About the French Connection Group: June 2015

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