemption allowing a company to provide money for the • the answer has already been given on a website in the form of an
purpose of funding a Director’s defence in court proceedings now answer to a question, or;
expressly covers regulatory proceedings and applies to associated • it is undesirable in the interests of the Company or the good order
companies. of the meeting to answer the question.
xv General 12. Copies of the Directors’ service contracts and letters of appointment and
Generally the opportunity has been taken to bring clearer language into new articles of association and current articles of association marked to
the New Articles. show the changes proposed in the new articles of association are available
for inspection at the registered office of the Company during normal
4. General notes to the AGM Notice
business hours on any business day and will be available for inspection
Holders of ordinary shares, or their duly appointed representatives,
at the place where the meeting is being held from 15 minutes prior to and
are entitled to attend and vote at the AGM. Shareholders are entitled to
during the meeting.
appoint a proxy to exercise all or any of their rights to attend and speak
and vote on their behalf at the meeting. A shareholder can appoint the 13. A copy of this notice, and other information required by s311A of the
Chairman of the meeting or anyone else to be his/her proxy at the meeting. Companies Act 2006, can be found at www.frenchconnection.com.
A proxy need not be a shareholder. More than one proxy can be appointed 14. In the case of a member which is a company, your proxy form must be
in relation to the AGM provided that each proxy is appointed to exercise executed under its common seal or signed on its behalf by a duly
the rights attached to a different ordinary share or shares held by that authorised officer of the company or an attorney for the company.
shareholder. To appoint more than one proxy, the Proxy Form enclosed
should be photocopied and completed for each proxy holder. The proxy 15. Any power of attorney or any other authority under which your proxy
holder’s name should be written on the Proxy Form together with the form is signed (or a duly certified copy of such power or authority)
number of shares in relation to which the proxy is authorised to act. The must be included with your proxy form.
box on the Proxy Form must also be ticked to indicate that the proxy 16. In the case of joint holders of shares, the vote of the first named in the
instruction is one of multiple instructions being given. All Proxy Forms register of members who tenders a vote, whether in person or by proxy,
must be signed and, to be effective, must be lodged with Capita shall be accepted to the exclusion of the votes of other joint holders.
so as to arrive no later than 10 am on 13 May 2013.
17. It is possible that, pursuant to requests made by members of the
5. The return of a completed Proxy Form, other such instrument or any Company under section 527 of the Companies Act 2006, the Company
CREST Proxy Instruction (as described in Note 3) will not prevent a may be required to publish on a website a statement setting out any
shareholder attending the AGM and voting in person if he/she wishes matter relating to: (a) the audit of the Company’s accounts (including
to do so (although voting in person at the AGM will terminate the the auditor’s report and the conduct of the audit) that are to be laid
proxy appointment). before the AGM; or (b) any circumstance connected with an auditor
6. In order for a proxy appointment made by means of CREST to be valid, of the Company ceasing to hold office since the previous meeting
the appropriate CREST message (a CREST Proxy Instruction) must at which annual accounts and reports were laid in accordance with
be properly authenticated in accordance with Euroclear UK & Ireland section 437 of the Companies Act 2006. The Company may not
Limited’s specifications and must contain the information required for require the members requesting any such website publication to pay
such instructions, as described in the CREST Manual. The message its expenses in complying with sections 527 or 528 of the Companies
must be transmitted so as to be received by Capita (ID RA10) not later Act 2006. Where the Company is required to place a statement on a
than 48 hours before the time fixed for the AGM. For this purpose, the website under section 527 of the Companies Act 2006, it must forward
time of receipt will be taken to be the time (as determined by the the statement to the Company’s auditor not later than the time when it
timestamp applied to the message by the CREST Applications Host) makes the statement available on the website. The business which may
from which Capita is able to retrieve the message by enquiry to CREST. be dealt with at the AGM includes any statement that the Company has
After this time any change of instructions to proxies appointed through been required under section 527 of the Companies Act 2006 to publish
CREST should be communicated to the appointee through other means. on a website.
Euroclear UK & Ireland Limited does not make available special procedures 18. In accordance with section 338 of the Companies Act 2006, a member
in CREST for any particular messages and normal system timings and or members of the Company may (provided that the criteria set out in
limitations will apply in relation to the input of a CREST Proxy Instruction. section 338(3) of the Companies Act 2006 are met) require the Company
It is the responsibility of the CREST member concerned to take such to give to members notice of a resolution which may properly be moved
action as shall be necessary to ensure that a message is transmitted by and is intended to be moved at the AGM, provided that: (a) the resolution
means of the CREST system by any particular time. The Company may must not be, if passed, ineffective (whether by reason of inconsistency
treat as invalid a CREST Proxy Instruction in the circumstances set out with any enactment or the Company's constitution or otherwise); and
in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. (b) the resolution must not be defamatory of any person, frivolous
7. Any person to whom this Notice is sent who is a person nominated or vexatious. Such a request may be in hard copy form or in electronic
under Section 146 of the CA 2006 to enjoy information rights (a form, must be authenticated by the person or persons making it, must
Nominated Person) may, under an agreement between him/her and the identify the resolution of which notice is to be given and must be received
shareholder by whom he/she was nominated, have a right to be by the Company not later than 6 weeks before the AGM, or, if later, the
appointed (or to have someone else appointed) as a proxy for the AGM. time at which notice is given of the AGM. (In the foregoing sentence, the
If a Nominated Person has no such proxy appointment right or does not terms “hard copy form”, “electronic form” and “authenticated” bear their
wish to exercise it, he/she may, under any such agreement, have a right respective meanings set out in the Companies Act 2006 in relation
to give instructions to the shareholder as to the exercise of voting rights. to a communication, or a document or information sent or supplied,
to a company.)
8. The statement of the rights of shareholders in relation to the appointment
of proxies in Note 1 does not apply to Nominated Persons. The rights 19. In accordance with section 338A of the Companies Act 2006, a
described in that note can only be exercised by shareholders of member or members of the Company may (provided that the criteria
the Company. set out in section 338A(3) of the Companies Act 2006 are met) require
the Company to include in the business to be dealt with at the AGM
9. As at 8 April 2013, being the latest practicable date prior to the a matter (other than a proposed resolution) which may properly be
publication of this document, the Company’s issued share capital included in the business of the AGM, provided that the matter is
consists of 95,899,754 ordinary shares, carrying one vote each. not defamatory of any person, frivolous or vexatious. A request may
Therefore the total voting rights in the Company as at 8 April 2013 be in hard copy form or electronic form, must identify the matter to
are 95,899,754. be included in the business, must be accompanied by a statement
10. In accordance with Regulation 41 of the Uncertificated Securities setting out the grounds for the request, must be authenticated by the
Regulations 2001, only those members entered on the Company’s person or persons making it and must be received by the Company
register of members at 6 pm on 13 May 2013 or, if the meeting is not later than 6 weeks before the AGM, or, if later, the time at which
adjourned, shareholders entered on the Company’s register of members notice is given of the AGM. (In the foregoing sentence, the terms
at 6 pm on the day two days before the date of any adjournment “hard copy form”, “electronic form” and “authenticated” bear the
shall be entitled to attend and vote at the AGM. respective meanings set out in the Companies Act 2006 in relation
to a communication, or a document or information sent or supplied,
to a company.)

60 FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013

Advisers

Head Office Stockbrokers Principal Bankers

Centro 1 Numis Securities Ltd Barclays Bank Plc

39 Camden Street 10 Paternoster Square London Corporate Banking
London NW1 0DX London EC4M 7LT 1 Churchill Place
London E14 5HP

Secretary and Registered Office Auditors Registrars and Transfer Office

Roy Naismith KPMG Audit Plc Capita Registrars

20-22 Bedford Row 15 Canada Square Northern House
London WC1R 4JS Canary Wharf Woodsome Park
London E14 5GL Fenay Bridge
Huddersfield HD8 0GA
Registered Number

1410568, England

Financial Calendar

2013
15 May Annual General Meeting and
Interim Management Statement

18 September Half-Year Statement

(provisional)

20 November Interim Management Statement

(provisional)

2014
31 January Financial Year End

12 March Preliminary Announcement of Results

(provisional)

FRENCH CONNECTION GROUP PLC ANNUAL REPORT 2013 61

FrenchConnection.Com