Annual Report and Financial Statements for the 52 weeks

Transcription

FATFACE GROUP LIMITED
Annual Report and Financial Statements
for the 52 weeks ended 30 May 2015
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-oriented 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
stores, e-commerce and international growth.
Adjusted EBITDA1
Revenue
163.6
178.6
200.1
39.3
205.4
36.5
31.2
24.1
2012
2013
2014
2015
Net cash from operating activities2
36.2
2013
155.9
35.7
2015
161.4
140.3
122.9
24.8
2013
2014
2015
2012
2013
1 Earnings before interest, tax, depreciation, and amortisation excluding share-based payment charges and non recurring items.
2 Cash generated from operations, net of tax paid and working capital movements during the year.
3 Interest bearing borrowings net of cash and cash equivalents.
4
2014
Net debt3
27.4
2012
2012
FatFace Group Limited Annual Report and Consolidated Financial Statements 2015
2014
2015
CONTENTS
Group Strategic Report
Chairman’s Letter
6
Our Story, Store and Sales Growth
8
Our Strategy 12
Key Performance Indicators
13
Business Review
14
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
38
Notes to the Financial Statements
40
THE DIRECTORS PRESENT THEIR
STRATEGIC REPORT FOR THE 52
WEEK PERIOD ENDED 30 MAY 2015
Chairman’s
LETTER
I am pleased to present
the FatFace Annual
Report and Accounts
for the 52 weeks to
30 May 2015. This has
been a year of continued
investment from which
we will benefit in the
coming years.
A year of four
different quarters
“FatFace has grown its
revenues every year
since it was established
in 1988. In 2014/15, the
business again achieved
another year of revenue
growth, increasing sales
by 2.7% (2014: 11.9%) to
over £205m (ex vat).”
However, this has been a year of four
quite different quarters. The business
enjoyed a good first quarter but in
quarter two, sales of outerwear and
knitwear, two categories the Group is
well known for, were impacted by the
unseasonably warm autumn weather.
Nevertheless the Group pursued its
policy of maintaining a full price
offer. The decision consequently not
to discount in the run up to Christmas
remained a key element of this strategy.
Christmas week saw the best company
sales week ever and our e-commerce
business saw a record breaking
single day of sales on Boxing Day.
E-commerce has continued to grow
strongly (11% in the year (2014: 39%))
and now represents over 16% (2014:
14.9%) of total sales. The market
remained promotion led throughout
quarter four. Our full price stance
and corresponding focus on short,
clearly defined sale periods continued
to resonate well with our customers
and allowed us to record our best sale
ever outside of the Boxing Day sale in
May this year. Overall this cumulative
quarterly performance resulted in a
lower Group EBITDA of £36.5m (2014:
£39.3m) for the year.
Investment in the business continued
with £9.2m (2014: £7.4m) of capital
expenditure in the year focused on
enhancing and expanding the store
portfolio and strengthening our
IT platform.
FatFace 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 differentiated
service style. During the year we
employed a further 156 crew in the
business. Tellfatface.com, which
allows customers to feedback on their
experience with us, was launched in
the year and its positive feedback
reflects our strong customer service
culture.
On behalf of the Board, I would like to
thank all of the Crew in stores and at
Head Office for their contribution in
this more difficult year.
New long term finance
Following our decision to halt the
IPO, the Board decided to refinance
the Group during the autumn. New
£180m long term debt facilities
were put in place alongside a £30m
revolving credit facility. These
facilities place the Group in a strong
financial position, allow it to continue
to invest in the future development
of the business and facilitated the
first return of capital to the current
shareholders.
Composition of the
Board
William Crumbie was appointed to
the Board as Finance Director on
24 November 2014 following a
successful spell as Interim Finance
Director. Will joined us in January
2014 having previously been at
Alliance Boots and Deloitte.
Following the year end and consistent
with our plans for future growth
both in the UK and overseas,
we strengthened the internal
management Board (“the FFB”) with
the appointment of Simon Ratcliffe
as Infrastructure Director, responsible
for Supply Chain, Distribution and IT.
Simon has been responsible for supply
chain and distribution at FatFace since
2012 overseeing the extension to our
warehouse and distribution centre in
2013 and building valuable flexibility
into our sourcing.
At the same time, Mark Seager,
previously E-commerce and Marketing
Director, was appointed Multichannel
Director with responsibility for
all our UK retail channels: Stores,
E-commerce, Concessions and
Wholesale. Simon Pickering added
Marketing to his Design, Buying,
Merchandising and Sourcing
responsibilities becoming the Group’s
Trading Director. Finally, to reflect
the development of our international
business, Simon Greene was appointed
as International & Property Director.
These roles better reflect the way in
which our customers interact with us
as well as our strategic priorities in the
next few years.
We believe that this structure, under
the experienced guidance of our
Chief Executive, Anthony Thompson,
will ensure the Board is well placed
to drive growth in the business in the
coming years.
Looking to the future
2015/16 will be a year of renewed
focus for the business. The Group
continues to have a good pipeline of
new space in the UK and has identified
opportunities to relocate and expand
existing stores during the coming
year. Our dedicated US website has
now been launched and our first US
stores will open in the last quarter of
the 2015 calendar year as the Group
begins its first international operations
outside of the UK & Eire. We
remain true to our vision and ethos,
continuing to put customers first and
ensure that quality, style and value are
at the centre of everything we do.
Lord Rose
Chairman
7
Our
HERITAGE
More
RECENT
TIMES
La Face, Val d’Isere
Cribbs Causeway, Bristol
1988
1992
1993
1997
2001
2002
2005
2007
2011
2013
2014
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
100 store
opens
Bridgepoint
acquires FatFace
Deliver
to store
launches
Record Year
of EBITDA
2006
2010
Relationship
with
John Lewis
begins
Anthony
Thompson
joins the
business
FatFace wins
Retail Week
store design of
the year award
and Retail Week
EPOS initiative
of the year award
th
2012
200th store
opens
2015
Record Year
of Sales and
US dedicated
website
launched
214 Stores
142 Stores
80 Stores
27 Stores
0 Stores
1 Store
Store & Sales
GROWTH
£10m Sales
£45m Sales
£132m Sales
£205m Sales
8
9
The Group has revised its strategy during the
year following the development of a new 5
year plan. The business continues to have
ambitious but sustainable growth plans.
Key Performance INDICATORS
Retail Sales Growth4
1
2
E-Commerce Revenue
as % of Total Revenue
3
3
14.9%
12.2%
What will we do?
10.0%
10.3%
16.2%
12.0%
7.3%
1
Drive UK core
The Group intends to continue to drive growth
of the core UK business through marketing
investment, strong customer service and
improving the product formula.
2
Grow UK property
The Group will continue to open new stores in
attractive and well-researched locations in the
UK, as well as continuing with the development
of the existing UK store portfolio, through store
relocations, extensions and refurbishments.
FatFace is targeting an extension of the store
portfolio to between 450,000 and 500,000 Sq. Ft.
over the next five years.
2.7%
2012
2013
2014
2015
Retail sales growth has slowed during the year as a result of the impact of
the unseasonably warm weather that was experienced in quarter two of the
financial year. Sales of outerwear and knitwear, two categories the Group is
well known for, were in common with many clothing retailers, impacted.
New Stores and Relocations
15
16
2012
Square Footage
2
Develop our routes to market
Strengthen our infrastructure
We will assess our current infrastructure and
consider if it’s fit to support and enable our
future growth plans. We will look to invest in
improving our infrastructure where appropriate.
12
1
2
351,691
15
FY12
FY13
FY14
FY15
During the year we added 8 new stores and 7 relocations. There continues
to be a strong pipeline available to the Group for further UK expansion.
Average Sq. Ft. per Store
304,982
2012
2013
2014
2015
Square Footage has continued to grow during the year primarily
through investing in new stores and relocations to larger stores but
also through two extensions. The Group is targeting a store portfolio
of between 450,000 to 500,000 Sq. Ft.
1,425
1,453
1,558
Website Visits
2
1
£499
£508
£516
£500
2012
2013
2014
2015
Store sales per Sq. Ft. have decreased year on year. Square footage has
increased by 8% and sales have not grown in line with this due to the
impact of the weather in quarter two of the financial year.
International Revenue6
3
1,643
18.9m
16.2m
Commence disciplined international expansion
through an initial, carefully controlled trial of stores
on the east coast of the United States. This investment
will be complemented through the development
and launch of a dedicated website for the US.
6
Store Retail Sales per Sq. Ft.5
2
325,601
16
2015
Range and gross margin
improvements
We will look to improve the range of products
available to our customers across all departments.
5
2014
Following the recent
development of the 3-5 year
plan the Group is in the
process of revising its KPI’s so
that they are closely aligned
to the strategy. A summary
of the Company’s KPIs are
presented below:
Grow e-commerce
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 In-Store’ and ‘Click-andCollect’, and increasing the number of customer
database records in order to maximise the benefit
of its marketing activity.
4
2013
Following further investment in the e-commerce site in the year,
the revenue generated by the website has continued to grow as a
percentage of the Total Revenue.
288,848
3
Our STRATEGY
£4.8m
13.5m
£5.2m
5
£5.6m
£5.2m
9.4m
2012
2013
2014
2015
2012
2013
2014
2015
FY12
FY13
FY14
FY15
As part of its stated aim to grow UK property the Group is looking to increase the
average size of its stores to enable it to stock the full range of products available.
By increasing the number of visitors to the website we increase the profile of
the Group, assist the growth of e-commerce and drive the UK core business. We
continue to support our website visits through our catalogues and other physical
and on-line mailings. The growth in our customer database has enabled us to
target mailings more effectively, driving brand awareness and sales as a result.
The Group also invested further in online marketing activities during the year.
International Revenue was also impacted in the year by the unseasonably
warm weather in Eire in quarter two of the financial year.
4. As a truly multichannel business Retail (Combined) represents the combined
performance of the Stores and E-Commerce channel.
5. Store Retail Sales per Sq. Ft. represents revenue from stores divided by Square Footage.
6. I nternational Revenue includes Euro sales that have been
translated on a constant currency basis using a rate of €1.25/£.
13
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.
“Despite challenging marketing conditions in quarter
two, revenue grew by 2.7% (2014: 11.9%) to £205.4m and
adjusted EBITDA (the measure that best reflects the trading
performance of the business) was £36.5m, 7.1% lower than
last year. The Group continues to be highly cash generative
with statutory free cash flow of £15.6m after £9.2m of capital
expenditure invested in stores and infrastructure. The Group
was refinanced during the year with a new £180m loan
facility and access to a £30m revolving credit facility. Despite
the difficult market conditions I believe that we are very well
placed for the next steps of the FatFace journey.”
14
The Market
FatFace operates in the UK clothing and
footwear market which was worth £47.8
billion in 2014. This market is expected
to grow by 4.2% CAGR from 20132017. FatFace has a 0.4% market share.
Management believe that a subset of this
market is more relevant to the business.
That subset is the premium casualwear
market (a bespoke definition) and
was worth £10.5 billion in 2014. The
Group’s market share of 2.0% reflects
the opportunity for the Group to grow
in the UK both through like for like sales
growth and the acquisition of further
new space.
FatFace competes with a number of large
retailers (e.g. Next & Marks & Spencer),
department stores (e.g. Debenhams &
John Lewis) as well as smaller specialist
retailers. Customer pricing is regularly
reviewed by benchmarking against a
number of retailers.
Multichannel
With 214 (2014: 209) stores in the UK
and Eire, a well established e-commerce
channel supported by a successful
catalogue and carefully selected 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.
“Tell fatface.com” was launched
in September 2014 and has had over
22,000 respondents so far, giving
the customer an opportunity to
give feedback and complete a short
questionnaire to tell us how their
experience felt in store or online.
During the year, iPads were trialled in a
number of our stores allowing the customer
to browse the full FatFace range while in any
store. Results have been encouraging.
Following the success of our womens and
accessories concessions partnership with
John Lewis which we started in January last
year, we agreed to extend the relationship. In
March 2015 kidswear was made available on
similar terms through Johnlewis.com. The
initial response from customers has been
extremely positive and we continue to seek
ways to grow this area of our business in order
to extend our reach.
Black Friday
The huge customer anticipation of Black
Friday, which falls at the end of November, was
widely reported in the media. Our decision
to hold a full price trading stance across all
our channels was vindicated with a good
performance as footfall was driven to the high
street and online. Visits to fatface.com jumped
69%. The operational improvements made in
our IT systems and distribution centre earlier
in the financial year proved a huge success
and helped the business cope extremely well
with the increased demand. The distribution
team picked 79% more units on Black Friday
weekend 2014, compared to Black Friday
weekend 2013.
For the 2015/16 year we are looking to evolve
our Black Friday stance and give an element of
profit to charity.
International
A dedicated US website was launched in March
to allow us to fully access this market and
target our offer specifically to US customers
who previously have been required to use the
UK website. Further international websites are
planned over the next two to three years. The
US store roll out will commence in quarter
two of 2015/16 and will focus on Boston,
Massachusetts and the surrounding areas.
15
SEGMENTAL REPORTS
Stores
The Retail Segment comprises the
revenue and contribution from stores,
e-commerce and concessions.
Stores play a critical role in our multichannel approach. 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 e.g.
Salcombe) stores are located.
Retail sales were £203.1m (2014:
£197.8m), up 2.7% (2014: 12.0%).
Overall, we increased our total trading
space by 26,090 Sq. Ft. to 351,691 Sq. Ft
(325,601 Sq. Ft), an increase of 8.0%
(2014: 6.8%) on last year, reflecting the
net impact of new stores, relocations and
closures in the store estate this year and
the annualisation of last year’s activity.
Following a strong year last year, like
for like sales declined by 3.3% (2014:
increase of 7.6%) but remains strong on
a two year basis at +4.3% reflecting the
strong prior year and difficult market
conditions this year.
Our 214 (2014: 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 8 new stores
(2014: 9), 7 relocations (2014: 7), 4 refits
(2014: 5) and 2 extensions (2014: 0). Our
new stores opened strongly and are on
track to payback within our target of
1.2 years. We have also been updating
our fascias outside our existing stores
to ensure they are consistent with the
updated branding introduced last year.
At year end 155 of the 214 fascias are in
updated branding.
Retail
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.
During the year, we closed 3 stores taking
advantage of circumstances specific to
each property such as lease end or landlord
redevelopment.
We have a strong pipeline of target locations
and follow a rigorous assessment process to
ensure we meet our financial targets.
Contribution from Retail was
£48.4m (2014: £53.3m). Underlying
contribution margin fell by 3.1% to
23.8% (2014: 26.9%). The deterioration
in underlying trading conditions across
the retail market in quarter two due
to the unseasonable weather resulted
in a higher mix of clearance stock
available during sale periods and drove a
reduction in gross margin. Intake margin
gains from better sourcing and product
mix were more than offset by increased
markdown spend.
NEW STORES BY
MARKET TYPE
1
3
3
1
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 8 new
stores and 7
relocations.”
17
Sales in our e-commerce business grew
by 11.1% (2014: 39.1%) during the year
and now accounts for 16.2% (2014:
14.9%) 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. To aid
the growth of e-commerce, we have
continued to invest in our website
technology.
During the year the “responsive web
design project” went live. This builds
on the success of the website launch
last year by adapting it so it is flexible
to all screen sizes including mobile,
not just desktop and iPad. This enables
fatface.com to respond elegantly,
regardless of device size, and brings
the mobile and small tablet experience
in line with that of the desktop
experience by optimising the layout
and content according to device. The
improved product recommendation
solution launched in quarter one
which allows customers to experience
more personalised suggestions across
product pages and in their shopping
baskets has been well received. These
recommendations are based on the
shopping and purchasing behaviour
of other FatFace customers.
“Our largest store,
available 24
hours a day”
18
E-Commerce
iPads were rolled out to 22 stores
during the year, allowing customers
to browse our full product range
while in store. Initial signs have been
encouraging. Gift cards were also
introduced online during the year.
We continue to support our
e-commerce sales through our
catalogues and other physical and
on-line mailings. The growth in our
customer database has enabled us
to target mailings more effectively,
driving brand awareness and sales as
a result.
Product Range
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.
“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. Womenswear accounts for
52% of our retail sales (2014: 51%),
menswear 27% (2014: 28%), accessories
12% (2014: 12%) and, kidswear &
footwear both 9% (2014: both 9%).
19
Refinancing
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. During the year we employed a
further 156 crew in the business.
During the year new debt facilities
were put in place. These facilities
place the Group in a strong financial
position, allow it to continue to invest
in the future development of the
business and facilitated the first return
of capital to the current shareholders.
Infrastructure
In total, we invested £2.8m (2014:
£2.6m) in non-store capital
expenditure in the year.
We completed the implementation of
the new planning system to support
our Design, Buying, Merchandising
and Sourcing (“DBMS”) teams. This
investment has been 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.
Supplier Policy
The Group does not follow a set
standard or code for the payment of
suppliers. It agrees payment terms
with its suppliers when it enters into
contracts. It adheres to these providing
it is satisfied that the supplier has
provided goods and services in
accordance with the agreement. The
Group is committed to reviewing its
supplier relationships and ensuring the
process of best practice is maintained.
Crew
The terms agreed on the new debt
reflected the improved financial
position following the successful
trading performance and allowed
access to more favourable interest
rates and covenant terms. A new
£180m loan was agreed for a term of
5 years. The Group also secured a
£30m Revolving Credit Facility to
support the expansion of the business.
Current Trading
and Outlook
At present there are few signs that
the improvements in UK consumer
confidence are having a positive
impact on the retail clothing market.
We expect the market to remain highly
competitive this year as other retailers
continue to seek to gain market share
through promotion-led activity at the
expense of margin.
Despite these market conditions, by
continuing to focus on developing
our product ranges, enhancing our
store portfolio, offering high levels of
customer service 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.
Property leases are typically negotiated
with a 5 year break clause. Non-stock
supplier contracts are negotiated for a
maximum period of 3 years.
The Group has started to create
a central repository for supplier
contracts which will be completed
in the coming financial year.
For further information on our
relationship with our suppliers
please refer to the Corporate and
Social Responsibility section.
20
21
OPERATIONAL RISKS
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 committee7 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;
there may be additional risks and
uncertainties currently not known
to the Directors, and other risks
which the Directors believe to be less
material, which may have an adverse
effect on the Group:
Issue
All
Supply
chain
All
Infrastructure
1&2
Crew
Issue
All
External
events
All
1,2,3,4 & 5
Brand and
reputational
risk
Fashion and
design trends
Potential Impact
Mitigation
The economic and financial
environment may be impacted by
external events, for example an
economic downturn or unseasonably
warm weather. This could impact our
suppliers and have a negative impact
on consumer confidence, buying
behaviour, or purchasing power in turn
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 good
performance in what have proved to be difficult
market conditions over the last four years.
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/product range also helps to
mitigate these risks
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.
5
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.
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.
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.
During the year a business continuity plan was
developed. 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.
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:
• Annual benchmarking to ensure that remuneration
and reward packages are competitive
• Positive culture and environment; and
• A succession planning process for store
management was undertaken during the year.
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 ensure
health and safety management is robust and up to date.
All
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.
Potential Impact
Mitigation
FINANCIAL RISKS
Our Strategy
number:
Issue
All
Covenants
Our external financing arrangements
include a conventional covenant test as is
customary with agreements of this type.
Failure to comply with this could result in
the financing being cancelled.
Performance against the covenant is measured
quarterly with forecasts maintained. For further
details of the assessment of the going concern
principle please refer to the Director’s Report.
All
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.
All
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 maintained.
Any negative publicity, such as customer
complaints, is 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 significantly
year on year and which are always well received by
our customers.
Mitigation
1,2,5 & 6
STRATEGIC RISKS
Our Strategy
number:
Potential Impact
The Strategic Report was approved by the Board
on 4 September 2015.
By order of the board:
Anthony Thompson
Chief Executive Officer
7 The role of the Audit Committee, which acts independent of management, includes monitoring the integrity of the financial statement, the adequacy and
effectiveness of the Group’s internal controls and risk management systems and the policies employed to mitigate risk across the organisation.
22
Unit 3, Ridgway, Havant,
Hampshire, PO9 1QJ
4 September 2015
23
Principal Risks &
UNCERTAINTIES
Our Strategy
number:
Directors’ Report
THE DIRECTORS PRESENT THEIR
DIRECTOR’S REPORT AND THE AUDITED
FINANCIAL STATEMENTS FOR THE
52 WEEK PERIOD ENDED 30 MAY 2015.
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
• to remunerate employees in a manner
which is commensurate with work
performed to ensure that employees
receive a living wage;
• 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;
• to operate a safe and hygienic
working environment; and
• adherence to anti-corruption and antibribery policies via the Bribery Act.
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. FatFace is currently
classified at ‘‘Achiever’’ level by the
ETI and through the ETI, we are able
to access investigations carried out by
other members into our current and
potential suppliers.
26
In addition, via our membership in
SEDEX 8, 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.
The Group has a supplier in Nepal.
Following the earthquake in April
2015, the Group has supported the
factory and donated funds to purchase
building tools and materials to allow
factory workers to rebuild their homes.
For further details please refer to the
Community section within this report.
The most recent “the good shopping
guide.com” 9 ethical fashion rankings
table, ranked 34 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. Of the 34 FatFace ranked 4th
(2014: 4th) and was one of only four
of the retailers that was classified as
“recommended” to buy from.
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, develop
and respect our employees.
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. 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. During the year the second
“Brand Camp” was held. This event
was attended by 350 staff across stores
and head office, with the key messages
including an overview of the 3-5
year plan for the business. The event
was held in the Lake District with
every attendee sleeping in tents and
undertaking tasks and activities that
resonated and were closely aligned to
the vision and values of the Group.
REWARD AND RECOGNITION
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,
gender, sexual preference, marital status,
nationality, ethnic origin or disability. It
is Group policy to, wherever possible,
retain in employment employees who
become disabled.
A benchmarking review is
undertaken annually and the living
wage is considered to ensure that
remuneration remains competitive
and fair across all areas of the business.
As part of this process, the wages of
our store crew has moved from 3%
above minimum wage to 8% above
within the financial year.
Following the Summer Budget on
8 July 2015 the Group is reviewing
its approach to the new compulsory
living wage.
Employees 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.
Employees meeting certain criteria
are automatically enrolled into the
pension scheme but are free to opt
out of the scheme if they choose to.
In addition group income protection
and a group life scheme are also
available to all employees.
8 SEDEX (Supplier Ethical Data Exchange) is a not for profit membership organisation dedicated to
driving improvements in responsible and ethical business practices in global supply chains.
9 www.thegoodshoppingguide.com
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. There were over
7,000 attendees at various courses during
the year ranging from specific NVQ
qualification courses to health and safety
and first aid training. Performance is
reviewed bi-annually with managers
developing their teams both personally
and technically, agreeing personal
development plans and leading the
training requirements.
We also conduct annual employee
surveys to measure the level of
employee engagement and to identify
any areas where improvements can be
made. This highlighted that 94.1% of
respondents believe in the business
plan and the part they play in it.
EQUAL OPPORTUNITIES
Health and Safety
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. There has been
a significant step up in the number of
people being trained this year, with
a total of 165 (2014: 50) individuals
achieving a level 2 award in Health and
Safety in the workplace.
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 five 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.
Recycling facilities have been set
up in 95% (2014: 95%) of our stores,
including plastic, cardboard and
tin cans. We also recycle in our
distribution centre and head office.
Community
FAT FACE FOUNDATION
This year is the 6th year of operation of the
Fat Face Foundation (the “Foundation”),
a registered charity that works towards
“Enabling people to actively enjoy the
environments we play in” ultimately
conserving the environment and enabling
more people to access and experience
the outdoors. Although the Foundation
strives to reflect the FatFace brand and
ethos, it is run as a separate organisation
with its own directors who also act as its
trustees. The Foundation makes grants to
charitable organisations and individuals
both on a local and national scale which
fulfil the objective. FatFace employees
and members of the public have been
able to actively get involved by taking
part in sponsored events and buying
Foundation-related products.
The trustees of the Foundation have
reviewed the strategy and objectives
and have amended the purpose to
“Changing people’s lives wherever
FatFace goes”. The outcome of this
review will be communicated in the
coming months.
During the year, the Foundation made
donations of £6,000 (2014: £5,007).
The proceeds from the sale of carrier
bags in Wales are also given to the
Foundation for distribution. For this
last period the proceeds from Welsh
carrier bags have 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 Foundation has donated
over £200,000 to causes around the
UK. The plans for the coming period
include supporting causes at a local
level to FatFace stores.
OTHER CHARITY AND
COMMUNITY ACTIVITIES
Donations to UK charities by the Group
during the year amounted to £14,554
(2014: £50,725). Of this amount
£7,718 (2014: £11,561) was donated
to the Foundation by the Group.
During the year staff were actively
involved in fundraising for the Nepal
earthquake appeal. Whilst funds
continue to be collected, store donations
have exceeded £30,000. FatFace and the
Foundation have committed to donate a
further £10,000, bringing the cash total
to over £40,000. This is to be donated to
our manufacturing partner based in the
Nepal region. In addition to this a further
£10,000 cash and £10,000 product will
be donated to the Red Cross.
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.
For 2015/16, FatFace has partnered
with The Prince’s Trust to provide work
experience opportunities for up to 50
young people, helping them develop
the skills and confidence required in
the work place.
Employees have taken part in various
charity events in the year, including
the British Heart Foundations ‘Wear
Red to Work’, the Great South Run and
Movember. Combining funds raised
by employees with those donated by
FatFace the total raised for Movember
was £6,000. In 2015/16 FatFace will be
a key partner for Movember.
For the 2015/16 year we are looking to
evolve our Black Friday stance and give
an element of profit to charity.
PROPOSED DIVIDEND
The directors do not recommend the
payment of a dividend (2014: nil).
27
Director’s Report
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 are required to adhere to.
In addition to ensuring that all local
laws are complied with, suppliers are
required:
EMPLOYEE ENGAGEMENT
1.
Our
DIRECTORS
2.
3.
Executive Directors
1. ANTHONY THOMPSON, CHIEF EXECUTIVE OFFICER
First appointed in April 2010. Anthony was previously Managing Director of the
George brand within the international division of Wal-Mart 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, TRADING DIRECTOR
(Resigned 30 April 2014, reappointed 25 June 2014)
First 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.
4.
3. MARK SEAGER, MULTI-CHANNEL 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 and following the restructuring of
responsibilities of the Board has recently been appointed as Multi-Channel Director.
4. SIMON GREENE, INTERNATIONAL AND PROPERTY DIRECTOR
5.
First 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. WILLIAM CRUMBIE, FINANCE DIRECTOR
(Appointed 24 November 2014)
Will joined FatFace in January 2014 and was appointed as Finance Director in
November 2014. He joined us from Alliance Boots where he worked for seven years, and
three times held Interim Finance Director Positions in the UK, Europe and Turkey. Will,
a chartered accountant, has also held senior positions at P&O & Deloitte.
28
Non-Executive Directors
LORD ROSE
(CHAIRMAN – APPOINTED
BY BRIDGEPOINT)
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 and created a
life peer in September 2014.
GUY WELDON
(INVESTOR DIRECTOR –
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.
BENOIT ALTEIRAC
(INVESTOR DIRECTOR –
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 1 May 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.
Shareholders
Bridgepoint has been FatFace Group
Limited’s major shareholder since
2007. The investment in the Group is
held within the Bridgepoint Europe III
Fund. For details of their shareholding,
please refer to note 26.
Guy Weldon and Benoit Alteirac
(Investor Directors) are monitoring
the fund’s investment on behalf of
Bridgepoint. They are active and
supportive investors who attend
Board meetings, Audit Committees
and have weekly dialogue with the
Executive Directors. Investor Directors
were present at all Board and Audit
Committee meetings held.
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 £43,953,000 (2014:
£5,291,000) and net current liabilities
of £36,000 (2014: liabilities of
£4,320,000) 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 positive trading
performance in the financial period,
in addition the Group has refinanced
during the year and now has access
to a £30m revolving credit facility.
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. The Group has
available undrawn banking facilities of
£20,000,000.
The Group has access to long term
debt financing and short term facilities
which are subject to a net leverage
covenant test, 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 covenant 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. 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
4 September 2015.
Anthony Thompson
Hampshire, PO9 1QJ
4 September 2015
29
Director’s Report
In the previous financial year, certain directors resigned
as the Group restructured the board in contemplation
of an IPO. Following the decision not to proceed with
the IPO these directors were reappointed, with their
appointments taking place in June 2014. Independent
non-executive directors appointed in anticipation of
the IPO resigned in June 2014. The directors who held
office during the year were as follows:
HELEN COWING
CHIEF FINANCIAL OFFICER
(Resigned 23 June 2014)
Statement of Directors’
RESPONSIBILITIES
Independent
AUDITOR’S REPORT
...in respect of the Annual Report and Accounts
...to the members of FatFace Group Limited
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 IFRSs10 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
10 International Financial Reporting Standards.
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
4 September 2015
We have audited the financial
statements of FatFace Group Limited
for the year ended 30 May 2015 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 26 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.
30
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 30 May
2015 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
Steve Masters
Senior Statutory Auditor
for and on behalf of KPMG LLP,
Statutory Auditor
Respective
Responsibilities of
Directors and Auditor
Scope of the Audit
of the Financial
Statements
Chartered Accountants, Dukes Keep,
Marsh Lane, Southampton, SO14 3EX
4 September 2015
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
Financial
STATEMENTS
Consolidated Income Statement
(2014: 52 week period ended 31 May 2014)
Note
Revenue
Other income
2
Changes in inventories of finished goods
Trading
Results
2015
£000
NonRecurring
Items
£000
205,181
220
2015
£000
Trading
Results
2014
£000
NonRecurring
Items
£000
2014
£000
—
205,181
199,859
—
199,859
—
220
192
—
192
205,401
—
205,401
200,051
—
200,051
1,838
—
1,838
3,819
—
3,819
Staff costs
3-4
(34,039)
(3,484)
(37,523)
(35,615)
(413)
(36,028)
Other trading expenses
3-4
(136,704)
(307)
(137,011)
(128,961)
(3,979)
(132,940)
(168,905)
(3,791)
(172,696)
(160,757)
(4,392)
(165,149)
36,496
(3,791)
32,705
39,294
(4,392)
34,902
Total trading expenses before
depreciation, amortisation, impairment
and share-based payments
Operating profit/(loss) before interest,
tax, depreciation, amortisation impairment
and share-based payments
Depreciation, amortisation and impairment
Share-based payments
8-9
(9,495)
—
(9,495)
(8,497)
—
(8,497)
18
(6,367)
—
(6,367)
(6,974)
—
(6,974)
16,843
23,823
414
476
Operating profit/(loss)
20,634
6
Finance costs
6
Net finance (costs)
(Loss)/profit before tax
Taxation
(Loss)/profit for the period
414
19,431
—
476
(21,758)
—
(21,758)
(19,358)
(572)
(19,930)
(21,344)
—
(21,344)
(18,882)
(572)
(19,454)
(4,501)
4,941
(4,964)
(23)
(2,243)
(1,744)
(6,744)
3,197
(710)
7
—
(4,392)
(3,030)
(3,740)
(3,791)
787
(3,004)
—
(4,964)
(1,744)
(1,767)
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.
32
33
Finance income
(3,791)
Statement of Comprehensive Income
Statement of Financial Position
as at 30 May 2015
Note
(Loss)/profit for the period
Group
2015
£000
(6,744)
Group
2014
£000
(1,767)
Company
2015
£000
Company
2014
£000
187,975
22,812
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
656
(446)
—
—
Change in fair value of cash flow hedges transferred to income
statement net of tax
55
221
—
—
Net other comprehensive income
711
(225)
—
—
(1,992)
187,975
22,812
Total comprehensive (loss)/income
(6,033)
Total comprehensive (loss)/income is attributable to:
Equity holders of the parent
(6,033)
(1,992)
187,975
22,812
Note
Group
2014
£000
Company
2015
£000
Company
2014
£000
—
Non-current assets
Property, plant and equipment
8
20,403
17,905
—
Intangible assets
9
154,552
156,524
—
—
Investments in subsidiaries
10
—
—
283,849
56,790
Deferred tax assets
12
2,342
1,817
—
—
Financial assets
11
25
—
—
—
177,322
176,246
283,849
56,790
Current assets
Inventories
13
22,496
20,658
—
—
Trade and other receivables
14
5,581
4,583
79
104,096
Cash and cash equivalents
15
10,719
21,356
—
88
Other financial assets
11
443
—
—
—
Total assets
Group
2015
£000
39,239
46,597
79
104,184
216,561
222,843
283,928
160,974
Current liabilities
—
—
(8,403)
—
Other interest-bearing loans and borrowings
16
Trade and other payables
17
(30,323)
(137)
(79)
—
—
19
(636)
(2,224)
—
—
(8,179)
(4,682)
—
—
(224)
—
—
Employee benefits
Provisions
Tax payable
Other financial liabilities
11
—
(2,921)
(35,305)
(39,275)
(50,917)
(2,921)
(43,917)
(43,917)
Non-current liabilities
Other interest-bearing loans and borrowings
16
(172,069)
(135,825)
Other payables
17
(29,296)
(20,307)
Provisions
19
(79)
(836)
Deferred tax liabilities
12
—
(19,489)
—
(10,885)
—
—
(19,795)
(20,249)
(221,239)
(177,217)
(19,489)
(10,885)
(260,514)
(228,134)
(22,410)
(54,802)
(36)
(4,320)
(2,842)
60,267
Total net non-current (liabilities)/assets
(43,917)
(971)
264,360
45,905
Net (liabilities)/assets
(43,953)
(5,291)
261,518
106,172
Total liabilities
—
Equity
Share capital
20
Share premium
Hedging reserve
20
933
1,184
933
1,184
3,474
15,805
3,474
15,805
—
—
388
(323)
Retained earnings
(48,748)
(21,957)
257,111
89,183
Total equity
(43,953)
(5,291)
261,518
106,172
These financial statements were approved by the board of
directors on 4 September 2015 and were signed on its behalf by:
William Crumbie
Finance Director
34
35
Total net current (liabilities)/assets
—
Statement of Changes in Equity: Group
Statement of Changes in Equity: Company
Note
Share
Capital
£000
Balance at 1 June 2013
Prepaid
Share
Capital
£000
Capital
Contribution
Reserve
£000
Share
Premium
Hedging
Reserve
£000
£000
(98)
Retained
Earnings
£000
Total
Equity
£000
1,202
—
234,709
15,805
Loss for the period
—
—
—
—
Effective portion of changes in
fair value of cash flow hedges
net of tax
—
—
—
—
(446)
—
(446)
Change in fair value of cash
flow hedges transferred to
income statement net of tax
—
—
—
—
221
—
221
Total other comprehensive
income for the period
—
—
—
—
—
(225)
(261,891)
(10,273)
(1,767)
(1,767)
(1,767)
(1,992)
Transactions with owners
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)
Loss for the period
—
—
—
—
—
(6,744)
(6,744)
Effective portion of changes in
fair value of cash flow
—
—
—
—
656
—
656
Change in fair value of cash
flow hedges transferred to
income statement net of tax
—
—
—
—
55
—
55
Total other comprehensive
income for the period
—
—
—
—
711
Balance at 31 May 2014
(323)
(6,744)
(6,033)
Share buyback
20
(251)
—
—
Equity settled share based
payments
18
—
—
—
36
Capital
Contribution
Reserve
£000
£000
1,202
234,709
Share
Premium
£000
15,805
Retained
Earnings
£000
(175,330)
Total
Parent
Equity
£000
76,386
Loss for the period
—
—
—
22,812
22,812
Total comprehensive income for
the period
—
—
—
22,812
22,812
—
—
—
6,974
6,974
Equity settled share based payments
18
Capital reduction
20
Total transactions with owners
recorded in equity
(18)
(234,709)
—
234,727
—
(18)
(234,709)
—
241,701
6,974
1,184
—
15,805
89,183
106,172
Loss for the period
—
—
—
187,975
187,975
Total comprehensive income for
the period
—
—
—
187,975
187,975
Equity settled share-based
payments
18
—
—
—
6,103
6,103
Capital reduction
20
—
—
—
—
—
Share redemption
(251)
—
(12,331)
(26,150)
(38,732)
recorded in equity
(251)
—
(12,331)
(20,047)
(32,629)
933
—
3,474
257,111
261,518
recorded in equity
Share
Capital
Capital Reduction
recorded in equity
Note
(251)
933
(12,331)
—
(12,331)
—
—
3,474
—
(26,150)
(38,732)
—
6,103
6,103
—
(20,047)
(32,629)
388
(48,748)
(43,953)
37
Statement of Cash Flows
Note
Group
2015
£000
Group
2014
£000
Company
2015
£000
Company
2014
£000
Cash flows from operating activities
(4,501)
(23)
188,855
27,734
8,9
9,495
8,497
—
—
18
6,367
6,974
—
—
Loss before tax for the year
Adjustments for:
Depreciation, amortisation and impairment
Share-based payment expenses
Finance income
6
(414)
(476)
(8,551)
(24,581)
Finance cost
6
21,758
19,930
10,421
11,120
1,671
—
—
—
—
—
(189,577)
(17,891)
34,376
34,902
1,148
(3,618)
(997)
(1,593)
(2)
12
(1,838)
(3,819)
—
—
Change in trade and other payables
(3,194)
9,676
(1,234)
3,565
Change in provisions and employee benefits
(2,286)
659
—
—
Non-recurring debt cost
(Gain)/loss on transfer of investment
Cash generated from operations
Change in trade and other receivables
Change in inventory
26,061
39,825
(88)
(41)
Tax paid
(1,265)
(4,118)
—
—
Net cash from operating activities
24,796
35,707
(88)
(41)
25
46
—
—
(9,163)
(9,129)
—
—
1,601
2,750
—
—
Cash flows from investing activities
Interest received
6
Acquisition of property, plant and equipment
Lease incentives, net of amortisation
(1,671)
(1,054)
—
—
Net cash from investing activities
(9,208)
(7,387)
—
—
Free cash flow
15,588
28,320
(88)
(41)
(38,732)
—
(38,732)
—
189,000
1,507
—
—
(11,154)
—
—
—
(169)
—
—
—
(155,594)
(29,560)
—
—
—
—
39,736
—
Acquisition of other intangible assets
9
Cash flows from financing activities
Buyback of share capital
Proceeds from new loans
16
Acquisition of a hedging instrument
Repayment of borrowings
Proceeds from intercompany loans
(9,576)
(6,327)
(1,004)
—
Net cash from financing activities
(26,225)
(34,380)
—
—
Net decrease in cash and cash equivalents
(10,637)
(6,060)
(88)
(41)
21,356
27,416
88
129
10,719
21,356
—
88
Interest paid
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
15
Debt costs paid
38
39
FOREIGN CURRENCY
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.
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. The Group controls an entity
when it is exposed to, or has rights to,
variable returns from its involvement
with the entity and has the ability to
affect those returns through its power
over the entity. In assessing control,
the Group takes into consideration
potential voting rights that are currently
exercisable. The financial statements
of subsidiaries are included in the
consolidated financial statements from
the date that control commences until
the date that control ceases.
All intercompany balances and
transactions, including unrealised
profits arising from intra-group
transactions, have been eliminated.
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
the 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 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
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.
GOING CONCERN
NON-DERIVATIVE FINANCIAL
INSTRUMENTS
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.
40
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 purposes of
the statement of cash flows only.
Trade and other payables are
recognised at face value.
Interest-bearing loans
and borrowings
Interest-bearing loans and borrowings
are recognised at amortised cost plus
accumulated unpaid interest cost 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).
Cash flow hedges
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
of the hedge is recognised immediately
in the income statement.
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
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
Director’s Report.
Investments in debt and
equity securities
PROPERTY, PLANT
AND EQUIPMENT
GOODWILL AND
INTANGIBLE ASSETS
The estimated useful lives are as
follows:
are stated at cost less accumulated
depreciation and impairment
losses. Cost includes direct costs
incurred in bringing assets into
their present condition, including
certain incremental labour costs.
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:
Goodwill is stated at cost less any
accumulated impairment losses.
Goodwill is not amortised but is tested
annually for impairment.
Asset
Class:
Asset
Class:
Depreciation
Policy
Freehold
buildings
Leasehold land
and buildings
50 years
Life of lease
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:
Equipment and
fixtures:
Computer and
communications
equipment
3 years
Shopfit, fixtures and
fittings, furniture,
mannequins
5 years
Plant and machinery
4 years
Motor vehicles
4 years
• an asset is created and can be
identified;
Contributions received from landlords
are deemed to be lease incentives and
as such are deferred and subsequently
released over the life of the lease.
• it is probable that the asset will
generate future economic benefit;
and
• 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 straight-line
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.
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.
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 result of the 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 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-measurements of financial
liabilities carried at amortised costs.
EMPLOYEE BENEFITS
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
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.
The fair value of the shares acquired
by an employee (the share based
payment) is based on an estimate
of the market value of the business,
taking into account the terms and
conditions upon which the shares
were granted. The market value of
the business is principally derived
from discounted cash flow techniques,
which are based on management’s
latest projections, growth rates
and discount rates as applied to
the calculated free cash flows. The
resulting fair value is then allocated
over a vesting period during which
the employee became unconditionally
entitled to the fair value of the
shares or over a vesting period to the
anticipated exit date (whichever is
considered to be earlier).
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 of these
shares, whereby the intrinsic value
of this share-based payment is remeasured 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 upon delivery of stock to
the wholesaler.
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 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
Assets in the course of construction
refer 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.
42
All business combinations are
accounted for by applying the
purchase method. Goodwill represents
amounts arising on acquisition of
subsidiaries, associated 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.
Trademarks
acquired
Estimated
Useful Life
INTEREST-BEARING BORROWINGS
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 ecommerce
activities as one segment. This is due
to the activities having similar:
• products and services;
• 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.
Included in the loss for the period are the following non-recurring items:
Staff restructuring costs expended as incurred 11
Impairment of loan notes issued by external party 12
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 not significant impact, can be
found in note 25.
The Group has voluntarily adopted
IFRS8 Operating Segments reporting
requirements in 2013/14.
2014
£000
Retail
203,149
197,766
Other
2,252
2,285
205,401
200,051
Retail
48,360
53,315
Other
729
990
Net finance cost
54,305
(22,088)
(23,508)
(3,791)
(4,392)
(6,367)
(6,974)
(21,344)
(19,454)
(553)
2015
£000
2014
£000
Accelerated amortisation of debt costs 15
—
572
Non-recurring items included within Finance Costs
—
572
Non-recurring items before income tax
3,791
4,964
Non-recurring items income tax credit
(787)
—
3,004
4,964
2015
£000
2014
£000
336
(219)
In addition to these items, certain costs in finance income and expenses are defined as non-recurring:
Within finance costs:
Non-recurring items for the period
Other charges/(credits):
Inventories written down/(back) in the period
Inventories loss recognised as an expense in the period
Operating leases: Other
Depreciation of tangible assets (net of third party contributions)
Impairment of tangible assets
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
(23)
United Kingdom
Overseas
2014
£000
201,146
194,189
4,255
5,862
205,401
200,051
Overseas revenue when calculated on a constant currency basis (using a rate of
€1.25/£) was £5,200,000 for the 52 weeks ended 30 May 2015 (2014: £5,609,000).
All non-current assets are located in the United Kingdom.
1,459
21,167
183
197
5,377
5,091
475
—
3,643
3,406
33,891
31,101
2015
£000
2014
£000
10
10
72
73
Services relating to corporate finance transactions
217
1,133
Other services relating to taxation and sundry matters
158
26
457
1,242
Audit of financial statements of subsidiaries pursuant to legislation
The Group sells products through its Retail channel to customers located overseas.
2015
£000
1,241
22,636
Auditor’s remuneration:
Amounts receivable by auditors and their associates in respect of:
Revenue by geographical location
4,495
4,392
• being subject to a similar
regulatory environment.
Therefore the Group has one reportable
segment: Retail. Retail includes
revenue from store, ecommerce and
sale or return activities. Other includes
wholesale activities, and other income
of rent receivables and royalty income.
597
—
Audit of these financial statements
(4,501)
37
3,791
• customers; and
(Loss) before tax
(290)
Non-recurring items included within Operating Profit
Amortisation
Non-recurring items
413
Lease surrender benefit 14
Operating leases: Land and buildings
Other operating costs
3,484
Professional fees and services incurred relating to corporate finance transactions and other
one off items 13
NEW STANDARDS AND
INTERPRETATIONS
49,089
2014
£000
Within other operating expenses:
2015
£000
Contribution
2015
£000
Within staff expenses:
Taxation is recognised directly
in Other Comprehensive Income
when the taxable items are
accounted for there.
Segmental information for the main reportable business segment of the Group is
included below.
Revenue & other income
3. Expenses and Auditor’s Remuneration
11. Staff restructuring costs relate to severance,
relocation and one-off bonus costs of
previous and current board members and
senior members of management.
12. The impairment reversal in the year relates
to loan notes issued to the employee
benefit trust that had previously been
impaired. The trust received funds as part
of the Group Debt refinancing. These were
impaired in 2014 and financial years prior
to this date.
13. Costs in respect of professional fees and
services in the current year were incurred
in relation to the Group debt refinancing
exercise undertaken in September 2014,
taxation advice for share valuation and
legal advice in relation to previous claims
against the Group. In the prior year, costs
in respect of professional services were
incurred in relation to the aborted IPO.
14. L
ease surrender benefit reflects net income
received from a landlord in relation to
store exits.
15. D
ue to changes in the expected debt
repayment profile in 2013/14 the
amortisation of debt costs was accelerated.
45
• economic characteristics;
• the initial recognition of goodwill;
4. Staff Numbers and Costs
6. Finance Income and Expense
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
2015
Number of
employees
Group
2014
330
312
Stores
2,400
2,262
Total
2,730
2,574
Head office
2015
£000
2014
£000
25
46
389
430
414
476
2015
£000
2014
£000
Finance income
In respect of assets held at fair value:
Bank interest income
In respect of liabilities held at fair value:
Other:
Net foreign exchange gain
The Company had no employees during the period.
The aggregate payroll costs of the persons employed by the Group were as follows:
2015
£000
2014
£000
31,348
33,119
Social security costs
2,212
2,077
Other pension costs
326
290
Healthcare costs
153
129
34,039
35,615
6,367
6,974
40,406
42,589
Wages and salaries
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 were as follows:
Directors’ emoluments
2015
£000
2014
£000
3,399
2,186
57
20
5,365
5,107
Total
8,821
7,313
Company contributions to defined contribution pension plans
Finance cost
In respect of liabilities not held at fair value:
Interest expense on financial liabilities carried at amortised cost
Other interest payable
Exit fee charge
During the year a refinancing exercise (see note 16) was
undertaken which altered the debt structure of the Group.
Of the bank interest expenses, £1,319,000 relates to cash
interest payable and £1,023,000 relates to payment in kind
(PIK) interest on the on the previous debt facilities. This
was fully paid as part of the refinancing. In addition to these
payments an exit fee of £1,004,000 was paid due to the share
redemption in the year.
11,811
9,196
602
2,357
9,345
8,377
21,758
19,930
Bank interest expense also includes £7,427,000 relating to
cash interest payable on the new debt portfolio.
Other interest payable consists of non-cash interest on loan
notes of £602,000, which were fully repaid as part of the
refinancing arrangement (2014: £572,000).
The exit fee accrual relates to an estimate of fees due to
Bridgepoint at the time of an exit event. During the year
the rights to the exit fee were transferred from the previous
lenders to Bridgepoint (III) etc.
.
Key management personnel are considered to be the current senior management of the Group.
The share-based payment charge is driven by the intrinsically valued shares issued in 2010. Accounting methodology under
IFRS2 means these awards have to be re-valued 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 £1,658,000 (2014: £722,000) and company pension contributions
of £nil (2014: £nil) were made to a defined contribution scheme on their behalf. Following the successful refinancing of the
Group, a one off bonus was paid to a number of senior managers and directors reflecting the success of the business over the last
4 to 5 years.
Number of
directors
2015
Number of
directors
2014
3
2
Retirement benefits are accruing to the following number of directors:
Defined contribution benefit plans:
The amount accrued in respect of directors’ pensions at 30 May 2015 was £10,000 (2014: £nil).
46
47
8. Plant, Property 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
Cost
124
11
3,953
47,041
35
51,164
Additions
—
80
460
8,589
—
9,129
Transfers between categories
—
(11)
11
—
—
—
Disposals
7. Taxation
Recognised in income statement
—
—
(2,688)
—
(2,922)
124
80
4,190
(234)
52,942
35
57,371
124
80
4,190
52,942
35
57,371
Additions
—
251
517
8,857
—
9,625
Transfers between categories
—
(80)
20
60
—
—
2015
Total
£000
2014
Total
£000
3,458
5,497
Depreciation and impairment
(505)
Disposals
—
—
124
251
(143)
(1,594)
—
(1,737)
4,584
60,265
35
65,259
(1,064)
(35,365)
(35)
(36,482)
Current tax expense
Current year
Adjustments for prior years
Total current tax
(180)
3,278
4,992
Deferred tax expense
Current year
Adjustments in respect of previous periods
Deferred tax rate change
(3)
—
(118)
(5,785)
—
(5,906)
Disposals
—
—
234
2,688
—
2,922
(21)
—
(948)
(38,462)
(35)
(39,466)
(21)
—
(948)
(38,462)
(35)
(39,466)
240
246
Depreciation charge for the period
(3)
—
(374)
(6,275)
—
(2,853)
Impairment
—
—
—
(475)
—
(475)
Disposals
—
—
143
—
1,737
(24)
—
(1,179)
43
(3,248)
Total tax in income statement
2,243
1,744
Reconciliation of effective tax rate
2015
£000
2014
£000
Profit/(loss) before tax
(4,501)
(23)
(938)
(5)
3,078
4,890
Non-taxable income
—
(27)
Utilisation of unrecognised losses
—
—
60
(259)
Impact of rate change on brought forward balance
43
(2,867)
Rate difference on deferred tax
—
12
Total tax in income statement
2,243
1,744
Recognised through the statement
of other comprehensive income
2015
£000
2014
£000
1,594
(6,652)
(43,618)
(35)
(44,856)
Net book value
At 1 June 2013
106
11
2,889
11,676
—
14,682
At 31 May 2014
103
80
3,242
14,480
—
17,905
At 30 May 2015
100
251
3,405
16,647
—
20,403
Cost includes direct costs incurred in bringing assets into their present condition, including certain incremental labour costs.
After reviewing the trade of individual stores and comparing the discounted future cash flows of these with the assets held within
each store it was determined that an impairment should be recognised.
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:
2015
£000
2014
£000
5,906
Depreciation of tangible property, plant and equipment
29
(146)
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April
2015) were substantively enacted on 2 July 2013. In the Budget on 8 July 2015, the Chancellor announced additional planned
reductions to 18% by 2020. This will reduce the company’s future current tax charge accordingly. The deferred tax balances at
30 May 2015 have been calculated based on the rate of 20% substantively enacted at the balance sheet date.
Tangible assets
6,652
Unwinding of deferred lease incentives
(1,275)
Depreciation and lease amortisation
5,377
(815)
5,091
Deferred tax movements in the year are primarily as a result of the impact of the rate change.
48
49
Under/(over) provided in prior years
Deferred tax association with effective portion of changes
in fair value of cash hedges
Depreciation charge for the period
(641)
(1,035)
Non-deductible expenses
—
(1,318)
Total deferred tax
Tax using the UK corporation tax rate of 20.83% (2014: 22.667%)
(18)
9. Intangible Assets: Group
IMPAIRMENT TESTING
Goodwill
£000
Trade
Marks
£000
Property
Leases
£000
Customer
Lists
£000
Software and
Licences
£000
Total
£000
263,150
118,088
1,500
84
2,174
384,996
—
17
—
—
1,037
1,054
263,150
118,105
1,500
84
3,211
386,050
—
89
—
—
1,582
1,671
263,150
118,194
1,500
84
4,793
387,721
(209,700)
(14,364)
(1,300)
(84)
(672)
(226,120)
(2,392)
(200)
—
(814)
(3,406)
(16,756)
(1,500)
(84)
(1,486)
(229,526)
(2,395)
—
—
(1,248)
(3,643)
(19,151)
(1,500)
(84)
(2,734)
(233,169)
Cost
Other additions – externally purchased
Other additions – externally purchased
Amortisation and Impairment
Amortisation for the period
—
(209,700)
Amortisation for the period
—
(209,700)
Net book value
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
At 30 May 2015
53,450
99,043
—
—
2,059
154,552
Goodwill represents amounts arising on the acquisition 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 attributed 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.
Amortisation Charge
The amortisation charge is recognised in the following line items in the income statement:
2015
£000
2014
£000
1,248
1,014
Amortisation of non-trading intangibles
2,395
2,392
3,643
3,406
50
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.
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
business include growth in operating
profit before interest, tax, depreciation
and amortisation, the amortisation,
the timing and quantum of future
capital expenditures, long term growth
rates and discount rates to reflect the
risks involved.
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; 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 this 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 costs
of capital (WACC) as adjusted for
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 10.6% (2014: 8.4%).
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 £4.9m,
but would not result in impairment.
An increase in the WACC from 10.6%
to 18.9% would result in impairment
charges arising.
Depreciation and amortisation of trading assets
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.
COST GROWTH FORECASTS
51
10. Investments in Subsidiaries
11. Other Financial Assets and Liabilities
Company
Opening investment
Accumulated interest on loan notes
Intergroup restructuring (see below)
Additions during the year arising from share-based payments
Closing investment
2015
£000
2014
£000
56,790
26,199
Held for hedging:
1,990
5,726
Current
218,702
17,891
Fair value of exchange rate hedge
6,367
6,974
283,849
56,790
As part of the group debt refinancing in September 2014 the equity structure of the Group was also reorganised. FatFace Group
Limited transferred its investment in FatFace Group Borrowings Limited to FatFace Group Parent Limited, a new company
established by the Company, in exchange for a consideration of £33,172,701. This was settled by means of an additional share
issue of 26,199,000 ordinary shares that were issued at a premium of £6,973,699. FatFace Group Limited also transferred group
receivable balances due from Fat Face World Borrowings Limited and loan notes due from Fat Face World Investments Limited to
FatFace Group Parent Limited in return for a consideration of £244,309,629, settled by an additional ordinary share issue.
At a Group level Fat Face Newco 2 Limited’s investment in Fat Face Holdings Limited was transferred to FatFace Group
Borrowings Limited (carried at £118,497,896) for £332,087,351. Subsequent to the refinancing and reorganisation of Fat Face
World Investments Limited, Fat Face World Borrowings Limited, Fat Face Fulham Limited, Fat Face Newco 1 Limited and Fat Face
Newco 2 Limited were all placed into liquidation on 30 January 2015.
FatFace Corporation was incorporated in Delaware in May 2015. In the period Fat Face Holdings Limited acquired 100% of the
ordinary share capital of the entity for a consideration of £33. This entity will be the trading entity of the US activity.
Class of
shares held
Ownership
2015
FatFace Group Parent Limited
UK
Ordinary
100%
—
FatFace Group Borrowings Limited
UK
Ordinary
—
100%
UK
Ordinary
100%
100%
100%
Ownership
2014
Company
Financial liabilities
E Ordinary
100%
100%
Deferred
100%
100%
—
100%
Fat Face Holdings Limited
UK
Ordinary
100%
100%
Ordinary A
100%
100%
Ordinary B
100%
100%
UK
Founder
100%
100%
Fat Face Limited
UK
Ordinary
100%
100%
FatFace Corporation
US
Ordinary
100%
—
52
—
—
—
(2,342)
(1,817)
19,795
20,249
(1,817)
(1,506)
23,905
(657)
84
21,826
31 May
2014
£000
Intangible assets
Accruals
(1,547)
20,249
(41)
—
(3,656)
—
449
—
(3,248)
Recognised
in income
£000
(1,547)
20,249
—
(208)
(146)
(146)
Recognised
in equity
£000
(62)
18,432
30 May
2015
£000
(558)
—
(2,105)
(454)
—
19,795
(208)
3
—
(205)
(62)
—
30
(32)
18,432
(1,009)
30
17,453
At the balance sheet date, the Group has an unrecognised deferred tax asset of £nil (2014: £nil) arising from losses.
The Company has no deferred tax assets or liabilities.
53
Accruals
100%
—
31 May
2014
£000
100%
100%
—
(62)
Recognised
in equity
£000
100%
Ordinary
—
(32)
Recognised
in income
£000
D Ordinary
Ordinary
—
2 June
2013
£000
100%
UK
20,249
—
Movement in deferred tax during the period
100%
UK
19,795
18,432
C Ordinary
FatFace Group Parent Limited
—
17,453
Intangible assets
FatFace Group Borrowings Limited
—
—
100%
—
(208)
Liabilities
2014
£000
—
100%
100%
(1,547)
Liabilities
2015
£000
Net tax liabilities
100%
Preference
Assets
2014
£000
(2,342)
100%
100%
—
—
B Ordinary
100%
—
—
100%
100%
(224)
Net off tax (assets)
100%
100%
468
—
Provisions and employee benefits
Ordinary
Ordinary
—
(205)
Accruals
A Ordinary
Ordinary
—
—
(2,105)
Intangible assets
UK
UK
—
—
Assets
2015
£000
UK
UK
(224)
25
Deferred tax assets and liabilities are attributable to the following:
Fat Face World Borrowings Limited (in liquidation)
Fat Face Newco 1 Limited (in liquidation)
443
Recognised deferred tax assets and liabilities
Fat Face Fulham Limited (in liquidation)
Fat Face Newco 2 Limited (in liquidation)
Company
2014
£000
12. Deferred Tax Assets and Liabilities: Group
Group
Fat Face World Investments Limited (in liquidation)
Company
2015
£000
The Group’s exposure to interest rate, liquidity, foreign currency and credit risks are disclosed in note 21. For details on valuation
methodology adopted see note 21.
Tax (assets)/liabilities
Country of
incorporation
Group
2014
£000
Fair value of interest rate hedge
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 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.
Group
2015
£000
13. Inventories
16. Other Interest-Bearing Loans and Borrowings (continued)
Group
2015
£000
Group
2014
£000
Company
2015
£000
Company
2014
£000
Finished goods and goods for resale
22,496
20,658
—
—
Cost of inventories recognised as an expense
79,100
72,936
—
—
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 costs, 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.
14. Trade and Other Receivables
Group
2015
£000
Group
2014
£000
Company
2015
£000
Company
2014
£000
—
—
—
104,016
Prepayments
3,483
2,905
79
78
Trade receivables
2,098
1,678
—
—
Other receivables
—
—
—
2
5,581
4,583
79
104,096
Amounts due from Group companies
As at 30 May 2015, £543,285 (2014: £1,039,111) of the other short term trade receivables balance was overdue. In the month
following the year end over half (2014: over half ) of the overdue balance was recovered. Receivables of £15,691 (2014: £24,000)
have been provided against at the end of the period.
Of trade receivables, 100% (2014: 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 due except as disclosed. The maximum credit risk from financial assets is £1,547,000 (2014: £1,678,000).
15. Cash and Cash Equivalents
Group
2015
£000
Group
2014
£000
Company
2015
£000
Company
2014
£000
Cash and cash equivalents per balance sheet
10,719
21,356
—
88
Cash and cash equivalents per cash flow statements
10,719
21,356
—
88
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 costs. For more information about the Group’s exposure to
interest rate, liquidity, foreign currency and credit risks, see note 21.
Group
2014
£000
Company
2015
£000
Company
2014
£000
—
8,403
—
—
—
8,403
—
—
Shareholder loan notes
—
18,571
—
—
Related party loan notes
—
2,655
—
—
172,069
114,599
—
—
172,069
135,825
—
—
Current liabilities
Current portion of secured bank loans
Non-current liabilities
Secured bank loans
54
Face
value
(Company)
£000
Carrying
amount
(Company)
£000
Currency
Facility A
£
LIBOR+2.875%
2.000%
2016
8,400
12,066
—
—
Facility B
£
LIBOR+4.625%
0.625%
2016
71,618
74,978
—
—
Facility B EURO
€
EUROBOR+3.875%
0.625%
2016
4,959
5,232
—
—
2nd Lien
£
—
LIBOR+6.750%
2017
21,600
29,492
—
—
919
1,234
Payment
in kind
2nd Lien EURO
€
—
EUROBOR+6.000%
2017
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
—
—
Year
of final
maturity
Face value
(Group)
£000
Carrying
amount
(Group)
£000
Face
value
(Company)
£000
Carrying
amount
(Company)
£000
—
At 30 May 2015
Currency
Nominal
interest rate
Cash paid
Facility B
£
LIBOR+5.50%
2020
140,000
133,835
—
—
Facility D
£
LIBOR+5.50%
2021
40,000
38,234
—
—
Revolving facility
£
LIBOR+4.25%
2019
—
—
—
—
180,000
172,069
—
—
On 25 September 2014 the Group entered
into a new banking facility consisting of
the following:
• A Term B loan of £140 million
maturing on 25 September 2020;
• A revolving credit facility of £30
million with a maturity date of
25 September 2019; and
• A Net Leverage covenant.
Group
2015
£000
Carrying
amount
(Group)
£000
Due to market conditions at the time, an
Original Issue Discount was provided on
the debt, £4,950,000 of which was partfunded by the Group.
The proceeds from the new banking
facility together with cash generated from
operating activities were utilised to repay
the Group’s previous banking facility,
related party loan notes and shareholder
loan notes. The Group also redeemed
12,455,777 preference shares, 564,698,916
C1A shares and 2,785,997 A shares and
9,821,429 B shares.
Upon completion of the new banking
facility, the Group assessed these changes
as extinguishment of the old debt and
the issue of new debt. The previous debt
costs had been capitalised and were fully
amortised in the 52 weeks ended 31 May
2014. £4,700,000 of costs associated with
the issue of the new debt facilities have
been capitalised and will be amortised over
the life of the associated debt. Of the total
debt costs capitalised to date £1,700,000
was amortised in the financial year ending
30 May 2015.
Following completion of the new banking
facility the Group drew down £9,000,000
of the revolving credit facility which was
fully repaid during the year.
The Group’s banking facilities are subject to
an EBITDA16 net leverage covenant typical
for borrowings of this nature. The covenant
was met for all periods. 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.
16. E
BITDA as defined in the Senior Facilities Agreement as
earnings before interest, tax, depreciation and amortisation.
All Group term facilities and borrowings
are denominated in sterling. All term
facilities and borrowings are carried at face
value net of unamortised acquisition costs.
The secured bank borrowings include,
as at 30 May 2015, £nil (31 May 2014:
£27,445,000) of debt held by 101
Nominees No. 1 Limited, which is
an affiliate of Bridgepoint and £nil
(31 May 2014: £2,148,000) of debt held
by Hamilton Lane Inc., which is an affiliate
of a shareholder of the Group. The debt
was on the same terms as held by other
lenders. The Group had issued loan notes
in the 52 weeks to 30 May 2015 to the sum
of £292,000 (31 May 2014: £1,420,000) in
respect of interest which would otherwise
have been payable to 101 Investment
Nominees No. 1 Limited and £39,000
(31 May 2014: £87,000) in respect of
interest which would otherwise have been
payable to Hamilton Lane Inc. This was all
settled as part of the refinancing exercise.
55
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.
Face value
(Group)
£000
At 31 May 2014
• A Term D loan of £40 million
maturing on 25 March 2021;
16. Other Interest-Bearing Loans and Borrowings
Year
of final
maturity
Nominal
interest rate
Cash paid
16. Other Interest-Bearing Loans and Borrowings (continued)
18. Employee Benefits
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 and includes as a component of cash and cash equivalents for the purpose of the
statement of cash flows only.
Defined contribution plans
2015
£000
2014
£000
10,719
21,356
(172,069)
(144,228)
Net debt
(161,350)
(122,872)
The Company incurred no costs associated with the establishment of new debt facilities during the period (2014: nil).
17. Trade and Other Payables
Group
2015
£000
Group
2014
£000
Company
2015
£000
Company
2014
£000
—
—
2,386
40,442
Current
Trade payables
13,418
12,810
—
—
Non-trade payables and accrued expenses
16,729
21,669
535
3,475
176
826
—
—
30,323
35,305
2,921
43,917
22,690
14,037
19,489
10,885
Interest payable
Non-current
Accrued expenses
6,606
6,270
—
—
29,296
20,307
489
10,885
Deferred lease incentives
The Group operates a defined contribution pension plan.
The total expense relating to this plan in the current year was
£326,000 (2014: £290,000). The total owed to the plan at the
end of the year was £112,000 (2014: £52,000). The total owed
by the plan at the year end was £4,452 (2014: £4,379).
Certain senior management of Fat Face Limited are invited
to become shareholders in the ultimate parent. ‘B’ ‘C1A’
and ‘C2’ ordinary shares are offered at a price reflecting the
performance and future prospects of the business.
Company
Amounts due to Group companies
JSOP rights 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.
All group payables are payable on demand. Current trade
payables, non-trade payables and accrued expenses that
are classified as current are expected to be paid within
12 months.
Accrued expenses includes £nil (2014: £100,000) in respect
of amounts owed to an ex-director of the Group.
The increase in non-current accrued expenses from 31 May
2014 to 30 May 2015 is mainly as a result of an increase in the
exit fee accrual.
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 employeeshareholders 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 and JSOP
rights 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 and
During the year part of the value in the JSOP below the
predetermined threshold has been allocated out to fund what
has been determined to be cash settled share-based payments.
A further cash settled share-based payment was incurred in the
year which will be paid ahead of proceeds to Equity Holders
of the Group. The fair value of these awards are measured at
the date of grant to the employee and allocated over a vesting
period to the anticipated exit date. As these awards are deemed
to be cash-settled their fair value will be reviewed on an annual
basis with a corresponding liability being recognised. The share
based payment charge in the year for these awards is £278,500.
Number of
instruments
outstanding
2015
Charged
to income
2015
£000
Number of
instruments
outstanding
2014
Charged
to income
2014
£000
Award of ‘B’ ordinary shares granted
27,500,000
—
27,500,000
—
Award of ‘C1A’ ordinary shares granted
38,137,904
2,934
563,607,391
1,522
Award of ‘C2’ ordinary shares granted
64,335,668
3,167
106,382,969
5,452
17,725,732
2
—
—
N/a
264
—
Award of cash settled share-based payments
Total expense recognised for the year
6,367
Of the C2 ordinary shares awards that are outstanding, the
tranche of shares that were granted during 2009/10 were
intrinsically valued. At that point in time 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 the share-based payment is re-measured at
each reporting date, with changes recognised in profit or loss
until the instrument is settled. While, since the date of award
certain of these awards have lapsed as a result of individuals
leaving the business and subsequently been reissued as new
The value of the JSOP award is based on the same
methodology, but has excluded any value in the share
up to the predetermined threshold.
Grant date
Award of ‘C2’ JSOP ordinary shares granted
56
The fair value of the shares is measured based on an estimate
of the market value of the business, taking into account the
terms and conditions upon which the shares were granted.
The market value of the business is principally derived
from discounted cash flow techniques, which are based on
management’s latest projections, growth rates and discount rates
as applied to the calculated free cash flows. The resulting fair
value is then allocated over a vesting period during which the
employee became unconditionally entitled to the value of
the shares or over a vesting period to the anticipated exit date
(whichever is considered to be earlier).
—
6,974
awards, at May 2015, 39,524,071 awards remain subject to the
intrinsic valuation methodology. The directors consider the
equivalent annual charge based on the value of these awards
to be £985,000 (2014: £2,478,000).
As a result of the share redemption in the year, the share-based
payment charge on the 564,698,916 C1A’s that were redeemed
has been accelerated In accordance with IFRS2. In line with
assumptions at the date of grant the share-based payment
charge on the remaining C1A’s is due to finish next year.
57
The decrease in current non-trade payables and accrued
expenses from 31 May 2014 to 30 May 2015 is primarily
driven by the payment of accruals that related to professional
fees for the aborted IPO in the prior year.
A Joint Share Ownership Plan (JSOP) has been introduced
during the year whereby certain senior management
employees (“the Participants”) are awarded the right to
purchase a designated number of ‘C2’ ordinary shares within
the scheme. This will give the Participants access to a share
in the future value of each ‘C2’ ordinary share within the
scheme above a predetermined threshold.
All share awards are deemed to be equity settled. Within the
consolidated financial statements, the fair value of shares
acquired is recognised as an employee expense (a share based
payment) with a corresponding increase in equity. The fair value
of share grants is measured at the date of grant to the employee.
19. Provisions
20. Capital and Reserves
Onerous lease
Provision £000
Dilapidation
Provision £000
Total
£000
2,161
309
2,470
Provisions utilised/released during the year
(328)
(307)
(635)
Share Capital
In thousands of shares
Provisions created during the year
1,008
217
1,225
2,841
219
3,060
Issued for cash
2,841
219
3,060
Capital reduction
(1,069)
(109)
(1,178)
Provision utilised during the year
Provision released during the year
(1,227)
(109)
(1,336)
Provisions created during the year
95
74
169
640
75
715
Current
582
54
636
58
21
79
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 dilapidation 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 on-going, 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.
During the year, a number of previously provided for properties were either sublet or the lease was surrendered. Provisions
released in the year relate to either properties disposed of for better terms than expected at the prior year end or properties that
were previously marketed but the decision has been made to trade the store through until lease expiry.
Deferred
shares
Preferred
ordinary
shares
C1A
shares
C1B
shares
C2
shares
Ordinary
shares
179,682
15,138
602,837
602,837
103,350
100,000
—
—
—
—
3,032
—
—
—
—
—
—
602,837
106,382
100,000
—
—
602,837
106,382
Total shares paid up at 1 June 2013
(179,682)
Total shares paid up at 31 May 2014
—
15,138
602,837
Share redemption
—
(12,456)
(564,699)
Total shares paid up at 30 May 2015
—
2,682
38,138
(12,607)
87,393
2015
Authorised,
allotted, called up
and fully paid
£000
2014
Authorised,
allotted, called up
and fully paid
£000
A Ordinary shares of £0.01 each
697
725
B Ordinary shares of £0.01 each
177
275
Preferred ordinary shares of £0.01 each
27
151
C1A shares of £0.000001 each
—
1
C1B shares of £0.000046 each
27
27
C2 shares of £0.000047 each
5
5
933
1,184
Share capital
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 not entitled receive dividends or to vote at General Meetings. During the period the Company
issued C2 shares for a total consideration of £nil (2014: £34).
As part of the refinancing exercise 12,455,777 Preferred ordinary shares, 564,698,916 C1A shares, 2,785,997 A and 9,821,429
B shares were redeemed. The redemption resulted in the portion of the share premium that related to the preferred ordinary
shares that were redeemed being eliminated.
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 prior year this 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.
58
59
During the prior period a capital reduction was completed at 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 a 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 for 2015, or 2014
as discussed in note 10.
TRADE AND OTHER RECEIVABLES
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
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 range of values at
which debt is being traded at in the
secondary market.
Trade and other receivables are carried
at recoverable amount, less provisions
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 in financial
assets and financial liabilities together
with their carrying amounts shown in
the balance sheet are as follows:
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
Carrying
amount
2015
£000
Group
If the interest-bearing borrowings were
carried at fair value then they would
be a level 3 fair value instrument.
Fair value
2015
£000
Carrying
amount
2014
£000
Fair value
2014
£000
Other financial assets
—
—
5,581
5,581
4,583
4,583
10,719
10,719
21,356
21,356
16,743
16,743
25,939
25,939
—
—
Liabilities
Other financial liabilities
(224)
(224)
(172,069)
(175,831)
(144,228)
(140,019)
(30,839)
(30,839)
(35,305)
(35,305)
(202,908)
(206,670)
(179,757)
(175,548)
There have been no transfers between levels in any period.
COMPANY
The allowance account for trade
COMPANY
The Company has no material credit
risk.
The Group retains ample headroom
in its available working capital.
The Group has had unutilised and
undrawn banking facilities of £20.0m
during the period to 30 May 2015
(period to 31 May 2014: £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 30 May 2015 of
£0.5m (2014: £0.8m). These were all
expected to fall due within one year
and are not included in the balance
sheet liabilities figure. A number of
suppliers were moved from letters of
credit in the year.
The Company holds no material balances of this nature other than
inter-company balances, which are not subject to fair value adjustment.
60
61
GROUP
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
£30.0m. £10.0m relates to funds which
have been 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. No cash facilities had been
drawn at year end.
443
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.
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.
21(c) Liquidity Risk
Assets
443
acceptable credit rating by independent
credit rating agencies.
21(c) Liquidity Risk (continued)
21(d) Market Risk
2014 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
Non-derivative financial liabilities
Secured bank loans
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.
123,002
140,754
12,016
11,703
117,035
—
Shareholder loan notes
18,571
28,183
—
—
28,183
—
GROUP
Related party loan notes
2,655
8,187
—
—
8,187
—
35,305
35,305
35,305
—
—
—
Accrued expenses
10,885
10,885
—
10,885
—
—
The Group uses interest rate and forward
exchange hedges to manage its exposure
to changes in these market values as
discussed above.
Derivative financial assets
Other Financial liabilities
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
172,069
241,008
10,910
20,000
33,788
176,310
30,323
30,323
30,323
—
—
—
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.
Secured bank loans
Accrued expenses
19,489
19,489
—
—
19,489
Derivative financial liabilities
Interest rate cap used for hedging
(25)
221,856
(25)
290,795
—
—
41,233
20,000
(25)
53,252
—
176,310
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, including estimated interest payments and excluding the effect of netting agreements:
Liquidity Risk – Company
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
3,475
3,475
3,475
—
—
—
10,885
10,885
—
10,885
—
—
14,360
14,360
3,475
10,885
—
—
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
Accrued expenses
An exit resulting in the payment of an
exit fee is not expected in the near term.
The directors have determined that the
The Company has a liability to pay an exit
fair value of this fee measured through
fee to Bridgepoint Capital (Nominees)
the income statement is currently
Limited, (the rights to the fee were
£19,225,773 (2014: £10,884,715). This
acquired in the year by Bridgepoint
is re-measured on an annual basis.
COMPANY
Market risk – Foreign currency risk
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,
requirement 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 30 May 2015, the Group had fixed
carrying amount for monetary financial
forward cover contracts in place in respect
instruments except derivatives when it is
of $23m expiring by February 2016 with a
based on notional amounts.
fair value gain of £443,000.
At 30 May 2015
Short term receivables
Secured bank loans
FatFace monitors its pricing proposition
against major competitors.
535
535
535
—
—
—
19,489
19,489
—
—
19,489
—
20,024
20,024
535
—
19,489
—
Capital (Nominees Limited) from the
previous owners) (2014: 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.
Trade payables
Forward exchange contracts
Balance sheet exposure
Estimated forecast sales*
Estimated forecast purchase*
Net exposure
Sterling
£000
Euro
£000
US Dollar
£000
Other
£000
Total
£000
6,597
488
3,608
26
10,719
1,547
—
—
—
1,547
(172,069)
—
—
—
(172,069)
(11,522)
(299)
(1,597)
—
(13,418)
443
(22,978)
—
23,421
—
189
25,432
26
7,085
2,758
—
(3,063)
(35,718)
—
4,211
(7,528)
26
* Next twelve months; approximates to two trading seasons.
62
63
Accrued expenses
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.
22. Operating Leases
Group
21(d) Market Risk (continued)
Non-cancellable operating lease rentals are payable as follows:
Sensitivity analysis
In managing the currency risk the Group aims to reduce the impact of short-term fluctuations on the Company and Group‘s
earnings. The impact of a movement of 1 cents in exchange rates on the Group is estimated to be £237,000 (2014: £241,000) but
would not have a material impact on the Group due to the Group’s hedging policy mitigating any impact of 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.
Less than one year
Between one and five years
More than five years
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.
Following the refinancing exercise in the year in order to
manage the risk of interest rate fluctuations, the Group
entered into a new interest rate cap covering 67% of the
Group’s term facilities as at 30 May 2015. At 31 May 2014
the previous interest rate cap covered 71% of the previous
debt facilities.
The Group assesses effectiveness of the interest rate cap 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 debt interest (substantially every
month). This 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. 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 2%,
increasing to 3% after 31 May 2016, 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
£120,000,0002%
Fair Value
£25,000
The 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 £0.6m (2014: £0.8m). The Group’s interest rate hedge is
expected to be fully effective, and therefore there should be
no additional impact on equity.
64
Land and
building
leases 2014
£000
Other
leases
2014
£000
22,348
85
20,299
109
71,199
91
66,836
89
46,344
—
41,768
—
139,891
176
128,903
198
Certain rental expense is determined on the basis of revenue
achieved in specific retail locations and is accrued for on that
basis. The table above does not include estimates of such
contingent rental payments.
The Group sublets properties under operating leases. The
operating lease rent receivable in the next 12 months is
£93,289 (2014: £56,685).
COMPANY
The Company has no operating leases.
23. Capital Commitments and contingent liabilities
Group and Company
CAPITAL COMMITMENTS
At 30 May 2015, the Group had entered into contracts to
open new stores and develop the Group’s IT infrastructure,
which will require estimated capital expenditure of
£1,400,800 (2014: £1,005,184).
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. There were
no changes in the Group’s approach to capital management
during the year.
The funding requirements of the Group are met by the
utilisation of external borrowings together with available
cash, as details in note 16.
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.
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.
Other
leases
2015
£000
The Company has no capital commitments
at the balance sheet date.
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 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, with many leases having options to
extend at the end of the lease term.
Land and
building
leases 2015
£000
24. Related Parties
Directors of the Company control, or have held in trust on their behalf, as at 30 May 2015: 6.2% (31 May 2014: 6.7%) 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
—
—
(29,975)
Hamilton Lane Inc
—
—
(2,274)
100
—
(17)
38
—
(8)
Cost
31 May 2014
Bridgepoint Advisers Limited
Employee Benefit Trust
Ex-director
Cost
—
—
(100)
138
—
(32,374)
Purchases
£000
Amounts owed
by related party
£000
Amounts owed to
related party
£000
8,341
—
(19,226)
100
—
(42)
22
—
(500)
8,463
—
(19,768)
30 May 2015
Bridgepoint Capital (Nominees) Limited
Bridgepoint Advisers Limited
Employee Benefit Trust
Bridegpoint Capital (Nominees) Limited acquired the right
to the exit fee from the previous debt syndicate during the
year (and holds it as nominee for the Bridgepoint Europe III
partnerships, which are the beneficial owners).
Bridgepoint Advisers Limited manages the ultimate
controlling party of Group: Bridgepoint Europe III Fund.
During each period the Group incurred an annual
management charge of £100,000 to Bridgepoint
Advisers Limited.
Accrued expenses include £nil in respects of amounts owed
to an ex-director of the Group (2014: £100,000).
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 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, 11 & 12 (Amendment) “Investment Entities”;
• IAS 27 (Amendment) “Investment Entities”;
• IAS 36 (Amendment) “Recoverable amount disclosures for
non-financial asset”;
• IAS 39 (Amendment) “Continuing hedge accounting after
derivative novations”; and
• IFRIC 21 Levies.
EU endorsed IFRS and interpretations with effective dates
after 30 May 2015 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 30 May 2015 or after. The Group does not
expect any significant impact on its consolidated financial
statements from these amendments.
• IAS 19 (Amendment) “Defined benefit plans”;
• Annual improvements to the IFRSs 2010-2012 cycle:
~ IFRS 2 Share-based Payments
For further information on the amounts that were owed to
101 Nominees No. 1 Limited and Hamilton Lane Inc. see
note 16. These amounts were repaid during the year as part
of the refinancing exercise.
~ IFRS 3 Business Combinations
The compensation of key management personnel (the
directors) is disclosed in note 5.
~ IAS 16 Property, Plant & Equipment and IAS 38
Intangible Assets
~ IFRS 8 Operating Segments
~ IFRS 13 Fair Value Measurement
~ IAS 24 Related Party Disclosures
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 77% of the ordinary share capital of the Company
and controls syndicated holdings of a further 12%.
No other financial statements include the results
of the Company.
66
The Employee Benefit Trust is operated as an independent
trust, separately from the management structure of
the FatFace Group of companies and Bridgepoint. The
purchases incurred relate to administration of the trust.
The amount owed by the Employee Benefit Trust as at
30 May 2015 was £nil, during the year £423,000 of
impairment was reversed and subsequently repaid by the
Trust as a result of the refinancing exercise. In the prior
years to 31 May 2014, the amount owed by the Employee
Benefit Trust that has been impaired was £341,025.
25. New standards and
interpretations
fatface.com

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