FATFACE GROUP LIMITED

Transcription

FATFACE GROUP LIMITED
Annual Report and Consolidated Financial Statements
for the 52 weeks ended 31 May 2014
Registered Number: 06148029
Our vision
~
FatFace is a UK lifestyle clothing brand. The Group offers
a wide range of high quality and affordable clothing,
footwear and accessories to its target demographic, which
is primarily family-orientated women and men who are
attracted by an active, casual outdoor lifestyle.
The Group’s strategy is centred on harnessing its heritage
and adapting it to develop and grow the FatFace brand
within its existing and new markets. The Group intends
to expand its integrated multi-channel business through
store-led, e-commerce and international growth.
Revenue
163.6
2012
Adjusted EBITDA
178.6
39.3
200.1
31.2
24.1
2013
2014
Adjusted Free Cashflow
2012
2013
Net debt (excluding loan notes)
32.9
36.8
139.9
122.3
101.6
23.9
2012
4
2014
2013
2014
FatFace Group Limited Annual Report and Consolidated Financial Statements 2014
2012
2013
2014
CONTENTS
Strategic Report
Chairman’s Letter
6
Our Story, Store Growth
8
Strategy and KPI’s
12
Business Review
15
Principal Risks and Uncertainties 22
Directors’ Report
Corporate and Social Responsibility
26
Our Directors
28
Statement of Directors’ Responsibilities 30
Financial Statements
Independent Auditor’s Report to the
Members of FatFace Group Limited
31
Consolidated Income Statement
33
Statement of Comprehensive Income
34
Statement of Financial Position
35
Statement of Changes in Equity
36
Statement of Cash Flows
39
Notes to the Financial Statements
40
Strategic Report
THE DIRECTORS PRESENT THEIR
STRATEGIC REPORT FOR THE 52
WEEK PERIOD ENDED 31 MAY 2014
Chairman’s
LETTER
I am pleased to present
the FatFace Annual
Report and Accounts
for the 52 weeks to
31st May 2014. This has
been another successful
year for the Group in a
number of ways, putting
the business in a strong
position for the future.
A record breaking year
Revenue grew by 11.9% to exceed
£200 million for the first time and
a focus on improving gross margin
throughout the Group ensured that
the conversion of sales to EBITDA
was strong. Adjusted EBITDA1 for the
year was £39.3 million, 26% ahead of
last year, a very strong year on year
performance.
The business had a good summer
season and a strong Christmas period.
The Group continues to pursue a full
price offering and the decision not to
discount in the run up to Christmas
was a key element of this strategy. As
a result, Christmas week was the best
company sales week ever and the
e-commerce business saw a record
breaking single day of sales on
Boxing Day.
Investment in the business continued
with £10.2 million of Capital
Expenditure in the year focused on
enhancing the store portfolio and
strengthening the IT platform.
Strategic Report
“This has been another
successful year for
FatFace with revenue
exceeding £200m
for the first time
and 26% EBITDA
growth. The Group
is well positioned for
continuing success”
FatFace Crew
Our success this year could not have
been achieved without the hard work
of all our crew. FatFace has a unique
culture encapsulated in the Group’s
values and an enthusiastic and
positive attitude to life which is shared
throughout the organisation. This
results in a highly engaged Crew and a
differentiated service style which was
evidenced by the results of our recent
customer survey where 94% of our
customers agreed that FatFace crew
were always helpful and friendly.
On behalf of the Board, I would like
to thank all of the crew in stores and
at Fat Base2 for their contribution to
making this an outstanding year for
the Group.
The IPO
During the year, the Board decided
to commence an IPO process in
order to pursue a public listing, raise
additional equity share capital and
refinance the Group following its
success at paying down a significant
amount of its existing syndicated debt.
Unfortunately, the timing was not
quite right, but the Group withstood
the extra scrutiny that an IPO process
requires and I believe has come out
stronger as a result. The Group is
now fully focused on continuing the
momentum of the past few years and
pursuing a range of opportunities for
further growth, both in the UK and
internationally.
Composition of the
Board and Executive
Committee
In preparation for the IPO, the
existing Group Board was split into
the Board of Directors and a new
Executive Committee responsible
for the development and day to day
execution of the Group’s Strategy.
Three new independent non executive
directors joined the Group Board and
Simon Greene, Simon Pickering and
Mark Seager resigned from the Board
to become members of the Executive
Committee.
This structure was in place at the year
end and is reflected in this Annual
Report, however since the IPO plans
were discontinued we have reverted
to the previous structure. Simon
Greene, Simon Pickering and Mark
Seager were reappointed to the Board
on 25 June 2014.
It is testament to the strength of the
FatFace brand and leadership team
that we were able to attract such high
calibre non executive directors. It
was a pleasure working with such
experienced and talented people
and I would like to thank them for
their support during the IPO process.
Darren Shapland, Deborah Baker and
Maria Kyriacou resigned from the
Board on 24 June 2014. Helen Cowing
also decided to pursue her career
outside the Group and I would like to
thank her for her efforts during her
time in the business.
The Board comprises a very
experienced team. They have
successfully driven the business over
the past year and I look forward to
making further progress with them.
Looking to the future
The Group has a good pipeline of
new space in the UK and identified
opportunities to relocate and expand
existing stores during the coming year.
The first steps into the US will also
start in 2015. The Group will continue
to put customers first and ensure
that quality, style and value are at the
centre of everything we do.
Sir Stuart Rose
Chairman
1 Earnings before interest, tax, depreciation
and amortisation excluding share based
payment charges and non recurring items.
2 Fat Base is our head office.
7
Our
HERITAGE
La Face, Val d’Isere
1988
1992
1993
1997
2001
2002
The founders
Tim and Jules
sell T-shirts and
sweatshirts from
their campervan
to fund their
skiing at La
Face, Val d’Isere
First store
opens, in
Fulham
The first
catalogue rolls
off the press
and is mailed to
customers
The women’s
and kids’ ranges
introduced
www.fatface.com
goes live
50th store opens
27 Stores
0 Stores
1 Store
Store & Sales
GROWTH
8
£10m Sales
Strategic Report
More
RECENT
TIMES
Cribbs Causeway, Bristol
2005
2007
2011
2013
2014
100 store
opens
Bridgepoint
acquires FatFace
Deliver
to store
launches
2006
2010
Relationship
with
John Lewis
begins
Anthony
Thompson
takes the
helm
FatFace wins
Retail Week
store design of
the year award
and Retail Week
EPOS initiative
of the year award
Record Year
of sales and
EBITDA. Ex
VAT sales
greater than
£200m. Largest
ever day of
trading on
Boxing Day
th
2012
200th store
opens
209 Stores
142 Stores
80 Stores
£45m Sales
£132m Sales
£200m Sales
9
Strategic Report
Our
STRATEGY
Key Performance
INDICATORS
A summary of the Company’s KPIs are presented below:
1
pening new stores in
O
the UK markets
Retail LFL (Combined)3
The Group intends to continue to open new
stores in line with its estate management in
attractive and well-researched new UK locations.
2
Continuing like-for-like and
store footprint growth
Continue development of the Group’s existing
UK store portfolio, through store relocations,
extensions and refurbishments, in order to
upsize and improve stronger performing stores
without diluting the overall portfolio balance
or local feel of the FatFace brand. FatFace is
targeting an extension of the store portfolio to
between 450,000 and 500,000 sq. ft over the
next five years.
3
Increasing e-commerce
revenues
Continue to support growth in e-commerce
sales, both in transaction volume and as a
percentage of the Group’s revenue, through
making further website enhancements,
developing existing channels such as ‘Order InStore’ and ‘Click-and-Collect’, and increasing the
number of customer database records in order
to maximise the benefit of its marketing activity.
4
Entering international markets
Commence disciplined international expansion
through an initial, carefully controlled trial
of two to three stores on the east coast of the
United States within the next two years. This
investment will be complemented through the
development and launch of a dedicated website
for the US.
2
3
8.60%
7.60%
1.70%
2012
2013
2014
New Stores and Relocations
15
FY12
16
16
FY13
FY14
Store Retail Sales per Sq. Ft4
£499
£508
£516
2012
2013
2014
Website Visits
1
1
2
2
3
16.2m
13.5m
9.4m
2012
12
FatFace Group Limited Annual Report and
Consolidated Financial Statements 2014
2013
2014
3. As a truly multichannel business Retail Like for like (Combined) represents
the combined performance of the Retail and E-Commerce channel. Retail LFL
sales are calculated on a rolling weekly basis by comparing the current year’s
weekly sales for those stores that were open for the corresponding full week in
Strategic Report
E-Commerce Revenue
as % of Total Revenue
3
14.9%
10.3%
2012
12.0%
2013
Square Footage
2014
1
2
325,601
304,982
285,848
2012
2013
2014
Average Sq. Ft. per Store
1,425
1,453
2012
2013
International Revenue
£5.1m
£5.3m
FY12
FY13
1
2
1,558
2014
4
£5.9m
FY14
the prior year. Within E-Commerce LFL sales all E-Commerce sales are considered
LFL with the exception of the 53rd week in FY12 where an adjustment has been
made to take this into account.
4. Store Retail Sales per Sq.Ft represents revenue from stores divided by Square Footage.
Our values
~
FatFace Annual Report and Accounts 2014
Strategic Report
Business
REVIEW
FatFace is a UK based lifestyle clothing brand, with a unique
heritage, offering a wide range of high quality and affordable
clothing, footwear and accessories for all the family. FatFace has
a distinct and highly recognisable brand image centred around
five key characteristics: Authentic, British, Fun, Relaxed/Casual
and Family. Our customers are predominantly family oriented
women and men who are attracted by an active, casual outdoor
lifestyle and we want them to love wearing our clothes. Our
products are designed with purpose and built to last.
Our vision “absolutely everything we
do is designed to be loved by all our
customers for life outside 9-5” is central
to the FatFace ethos and underpins
our product development, the unique
FatFace store environment and the
differentiated service style our Crew
offer customers.
Our values “Be passionate about our
customers. Embrace life outside 9-5.
Explore new ideas. Play an active part
in the team. Make it happen!” are
embraced throughout the organisation
and help to make FatFace a great place
to work. Ultimately FatFace is about
an attitude to life which resonates with
our customers and all our Crew.
“FatFace has had another strong year of trading with revenue
breaking through the £200m level for the first time. Total
revenue for the Group was £200.1m, 11.9% ahead of last
year and adjusted EBITDA (the measure that best reflects
the trading performance of the business) was £39.3m, 26.0%
ahead of last year. There were a number of one-off costs in the
year, operating profit before non-recurring items was £23.8m
and the net result for the year before non-recurring items was
£3.2m. The Group continues to be highly cash generative with
statutory free cash flow of £28.3m after £10.2m of capital
expenditure invested in stores and infrastructure. Our ongoing focus on cash generation enabled us to repay £29.6m
of debt in the year, including £17.2m of voluntary debt
repayments. The business is performing strongly and the
Group is in good health. I believe that we are very well placed
for the next steps of the FatFace journey.
Multichannel
With 209 stores in the UK and Ireland,
a well established e-commerce channel
supported by a successful catalogue and
carefully selected wholesale partners,
FatFace is a multi-channel retailer. We
work hard to connect our channels so
as to offer our customers a seamless
FatFace experience however they chose
to shop with us. “Shop your way” is
central to this philosophy offering
customers the opportunity to “Click &
Collect” - order through fatface.com for
delivery to their chosen store or, “Order
in Store” for delivery to their home or
place of work. Our recent customer
feedback survey showed that 70% of our
customers shop more than one channel
and the proportion of cross channel
sales is growing. “Click
& Collect” has
grown to 18%
of on-line sales.
“Order in Store”
has doubled
since 2011/2012,
to represent 11%
of on-line sales
this year.
During the year the Company was renamed to FatFace
Group Plc as the result of FatFace Group Boards’ decision
to commence an IPO process to pursue a public listing.
Unfortunately the timing was not quite right and
subsequently FatFace Group Plc has now been renamed
FatFace Group Limited.”
15
SEGMENTAL REPORTS
Retail
Stores
The Retail Segment comprises the
revenue and contribution from stores,
e-commerce and concessions.
Stores play a critical role in our
multi-channel approach. FatFace is
unique in its ability to operate across
a number of different market types.
Our big stores in primary locations
and retail parks showcase our product
and bring the brand alive for our
customers. A significant proportion
of our estate is in beautiful affluent
market towns where our customers
live or visit to shop for leisure. We
also have a number of transport stores
which offer convenience and a strong
presence in UK holiday destinations
where our ALOA (at location of activity
eg Salcombe) stores are located.
Retail sales were £197.8m (2013:
£176.3m), up 12% Revenue growth
was generated through a combination
of new space and like for like sales
growth. Average trading space
increased by 4.7% reflecting the net
impact of new stores, relocations and
closures in the store estate this year
and the annualisation of last year’s
activity. Like for like sales growth was
strong at 7.6%, building on the 8.6%
achieved last year and giving us the
fourth consecutive year of positive like
for like sales. This is testament to the
consistency of our product formula
and our focus on full price trading,
both of which help to provide price
integrity for our customers.
Our 209 strong store estate is well
spread across the UK and Ireland in
great locations offering good reach to
our customers.
During the year we added 9 new stores
and 7 relocations.
Our relocation strategy is specifically
focused on stores where there is a pitch
or a range opportunity to grow sales.
At present fewer than ten stores can
stock the entire retail range. The larger
footprint of the new stores allows us to
stock a greater proportion of the range
and offer more choice to our customers.
The 7 stores that were relocated in the
year saw their trading space more than
double in size allowing a significant
increase in the range available.
NEW STORES BY
MARKET TYPE
Contribution from Retail was £53.3m
(2013: £42.3m), up 25.9%. Underlying
contribution margin improved by 2.9%
points to 26.9% (2013: 24.0%). This
improvement reflects gross margin
enhancements that have been achieved
across the Group through a combination
of intake margin gains from better
sourcing and product mix, as well as
reduced markdown spend, in turn
reflecting the strong full price sales.
3
6
1
1
5
PRIMARY
ALOA*
LAM**
OUTLET
RAM***
URBAN
TRANSPORT
CHANNEL ISLANDS
* ALOA =At location of
activity (e.g.
Falmouth),
16
** RAM =Regional affluent
market (e.g.
Chichester),
*** LAM=Local affluent
market
(e.g. Taunton)
“During the year
we added 9 new
stores and 7
relocations.”
Strategic Report
During the year, we closed 6 stores taking
advantage of circumstances specific
to each property such as lease end or
landlord redevelopment. Following the
strong growth in full price sales and the
corresponding reduction in clearance
stock, we also took the decision to reduce
our outlet capacity.
Overall, we increased our total trading
space by 20,619 sqft to 325,601 sqft, an
increase of 6.8% on last year.
We have a strong pipeline of target
locations and follow a rigorous
assessment process to ensure we
meet our financial targets.
17
E-Commerce
Sales in our e-commerce business
grew by 39% during the year and
now accounts for 15% of total Group
revenue.
Fatface.com is effectively our largest
store, available 24 hours a day and
with the largest range, including
a number of web exclusives.
Increasingly customers are shopping
across both stores and the website
and it is important that their FatFace
experience is consistent however they
choose to access the brand.
We launched a new website in October
2013 which was redesigned to more
closely resemble what our customers
experience in one of our physical
stores. This redesign incorporated
leading on-line architecture allowing
customers to zoom into products and
a perpetual scroll down which allows
more products to be viewed each visit
as well as more inspirational content
such as “Must Haves” and “Wear With”,
designer profiles and FatFace films
shot on location.
We want to ensure that when a
customer experienced the brand,
whether it was in a physical store
or online, it was joined up and
positively memorable.
Our challenge is to bring the character
of the stores, and the reasons people
feel affinity to us, to life in digital,
ensuring customers have a memorable
experience of the brand, joined up
across all customer touchpoints.
The new fatface.com has a dynamic
grid structure for the homepage
that features all FatFace products,
intertwined with brand stories and
images. As you scroll, more and more
products and stories appear, allowing
you to browse as you would in store.
Select a product and it opens a detail
view inline on the page – like taking
something off a hanger and looking
at it.
Filters allow the user to tailor the
page to his or her needs without
having open products in new pages.
“A profitable, fast
growing part of
the business”
18
Customers are also able to share
their favourite products with friends
on social media and post product
ratings and reviews, helping to create
an online community around the
new website.
The new fatface.com site has been
a key driver of the growth of
e-commerce sales.
We have supported our sales growth
with a number of promotions and
competitions this year, designed to
attract new customers and grow our
customer database. In June 2013 we
launched ‘Winjim’, a competition
to win a VW Campervan. This was
followed up in the autumn with
a competition to win a Landrover
Discovery.
We continue to support our
e-commerce sales through our
catalogues and the growth in our
customer database has enabled us
to target mailings more effectively,
driving brand awareness and sales
as a result.
Strategic Report
Other
Product Range
Included in other is revenue
generated through the Group’s
wholesale arrangements with key
strategic partners as well as license
income and rent receivable.
We have a clear product formula
that combines trusted quality with
considered style to offer our customers
great value. At FatFace, trusted quality
means products that are built to last,
that get better with wear, made from
high quality fabrics and trims, which
offer consistent fits and authentic
finishes and washes. Our clothes are
considered and purposeful, designed
and developed by our in-house design
team who pay obsessive attention to
detail, focusing on getting the colour
or fit just right, developing unique
prints with our suppliers or finding
the perfect trim or button to finish a
garment. We aim to offer great value,
so that our prices are accessible and
competitive but most importantly to
build trust in our prices, so that the
first price is always a great price for the
product’s quality and style.
Other Revenue of £2.3m (2013:
£2.5m) was generated in the year.
The reduction of 8.3% on the previous
year is primarily the result of the
decision made last year to focus on
key wholesale relationships with
strong brand fit. In January 2014
we entered into a new sale or
return agreement with The John
Lewis Partnership to sell FatFace
womenswear in 21 John Lewis stores
and through JohnLewis.com. Revenue
generated under this agreement is
included in the Retail segment.
“Designed and
developed by our
in-house design
team”
We regularly refresh our core products
and introduce new designs throughout
the year to ensure our ranges are
relevant and interesting for our
customers. Our Womenswear ranges,
which account for 51% of our retail
sales, grew by 18% during the year.
Menswear grew by 6%, Kidswear by 2%
and Accessories and Footwear by 13%,
a strong result from all departments.
19
Crew
Our Crew members live our vision
and embrace our values throughout
the organisation. We actively listen
to, invest in, reward and develop our
employees. Recognising that their
hard work and passion help drive the
Group’s performance forward as well as
making FatFace a great place to work.
Infrastructure
In total, we invested £2.6m in nonstore capital expenditure in the year.
We extended our distribution centre
in Havant, Hampshire by 8,427sqft
during the year, taking our total
distribution capacity to 92,465sqft
and providing sufficient capacity to
support our growth plans.
We completed the first stage of
implementation of our new planning
system to support our Design,
Buying, Merchandising and Sourcing
(“DBMS”) teams and are on track for
the system to be fully integrated by
September 2014 in time for planning
the peak Autumn Winter 15 trading
season. We see this investment as
key to supporting our future growth,
automating the mind set and approach
that we have embedded into the way
our DBMS teams operate and giving
us a fundamental step change in our
merchandising planning capability,
ultimately to drive sales and gross
margin benefits.
Following our footfall camera trial last
year, we have now installed a footfall
camera into every store which provides
valuable insight that we can use to
monitor and evaluate the impact of
store based activity and to enhance the
motivation, performance and training
of our store Crews.
The rollout of new EPOS5 to all
stores last year provided, amongst
other benefits, the capability for our
customers to ‘order in store’, placing
an order through our website where
a particular product was not available
in the store. It also provided us
with the capability to record store
customer details.
The next step is to upgrade our
merchandise management system
which will facilitate better throughputs
in the distribution centre and also
enable a single view of stock across all
channels both of which will improve
service delivery to our customers.
Current Trading
and Outlook
The outlook for the year ahead
remains challenging. The market
is expected to remain highly
competitive, however, consumer
confidence continues to improve.
Despite the market remaining highly
competitive, by continuing to focus
on developing the product ranges,
enhancing our store portfolio and
retaining focus on cost and cash
management. FatFace is in a strong
position to continue to grow and invest
for the future.
The Board remains confident in the
Group’s prospects for the current
financial year.
5 EPOS is Electronic Point of Sale
20
Strategic Report
21
Principal Risks &
UNCERTAINTIES
The Board is responsible for identifying significant
risks to the business and for ensuring that
appropriate internal controls and risk management
are in place to allow the Group to achieve its strategic
objectives. The audit committee monitors these risks
via the risk register, with executive directors and
operational management delegated with the task
of implementing these processes and reporting
to the Board on their outcome.
The risks and uncertainties described
below represent those which the
Directors consider to be the most
significant to delivering the Group’s
strategy. This list is not exhaustive
and there may be additional risks and
uncertainties, currently not known to
the Directors or which the Director’s
believe to be less material, which may
have an adverse effect on the Group:
STRATEGIC RISKS
Issue
Potential Impact
Mitigation
External
events
The economic and financial
environment may be impacted by
external events. This could impact our
suppliers and have a negative impact
on consumer confidence, increasing our
cost base and having an adverse affect
on revenue.
By focusing on our core strengths and continuing to invest in the
business, the Group has seen strong performance in what have
proved to be difficult market conditions over the last few years.
The strength of the FatFace brand and
our reputation are fundamental to the
business. There is a risk of damage
to the brand by either our internal
actions or due to the actions of external
business partners.
Careful consideration is taken before embarking on new
opportunities and before starting a relationship with wholesale or
licencing partners. These are monitored on an on going basis.
As with all clothing retailers, there is a
risk that our product will not satisfy the
needs of our customers, resulting in
excess inventory and reduced sales.
We have a strong team in place to allow us to maintain a high level
of market awareness and understanding of fashion and consumer
trends to ensure that we can respond to changes in consumer needs.
Brand and
reputational
risk
Fashion and
design trends
Factors which impact the external environment are monitored
continually, allowing for mitigating action to be taken on a timely
basis. Diversity within the supply chain also helps to mitigate
these risks.
Any negative publicity, such as customer complaints, are dealt
with in a timely manner.
While our offering includes items which reflect market trends, a
significant proportion of our sales relate to core staple items which
do not change year on year and which are always well received by
our customers.
International
expansion
The success of international expansion
is reliant upon selecting the right
markets with strong execution.
Significant market research has been carried out to ensure that
the most appropriate locations are selected for international
expansion.
A Head of International has also recently been appointed, with
significant experience in this field, to support both the impending
expansion as well as future growth in this area.
22
Issue
Potential Impact
Mitigation
Supply chain
We are reliant upon our suppliers meeting our
quality and ethical standards. If product is not
delivered on time and to the required specifications,
there is a risk that revenue will be impacted. In
addition if suppliers do not work within our required
ethical standards, it could have a negative impact
on our brand and reputation.
We work closely with our suppliers to mitigate these risks.
In addition we have an ethical trading policy in place which
we ensure that all suppliers are in agreement with. We are
also a member of the Ethical Trading Initiative. For further
details please refer to the Corporate Social Responsibility
section of this report.
Infrastructure
Any significant interruption in the activities
of our distribution centre or administrative
offices could be highly disruptive to the
business and could result in a loss of
revenue, data and inventory.
We maintain usual commercial insurance policies for a
business of this type and undertake a critical review of all
policies during each annual review process.
Crew
Performance of the business is closely linked to
the performance of our people. Performance
could be negatively impacted by the loss of key
individuals or the inability to obtain suitable
replacements in a timely manner.
Active steps are taken to retain key individuals, including:
Health and
Safety
The health and safety of the employees,
customers, contractors, sites and equipment
is very important to the Group. Breaches in
health and safety could result in a significant
cost to the business and also damage to
reputation.
We have processes and procedures in place to mitigate
health and safety risks, including risk assessments, accident
reporting and nominated health and safety representatives
across the business. Policies and procedures are reviewed
and audited regularly to make safety management more
robust and up to date.
Regulatory
and legal
framework
Failure to comply with regulatory frameworks
across all markets in which we operate, could result
in financial penalties or reputational damage.
Changes in the legal and regulatory framework are
closely monitored with specialists used where required
to ensure compliance.
• Annual benchmarking to ensure that remuneration and
reward packages are competitive; and
• Positive culture and environment.
FINANCIAL RISKS
Issue
Potential Impact
Mitigation
Covenants
Our external financing arrangements include
conventional covenant tests as is customary
with agreements of this type. Failure to
comply with these could result in the
financing being cancelled.
Performance against the covenants is measured
quarterly with forecasts maintained to ensure that all
tests can be met.
Exchange
risk
The supply chain is predominantly based
overseas with substantial creditors denominated
in US dollars and, to a lesser extent, Euros.
This therefore exposes the business to risk of
exchange rate fluctuations which could have a
significant impact on margins.
Exchange rates are monitored on a daily basis. Currency
hedge instruments are put in place to manage foreign
currency risk in accordance with our treasury policy.
Interest rate
risk
Whilst interest rates are currently low, a
significant increase in LIBOR would increase the
cost of debt which would have a negative impact
on cash flow and overall profit of the Group.
Exposure to interest rate risk is managed by the use of
an interest rate cap covering all of the variable rate debt. In
addition, detailed reporting and cash forecasting ensures
that liquidity is maintainable into the medium term.
The Strategic Report was approved by the Board
on 11 August 2014.
By order of the board:
Anthony Thompson
Chief Executive Officer
Unit 3, Ridgway, Havant,
Hampshire, PO9 1QJ
11 August 2014
23
Strategic Report
OPERATIONAL RISKS
Directors’ Report
THE DIRECTORS PRESENT THEIR
DIRECTOR’S REPORT AND THE AUDITED
FINANCIAL STATEMENTS FOR THE 52
WEEK PERIOD ENDED 31 MAY 2014.
REWARD AND RECOGNITION
Corporate and Social
RESPONSIBILITY
At FatFace we are committed to our corporate
and social responsibility policy across all areas of
our business, in particular to our engagement with
suppliers, employees and the environment.
Suppliers
We are committed to the safe and
fair treatment of anyone involved
in the manufacture of our products.
Suppliers are required to agree to our
supplier code of conduct which is set
out in the Supplier Manual which
all suppliers need to adhere to. In
addition to ensuring that all local laws
are adhered to, suppliers are required:
In addition, through our membership
in SEDEX6, we are able to view audit
reports on our suppliers undertaken
by third-party auditors. We are also
a signatory to the Accord on Fire and
Building Safety in Bangladesh through
which we are committed to the goal
of a safe and sustainable Bangladeshi
ready-made garment industry.
• to remunerate employees in a manner
which is commensurate with work
performed to ensure that employees
receive a living wage;
In June 2014, “the good shopping
guide.com” published an ethical
fashion rankings table, which ranked
35 clothing retailers according to their
assessment of how ethically they trade,
based on a number of criteria, and
therefore whether consumers should
buy from them based on this. Of the 35
FatFace ranked 4th and was 1 of only
5 of the retailers that was classified as
“recommended” to buy from.
• not to recruit child labour;
• not to discriminate on the basis
of age, race, colour, religion, sex,
sexual preference, marital status,
nationality, ethnic origin or
disability;
• not to use forced labour;
• not to use any inappropriate
disciplinary practices;
• to allow freedom of association for all
employees; and
• to operate a safe and hygienic
working environment.
We monitor the compliance of our
suppliers to the code of conduct
through both our own liaison office
in India and through independent
third-party audits. We are a member
of the Ethical Trading Initiative (ETI),
through which we agree to audit the
ethical standards of our suppliers.
Through the ETI, we are able to
access investigations carried out
by other members into our current
and potential suppliers. FatFace is
currently classified at ‘‘Achiever’’ level
by the ETI.
26
People
At FatFace we believe that our brand
heritage, identity and image are shared
by our people, from management
to the employees in our stores and
distribution centre (the ‘‘Crew’’),
which helps to distinguish us from
competitors and has been part of the
success of our business. This is why it
is important to us to engage, listen to,
reward and develop our employees.
6 SEDEX (Supplier Ethical Data Exchange)
are a not for profit membership
organisation dedicated to driving
improvements in responsible and ethical
business practices in global supply chains.
An annual benchmarking review
is undertaken and the living
wage is considered to ensure that
remuneration remains competitive
and fair across all areas of the business.
Employees of the Group are eligible
to participate in our bonus schemes.
All of our store crew are eligible to
receive a store bonus based upon the
performance of the store in which a
given employee works. Bonuses for
employees who work in head office, are
based upon corporate performance.
We operate a defined contribution
Group personal pension scheme for
employees employed in the United
Kingdom to which we make matching
contributions based on the employee’s
level of contributions. Since August
2013, we have been automatically
enrolling employees meeting certain
criteria into the pension scheme
employees are free to opt out of the
scheme if they choose to.
LEARNING AND DEVELOPMENT
We operate a number of training
programmes that offer development
opportunities for our managers and
employees and seek to maintain high
staff retention rates. These include
an annual retail conference where the
Group communicates and engages with
its store managers on its key priorities
and business plans as well as reinforcing
the vision and values of the brand.
Performance is reviewed bi-annually
with managers developing their teams
both personally and technically,
agreeing personal development plans
and leading the training requirements.
EMPLOYEE ENGAGEMENT
We engage with our employees in a
number of ways to encourage active
participation and alignment with
business strategy. Regular updates
are held to inform employees of
performance and the key drivers of this.
We also conduct annual employee
surveys to measure the level of employee
engagement and to identify any areas
where improvements can be made.
EQUAL OPPORTUNITIES
The Group is committed to being an
equal opportunities employer and it is
our policy to provide employment and
development opportunities to persons
regardless of age, race, colour, religion,
sex, sexual preference, marital status,
nationality, ethnic origin or disability.
It is Group policy to, wherever
possible, retain in employment
employees who become disabled.
Health and Safety
Environment
We are committed to minimising any
impact on the environment that may
be caused during the manufacturing
and retail processes. In this regard,
we continually review our production
processes and energy usage to
ensure that we operate in a manner
which reduces our impact on the
environment. Over the last four years
we have invested in smart energy
meters across many of our stores. This
has provided information to allow
our stores to control their energy
usage more efficiently with the aim
of benefitting the environment and
reducing overall costs. We also try
wherever possible to ensure that the
electrical supply comes from green
energy or energy efficient sources. In
addition in many of our new stores
and refits we are using reclaimed
timber for floors and fixture bases.
Community
FATFACE FOUNDATION
This year is the 5th year of operation
of the FatFace Foundation, a registered
charity that works towards conserving the
environment and enabling more people
to access and experience the outdoors.
Although the FatFace Foundation strives
to reflect the FatFace brand and ethos,
it is run as a separate organisation with
its own directors who also act as the
charity’s trustees. The Foundation makes
grants to charitable organisations that
work in conserving and protecting the
environment, as well as giving people the
opportunity to undertake a wide variety
of charitable projects, both on a local and
national scale. FatFace employees and
members of the public have been able
to actively get involved by taking part in
sponsored events and buying Foundationrelated products.
The directors of the Foundation are
currently reviewing the strategy and
objectives. The outcome of this review will
be communicated in the coming months.
The lower than historic donations in the
year are due to this review. The donations
are expected to revert to historic levels in
the current year.
Donations to UK charities by the Group
during the year amounted to £50,725
(2013: £92,786). Of this amount
£11,561 (2013: £90,726) was donated to
the Foundation by the Group. During
the year, the FatFace Foundation made
donations of £5,007 (2013: £46,938).
The proceeds from the sale of carrier
bags in Wales (and soon Scotland)
are also given to the Foundation for
distribution. For this last period the
proceeds from Welsh carrier bags has
been donated to the Search And Rescue
Dog Association (SARDA) Wales which
is a voluntary organisation that supports
the emergency services to locate missing
people in rural and urban environments.
To date the FatFace Foundation has
donated over £150,000 to causes
around the UK. These include national
organisations such as the Marine
Conservation Society (a charity for
the protection of marine wildlife), the
Royal National Lifeboat Institution,
for whom the FatFace Foundation has
funded a water rescue craft, and Ground
Work UK, in its work creating useful
community space out of derelict land.
Alongside this, the FatFace Foundation
has supported numerous other smaller
causes, which were nominated by the
Group’s crew and head office employees,
such as the Jubilee Sailing Trust, Queen
Elizabeth Country Park, and Waveney
Stardust which runs waterway cruises for
the disabled and elderly..
OTHER CHARITY AND
COMMUNITY ACTIVITIES
FatFace Group made a £15,000 donation
to StreetChild to sponsor the world’s
largest Samba Band at the Royal Albert
Hall and a donation of £10,000 was made
in the year towards the Amos Trust Surfers
not Street Children UK tour.
FatFace is committed to supporting the
local community, both in respect of
employment and social responsibility.
We encourage our employees to take part
in various community initiatives and
charity events. During April and May,
the business took part in a “Round the
World Challenge” which saw employees
trying to cover the circumference of the
world (approx. 24,860miles) in 8 weeks
carrying out activities such as running,
cycling or swimming.
In addition employees have taken part
in various events, including the London
Marathon and the London to Brighton
ride. Donations from this went to
various charities including the British
Heart Foundation, Parents & Carers
support association (PACSO) and the
Royal Navy & Royal Marines Charity.
We have also supported various people
with gaining work experience. Our
design team is working with colleges
offering students the opportunity to
gain some work experience designing
their own prints. This ran for the first
time in 2013-14.
PROPOSED DIVIDEND
The directors do not recommend the
payment of a dividend (2013: nil).
27
Director’s Report
The health, safety and well-being
of our employees and customers
are of great importance to us.
There is a comprehensive structure
of processes and procedures to
mitigate the health and safety risk,
including risk assessments, accident
reporting and nominated health
and safety representatives across the
business. Within stores, each of its
store managers are provided with
a ‘‘Stay Safe Guide’’ which informs
them of their responsibilities to take
reasonable precautions to ensure
the safety, health and welfare of
those likely to be affected by the
operation of its business. Policies and
procedures are reviewed and audited
regularly to make safety management
more robust and up to date.
Recycling facilities have been set up
in 95% of our stores, including plastic,
cardboard and tin cans. We also recycle
in our distribution centre and head office
and recycled 442 (2013: 413) tonnes of
cardboard out of Fat Base (head office)
and plastics out of many of our stores.
1.
Our
DIRECTORS
The directors who held office
during the year were as follows:
2.
Executive Directors
1. ANTHONY THOMPSON
CHIEF EXECUTIVE OFFICER
Appointed in April 2010. Anthony was previously
Managing Director of the George brand within the
international division of Walmart Stores, and an
executive director of ASDA Stores Ltd. He is a former
Retail Director of Marks and Spencer plc, Senior
Vice President of Gap Europe and Chief Executive of
Blackwell Limited.
2. SIMON PICKERING
DESIGN, BUYING, MERCHANDISING
AND SOURCING DIRECTOR
3.
(Resigned 30 April 2014, reappointed 25 June 2014)
Appointed in November 2010. Simon previously
held a Senior Director role within the Arcadia Group,
responsible for BHS and Burton. He is a former
Director of Gap Europe, responsible for Menswear.
Simon has previously held senior buying roles in
Debenhams and Burton Group.
3. MARK SEAGER
E-COMMERCE AND BRAND DIRECTOR
Mark joined FatFace in January 1997 as a store
manager. He progressed through the retail channel
with various field and centrally-based operational
roles before taking on the wholesale, licensing and
franchise programmes in 2008. In 2010 Mark was
promoted to E-Commerce and Brand Director.
4.
4. SIMON GREENE
RETAIL DIRECTOR
Appointed in January 2013. Simon previously
held senior roles across a number of retail brands
including Marks and Spencer, Arcadia, T.M.Lewin
and White Stuff.
5. HELEN COWING
CHIEF FINANCIAL OFFICER
(Appointed 1 August 2013, resigned 23 June 2014)
28
Non-Executive
Directors
SIR STUART ROSE
Stuart has worked in retail all his life
having joined Marks & Spencer in
1971. After leaving Marks & Spencer
in 1989 he successively managed the
multiple retail chains at The Burton
Group, Argos, Booker, and Arcadia and
returned to Marks & Spencer in 2004
as Chief Executive and then Chairman,
leaving in 2011. He is Chairman of
Ocado and Oasis Healthcare as well
as being a non-executive director of
Woolworths (South Africa). He is also
on the advisory board of Bridgepoint.
He was knighted in 2008.
GUY WELDON
BENOIT ALTEIRAC
(Resigned 30 April 2014,
reappointed 20 June 2014)
(Appointed by Bridgepoint)
Benoit joined Bridgepoint in 2002
and is also a member of Bridgepoint’s
European Consumer investment team.
He is based in Bridgepoint’s London
office.
DARREN SHAPLAND
(Appointed 30 April 2014,
resigned 24 June 2014)
MARIA KYRIACOU
DEBORAH BAKER
The Group provides directors’ and
officers’ insurance protection for all of the
directors of the companies in the Group.
Bridgepoint has been FatFace Group
Limited’s major shareholder since 2007.
For details of their shareholding,
please refer to note 26. Bridgepoint
hold the investment within its
Bridgepoint Europe III Fund. Guy
Weldon and Benoit Alteirac are
monitoring the fund’s investment on
behalf of Bridgepoint.
COMPANY
Details of the Company’s principal
activity, strategy, performance, future
developments, principals, risks &
uncertainties and key performance
indicators can be found within the
Strategic Report.
Going Concern
In adopting the going concern basis for
preparing the financial statements, the
directors have considered the principal
activities as well as the business risks as
set out on pages 22 to 23.
The Directors have reviewed financial
forecasts covering at least twelve
months from the date of approving
these accounts and notwithstanding
the net liabilities of £5,291,000
(2013: £10,273,000) and net current
liabilities of £4,320,000 (2013: assets of
£1,834,000) the Board continues to be
satisfied that the Group will be able to
operate within the level of its facilities
for the foreseeable future.
While market conditions have
continued to be challenging, the
Group has returned a strong trading
performance in the financial period,
in addition the Group balance sheet
has strengthened and significant
cash has been generated over the
period, with statutory free cash flow
of £28,320,000 (2013: £29,601,000).
Forecasts indicate the Group will
continue to generate a positive free
cash flow and as a result will be able to
meet its net current liabilities as they
fall due and return a positive operating
profit before interest, tax, depreciation
and amortisation. In addition to the
positive free cash flow forecast the
Group has available undrawn banking
facilities available of £7,500,000.
The Group has access to long term
debt financing and short term facilities
which are subject to covenant tests,
as is customary with these types of
financing arrangements. Detailed cash
flow projections have been prepared
which show that the Group is expected
to trade within its financial covenants
for the foreseeable future. In making
this assessment these projections
have been sensitised and on-going
mitigating actions considered and this
has satisfied the Board that the Group
will continue to operate within these
facilities. As a result, the Company and
the Group continue to adopt the going
concern principle in the preparation of
these financial statements..
Disclosure of
Information to Auditor
The directors who held office at the
date of approval of this Directors’
Report confirm that, so far as they are
each aware, there is no relevant audit
information of which the Company’s
auditor is unaware; and each director
has taken all the steps that they ought
to have taken as a director to make
themselves aware of any relevant
audit information and to establish
that the Company’s auditor is aware
of that information. Auditor Pursuant
to Section 487 of the Companies Act
2006, the auditor will be deemed to
be reappointed and KPMG LLP will
therefore continue in office.
The Directors’ Report was
approved by the Board on
11 August 2014.
Anthony Thompson
Hampshire, PO9 1QJ
11 August 2014
29
Director’s Report
(Appointed by Bridgepoint)
Guy Weldon is a Partner and the Chief
Investment Officer of Bridgepoint.
He currently sits on the boards of
FatFace and Hobbycraft and has
worked extensively on private equity
transactions across Europe, particularly
within the Consumer sector.
Shareholders
Statement of Directors’
RESPONSIBILITIES
...in respect of the Annual Report and Accounts
The directors are responsible for
preparing the Strategic Report, the
Directors’ Report and the Financial
Statements in accordance with
applicable law and regulations.
Director’s Report
Company law requires the directors
to prepare group and parent company
financial statements for each financial
year. Under that law they have elected
to prepare both the Group and the
parent company financial statements
in accordance with IFRSs7 as adopted
by the EU and applicable law.
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 judgments and estimates that
are reasonable and prudent;
• state whether they have been
prepared in accordance with IFRSs
as adopted by the EU; 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
6 International Financial Reporting Standards.
30
open to them to safeguard the assets
of the group and to prevent and detect
fraud and other irregularities.
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.
Anthony Thompson
Hampshire, PO9 1QJ
11 August 2014
Independent
AUDITOR’S REPORT
...to the members of FatFace Group Limited
We have audited the financial
statements of FatFace Group Limited
for the year ended 31 May 2014 set
out on pages 33 to 67. The financial
reporting framework that has been
applied in their preparation is
applicable law and International
Financial Reporting Standards
(IFRSs) as adopted by the EU and, as
regards the parent company financial
statements, as applied in accordance
with the provisions of the Companies
Act 2006.
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 auditor’s 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.
As explained more fully in the Directors’
Responsibilities Statement set out on
page 30, 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 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.
Matters on Which
We are Required to
Report by Exception
A description of the scope of an audit
of financial statements is provided
on the Financial Reporting Council’s
website at:
We have nothing to report in respect
of the following matters where the
Companies Act 2006 requires us to
report to you if, in our opinion:
www.frc.org.uk/auditscopeukprivate
Opinion on
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 May
2014 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
IFRSs as adopted by the EU and
as applied in accordance with the
provisions of the Companies Act
2006; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006.
Opinion on Other
Matter Prescribed by
the Companies Act 2006
• 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 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.
William Smith
Senior Statutory Auditor
For and on behalf of KPMG LLP, Statutory
Auditor Chartered Accountants, Dukes
Keep, Marsh Lane, Southampton SO14 3EX
11 August 2014
In our opinion the information
given in the Strategic Report and the
Directors’ Report for the financial year
for which the financial statements
are prepared is consistent with the
financial statements.
31
Respective
Responsibilities of
Directors and Auditor
Scope of the Audit
of the Financial
Statements
32
Financial
STATEMENTS
Consolidated Income Statement
(2013: 52 week period ended 1 June 2013)
Note
Revenue
Other income
2
Trading
Results
2014
£000
NonRecurring
Items
£000
199,859
192
200,051
3,819
Changes in inventories of finished goods
2014
£000
Trading
Results
2013
£000
NonRecurring
Items
£000
2013
£000
—
199,859
178,620
—
178,620
—
192
209
—
209
—
200,051
178,829
—
178,829
—
3,819
780
—
780
Staff costs
3-4
(35,615)
(413)
(36,028)
(30,901)
(172)
(31,073)
Other trading expenses
3-4
(128,961)
(3,979)
(132,940)
(117,525)
(369)
(117,894)
(160,757)
(4,392)
(165,149)
(147,646)
(541)
(148,187)
39,294
(4,392)
34,902
(541)
30,642
Total trading expenses before
depreciation, amortisation and
share-based payments
Operating profit/(loss) before interest, tax,
depreciation , amortisation and sharebased payments
Depreciation and amortisation
Share-based payments
8-9
(8,497)
—
(8,497)
(7,815)
—
(7,815)
18
(6,974)
—
(6,974)
(1,881)
—
(1,881)
Operating profit/(loss)
23,823
6
Finance costs
6
Net finance (costs)
Profit/(loss) before tax
Profit/(loss) for the period
476
—
19,431
476
21,487
622
(541)
20,946
—
622
(19,358)
(572)
(19,930)
(13,018)
(1,781)
(14,799)
(18,882)
(572)
(19,454)
(12,396)
(1,781)
(14,177)
(4,964)
(23)
9,091
(2,322)
6,769
4,941
7
(4,392)
(1,744)
3,197
—
(4,964)
(1,744)
(2,333)
(1,767)
6,758
553
(1,769)
(1,780)
4,989
All of the Group’s activities in the period derived from continuing operations and are attributable to equity holders of the Company.
The notes of pages 40 to 67 are an integral part of these financial statements.
33
Finance income
Taxation
31,183
Statement of Comprehensive Income
Note
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
(1,767)
4,989
22,812
15,146
Other comprehensive income
Items that may be reclassified to profit and loss
Effective portion of changes in fair value of cash flow hedges net of tax
Change in fair value of cash flow hedges transferred to income
statement net of tax
Net other comprehensive income
Total comprehensive income/(loss)
(446)
(226)
—
—
221
185
—
—
(225)
(41)
—
—
(1,992)
4,948
22,812
15,146
(1,992)
4,948
22,812
15,146
Total comprehensive income/(loss) is attributable to:
Equity holders of the parent
34
Statement of Financial Position
as at 31 May 2014
Note
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
—
Non-current assets
Property, plant and equipment
8
17,905
14,682
—
Intangible assets
9
156,524
158,876
—
—
Investments in subsidiaries
10
—
—
56,790
26,199
Deferred tax assets
12
1,817
2,163
—
—
Financial assets
11
—
1
—
—
176,246
175,722
56,790
26,199
Current assets
Inventories
13
20,658
16,839
—
—
Trade and other receivables
14
4,583
2,990
104,096
85,254
Cash and cash equivalents
15
21,356
27,416
88
129
Other financial assets
11
—
367
—
—
Total assets
46,597
47,612
104,184
85,383
222,843
223,334
160,974
111,582
Current liabilities
Other interest-bearing loans and borrowings
16
(8,403)
(14,479)
Trade and other payables
17
(35,305)
(23,852)
(79)
(10)
—
—
19
(2,224)
(2,470)
—
—
(4,682)
(4,967)
Employee benefits
Provisions
Tax payable
Other financial liabilities
11
(224)
—
(50,917)
(45,778)
—
(43,917)
—
(32,688)
—
—
—
—
(43,917)
(32,688)
Non-current liabilities
Other interest-bearing loans and borrowings
16
(135,825)
(153,229)
Other payables
17
(20,307)
(10,611)
Provisions
19
(836)
Deferred tax liabilities
12
(20,249)
Total liabilities
Total net current assets/(liabilities)
—
—
—
—
(177,217)
(187,829)
(10,885)
(2,508)
(233,607)
(54,802)
(35,196)
1,834
60,267
52,695
(971)
(12,107)
45,905
23,691
(5,291)
(10,273)
106,172
76,386
Equity
Share capital
20
1,184
1,202
1,184
1,202
Capital contribution reserve
20
—
234,709
—
234,709
15,805
15,805
15,805
15,805
Share premium
Hedging reserve
20
Retained earnings
Total equity
(323)
(98)
—
(21,957)
(261,891)
89,183
(175,330)
(5,291)
(10,273)
106,172
76,386
—
These financial statements were approved by the board of
directors on 11th August 2014 and were signed on its behalf by:
Anthony Thompson
35
Net assets/(liabilities)
—
(2,508)
(228,134)
(4,320)
Total net non-current assets/(liabilities)
—
(23,989)
—
(10,885)
Statement of Changes in Equity: Group
Capital
Contribution
Reserve
£000
Share
Premium
Hedging
Reserve
£000
Prepaid
Share
Capital
£000
£000
£000
1,202
—
234,709
15,805
—
—
—
—
—
Change in fair value of cash
flow hedges transferred to
income statement net of tax
—
—
—
—
185
—
185
Effective portion of changes in
fair value of cash flow hedges
net of tax
—
—
—
—
(226)
—
(226)
Total other comprehensive
income for the period
—
—
—
—
(41)
4,989
4,948
Equity settled share based
payments
—
—
—
—
—
1,881
1,881
Total transactions with owners
recorded in equity
—
—
—
—
—
1,881
1,881
Note
Balance at 3 June 2012
Share
Capital
(57)
Retained
Earnings
£000
Total
Equity
£000
(268,761)
(17,102)
4,989
4,989
Transactions with owners
1,202
—
234,709
15,805
—
—
—
—
(98)
—
(261,891)
(10,273)
(1,767)
(1,767)
Change in fair value of cash
flow hedges transferred to
income statement net of tax
—
—
—
—
221
—
221
Effective portion of changes in
fair value of cash flow hedges
net of tax
—
—
—
—
(446)
—
(446)
Total other comprehensive
income for the period
—
—
—
—
(225)
(1,767)
(1,992)
Capital reduction
20
(18)
—
(234,709)
—
—
234,727
—
Equity settled share based
payments
18
—
—
—
—
—
6,974
6,974
(18)
—
(234,709)
—
—
241,701
6,974
1,184
—
—
15,805
(21,957)
(5,291)
recorded in equity
Balance at 31 May 2014
36
(323)
Statement of Changes in Equity: Company
Note
Share
Capital
Capital
Contribution
Reserve
£000
Share
Premium
£000
Prepaid
Share
Capital
£000
1,202
—
234,709
15,805
£000
Retained
Earnings
£000
(192,357)
Total
Parent
Equity
£000
59,359
—
—
—
—
15,146
15,146
Total comprehensive income for
the period
—
—
—
—
15,146
15,146
—
—
—
—
1,881
1,881
—
—
—
—
1,202
—
234,709
15,805
Equity settled share based payments
1,881
(175,330)
1,881
76,386
—
—
—
—
22,812
22,812
Total comprehensive income for
the period
—
—
—
—
22,812
22,812
—
—
—
—
6,974
6,974
18
Capital reduction
20
(18)
—
(234,709)
—
234,727
—
(18)
—
(234,709)
—
241,701
6,974
1,184
—
15,805
89,183
106,172
—
37
Equity settled share based payments
Statement of Cash Flows
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
(23)
6,769
27,734
19,720
8,9
8,497
7,815
—
—
18
—
—
Note
Cash flows from operating activities
Profit/(loss) before tax for the year
Adjustments for:
Depreciation and amortisation
6,974
1,881
Finance income
6
(476)
(622)
Finance cost
6
19,930
14,799
—
—
(17,891)
Cash generated from operations
34,902
30,642
(3,618)
Change in trade and other receivables
(1,593)
1,156
12
125
Change in inventory
(3,819)
(780)
—
—
9,676
Equity settled share-based payment expenses
(Gain)/loss on transfer of investment
(24,581)
(22,276)
11,120
2,060
—
(496)
6,611
3,565
389
659
1,830
—
—
39,825
39,459
(41)
18
Tax paid
(4,118)
(3,263)
—
—
Net cash from operating activities
35,707
36,196
(41)
18
22
—
—
Change in trade and other payables
Change in provisions and employee benefits
Cash flows from investing activities
Interest received
6
46
Acquisition of property, plant and equipment
8
(9,129)
Lease incentives, net of amortisation
Acquisition of other intangible assets
9
—
—
2,750
513
—
—
(1,054)
(914)
—
—
(6,216)
Net cash from investing activities
(7,387)
(6,595)
—
—
Free cash flow
28,320
29,601
(41)
18
1,507
152,886
Cash flows from financing activities
Proceeds from new loans
16
Interest paid
Repayment of borrowings
16
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
15
38
—
—
(6,327)
(7,189)
—
—
(29,560)
(170,787)
—
—
(34,380)
(25,090)
—
—
(41)
18
22,905
129
111
27,416
88
129
(6,060)
4,511
27,416
21,356
39
Notes to the
FINANCIAL STATEMENTS
(forming part of the Financial Statements)
1. Accounting Policies
FatFace Group Limited (the ‘Company’)
is a company incorporated in the UK.
The Group financial statements
consolidate those of the Company
and its subsidiaries (together referred
to as the ‘Group’). The parent
company financial statements present
information about the Company as
a separate entity and not about its
Group.
Both the parent company financial
statements and the Group financial
statements have been prepared
and approved by the directors
in accordance with International
Financial Reporting Standards as
adopted by the EU (‘Adopted IFRSs’).
On publishing the parent company
financial statements here together with
the Group financial statements, the
Company is taking advantage of the
exemption in s408 of the Companies
Act 2006 not to present its individual
income statement and related notes
that form a part of these approved
financial statements.
40
The accounting policies set out in the
sections below have been applied
consistently to all periods presented within
the financial information and have been
applied consistently by all subsidiaries.
Judgements and estimates made by the
directors, in the application of these
accounting policies that have significant
effect on the financial statements
and judgements and estimates with a
significant risk of material adjustment
in the next accounting period are
highlighted below. On an on-going basis
the following areas involve a higher
degree of judgement or estimation
complexity and are explained in more
detail in the related notes:
• The valuation of share-based
payments at grant date and for
intrinsically valued schemes, at
each reporting date (note 18);
• Assumptions for valuations used in
impairment testing (note 9);
• Provisioning for onerous leases and
dilapidations (note 19); and
• Calculation of the exit fee (note 6).
MEASUREMENT CONVENTION
The financial statements are prepared
on an historical cost basis with the
exception of derivative financial
instruments which are stated at their
fair value.
BASIS OF CONSOLIDATION –
SUBSIDIARIES
Subsidiaries are entities controlled
by the Group. Control exists when
the Group has the power, directly or
indirectly, 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 are currently exercisable
or convertible are taken into
account. The financial statements
of subsidiaries are included in the
consolidated financial statements from
the date that control commences until
the date that control ceases.
FOREIGN CURRENCY
Transactions in foreign currencies are
translated at the foreign exchange rate
ruling at the date of the transaction.
Monetary assets and liabilities
denominated in foreign currencies at
the balance sheet date are translated at
the foreign exchange rate ruling at that
date. Foreign exchange differences
arising on translation are recognised
in the income statement. Nonmonetary assets and liabilities that are
measured in terms of historical cost
in a foreign currency are translated
using the exchange rate at the date of
the transaction. Non-monetary assets
and liabilities denominated in foreign
currencies that are stated at fair value
are translated at foreign exchange rates
ruling at the date of transaction the
fair value was determined.
Exchange differences related to
qualifying hedges are taken directly to
the hedging reserve. They are released
into the income statement upon
disposal.
Where the Group holds applicable
hedged positions, the accounting
policy is reported below.
CURRENCIES
Investments in debt and
equity securities
Investments in debt and equity
securities held by the Company are
stated at the lower of original cost and
fair value with any resultant cumulative
impairment losses recognised in profit
or loss. Where these investments are
interest-bearing, interest calculated
using the effective interest method is
recognised in profit or loss.
Trade and other receivables are
recognised at their nominal amount
less any impairment losses and
provisions for bad and doubtful debts.
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 only.
Trade and other payables are
recognised at face value.
Interest-bearing loans
and borrowings
The Group uses Sterling as its
presentational currency and all values
have been rounded to the nearest
thousand unless otherwise stated. The
Company’s functional currency is
Sterling.
Interest-bearing loans and borrowings
are recognised at amortised cost plus
accumulated unpaid interest costs
incurred.
DERIVATIVE FINANCIAL
INSTRUMENTS AND HEDGING
Derivative financial instruments
Derivative financial instruments are
recognised initially at fair value. The
gain or loss on re-measurement to fair
value is recognised immediately in the
income statement. However, where
derivatives qualify for hedge accounting,
recognition of any resultant gain or
loss depends on the nature of the item
being hedged (see below).
NON-DERIVATIVE FINANCIAL
INSTRUMENTS
Cash flow hedges
Non-derivative financial instruments
comprise investment in equity and
debt securities, trade and other
receivables, cash and cash equivalents,
trade and other payables and interestbearing loans and borrowings.
Where a derivative financial instrument
is designated as a hedge of the variability
in cash flows of a recognised asset or
liability, or a highly probable forecast
transaction, the effective part of any
gain or loss on the derivative financial
instrument is recognised directly in the
hedging reserve. Any ineffective portion
For cash flow hedges, the associated
cumulative gain or loss is removed from
equity and recognised in the income
statement in the same period or periods
during which the hedged forecast
transaction affects profit or loss.
When a hedging instrument expires
or is sold, terminated or exercised, the
cumulative gain or loss at that point
remains in equity and is recognised in
accordance with the above policy when
the transaction occurs. If the hedged
transaction is no longer expected to take
place, the cumulative unrealised gain or
loss in equity is recognised in the income
statement immediately.
Classification of
financial instruments
Financial instruments often consist of
a combination of debt and equity and
the Group has to decide how to attribute
values to each. Instruments are treated
as equity only to the extent that they
meet the following two conditions:
(a) where the instrument includes
no contractual obligations upon
the Group to deliver cash or other
financial assets or to exchange
financial assets or financial
liabilities with another party under
conditions that are potentially
unfavourable to the Group; and
(b) where the instrument will or may
be settled in the Group’s own
equity instruments, it is either a
non- derivative that includes no
obligation to deliver a variable
number of the Group’s own equity
instruments, or is a derivative
that will be settled by the Group
exchanging a fixed amount of
cash or other financial assets for
a fixed number of its own equity
instruments.
To the extent that this definition is not
met, the proceeds of issue are classified
as a financial liability, and where such
an instrument takes the legal form
of the company’s own shares, the
amounts presented in these financial
statements for called up share capital
and share premium account exclude
amounts in relation to those shares.
41
GOING CONCERN
In adopting the going concern basis for
preparing the financial statements, the
directors have considered the principal
activities as well as the business risks as
set out on pages 22 to 23. For further
details of the assessment of the going
concern principle please refer to the
Directors’ Report.
of the hedge is recognised immediately
in the income statement.
PROPERTY, PLANT
AND EQUIPMENT
GOODWILL AND
INTANGIBLE ASSETS
are stated at cost less accumulated
depreciation and impairment losses.
Goodwill is stated at cost less any
accumulated impairment losses.
Goodwill is not amortised but is tested
annually for impairment.
Where parts of an item of property,
plant and equipment have different
useful lives, they are accounted for as
separate items of property, plant and
equipment.
Depreciation is provided to write off
the cost less the estimated residual
value of tangible fixed assets by equal
instalments over their estimated useful
economic lives as follows:
Asset
Class:
Depreciation
Policy
Freehold
buildings
Leasehold land
and buildings
50 years
Life of lease
Equipment and
fixtures:
All business combinations are
accounted for by applying the
purchase method. Goodwill represents
amounts arising on acquisition of
subsidiaries, associates and jointly
controlled entities being the difference
between the cost of the acquisition and
the net fair value of the identifiable
assets, liabilities and contingent
liabilities acquired. Identifiable
intangibles are those which can be
sold separately or which arise from
legal rights regardless of whether those
rights are separable.
Other intangible assets that are
acquired by the Group are stated at
cost less accumulated amortisation
and impairment losses.
Internally generated intangible assets
arising from the group’s development
activities are recognised only when all
of the following conditions are met:
Computer and
communications
equipment
3 years
Shopfit, fixtures and
fittings, furniture,
mannequins
5 years
• an asset is created and can be
identified;
Plant and machinery
4 years
Motor vehicles
4 years
• it is probable that the asset will
generate future economic benefit;
and
Assets in the course of construction
refers to expenditure on new stores not
yet trading and are not depreciated.
On-going refurbishment projects in
respect of existing stores are charged
directly into the appropriate asset
categories.
Contributions received from landlords
are deemed to be lease incentives and
as such are deferred and subsequently
released over the life of the lease.
42
• the development costs of the asset
can be measured reliably.
Where these conditions are met the
costs of the asset comprise of the
external direct costs of goods, and
services, in addition to internal payroll
related costs for employees who are
directly associated with the project.
Amortisation is charged to the
income statement on a straightline basis over the estimated useful
lives of the assets unless such lives
are indefinite. Intangible assets
with an indefinite useful life and
goodwill are systematically tested for
impairment at each balance sheet date.
Property leases are valued against
their estimated marketability and
an impairment charge is recorded if
appropriate. Other intangible assets
are amortised from the date they are
available for use.
The estimated useful lives are as
follows:
Asset
Class:
Trademarks
acquired
Estimated
Useful Life
Over the
registered life
Trademarks – Internally
generated value
Customer lists
Software and Licences
50 years
4 years
3-5 years
TRADE AND OTHER RECEIVABLES
Trade and other receivables are
recognised at their nominal amount
less any impairment losses and
provisions for bad and doubtful debts.
INVENTORIES
Inventories are stated at the lower of
cost and net realisable value. Cost
is based on the weighted average
principle and includes expenditure
incurred in acquiring the inventories
and bringing them to their existing
location and condition.
TRADE AND OTHER PAYABLES
Trade and other payables are
recognised at face value.
IMPAIRMENT
The carrying amounts of the
Company’s and the Group’s assets
other than inventories and deferred
tax assets are reviewed at 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
whenever the carrying amount of
an asset or its cash generating unit
exceeds its recoverable amount.
Impairment losses are recognised in
the income statement.
The results of the impairment review
on groups of assets are disclosed in the
relevant notes below.
INTEREST-BEARING BORROWINGS
Interest-bearing borrowings are
recognised initially at fair value
being proceeds less attributable
transaction costs. Subsequent to
initial recognition, interest-bearing
borrowings are stated at amortised cost
with any difference between cost and
redemption value being recognised in
the income statement over the period
of the borrowings on an effective
interest basis.
The effective interest basis is the
implicit interest rate which, over
the life of an investment or liability,
will compound to the expected final
asset or liability value, including all
of the costs and revenues expected
from that asset or liability over its
life. Debt instruments issued by
Group companies that are held by
other Group companies are reported
net in these Consolidated Financial
Statements.
DEBT MODIFICATION/
CANCELLATION
If the Group modifies its debt
arrangements, it considers how
substantive the change is in
determining the appropriate
accounting. This includes both
qualitative analysis, and quantitative
analysis of the level of change in
the cash flows of the new and old
arrangements. If the Group re-assesses
the likely repayment date of its debt
facility, it calculates the required gain
or loss on re-measurement of financial
liabilities carried at amortised cost.
Defined contribution plans
The Group operates a defined
contribution pension plan under
which the Group pays fixed
contributions into a separate entity
and will have no legal or constructive
obligation to pay further amounts.
Obligations for contributions to
defined contribution pension plans
are recognised as an expense in the
income statement as incurred.
Share-based payment transactions
Some employees of Fat Face Limited,
an indirect subsidiary, have been
The fair value is measured at grant
date and spread over the period
during which the employees became
unconditionally entitled to the fair
value of the shares. The fair value
of the shares acquired is measured
using an EBITDA multiple, taking
into account the terms and conditions
upon which the shares were granted.
The amount recognised as an expense
is adjusted to reflect the forecast
number of shares expected to be
forfeit without reaching full fair value.
For the tranches of C2 shares issued
in 2010, the directors of the Company
considered that the fair value could not
be estimated reliably. In accordance
with IFRS2 the Group adopted the
intrinsic value methodology for
these shares, whereby the intrinsic
value of this share-based payment is
re-measured at each reporting date,
with changes recognised in profit or
loss until the instrument is settled. All
other C2 shares are accounted for as
normal equity settled arrangements
under IFRS2.
REVENUE
Revenue represents the invoiced
amounts of goods sold and services
provided during the period, stated net
of value added tax.
Revenue arising from sale or return
represents the invoiced amounts of
goods sold and services provided during
the period, stated net of value added tax
and after any concession fees.
Revenue arising from the sale of gift
vouchers and gift cards is deferred and
recognised at the point of redemption.
Revenue arising from wholesale is
recognised when invoiced.
Other revenue represents royalty
income and rent receivable which is
recognised at the point of invoice.
EXPENSES
Cost of inventories recognised
as an expense
Cost of inventories recognised as an
expense represents variable expenses
(excluding VAT and similar taxes)
incurred from revenue generating
activity. Product sold by the Group is
the principal expense included under
this category.
Operating lease payments
Payments made under operating
leases are recognised in the income
statement on a straight-line basis over
the term of the lease. Lease incentives
received are recognised in the income
statement as an integral part of the
total lease expense and are therefore
also recognised on a straight-line basis
over the term of the lease.
Net finance costs
Net finance costs comprise interest
payable, finance charges on finance
leases, interest receivable on funds
invested and foreign exchange gains
and losses that are recognised in the
income statement. Interest income
and interest payable is recognised in
profit or loss as it accrues, using the
effective interest method.
Non-recurring items
Non-recurring items comprise of
material items of income and expense
which are not considered to be part of
the normal operations of the company.
These are separately disclosed on
the face of the income statement in
arriving at operating profit to assist
with the understanding of the financial
statements.
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,
that can be reliably measured and it is
probable that an outflow of economic
benefits will be required to settle the
obligation.
43
EMPLOYEE BENEFITS
granted shares in the Company.
In these consolidated financial
statements the fair value of shares
acquired is recognised as an employee
expense with a corresponding increase
in equity. The Company financial
statements also record an increase
in investment in subsidiaries and
corresponding increase in equity.
TAXATION
Tax on the profit or loss for the period
comprises current and deferred
tax. Tax 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 period, using tax rates enacted or
substantively enacted at the balance
sheet date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided on temporary
differences between the carrying
amounts of assets and liabilities for
financial reporting purposes and the
amounts used for taxation purposes.
The following temporary differences
are not provided for:
2. Segment Information
The Group’s chief operating decision
maker (the Chief Executive Officer)
reviews internal daily and weekly
sales reports and an internal monthly
reporting pack. The Chief Executive
Officer assesses the performance
of the operating segment based on
contribution, being operating profit
before depreciation and amortisation,
excluding head office costs.
Under IFRS8 the Group has elected
to aggregate store and e-commerce
activities as one segment. This is due to
the activities having similar:
• economic characteristics;
• products and services;
• the initial recognition of goodwill;
• the initial recognition of assets
or liabilities that affect neither
accounting nor taxable profit other
than in a business combination;
and
• differences relating to investments
in subsidiaries to the extent that
they will probably not reverse in
the foreseeable future.
The amount of deferred tax provided
is based on the expected manner
of realisation or settlement of the
carrying amount of assets and
liabilities, using tax rates enacted or
substantively enacted at the balance
sheet 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 assets can
be utilised.
Taxation is recognised directly in
Other Comprehensive Income when
the taxable items are accounted for
there.
NEW STANDARDS AND
INTERPRETATIONS
A full list of new accounting standards
and interpretations that have been
implemented in the year or will be
implemented next year, and which
have no significant impact, can be
found in note 25.
The Group has decided to voluntarily
adopt IFRS 8 Operating Segments
reporting requirements in the year.
Segmental information for the main reportable business segment of the Group is
included below.
2014
£000
2013
£000
Retail
197,766
176,337
Other
2,285
2,492
200,051
178,829
Retail
53,315
42,344
Other
990
1,106
54,305
43,450
Revenue & other income
Contribution
Other operating costs
(23,508)
(20,082)
Non-recurring items
(4,392)
(541)
(6,974)
(1,881)
(19,454)
(14,177)
(23)
6,769
Net finance cost
• customers; and
• being subject to a similar
regulatory environment.
Therefore the Group has one reportable
segment: Retail. Retail includes
revenue from store, e-commerce and
sale or return activities. Other includes
wholesale activities, rent receivables and
royalty income.
The internal monthly reporting pack
includes a balance sheet at a Group level
and no separate measures are provided
of assets and liabilities on a segmental
basis. In accordance with IFRS8, this has
therefore not been disclosed.
44
The Group sells products through its Retail channel to customers located overseas.
Revenue by geographical location
United Kingdom
Overseas
2014
£000
2013
£000
194,189
173,522
5,862
5,307
200,051
178,829
All non-current assets are located in the United Kingdom.
3. Expenses and Auditor’s Remuneration
Included in the loss for the period are the following non-recurring items:
2014
£000
2013
£000
413
172
61
115
37
254
4,434
—
Within staff expenses:
Staff restructuring costs expensed as incurred8
Within other operating expenses:
Professional services and other one-off items9
Impairment of loan notes issued by external party
10
Professional fees and services incurred relating to aborted IPO11
Lease surrender benefit
(553)
12
Non-recurring items included within Operating Profit
4,392
—
541
In addition to these items, certain costs in finance income and expenses are defined as non-recurring:
2014
£000
2013
£000
—
1,781
Within finance costs:
Debt write off costs13
Accelerated amortisation of debt costs
14
Non-recurring items included within Finance Costs
Non-recurring items before income tax
Non-recurring items income tax charge
Non-recurring items for the period
572
—
572
1,781
4,964
2,322
—
(553)
4,964
1,769
2014
£000
2013
£000
Other charges/ (credits):
(219)
Inventories written down/(back) in the period
(38)
Inventories loss recognised as an expense in the period
1,459
1,262
Operating leases: Land and buildings
21,167
20,423
246
5,091
5,129
Amortisation
3,406
2,686
31,101
29,708
2014
£000
2013
£000
10
7
73
72
Auditor’s remuneration:
Audit of these financial statements
Amounts receivable by auditors and their associates in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
Services relating to corporate finance transactions
Other services relating to taxation and sundry matters
8. Staff restructuring costs relate to severance,
relocation and one off bonus costs of
previous and current board members and
senior members of management.
9. Professional services and other one offitems include taxation advice for share
valuation, and legal advice in relation to
previous claims against the Company.
10. Impairment of loan notes issued by
external party relates to loan notes issued to
the employee benefit trust.
11. Professional fees and services incurred
relating to aborted IPO.
12. Lease surrender benefit reflects net income
received from a landlord in relation to store
exits.
1,133
—
26
59
1,242
138
13. F
ollowing the revision of the banking
facilities in 2012/13 the brought forward
unamortised debt costs were written off
as the modification was considered to be
substantive.
14. D
ue to changes in the expected debt
repayment profile the amortisation of debt
costs has been accelerated.
45
197
Depreciation of tangible assets (net of third party contributions)
Operating leases: Other
4. Staff Numbers and Costs
The average number of persons employed by the Group (excluding non-executive directors) during the period, analysed by
category, was as follows:
Number of
employees
Group
2014
Number of
employees
Group
2013
312
298
Stores
2,262
1,967
Total
2,574 2,265
Fat Base (head office)
The Company had no employees during the period.
The aggregate payroll costs of the persons employed by the Group were as follows:
2014
£000
2013
£000
Wages and salaries
33,119
28,683
Social security costs
2,077
1,957
Other pension costs
290
159
Healthcare costs
129
102
35,615
30,901
6,974
1,881
42,589
32,782
2014
£000
2013
£000
2,186
1,144
Total trading expense before share-based payments
Share-based payments (see note 18)
Total trading expense
5. Directors’ Emoluments
Directors’ emoluments on behalf of the Group are as follows:
Directors’ emoluments
20
24
5,107
1,536
Total
7,313
2,704
Company contributions to defined contribution pension plans
Key management personnel are considered to be the current senior management of the Group.
The share-based payments charge reflects the higher value attributed to the Group driven by the improved trading. The increased
charge is driven by the intrinsically valued shares issued in 2010. Accounting methodology under IFRS2 means these awards have
to be revalued each accounting period and so vary in amount. The directors have not benefitted from the share-based payments
in cash terms.
The aggregate of emoluments of the highest paid director was £722,000 (2013: £452,000) and company pension contributions of
£nil (2013: £nil) were made to a defined contribution scheme on their behalf.
Number of
directors
2013
Number of
directors
2012
2
2
Retirement benefits are accruing to the following number of directors:
Defined contribution benefit plans:
The amount accrued in respect of directors’ pensions at 31 May 2014 was £nil (2013: £nil).
46
6. Finance Income and Expense
2014
£000
2013
£000
46
22
—
600
430
—
476
622
2014
£000
2013
£000
9,196
11,020
Other interest payable
2,357
3,368
In respect of liabilities held at fair value:
Exit fee accrual
8,377
—
—
411
19,930
14,799
Finance income
In respect of assets held at fair value:
Bank interest income
In respect of liabilities held at fair value:
Exit fee (accrual adjustment)
Other:
Net foreign exchange gain
Finance cost
In respect of liabilities not held at fair value:
Interest expense on financial liabilities carried at amortised cost
Other:
Net foreign exchange loss
Of the Bank interest expenses, £4,464,000 relates to cash interest payable on bank debt (2013: £5,342,000) with the remainder
relating to payment in kind (PIK) interest which is added to the loan principal. Other interest payable consists of non-cash
interest on loan notes which is added to the loan principal (see note 16) and non-recurring accelerated amortisation of debt costs
of £572,000 (2013: included non recurring debt costs that were written off of £1,781,000).
The Exit fee accrual relates to an estimate of fees due to the Syndicated Banks at the time of an exit event.
47
7. Taxation
Recognised in income statement
2014
Total
£000
2013
Total
£000
5,497
3,444
Current tax expense
Current year
Adjustments for prior years
Total current tax
(505)
4,992
256
3,700
Deferred tax expense
Current year
(641)
(965)
Adjustments in respect of previous periods
246
29
Deferred tax rate change
(2,853)
(984)
Total deferred tax
(3,248)
(1,920)
1,744
1,780
2014
£000
2013
£000
Total tax in income statement
Reconciliation of effective tax rate
Tax using the UK corporation tax rate of 22.667% (2013: 23.833%)
Non-deductible expenses
Non-taxable income
Utilisation of unrecognised losses
Under/(over) provided in prior years
Impact of rate change on brought forward balance
(23)
6,769
(5)
1,613
4,890
1,014
(27)
—
(259)
(2,867)
(181)
(221)
509
(988)
Rate difference on deferred tax
12
34
Total tax in income statement
1,744
1,780
2014
£000
2013
£000
Recognised through the statement
of other comprehensive income
Deferred tax associated with effective portion of changes
in fair value of cash flow hedges
(146)
(76)
On 21 March 2013, reductions in the corporation tax rate were announced, reducing the rate to 21% from 1 April 2014 and 20%
from 1 April 2015. Such reductions will reduce future corporation tax charges, and reduce the future value of deferred tax assets
and liabilities. These changes were substantively enacted on 17 July 2013. The closing deferred tax balances have been valued at
20% (2013: 23%).
Deferred tax movements in the year are primarily as a result of the impact of the rate change.
48
8. Property, Plant and Equipment: Group
Freehold
land and
buildings
£000
Asset in the
course of
construction
£000
Short leasehold
land and
buildings
£000
Equipment
and fixtures
Motor
vehicles
Total
£000
£000
£000
124
145
3,691
42,795
35
46,790
—
11
360
5,845
—
6,216
Cost
Additions
Transfers between categories
—
Disposals
—
—
124
11
3,953
124
11
3,953
—
80
460
Transfers between categories
—
(11)
Disposals
—
—
124
80
Additions
(145)
71
(169)
11
(234)
74
—
(1,673)
—
—
(1,842)
47,041
35
51,164
47,041
35
51,164
8,589
—
9,129
—
—
—
(2,688)
—
(2,922)
4,190
52,942
35
57,371
Depreciation and impairment
(15)
—
(1,016)
(31,549)
(35)
(32,615)
Depreciation charge for the period
(3)
—
(216)
(5,489)
—
(5,708)
Disposals
—
—
168
1,673
—
1,841
(18)
—
(1,064)
(35,365)
(35)
(36,482)
(18)
—
(1,064)
(35,365)
(35)
(36,482)
Depreciation charge for the period
(3)
—
(118)
(5,785)
—
(5,906)
Disposals
—
—
234
2,688
—
2,922
(21)
—
(948)
(38,462)
(35)
145
2,675
11,246
—
(39,466)
Net book value
At 2 June 2012
109
14,175
At 1 June 2013
106
11
2,889
11,676
—
14,682
At 31 May 2014
103
80
3,242
14,480
—
17,905
The depreciation and impairment charge is recognised in the following line items in the income statement together with the
amortisation of lease incentives held on the balance sheet and amortised over the life of the lease:
2013
£000
5,906
5,708
Depreciation of tangible property, plant and equipment
Tangible assets
Unwinding of deferred lease incentives
Depreciation and lease amortisation
(815)
5,091
(579)
5,129
49
2014
£000
9. Intangible Assets: Group
Goodwill
£000
Trade
Marks
£000
Property
Leases
£000
Customer
Lists
£000
Software and
Licences
£000
Total
£000
263,150
118,080
1,500
84
1,268
384,082
Cost
Other additions – externally purchased
—
8
—
—
906
914
263,150
118,088
1,500
84
2,174
384,996
263,150
118,088
1,500
84
2,174
384,996
Other additions – externally purchased
—
17
—
—
1,037
1,054
263,150
118,105
1,500
84
3,211
386,050
(1,300)
(84)
(378)
(223,434)
Amortisation and Impairment
(209,700)
Amortisation for the period
—
(11,972)
—
(294)
(2,686)
(209,700)
(14,364)
(1,300)
(84)
(672)
(226,120)
(209,700)
(14,364)
(1,300)
(84)
(672)
(226,120)
Amortisation for the period
—
(209,700)
(2,392)
—
(2,392)
(200)
(16,756)
(1,500)
—
(84)
(814)
(3,406)
(1,486)
(229,526)
Net book value
At 2 June 2012
53,450
106,108
200
—
890
160,648
At 1 June 2013
53,450
103,724
200
—
1,502
158,876
At 31 May 2014
53,450
101,349
—
—
1,725
156,524
Goodwill represents amounts arising on the acquisitions of subsidiaries, being the difference between the cost of the acquisition
and the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. This will include the value of the
workforce in place, the future marketability of the brand, represented by potential income streams not yet being exploited,
and the synergies arising from the utilisation of the Group’s assets as a whole, over and above their individual value-generating
capacity. Goodwill attributable to the stores cash generating unit totals £46,321,000 and for the e-commerce cash generating unit
totals £7,129,000 across both periods.
The original assessment of trade mark valuation was determined internally using a method based on a 6% (2013: 6%) discounted
future notional royalty stream. The customer file was originally valued internally using market rates for customer list rental. A
discount rate of 8.4% (2013: 12%) was used, which was based on an industry standard average weighted cost of capital.
Amortisation Charge
The amortisation charge is recognised in the following line items in the income statement:
Depreciation and amortisation of trading assets
Amortisation of non-trading intangibles
50
2014
£000
2013
£000
1,014
294
2,392
2,392
3,406
2,686
IMPAIRMENT TESTING
The Group’s management has reviewed
the carrying value of goodwill for
possible impairment based on the
operating segments which comprise
the lowest level at which goodwill is
monitored.
The process of impairment testing is
intended to estimate the recoverable
amount of an asset and recognise
an impairment loss whenever the
carrying amount of an asset exceeds
the recoverable amount. The Group
conducts impairment testing on
goodwill, brand and property, plant
and equipment annually to determine
whether there is any indication of
impairment.
Management judges the recoverable
amount of an asset as the greater of
its value in use and its fair value, less
costs associated with selling the asset.
To assess value in use, estimated future
cash flows are discounted to their
present value using an appropriate
post-tax discount rate. The Group’s
internally developed business
plans are used as the basis for these
calculations.
The discounted cash flow models used
to estimate the applicable fair values
involve numerous estimates and
assumptions that are highly subjective:
including growth rates related to
operating profit before interest,
tax, depreciation and amortisation;
discount rates used to derive the
present value; and revenue run rates.
Changes to these estimates and
assumptions could materially impact
the fair value estimates and as such,
sensitivities around these are carried
out.
The results of the Group’s impairment
testing for the carrying value of
goodwill indicated no impairment was
required in the period. The historical
amortisation of goodwill arose in
2009 when a review of conditions at
the time suggested that the value of
goodwill was impaired.
Management judges that as Trade
Marks are being amortised on an
annual basis and no triggers for
impairment have been identified then
an impairment test for the carrying
value of the Trade Marks is not
required in the period.
INCOME STREAM FORECASTS
The key revenue driver for the
business will continue to be the
development of the retail portfolio.
The directors believe that there is
significant capacity for growth through
improving sales growth, relocating and
refitting stores in successful markets
and expanding the portfolio. A
perpetuity growth rate of 2% has been
assumed.
Costs are assumed to grow at an
assumed inflation rate in conjunction
with a reasonable increase in costs to
support the continued expansion.
DISCOUNT RATE
The Group’s weighted average cost
of capital (WACC) as adjusted for a
market based interest rate and capital
structure has been used as a discount
rate in the calculation, adjusted to
arrive at a post- tax rate. The post-tax
discount rate, the rate stakeholders
could reasonably expect as an average
return for their investment, has been
estimated at 8.4% (2013: 14%).
This calculation has been built up by
comparing the equity returns expected
from a range of similar companies,
both UK and overseas, and adjusting
this for specific Group factors such as
debt structure, company size, and the
effects of a private, rather than public,
equity structure.
SENSITIVITY
The key assumptions as noted above
are net operating cash flows generated
and the WACC used. A decrease in
net operating cash flows in each year
of 1% would reduce the valuation of
the business by approximately £5.6m,
but would not result in impairment.
An increase in the WACC from 8.4%
to 22.0% would result in impairment
charges arising.
Common assumptions have been
adopted for the purpose of testing
goodwill across the operating
segments. The key assumptions and
estimates used when calculating
the net present value of future cash
flows from the Group’s businesses
include growth in operating profit
before interest, tax, depreciation and
amortisation, the timing and quantum
of future capital expenditures, long
term growth rates and discount rates to
reflect the risks involved.
COST GROWTH FORECASTS
51
10. Investments in Subsidiaries
Company
2014
£000
2013
£000
26,199
19,268
Accumulated interest on loan notes
5,726
5,050
Intergroup restructuring (see below)
17,891
—
Additions during the year arising from share-based payments
6,974
1,881
56,790
26,199
Opening investment
Closing investment
On 9 May 2014, the Company formed a new subsidiary FatFace Group Borrowings Limited by acquiring 100% of the share capital
of £2. The Company then transferred its investment in Fat Face World Investments Limited (carried at £8,308,000) to this new
subsidiary for £26,199,000, settled by means of an additional share issue from FatFace Group Borrowings to the Company, as part
of the group restructure.
The directors have reviewed the carrying value of the loan notes issued by Fat Face World Investments Limited as part of the
overall valuation of the Group. The underlying operating performance of the Group remains strong with forecasts showing that
external bank debt will continue to be repaid. However, there remains doubt over the subsidiary’s ability to make full repayment
to the Company, therefore there has been no reversal of previous impairments. Whilst there are strong indications that direct/
indirect subsidiaries will be able to repay most of the debt with the Company, due to the sensitivities around this no reversal of
previous impairments has been made.
The Group and Company have the following investments in subsidiaries:
Country of
incorporation
Class of
shares held
Ownership
2014
Ownership
2013
UK
Ordinary
100%
—
Fat Face World Investments Limited
UK
Ordinary
100%
100%
Fat Face World Borrowings Limited
UK
Ordinary
100%
100%
Fat Face Fulham Limited
UK
A Ordinary
100%
100%
B Ordinary
100%
100%
Group and Company
FatFace Group Borrowings Limited
Group
Fat Face Newco1 Limited
UK
Fat Face Newco2 Limited
UK
Fat Face Holdings Limited
Fat Face Limited
UK
C Ordinary
100%
100%
D Ordinary
100%
100%
E Ordinary
100%
100%
Deferred
100%
100%
Ordinary
100%
100%
Ordinary
100%
100%
Preference
100%
100%
Ordinary
100%
100%
Ordinary A
100%
100%
Ordinary B
100%
100%
UK
Founder
100%
100%
UK
Ordinary
100%
100%
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
(224)
367
—
—
—
1
—
—
(224)
368
—
—
11. Other Financial Assets and Liabilities
Held for hedging:
Current
Fair value of exchange rate hedge
Fair value of interest rate hedge
The Group’s exposure to interest rate, liquidity, foreign currency and credit risks is disclosed in note 21. For details on valuation
methodology adopted see note 21.
52
12. Deferred Tax Assets and Liabilities: Group
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
2014
£000
(1,547)
—
Intangible assets
(208)
Accruals
Provisions and employee benefits
Financial liabilities
(1,506)
—
Liabilities
2014
£000
Liabilities
2013
£000
—
—
20,249
23,905
—
—
—
—
—
—
(62)
—
—
84
20,249
23,989
(1,817)
Tax (assets)/liabilities
Assets
2013
£000
(657)
(2,163)
Net off tax (assets)
—
—
(1,817)
Net tax liabilities
—
—
18,432
21,826
2 June
2012
£000
Recognised
in income
£000
Recognised
in equity
£000
1 June
2013
£000
116
—
(2,163)
Movement in deferred tax during the period
(1,622)
Intangible assets
25,511
Accruals
(227)
160
23,822
2 June
2013
£000
(1,506)
Intangible assets
23,905
Accruals
(657)
84
21,826
(1,606)
(430)
—
(1,920)
Recognised
in income
£000
—
—
(657)
(76)
84
(76)
21,826
Recognised
in equity
£000
(41)
—
(3,656)
—
449
—
(3,248)
(1,506)
23,905
—
(146)
(146)
31 May
2014
£000
(1,547)
20,249
(208)
(62)
18,432
At the balance sheet date, the Group has an unrecognised deferred tax asset of £nil (2013: £nil) arising from losses. The Company
has no deferred tax assets or liabilities.
13. Inventories
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
Finished goods and goods for resale
20,658
16,839
—
—
Cost of inventories recognised as an expense
72,936
67,748
—
—
All inventories are expected to be sold within 12 months.
Inventory provisions comprise amounts in respect of inventories expected to be sold at less than cost price, together with an
estimate of inventory shrinkage. The value of inventories expected to be sold at less than cost price is determined based on
historic cost, current sales price, together with volumes held. The estimate of inventory shrinkage is calculated based on historic
data of levels of inventory adjustments not recognised through the stock take process.
53
14. Trade and Other Receivables
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
—
—
104,016
85,162
2,905
2,542
78
91
Trade receivables
1,678
448
—
—
Other receivables
—
—
2
1
4,583
2,990
104,096
85,254
Amounts due from Group companies
Prepayments
As at 31 May 2014, £1,039,111 (2013: £94,000) of the other short term trade receivables balance was overdue. In the month
following the year end over half (2013: over half ) of the overdue balance was recovered. Receivables of £24,000 (2013: £59,000)
have been provided against at the end of the period.
Of trade receivables, 100% (2013: 100%) are in respect of UK debtors. Trade receivables mostly arise from the Company’s sale or
return and wholesale operations and landlord contributions. No collateral is held against the outstanding amounts and no other
amounts are past due except as disclosed. The maximum credit risk from financial assets is £1,678,000 (2013: £448,000).
15. Cash and Cash Equivalents
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
Cash and cash equivalents per balance sheet
21,356
27,416
88
129
Cash and cash equivalents per cash flow statements
21,356
27,416
88
129
16. Other Interest-Bearing Loans and Borrowings
This note provides information about the contractual terms of the Group and Company’s interest-bearing loans and borrowings.
For more information about the Group and Company’s exposure to interest rate and foreign currency risk, see note 21.
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
8,403
14,479
—
—
—
—
—
—
8,403
14,479
—
—
Shareholder loan notes
18,571
16,883
—
—
Related party loan notes
2,655
1,148
—
—
114,599
135,198
—
—
135,825
153,229
—
—
Current liabilities
Current portion of secured bank loans
Bank overdrafts
Non-current liabilities
Secured bank loans
54
16. Other Interest-Bearing Loans and Borrowings (continued)
Terms and debt repayment schedule
This table provides information about the contractual terms of Group’s interest-bearing loans and borrowings, showing both the
principal and carrying values, which are measured at amortised cost. For more information about the Group’s exposure to interest
rate, liquidity, foreign currency and credit risks, see note 21.
Year
of final
maturity
Face value
(Group)
£000
Carrying
amount
(Group)
£000
Face
value
(Company)
£000
Carrying
amount
(Company)
£000
At 1 June 2013
Currency
Nominal
interest rate
Cash paid
Facility A
£
LIBOR+3.00%
2.375%
2016
20,030
23,529
—
—
Facility B
£
LIBOR+4.75%
1.00%
2016
86,786
89,459
—
—
Facility B EURO
€
LIBOR+4.00%
1.00%
2016
7,274
7,504
—
—
2nd Lien
£
—
LIBOR+6.75%
2017
21,600
27,232
—
—
2nd Lien EURO
€
—
LIBOR+6.00%
2017
966
1,210
—
—
Revolving facility
£
LIBOR+2.875%
—
2016
704
743
—
—
Related party
loan notes
£
—
—
2018
1,148
1,148
—
—
Shareholder
loan notes
£
—
9.762%
2018
12,967
16,883
—
—
151,475
167,708
—
—
Year
of final
maturity
Face value
(Group)
£000
Carrying
amount
(Group)
£000
Face
value
(Company)
£000
Carrying
amount
(Company)
£000
Payment
in kind
At 31 May 2014
Currency
Nominal
interest rate
Cash paid
Facility A
£
LIBOR+2.875%
2.00%
2016
8,400
12,066
—
—
Facility B
£
LIBOR+4.625%
0.625%
2016
71,618
74,978
—
—
Facility B EURO
€
EURIBOR+3.875%
0.625%
2016
4,959
5,232
—
—
2nd Lien
£
—
LIBOR+6.75%
2017
21,600
29,492
—
—
2nd Lien EURO
€
—
EURIBOR+6.00%
2017
919
1,234
—
—
Revolving facility
£
LIBOR+2.375%
—
2016
—
—
—
—
Related party
loan notes
£
—
—
2018
2,655
2,655
—
—
Shareholder
loan notes
£
—
9.762%
2018
12,967
18,571
—
—
123,118
144,228
—
—
The Group has entered into a security
document which comprises fixed and
floating charges over the Group’s assets,
together with assignments (by way of
security) of insurance policies, specified bank
accounts and certain specified contracts.
All Group term facilities and borrowings
are denominated in sterling and to a
lesser extent Euros. All term facilities
and borrowings are carried at face value
net of unamortised acquisition costs plus
(where applicable) accumulated unpaid
dividends and interest.
Some of the Company’s subsidiaries
(including the principal operating
company) have entered into long-standing
security documents in favour of the
banking syndicate which comprise fixed
and floating charges over each company’s
assets, together with assignments (by way
of security) of insurance policies, specified
bank accounts and certain specified
contracts.
The secured bank borrowings include,
as at 31 May 2014, £27,445,000 (1 June
2013: £27,445,000) of debt held by 101
Nominees No.1 Limited, which is an
affiliate of Bridgepoint and £2,148,000
(1 June 2013: £2,148,000) of debt held by
Hamilton Lane Inc, which is an affiliate of
a shareholder of the Group. The debt is on
the same terms as held by other lenders.
15. EBITDA as defined in the Senior Facilities Agreement as
earnings before interest, tax, depreciation and amortisation.
The Group has issued loan notes in the
52 weeks to 31 May 2014 to the sum of
£1,420,000 (1 June 2013: £958,000) in respect
of interest which would otherwise have been
payable to 101 Investment Nominees No.1
Limited and £87,000 (1 June 2013: £38,000)
in respect of interest which would otherwise
have been payable to Hamilton Lane Inc.
Net debt is the total amount of cash and
cash equivalents less interest-bearing
loans and borrowings and finance lease
liabilities. 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 only.
55
The Group’s banking facilities are subject to
EBITDA15, interest and cash cover covenants
typical for borrowings of this nature. All
covenants were met for all periods.
Payment
in kind
16. Other Interest-Bearing Loans and Borrowings (continued)
Net debt is the total amount of cash and cash equivalents less interest-bearing loans and borrowings and finance lease liabilities.
Cash and cash equivalents comprise cash balances and call deposits.
2014
£000
2013
£000
21,356
27,416
(144,228)
(167,708)
Net debt
(122,872)
(140,292)
Company
The Company incurred no costs associated with the establishment of new debt facilities during the period (2013: nil).
17. Trade and Other Payables
Group
2014
£000
Group
2013
£000
Company
2014
£000
Company
2013
£000
32,583
Current
—
—
40,442
Trade payables
12,810
11,864
—
—
Non-trade payables and accrued expenses
21,669
11,165
3,475
105
826
823
—
—
35,305
23,852
43,917
32,688
14,037
5,913
10,885
2,508
6,270
4,698
—
—
20,307
10,611
10,885
2,508
Amounts due to Group companies
Interest payable
Non-current
Accrued expenses
Deferred lease incentives
The increase in current non-trade payables and accrued
expenses from 1 June 2013 to 31 May 2014 is primarily
driven by additional head office and store bonus accruals as
a result of the trading performance and accruals relating to
professional fees relating to the aborted IPO.
Accrued expenses includes £100,000 (2013: £100,000) in
respect of amounts owed to an ex-director of the Group.
56
All group payables are payable on demand. Current trade
payables, non-trade payables and accrued expenses are
expected to be paid within 12 months.
The increase in non-current accrued expenses from 1 June
2013 to 31 May 2014 is mainly as a result of an increase in the
exit fee accrual.
18. Employee Benefits
Defined contribution plans
The Group operates a defined contribution pension plan.
The total expense relating to this plan in the current year was £290,000 (2013: £159,000). The total owed to the plan at the end of
the year was £52,000 (2013: £1,000). The total owed by the plan at the year end was £4,379 (2013: £nil).
Certain senior management of Fat Face Limited are invited to become shareholders in the ultimate parent. ‘C2’ ordinary shares
and ‘C1A’ ordinary shares are offered at a price reflecting the performance and future prospects of the business. An earlier
incentive scheme offered ‘B’ ordinary shares on a similar basis.
The Articles of Association of the Company (‘the Articles’) define ‘Good Leavers’ and ‘Bad Leavers’, where a ‘Bad Leaver’ is an
employee-shareholder leaving the business because of voluntary resignation or termination in circumstances justifying summary
dismissal. All other employee-shareholders leaving the business are ‘Good Leavers’. On leaving the business, the Articles require
that a Bad Leaver surrenders their ‘B’, ‘C1A’ and ‘C2’ ordinary shares at the lower of fair value and the cost for which the shares
were acquired.
On leaving the business, the Articles require that a Good Leaver sells their ‘B’, ‘C1A’ and ‘C2’ ordinary shares as directed by the
majority investors at a value between cost and fair value calculated by reference to length of service. It is expected that the shares
will be surrendered to other employee-shareholders in the business. The shares granted are deemed to be equity settled.
Within the consolidated financial statements the fair value of shares acquired was recognised as an employee expense with a
corresponding increase in equity. The fair value of shares was measured at the date granted to the employee and spread over the
period during which the employee became unconditionally entitled to the fair value of the shares.
The fair value of the shares acquired by the employee was measured using the estimated enterprise value of the business taking
into account the terms and conditions upon which the shares were granted. The enterprise value of the business was based on
the latest management estimate of the exit date, and projections and growth rates related to operating profit before interest, tax,
depreciation and amortisation. The resulting fair value was then spread over the period to the anticipated exit date.
Grant date
Number of
instruments
Charged to income
2014
£000
Charged to income
2013
£000
27,500,000
—
—
48,936,165
2,762
115
Award of ‘C2’ ordinary shares granted 28 May 2010
41,010,636
2,314
63
10,638,297
144
144
Award of ‘B’ ordinary shares granted 17 May 2007
Award of ‘C2’ ordinary shares granted 15 April 2010
37
37
378,682,631
1,023
1,023
Award of ‘C1A’ ordinary shares granted 14 January 2013
134,308,765
363
363
Award of ‘C1A’ ordinary shares granted 1 February 2013
50,615,995
136
136
Award of ‘C2’ ordinary shares granted 18 October 2013
712,985
46
—
2,318,929
149
—
6,974
1,881
Award of ‘C2’ ordinary shares granted 28 February 2012
Total expense recognised for the year
For the tranches of C2 shares issued in 2010, the directors of the Group considered that the fair value could not be estimated
reliably. In accordance with IFRS2 the Group adopted the intrinsic value methodology for these shares, whereby the intrinsic
value of this share-based payment is re-measured at each reporting date, with changes recognised in profit or loss until the
instrument is settled. All other C2 shares are accounted for as normal equity settled arrangements under IFRS2.
The better outlook on company prospects, improved trading performance and debt repayments have increased the valuation of
the business leading to an increased charge in the current period.
As set out above, the directors consider the charge based on the fair value of the C2 share-based payment under this methodology
to be £2,478,000 per annum (2013: £530,000).
57
2,765,957
Award of ‘C1A’ ordinary shares granted 4 January 2013
19. Provisions
Onerous lease
Provision £000
Dilapidation
Provision £000
Total
£000
527
96
623
Provisions utilised/released during the year
(104)
(96)
(200)
Provisions created during the year
1,738
309
2,047
2,161
309
2,470
2,161
309
2,470
Provisions utilised/released during the year
(328)
(307)
(635)
Provisions created during the year
1,008
217
1,225
2,841
219
3,060
Current
2,079
145
2,224
762
74
836
Non-current
Where the Group will no longer trade from a leased property, either due to the lease expiring or as a result of other considerations,
a review is carried out to determine whether an onerous lease or a dilapidations provision is required.
An onerous lease provision equalling the cost of a lease is made where the lease is not sublet. In instances where the lease is sublet,
the onerous lease provision equals the cost of the lease less income from the sublease. Where negotiations on a sublease are ongoing, management’s best estimate is used to determine what the anticipated cost to the business will be. This is discounted to its
present value using the Group’s post-tax weighted average cost of capital.
A dilapidations provision is made to cover the cost of returning properties to the condition required by the lease upon exit from
the lease. A dilapidations provision is based on management’s assessment of the store relocation programme and the current
state of properties in the Group’s portfolio.
Onerous lease and dilapidation provisions are reviewed on a lease by lease basis.
58
20. Capital and Reserves
Share Capital
In thousands of shares
Deferred
shares
Preferred
ordinary
shares
Total shares paid up at 2 June 2012
179,682
15,138
Share split
—
—
Issued for cash
—
—
179,682
—
Total shares paid up at 1 June 2013
Issued for cash
Capital reduction
Total shares paid up at 31 May 2014
(179,682)
—
C1
shares
C1A
shares
602,837
C1B
shares
C2
shares
Ordinary
shares
—
—
103,350
100,000
602,837
602,837
—
—
—
—
—
—
—
15,138
—
602,837
602,837
103,350
100,000
—
—
—
—
3,032
—
(602,837)
—
—
—
—
—
—
15,138
—
602,837
602,837
106,382
100,000
2014
Authorised,
allotted, called up
and fully paid
£000
2013
Authorised,
allotted, called up
and fully paid
£000
A Ordinary shares of £0.01 each
725
725
B Ordinary shares of £0.01 each
275
275
—
18
Share capital
Deferred shares of £1.00 each
151
151
C1 shares of £0.000047 each
—
—
C1A shares of £0.000001 each
1
1
C1B shares of £0.000046 each
27
27
C2 shares of £0.000047 each
5
5
1,184
1,202
Preferred ordinary shares of £0.01 each
The holders of A and B ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at General Meetings.
The holders of C1B shares are not entitled to receive dividends but are entitled to one vote per share at General Meetings.
The holders of C1A and C2 shares are not entitled receive dividends or to vote at General Meetings.
During the period the Company issued C2 shares for a total consideration of £34.
During the prior period, the C1 class of shares were split into 2 new share classes, C1A and C1B. At the time of this change, each
C1 shareholder was given 1 C1A share and 1 C1B share for each of their C1 shares with no additional cash consideration paid. Capital contribution reserve
The capital contribution reserve first arose in March 2010 when the redeemable preference shares were reclassified as deferred
shares with no dividend rights and curtailed rights on capital distribution. Accordingly the principal waived on these shares
together with the dividend accumulated to March 2010 was reclassified as a capital contribution. Following the completion of the
capital reduction in the year this reserve has now been cancelled (as mentioned above).
Cash flow 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 – see note 21.
59
A capital reduction was completed 30 April 2014 when a special resolution was passed authorising the cancellation of
179,681,812 A deferred shares of £1 each in the Company and the cancellation of the capital contribution reserve.
21. Financial Instruments
21(a) Fair values of financial instruments
FAIR VALUE HIERARCHY
The Group analyses financial
instruments carried at fair value by
valuation method. The different levels
have been defined as follows:
• Level 1: quoted prices (unadjusted)
in active markets for identical
assets or liabilities;
• Level 2: inputs other than quoted
prices included within Level 1
that are observable for assets or
liabilities, either directly (i.e. as
prices) or indirectly (i.e. derived
from prices); and
• Level 3: inputs for assets or
liabilities that are not based
on observable market data
(unobservable inputs).
INVESTMENTS IN DEBT AND
EQUITY SECURITIES
Investments in subsidiary companies
are carried at acquisition cost and
reviewed for impairment. There has
been no impairment in 2014, or 2013,
as discussed in note 10.
for any amounts where recovery
is doubtful. All trade and other
receivables are expected to be short
term and therefore no discounting
of value is appropriate. The fair
value of trade and other receivables
approximate the carrying values.
TRADE AND OTHER PAYABLES
Trade and other payables are carried at
the face value payable. All trade and
other payables are expected to be short
term and therefore no discounting of
future cash flows is appropriate. The
fair value of trade and other payables
approximate the carrying values.
CASH AND CASH EQUIVALENTS
The fair value of cash and cash equivalents
is estimated at its carrying amount.
INTEREST-BEARING BORROWINGS
Fair value which, after initial
recognition is determined for
disclosure purposes only, is calculated
based on the expected discounted
future cash outflows.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are carried
at recoverable amount, less provisions
Group
If the interest-bearing borrowings were
carried at fair value then they would
be a level 3 fair value instrument.
DERIVATIVE FINANCIAL
INSTRUMENTS
The fair value of forward exchange
contracts is estimated by reference to
the difference between the contractual
forward price and the current forward
price for the residual maturity of the
contract. The contracts are a level 2 fair
value instrument in terms of the Fair
Value hierarchy.
The fair value of the interest rate cap
is based on broker quotes. Those
quotes are tested for reasonableness
by discounting estimated future cash
flows based on the terms and maturity
of each contract and using market
interest rates for a similar instrument
at the measurement date. The cap is a
level 2 fair value instrument in terms
of the Fair Value hierarchy.
The fair values for each class of financial
assets and financial liabilities together
with their carrying amounts shown in
the balance sheet are as follows:
Carrying
amount
2014
£000
Fair value
2014
£000
Carrying
amount
2013
£000
Fair value
2013
£000
—
—
367
367
Assets
Other financial assets
4,583
4,583
2,990
2,990
21,356
21,356
27,416
27,416
25,939
25,939
30,773
30,773
—
—
Liabilities
(224)
(224)
(144,228)
(140,019)
(167,708)
(125,931)
(35,305)
(35,305)
(23,852)
(23,852)
(179,757)
(175,548)
(191,560)
(149,783)
There have been no transfers between levels in any period.
COMPANY
The Company holds no material balances of this nature other than inter-company balances, which are not subject to a fair value
adjustment.
60
21. Financial Instruments (continued)
21(b) Credit risk
GROUP
Credit risk arises from cash and cash
equivalents, derivative financial
instruments and deposits with banks
and financial institutions and from the
Group’s receivables from customers.
The Group seeks to ensure that the
banks used for the financing of the loan
facilities and hedging purposes have an
acceptable credit rating by independent
credit rating agencies.
The Group’s operations are principally
retail and so the exposure to credit risk
is minimal. The Group periodically
reviews its receivables and makes
appropriate allowances where recovery
is deemed to be doubtful.
The allowance account for trade
receivables is used to record impairment
losses unless the Group is satisfied
that no recovery of the amount owing
is possible; at that point the amounts
considered irrecoverable are written off
against the trade receivables directly.
COMPANY
The Company has no material external
credit risk.
21(c) Liquidity Risk
GROUP
The Group retains ample headroom
in its available working capital.
The Group has had unutilised and
undrawn banking facilities of £7.5m
during the period to 31 May 2014
(period to 1 June 2013: £7.5m).
The directors believe that the Group
will be able to continue to meet its
need for liquidity from these facilities.
The Group monitors its headroom
daily, forecasts its cash flow on a daily
basis for approximately three months
ahead and monthly for approximately
a year ahead, and monitors monthly
its exposure to banking covenants
in order to ensure that there are no
unforeseen liquidity problems.
At the period end, the Group had
letters of credit in issue which were
not yet payable as at 31 May 2014 of
£0.8m (2013: £0.9m). These were all
expected to fall due within one year
and are not included in the balance
sheet liabilities figure.
COMPANY
The Company has no third party
debt and therefore no material
liquidity risk. Long term liabilities
are not expected to fall payable in
the foreseeable future and current
liabilities are substantially payable to
Group companies.
The following are the contractual
maturities of financial liabilities,
including estimated interest payments
and excluding the effect of netting
agreements:
61
Liquidity risk is the risk that the Group
will not be able to meet its financial
obligations as they fall due. The
Group’s banking facilities include
revolving credit facilities totalling
£17.5m. £10.0m relates to funds which
have been drawn and utilised in part
for letters of credit, guarantees and
documents in trust. Any unutilised
balances are available to be utilised
and drawn as cash facilities for
the Group to fund the day-to-day
overdrafts as and when required.
21(c) Liquidity Risk (continued)
2013 at balance sheet date
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
149,677
185,063
18,947
16,623
149,493
—
16,883
28,568
—
—
28,568
—
Non-derivative financial liabilities
Secured bank loans
Accrued expenses
1,148
7,283
—
—
7,283
—
23,852
23,852
23,852
—
—
—
2,508
2,508
—
—
2,508
—
—
(1)
—
—
Derivative financial assets
Interest rate cap used for hedging
(1)
(1)
194,067
247,273
42,799
16,622
187,852
—
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
123,002
140,754
12,016
11,703
117,035
—
18,571
28,183
—
—
28,183
—
Secured bank loans
2,655
8,187
—
—
8,187
—
35,305
35,305
35,305
—
—
—
Accrued expenses
10,885
10,885
—
10,885
—
—
224
224
224
—
—
—
—
—
—
—
—
—
190,642
223,538
47,545
22,588
153,405
—
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
105
105
105
—
—
—
2,508
2,508
—
—
2,508
—
2,613
2,613
105
—
2,508
—
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
Derivative financial liabilities
Derivative financial assets
Interest rate cap used for hedging
Liquidity Risk – Company
Accrued expenses
Accrued expenses
62
3,475
3,475
3,475
—
—
—
10,885
10,885
—
10,885
—
—
14,360
14,360
3,475
10,885
—
—
21(d) Market Risk
Market risk is the risk that changes in
market prices, such as foreign exchange
rates, interest rates and equity prices will
affect the Company’s income or the value
of its holdings of financial instruments.
GROUP
The Group uses interest rate and forward
exchange hedges to manage its exposure
to changes in these market values as
discussed above.
Aside from changes that are reflected
in those variables, the Group has only
limited exposure to changes in raw
material prices since these represent a
relatively small part of the business’s
costs. UK labour costs tend to follow
UK inflation rates and can therefore be
reflected in selling prices and overseas
labour costs to be relatively inflexible to
the extent that they are passed on to UK
distributors.
FatFace monitors its pricing proposition
against major competitors.
COMPANY
The Company has a liability to pay an
exit fee to the senior facility A debt
holders on the sale or flotation of the
Group. This fee will be based on the
equity value of the business at that time
after the satisfaction of all preferential
claims and will therefore reflect the
expected improvements in the Group’s
results over the medium term.
An exit resulting in the payment of an
exit fee is not expected in the near term.
The directors have determined that the
fair value of this fee measured through
the income statement is currently
£10,884,715 (2013: £2,507,620). This is
re-measured on an annual basis.
Market risk – Foreign currency risk
GROUP
The Group imports finished goods from
overseas, some of which are settled in US
dollars. In accordance with the Group’s
Treasury Policy, the Group manages the
risk of foreign exchange fluctuations
through foreign exchange forward
contracts and options.
The total purchases in USD for each
season is estimated in advance. The
Group takes a contract allowing the
purchase of that quantity of dollars
between a range of dates at a fixed
dollar rate. As US dollar payments are
made, dollars are called down from
those contracts to cover the exposure.
Although at the time of purchase, fixed
orders have not been placed for product,
the expected payment profile can be
predicted with a high degree of accuracy.
Management have tested the effectiveness
of these hedging relationships
and concluded that they meet the
Due to the variability of exchange rates,
requirements for hedge accounting. The
the Group takes a succession of smaller
effect of the hedged exchange rate is
dollar contracts to benefit from day-toreleased to the profit and loss account
day fluctuations in rates. These have been as the purchases are made. No further
combined with upper and lower triggers impact to cash flow is expected. Some
in order to ensure that the Group’s
goods are purchased denominated in
exchange risk is still controlled.
euros. However, since the Group also has
sales operations in the euro-zone, further
Fair value is determined by obtaining a
hedging is not required.
market price valuation from the relevant
broker.
The Group’s exposure to foreign currency
risk is as follows. This is based on the
As at 31 May 2014, the Group had fixed
carrying amount for monetary financial
forward cover contracts in place in respect
instruments except derivatives when it is
of $41m expiring by 26 November 2014
based on notional amounts.
with a fair value loss of £224,000.
Short term receivables
Secured bank loans
Trade payables
Forward exchange contracts
Balance sheet exposure
Estimated forecast sales*
Sterling
£000
Euro
£000
US Dollar
£000
Other
£000
Total
£000
20,597
391
347
21
21,356
1,678
—
—
—
1,678
(116,536)
(6,466)
—
—
(123,002)
(9,977)
(307)
(2,526)
—
(12,810)
(224)
(24,619)
—
24,395
—
(6,382)
22,216
21
5,017
538
—
Estimated forecast purchase*
(4,426)
(37,160)
—
Net exposure
(5,791)
(14,406)
21
* Next twelve months; approximates to two trading seasons.
63
At 31 May 2014
21(d) Market Risk (continued)
Sensitivity analysis
In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Company and Group’s
earnings. The impact of a movement of 100 basis points in exchange rates on the Group is estimated to be £375,000 but would
not have a material impact on the Group due to the Group’s hedging policy mitigating any impact of a movement. Over the
longer-term, however, permanent changes in foreign exchange would have an impact on consolidated earnings. This impact would be
mitigated by many factors both internal and external, making it impossible to estimate the final size of that impact reliably.
Market risk – interest rate risk
PROFILE
At the balance sheet date the interest rate profile of the Group’s interest-bearing financial instruments was as described in note 16.
INTEREST RATE
In order to manage the risk of interest rate fluctuations, the
Group has in place an interest rate cap covering the following
proportion of the Group’s term facilities as at 31 May 2014:
71% (1 June 2013: 66%). The Group assess effectiveness at
inception and at each reporting date. The settlement dates
for the interest rate cap coincide with the expected maturity
dates for the Group’s term debts (substantially every month),
the same basis is used for measuring interest rates for both
the interest rate cap and the term debt, and the principal
amounts of the interest rate cap and the hedged portion of
the term debt match; as such, it is considered that both the
past and future changes in cash flows of the interest rate
cap will offset the cash flows associated with the interest
rate risk over the hedged portion of the Group’s term debt,
and consequently the hedge is effective. The current rate
caps LIBOR at 5% and remaining at this rate through to the
maturity date of the cap.
Fair value is determined by obtaining a market price
valuation from the relevant broker.
Principal Value
Capped LIBOR
£87,451,0005.0%
Fair Value
£0
This contract has been tested and proved to be effective and
therefore meets the requirements for hedge accounting. The
effect of the hedged interest rate is released to the profit
and loss account as interest costs are incurred. Cash flow is
affected on each settlement date.
SENSITIVITY ANALYSIS
A change of 100 basis points in interest rates applied to the
Group’s unhedged borrowings as at the balance sheet date
would increase or decrease profit or loss for a full year by
£0.8m (2013: £1.1m). The Group’s interest rate hedge is
expected to be fully effective, and therefore there should be
no additional impact on equity.
21(e) Capital Management
The Group’s objectives when managing capital are to
facilitate the on-going trade and expansion of the Group and
to safeguard its ability to continue as a going concern in order
to provide returns for shareholders, and benefits for other
stakeholders, and to maintain an optimal capital structure to
reduce the cost of capital.
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.
The directors look to optimise the debt and equity balance
and to maintain headroom on financial covenants.
Management have continued to measure and monitor
covenant compliance throughout the period and the Group
has complied with the requirements set.
The funding requirements of the Group are met by the
utilisation of external borrowings together with available
cash, as detailed in note 16.
64
There were no changes in the Group’s approach to capital
management during the year.
22. Operating Leases
Group
Non-cancellable operating lease rentals are payable as follows:
Land and
building
leases 2014
£000
Other
leases
2014
£000
Land and
building
leases 2013
£000
Other
leases
2013
£000
Less than one year
20,299
109
19,589
101
Between one and five years
66,836
89
65,749
132
More than five years
The Group leases store and warehouse locations under
operating leases. The Group also has operating leases
in respect of its vehicles and some items of plant and
equipment. The leases are of varied length with the longest
lease running until 2038.
Leases of land and buildings are typically subject to rent
reviews at specified intervals and provide for the lessee to pay
all insurance, maintenance and repair costs.
41,768
—
43,844
—
128,903
198
129,182
233
Certain rental expense is determined on the basis of revenue
achieved in specific retail locations and is accrued for on that
basis.
The Group sublets properties under operating leases. The
operating lease rent receivable in the next 12 months is
£56,685 (2013: £98,362).
COMPANY
The Company has no operating leases.
23. Capital Commitments and contingent liabilities
Group and Company
CAPITAL COMMITMENTS
CONTINGENT LIABILITIES
At 31 May 2014, the Group had entered into contracts to
open new stores and develop the Group’s IT infrastructure,
which will require estimated capital expenditure of
£1,005,184, (2013: £2,308,486).
In previous periods, the Company issued shares to directors
and employees, the valuations of which, if challenged, could
result in additional tax liabilities that the Company would be
liable for. No such challenge has been raised and therefore
no provision has been made in the accounts.
The Company has no capital commitments at the balance
sheet date.
24. Related Parties
Directors of the Company control, or have held in trust on their behalf, as at 31 May 2014: 6.7% (1 June 2013: 6.8%) votes over
shares of FatFace Group Limited.
The Group has related party relationships with its shareholders & key management.
All dealings with related parties are conducted on an arm’s length basis.
Purchases
£000
Amounts owed
by related party
£000
Amounts owed to
related party
£000
101 Investment Nominees No. 1 Limited
—
—
(28,555)
Hamilton Lane Inc
—
—
(2,187)
100
—
(17)
14
—
(6)
Cost
1 June 2013
Bridgepoint Advisers Limited
Employee Benefit Trust
Ex-director
–
—
(100)
114
—
(30,865)
Purchases
£000
Amounts owed
by related party
£000
Amounts owed to
related party
£000
101 Investment Nominees No. 1 Limited
—
—
(29,975)
Hamilton Lane Inc
—
—
(2,274)
100
—
(17)
38
—
(8)
Cost
31 May 2014
Bridgepoint Advisers Limited
Employee Benefit Trust
Ex-director
Bridegpoint Advisers manage the ultimate controlling party
of the Group: Bridgepoint Europe III Fund. During each
period the Group incurred an annual management charge
of £100,000 to Bridgepoint Advisers Limited.
The Employee Benefit Trust is operated as an independent
trust, separately from the management structure of the
FatFace group of companies and controlled by Bridgepoint.
The purchases incurred relate to administration of the
trust. The amount owed by the Employee Benefit Trust
that has subsequently been impaired as at 31 May 2014 was
£292,000 (1 June 2013: 256,000).
66
–
—
(100)
138
—
(32,374)
Accrued expenses include £100,000 in respects of amounts
owed to an ex-director of the Group (2013: £100,000).
For further information on the amounts owed to 101
Nominees No.1 Limited and Hamilton Lane Inc see note 16.
The compensation of key management personnel (the
directors) is disclosed in Note 5.
25. New standards and
interpretations
The following standards and interpretations, issued by
the International Accounting Standards Board or the
International Financial Reporting Interpretations Committee,
have been adopted by the Group with no significant impact
on its consolidated financial statements:
• IFRS 10 “Consolidated financial statements”;
• IFRS 11 “Joint arrangements”;
• IFRS 12 “Disclosure of interests in other entities”;
• IFRS 13 “Fair value measurement”,
• IAS 27 “Separate financial statements”; and
• IAS 28 “Investments in associates and joint ventures”.
EU endorsed IFRS and interpretations with effective
dates after 1 February 2014 relevant to the Group will be
implemented in the financial year when the standards
become effective.
The IASB has issued the following standards, amendments
to standards and interpretations that will be effective for the
Group as from 1 February 2014 or after. The Group does not
expect any significant impact on its consolidated financial
statements from these amendments.
• IAS 19 (Amendment) “Defined benefit plans”;
• IFRS 7 (Amendment) “Financial instruments: disclosures
– offsetting financial assets and financial liabilities”;
• IFRIC 20 “Stripping Costs in the Production Phase of a
Surface Mine”;
• IAS 32 (Amendment) “Financial instruments:
presentation – offsetting financial assets and financial
liabilities”;
• IFRS 10 & 12 (Amendment) “Investment Entities”;
• IAS 27 (Amendment) “Investment Entities”;
• IAS 36 (Amendment) “Recoverable amount disclosures for
non-financial asset”; and
26. Ultimate Parent Company and
Parent Company of Larger Group
The Company is the ultimate parent company of the
FatFace Group of Companies incorporated in England. The
ultimate controlling party is the Bridgepoint Europe III Fund
managed by Bridgepoint Advisers Limited which holds 76%
of the ordinary share capital of the Company and controls
syndicated holdings of a further 12%.
No other group financial statements include the
results of the Company.
• IAS 39 (Amendment) “Continuing hedge accounting after
derivative novations”.
fatface.com

FATFACE GROUP LIMITED

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