Financial statements June 2013

Transcription

FAT FACE GROUP LIMITED
Directors’ Report & Consolidated
Financial Statements for the
52 weeks ended 1 June 2013
~
Registered Number: 06148029
CONTENTS
SECTION ONE ~ Business Review
2
4
Group Chairman’s Statement
Business Review and Directors’ Report
SECTION TWO ~ Financial Statements
10 Statement of Directors’ Responsibilities
11 Independent Auditor’s Report
13 Consolidated Income Statement
14 Statement of Comprehensive Income
15 Statement of Financial Position
16Statement of Changes in Equity
18 Cash Flow Statements
SECTION THREE ~ Notes
20 Notes to the Financial Statements
FATFACE.COM
Group Chairman’s Statement
As Fat Face celebrates its first 25 years I am delighted to report a
record year, with EBITDA 29% up on last year. The hard work of
Chief Executive Anthony Thompson and his team over the last three
years is now bearing fruit, and although there is still much to do,
the company is well positioned for continuing success.
Headline Underlying Results
Total revenue
Earnings before interest, tax,
depreciation and amortisation
(excluding non recurring items)
2013
(52 week
period)
2012
(53 week
period)
£178.6m
£163.5m
£31.2m
£24.1m
A resilient first half was followed by a strong trading
performance over the Christmas period where the business
overall, and many established stores, achieved record results.
The momentum has continued into the new calendar year,
despite unhelpful weather conditions during the key spring
holiday periods and subdued consumer sentiment. Pleasingly,
the organisational focus on womenswear has paid off, with
exceptional results throughout the year.
We are seeing the benefits of investing in quality, style and
value for money and have restored integrity to the brand by
trading predominantly with a full price offer. E-commerce is
becoming a larger share of the business, with sales growth
of 27% during the year, with an increasing proportion from
the mobile site we launched during the year.
We continued to see excellent results from our capital
investment programme, including important resites in
Glasgow, Belfast, and Edinburgh. Meanwhile the early results
from the refit of one of our largest stores, Norwich, and the
opening of our first retail park store at Whiteley promise
further investment opportunities in the future.
‘We are seeing the benefits of investing
in quality, style and value for money
and have restored integrity to the
brand by trading predominantly
with a full price offer.’
After seven years as Chairman I will be leaving Fat Face at the
end of July. I am delighted that Sir Stuart Rose has joined the
Board and will take over as Chairman from 26 July. Stuart has
achieved great success over many years in the fashion and
retail industries, and is ideally suited to work with Anthony
and the team to take Fat Face on to the next stage in its
development. I wish him, my fellow directors and everyone
in Fat Face every success for the future.
Alan Giles
Group Chairman
Electronic Point of Sale (EPoS) systems throughout the estate
were replaced on time and within budget in the run up to
Christmas, and the extension of our distribution centre was
completed in May. Both programmes provide an important
platform for future growth. After extensive research we can
also confirm plans to open our first stores in the US as well
as the launch of a dedicated website for US customers within
18 months to two years.
Simon Greene joined the business as Retail Director in
January, and Helen Cowing joins as Chief Financial Officer in
August. Both Simon and Helen bring a wealth of experience to
their roles. Their predecessors Becky Bateman and Emily Tate
left the business during the year, and on behalf of the Board I
would like to thank them for their contribution to the business.
2 / Directors’ Report & Consolidated Financial Statements
Business Review & Directors’ Report
Period Ended 1 June 2013
The directors present their Directors’ Report and the
audited financial statements for the 52-week period ended
1 June 2013 (2012: 53 week period ended 2 June 2012).
Business Review
Our Group
Fat Face is a UK based retailer, specialising in the design
and sale of active lifestyle clothing and related accessories.
From a few sweatshirts in 1988, 25 years later the Fat Face
brand has grown to over 200 stores in the UK and Ireland,
with a strong e-commerce and catalogue business. We
offer a wide range of premium womenswear, menswear,
childrenswear, footwear and accessories for those who
love to get out there.
Our Vision
Our vision is to ensure that “absolutely everything we
do is designed to be loved by all our customers for life
outside 9–5!”
Our Strategic Priorities
Work continued during the year to establish the future
drivers of growth for the business, as summarised below:
• UK property strategy; primarily focused on the store
opening, resite and refurbishment programme;
• Development of a differentiated multichannel offering
to customers; and
The benefits of investments in product ranges, particularly
around womenswear, have become clear with a continued
restoration of brand integrity through increased full price
trading. Additionally, further e-commerce investment,
including the launch of the new mobile site, has delivered
online sales growth of 27%. Investment in the estate
continues to be a key area for growth, with 10 new stores
(2012: 12) and 6 relocations (2012: 3) bringing the total
number of wholly-owned stores to 207, including 7 stores
in Ireland. The store portfolio continues to generate strong
positive cash flow for the Group and this year’s new stores
have shown a strong pay-back performance. As a result of the
investment in the new stores, it is pleasing to report that the
Group has created over 130 new jobs during the past year.
Costs have remained controlled with underlying cost
growth less than sales growth, leading to a 44% increase
in operating profit (2012: 32%). Fat Face remains a
highly cash generative business and made significant
improvements in working capital during the year which
resulted in free cash flow, before debt and interest
payments, of £29.6m (2012: £23.2m).
Key Performance Indicators
A summary of the Group’s KPIs are presented below:
• Research into medium term international expansion.
During the year we were delighted that our continued focus
and hard work put into our store design saw us gain industry
recognition through winning the Retail Week ‘Store Design
of the Year’ Award for our Chichester store.
We were equally pleased to gain industry recognition with
the Retail Week Technology Award for our infrastructure
investment in a new till system into all of our stores in order
to enhance our customers shopping experience and to
strengthen the platform for the Group’s multi-channel strategy.
Our Trading Performance
The positive momentum from last year continued resulting
in strong growth in the period from both the like for like
estate as well as from store openings, with sales up +9%
to £179m. To have achieved this despite the continued
challenging trading environment demonstrates the strength
of the brand, strategy and management team.
2013
(52 week
period)
2012
(53 week
period)
Sales
1
£178.6m
£163.5m
EBITDA
2
£31.2m
£24.1m
EBITDA % to sales
3
17.5%
14.7%
Employee turnover
4
38.7%
47.2%
Creditor days
5
52
56
Payroll % to sales
6
16.5%
16.7%
Free cash flow
7
£29.6m
£23.2m
Net debt repayments
8
£17.9m
£8.6m
1.Revenue
2. Underlying operating profit (excluding non recurring items) before interest, tax,
depreciation and amortisation.
3. EBITDA as a % of sales
4. Total leavers as a % of average headcount
5. Trade creditor days
6. Payroll costs as a % of sales, excluding share based payments and bonus
7. Cash flow excluding financing activities
8. Total repayments made across the Group against external debt in the year
Whilst we are starting to see some improvements in the
UK economy, the outlook for the year ahead remains
challenging. The market is expected to remain highly
competitive. However consumer confidence appears
to be more optimistic than 12 months ago.
Despite the market remaining highly competitive, by
continuing to focus on developing the product ranges,
strengthening margin through improved sourcing and
retaining focus on cost and cash management, Fat Face is in a
strong position to continue to grow and invest for the future.
Financial Position
The Group is in a strong financial position with Sales and
EBITDA growth year on year. The balance sheet improved
over the financial year ending with £27.4m of cash
(2012: £22.9m), cash from operating activities of £36.2m
(2012: £27.4m), with net liabilities reducing by £6.8m to
£10.3m (2012: £17.1m).
Fat Face Group is supported by financing arrangements
sourced through Fat Face World Borrowings. On 1st October
2012, the Group’s financing arrangements with its lenders
were amended to extend the tenure of the loans, provide
additional headroom and improve cashflow. The details of
this are discussed in note 17.
At 1st June 2013 the carrying value of external debt held
by the Group was £167.7m (2012: £178.3m). The Group
also benefits from access to a revolving credit facility of
£18.2m (2012: £18.9m) from which the £0.7m (2012: £1.4m)
capex facility is drawn. The remaining facility available at
1st June 2013 was £17.5m (2012: £17.5m) and includes an
ancillary facility which provides the Group with an overdraft,
guarantee and supplier credit facilities for the day to day
operations of the Group. The Group facilities and borrowings
are denominated in Sterling, and to a lesser extent Euros.
Repayments of £17.9m were made against the Group’s
external debt during the year (2012: £8.6m).
Proposed Dividend
The directors do not recommend the payment of a dividend
(2012: nil).
Principal Risks
and Uncertainties
Trading Risk
The retail sector has continued to face difficult market
conditions. However, by focusing on our core strengths and
continuing to invest in the business, the Group has seen
strong performance in a difficult market and the Group
has many opportunities to improve performance further.
Exchange Risk
The Group is significantly reliant on production overseas
with substantial creditors denominated in US dollars and,
to a lesser extent, Euros. The Group arranges currency
hedge instruments to manage the foreign currency risk
in accordance with its treasury policy. Under this policy,
the Group ensures that at least 90% of significant foreign
currency exposures are protected by hedging arrangements
at all times.
Euro-denominated sales are more than sufficient to offset the
exchange risk arising from purchases and debt denominated
in Euros. The excess Euro cash generated from sales is not
sufficient to represent a material risk to the business and has
been reduced in the financial year as a result of part of the
debt being retranslated into Euros (see note 17).
Financial Risk
Fat Face manages its exposure to interest rate risk by the
use of an interest rate cap covering most of its variable rate
debt. This expires in 2015. In addition, detailed reporting and
cash forecasting ensures that liquidity is maintainable into
the medium term.
Fat Face’s external financing arrangements include
conventional covenant tests as is customary with
agreements of this type. The performance against those
tests is measured on a quarterly basis and management
maintains ongoing forecasts of performance to ensure that
all tests can be met. All covenant tests were comfortably met
during the period.
Liability Risk
Fat Face maintains usual commercial insurance policies for
a business of this type and undertakes a critical review of
all coverage limits and the applicability of deductibles and
franchises during each annual review process.
Outlook ~ trends and factors
affecting future performance
In addition to the risks above, the Board has a policy of ongoing identification and review of key business risks, which
may restrict or seriously impact the ability of the Group to
carry on its operations or may damage the brand.
• no forced labour;
These are monitored via the risk register. The directors
oversee the development of internal control processes
to ensure that these risks are managed appropriately.
Executive directors and operational management are
delegated with the task of implementing these processes
and reporting to the Board on their outcomes.
• health and safety policies must be established
and enforced.
Topics included on the register or which are reviewed
regularly by the Board include:
Health and Safety
The directors recognise the importance of health and safety
at work. The health and safety of the employees, customers,
contractors, sites and equipment is of great importance.
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. Policies and
procedures are reviewed and audited regularly to make
safety management more robust and fully up to date.
Ethical Trading
With a large global supplier base, the directors recognise
that there is a potential risk that certain suppliers may not
work within the required ethical standards of Fat Face. This
could result in a poor perception of the Group in the market
and could have a negative impact on the brand. Fat Face has
developed an ethical trading policy with which it ensures
that all suppliers are in agreement. It is also a member of the
Ethical Trading Initiative. For further details please refer to
the Corporate Social Responsibility section of this report.
The Group would like to confirm that it has signed up to the
recent Ethical Trading Initiative endorsed Accord following
the recent disaster in Bangladesh.
Corporate Social Responsibility
Suppliers
Fat Face’s supplier base is crucial to meeting our required
quality and ethical standards and ensuring that the product
is available on time. Through a combination of extending the
supplier base and managing the existing suppliers, the Group
is able to reduce any over-reliance on particular suppliers and
improve on the competitiveness of the product.
Fat Face continues to ensure that all suppliers are aware of
and agree to its ethical and operating standards. In addition
to ensuring that all local laws are adhered to, these require:
• remuneration for employees must be fair and
commensurate with the work undertaken;
• children may not be employed;
• no inappropriate disciplinary practices;
• freedom of association for all employees; and
To underpin the Group’s commitment in this area, Fat Face
is a member of the Ethical Trading Initiative (ETI). Under this
initiative, the Group agrees to audit the ethical standards of
its suppliers and make the results of these audits available
to other members. Equally, Fat Face is able to access
the investigations carried out by other members into its
current and potential suppliers. During the year the Group
maintained its “Achiever” status by the ETI (2012: “Achiever”).
The India satellite office enables management to maintain
a close link with local suppliers in India and Bangladesh.
In addition to having a constant presence in this important
location to the Group, head office management make
regular visits to the site which allows the Group to directly
manage any associated risk.
Employees
Fat Face is committed to providing equal opportunities
across our workforce, be it through recruitment, promotion,
development or benefits. We work as one team, striving to
achieve the vision and values; encouraging and recognising
individual initiative and respecting individual contributions.
Our aim is to make Fat Face a place where people are able to
develop their full potential, learn from their experience and
have fun doing it.
It is the policy of Fat Face to provide employment and
development opportunities to persons regardless of age,
race, colour, religion, sex, sexual preference, marital status,
nationality, ethnic origin or disability. It is Group policy
to wherever possible retain in employment employees
who become disabled, providing retraining opportunities
where appropriate.
Environment
Fat Face continually reviews its production processes to
ensure that it produces high quality product in ways that
reduce the impact on the environment. The Group recycled
413 (2012: 386) tonnes of cardboard out of Fat Base (Head
Office) and plastic out of many of its stores.
Fat Face continues to encourage better waste management
and energy efficiency around the business, continuing
to invest in smart meters across the estate to measure
emissions within stores. This provides information to stores
allowing them to control their energy usage more efficiently.
The Group also tries wherever possible to ensure that
the electrical supply comes from green energy or energy
efficient sources.
All product suppliers are required to have an environmental
policy signed by their Chief Executive.
• no discrimination on the basis of race, gender,
religion or ethnic background;
Fat Face Foundation
This year is the 4th year of operation
of the Fat Face Foundation. This is a
registered charity with the objective
of enabling people to actively enjoy the
outdoors and respect the environments
we play in. The Foundation makes grants
to charitable organisations that work in conserving and
protecting the environment, as well as giving people the
opportunity to undertake a wide variety of charitable
projects, both on a local and national scale. Fat Face
employees and members of the public have been able to
actively get involved through taking part in sponsored
events and buying Foundation-related products.
Donations to UK charities by the Group during the year
amounted to £92,786 (2012: £29,502). Of this amount
£90,726 (2012: £26,502) was donated to the Foundation.
During the year, the Fat Face Foundation made donations
of £46,938 (2012: £53,577). Donations made include
the following:
• MCS - Donations were awarded to the ‘Big Sea Swim 2012’
campaign of the Marine Conservation Society (MCS).
MCS is a UK charity for the protection of marine wildlife,
sustainable fisheries, clean seas and beaches. The event
allowed MCS to raise awareness of the problems facing
our seas and also raised further funds to help MCS
continue its conservation work.
• Waveney Stardust – Broadland waterway cruising for the
disabled and elderly, enabling people to enjoy the Norfolk
and Suffolk waterways.
• Friends of Chichester Harbour – a locally funded charity
responsible for supporting the conservancy project of
the Harbour, educating children through hands on school
programmes and sporting events such as sailing and
cycling, and keeping the environment maintained in its
natural state, allowing everyone to enjoy the beautiful
natural environment.
• Forest Schools Camp – This charity runs camping holidays
for boys and girls between the ages of 6 and 18 years from
all backgrounds, encouraging them to take responsibility
and reach their own decisions.
Other Charity and Community Activities
Fat Face 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. This year employees have
taken part in various events, including the Great South Run,
a swim across the Channel and a climb of Mount Kilimanjaro.
Our design team is also working with colleagues offering
students the opportunity to gain some work experience
designing their own prints. This will be running for the first
time in 2013/14.
• Camsley Grange – a small volunteer run charity offering
horse riding and pony care sessions to people with physical
or learning disabilities in and around Warrington, Cheshire.
Directors
The directors who held office during the year were as follows:
Executive Directors
Anthony Thompson
Appointed Chief Executive Officer in April 2010. Anthony
was previously Managing Director of the George brand
within the international division of Walmart Stores, and an
executive director of ASDA Stores Ltd. He is a former Retail
Director of Marks and Spencer plc, Senior Vice President
of Gap Europe and Chief Executive of Blackwell Limited.
Simon Pickering
Appointed Design, Buying, Merchandising and Sourcing
Director 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.
Mark Seager
Mark joined Fat Face 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
Marketing Director.
Simon Greene (appointed 14 January 2013)
Appointed Retail Director 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.
Helen Cowing (appointed 1 August 2013)
Appointed Chief Financial Officer in August 2013. Helen was
previously Chief Financial Officer and Co Chief Executive
Officer at Selecta Group. Helen has extensive international
experience and has previously held a number of senior roles
across a broad range of industries.
Emily Tate (resigned 1 February 2013).
Rebecca Bateman (resigned 14 December 2012).
Anthony Thompson
Simon Pickering
Simon Greene
Mark Seager
Helen Cowing
Going Concern
Sir Stuart Rose (Appointed 1 March 2013)
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 then Chairman,
leaving in 2011. He is a non-executive director of Land
Securities and Woolworths (South Africa) and is on the
advisory board of Bridgepoint Capital. He is also Chairman
of Blue Inc., Dressipi and Ocado. He was knighted in 2008.
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 4 to 6.
Alan Giles (resigned as Chairman and Director 25 July 2013)
The Group has access to long term debt financing and
short term facilities which are subject to covenant tests, as
is customary with these types of financing arrangements.
Detailed cash flow projections have been prepared which
show that the Group is expected to trade within its financial
covenants for the foreseeable future. In making this
assessment these projections have been sensitised and
on-going mitigating actions considered and this has
satisfied the Board that the Group will continue to operate
within these facilities. As a result, the Company and the
Group continues to adopt the going concern principle
in the preparation of these financial statements.
Guy Weldon
(Appointed by Bridgepoint)
Guy Weldon is a Partner and the Chief Investment Officer
of Bridgepoint. He currently sits on the boards of Fat Face
and Hobbycraft and has worked extensively on private
equity transactions across Europe, particularly within the
Consumer sector.
Benoit Alteirac
(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.
The Group provides directors’ and officers’ insurance
protection for all of the directors of the companies in
the Group with a £10,000,000 (2012: £10,000,000) limit
of indemnity.
Shareholders
As set out in note 26, Bridgepoint has been Fat Face Group
Limited’s major shareholder since 2007. For details of
their shareholding, please refer to note 26. Bridgepoint
hold the investment within its Bridgepoint Europe III Fund.
Guy Weldon and Benoit Alteirac are monitoring the fund’s
investment on behalf of Bridgepoint.
While market conditions have been challenging, the
Group has returned a strong trading performance in the
financial period. In addition the Group balance sheet has
strengthened, resulting in significant cash generation over
the period. Forecasts indicate that the Group will continue
to be cash generative and return a positive operating profit
before interest, tax, depreciation and amortisation.
Disclosure of Information to Auditor
The directors who held office at the date of approval of
this Directors’ Report confirm that, so far as they are each
aware, there is no relevant audit information of which the
Company’s auditor is unaware; and each director has taken
all the steps that they ought to have taken as a director to
make themselves aware of any relevant audit information
and to establish that the Company’s auditor is aware of
that information.
Auditor
Pursuant to Section 487 of the Companies Act 2006, the
auditor will be deemed to be reappointed and KPMG LLP
will therefore continue in office.
By order of the board:
Anthony Thompson
Chief Executive Officer
Unit 3, Ridgway, Havant, Hampshire, PO9 1QJ
27 August 2013
Non-Executive Directors
Statement of Directors’ Responsibilities
in Respect of the Directors’ Report and the Financial Statements
The directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under
that law, they have elected to prepare both the Group and the parent company financial statements in accordance with
International Financial Reporting Standards (IFRSs) 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 judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• 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 group and
parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and parent
company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and
detect fraud and other irregularities.
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.
Independent Auditor’s Report
to the Members of Fat Face Group Limited
We have audited the financial statements of Fat Face Group
Limited for the 52 week period ended 1 June 2013 set out
on pages 13 to 43. The financial reporting framework that
has been applied in their preparation is applicable law
and 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.
• 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
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.
Opinion on Other Matter Prescribed
by the Companies Act 2006
As explained more fully in the Directors’ Responsibilities
Statement set out on page 10, 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 (APB’s) Ethical Standards for Auditors.
In our opinion the information given in the Directors’ Report
for the financial year for which the financial statements are
prepared is consistent with the financial statements.
Matters on Which we are Required
to Report by Exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements 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.
Scope of the Audit of the
Financial Statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at:
www.frc.org.uk/auditscopeukprivate
Opinion on Financial Statements
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs
as at 1 June 2013 and of the Group’s profit for the period
then ended;
William Smith
Senior Statutory Auditor
For and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants, Dukes Keep,
Marsh Lane, Southampton SO14 3EX
27 August 2013
• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU;
Respective Responsibilities
of Directors and Auditor
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Consolidated Income Statement
~ for the 52 weeks ended 1 June 2013 ~
Note
Revenue
2
Other income
2
Changes in inventories of finished goods
Staff costs
4,5
Other trading expenses including
non-recurring items
Operating profit/(loss) before interest, tax,
depreciation and amortisation
Depreciation and amortisation
Share based payments
—
2013
£000
Trading
Results
2012
£000
NonRecurring
Items
£000
2012
£000
178,620
163,528
—
163,528
209
—
209
94
—
94
178,829
—
178,829
163,622
—
163,622
780
—
780
(3,578)
—
(3,578)
(30,901)
(172)
(31,073)
(27,165)
(163)
(27,328)
(117,525)
(369)
(117,894)
(108,794)
(314)
(109,108)
(147,646)
(541)
(148,187)
(139,537)
(477)
(140,014)
(541)
30,642
24,085
(477)
23,608
9-10
(7,815)
—
(7,815)
(8,838)
—
(8,838)
19
(1,881)
—
(1,881)
(181)
—
(181)
21,487
Financial income
7
Financial expenses
7
Net financing income/(expenses)
Profit/(loss) before tax
Profit/(loss) for the period
178,620
31,183
Operating profit/(loss)
Taxation
NonRecurring
Items
£000
8
622
(541)
—
20,946
15,066
622
11
(477)
—
14,589
11
(13,018)
(1,781)
(14,799)
(14,121)
—
(14,121)
(12,396)
(1,781)
(14,177)
(14,110)
—
(14,110)
9,091
(2,322)
6,769
956
(477)
479
(2,333)
553
(1,780)
3,373
123
3,496
6,758
(1,769)
4,989
4,329
(354)
3,975
All of the Group’s activities in the period are derived from continuing operations and are attributable to equity holders of the Company.
Total trading expenses before depreciation
and amortisation
Trading
Results
2013
£000
Statement of Comprehensive Income
Note
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
4,989
3,975
15,146
732
(226)
494
—
—
185
461
—
—
Other comprehensive income
Effective portion of changes in fair value of cash flow hedges net of tax
Change in fair value of cash flow hedges transferred to income
statement net of tax
Net other comprehensive income
(41)
Total comprehensive income/(loss)
955
—
732
4,948
4,930
15,146
732
4,948
4,930
15,146
732
Total comprehensive income/(loss) is attributable to:
Equity holders of the parent
Statement of Financial Position
~ as at 1 June 2013 ~
Registered Number: 06148029
Note
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
—
Non-current assets
9
14,682
14,175
—
10
158,876
160,648
—
—
11
—
—
26,199
19,268
Deferred tax assets
13
2,163
1,849
—
—
Financial assets
12
1
24
—
—
175,722
176,696
26,199
19,268
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Current assets
14
16,839
16,059
—
—
Trade and other receivables
15
2,990
4,146
85,254
68,752
Cash and cash equivalents
16
27,416
22,905
129
111
Other financial assets
12
367
646
—
—
Total assets
47,612
43,756
85,383
68,863
223,334
220,452
111,582
88,131
Current liabilities
Other interest-bearing loans and borrowings
17
(14,479)
(16,531)
Trade and other payables
18
(23,852)
(17,649)
(10)
(14)
—
—
20
(2,470)
(623)
—
—
(4,967)
(4,177)
—
—
(45,778)
(38,994)
Employee benefits
Provisions
Tax payable
—
(32,688)
(32,688)
—
(25,664)
(25,664)
Non-current liabilities
(153,229)
(161,756)
—
Deferred lease incentives
(4,698)
(4,651)
—
Accrued expenses
(5,913)
(6,482)
Other interest-bearing loans and borrowings
17
Deferred tax liabilities
13
Total liabilities
Total net current assets/(liabilities)
(2,508)
—
—
—
(3,108)
(23,989)
(25,671)
(187,829)
(198,560)
(2,508)
(3,108)
(233,607)
(237,554)
(35,196)
(28,772)
—
1,834
4,762
52,695
43,199
Total net non-current assets/(liabilities)
(12,107)
(21,864)
23,691
16,160
Net assets/(liabilities)
(10,273)
(17,102)
76,386
59,359
Equity
Share capital
Capital contribution reserve
Share premium
Hedging reserve
Retained earnings
Total equity
1,202
1,202
1,202
1,202
234,709
234,709
234,709
234,709
15,805
15,805
15,805
15,805
(98)
(57)
(261,891)
(268,761)
(10,273)
(17,102)
—
—
(175,330)
(192,357)
76,386
59,359
The notes on pages 20 to 43 are an integral part of these financial statements.
These financial statements were approved by the board of directors on
27 August 2013 and were signed on its behalf by:
Anthony Thompson, Chief Executive Officer
Inventories
Statement of Changes in Equity: Group
Share
Capital
£000
Prepaid
Share
Capital
£000
Capital
Contribution
Reserve
£000
Share
Premium
Hedging
Reserve
Retained
Earnings
£000
£000
Balance as at 29 May 2011
1,202
—
234,709
15,805
(1,012)
—
—
—
—
—
3,975
3,975
Change in fair value of cash flow
hedges transferred to income
—
—
—
—
461
—
461
Effective portion of changes in fair
value of cash flow hedges net of tax
—
—
—
—
494
—
494
Total other comprehensive income
for the period
—
—
—
—
955
3,975
4,930
£000
(272,917)
Total
Equity
£000
(22,213)
Transactions with owners
Equity settled share based payments
—
—
—
—
—
181
181
Total transactions with owners
recorded in equity
—
—
—
—
—
181
181
Balance at 2 June 2012
1,202
—
234,709
15,805
(57)
(268,761)
(17,102)
(57)
(268,761)
(17,102)
1,202
—
234,709
15,805
—
—
—
—
—
4,989
4,989
Change in fair value of cash flow
hedges transferred to income
—
—
—
—
185
—
185
Effective portion of changes in fair
value of cash flow hedges net of tax
—
—
—
—
(226)
—
(226)
Total other comprehensive income
for the period
—
—
—
—
(41)
4,989
4,948
—
—
—
—
—
1,881
1,881
recorded in equity
—
—
—
—
—
1,881
1,881
1,202
—
234,709
15,805
(98)
(261,891)
(10,273)
Statement of Changes in Equity: Company
Share
Capital
Capital
Contribution
Reserve
£000
Share
Premium
£000
Prepaid
Share
Capital
£000
1,202
—
234,709
15,805
—
—
—
—
732
732
Total comprehensive income for the period
—
—
—
—
732
732
—
—
—
—
181
181
Issue of shares
—
—
—
—
—
—
—
—
—
—
181
181
Balance at 29 May 2011
£000
Retained
Earnings
£000
(193,270)
Total
Parent
Equity
£000
58,446
1,202
—
234,709
15,805
—
—
—
—
(192,357)
15,146
59,359
15,146
Total comprehensive income for the period
—
—
—
—
15,146
15,146
—
—
—
—
1,881
1,881
Issue of shares
—
—
—
—
—
—
—
—
—
—
1,202
—
234,709
15,805
1,881
(175,330)
1,881
76,386
Cash Flow Statements
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
6,769
479
19,720
15,941
9,10
7,815
8,838
—
—
19
1,881
181
—
—
(622)
(11)
Note
Cash flows from operating activities
Profit/(loss) before tax for the year
Adjustments for:
Depreciation, amortisation and impairment
Equity settled share-based payment expenses
Financial income
7
Financial expense
7
Cash generated from operations
14,799
14,121
30,642
23,608
(22,276)
(17,679)
2,060
1,388
(496)
(350)
Change in trade and other receivables
1,156
232
125
33
Change in inventory
(780)
3,578
—
—
Change in trade and other payables
6,611
1,325
389
425
Change in provisions and employee benefits
1,830
(653)
—
—
18
108
39,459
28,090
Tax paid
(3,263)
—
—
Net cash from operating activities
36,196
27,437
18
108
22
11
—
—
—
—
(653)
Cash flows from investing activities
Interest received
7
Acquisition of property plant and equipment
9
(6,216)
513
1,171
—
—
10
(914)
(890)
—
—
Lease incentives, net of amortisation
Acquisition of other intangible assets
Net cash from investing activities
(6,595)
Free cash flow
29,601
(4,529)
—
—
23,200
18
108
—
(4,237)
Cash flows from financing activities
Proceeds from new loans
17
152,886
—
—
(6,165)
—
—
(170,787)
(8,412)
—
—
(25,090)
(14,577)
—
—
(7,189)
Interest paid
Repayment of borrowings
17
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of period
Cash and cash equivalents at end of period
16
4,511
8,623
18
108
22,905
14,282
111
3
27,416
22,905
129
111
Notes to the Financial Statements
(forming part of the Financial Statements)
1. Accounting Policies
Fat Face 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.
Except for the revisions to IAS 24 which have been adopted
in these financial statements, there were no other new
accounting policies or amendments that became effective
for the first time in the financial year that are considered to
impact upon these financial statements, nor are there any
new standards to be adopted next year that are expected
to have a material impact on the financial statements.
The accounting policies set out below have, unless
otherwise stated, been applied consistently to all periods
presented in these consolidated financial statements.
Judgements made by the directors, in the application of
these accounting policies that have significant effect on
the financial statements and estimates with a significant
risk of material adjustment in the next year are discussed
in notes 10, 19 and 20, and in the lives of intangible assets
as noted below.
Measurement convention
The financial statements are prepared on an historical cost
basis with the exception of derivative financial instruments
which are stated at their fair value.
Basis of consolidation – subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when the Group has the power, directly or indirectly,
to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. In assessing control,
potential voting rights that are currently exercisable or
convertible are taken into account. The financial statements
of subsidiaries are included in the consolidated financial
statements from the date that control commences until the
date that control ceases.
Foreign currency
Transactions in foreign currencies are translated at the
foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the
income statement. Non-monetary assets and liabilities
that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the
date of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at fair
value are translated at foreign exchange rates ruling at
the date of transaction the fair value was determined.
Exchange differences related to qualifying hedges are taken
directly to the translation 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
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 4 to 6. For further details of the assessment of the
going concern principle please refer to the Directors’ report.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments
in equity and debt securities, cash and cash equivalents, and
loans and borrowings.
Investments in debt and equity securities
Investments in debt and equity securities held by the
Company are stated at the lower of original cost and fair
value with any resultant cumulative impairment losses
recognised in profit or loss. Where these investments are
interest-bearing, interest calculated using the effective
interest method is recognised in profit or loss.
Cash and cash equivalents comprise cash balances and call
deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are
included as a component of cash and cash equivalents for
the purpose of the statement of cash flows only.
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 nonderivative 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.
Interest-bearing borrowings
Interest-bearing borrowings are recognised at amortised
cost plus accumulated unpaid interest costs incurred.
Derivative financial instruments
and hedging
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.
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.
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:
Freehold buildings
Leasehold land and buildings
2% per annum
Life of lease
Equipment and fixtures:
Computer and communications equipment
33%
Shopfit, fixtures and fittings,
furniture, mannequins
20%
Plant and machinery
25%
Motor vehicles
25%
Assets in the course of construction are not depreciated.
Assets in the course of construction refers to expenditure on
new stores not yet trading. On-going refurbishment projects
in respect of existing stores are charged directly into the
appropriate asset categories.
Derivative financial instruments are recognised 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).
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses.
1. Accounting Policies (continued)
Lease incentives
Intangible assets and goodwill
All business combinations are accounted for by applying
the purchase method. Goodwill represents amounts
arising on acquisition of subsidiaries, associates and
jointly controlled entities being the difference between
the cost of the acquisition and the net fair value of the
identifiable assets, liabilities and contingent liabilities
acquired. Identifiable intangibles are those which can be
sold separately or which arise from legal rights regardless
of whether those rights are separable.
Goodwill is stated at cost less any accumulated impairment
losses. Goodwill is not amortised but is tested annually
for impairment.
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:
– an asset is created and can be identified;
– the development costs of the asset can be
measured reliably.
Where these conditions are met the cost 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. The estimated useful lives are as follows:
Over the registered life
Trademarks – Internally
generated value
2%
Customer lists
Software and licences
Trade and other payables are recognised at face value.
Impairment
The carrying amounts of the Company’s and the Group’s
assets other than inventories and deferred tax assets are
reviewed at each balance sheet date to determine whether
there is any indication of impairment. If any such indication
exists, the asset’s recoverable amount is estimated.
An impairment loss is recognised whenever the carrying
amount of an asset or its cash generating unit exceeds its
recoverable amount. Impairment losses are recognised in
the income statement.
The results of the impairment review on groups of assets are
disclosed in the relevant notes below.
– it is probable that the asset will generate future
economic benefit; and
Trademarks acquired
Contributions received from landlords are deemed to be
incentives and as such are recognised as deferred income
and subsequently released over the life of the lease.
25%
Over the estimated useful life
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.
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.
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.
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.
The fair value is measured at grant date and spread over the
period during which the employees became unconditionally
entitled to the fair value of the shares. The fair value of the
shares acquired is measured using an EBITDA multiple,
taking into account the terms and conditions upon which
the shares were granted. The amount recognised as an
expense is adjusted to reflect the forecast number of shares
expected to be forfeit without reaching full fair value.
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.
For the tranches of C2 shares issued in 2010, the directors
of the Company considered that the fair value could not
be estimated reliably. In accordance with IFRS2 the Group
adopted the intrinsic value methodology for these shares,
whereby the intrinsic value of this share based payment
is re-measured at each reporting date, with changes
recognised in profit or loss until the instrument is settled.
All other C2 shares are accounted for as normal equity
settled arrangements under IFRS2.
Revenue
Revenue represents the invoiced amounts of goods sold
and services provided during the period, stated net of value
added tax.
Revenue arising from the sale of gift vouchers and gift
cards is deferred and recognised at the point of redemption.
Revenue arising from wholesale is recognised when invoiced.
Operating lease payments
Payments made under operating leases are recognised in the
income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense.
Net financing costs
Net financing 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.
The onerous leases provision is made to cover the costs of
vacant or sublet properties, where the cost of serving the
head lease is not covered by the sublease income.
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:
• the initial recognition of goodwill;
• the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit other than in a
business combination; and
• differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the
foreseeable future.
The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the assets can be utilised.
Expenses
Provisions
2. Revenue
Sale of goods
Rent receivable
Royalties
2013
£000
2012
£000
178,620
163,528
124
72
85
22
178,829
163,622
Revenue and other income attributable to geographical markets outside the United Kingdom amounted to 2.97% (2012: 3.1%).
3. Other Operating Income
2013
£000
2012
£000
—
—
2013
£000
2012
£000
Staff restructuring costs expensed as incurred
172
163
Impairment of loan notes issued by external party
254
—
Net gain on disposal of property, plant and equipment
Other trading expenses are shown net of other operating income.
4. Expenses and Auditor’s Remuneration
Included in the profit for the period are the following non-recurring items:
Professional services and other one-off items
Debt write off costs
115
314
1,781
—
2,322
477
Operating profit is stated after
Inventories written down/(back) in the period
Inventories loss recognised as an expense in the period
Operating leases: Land and buildings
(38)
373
1,262
1,241
20,423
20,295
246
195
5,129
6,433
2,686
2,404
7
7
Audit of financial statements of subsidiaries pursuant to legislation
72
70
Other services relating to taxation and sundry matters
59
57
Operating leases: Other
Depreciation of tangible assets (net of third party contributions)
Amortisation
Auditor’s remuneration
Audit of these financial statements
Amounts receivable by auditors and their associates in respect of:
5. Staff Numbers and Costs
The contracted number of persons employed by the Group (excluding non-executive directors) during the period, analysed by
category, was as follows:
Group
2013
Number of employees
Group
2012
298
301
Stores
1,967
1,890
Total
2,265
2,191
2013
£000
2012
£000
Fat Base (head office)
The Company had no employees during the period.
The aggregate payroll costs of the persons employed by the Group were as follows:
28,683
25,132
Social security costs
1,957
2,063
Other pension costs
159
96
Healthcare costs
102
37
Total before share based payments
30,901
27,328
Share based payments (see note 19)
1,881
181
32,782
27,509
2013
£000
2012
£000
1,144
1,390
Wages and salaries
Total
6. Directors’ Emoluments
Directors’ emoluments on behalf of the Group are as follows:
Directors’ emoluments
24
11
Share based payments
1,536
37
Total
2,704
1,438
Company contributions to defined contribution pension plans
The aggregate of emoluments of the highest paid director was £452k (2012: £435k) and company pension contributions of £nil
(2012: nil) were made to a defined contribution scheme on their behalf.
Number of
directors
2013
Number of
directors
2012
2
3
2013
£000
2012
£000
Retirement benefits are accruing to the following number of directors:
Defined contribution benefit plans:
The amount accrued in respect of directors’ pensions at 1 June 2013 was nil (2012: £2,219).
7. Finance Income and Expense
11
600
—
Financial income
622
11
Bank interest expense
11,020
12,071
Other interest payable
3,368
1,933
411
117
14,799
14,121
Net foreign exchange loss
Financial expense
Of the Bank interest expenses, £5,342,000 relates to cash interest payable on bank debt (2012: £6,165,000) with the remainder
relating to payment in kind (PIK) interest which is added to the loan principal. Other interest payable consists of non-cash interest
on loan notes which is added to the loan principal (see note 17), and non-recurring debt costs that have been written off of
£1,781,000 (2012: nil).
22
Exit fee (accrual adjustment)
Bank interest income
8. Taxation
Recognised in income statement
2013
Total
£000
2012
Total
£000
3,444
1,484
Current tax expense
Current year
256
Adjustments for prior years
Total current tax
(143)
3,700
1,341
Deferred tax expense
(965)
Current year
Adjustments in respect of previous periods
Release of discounted debt deferred tax liability
(710)
29
(2,192)
—
(1,634)
(984)
(301)
(1,920)
(4,837)
Total tax in income statement
1,780
(3,496)
Reconciliation of effective tax rate
2013
£000
2012
£000
Profit/(loss) before tax
Deferred tax rate change
Total deferred tax
6,769
479
Tax using the UK corporation tax rate of 23.833% (2012: 25.667%)
1,613
123
Non-deductible expenses
1,014
608
Non-taxable income
(181)
—
Utilisation of unrecognised losses
(221)
—
Under/(over) provided in prior years
509
(444)
—
(1,634)
Release of discounted debt deferred tax liability
Impact of rate change on brought forward balance
(988)
(2,059)
Rate difference on deferred tax
34
(90)
Total tax in income statement
1,780
(3,496)
Tax recognised directly in equity
2013
£000
2012
£000
Deferred tax recognised directly in equity
(76)
155
The Finance Act 2012, which provides for a reduction in the main rate of corporation tax from 24% to 23% effective from 1 April
2013, was substantively enacted on 3 July 2012. This rate reduction has been reflected in the calculation of deferred tax at the
balance sheet date.
The Government intends to enact a future reduction in the main tax rate down to 20% by 1 April 2015. As this tax rate was
not substantively enacted at the balance sheet date, the rate reduction is not yet reflected in these financial statements in
accordance with IAS 10, as it is a non-adjusting event occurring after the reporting period.
9. Property, Plant and Equipment: Group
Freehold
land and
buildings
£000
Asset in the
course of
construction
£000
Short leasehold
land and
buildings
£000
Equipment
and fixtures
Motor
vehicles
Total
£000
£000
£000
124
257
3,411
40,810
36
44,638
Cost
Additions
—
145
326
4,029
—
4,500
Transfers between categories
—
(257)
78
179
—
—
Disposals
—
—
124
145
3,691
42,795
35
46,790
124
145
3,691
42,795
35
46,790
11
360
5,845
—
6,216
71
74
—
—
Additions
—
Transfers between categories
—
Disposals
(145)
—
—
124
11
(124)
(169)
3,953
(2,223)
(1)
(1,673)
(2,348)
—
(1,842)
47,041
35
51,164
Depreciation and impairment
(12)
—
(925)
(26,974)
(36)
(27,947)
Depreciation charge for the period
(3)
—
(244)
(6,762)
—
(7,009)
Disposals
—
—
153
2,187
1
2,341
(15)
—
(1,016)
(31,549)
(35)
(32,615)
(15)
—
(1,016)
(31,549)
(35)
(32,615)
Depreciation charge for the period
(3)
—
(216)
(5,489)
—
(5,708)
Disposals
—
—
168
1,673
—
1,841
(18)
—
(1,064)
(35,365)
(35)
(36,482)
Net book value
At 28 May 2011
112
257
2,486
13,836
—
16,691
At 2 June 2012
109
145
2,675
11,246
—
14,175
At 1 June 2013
106
11
2,889
11,676
—
14,682
The depreciation and impairment charge is recognised in the following line items in the income statement together with the
amortisation of lease incentives held on the balance sheet and amortised over the life of the lease:
2013
£000
2012
£000
5,708
7,009
Depreciation of tangible property, plant and equipment
Tangible assets
Unwinding of deferred lease incentives
(579)
Depreciation and lease amortisation
5,129
(576)
6,433
10. Intangible Assets: Group
Goodwill
£000
Trade
Marks
£000
Property
Leases
£000
Customer
Lists
£000
Software and
Licences
£000
Total
£000
263,150
118,078
1,500
84
443
383,255
—
—
—
—
Cost
Disposals during the period
Other additions – externally purchased
(61)
(61)
—
2
—
—
886
888
263,150
118,080
1,500
84
1,268
384,082
384,082
263,150
118,080
1,500
84
1,268
—
—
—
—
—
—
Other additions – externally purchased
—
8
—
—
906
914
263,150
118,088
1,500
84
2,174
384,996
(1,300)
(69)
Amortisation and Impairment
(209,700)
—
Amortisation for the period
—
(9,595)
—
61
(221,091)
61
(15)
(12)
(2,404)
(209,700)
(11,972)
(1,300)
(84)
(378)
(223,434)
(209,700)
(11,972)
(1,300)
(84)
(378)
(223,434)
—
Amortisation for the period
—
(209,700)
—
(2,392)
(14,364)
—
(427)
—
(2,377)
—
—
—
—
—
(294)
(2,686)
(84)
(672)
(226,120)
(1,300)
—
—
Net book value
At 28 May 2011
53,450
108,483
200
15
16
162,164
At 2 June 2012
53,450
106,108
200
—
890
160,648
At 3 June 2013
53,450
103,724
200
—
1,502
158,876
Goodwill represents amounts arising on the acquisitions of subsidiaries, being the difference between the cost of the acquisition
and the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. This will include the value of the
workforce in place, the future marketability of the brand, represented by potential income streams not yet being exploited, and the
synergies arising from the utilisation of the Group’s assets as a whole, over and above their individual value-generating capacity.
The assessment of trade mark valuation has been determined internally using a method based on a 6% (2012: 6%) discounted
future notional royalty stream. The customer file has been valued internally using market rates for customer list rental. A discount
rate of 12% (2012: 12%) has been used, which was based on an industry standard average weighted cost of capital.
Amortisation Charge
The amortisation charge is recognised in the following line items in the income statement:
Depreciation and amortisation of trading assets
Amortisation of non-trading intangibles
2013
Total
£000
2012
Total
£000
294
27
2,392
2,377
2,686
2,404
Impairment testing
Discount rate
The Group’s management has reviewed the carrying value of
goodwill for possible impairment based on the group of cash
generating units which comprise the lowest level at which
goodwill is monitored. This is equivalent to the business as
a whole. As in previous years, the Group’s management has
determined that the income approach (which is equivalent
to utilising the ‘value in use’ valuation technique) is the most
appropriate method for valuing the business at the current
stage of its development in the present market. The Group’s
management does not believe an impairment of the goodwill
in the business is required (2012: nil).
The Group’s weighted average cost of capital (WACC) as
adjusted for a market based interest rate and capital structure
has been used as a discount rate in the calculation, adjusted
to arrive at a pre tax rate. The pre tax discount rate, the rate
stakeholders could reasonably expect as an average return
for their investment, has been estimated at 14% (2012: 14%).
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 densities, relocating and refitting stores in
successful markets and expanding the portfolio. However,
longer term forecasts are inherently less reliable and the
impairment assessment consequently includes very prudent
growth assumptions beyond 2016.
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 £3m. An increase
in the WACC from 14% to 15% would reduce the valuation of
the business by approximately £20m but would not trigger
any impairment charges.
Cost growth forecasts
Costs are assumed to grow at a reasonable rate to support
the continued expansion.
11. Investments in Subsidiaries
Company
Opening investment
Accumulated interest on loan notes
2013
£000
2012
£000
19,268
27,230
5,050
4,130
—
Intergroup restructuring (see below)
Additions during the year arising from share based payments
Closing investment
(12,273)
1,881
181
26,199
19,268
The directors have reviewed the carrying value of the loan notes issued by Fat Face World Investments Limited as part of the
overall valuation of the Group. The underlying operating performance of the Group remains strong with forecasts showing that
external bank debt will continue to be repaid. However, there remains doubt over the subsidiary’s ability to make full repayment
to the Company, therefore there has been no reversal of previous impairments. Whilst there are strong indications that direct/
indirect subsidiaries will be able to repay most of the debt with the Company, due to the sensitivities around this no reversal of
previous impairments has been made. The Group and Company have the following investments in subsidiaries:
Country of
incorporation
Class of
shares held
Ownership
2013
Ownership
2012
UK
Ordinary
100%
100%
Group and Company
Fat Face World Investments Limited
Group
Fat Face World Borrowings Limited
UK
Ordinary
100%
100%
Fat Face Fulham Limited
UK
A Ordinary
100%
100%
B Ordinary
100%
100%
C Ordinary
100%
100%
D Ordinary
100%
100%
E Ordinary
100%
100%
Deferred
100%
100%
Fat Face Newco1 Limited
UK
Ordinary
100%
100%
Fat Face Newco2 Limited
UK
Ordinary
100%
100%
Fat Face Holdings Limited
UK
Preference
100%
100%
Ordinary
100%
100%
Ordinary A
100%
100%
100%
Ordinary B
100%
UK
Founder
100%
100%
UK
Ordinary
100%
100%
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
367
646
—
—
1
24
—
—
Fat Face Limited
12. Other Financial Assets and Liabilities
Current
Fair value of exchange rate hedge
Fair value of interest rate hedge
For details on valuation methodology adopted see note 22.
13. Deferred Tax Assets and Liabilities: Group
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
2013
£000
(1,506)
—
Intangible assets
—
Financial assets
(657)
Accruals
Liabilities
2013
£000
Liabilities
2012
£000
—
—
—
23,905
25,511
—
—
—
—
—
Assets
2012
£000
(1,622)
(227)
Provisions and employee benefits
—
—
—
—
Discounted debt
—
—
—
—
Financial liabilities
—
—
84
160
23,989
25,671
(2,163)
Tax (assets)/liabilities
(1,849)
Net of tax (assets)
—
—
(2,163)
(1,849)
Net tax liabilities
—
—
21,826
23,822
29 May
2011
£000
Recognised
in income
£000
Recognised
in equity
£000
2 June
2012
£000
Movement in deferred tax during the period
(1,332)
28,254
Intangible assets
(193)
Accruals
1,770
Discounted debt
5
28,504
3 June
2012
£000
(1,622)
Intangible assets
25,511
(227)
Accruals
160
23,822
(290)
—
(1,622)
(2,743)
—
25,511
(34)
—
(1,770)
—
—
(227)
—
155
160
155
23,822
Recognised
in income
£000
Recognised
in equity
£000
3 June
2013
£000
116
—
(1,506)
(1,606)
—
23,905
(430)
—
(4,837)
—
(1,920)
(657)
(76)
84
(76)
21,826
At the balance sheet date, the Group has an unrecognised deferred tax asset of £nil (2012: £nil) arising from losses. The Company
has no deferred tax assets or liabilities.
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
Finished goods and goods for resale
16,839
16,059
—
—
Cost of inventories recognised as an expense
67,748
68,330
—
—
All inventories are expected to be sold within 12 months
Inventory provisions comprise amounts in respect of inventories expected to be sold at less than cost price, together with an
estimate of inventory shrinkage. The value of inventories expected to be sold at less than cost price is determined based on
historic cost, current sales price, together with volumes held. The estimate of inventory shrinkage is calculated based on historic
data of levels of inventory adjustments not recognised through the stock take process.
14. Inventories
15. Trade and Other Receivables
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
—
—
85,162
68,535
2,542
3,193
91
102
Trade receivables
448
648
—
—
Other receivables
—
305
1
115
2,990
4,146
85,254
68,752
Amounts due from group companies
Prepayments
As at 1 June 2013, £94,000 (2012: £382,000) of the other short term trade receivables balance was overdue. In the month
following the year end over half of the overdue balance was recovered. Receivables of £59,000 (2012: £54,000) have been
provided against at the end of the period.
Of trade receivables, 100% (2012: 100%) are in respect of UK debtors. Trade receivables mostly arise from the Company’s
wholesale operations. No collateral is held against the outstanding amounts and no other amounts are past due except as
disclosed. The maximum credit risk from financial assets is £448,000 (2012: £761,000).
Prepayments relating to expenses incurred in establishing and maintaining the Fat Face Employee Benefit Trust (the EBT) are nil
(2012: £192,000). The EBT is operated as an independent trust, separately from the management structure of the Fat Face group
of companies and it has therefore not been consolidated into these results.
All group receivables are recoverable on demand. In the Company accounts, management has analysed forecast future cash
flows of the Group in determining that group receivables are recoverable. Other receivables are expected to be recovered within
12 months.
16. Cash and Cash Equivalents
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
Cash and cash equivalents per balance sheet
27,416
22,905
129
111
Cash and cash equivalents per cash flow statements
27,416
22,905
129
111
17. Other Interest-Bearing Loans and Borrowings
This note provides information about the contractual terms of the Group and Company’s interest-bearing loans and borrowings.
For more information about the Group and Company’s exposure to interest rate and foreign currency risk, see note 22.
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
16,883
15,350
—
—
1,148
152
—
—
Non-current liabilities
Shareholder loan notes
Related party loan notes
Secured bank loans
135,198
146,254
—
—
153,229
161,756
—
—
14,479
16,531
—
—
—
—
—
—
14,479
16,531
—
—
Current liabilities
Current portion of secured bank loans
Bank overdrafts
17. Other Interest-Bearing Loans and Borrowings (continued)
Terms and debt repayment schedule
Year
of final
maturity
Face value
(Group)
£000
Carrying
amount
(Group)
£000
Face
value
(Company)
£000
Carrying
amount
(Company)
£000
28,650
31,413
—
—
At 2 June 2012
Currency
Nominal
interest rate
Cash paid
Senior facility A
£
LIBOR+3.0%
3.90%
2014
Senior facility B
£
LIBOR+3.625%
1.00%
2015
102,125
103,686
—
—
Second Lien
£
—
LIBOR+6.75%
2015
22,500
26,250
—
—
Revolving facility
£
LIBOR+3.0%
0.50%
2014
1,422
1,436
—
—
Related party
loan notes
£
—
—
2016
152
152
—
—
Shareholder
loan notes
£
—
10.00%
2016
12,967
15,350
—
—
167,816
178,287
—
—
—
—
—
—
—
—
167,816
178,287
—
—
Year
of final
maturity
Face value
(Group)
£000
Carrying
amount
(Group)
£000
Face
value
(Company)
£000
Carrying
amount
(Company)
£000
Overdraft
Payment
in kind
n/a
At 1 June 2013
Currency
Nominal
interest rate
Cash paid
Facility A
£
LIBOR+3.0%
2.375%
2016
20,030
23,529
—
—
Facility B
£
LIBOR+4.75%
1.00%
2016
86,786
89,459
—
—
Facility B EURO
€
LIBOR+4.0%
1.00%
2016
7,274
7,504
—
—
2nd Lien
£
—
LIBOR+6.75%
2017
21,600
27,232
—
—
2nd Lien EURO
€
—
LIBOR +6.0%
2017
966
1,210
—
—
Revolving facility
£
LIBOR+2.875%
—
2016
704
743
—
—
Related party
loan notes
£
—
—
2017
1,148
1,148
—
—
Shareholder
loan notes
£
—
10.00%
2016
12,967
16,883
—
—
151,475
167,708
—
—
—
—
—
—
151,475
167,708
—
—
Overdraft
—
Payment
in kind
—
n/a
Following negotiations with its lenders, on 1st October 2012 the Company entered into revised banking facilities. The principal
changes to the facilities were as follows:
• Senior facility A maturity of 31 July 2014 extended to 30 June 2016.
• Senior facility B maturity of 17 May 2015 extended to 31 December 2016.
• Second lien maturity of 17 November 2015 extended to 17 November 2017.
• Portion of senior facility B and second lien has been redenominated into Euros.
• Senior facility A margin for PIK has decreased by 0.9%.
• Senior facility B margins have increased by 1.125% cash paid and 0.625% PIK.
• Financial covenants have been reset to provide additional headroom.
Upon completion of the revision to the banking facilities, the Group assessed this modification and determined the modification
was substantive. Accordingly the modification was treated as the extinguishment of the old debt, and the issue of new debt.
Therefore brought forward unamortised costs of £1,781,000 were written off in the period and £1,433,350 (2012: £nil) of costs
associated with the issue of debt facilities was capitalised and will be amortised over the life of the associated debt. Of the total
debt costs capitalised to date £596,775 (2012: £1,522,000) was amortised in the period of which £304,667 related to the brought
forward debt and £292,108 related to the new debt.
• Revolving facility maturity of 17 May 2015 extended to 30 June 2016.
17. Other Interest-Bearing Loans and Borrowings (continued)
Repayments of £17.9m were made against the Group’s external debt during the year (2012: £8.6m). The Group’s banking facilities
include a £18.2m revolving credit facility from which the capex facility loan above is drawn. Of the remaining £17.5m, Fat Face
Limited, an indirect subsidiary of the Company, has drawn £10m under an Ancillary Facilities agreement. This provides overdraft,
guarantee, and supplier credit facilities for the day-to-day operations of the Group. The Group has paid a non-utilisation fee of 1%
on the remaining £7.5m revolving credit facility plus any unutilised portion of the Ancillary Facilities Agreement.
The Group’s banking facilities are subject to EBITDA, interest and cash cover covenants typical for borrowings of this nature.
All covenants were met comfortably throughout the year.
All of the direct and indirect subsidiaries of the Company are obligors and joint guarantors of the Group’s banking facilities.
The Group has entered into a security document which comprises fixed and floating charges over the Group’s assets, together
with assignments (by way of security) of insurance policies, specified bank accounts and certain specified contracts.
All group term facilities and borrowings are denominated in Sterling, and to a lesser extent Euros. All term facilities and
borrowings are carried at face value net of unamortised acquisition costs plus (where applicable) accumulated unpaid dividends
and interest.
Some of the Group’s subsidiaries (including the principal operating company) have entered into long-standing security
documents in favour of the banking syndicate which comprise fixed and floating charges over each company’s assets, together
with assignments (by way of security) of insurance policies, specified bank accounts and certain specified contracts.
The term loans include £29.6m (2012: £12.0m) of debt held by 101 Investments Nominees No.1 Limited, which is an affiliate of
Bridgepoint, and Hamilton Lane Inc, which is a shareholder of the Group. This debt is on the same terms as that held by other lenders.
The Group has issued loan notes in the year to the sum of £1.0m (2012: £152k) in respect of interest which would otherwise have
been payable to 101 Investments Nominees No.1 Limited, and £39k (2012:£nil) in respect of interest which would otherwise have
been payable to Hamilton Lane inc.
Company
The Company incurred no costs associated with the establishment of new debt facilities during the period (2012: nil).
18. Trade and Other Payables
Group
2013
£000
Group
2012
£000
Company
2013
£000
Company
2012
£000
25,546
Current
Amounts due to Group companies
Trade payables
Non—trade payables and accrued expenses
Interest payable
—
—
32,583
11,864
9,467
—
—
11,165
7,460
105
118
823
722
—
—
23,852
17,649
32,688
25,664
Accrued expenses includes £100,000 (2012: £100,000) in respect of amounts owed to an ex-director of the Group.
All group payables are payable on demand. Other payables are expected to be paid within 12 months.
19. Employee Benefits
Defined contribution plans
The Group operates a defined contribution pension plan.
The total expense relating to this plan in the current year was £159,000 (2012: £96,000). The total owed by the plan at the end of
the year was £1,000 (2012: £9,000 owed to the plan).
Share-based payments
Senior management of Fat Face Limited are invited to become shareholders in the ultimate parent. ‘C2’ ordinary shares and
‘C1A’ ordinary shares are offered at a price reflecting the performance and future prospects of the business. An earlier incentive
scheme offered ‘B’ ordinary shares on a similar basis.
The Articles of Association of the ultimate parent (‘the Articles’) define ‘Good Leavers’ and ‘Bad Leavers’, where a ‘Bad Leaver’ is an
employee-shareholder leaving the business because of voluntary resignation or termination in circumstances justifying summary
dismissal. All other employee-shareholders leaving the business are ‘Good Leavers’. On leaving the business, the Articles require
that a Bad Leaver surrenders their ‘B’, ‘C1A’ and ‘C2’ ordinary shares at the lower of fair value and the cost for which the shares
were acquired.
On leaving the business, the Articles require that a Good Leaver sells their ‘B’, ‘C1A’ and ‘C2’ ordinary shares as directed by the
majority investors at a value between cost and fair value calculated by reference to length of service.
It is expected that the shares will be surrendered to other employee-shareholders in the business.
The benefits of share grant are estimated by using an EBITDA multiple applied to the then current estimate for the results of
the Group at the expected time of realisation of the share value as a proxy for an option pricing model. The multiple has been
determined by reference to market values for similar businesses.
Grant date
Number of
instruments
Charged to income
2013
£000
Charged to income
2012
£000
27,500,000
—
—
Award of ‘C2’ ordinary shares granted 15 April 2010
48,936,165
115
—
Award of ‘C2’ ordinary shares granted 28 May 2010
41,010,636
63
—
Award of ‘C2’ ordinary shares granted 4 May 2011
10,638,297
144
144
Award of ‘B’ ordinary shares granted on 17 May 2007
2,765,957
37
37
Award of ‘C1A’ ordinary shares granted 4 January 2013
378,682,631
1,023
—
Award of ‘C1A’ ordinary shares granted 14 January 2013
134,308,765
363
—
Award of ‘C1A’ ordinary shares granted 1 February 2013
50,615,995
Award of ‘C2’ ordinary shares granted 28 February 2012
Total expense recognised for the year
136
—
1,881
181
For the tranches of C2 shares issued in 2010, the directors of the Group considered that the fair value could not be estimated
reliably. In accordance with IFRS2 the Group adopted the intrinsic value methodology for these shares, whereby the intrinsic
value of this share based payment is re-measured at each reporting date, with changes recognised in profit or loss until the
instrument is settled. All other C2 shares are accounted for as normal equity settled arrangements under IFRS2.
As set out above, the directors consider the charge based on the fair value of the C2 share based payment under this
methodology to be £530,000 per annum (2012: £800,000).
20. Provisions
Provisions utilised/released during the year
Onerous lease
Provision £000
Dilapidation
Provision £000
Total
£000
959
307
1,266
(677)
(307)
(984)
Provisions created during the year
245
96
341
527
96
623
527
96
623
Provisions utilised/released during the year
(104)
(96)
(200)
Provisions created during the year
1,738
309
2,047
2,161
309
2,470
Current
2,161
309
2,470
The onerous leases provision is made to cover the costs of vacant or sublet properties, where the cost of serving the head lease is
not covered by the sublease income. The dilapidations provision is made to cover the cost of returning properties to the condition
required by the lease on exit and is based on the management’s assessment of the store relocation programme and the current
state of properties in the Group’s portfolio.
21. Capital and Reserves
Share Capital
In thousands of shares
On issue at 29 May 2010 – fully paid
Prepaid shares at 29 May 2010
Issued for cash
Total shares paid up at 28 May 2011
Issued for cash
Total shares paid up at 2 June 2012
Share split
Issued for cash
Total shares paid up at 1 June 2013
Deferred
shares
Preferred
ordinary
shares
C1
shares
C1A
shares
C1B
shares
179,682
15,138
471,063
—
—
—
131,774
—
C2
shares
Ordinary
shares
—
75,691
100,000
—
14,256
—
—
—
—
—
—
10,638
—
179,682
15,138
602,837
—
—
100,585
100,000
—
—
—
—
—
2,765
—
179,682
15,138
602,837
—
—
103,350
100,000
—
—
602,837
602,837
—
—
(602,837)
—
—
—
—
—
—
—
179,682
15,138
—
602,837
602,837
103,350
100,000
2013
Authorised
£000
2013
Allotted, called up
and fully paid
£000
2012
Authorised, allotted, called
up and fully paid
£000
A Ordinary shares of £0.01 each
725
725
725
B Ordinary shares of £0.01 each
275
275
275
18
18
18
Share capital
Deferred shares of £1.00 each
151
151
151
C1 Shares of £0.000047 each
—
—
28
C1A Shares of £0.000001 each
1
1
—
C1B shares of £0.000046 each
27
27
—
C2 Shares of £0.000047 each
5
5
5
1,202
1,202
1,202
Preferred ordinary shares of £0.01 each
Share premium
Deferred shares
179,664
179,664
Shares classified in equity
180,866
180,866
The holders of A and B ordinary shares and C1B shares are entitled to receive dividends as declared from time to time and are
entitled to one vote per share at meetings of the Company.
The holders of C1A and C2 shares are entitled to receive dividends as declared from time to time but are not entitled to vote at
meetings of the Company.
During the period, the C1 class of shares were split into 2 new share classes, C1A and C1B. At the time of this change, each C1
shareholder was given 1 C1A share and 1 C1B share for each of their C1 shares with no additional cash consideration paid.
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 22.
During the prior period, the Company issued C2 shares for a total consideration of £130. No additional C2 shares were issued
during this financial period.
22. Financial Instruments
22(a) Fair values of financial instruments
Investments in debt and equity securities
Investments in subsidiary companies are carried at acquisition cost and reviewed for impairment. There has been no impairment
in 2013, as discussed in note 11.
Trade and other receivables are carried at recoverable amount, less provisions 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.
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 cash and cash equivalents is estimated at its carrying amount.
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 in the secondary market and is shown as a mid-point of that expected range.
The fair value of forward exchange contracts is estimated by reference to the difference between the contractual forward price
and the current forward price for the residual maturity of the contract. The contracts are a level 2 fair value instrument in terms of
the Fair Value hierarchy.
The fair value of the interest rate cap is based on broker quotes. Those quotes are tested for reasonableness by discounting
estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar
instrument at the measurement date. The cap is a level 2 fair value instrument in terms of the Fair Value hierarchy.
The fair values for each class of financial assets and financial liabilities together with their carrying amounts shown in the balance
sheet are as follows:
Group
Carrying
amount
2013
£000
Fair value
2013
£000
Carrying
amount
2012
£000
Fair value
2012
£000
368
368
670
670
2,990
2,990
4,146
4,146
Assets
Financial assets held for hedging
27,416
27,416
22,905
22,905
30,774
30,774
27,721
27,721
(167,708)
(125,931)
(178,287)
(126,596)
(23,852)
(23,852)
(17,649)
(17,649)
(191,560)
(149,783)
(195,936)
(144,245)
Liabilities
Financial liabilities at amortised cost
The fair value of the term borrowings was calculated with reference to observable market rates where these have been available.
Company
The Company holds no material balances of this nature other than inter-company balances, which are not subject to a fair value adjustment.
22(b) Credit risk
Group
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.
The Group’s operations are principally retail and so the exposure to credit risk is minimal. The Group periodically reviews its
receivables and makes appropriate allowances where recovery is deemed to be doubtful.
The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the
amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly.
Company
The Company has no material external credit risk.
22. Financial Instruments (continued)
22(c) Liquidity risk
Group
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The £10m Ancillary Facility
(see note 17), is a working capital facility providing cash facilities for several Group companies and funds the day-to-day overdraft
as and when required.
The Group retains ample headroom in its available working capital with an unutilised facility of £7.5m (2012: £7.5m). In the year
ended 1 June 2013 this facility was not utilised (2012: nil).
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 £0.9m (2012: £0.9m) of letters of credit in issue which were not yet payable. These were all
expected to fall due within one year and are not included in the balance sheet liabilities figure.
Company
The Company has no third party debt and therefore no material liquidity risk. Long term liabilities are not expected to fall payable
in the foreseeable future and current liabilities are substantially payable to Group companies.
Liquidity risk – Group
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect
of netting agreements:
2012 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
162,785
195,636
20,326
14,632
160,678
—
15,350
22,474
—
—
22,474
—
Non-derivative financial liabilities
Secured bank loans
Overdraft
152
1,625
—
—
1,625
—
17,649
17,649
17,649
—
—
—
—
—
—
—
—
—
(24)
(24)
—
—
(24)
—
Derivative financial assets
Interest rate cap used for hedging
195,912
237,360
37,975
14,632
184,753
—
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
149,677
185,063
18,947
16,623
149,493
—
16,883
28,568
—
—
28,568
—
Secured bank loans
1,148
7,283
—
—
7,283
—
23,852
23,852
23,852
—
—
—
—
—
—
—
—
—
(1)
(1)
—
(1)
—
—
185,344
—
Overdraft
Derivative financial assets
Interest rate cap used for hedging
191,559
244,765
42,799
16,622
22(c) Liquidity Risk (continued)
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
—
Accrued expenses
118
118
118
—
—
3,108
3,108
—
—
3,108
—
3,226
3,226
118
—
3,108
—
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to
<2 years
£000
2 to
<5 years
£000
5 years
and over
£000
105
105
105
—
—
—
2,508
2,508
—
—
2,508
—
2,613
2,613
105
—
2,508
—
Accrued expenses
22(d) Cash flow hedges – Group
Foreign currency risk
The Group imports finished goods from overseas, some
of which are settled in US dollars. In accordance with the
Group’s Treasury Policy, the Group manages the risk of
foreign exchange fluctuations through foreign exchange
forward contracts and options.
The total purchase 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.
Due to the variability of exchange rates, the Group takes a
succession of smaller dollar contracts to benefit from dayto-day fluctuations in rates. These have been combined with
upper and lower triggers in order to ensure that the Group’s
exchange risk is still controlled.
Interest rate
In order to manage the risk of interest rate fluctuations, the
Group has in place an interest rate cap covering approximately
66% of the Group’s term facilities (2012: 71%). The settlement
dates for the interest rate cap coincide with the expected
maturity dates for the Group’s term debts (substantially every
month) and consequently the hedge is effective. The current
rate caps LIBOR at 5% and remaining at this rate through to
the maturity date of the cap.
Fair value is determined by obtaining a market price
valuation from the relevant broker.
Principal Value
Capped LIBOR
Fair value
5.0%
£748
£99,451,000
This contract has been tested and proved to be effective and
therefore meets the requirements for hedge accounting.
The effect of the hedged interest rate is released to the profit
and loss account as interest costs are incurred. Cash flow is
affected on each settlement date.
Fair value is determined by obtaining a market price
valuation from the relevant broker.
As at 1 June 2013, the Group had fixed forward cover contracts
in place in respect of $18m expiring by 15 November 2013
with a fair value gain of £345,947. The Group also had options
in place in respect of $2.5m expiring by 15 October 2013 with
a fair value gain of £21,195.
Management have tested the effectiveness of these
hedging relationships and concluded that they meet the
requirements for hedge accounting. The effect of the hedged
exchange rate is released to the profit and loss account as
the purchases are made. No further impact to cash flow is
expected. Some goods are purchased denominated in euros.
However, since the Group also has sales operations in the
euro-zone, further hedging is not required.
22(e) Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
Company’s income or the value of its holdings of financial instruments.
Group
The Group uses interest rate and forward exchange hedges to manage its exposure to changes in these market values as
discussed above.
Aside from changes that are reflected in those variables, the Group has only limited exposure to changes in raw material prices
since these represent a relatively small part of the business’s costs. UK labour costs tend to follow UK inflation rates and can
therefore be reflected in selling prices and overseas labour costs to be relatively inflexible to the extent that they are passed on
to UK distributors.
Fat Face monitors its pricing proposition against major competitors.
Company
As explained in note 17, the Company has a liability to pay an exit fee to the senior facility A debt holders on the sale or flotation of
the Group. This fee will be based on the equity value of the business at that time after the satisfaction of all preferential claims and
will therefore reflect the expected improvements in the Group’s results over the medium term.
An exit resulting in the payment of an exit fee is not expected in the near term. The directors have determined that the fair value of
this fee measured through the income statement is currently £2,507,620 (2012: £3,107,620). This is re-measured on an annual basis.
Market risk – Foreign currency risk
Group
The Group’s exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial
instruments except derivatives when it is based on notional amounts.
Short term receivables
Secured bank loans
Sterling
£000
Euro
£000
US Dollar
£000
Other
£000
Total
£000
22,035
2,784
2,579
18
27,416
448
—
—
—
448
(140,963)
(8,714)
—
—
(149,677)
Trade payables
(9,346)
(129)
(2,389)
—
(11,864)
Forward exchange contracts
(13,166)
367
—
13,533
—
Balance sheet exposure
(6,059)
13,723
18
Estimated forecast sales*
4,209
—
—
(1,957)
(36,042)
—
(3,807)
(22,319)
18
Estimated forecast purchase*
Net exposure
* Next twelve months; approximates to two trading seasons.
Sensitivity analysis
In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Company and Group’s earnings.
The impact of a movement of 100 basis points in exchange rates has been quantified and is not a material amount. Over the longerterm, 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.
22(e) Market Risk (continued)
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 17.
Sensitivity analysis
A change of 100 basis points in interest rates applied to the Group’s borrowings as at the balance sheet date would increase or
decrease profit or loss for a full year by £1.1m (2012: £0.1m). The Group’s interest rate hedge is expected to be fully effective, and
therefore there should be no additional impact on equity.
22(f) Capital Management
The directors of the Company manage working capital in order to facilitate the ongoing trade and expansion of the Group.
In determining sources of capital the directors consider with regard to the best interests of shareholders the availability of
capital, the cost of capital instruments, including the likely tax impact, and market conditions at the time.
23. Operating Leases
Group
Non-cancellable operating lease rentals are payable as follows:
Land and
building
leases 2013
£000
Other
leases
2013
£000
Land and
building
leases 2012
£000
Other
leases
2012
£000
Less than one year
19,589
101
18,177
130
Between one and five years
65,749
132
62,414
219
More than five years
43,844
—
46,408
—
129,182
233
126,999
349
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.
Company
The Company has no operating leases.
24. Capital Commitments
Group
At 1 June 2013, the Company had entered into contracts to open new stores and develop the Group’s IT infrastructure, which will
require estimated capital expenditure of £2,308,486 (2012: £1,375,516).
Company
The Company has no capital commitments at the balance sheet date
25. Related Parties
During the period the Group incurred an annual management charge of £100,000 to Bridgepoint Advisers Limited (2012: £100,000).
Transactions with key management personnel
Directors of the Company control, or have held in trust on their behalf, 6.8% (2012: 6.6%) of the voting shares of Fat Face Group Limited.
The compensation of key management personnel (the directors) is as disclosed in note 6.
26. Ultimate Parent Company and Parent Company of Larger Group
The Company is the ultimate parent company of the Fat Face 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 group financial statements include the results of the Company.
FATFACE.COM
Fat Face Group Limited
Unit 3 Ridgway, Havant, Hampshire PO9 1QJ
t: 02392 441 100 / e: info@fatface.com / w: fatface.com
Fat Face Group Limited
Unit 3 Ridgway, Havant, Hampshire PO9 1QJ
t: 02392 441 100 / e: info@fatface.com / w: fatface.com

Financial statements June 2013

Transcription

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FATFACE GROUP LIMITED