fatface grou p lim i te dhighlights • total sales up 7.3% to £238.1m • retail like for like of...

Registered number 06148029

F A T F A C E

G R O U P

L I M I T E D

Consolidated Annual Report & Financial Statements for the 52 weeks ended 2 June 2018

A B S O L U T E L Y

E V E R Y T H I N G W E D O

I S D E S I G N E D T O B E

L O V E D B Y A L L O U R

C U S T O M E R S F O R

L I F E O U T S I D E 9 - 5

Our vision is central to the FatFace ethos and underpins our product development, the FatFace store environment and the differentiated service style our Crew offer customers.

Our vision

03 02

B E P A S S I O N A T E

A B O U T O U R C U S T O M E R S

E M B R A C E L I F E O U T S I D E 9 - 5

E X P L O R E

N E W I D E A S

P L A Y A N

A C T I V E P A R T

I N T H E T E A M

M A K E I T H A P P E N !

Our values are embraced throughout the organisation and help to make FatFace a

great place to work. Ultimately FatFace is about having a positive attitude to life which

resonates with our customers and all our Crew.

Our values

05 04

O U R S T O R Y

...with two guys enjoying life on the slopes in the French Alps and desperately trying to avoid working for a living. With money running out they hatched a plan: print some sweatshirts and t-shirts, sell them at night and ski during the day. With that simple formula, the FatFace brand was born with the name even being inspired by their favourite black mountain run in Val d’Isère, La Face.

It all began in 1988

Fast forward 30 years and the same entrepreneurial spirit still remains at the heart of the business, underpinning our growth into a successful multi-channel retailer with over 230 stores and a rapidly growing ecommerce website.

While we will always stay true to our heritage, we also continue to pursue new growth opportunities. From new stores to international expansion, we’re constantly exploring ways to give more people better access to the FatFace brand, all the while retaining our passion for delivering a fantastic product and service experience that is loved by all our customers.

C O N T E N T S

Group Strategic Report

Our Heritage, Store and Sales Growth 08

Highlights 10

Chairman’s Letter 12

FatFace, Our Strategy, Business Review and Key Performance Indicators 14

Principal Risks and Uncertainties 26

Current Trading and Outlook 30

Directors’ Report

Sustainability 32

Our Directors 42

Statement of Directors’ Responsibilities 44

Financial Statements

Independent Auditor’s Report to the Members of FatFace Group Limited 46

Consolidated Income Statement 51

Statement of Comprehensive Income 52

Statement of Financial Position 53

Statement of Changes in Equity 54

Statement of Cash Flows 57

Notes to the Financial Statements 58

07 06

M O R E R E C E N T T I M E SO U R H E R I T A G E

1 9 8 8The founders sell T-shirts

and sweatshirts from their

campervan to fund their skiing on La

Face, Val d’Isere

1 9 9 3The first

catalogue rolls off the press and is

mailed to customers

2 0 0 5100th store

opens

2 0 1 6First US store

opens

Lease exchanged on a new 80,000

sq.ft. distribution centre

2 0 1 8FatFace turns 30

11 stores trading in the

USA

New ecommerce

platform launches

Relationship with US

department store chain Von

Maur begins

First store opens

in Fulham

1 9 9 2

Bridgepoint acquires FatFace

2 0 0 7

Occupancy taken of the new

distribution centre

New wholesale agreement

signed with Next

FatFace wins licensing award

FatFace wins award for our feather-free

policy

FatFace wins award for best

warehouse initiative

2 0 1 7

2 0 1 2200th store opens

New store concept launches

2 0 1 4International

strategy agreed

FatFace wins Retail Week

store design of the year award

FatFace wins Retail Week EPOS initiative of

the year award

2 0 1 3

US dedicated website

launched

2 0 1 5

www.fatface.com goes live

2 0 0 1

09 08

GROUP STRATEGIC REPORT

H I G H L I G H T S

• Total sales up 7.3% to £238.1m

• Retail like for like of 4.9%

• International sales up by 54.2% to £10.2m

• Wholesale and Partners growth of £1.9m

• EBITDA (as stated) of £30.2m, up 6%

REVENUE (£million)

14/15 15/16 16/17 17/18

205.4

226.1

220.7

238.3

190

180

200

210

220

230

240

14/15 15/16 16/17 17/18

33.2

38.8

40.0

44.1

30

35

40

45

ECOMMERCE REVENUE (£million)

14/15 15/16 16/17 17/18

INTERNATIONAL & PARTNERS (£million)

9.9

16.5

12.2

21.1

0

10

20

30

14/15 15/16 16/17 17/18

EXTERNAL NET DEBT (£million)

161.4

135.6144.8

112.1

50

0

100

150

200

1 EBITDA is defined as earnings before interest, tax, depreciation, amor-tisation and non-recurring items, on a frozen accounting standards basis.

• Further debt buyback in the year (£11.4m), Total Net Debt at year end of £139.9m

• Strategy execution proceeding well, focused on product innovation, ecommerce development and international expansion (particularly US)

11 10


Group revenues increased by 7.6% to £238.1m. The growth was driven by continued focus on quality, product innovation and improved sales conversion.

Investment in the business continued with capital expenditure of £7.7m (2017: £9.6m). The website replatform being the major project along with 8 new UK stores, 3 relocations and 5 new US stores.

FatFace CrewFatFace’s distinctive culture, which is captured in its Vision and Values, is shared throughout the organisation. This results in highly engaged crew and a differentiated service offering to the market.

40 of our UK stores were closed on Boxing Day (2017: 10) allowing our crew to spend more time with their families over Christmas. We will review the options for extending Boxing Day closures further this year. Our learning and development programmes continued throughout the year with customer service being the key focus: Results are positive. The Group also embraced the new apprenticeship levy introduced in 2017 and 15 crew members are now on schemes to provide further personal development.

Gender Pay Reporting Requirements were introduced in the year, the Group starts from a good base and has plans in place to further improve the gap over the coming years.

On behalf of the Board, I would like to thank all of the Crew in stores and at Head Office for their contribution during the year.

Composition of the BoardMaria Kyriacou joined us as a non-executive director during the year, her business experience will help support the growth of the business. Emma Shaw (Director of Design), Kate Brown (Director of Buying and Quality) and Nick Stevenson (Director of Merchandising and Sourcing) were all promoted to the operating board as well. Under the Chief Executive Officer, Anthony Thompson, the Group has a well-balanced management team to drive the Group forward.

Looking to the futureFatFace has grown revenues and EBITDA in challenging circumstances throughout the last 12 months. It remains a resilient business that can adapt well to external events. It has significant opportunity to grow with the investment made over the last 2 years. Overall, the outlook remains challenging but the Group is well placed with a strong management team, differentiated retail offering and clear strategy.

Lord Rose Chairman

C H A I R M A N ’ S L E T T E R

I am pleased to present the FatFace Annual Report &

Accounts for the 52 weeks to 2 June 2018. Despite difficult

market conditions and adverse foreign exchange movements the Group grew both revenue

and EBITDA. Additionally 2 important infrastructure

projects were completed during the year, the opening of our

distribution centre at Dunsbury and the replatforming of our

website. We have also continued our expansion in the USA where

we now have 11 stores (2017: 6). Trading has been positive. A

further 7 store openings are planned for the coming

financial year.

13 12


FatFace is a UK based lifestyle clothing brand, with a unique heritage, offering a wide range of high quality and affordable clothing, footwear and accessories for all the family.

F A T F A C E

FatFace has a distinct and highly recognisable brand image centred on

five key characteristics:

Authentic, British, Fun, Relaxed/Casual and Family.

Our customers are predominantly family oriented women and men who are attracted by an active, casual outdoor lifestyle and we want them to love wearing our clothes. Our products are designed with purpose and built to last. The Brand is celebrating its 30th Birthday this year.

15 14


* Pureplay are partners whose main trading presence is online.

The UK Market FatFace operates primarily in the UK clothing and footwear market which was worth £35.5 billion in 2016 with FatFace having a 0.6% market share. Management believe that a subset of this market is more relevant to the business. That subset is the premium casualwear market (a bespoke definition based on price comparators and specific product categories and price points in which we trade) and was worth £12.0 billion in 2016. The Group’s market share of 2.0% reflects the opportunity for the Group to grow in the UK both through like for like sales growth (online and stores) and the acquisition of further new space.

The clothing market has continued to face strong pressures over the last 12 months.

• The devaluation of sterling has continued, this appears to have now worked its way through. Price rises have been put in across the industry averaging c.4%. The Group has also participated in price increases but alongside deliberate investment in product quality.

• The sectoral shift away from clothing has continued to more experienced based activities. This has continued and management closely monitor these trends. However, history shows it will reverse but when is unknown.

• The move online continues at pace (as well as the move between devices) and this needs to be considered in operating models for the medium term.

FatFace competes with a number of large retailers (e.g. Next and Marks and Spencer), department stores (e.g. Debenhams and John Lewis) as well as smaller specialist retailers. Customer pricing is regularly reviewed by benchmarking against a number of retailers.

Our StrategyThe Group’s strategy is centred on harnessing its heritage and adapting it to develop

and grow the FatFace brand within its existing and new markets. The Group is focussed on bringing newness and innovation to its product and intends to expand

its integrated multi-channel business through stores and ecommerce globally.

Our approach builds on our existing strengths whilst also reflecting the new opportunities available. We will look to leverage existing products and markets

whilst delivering into new product areas and geographies.

What is our strategy?Our new approach builds on our existing strengths, it also reflects the new opportunities available.

The three key components of our strategy are considered to be Product, UK and International. Both UK and International encompass Stores, Ecommerce and Partners.

Product

Build on existing

New

Accelerate

Slow

InternationalUK

Customers

17 16


1 . P R O D U C T

Strategy:

We have a clear product formula that combines

trusted quality with considered style to offer

our customers great value. At FatFace, trusted quality

means products that are built to last, that get

better with wear, are made from high quality fabrics

and trims, which offer consistent fits and authentic

finishes and washes.

Progress during the year:Despite the foreign exchange headwinds, investment in quality has continued with good results.

We regularly refresh our core products and introduce new designs to ensure our ranges are relevant and interesting for our customers. Womenswear accounts for 54% of our retail sales (2017: 53%), menswear 23% (2017: 25%), accessories 13% (2017: 13%) and, kidswear and footwear together 10% (2017: together 9%).

The Copper & Black label was introduced in Winter which offers a smart/casual collection enabling us to dress our customers for more occasions. This sub brand is performing well during its first year. Alongside this, we recently introduced an Athleisure range in the Summer season.

We continue to develop new collaborations with other brands to provide positive differentiation for the brand. During the year collaborations included working with the Natural History Museum “Dippy on Tour” and using some Liberty of London library prints for our products.

Licensing allows the brand into new products and markets. To drive this area forward a dedicated member of management has been recruited to the initiative. 7 licensing contracts have been signed with the first product being introduced from Autumn 2018.

We aim to offer great value; so that our prices are accessible and competitive but most importantly to build trust in our prices, so that the first price is always a great price for the product’s quality and style.

Additional focus this year has been placed on strategy surrounding iconic products to celebrate our 30th birthday, product extension (through new sub brands) and growing our offering of kidswear.

We want ‘products that sell anywhere in the world’, to ‘develop product for more occasions’ and to ‘increase our kids offer to grow market share’.

Our iconic ranges consist of the products that our customers associate with us. It’s the ranges that we are famous for and keeping them fresh and exciting is a core part of our everyday business.

In developing products for more occasions, we plan to introduce new ranges and commercial partnerships that evolve the brand, retain a differentiator and excite the customer.

Growing kidswear will provide an opportunity to further enhance our credentials as a family brand and allow new age ranges and routes to market.

Key Performance Indicators:The key performance indicators that the Group utilises to measure the range and gross margin improvements include:

2018 2017 2016

5959 58

GROSS MARGIN (%)

Gross margin rates are based on a constant currency of $1.33

Gross margin is the Group’s total sales revenue, less its costs of goods sold

2018 2017 2016

1

7

1

NUMBER OF LICENCING CONTRACTS

Number of agreements in place during the year.

Our clothes are considered and

purposeful, designed and developed by

our in-house design team who pay

attention to detail, focusing on getting

the colour and fit just right, developing

unique prints with our suppliers or finding the

perfect trim or button to finish a garment.

19 18


2 . U K

The Group will continue to open new stores in attractive and well-researched locations in the UK, as well as continuing with the development of the existing UK store portfolio through store relocations, extensions and refurbishments. The Group has potential to have over 150 additional locations in the UK. However, this will be balanced with ensuring our UK property portfolio is optimal and maximises profitability for the Group.

Our relocation strategy is specifically focused on stores that have an ability to grow sales and which increase our available retail space in a market that has served us well in the past. Relocations are targeted to pay back within 30 months. The larger footprint of the new stores allows us to stock a greater proportion of the range and offer more choice to our customers.

Opportunities to exit properties at end of lease for tactical or strategic reasons are discussed and executed regularly during the year.

Customers are at the centre of everything that we do and our customer service by crew in store remains an important component of our service offering.

Progress in the year:Store estateDuring the year we opened 7 new full priced stores (2017: 7), 2 relocations (2017: 1), 2 outlets (2017: 0) and 8 stores were extended/ refitted (2017: 13). All stores opened positively and are on track to payback within the targeted period in aggregate. Store estate square footage increased by 2.1%. The average square footage of new and relocated stores opened in the year was 2,190 square feet.

During the year, we closed 8 full price stores (2017: 7) and 2 outlets taking advantage of circumstances specific to each property such as lease end or landlord redevelopment. Our outlet stores, used to liquidate older stock, remained flat on the year but with 2 closing and 2 new sites opening.

Strong customer service and our peopleA step change in customer service has started to be implemented during the year that specifically defines service standards. This along with a new video mystery shopping programme is helping us to start to differentiate our service standards in store.

The ‘Trade Your Business’ training programme which started in the prior year was further developed in the year. The aim of the training is to make the FatFace shopping experience distinctive and positive. We measure this through customer feedback and trading performance.

This will continue to be an area of focus over the next 12-24 months.

Strategy:

The strategy for the UK is focussed on three main areas: Stores, Ecommerce and Partners.

Key Performance Indicators:The key performance indicators that the Group utilises to measure the success in driving the growth of UK property include the following:

2018 2017 2016

89

18

NEW FULL PRICE STORES AND RELOCATIONS

During the year we added 7 new full priced stores and 2 relocations.

2018 2017 2016

0.40.4 0.4

SQUARE FOOTAGE (million)

Group is targeting a UK store portfolio of between 375,000 to 450,000 sq. ft.

STORES

Strategy:

Our UK stores remain the largest part of the business.

The store estate comprises of 169 high street locations,

43 holiday and transport locations and 4 outlets. The stores have market leading profitability and a flexible

lease portfolio (under 4 years on average to lease

end). The brand performs well across store types and geographies – from seaside locations to large shopping

centres. FatFace will look to maximise this flexibility

in response to market headwinds. The Group

will look to continue to close stores and open new

stores tactically where appropriate.

Our target lease term is 5 years, generally on the basis of a 10 year

lease with a 5 year break option. Payback on new stores is expected

within 18 months.

21 20


ECOMMERCE

Strategy:

FatFace is a multi-channel retailer. We work hard

to be a connected brand offering our customers

a seamless FatFace experience however

they choose to shop with us. “Shop your way” is

central to this philosophy offering customers the

opportunity to “Click & Collect” - order through

FatFace.com for delivery to their chosen store

or, “Order in Store” for delivery to their home or

place of work.

PARTNERS:

Strategy:

Partners are a key part of the strategy allowing our product to be shown to new audiences. We look to see good growth in this area both from existing and new partners.

Progress in the year:We continue to work with John Lewis and Next in the UK. The growth Next are publicly sharing online is being seen by the Group.

We entered into an agreement with Wyevale Garden Centres during the year. The initial trial was in 2 locations and following a positive start we opened a further 4 sites before the year end.

Key Performance Indicators:The key performance indicators that the Group utilises to measure the development of our partners include:

2018 2017 2016

10.512.4

PARTNER REVENUE (£million)

7.8

Partner revenue includes revenue generated from sale or return and Wholesale agreements with Next Label, Wyevale and John Lewis.

2 . U K (continued)

Our strategy is to continue to support growth in ecommerce sales, both in transaction volume and as a percentage of the Group’s revenue, through making continual website enhancements, developing existing channels such as ‘Order in Store’ and ‘Click & Collect’, and increasing the number of customer database records in order to maximise the benefit of marketing activity. A key focus is on continually increasing the personalisation of the customer experience, thereby improving performance in the key performance indicators associated with ecommerce, namely; conversion, average basket size, average selling price and visits.

Our ecommerce plan is based on 4 key components:

• Personalisation ~ Personal content and

communication

• Make it convenient ~ Extend delivery options

• Optimise the product range ~ Kids ~ Licensing

• New markets ~ Accelerated growth in the USA ~ Focussed role out of other

International website

Our online business has doubled in the last 5 years. The market predicts strong growth in customer preference for online purchasing. We aim to grasp this opportunity to grow market share and fulfil our customer vision. We want to grow ecommerce to be 25% of our business in the next 3-5 years.

Progress in the year:In November 2017, our website was replatformed. This has provided the website with additional functionality and capacity to drive our growth in the UK ecommerce market and allow us to more easily grow own channel international websites; thereby ensuring FatFace is well placed to drive growth in our ecommerce business. This introduced many new features including “Find in store” allowing customers to look up stock across our store estate.

The initial signs, post replatform, have been very encouraging, with a strong growth of 12.6% achieved in the year (15.6% on a 2 year basis).

Ecommerce Key Performance Indicators:

The key performance indicators that the Group utilises to measure the success in growing ecommerce include the following:

2018 2017 2016

17.218.2 18.2

ECOMMERCE REVENUE AS A % OF TOTAL REVENUE

In the prior year the removal of a number of discounts and smaller sales during the year lowered the level of sales. This reverses in the 2017/18 financial year.

2018 2017 2016

21.820.9 19.6

WEBSITE VISITS (million)

The replatform mid-year caused an initial drop in visits, this was expected and offset by increased conversion. We expect growth to return in the coming financial year By increasing the number of visitors to the website we increase the profile of the Group, assist the growth of ecommerce and drive the core business. We continue to support our website visits through our catalogues and other physical and on-line mailings. The growth in our customer database has enabled us to target mailings more effectively, driving brand awareness and sales as a result.

23 22


Strategy:

International growth will be achieved through a multi-channel approach; it is the belief of the Board that this approach will provide the best opportunity to hit multiple markets and meet the shopping needs of our existing and new customers. Initial focus will be in the USA.Activities to achieve this include:

• Expanding our ‘own store’ International store portfolio (commencing within the USA)

• Create more own channel ecommerce sites, maximising the existing capabilities

• Introduce ecommerce partners

• Enter into partnerships across the globe (focussed on department stores)

INTERNATIONAL STORES

Progress in the year:At the end of the year, we had 11 stores trading across 6 states across 3 formats; lifestyle centres, holiday destinations and local markets. Trading performance remains positive. 7 new stores are planned for 2018/19, and 6 per annum from 2019/20. The trial to test the brand is now over and we are now into a measured roll out. At the end of the year we also had 6 stores in the Republic of Ireland.

Key Performance Indicators:The key performance indicators that the Group utilises to measure the development of our International Stores include:

2018 2017 2016

6

11

2

NUMBER OF US STORES

INTERNATIONAL ECOMMERCE

Progress in the year:The US website was also replatformed during the year, greatly improving the customers experience online and, by mirroring the store image, driving the omni-platform message of the brand.

This has supported FatFace to achieve over $1.0m of demand during the year, up 193%. The focus for the coming year will be to keep delivering a great customer proposition and to drive traffic to the website.

Key Performance Indicators:The key performance indicators that the Group utilises to measure the development of our International ecommerce include:

2018 2017 2016

43

193

N/A

US ECOMMERCE INCREASE IN DEMAND (%)

3 . I N T E R N A T I O N A L

INTERNATIONAL PARTNERS

Progress in the year:During the year we entered into a partnership with upscale US department store chain, Von Maur. This has provided FatFace with a presence in 32 department stores in 15 states.

Key Performance Indicators:The key performance indicators that the Group utilises to measure the development of our International Partners include:

2018 2017 2016

N/A

32

N/A

NUMBER OF US PARTNER SITES SELLING OUR PRODUCT

25 24


P R I N C I P A L R I S K S

A N D U N C E R T A I N T I E S

The Audit Committee1 monitors these risks via the risk register, with Executive Directors and operational management

delegated with the task of implementing these processes and reporting to the Committee on their outcome.

The risks and uncertainties described overleaf represent those which the Directors consider to be the most significant to

delivering the Group’s strategy. This list is not exhaustive; there may be additional risks and uncertainties currently not known to the Directors, and other risks which the Directors believe to

be less material, which may have an adverse effect on the Group:

1 The role of the Audit Committee, which acts independent of management, includes monitoring the integrity of the financial statements, the adequacy and effectiveness of the Group’s internal controls and risk management systems and the policies employed to mitigate risk across the organisation.

The Board is responsible for identifying significant risks

to the business and for ensuring that appropriate internal controls and risk

management is in place to allow the Group to achieve

its strategic objectives.

Strategic Risks

Our Strategy number: Issue Potential Impact Mitigation

All Brexit The economic and financial environment has been impacted by the UK vote to leave the EU.

The transition period will last from Brexit day on 29 March 2019 to 31 December 2020.

During this time:

1. EU citizens arriving will enjoy the same rights as those who arrived prior to Brexit.

2. The UK can negotiate, sign and ratify trade deals.

3. The UK will be party to existing EU trade deals.

The UK voted to leave the EU on the 23 June 2016. The UK will formally leave on 29 March 2019 with a transition agreement in place until 31 December 2020. After this date, detailed plans remain largely unclear. The Group has focused on understanding and monitoring four key areas:

1. Consumer Confidence- this is unknown but remains no different to any other period within the economic cycle. Management will closely monitor, adapt trading plans accordingly and keep focused on delivering the strategy of the Group in the most appropriate way.

2. Foreign Exchange- sterling fell to a 31 year low against the dollar on 11 October 2016 of $1.22/ £1. Since this point sterling has performed at an improved level. The Group took special measures to hedge 18 months forward (usually 12 months) to reduce risk. This has worked well. FY2019 is hedged at $1.33 and strategy is in place to commence hedging for FY20. The Group works with a number external advisers as well as its suppliers in developing foreign exchange strategy- this will continue with strong focus to mitigate any short term risks.

3. Duty Tariffs- there is much speculation in this area as to what will happen with very little detail on the specifics. There are risks and opportunities which are being reviewed. Sourcing plans are being closely discussed and flexibility being put into the supply chain to help mitigate this. HMRC AEO accreditation and customs duty warehouse are being progressed.

4. Employment rights for non- UK citizens- we will look to support all of our non- UK citizens who work for us. They are an important part of our crew whether in our stores, distribution centre or head office. Very little migration of our crew has occurred so far.

All Brand and reputational risk

The strength of the FatFace brand and our reputation are fundamental to the business. There is a risk of damage to the brand by either our internal actions or due to the actions of external business partners.

Careful consideration is taken before embarking on new opportunities and before starting a relationship with wholesale or licensing partners. These are monitored on an on-going basis.Any negative publicity, such as customer complaints, is dealt with in a timely manner. There is also dedicated and active management of social media traffic.

All Fashion and design trends

As with all clothing retailers, there is a risk that our product will not satisfy the needs of our customers, resulting in excess inventory and reduced sales.

We have a strong team in place to allow us to maintain a high level of market awareness and understanding of fashion and consumer trends to ensure that we can respond to changes in consumer needs. Our handwriting is established and while our offering includes items which reflect market trends, we execute this in a way that reflects our brand DNA and this continues to be well received by our customers.

3 International expansion

The success of international expansion is reliant upon selecting the right markets with strong execution.

The Group now has a presence in the USA and is able to learn while trading in this market. We are also working closely with industry experts to identify the next opportunities and partners elsewhere in the world.

All Supply chain We are reliant upon our suppliers meeting our quality and ethical standards. If product is not delivered on time and to the required specifications, there is a risk that revenue will be impacted. In addition, if suppliers do not work within our required ethical standards, it could have a negative impact on our brand and reputation.

We work closely with our suppliers to mitigate these risks. In addition, we have ethical and operating trading standards in place which we ensure that all suppliers are in agreement with. We are also a member of the Ethical Trading Initiative. For further details please refer to the Directors’ Report.

27 26


Operational Risks


All Infrastructure Any significant interruption in the activities of our distribution centre or administrative offices could be highly disruptive to the business and could result in a loss of revenue, data and inventory.

We maintain usual commercial insurance policies for a business of this type and undertake a critical review of all policies during each annual review process.

We have a business continuity plan in place.

All Crew Performance of the business is closely linked to the performance of our people. Performance could be negatively impacted by the loss of key individuals or the inability to obtain suitable replacements in a timely manner.

Active steps are taken to retain key individuals, including:

• Annual benchmarking to ensure that remuneration and reward packages are competitive;

• Positive culture and environment; and

• A succession planning process for management.

All Health and Safety

The health and safety of the employees, customers, contractors, sites and equipment is very important to the Group. Breaches in health and safety could result in a significant cost to the business and also damage to reputation.

We have processes and procedures in place to mitigate health and safety risks, including risk assessments, accident reporting and nominated health and safety representatives across the business. Policies and procedures are reviewed and audited regularly to ensure health and safety management is robust and up to date.

All Regulatory and legal framework

Failure to comply with regulatory frameworks across all markets in which we operate, could result in financial penalties or reputational damage.

Changes in the legal and regulatory framework are closely monitored with specialists used where required to ensure compliance.

The General Data Protection Regulation (“GDPR”) was introduced on 25 May 2018 in the UK. The Group has prepared well for its introduction reviewing and amending a number of processes to ensure compliance both on its customer facing and crew data procedures.

Financial Risk


All Covenants and Cashflow Management

Our external financing arrangements include a conventional covenant test as is customary with agreements of this type. Failure to comply with this could result in the financing being cancelled.

Performance against the covenant is measured quarterly with forecasts maintained. For further details of the assessment of the going concern principle please refer to the Directors’ Report.

Cashflow Management

The Group ended the year with £139.9m Net Debt (2017: £149.8m). The improvement in the year continues to show how cash generative the Group is. Leverage on externally held Net Debt was 3.66 (2017: 3.89) showing the Group deleveraging. The main Term B debt will expire in 2020 and this is being continually reviewed by the Board.

Foreign exchange fluctuations are managed by hedging of exposures. This predominately relates to USD exposures on product being imported from the Far East. During the year, a $1.26 rate was obtained due all exposures being hedged after the referendum vote to mitigate risk at that time. This year has seen the end of a 4 year decline in USD/GBP rates with the resultant negative impact on profitability. Coming into the new financial year, a rate of $1.33 has been achieved on the exposures hedged.

All Exchange risk The supply chain is predominantly based overseas with substantial creditors denominated in US dollars and, to a lesser extent, Euros and Indian Rupees. This therefore exposes the business to risk of exchange rate fluctuations which could have a significant impact on margins.

Exchange rates are monitored on a daily basis. Currency hedge instruments are put in place to manage foreign currency risk in accordance with our Treasury policy.

With the volatility in exchange rates, hedges have been placed up to 18 months in advance, which is outside of the hedging policy, which is agreed by the Group Board.

All Interest rate risk

Whilst interest rates are currently low, a significant increase in LIBOR would increase the cost of debt which would have a negative impact on cash flow and overall profit of the Group.

Exposure to interest rate risk has historically been managed by the use of an interest rate derivative. These expired in May 2017 and the Board is reviewing options. Detailed daily cash reporting and cash forecasting ensures that liquidity is maintained.

All Input price pressure

Input prices are causing suppliers to increase their prices. The impact is a reduced margin if these increases are passed onto the Group.

Management are working closely with suppliers to mitigate cost price rises.

This has enabled us to hold our prices with suppliers to maintain our business and quality of products.

29 28


C U R R E N T

T R A D I N G

A N D

O U T L O O K

The outlook will remain challenging for at least the next 12-24 months. With the investments of the last 2 years, and an increasingly differentiated product offer, the Group remain well placed.

The Board remains confident in the Group’s prospects for the current financial year.

The Strategic Report was approved by the Board 16 August 2018

By order of the board:

Anthony Thompson

Chief Executive Officer

Unit 3, Ridgway, Havant, Hampshire, PO9 1Q J

16 August 2018

D I R E C T O R S ’

R E P O R T

The Directors present their Directors’ Report and the audited

financial statements for the 52 week period ended 2 June 2018.

As permitted by legislation, some of the matters normally included in the Directors’ Report have instead been included in the Strategic Report, and the notes to the financial statements. Specifically, these are:

• Future business developments (throughout the Strategic Report).

• Risk management (pages 26 to 29, 81 to 84).

• Financial Instruments (pages 80 to 84).

• Services provided by the Auditors (page 65).

• Information on significant leasing arrangements (pages 20, 85)

The Directors consider the annual report and financial statements to comply with the Guidelines for Disclosure and Transparency in Private Equity.

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DIRECTORS’ REPORT

S U S T A I N A B I L I T Y

At FatFace we are committed to our sustainability policy across all areas of our business, in particular to our engagement with suppliers, employees and the environment. Sustainability is regarded as part of FatFace’s DNA.

CEO Statement

This has been another progressive year for us in achieving a sustainable business.Our customers expect great quality from us. We work closely with our suppliers through long term partnerships to be able to deliver this. Our commitment to drive this continues, sustainable cotton is now being used in more than 80% of our range from zero 2 years ago showing we are progressing well.

The FatFace Foundation (‘Foundation’) continues to grow from strength to strength. Our work with the Prince’s Trust and local charities in the year reflect how working with external organisations can deliver great results.

In summary, this has been another positive year embracing sustainability in the business. There remains a lot to do but we continue to move in the right direction.

Our approach to sustainabilityWe continue to promote our ‘360’ Sustainability Strategy to make conscious decisions that have a positive impact on the natural environment, people and the local communities where we trade. Our strategy forms a core part of our business and seeks to secure socially and environmentally conscious business growth. It is made up of 3 pillars, covering all aspects of our business; these are:

1. Sourcing responsibly to create sustainable products

2. Protecting our environment

3. Our people and communities

Our customers care about their communities, and the social and environmental impact of what they buy. Knowing this helps us to make decisions that are not only the right thing to do for our business and our stakeholders, but that also meet our customers’ expectations. We talk to our customers about sustainability and what we’re doing in a way that engages them and brings them with us on our journey to do better. We utilise our brand communications channels such as social media, email newsletters, in-store information and day to day interactions with our crew to spread our message.

“84% of our customers tell us that ethical concerns influence their buying decisions”

2015 FatFace Market Research 600 respondents

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DIRECTORS’ REPORT

Fashion Revolution Campaign 2018We expanded the number and type of products that we covered in our Fashion Revolution coverage this year, in line with our aim to improve transparency and engage our customers with our responsible sourcing strategy. We also wanted to mark the 5th anniversary of the Rana Plaza collapse, which prompted the creation of the national Fashion Revolution campaign.

We worked with some of our key suppliers to bring a snapshot of the workers who make our products to our customers, helping them to understand #whomademyclothes. We talked with the workers we featured to better understand how they feel about working in our supply chain and found that many especially enjoyed the communities they were part of in their workplaces.

Our posts were interacted with over 3,300 times on Facebook, Twitter and Instagram and were seen by up to 135,000 users. This is a 45% increase on last year’s campaign reach.


FatFace works with over 130 garment, shoes and accessories factories across 14 countries. We always seek to establish and maintain long-term trading relationships with our suppliers, based on trust and mutual benefit. We pride ourselves on working with suppliers who share our values, seek to meet our high quality and ethical requirements and recognise our duty to limit the negative social and environmental impacts in our supply chain. Our top 20 suppliers by value account for 75% of our buy, and have a combined relationship with FatFace of over 190 years. Our Top 10 by value have been working with FatFace for an average on 12 years.

Evaluating our supply chain Our supplier code of conduct ‘The FatFace Way of Life’ forms the foundation of our relationships with all of our suppliers and factories. All new suppliers and factories are required to sign up to this code and provide an ethical audit when they enter the FatFace supply chain.

We also require annual ethical audits for all of our factories, which need to be semi-announced or unannounced and conform to the Sedex Members Ethical Trade Audit (SMETA) format. This is what we base our risk assessment on, and what forms the basis of our engagement with suppliers on issues such as environmental impact and working conditions. We also conducted our own Verification Assessments at 27 key sites, 11 of which received follow up visits. We use these assessments to check progress on previous findings and give factories valuable guidance on how to achieve sustainable changes in working conditions. This is especially true for follow up visits, where our local team members are able to establish working relationships with factory management and lend their expertise to help factories make changes to complex management systems. We’ll be building on this work in the coming year, seeking to achieve measurable improvements in working conditions in our key supplier sites.

We continued to meet all of our key performance indicators for evaluating our supply chain in 2017/18; 100% of our manufacturing partners have signed The FatFace Way of Life and 99% have undergone a 3rd party audit. We discuss sustainability issues during our day to day meetings with suppliers and visits to supplier sites, to ensure that suppliers know this is part of how we do business.

We are implementing a new training programme for our Design, Buying and Merchandising teams to ensure continuing commitment to ethical sourcing standards and an improved understanding of the impact of our purchasing practices on suppliers. We will continue to offer introductory training to new starters as well as building on this with a new phase of training focusing on purchasing practices and how we as a business can support better working conditions in our supply chain.

Beyond audits to facilitating improvementsWe know that the issues in our supply chain cannot be resolved in isolation, so we seek to collaborate with other companies and stakeholders in order to achieve change at a national or even regional scale. Our active membership of the Ethical Trading Initiative (ETI) is a cornerstone of our responsible sourcing programme. It gives us access to other companies operating in our factories or markets, as well as tried and tested methods of resolving the challenges in our sourcing countries. This year the ETI improved their assessment of our overall responsible souring programme from ‘Improver’ to ‘Achiever’ and placed us 16th in a ranking of over 70 apparel and textile ETI members.

We have remained committed signatories of the Bangladesh Accord for Building and Fire Safety. We have also signed the 2018 Transition Accord, which extends the work of the 2013 agreement as well as supporting the development of a local Bangladeshi regulatory authority to take over the proper implementation of safe working conditions in the ready-made garment sector. The Transition Accord will also expand its remit to cover other textiles and leather manufacturing sectors, which will in turn be handed over to the new regulatory body in the next 3-4 years.

Sourcing materials sustainablyWe continue to put high quality and sustainability at the forefront of our sourcing strategy. We want to make clothes that our customers feel proud to wear and to do this we believe that we should build in sustainability from the design stage. In Summer 2016, we committed to sourcing 100% of our cotton products from sustainable sources by 2020, and in our Spring Summer 2018 range over 80% of our products were either certified organic or supported the Better Cotton Initiative. We’re thrilled with our progress in this area and are working closely with all of our suppliers to ensure that the remaining products in our range are from sustainable sources by our 2020 deadline.

We also achieved certification of our own operations to the Organic Content Standard (OCS), which demonstrates that our tracking or organic product and supply chain management meet the stringent standards required.

We are members of the Leather Working Group (LWG), which seeks to improve the environmental impact of the leather industry. Through this membership we are increasing the visibility that we have of where our leather comes from and are working with these suppliers to ensure that up to 50% of our leather is sourced from LWG-certified tanneries by 2020.

In line with our November 2016 commitment, we have removed all duck and goose down from our supply chain. From Autumn / Winter 2017 our ranges contain no down, and where possible we replaced this with partially-recycled polyester insulation.

We were awarded with a People for the Ethical Treatment of Animals ‘proggy’ award in November 2017 for our commitment to remove down from our supply chain and the marketing campaign that we created to promote our new approach with customers

As a result of the People for the Ethical Treatment of Animals’ April 2018 campaign against poor animal welfare in the South Africa mohair sector, we have also committed to removing mohair from our ranges by Autumn 2019. We are proud of our engagement with PETA, who continue to act as a critical friend to the business and steer us to make strategic decisions that support our welfare aims.

We are exploring the use of recycled fibres for products such as knitwear and swimwear and have engaged a new care-label supplier for recycled sew-in labels, which will be in use from Spring Summer 2019. We’re also planning to work with our garment recycling and re-use partner I:CO to seek to access a new source of recycled yarns, with a view to developing ranges in the future.

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DIRECTORS’ REPORT


Reducing our footprintOur strategy ensures that we promote environmental stewardship across our whole product value chain, including our own stores and buildings. In 2017, we opened a brand new distribution centre, which is a high performing environmentally friendly building2. This new centre has much greater recycling capabilities than our previous building, which has resulted in a 6% increase in the amount of waste that we recycle over the course of a year. We expect the impact to be greater in the coming year as we capture a full year of operation in our new DC.

We have continued to increase the proportion of LED lighting in our stores, which is installed as standard in all new stores and re-fits. We have now 36 LED stores in UK and Ireland plus the UK Distribution Centre and all of the USA stores.

We share detailed advice to stores on how to improve their energy

2 BREEAM rated ‘Very Good’ and EPC rating A3 Total emissions in the 2016-17 declaration were 6,041,000kg of carbon to £225,566,000 revenue

(0.03kg/£revenue) vs. 5,743,000kg of carbon to £220,365,000 revenue (0.03kg/£revenue) in 2015-16.

efficiency through temperature management and conducted a trial of keeping our store doors closed during colder periods. This trial resulted in a 7.5% like for like reduction in energy usage in the trial stores, and we will continue to issue advice to keep doors closed in extreme weather conditions within this type of store.

Around 30% of our stores have smart meters installed and we intend to increase this proportion to a significant majority of the estate. This will help us to monitor electricity consumption across the estate more accurately. We have used the data from our current smart meters to draw up energy saving guidance, which has been circulated through our regular communications newsletters and via the regional managers. These recommendations provide general advice on how to best reduce energy consumption without compromising store operations with seasonal reminders adjusting for the cooler and warmer periods.

We recorded a carbon footprint of 0.03kg for every £1 of revenue from the last available data3 from 2016-17, in line with 2015-16. We hope to

reduce our carbon footprint year on year as we realise the energy efficiencies created by our new distribution centre and the benefits of more LED lights in our stores.

Recycling moreWe continue to increase the amount that we recycle in our business through our products, our offices and in our stores. All of our carrier bags, catalogues and ecommerce bags are made from recycled materials, are degradable or sourced from certified sustainable sources, and our main labelling supplier has been certified to high standards of environmental sustainability. We continue to work with the leading textile recycling and re-use partner I:CO to deal with the samples that inevitably accumulate in a clothing business, with a target that none of the garments that we control ending up in landfill. We are also working on a trial of in-store customer collections to increase the volume that we send through I:CO, reducing the total amount of textiles sent to landfill across the country. We’ll have more to report on this trial in future reports.

3. Our People and Communities

At FatFace we believe that our brand heritage, identity and image are shared by our people, at all levels, which helps to distinguish us from competitors and has been part of the success of our business. We are seeing unprecedented levels of additional legal requirements and we meet those in a way that doesn’t disadvantage our staff. We take a positive and proactive approach to the live issues that implicate our people and our culture and where possible protect all that is good about our business.

Employee EngagementWe remain visible and transparent with our plans for now and for the future with a strong emphasis on the part that people can play in our ongoing success. We engage people with the plan in a way that they can relate to and focus on not just celebrating the successes but learning from our mistakes to make us even stronger. We listen to our people and where we can adapt and change accordingly and when we can’t we explain why. We continue to meet with our crew through annual retail conferences where the Group communicates and engages with its store managers on its key priorities and business plans as well

as reinforcing the vision and values of the brand. Our head office teams meet collectively on a monthly basis to track our progress and agree on the focus areas.

Diversity and equalityAt FatFace, the Group is committed to being an equal opportunities employer. All our policies and practices support this ethos as does our day to day decision-making. We have consistent pay rates and proactively monitor any gender gap. We work towards maintaining a stance of equal value regardless of gender and proactively work to stay ahead of the ever-changing environments in which we trade.

Further information on our commitment to gender equality can be found on our corporate website, as detailed in our Gender Pay Gap Reporting.

We provide training and development opportunities to all employees. We do not discriminate based on age, race, colour, religion, gender, sexual preference, marital status, nationality, ethnic origin or disability, developing all of our staff to reach their optimum potential. The apprenticeship levy is being fully utilised and seen as a positive step to being able to advance the ethos of developing existing talent and bringing in new. It is Group policy to, wherever possible, retain

in employment employees who have become disabled or suffered through ill health during their employment and to arrange appropriate provisions for them.

We continue to ensure all our processes and practices are inclusive. We monitor our diversity through regular questionnaires and ensure that our recruitment practices are all-encompassing, based on talent and experience and that we give full and fair consideration to applications for employment from disabled candidates.

Health and Safety The health, safety and well-being of our employees and customers are of great importance to us. There is a comprehensive structure of processes and procedures to mitigate health and safety risk, including risk assessments, accident reporting and nominated health and safety representatives across the business. Within stores, each of its store managers is provided with a ‘‘Stay Safe Guide’’ which informs them of their responsibilities to take reasonable precautions to ensure the safety, health and welfare of those likely to be affected by the operation of the business. Policies and procedures are reviewed and audited regularly to make safety management more robust and up to date.

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O U R S U S T A I N A B I L I T Y P A R T N E R S

Prince’s TrustThe FatFace Foundation also continued their partnership with the Prince’s Trust. For the 4th year, we supported the Tomorrow’s Talent programme; an active opportunity for young people to develop themselves through residential weeks, designing accessories to be sold through fatface.com and across the store estate. FatFace also hosted a ‘World of Work’ tour at Head Office.

Local SupportIn the build up to Christmas, the Foundation Board focused efforts locally to Head Office, with the aim of commencing a plan which could be rolled out to other areas of the country in 2019. Working with the local Rotary club of Havant, the Foundation supported 4 charities focusing on the overall wellbeing of people:

1. Step by Step, a charity who work to empower young people and prevent homelessness. The Foundation supplied smart, pressed and ready to wear FatFace outfits for job interviews and donated funds to cover all known young homeless people in Havant and Leigh Park requiring a bed and dinner for Christmas.

2. Havant Young Carers, supporting kids who are caring for their loved ones, some of whom are as young as 8 years old. The Foundation was again able to provide clothing bundles pre-separated into sizes and Christmas gifts for the families, wrapped and ready to go.

3. Southern Domestic Abuse Service, providing shelter and support to find new lives for the 24 women and 36 children currently in their care. FatFace Foundation asked business employees to donate toiletries for the people currently using the service, to support them in their onward journey, as well as wrapped Christmas gifts for all, and additional bundles of FatFace clothing for the newcomers expected over the winter season.

4. MUNCH project, feeding local children in the holidays who often rely on free school dinners. The foundation funded 200 children for Christmas dinner, and donated a selection of clothing to each child, which were delivered on Christmas Day by Santa!

The FatFace Foundation committed to continue their support for Step by Step, by offering clothing and employment opportunities for young people in the community, plus some financial support for the organisation itself. The Foundation will also provide substantial funding to MUNCH allowing them to expand their services.

The FatFace Foundation are also progressing a project to set up a charity shop in Havant, local to Head Office to generate revenue to be spent in the local area. These local projects are the first phase of a larger plan to roll out “local” support around the country.

The FatFace Foundation “Changing people’s lives wherever FatFace goes”The Foundation is a registered charity and separate legal entity, set up in 2009 to make a positive and enduring difference to the lives of people in communities where FatFace sources, manufactures, retails and distributes its products. Through the Foundation, we pride ourselves in enabling our partners, chosen local charities, suppliers, customers and crew to make a difference.

There has been some significant development in the strategy of the FatFace Foundation during the period allowing a realignment in goals to fulfil the mission statement, “focusing on the health and wellbeing of people and the planet in this global community”. It is also exciting to see that the Foundation has now raised and distributed over £1 million of funds.

The Foundation continued distributing the proceeds from Welsh and Scottish carrier bag charges to World Animal Protection, for specific projects within Scotland and Wales. This includes supporting the creation of garments from ‘ghost product’ such as the recycled fishing nets found at the bottom of the ocean. These include swimsuits, produced by 4th Element, then sold at fatface.com and in selected stores.

Thanks for Giving “A national campaign with a local feel”Thanks for Giving this year was turned into a “challenge” event. FatFace crew were given the opportunity to fundraise as individuals and stores and take part in a walk, 30 miles along the (very hilly) Jurassic coast. The event raised over £100k for the Foundation.

Fresh Face Fresh Face continued its partnership with the Foundation and Hampshire Cricket in the community, to support education within schools across Hampshire, Berkshire and Dorset. This entrepreneurial programme works within the education system to provide over 200 students from 10 schools first-hand experience of end-to-end product development, from design to shop floor.

All students were provided a brief and given 8 weeks to come up with a design for a new product to be sold within our stores. As part of the brief the individuals were coached to consider where they would get their inspiration from, how they would decide on what product to develop, what materials they would make it from, how they would market the products, the quantities they would produce and the recommended retail price. Students were encouraged to create working groups that brought varying talents together to achieve the best results.

All students went on to present their designs and at the end of the period, two finalists will see their product being produced and sold across our network of stores and online. The proceeds will be shared between the school’s PTA and the Foundation supporting Fresh Face 2019.

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DIRECTORS’ REPORT

3 P I L L A R S O F O U R

S U S T A I N A B I L I T Y

S T R A T E G Y


KEY ACHIEVEMENTS IN 2017/18

• 100% of our manufacturing partners have signed up to our relaunched ‘FatFace Way of Life’ and 99% have a current sustainability assessment .

• We continue to be an active member of the Ethical Trading Initiative and have increased our overall ETI assessment grading from ‘Improver’ to ‘Achiever’.

• 89% of the initial corrective actions raised by the Bangladesh ACCORD have been verified as closed.

GOALS FOR 2018/19

• Target our Verification Assessments at more of our key manufacturing partners and build on our follow up assessments.

• Assess the impact of our verification assessments with a set of unified KPIs for VA factories to measure progress against.

• Continue to ensure our partners in Bangladesh are actively improving safety standards through the Bangladesh Transition Accord.

• Increase our visibility of manufacturing and processing sites that supply into our manufacturing partners.



• We increased the LED lighting used in our stores, primarily through new stores and re-fits.

• We’ve rolled out targeted and season-specific guidance for stores to reduce their energy use.

• Our new distribution centre has allowed us to recycle over 25 tonnes more waste in the year compared to last year.

• We’ve initiated a trial at 11 of our stores to collect customer textiles and shoes for recycling through the I:CO processing network. We will start this trial early in the next financial year and use it to determine whether a full store roll out is possible.

GOALS FOR 2018/19

• Complete a trial of in-store textile recycling points and determine whether a full store roll out is possible.

• Continue to increase the use of LED lighting in our stores and other buildings.

• Aim to reduce our energy consumption and carbon footprint year on year.

• Deliver a recycled capsule range and explore the use of other recycled materials in our products.

3. Supporting our people and local communities


• Partnering with the Foundation we raised just under £100,000 to local charities in the UK through our “Thanks for Giving” 30 mile walking event.

• Our work with local schools has entered its 4th year, with more products designed by students being sold through FatFace channels and students attending a ‘world of work’ tour at our head office in Havant.

GOALS FOR 2018/19

• Engage our customers and employees in event-based fundraising to embody the FatFace value of living life outside the 9-5.

• Build on the local charitable initiatives delivered in Hampshire in 2017 and identify means through which such a local approach could be supported nationally.

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DIRECTORS’ REPORT

O U R D I R E C T O R S

The Directors who held office during the year were as follows:

GROUP BOARD EXECUTIVE DIRECTORS

Anthony Thompson – Chief Executive Officer. Appointed in 2010. Previously held roles with: George at Asda, M&S, Gap and Blackwells.

William Crumbie – Finance Director. Appointed to the Board in 2014. A chartered accountant who has previously worked with Walgreens Boots Alliance, P&O and Deloitte.

Simon Greene – International and Property Director. Appointed to the Board in 2013. Previously held roles with M&S, Arcadia, TM Lewin and White Stuff.

Mark Seager – Retail and Brand Director. Appointed to Board in 2010 having started with the Group in 1997.

GROUP BOARD NON-EXECUTIVE DIRECTORS

Lord Stuart Rose – Chairman. Appointed by Bridgepoint in 2013.

Guy Weldon – Investor Director. Appointed by Bridgepoint in 2007 on acquisition of the Group. Guy is the Chief Investment Officer of Bridgepoint.

Benoit Alteirac – Investor Director. Appointed by Bridgepoint in 2011 having worked with the business since the acquisition in 2007.

Maria Kyriacou – Non-Executive Director. Appointed to the Board in 2017. Maria is a Senior Executive at ITV.

OPERATIONAL BOARD (“THE FFB”) ADDITIONAL MEMBERS (ALONG WITH GROUP BOARD EXECUTIVE DIRECTORS)

Simon Ratcliffe – Supply Chain Director. Appointed to the Board in 2013. Previously with British Airways, M&S and The Just Group.

Emma Shaw – Director of Design. Appointed to the Board in 2017. Previously with George at Asda.

Kate Brown – Director of Buying and Quality. Appointed to the Board in 2017. Previously with Monsoon, Jigsaw and Arcadia.

Nick Stevenson – Director of Merchandising and Sourcing. Appointed to the Board 2017. Previously held senior roles at Sainsbury and Next.

Paul Wright – Director of Ecommerce and IT. Appointed to the Board in 2017. Previously with Dyson.

The Group provides directors’ and officers’ insurance protection for all of the Directors of the companies in the Group.

ShareholdersBridgepoint has been the Company’s major shareholder since 2007. The investment in the Group is held within the Bridgepoint Europe III Fund. For details of their shareholding, please refer to note 24.

Guy Weldon and Benoit Alteirac (Investor Directors) are monitoring the fund’s investment on behalf of Bridgepoint. They are active and supportive investors who attend Board and Audit Committee meetings and have frequent dialogue with the Executive Directors. At least one of the Investor Directors was present at all Board and Audit Committee meetings held.

Proposed DividendThe Directors do not recommend the payment of a dividend (2017: £nil).

DonationsThe Group has made no donations during the year to any political party, political organisation, independent election candidate nor incurred any political expenditure (2017: £nil).

CompanyDetails of the Company’s principal activity, strategy, performance, future developments, principals, risks and uncertainties and key performance indicators can be found within the Strategic Report.

Going Concern In adopting the going concern basis for preparing the financial statements, the Directors have considered the principal activities as well as the business risks as set out on pages 26 to 29.

At the date of signing the financial statements, the Group has debt facilities that mature between August 2020 and September 2021. At the time of this report these comprise a £102m Term B loan, £17.8m Term D1 loan, £22.2m Term D2 loan and a Revolving Credit Facility of £25.0m which has had its maturity recently extended 11 months to 2020. The Group retains strong liquidity having prepaid a total of £11m of the Term B loan during this period and having a healthy cash position at 16 August 2018.

Taking the above into consideration, the Directors have reviewed updated financial forecasts covering at least twelve months from the date of approving these financial statements and notwithstanding

the net liabilities of £14,266,000 (2017: £19,211,000) and net current liabilities of £9,144,000 (2017: £13,538,000) the Board continues to be satisfied that the Group will be able to operate within the requirements of its amended facilities for the foreseeable future.

For this reason, the Directors continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.

Disclosure of Information to AuditorThe Directors who held office at the date of approval of this Directors’ Report confirm that, as far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Pursuant to Section 487 of the Companies Act 2006, the auditor will be deemed to be reappointed and KPMG LLP will therefore continue in office.

The Directors’ Report was approved by the Board on 16 August 2018


Anthony Thompson



16 August 2018

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DIRECTORS’ REPORT

S T A T E M E N T O F D I R E C T O R S ’

R E S P O N S I B I L I T I E S

in respect of the Annual Report and Accounts

The directors are responsible for preparing the Consolidated Annual Report, Strategic Report, 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 as adopted by the European Union (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, relevant and reliable;

• state whether they have been prepared in accordance with IFRSs as adopted by the EU;

• assess the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain

the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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.


Anthony Thompson



16 August 2018

45 44

DIRECTORS’ REPORT

I N D E P E N D E N T

A U D I T O R ’ S R E P O R Tto the members of FatFace Group Limited

Opinion We have audited the financial statements of FatFace Group Limited (“the company”) for the 52 week period ended 2 June 2018 which comprise the Group Consolidated Income Statement, Group Statement of Comprehensive Income, Group and Company Statement of Financial Position, Group and Company Statement of Changes in Equity, Group and Company Statement of Cash Flows and related notes, including the accounting policies in note 1.

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 2 June 2018 and of the group’s profit for the period then ended;

• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Going concern We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects.

Strategic report and directors’ report The directors are responsible for the strategic report and the directors’ report. Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon.

Our responsibility is to read the strategic report and the directors’ report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work:

• we have not identified material misstatements in the strategic report and the directors’ report;

• in our opinion the information given in those reports for the financial year is consistent with the financial statements; and

• in our opinion those reports have been prepared in accordance with the Companies Act 2006.

Matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements 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.

We have nothing to report in these respects.

Directors’ responsibilities As explained more fully in their statement set out on pages 44 to 45, the directors are responsible for: the preparation of the financial statements and for being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or

in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.

The purpose of our audit work and to whom we owe our responsibilities 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.

James Childs-Clarke

(Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants Gateway House, Tollgate, Eastleigh, SO53 3TG

17 August 2018

47 46

DIRECTORS’ REPORT

Note Trading Results

2018 £000

Non- Recurring

Items £000

2018£000

Trading Results

2017 £000

Non- Recurring

Items £000

2017£000

Revenue 237,774 — 237,774 225,566 — 225,566

Other income 317 — 317 558 — 5582 238,091 — 238,091 226,124 — 226,124

Changes in inventories of finished goods 3,780 — 3,780 3,629 — 3,629

Staff costs 3-4 (40,730) — (40,730) (38,555) (1,522) (40,077)

Other trading expenses 3 (170,978) (3,214) (174,192) (161,490) (353) (161,843)

Total trading expenses before depreciation, amortisation, impairment and share-based payments

(207,928) (3,214) (211,142) (196,416) (1,875) (198,291)

Operating profit/(loss) before interest, tax, depreciation, amortisation, impairment and share-based payments

30,163 (3,214) 26,949 29,708 (1,875) 27,833

Depreciation, amortisation, impairment, and loss on disposal

3,8-9 (11,069) — (11,069) (9,696) — (9,696)

Share-based payments 18 (1,824) — (1,824) (395) — (395)

Operating profit/(loss) 17,270 (3,214) 14,056 19,617 (1,875) 17,742

Finance income 6 11 1,382 1,393 5,150 1,324 6,474

Finance costs 6 (14,317) — (14,317) (13,215) — (13,215)

Net finance (costs)/income (14,306) 1,382 (12,924) (8,065) 1,324 (6,741)

Profit/(loss) before tax 2,964 (1,832) 1,132 11,552 (551) 11,001

Taxation 7 723 348 1,071 (879) 109 (770)

Profit/(loss) for the period 3,687 (1,484) 2,203 10,673 (442) 10,231

All of the Group’s activities in the period derived from continuing operations and are attributable to equity holders of the Company.

The notes on pages 58 to 87 are an integral part of these financial statements.

Consolidated Income Statement for the 52 weeks ended 2 June 2018

(2017: 53 weeks ended 3 June 2017)

F I N A N C I A L S T A T E M E N T S

51 50

Note Group2018£000

Group2017

£000

Company2018£000

Company2017

£000

Profit/(loss) for the period 2,203 10,231 (4,015) 1,935

Other comprehensive income/(loss)Items that may be reclassified to profit and loss

Effective portion of changes in fair value of cash flow hedges net of tax 11 1,039 (1,232) — —

Change in fair value of cash flow hedges transferred to income statement net of tax

— 69 — —

Foreign exchange difference on translation of foreign subsidiary (8) 6 — —

Net other comprehensive income 1,031 (1,157) — —

Total comprehensive income/(loss) 3,234 9,074 (4,015) 1,935

Total comprehensive income/(loss) is attributable to:

Equity holders of the parent 3,234 9,074 (4,015) 1,935


Note Group2018£000

Group2017

£000

Company2018£000

Company2017

£000

Non-current assets

Property, plant and equipment 8 27,128 28,849 — —

Intangible assets 9 148,685 149,051 — —

Investments in subsidiaries 10 — — 284,578 284,293

Deferred tax assets 12 1,918 1,575 — —

Financial assets 11 — — — —

177,731 179,475 284,578 284,293

Current assets

Inventories 13 31,830 28,050 — —

Trade and other receivables 14 7,283 6,032 67 79

Cash and cash equivalents 15 7,905 14,203 — —

Other financial assets 11 — — — —

47,018 48,285 67 79

Total assets 224,749 227,760 284,645 284,372

Current liabilities

Trade and other payables 17 (44,155) (46,048) (7,168) (8,387)

Employee benefits (112) (57) — —

Provisions 19 (887) (700) — —

Tax payable (10,903) (13,454) — —

Other financial liabilities 11 (105) (1,564) — —

(56,162) (61,823) (7,168) (8,387)

Non-current liabilities

Other interest-bearing loans and borrowings 16 (139,893) (149,753) — —

Other payables 17 (23,140) (19,354) (11,842) (8,046)

Provisions 19 (4,119) (22) — —

Deferred tax liabilities 12 (15,701) (16,019) — —

(182,853) (185,148) (11,842) (8,046)

Total liabilities (239,015) (246,971) (19,010) (16,433)

Total net current (liabilities) (9,144) (13,538) (7,101) (8,308)

Total net non-current (liabilities)/assets (5,122) (5,673) 272,736 276,247

Net (liabilities)/assets (14,266) (19,211) 265,635 267,939

Equity

Share capital 20 933 933 933 933

Share premium 20 3,474 3,474 3,474 3,474

Hedging reserve 20 (112) (1,151) — —

Translation reserve 20 (2) 6 — —

Retained earnings (18,559) (22,473) 261,228 263,532

Total equity (14,266) (19,211) 265,635 267,939

The notes on pages 58 to 87 are an integral part of these financial statements. These financial statements were approved by the board of Directors on 16 August 2018 and were signed on its behalf by:

William Crumbie Finance Director

Statement Of Comprehensive Income for the 52 weeks ended 2 June 2018

(2017: 53 weeks ended 3 June 2017)

Statement of Financial Position as at 2 June 2018

(2017: as at 3 June 2017)

53 52

FINANCIAL STATEMENTS

Note Share Capital

£000

SharePremium

£000

RetainedEarnings

£000

TotalParentEquity£000

Balance at 28 May 2016 933 3,474 261,407 265,814

Profit for the period — — 1,935 1,935

Total comprehensive income for the period — — 1,935 1,935

Transactions with owners

Equity settled share-based payments 18 — — 190 190

Total transactions with owners recorded in equity — — 190 190

Balance at 3 June 2017 933 3,474 263,532 267,939

Profit/(loss) for the period — — (4,015) (4,015)

Total comprehensive income for the period — — — —

Transactions with owners

Equity settled share-based payments 18 — — 1,711 1,711

Total transactions with owners recorded in equity — — 1,711 1,711

Balance at 2 June 2018 933 3,474 261,228 265,635


Note Share Capital

£000

Share Premium

£000

HedgingReserve

£000

Translation reserve

£000

RetainedEarnings

£000

TotalEquity

£000

Balance at 28 May 2016 933 3,474 12 — (32,894) (28,475)

Profit for the period — — — — 10,231 10,231

Effective portion of changes in fair value of cash flow hedges net of tax

— — (1,232) — — (1,232)


— — 69 — — 69

Foreign exchange difference on translation of foreign subsidiary

— — — 6 — 6

Total other comprehensive income for the period — — (1,163) 6 10,231 9,074

Equity settled share-based payments 18 — — — — 190 190

Total transactions with owners recorded in equity — — — — 190 190

Balance at 3 June 2017 933 3,474 (1,151) 6 (22,473) (19,211)

Profit for the period — — — — 2,203 2,203

Effective portion of changes in fair value of cash flow hedges net of tax

— — 1,039 — — 1,039


— — — — — —

Foreign exchange difference on translation of foreign subsidiary

— — — (8) — (8)

Total other comprehensive income for the period — — 1,039 (8) 2,203 3,234

Equity settled share-based payments 18 — — — — 1,711 1,711

Total transactions with owners recorded in equity — — — — 1,711 1,711

Balance at 2 June 2018 933 3,474 (112) (2) (18,559) (14,266)


Statement of Changes in Equity: Group for the 52 weeks ended 2 June 2018

(2017: for the 53 weeks ended 3 June 2017)

Statement of Changes in Equity: Company for the 52 weeks ended 2 June 2018


55 54


Note Group2018£000

Group2017

£000

Company2018£000

Company2017

£000

Cash flows from operating activities

Profit/(loss) before tax for the year Adjustments for:

1,132 11,001 (7,782) 1,213

Depreciation, amortisation, impairment and loss on disposal 3,8,9 11,069 9,696 — —

Share-based payment expenses 18 1,824 395 — —

Finance income 6 (11) (5,150) — (4,853)

Finance cost 6 14,317 13,215 4,731 689

Cash generated from operations 28,331 29,157 (3,051) (2,951)

Change in trade and other receivables (1,251) (1,260) 9 3

Change in inventory (3,779) (3,629) — —

Change in trade and other payables (5,118) 7,014 3,042 2,948

Change in provisions and employee benefits 4,339 450 — —

22,522 31,732 — —

Tax (paid)/received (2,758) (1,920) — —

Net cash from operating activities 19,764 29,812 — —

Cash flows from investing activities

Interest received 6 11 29 — —

Acquisition of property plant and equipment (6,404) (9,544) — —

Lease incentives, net of amortisation 1,727 965 — —

Acquisition of other intangible assets 9 (3,007) (1,019) — —

Net cash from investing activities (7,673) (9,569) — —

Free cash flow 12,091 20,243 — —

Cash flows from financing activities

Debt costs paid (13) (1,116) — —

Utilisation of Revolving Credit Facility 10,000 — — —

Repayment of borrowings / Revolving Credit Facility (20,060) (15,000) — —

Interest paid (8,316) (9,584) — —

Net cash from financing activities (18,389) (25,700) — —

Net (decrease)/increase in cash and cash equivalents (6,298) (5,457) — —

Cash and cash equivalents at start of period 14,203 19,660 — —

Cash and cash equivalents at end of period 15 7,905 14,203 — —

At year end the Revolving Credit Facility was not utilised.


Statement of Cash Flows for the 52 weeks ended 2 June 2018


57 56


N O T E S T O T H E F I N A N C I A L S T A T E M E N T S (forming part of the Financial Statements)

1. Accounting PoliciesFatFace Group Limited (the ‘Company’) is a private company incorporated in England in the UK, limited by shares.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’). The parent company financial statements present information about the Company as a separate entity and not about its Group.

Both the parent company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’). On publishing the parent company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements.

The accounting policies set out in the sections below have been applied consistently to all periods presented within the financial information and have been applied consistently by all subsidiaries.

The preparation of financial statements requires management to exercise judgements in applying its accounting policies. It also involves the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The actual amounts may differ from the estimates.

Estimates 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 to the carrying amounts of assets and liabilities within the next financial year are highlighted below. On an on-going basis, these areas involve a higher degree of estimation complexity and are explained in more detail in the related notes:

• The valuation of share-based payments at grant date and for intrinsically valued schemes, at each reporting date (note 18); and

• Assumptions on future cashflows and exit date for the exit fee (notes 6 and 24).

In addition to the estimates mentioned above the following have been identified as areas that involve some degree of estimation but are not considered to be at significant risk of material adjustment within the next financial year:

• Assumptions for valuations used in impairment testing (notes 8 and 9);

• Inventory valuation and provision (note 13); and

• Provisioning for onerous leases and dilapidations (note 19).

The estimates highlighted above are considered by the Group’s senior management and by the audit committee.

MEASUREMENT CONVENTION

The financial statements are prepared on an historical cost basis with the exception of derivative financial instruments which are stated at their fair value.

BASIS OF CONSOLIDATION – SUBSIDIARIES

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from

its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated.

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 statement of financial position date are translated at the foreign exchange rate ruling at the 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 transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the date of transaction the fair value was determined.

Exchange differences related to qualifying hedges are taken directly to the hedging reserve. They are released into the income statement upon disposal. Where the Group holds applicable hedged positions the accounting policy is reported below.

FINANCIAL STATEMENTS OF FOREIGN OPERATIONS

Upon consolidation, the assets and

liabilities of the Group’s foreign operations are translated at the rate of exchange ruling at the reporting date. Income and expense items of foreign operations are translated at the actual rate or average rate if not materially different. Differences on translation are recognised in other comprehensive income.

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 14 to 21. 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 investment in equity and debt securities, trade and other receivables, cash and cash equivalents, trade and other payables and interest-bearing 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.

Trade and other receivablesTrade and other receivables are recognised at fair value. Subsequent to initial recognition they are measured at amortised cost using effective interest rate method.

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

Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method.

Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognised initially at fair value being proceeds less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and 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 less any impairment losses.

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/cancellationIf the Group modifies its debt arrangements, it considers how substantive the change is in determining the appropriate accounting. This includes both qualitative analysis, and quantitative analysis of the level of change in the cash flows of the new and old arrangements. If the Group re-assesses the likely repayment date of its debt facility, it calculates the required gain or loss on re-measurement of financial liabilities carried at amortised cost.

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

Derivative financial instrumentsDerivative financial instruments are recognised initially at fair value. The gain or loss on re-measurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see below).

Cash flow hedgesWhere a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement.

For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecast transaction affects profit or loss.

When a hedging instrument expires

59 58


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 instrumentsFinancial instruments often consist of a combination of debt and equity and the Group has to decide how to attribute values to each. Instruments are treated as equity only to the extent that they meet the following two conditions:

a. where the instrument includes no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and;

b. where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group’s own equity instruments, or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability, and where such an instrument takes the legal form of the company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and impairment

losses. Cost includes direct costs incurred in bringing assets into their present condition, including certain incremental labour costs. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation is provided to write off the cost less the estimated residual value of tangible fixed assets by equal instalments over their estimated useful economic lives as follows:

Asset Class Depreciation Policy

Freehold building 50 years

Leasehold land and buildings Life of lease

Equipment and fixtures:

Computer and communications equipment

3 years

Shopfit, fixtures and fittings, furniture, mannequins

5 years

Plant and machinery 4 years

Motor vehicles 4 years

Assets in the course of construction generally refer to expenditure on new stores not yet trading and are not depreciated. On-going refurbishment projects in respect of existing stores are charged directly into the appropriate asset categories.

Contributions received from landlords are deemed to be lease incentives and as such are deferred and subsequently released over the life of the lease.

GOODWILL AND INTANGIBLE ASSETS

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but is tested annually for impairment.

All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, associated and jointly controlled entities being the difference between the cost of the acquisition and the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable.

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;

• it is probable that the asset will generate future economic benefit; and

• the development costs of the asset can be measured reliably.

Where these conditions are met the costs of the asset comprise of the external direct costs of goods, and services, in addition to internal payroll related costs for employees who are directly associated with the project.

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of the assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment, at each reporting date. Property leases are valued against their estimated marketability and an impairment charge is recorded if appropriate. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Asset Class Estimated Useful Life

Trademarks acquired

Over the registered life

Trademarks – Internally generated value

50 years

Customer lists 4 years

Software and Licences 3-5 years

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. Provisions are made for obsolescence, mark-downs and shrinkage.

IMPAIRMENT

The carrying amounts of the Company’s and the Group’s assets other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. The result of the impairment loss is recognised whenever the carrying amount of an asset or its lowest level of cash generating unit exceeds its recoverable amount. This is the lowest level at which goodwill is monitored. Impairment losses are recognised in the income statement.

Impairments excluding inventories and deferred tax assets

Financial assets (including receivables)A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Non-financial assetsThe carrying amounts of the Company’s non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit (“CGU”) is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “CGU”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to CGU’s. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so

that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes.

Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro-rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

EMPLOYEE BENEFITS

Defined contribution planThe 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.

61 60


Share-based payment transactionsSome employees of the Company and Fat Face Limited, an indirect subsidiary, have been granted shares in the Company. The Group has both equity-settled and cash-settled share-based payments.

The value of equity-settled share-based payments is derived from the fair value of shares acquired. This is recognised as an employee expense with a corresponding increase in equity. The Company financial statements also record an increase in investment in subsidiaries and corresponding increase in equity.

The fair value of the shares acquired by an employee (the equity-settled share-based payment) is based on an estimate of the market value of the business, taking into account the terms and conditions upon which the shares were granted. The market value of the business is principally derived from discounted cash flow techniques, which are based on management’s latest projections, growth rates and discount rates as applied to the calculated free cash flows. The resulting fair value is then allocated over a vesting period during which the employee became unconditionally entitled to the fair value of the shares or over a vesting period to the anticipated exit date (whichever is considered to be earlier).

For the tranches of C2 shares issued in 2010, the directors of the Company considered that the fair value could not be estimated reliably. In accordance with IFRS2 the Group adopted the intrinsic value methodology of these shares, whereby the intrinsic value of this share-based payment is re-measured at each reporting date, with changes recognised in profit or loss until the instrument is settled.

In respect of cash-settled share-based payments, the fair value of these awards is measured at the date of grant to the employee and allocated over a vesting period to the anticipated exit date using the

same discounted cash flow valuation methodology as that is used for equity-settled. This is recognised as an employee expense annually. As these awards are deemed to be cash-settled their fair value will be reviewed at each reporting date with a corresponding movement in the liability being recognised.

REVENUE

Revenue represents the invoiced amounts of goods sold and services provided during the period, stated net of value added tax, less provision made for expected returns. Revenue arising from ‘sale or return’ represents the invoiced amounts of goods sold and services provided during the period, stated net of value added tax and after any concession fees.

Revenue arising from the sale of gift vouchers and gift cards is deferred and recognised at the point of redemption. Revenue arising from wholesale is recognised upon delivery of stock to the wholesaler.

Other revenue represents royalty income and rent receivable which is recognised at the point of invoice.

EXPENSES

Cost of inventories recognised as an expenseCost of inventories recognised as an expense represents variable expenses (excluding VAT and similar taxes) incurred from revenue generating activity. Product sold by the Group is the principal expense included under this category.

Operating lease paymentsPayments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised on a straight-line basis over the term of the lease.

Net finance costsNet finance costs comprise interest payable, interest receivable on funds invested and foreign exchange gains and losses that are recognised in the income statement. Interest income

and interest payable is recognised in profit or loss as it accrues, using the effective interest method.

Non-recurring itemsNon-recurring items comprise of material items of income and expense which are not considered to be part of the normal operations of the company. These are separately disclosed on the face of the income statement in arriving at operating profit to assist with the understanding of the financial statements.

PROVISIONS

A provision is recognised in the statement of financial position when the Company has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that the Company will be required to settle the obligation at the end of the reporting period, and are discounted to present value where the effect is material.

Dilapidation provisions are recorded where landlords assets have been consumed or damaged during a lease and a cost is anticipated to be incurred in restoring these assets.

Asset retirement provisions are recorded at the outset of a lease when company assets are installed in a landlords premises and a material cost is anticipated to remove them at the end of the lease term. Such provisions are calculated based on the anticipated cost of removal today, as adjusted for expected inflation over the lease term, with these cash flows being discounted to result in the provision. Changes in the estimate of the gross cost of removing assets are capitalised into PPE.

TAXATION

Taxation, comprised of current and deferred tax, is charged or credited to the Income Statement unless it relates to items recognised in other comprehensive income or directly in equity. In such cases, the related tax is also recognised in other comprehensive income or directly 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 reporting 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 reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised.

Taxation is recognised directly in Other Comprehensive Income when the taxable items are accounted for there.

NEW STANDARDS AND INTERPRETATIONS

A full list of new accounting standards and interpretations that have been implemented in the year or will be implemented next year can be found in note 25.

63 62


3. Expenses and Auditor’s RemunerationIncluded in the loss for the period are the following non-recurring items:

2018£000

2017£000

Within staff expenses:

Staff restructuring costs expensed as incurred5 — 1,522

Within other operating expenses:

Transition costs for new distribution centre6 515 72

Costs relating to onerous lease on old distribution centre7 2,213 —

Professional fees and services and other one off items8 486 281

Non-recurring items included within Operating Profit 3,214 1,875

2018£000

2017£000

Within finance income and costs:

Gain on debt buyback (see note 6) (1,382) (1,324)

2018£000

2017£000

Non-recurring items before income tax 1,832 551

Non-recurring items income tax credit (348) (109)

Non-recurring items for the period 1,484 442

2018£000

2017£000

Other charges:

Inventories written down in the period — 132

Inventory loss recognised as an expense in the period 1,576 1,381

Operating leases: Land and buildings 25,805 25,699

Operating leases: Other 281 147

Depreciation of tangible assets (net of third party contributions) 7,495 6,227

Impairment of tangible assets 160 31

Impairment of intangible assets — 128

Loss on disposal 41 14

Amortisation 3,373 3,364

38,731 37,123

2018£000

2017£000

Auditor’s remuneration:

Amounts receivable by auditors and their associates in respect of:

Audit of these financial statements 47 56

Audit of financial statements of subsidiaries pursuant to legislation 48 46

Other services relating to taxation and sundry matters 17 8

112 110

5 Staff restructuring costs relate to severance, relocation and one-off bonus costs of previous and current board members and senior members of management.

6 Transition costs for new distribution centre relate to costs associated with the operations of the new centre in parallel with the existing centre whilst it is being brought into use. Costs commenced in early 2017, and transition was completed end of Quarter 1 2017/18

7 Rent, rates and dilapidation costs on the onerous element of the old distribution centre.

8 Costs in respect of professional fees and services in the current year relate to a strategic review which was undertaken in the year. These costs also include stock write off and associated fees in respect of recalled product in the period. The prior year’s costs include the termination of a consultancy agreement and the liquidation of dormant entities. These costs also include stock write off and associated fees in respect of recalled product in the period.

Segmental information for the one reportable segment of the Group is included below.

2018 £000

2017 £000

Retail 228,601 221,389

Other 9,490 4,735

Revenue & other income 238,091 226,124

Retail 44,076 43,021

Other 2,679 1,667

Trading Contribution 46,755 44,688

Other operating costs (27,661) (24,676)

Non-recurring items (1,832) (551)

Share-based payments (1,824) (395)

Finance income 11 5,150

Finance cost (14,317) (13,215)

Profit/(loss) before tax 1,132 11,001

The Group sells products through its Retail channel to customers located overseas.

Revenue by geographical location 2018 £000

2017 £000

United Kingdom 226,322 218,520

Rest of World 11,769 7,604

238,091 226,124

Overseas revenue when calculated on a constant currency basis was £10,209,000 for the 52 weeks ended 2 June 2018 (2017: £6,707,000), using a Euro rate of €1.14/£ and a USD rate of $1.34/£ (2017 numbers restated).

Non-current assets by geographical location

United Kingdom

Rest of World

Total

2018 £000 £000 £000

Property, plant and equipment 23,504 3,624 27,128

Intangible assets 148,685 — 148,685

172,189 3,624 175,813

2017 £000 £000 £000

Property, plant and equipment 25,725 3,124 28,849

Intangible assets 149,051 — 149,051

174,776 3,124 177,900

The majority of the Rest of World assets relate to our stores in the United States and the Republic of Ireland.

2. Segment informationThe Group’s chief operating decision maker (the Chief Executive Officer) reviews internal daily and weekly sales reports and an internal monthly reporting pack. The Chief Executive Officer assesses the performance of the operating segment based on contribution, being operating profit before depreciation and amortisation, excluding head office costs.

The Group has one reportable segment; Retail. Retail includes revenue from store, ecommerce and sale or return activities. US sales are reported as part of the total revenue from store and ecommerce activities. Wholesale activities, rent receivables and royalty income are aggregated and disclosed as ‘Other’.

The internal monthly reporting pack includes a Consolidated Statement of Financial Position and no separate measures are provided of assets and liabilities on a segmental basis. In accordance with IFRS8, this information has therefore not been disclosed.

65 64


4. Staff Numbers and CostsThe average number of persons employed by the Group during the period, analysed by category, was as follows:

Number of employees

Group 2018

Number of employees

Group 2017

Head office 287 269

Distribution Centre 99 98

Stores 2,319 2,360

Total 2,705 2,727

FatFace Group Limited had four employees during the period (2017: four).

The aggregate payroll costs of the persons employed by the Group were as follows:

2018£000

2017£000

Wages and salaries 37,295 35,379

Social security costs 2,765 2,588

Other pension costs 431 386

Healthcare costs 239 202

Total trading expense before share-based payments 40,730 38,555

Non-recurring staff costs (see note 3) — 1,522

Total expense before share-based payments 40,730 40,077

Share-based payments (see note 18) 1,824 395

Total expense 42,554 40,472

6. Finance Income and Expense2018£000

2017£000

Finance income

In respect of assets held at fair value: Bank interest income

11

29

Other: Net foreign exchange gain

—

268

Exit fee credit — 4,853

Trading finance income 11 5,150

Gain on debt buyback (see note 16) 1,382 1,324

Total finance income 1,382 6,474

2018£000

2017£000

Finance cost

In respect of liabilities not held at fair value: Interest expense on financial liabilities carried at amortised cost

9,963

13,215

In respect of liabilities held at fair value: Exit fee charge

3,682

—

Net foreign exchange loss 672 —

Total finance cost 14,317 13,215

Interest expense includes £8,305,000 (2017: £9,584,000) relating to cash interest payable on the bank debt. In addition, it includes £1,437,000 (2017: £466,400) in relation to PIK (Payment in Kind) interest accrued on the D2 debt.

Interest expense also includes £2,029,000 (£2017: £2,500,000) relating to amortisation of the debt costs; less a gain of £1,837,000 relating to the modification of the existing debt cost assumptions, as disclosed in note 16.

The exit fee charge of £3,682,000 (2017: £4,853,000 credit) relates to the movement in valuation of the exit fee accrual included within non-current accrued expenses. The exit fee itself is an agreed percentage of Equity value payable upon exit of the Business to its owners (Bridgepoint). Estimates included in determining the value include the anticipated equity value at the time of exit and the anticipated exit date. Further detail on this can be found in Note 24.

The gain on debt buyback relates to debt repurchased during the period at a discount.

5. Directors’ EmolumentsDirectors’ emoluments were as follows:

2018£000

2017£000

Directors’ emoluments 1,255 1,215

Company contributions to defined contribution pension plans 20 20

Share-based payments 1,539 262

Total 2,814 1,497

The share-based payment charge is driven by the intrinsically valued shares issued in 2010 as discussed in note 18. Accounting methodology under IFRS2 means these awards have to be re-valued each accounting period and so vary in amount.

The Directors have not benefitted from the share-based payments in cash terms.

Key management personnel are considered to be the directors and current senior management of the Group. The emoluments of these is disclosed in note 24.

The aggregate of emoluments of the highest paid Director was £534,000 (2017: £514,000) and company pension contributions of £nil (2017: £nil) were made to a defined contribution scheme on their behalf.

Number of Directors

2018

Number of Directors

2017

Retirement benefits are accruing to the following number of Directors: 2 2

Defined contribution benefit plans: The amount accrued in respect of Directors’ pensions at 2 June 2018 was £2,000 (2017: £2,000).

67 66


7. TaxationRecognised in income statement 2018

£0002017

£000

Current tax expense

Current year (478) 2,152

Adjustments for prior years 266 70

Total current tax (212) 2,222

Deferred tax expense

Current year (620) (549)

Adjustments in respect of previous periods (390) (95)

Deferred tax rate change 151 (808)

Total deferred tax (859) (1,452)

Total tax in income statement (1,071) 770

Reconciliation of effective tax rate 2018£000

2017£000

Profit/(loss) before tax 1,132 11,001

Tax using the UK corporation tax rate of 19.00% (2017: 19.83%) 215 2,181

Non-deductible expenses 1,598 522

Non-taxable income (2,980) (1,169)

Unrecognised deferred tax on losses 69 72

Under/(over) provided in prior years (124) (25)

Impact of rate change on brought forward balance 151 (811)

Total tax in income statement (1,071) 770

Recognised through the statement of other comprehensive income

2018£000

2017£000

Deferred tax association with effective portion of changes in fair value of cash hedges 198 (233)

8. Plant, Property and Equipment: GroupFreehold land and buildings

£000

Asset in the course of

construction

£000

Short leasehold land and buildings

£000

Equipment and fixtures

£000

Motor vehicles

£000

Total

£000

Cost

Balance at 28 May 2016 124 999 5,280 69,184 35 75,622

Additions — 28 674 10,141 — 10,843

Transfers between categories — (999) 79 920 — —

Foreign exchange — — 6 238 — 244

Disposals — — (290) (2,309) — (2,599)

Balance at 3 June 2017 124 28 5,749 78,174 35 84,110

Additions — 408 455 7,065 — 7,928

Transfers between categories — (28) 15 13 — —

Foreign exchange — — (2) (86) — (88)

Disposals (124) — (77) (1,923) — (2,124)

Balance at 2 June 2018 — 408 6,140 83,243 35 89,826

Depreciation and impairment

Balance at 28 May 2016 (27) — (1,308) (48,466) (35) (49,836)

Depreciation charge for the period (3) — (361) (7,606) — (7,970)

Impairment — — — (31) — (31)

Foreign exchange — — — (9) — (9)

Disposals — — 279 2,306 — 2,585

Balance at 3 June 2017 (30) — (1,390) (53,806) (35) (55,261)

Depreciation charge for the period (3) — (420) (8,822) — (9,245)

Impairment — — — (160) — (160)

Foreign exchange — — — 16 — 16

Disposals 33 — 43 1,876 — 1,952

Balance at 2 June 2018 — — (1,767) (60,896) (35) (62,698)

Net book value

At 28 May 2016 97 999 3,972 20,718 — 25,786

At 3 June 2017 94 28 4,359 24,368 — 28,849

At 2 June 2018 — 408 4,373 22,347 — 27,128

Cost includes direct costs incurred in bringing assets into their present condition, including certain incremental labour costs.

After reviewing the trade of individual stores and comparing the

discounted future cash flows of these with the assets held within each store it was determined that an impairment should be recognised of £160,000 (2017: £31,000) due to the forecast value in use of the stores being lower than the assets carrying amount.

The depreciation charge is recognised in the following line items in the income statement together with the amortisation of lease incentives held on the statement of financial position and amortised over the life of the lease:

2018£000

2017£000

Depreciation of tangible property, plant and equipment

Tangible assets depreciation 9,245 7,970

Unwinding of deferred lease incentives (1,750) (1,743)

Total depreciation and lease amortisation 7,495 6,227

Non-taxable income relates to release of historic provisions relating to the exit fee discussed in note 24.

Reductions in the UK corporation tax rate from 20% to 19% effective from 1 April 2017 and a subsequent further reduction to 18% with effect from 1 April 2020 were substantively enacted in Finance (No.2) Bill 2015 on 26 October 2015. The rate was further reduced to 17% with effect from 1 April 2020 by Finance Act 2016 which received Royal Assent on 15 September 2016.

The deferred tax balances at 2 June 2018 have been calculated using a rate of 17%.

69 68


9. Intangible Assets: GroupGoodwill

£000

TradeMarks£000

PropertyLeases

£000

CustomerLists

£000

Software and Licences

£000

Total

£000

Cost

Balance at 28 May 2016 263,150 118,236 1,500 84 5,339 388,309

Other additions – externally purchased — 6 — — 1,013 1,019

Disposals — — — — (15) (15)

Balance at 3 June 2017 263,150 118,242 1,500 84 6,337 389,313

Other additions – externally purchased — 10 — — 2,997 3,007

Disposals — — — — — —

Balance at 2 June 2018 263,150 118,252 1,500 84 9,334 392,320

Amortisation and Impairment

Balance at 28 May 2016 (209,700) (21,551) (1,500) (84) (3,950) (236,785)

Amortisation for the period — (2,401) — — (963) (3,364)

Impairment — — — — (128) (128)

Disposals — — — — 15 15

Balance at 3 June 2017 (209,700) (23,952) (1,500) (84) (5,026) (240,262)

Amortisation for the period — (2,394) — — (979) (3,373)

Impairment — — — — — —

Disposals — — — — — —

Balance at 2 June 2018 (209,700) (26,346) (1,500) (84) (6,005) (243,635)

Net book value

At 28 May 2016 53,450 96,685 — — 1,389 151,524

At 3 June 2017 53,450 94,290 — — 1,311 149,051

At 2 June 2018 53,450 91,906 — — 3,329 148,685

Goodwill represents amounts arising on the acquisition of subsidiaries, being the difference between the cost of the acquisition and the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. This will include the value of the workforce in place, the future marketability of the brand, represented by potential income streams not yet being exploited, and the synergies arising from the utilisation of the Group’s assets as a whole, over and above their individual value-generating capacity. All of the value of the goodwill has been attributed to the retail segment.

AMORTISATION CHARGE

The amortisation charge is recognised in the following line items in the income statement:

2018£000

2017£000

Depreciation and amortisation of trading assets

979 963

Amortisation of non-trading intangibles

2,394 2,401

3,373 3,364

Impairment testingThe Group’s management has reviewed the carrying value of goodwill for possible impairment based on the lowest level at which its performance can be monitored. This may be at individual cash generating units (“CGUs”) or groupings of CGUS’s. The Group has determined its goodwill monitoring level is the Retail operation.

The process of impairment testing is intended to estimate the recoverable amount of an asset and recognise an impairment loss whenever the carrying amount of an asset exceeds the recoverable amount.

The Group conducts impairment testing on goodwill, brand and property, plant and equipment annually to determine whether there is any indication of impairment. The results of the Group’s impairment testing for the carrying value of goodwill indicated no impairment was required in the period. The historical amortisation of goodwill arose in 2009 when a review of

conditions at the time suggested that the value of goodwill was impaired.

Management judges that as trademarks are being amortised on an annual basis and no triggers for impairment have been identified then an impairment of the carrying value of trade marks is not required in this period.

KEY ASSUMPTIONS

Income stream forecastsThe key revenue driver for the business will continue to be the development of the retail segment. The Directors believe that there is significant capacity for growth through improving sales growth, relocating and refitting stores in successful markets, expanding the portfolio and continuing to strengthen its multi-channel offering. A perpetuity growth rate of 2% (2017: 2%) has been assumed.

Cost growth forecastsCosts are assumed to grow at an assumed inflation rate in conjunction with a reasonable increase in costs to

support the continued expansion, this is consistent with the prior period.

Discount rateThe Group’s weighted average cost of capital (WACC) has been used as a discount rate in the calculation, adjusted to arrive at a post-tax rate. The post-tax discount rate has been estimated at 10.6% (2017: 10.6%). The pre-tax discount rate has been estimated at 12.1% (2017: 12.4%).

Changes to these estimates and assumptions could materially impact the fair value estimates and as such, sensitivities around these are carried out.

SENSITIVITY

The key assumptions as noted above are net operating cash flows generated and the WACC used.

The present values of the future cash flows of the Retail business is significant and no reasonably foreseeable change in key assumptions would have triggered an impairment charge.

71 70


10. Investments in SubsidiariesCompany 2018

£0002017

£000

Investment at the beginning of the period 284,293 284,160

Additions during the year arising from share-based payments 285 133

Investment at the end of the period 284,578 284,293

The overall carrying value of the Group has been reviewed. The underlying operating performance of the Group remains strong and forecasts show that external bank debt will continue to be repaid. As a result, no impairment is required.

Country ofincorporation*

Class of shares held

Ownership2018

Ownership2017

Company

FatFace Group Parent Limited UK Ordinary 100% 100%

Group

FatFace Group Parent Limited UK Ordinary 100% 100%

FatFace Group Borrowings Limited UK Ordinary 100% 100%

Fat Face Holdings Limited UK Ordinary 100% 100%

Ordinary A 100% 100%

Ordinary B 100% 100%

UK Founder 100% 100%

Fat Face Limited UK Ordinary 100% 100%

FatFace Corporation USA Ordinary 100% 100%

Please note for all above listed Companies incorporated in the UK, the registered office address is Unit 3 Ridgway, Havant, PO9 1Q J United Kingdom. FatFace Corporation’s registered address is 2711 Centerville Road, Wilmington, 19808, Delaware, United States of America.

11. Other Financial Assets and LiabilitiesHeld for hedging: Group

2018£000

Group2017

£000

Company2018£000

Company2017

£000

Current

Fair value of Foreign exchange contracts (105) (1,564) — —

(105) (1,564) — —

The Group’s exposure to interest rate, liquidity, foreign currency and credit risks are disclosed in note 21. For details on valuation methodology adopted see note 21.

12. Deferred Tax Assets and Liabilities: Group Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributed to the following:

Assets2018£000

Assets2017

£000

Liabilities2018£000

Liabilities2017

£000

Property, plant and equipment (1,793) (1,266) — —

Intangible assets — — 15,701 16,019

Accruals (107) (93) — —

Financial liabilities (18) (216) — —

Tax losses — — — —

Tax (assets)/liabilities (1,918) (1,575) 15,701 16,019

Net of tax (assets) — — (1,918) (1,575)

Net tax liabilities — — 13,783 14,444

Movement in deferred tax during the period28 May

2016£000

Recognisedin income

£000

Recognisedin equity

£000

3 June2017£000

Property, plant and equipment (1,192) (74) — (1,266)

Intangible assets 17,388 (1,369) — 16,019

Accruals (42) (51) — (93)

Financial liabilities 18 — (234) (216)

Tax losses (42) 42 — —

16,130 (1,452) (234) 14,444

3 June2017£000

Recognisedin income

£000

Recognisedin equity

£000

2 June2018£000

Property, plant and equipment (1,266) (527) — (1,793)

Intangible assets 16,019 (318) — 15,701

Accruals (93) (14) — (107)

Financial liabilities (216) — 198 (18)

14,444 (859) 198 (13,783)

The Company has no deferred tax assets or liabilities.

73 72


13. InventoriesGroup

2018£000

Group2017

£000

Company2018£000

Company2017

£000

Finished goods and goods for resale 31,830 28,050 — —

Cost of inventories recognised as an expense 103,914 93,399 — —

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 provision was £1,473,000 at 2 June (2017: £1,826,000). The value of inventories expected to be sold at less than cost price is determined based on historic costs, current sales price, together with volumes held. The estimate of inventory shrinkage is calculated based on historic data of levels of inventory adjustments not recognised through the stock take process.

16. Other Interest-Bearing Loans and Borrowings (continued)

At 3 June 2017 Currency

Nominal interest rateCash paid PIK

Year of final

maturity

Face value (Group)

£000

Carrying amount(Group)

£000

Facevalue

(Company)£000

Carrying amount

(Company)£000

Facility B £ LIBOR+5.75% — 2020 113,676 110,594 — —

Facility D1 £ LIBOR+5.75% — 2021 17,778 16,993 — —

Facility D2 £ — LIBOR+5.75% 2021 22,222 22,166 — —

Revolving facility £ LIBOR+4.25% — 2019 — — — —

153,676 149,753 — —

At 2 June 2018 Currency

Nominal interest rateCash paid PIK

Year of final

maturity

Face value (Group)

£000

Carrying amount(Group)

£000

Facevalue

(Company)£000

Carrying amount

(Company)£000

Facility B £ LIBOR+5.75% — 2020 102,235 99,267 — —

Facility D1 £ LIBOR+5.75% — 2021 17,778 17,021 — —

Facility D2 £ — LIBOR+5.75% 2021 22,222 23,605 — —

Revolving facility £ LIBOR+4.25% — 2019 — — — —

142,235 139,893 — —

In the year, the Group conducted a debt buyback which used £10,060,000 of cash which brought back £11,442,000 of the Term B facility, generating a non-recurring gain of £1,382,000 (see note 5) and incurring additional debt costs of £13,000. The Group assessed that this did not constitute a substantial modification to the debt under IAS 39 and as such this has been accounted for as a modification to the existing debt.

Subsequent to the debt buy back the Group revised the expected repayment date for the debt. Under IAS39 the change in estimated cashflows used in calculating the effective interest rate needs to be accounted for if an entity revises its estimates of payments, it should adjust the carrying amount of the debt and any resulting adjustment is recognised as income or expense in the Income Statement.

This has been updated in the calculation resulting in an increase in the carrying value of the debt costs and a gain on the income statement of £1,837,000.

Of the total debt costs capitalised £2,029,000 (2017: £2,500,000) was amortised in the financial year ending 2 June 2018. This reduction in the charge is due to the amortisation being updated to reflect the debt buy back (mentioned above) and the increased life of the debt due to the amendment to the expected repayment date agreed in the period.

Subsequent to the year end, the Group reviewed its Revolving Credit Facility and as a result, post year end, it was reduced to £25.0m (2017: £30.0m) and its maturity was extended by 11 months until August 2020.

The Company incurred no costs associated with the establishment of new debt facilities during the period (2017: £nil).

The banking facilities are subject to an EBITDA9 Net Leverage covenant typical for borrowings of this nature. The covenant was met for 2018 and 2017. 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.

In the prior year the Group completed an amendment in relation to its external financing agreement with its syndicate lenders. This amended the future Net Leverage covenant requirement.

All term debt facilities and borrowings are denominated in sterling and are carried at face value net of unamortised acquisition costs. Some of the Company’s subsidiaries (including the principal operating company) have entered into long-standing security documents in favour of the banking syndicate which comprise fixed and floating charges over each company’s assets, together with assignments (by way of security) of insurance policies, specified bank accounts and certain specified contracts.

2018£000

2017£000

Cash and cash equivalents 7,905 14,203

Interest-bearing loans and borrowings (139,893) (149,753)

Net debt (131,988) (135,550)

9 EBITDA as defined in the Senior Facilities Agreement as earnings before interest, tax, depreciation, amortisation and non-recurring items, on a frozen accounting standards basis.

14. Trade and Other ReceivablesGroup

2018£000

Group2017

£000

Company2018£000

Company2017

£000

Prepayments 4,715 4,242 67 79

Trade receivables 2,568 1,790 — —

7,283 6,032 67 79

As at 2 June 2018, £379,918 (2017: £347,629) of the trade receivables balance was overdue. In the month following the year end over half (2017: over half) of the overdue balance was recovered. Receivables of £119,234 (2017: £34,941) have been provided against at the end of the period.

Of trade receivables, 92% (2017: 94%) are in respect of UK debtors. Trade receivables mostly arise from the Company’s sale or return and wholesale operations and landlord contributions. No collateral is held against the outstanding amounts and no other amounts are past due except as disclosed. The maximum credit risk from financial assets is £2,568,000 (2017: £1,790,000).

15. Cash and Cash EquivalentsGroup

2018£000

Group2017

£000

Company2018£000

Company2017

£000

Cash and cash equivalents per statement of financial position and per cash flow statements

7,905 14,203 — —

16. Other Interest-Bearing Loans and BorrowingsGroup

2018£000

Group2017

£000

Company2018£000

Company2017

£000

Interest-bearing loans and borrowings 139,893 149,753 — —

139,893 149,753 — —

Terms and debt repayment scheduleThis table provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, showing both the principal and carrying values, which are measured at amortised costs.

The Group had unutilised and undrawn banking facilities of £14.9m as at 2 June 2018 (as at 3 June 2017: £14.0m). The Group retains ample headroom in its available working capital.

75 74


At that point in time the Directors of the Group considered that the fair value could not be estimated reliably. In accordance with IFRS2 the Group adopted the intrinsic value methodology for these shares, whereby the intrinsic value of the share-based payment is re-measured at each reporting date, with changes recognised in profit or loss until the instrument is settled. While, since the date of award certain of these awards have lapsed as a result of individuals leaving the business and subsequently been reissued as new

awards, at 2 June 2018, 39,524,076 awards remain subject to the intrinsic valuation methodology. The Directors consider the equivalent annual charge based on the value of these awards to be £603,000 (2017: £524,000) resulting in a charge being recognised to true-up the accumulated increase in valuation as at 2 June 2018.

Cash settled share awardsPart of the value in the JSOP below the predetermined threshold has been allocated out to fund what has been determined to be cash settled share-based payments. A further cash

settled share-based payment exists which will be paid ahead of proceeds to equity holders of the Group. The fair value of these awards are measured at the date of grant to the employee and allocated over a vesting period to the anticipated exit date.

As these awards are deemed to be cash-settled their fair value will be reviewed on an annual basis with a corresponding liability being recognised. The share-based payment charge in the year for these awards is £113,000 (2017: £204,800).

Number of instruments outstanding

2018

Charged to income

2018£000

Number of instruments outstanding

2017

Charged to income

2017£000

Award of ‘B’ ordinary shares granted 27,500,000 — 27,500,000 —

Award of ‘C1A’ ordinary shares granted 38,137,904 — 38,137,904 —

Award of ‘C2’ ordinary shares granted 62,273,306 1,690 62,273,306 171

Award of ‘C2’ JSOP ordinary shares granted 14,369,299 21 14,369,299 19

Total award of equity settled share-based payments 1,711 190

Award of cash settled share-based payments N/a 113 N/a 205

Total expense recognised for the year 1,824 395

17. Trade and Other PayablesGroup

2018£000

Group2017

£000

Company2018£000

Company2017

£000

Current

Amounts due to Group companies — — 7,138 8,358

Trade payables 29,595 23,753 — —

Non-trade payables and accrued expenses 12,141 22,271 30 29

Interest payable 2,419 24 — —

44,155 46,048 7,168 8,387

Non-current

Accrued expenses 15,132 11,138 11,842 8,046

Deferred lease incentives 8,008 8,216 — —

23,140 19,354 11,842 8,046

All Group payables are payable on demand. Current trade payables, non-trade payables and accrued expenses that are classified as current are expected to be paid within 12 months.

The increase in non-current accrued expenses from 3 June 2017 to 2 June 2018 is mainly as a result of an increase in the exit fee accrual; refer to note 21 for further information.

18. Employee Benefits DEFINED CONTRIBUTIONS PLAN

The Group operates a defined contribution pension plan. The total expense relating to this plan in the current year was £431,000 (2017: £386,000). The total owed to the plan at the end of the year was £112,000 (2017: £57,000). The total owed by the plan at the year end was £nil (2017: £nil). This increase was driven by change in the pension auto enrolment rates.

SHARE-BASED PAYMENTS

Certain senior management of Fat Face Limited are invited to become shareholders in the ultimate parent. ‘B’ ‘C1A’ and ‘C2’ ordinary shares are offered at a price reflecting the performance and future prospects of the business.

A Joint Share Ownership Plan (JSOP) exists whereby certain senior management employees (“the Participants”) are awarded the right to

purchase a designated number of ‘C2’ ordinary shares within the scheme. This will give the Participants access to a share in the future value of each ‘C2’ ordinary share within the scheme above a predetermined threshold.

The Articles of Association of the Company (‘the Articles’) define ‘Good Leavers’ and ‘Bad Leavers’, where a ‘Bad Leaver’ is an employee-shareholder leaving the business because of voluntary resignation or termination in circumstances justifying summary dismissal. All other employee-shareholders leaving the business are ‘Good Leavers’. On leaving the business, the Articles require that a Bad Leaver surrenders their ‘B’, ‘C1A’ and ‘C2’ ordinary shares and JSOP rights at the lower of fair value and the cost for which the shares were acquired.

On leaving the business, the Articles require that a Good Leaver sells their ‘B’, ‘C1A’ and ‘C2’ ordinary shares and JSOP rights as directed by the majority investors at a value between cost and fair value calculated by reference to length of service. It is expected that the shares will be surrendered to other employee-shareholders in the business.

Equity settled share awardsWithin the consolidated financial statements, the fair value of shares acquired is recognised as an employee expense (a share-based

payment) with a corresponding increase in equity. The fair value of share grants is measured at the date of grant to the employee.

The fair value of the shares is measured based on an estimate of the market value of the business, taking into account the terms and conditions upon which the shares were granted. The market value of the business is principally derived from discounted cash flow techniques, which are based on management’s latest projections, growth rates and discount rates as applied to the calculated free cash flows. The resulting fair value is then allocated over a vesting period during which the employee becomes unconditionally entitled to the value of the shares or over a vesting period to the anticipated exit date (whichever is considered to be earlier). Management estimate the anticipated exit date at the time the shares were granted. The value of the JSOP award is based on the same methodology, but has excluded any value in the share up to the predetermined threshold.

The share-based payment charge in the year for the equity settled awards is £476,000 (2017: £552,000).

Intrinsically valuedOf the C2 ordinary share awards that are outstanding, the tranche of shares that were granted during 2009/10 were intrinsically valued.

77 76


20. Capital and ReservesIn thousands of shares Preferred

ordinaryshares

C1Ashares

C1Bshares

C2shares

Ordinaryshares Total

Total shares paid up at 3 June 2017 2,682 38,138 602,837 106,382 87,393 837,432

Total shares paid up at 2 June 2018 2,682 38,138 602,837 106,382 87,393 837,432

2018 Authorised, allotted,

called up and fully paid£000

2017 Authorised, allotted,

called up and fully paid£000

Share capital

A Ordinary shares of £0.01 each 697 697

B Ordinary shares of £0.01 each 177 177

Preferred ordinary shares of £0.01 each 27 27

C1A shares of £0.000001 each — —

C1B shares of £0.000046 each 27 27

C2 shares of £0.000047 each 5 5

933 933

The holders of A and B ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at General Meetings.

The holders of C1B shares are not entitled to receive dividends but are entitled to one vote per share at General Meetings.

The holders of C1A and C2 shares are not entitled to receive dividends or to vote at General Meetings.

CAPITAL CONTRIBUTION RESERVE

The capital contribution reserve first arose in March 2010 when the redeemable preference shares were reclassified as deferred shares with no dividend rights and curtailed rights on capital distribution. Accordingly the principal waived on these shares together with the dividend accumulated to March 2010 was reclassified as a capital contribution. Following the completion of the capital reduction in the prior year this has now been cancelled (as mentioned above).

TRANSLATION RESERVE

The translation reserve comprises accumulated foreign exchange differences upon consolidation of the foreign subsidiary.

CASH FLOW HEDGING RESERVE

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred – see note 21.

19. ProvisionsOnerous lease

Provision £000

Asset retirement and Dilapidation

Provision £000

Total£000

Balance at 28 May 2016 207 71 278

Provision utilised during the year (115) (193) (308)

Provision released during the year (82) — (82)

Provisions created during the year 422 412 834

Balance at 3 June 2017 432 290 722

Provision utilised during the year (79) (284) (363)

Provision released during the year (131) (364) (495)

Provisions created during the year 1,386 3,756 5,142

Balance at 2 June 2018 1,608 3,398 5,006

2018

Current 408 479 887

Non-current 1,200 2,919 4,119

2017

Current 410 290 700

Non-current 22 — 22

Where the Group will no longer trade from a leased property, either due to the lease expiring or as a result of other considerations, a review is carried out to determine whether an onerous lease or a dilapidation provision is required.

An onerous lease provision equalling the estimated cost of a lease is made where the lease is not sublet. In instances where the lease is sublet, the onerous lease provision equals the cost of the lease less income from

the sublease. Where negotiations on a sublease are on-going, management’s best estimate is used to determine what the anticipated cost to the business will be. This is discounted to its present value using the Group’s post-tax weighted average cost of capital.

A dilapidations provision is made to cover the estimated cost of returning properties to the condition required by the lease upon exit from the lease. A dilapidations provision is based on management’s assessment of the

store relocation programme and the current state of properties in the Group’s portfolio.

Onerous lease and dilapidation provisions are reviewed on a lease by lease basis.

Included within the provisions created in the year for both onerous lease and dilapidations, are costs related to the Ridgway distribution centre, which have been accounted for as non-recurring on the income statement.

79 78


21(B) CREDIT RISK

GroupCredit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions and from the Group’s receivables from customers.

The Group seeks to ensure that the banks used for the financing of the loan facilities and hedging purposes have an acceptable credit rating by independent credit rating agencies.

The Group’s operations are principally retail and so the exposure to credit risk from receivables is minimal. The Group periodically reviews its receivables and makes appropriate provisions 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.

CompanyThe Company has no material credit risk.

21(C) LIQUIDITY RISK

GroupLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s banking facilities include revolving credit facilities totalling £25.0m (2017: £30.0m). Of this facility £10.1m (2017: £12.2m) has been utilised in part for letters of credit, guarantees, documents in trust and supplier financing. Any unutilised balances are available to be utilised and drawn as cash facilities for the Group to fund the day-to-day overdrafts as and when required. No cash facilities had been drawn at year end.

The Group had unutilised and undrawn banking facilities of £14.9m as at 2 June 2018 (as at 3 June 2017: £14.0m). The Group retains ample headroom in its available working capital.

The Directors believe that the Group will be able to continue to meet its need for liquidity from these facilities. The Group monitors its working capital daily, forecasts its cash flow on a daily basis for approximately three months ahead and monthly for a year ahead, and monitors monthly its exposure to banking covenants in order to ensure that there are no unforeseen liquidity problems.

At the period end, the Group had letters of credit in issue which were not yet payable as at 2 June 2018 of £0.2m (2017: £0.3m). These were all expected to fall due within one year and are not included in the statement of financial position liabilities figure.

21. Financial Instruments21(A) FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value hierarchyThe Group analyses financial instruments carried at a fair value by valuation method. The different levels have been defined as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. directly from prices); and

• Level 3: inputs for assets or liabilities that are not based on observable market data (unobservable inputs).

Investments in equity securitiesInvestments in subsidiary companies are carried at acquisition cost and reviewed for impairment. There has been no impairment for 2018, or 2017 as discussed in note 10.

Trade and other receivablesTrade 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. The fair

value of trade and other receivables approximates to the carrying values. The Trade and other receivables are a Level 2 fair value instrument in terms of the fair value hierarchy.

Trade and other payablesTrade and other payables are carried at the face value payable. All trade and other payables are expected to be short term and therefore no discounting of future cash flows is appropriate. The fair value of trade and other payables approximates to the carrying values. The Trade and other payables are a Level 2 fair value instrument in terms of the fair value hierarchy.

Cash and cash equivalentsThe fair value of cash and cash equivalents is estimated at its carrying amount. The Cash and cash equivalents are a Level 2 fair value instrument in terms of the fair value hierarchy.

Interest-bearing loans and borrowingsFair value which, after initial recognition is determined for disclosure purposes only, is calculated based on the range of values at which debt is being traded at in the secondary market if available, or based on the present value of discounted cash flows associated with the investment.

If the interest-bearing borrowings were carried at fair value then they

would be classified as level 3.

Accrued expensesThe fair value of the exit fee accrual is measured based on an estimate of the market value of the business at the anticipated exit date which is based on management’s latest projections, growth rates and discount rates.

If the exit fee accrual was carried at fair value then it would be classified as level 3.

Derivative financial instrumentsThe fair value of forward foreign 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 classified as level 2 instruments.

The fair value of the interest rate cap is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. The cap is a level 2 fair value instrument in terms of the fair value hierarchy.

The fair values for each class in financial assets and financial liabilities together with their carrying amounts shown in the statement of financial position are as follows:

Group

Carryingamount

2018£000

Fair value2018£000

Carryingamount

2017£000

Fair value2017

£000

Assets

Other financial assets — — — —

Trade and other receivables 2,568 2,568 1,790 1,790

Cash and cash equivalents 7,905 7,905 14,203 14,203

10,473 10,473 15,993 15,993

Liabilities

Other financial liabilities (105) (105) (1,564) (1,564)

Interest-bearing loans and borrowings (139,893) (142,214) (149,753) (153,384)

Trade and other payables (44,155) (44,155) (46,048) (46,048)

(184,153) (186,474) (197,365) (200,996)

There have been no transfers between levels in either period.

CompanyOther than the exit fee accrual and intercompany balances the Company holds no material balances of this nature.

81 80


21. Financial Instruments (continued)Liquidity Risk – Group

2017 at reporting date

Carryingamount

£000

Contractualcash flows

£000

1 yearor less

£000

1 to<2 years

£000

2 to<5 years

£000

5 years and over

£000

Non-derivative financial liabilities

Interest-bearing loans and borrowings 149,753 193,348 10,494 8,918 173,936 —

Trade and other payables 46,048 46,048 46,048 — — —

Accrued expenses 11,160 11,160 — 11,160 — —

206,961 250,556 56,542 20,078 173,936 —


Carryingamount

£000


£000

1 yearor less

£000

1 to<2 years

£000

2 to<5 years

£000

5 years and over

£000


Interest-bearing loans and borrowings 139,893 171,526 9,823 9,823 151,880 —

Trade and other payables 44,155 44,155 44,155 — — —


199,180 230,813 53,978 24,955 151,880 —

CompanyThe Company has no third party debt and therefore no material liquidity risk. Long term liabilities consisting of accrued expenses are not expected to be funded out of the company’s working capital and will only fall payable upon an exit event:

Liquidity Risk – Company


Carryingamount

£000


£000

1 yearor less

£000

1 to<2 years

£000

2 to<5 years

£000

5 years and over

£000


Trade and other payables — — — — — —


8,046 8,046 — 8,046 — —


Carryingamount

£000


£000

1 yearor less

£000

1 to<2 years

£000

2 to<5 years

£000

5 years and over

£000


Trade and other payables — — — — — —


11,842 11,842 — 11,842 — —

21(D) MARKET RISK

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, commodity prices and equity prices will affect the Group’s income or the value of its holdings of financial instruments.

GroupThe Group uses forward foreign 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.

FatFace monitors its pricing proposition against major competitors.

CompanyThe Company has a liability to pay an exit fee to Bridgepoint Capital (Nominees) Limited, (the rights to the fee were acquired in 2014/15 by Bridgepoint Capital (Nominees Limited) from the previous owners) 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.

The Directors have determined that the fair value of this fee measured through the income statement is currently £10,863,200 (2017: £7,181,216). This is re-measured on an annual basis.

MARKET RISK – FOREIGN CURRENCY RISK

GroupThe Group imports finished goods from overseas, some of which are settled in US dollars. In accordance with the Group’s Treasury Policy, the Group manages the risk of foreign exchange fluctuations through foreign exchange forward contracts and options.

The total purchases in USD for each season is estimated in advance. The Group takes a contract allowing the purchase of that quantity of dollars between a range of dates at a fixed dollar rate. As US dollar payments are made, dollars are called down from those contracts to cover the exposure. Although at the time of purchase, fixed orders have not been placed for product, the expected payment profile can be predicted with a high degree of accuracy.

Due to the variability of exchange rates, the Group takes a succession of smaller dollar contracts to benefit from day-to-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.

Fair value is determined by obtaining a market price valuation from the relevant broker.

As at 2 June 2018, the Group had fixed forward cover contracts in place in respect of $34.0m expiring by May 2019 with a fair value loss of £130,000 based on a year end US/GBP rate of $1.34/£1. The Group also had hedging options in place totalling $5.0m with a fair value gain of £25,000 as at 2 June 2018. As at 3 June 2017, the Group had fixed forward cover contracts in place in respect of $59.6m expiring by November 2018 with a fair value loss of £1,367,000.

Management have tested the effectiveness of these hedging relationships and concluded that they meet the requirement 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.

The Group’s exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial instruments, except for derivatives which are based on notional amounts.

At 3 June 2018 Sterling£000

Euro£000

US Dollar£000

Other£000

Total£000

Cash and cash equivalents 4,642 685 2,574 4 7,905

Short term receivables 2,469 32 67 — 2,568

Secured bank loans (139,893) — — — (139,893)

Trade payables (18,653) (638) (10,304) — (29,595)

Foreign exchange contracts (29,430) — 29,325 — (105)

Statement of financial position exposure 79 21,662 4

Estimated forecast sales* 7,202 9,318 —

Estimated forecast purchases* (9,284) (59,855) —

Net exposure (2,003) (28,875) 4

* Next twelve months; approximates to two trading seasons.

83 82


22. Operating LeasesGROUP

Non-cancellable operating lease rentals are payable as follows:

Land and building

leases 2018£000

Other leases

2018£000

Land and building

leases 2017£000

Other leases

2017£000

Less than one year 24,478 144 24,886 152

Between one and five years 71,464 314 76,545 280

More than five years 26,923 53 46,366 53

122,865 511 147,797 485

The Company leases store and warehouse locations under operating leases. The Company also has operating leases in respect of its vehicles and some items of plant and equipment. The leases are of varied length with the longest lease running until 2038 (with breaks during the length of the lease), many leases also have options to extend at the end of the lease term.

Leases of land and buildings are typically subject to rent reviews at specified intervals and provide for the lessee to pay all insurance, maintenance and repair costs.

Certain rental expense is determined on the basis of revenue achieved in specific retail locations and is accrued for on that basis. The table above does not include estimates of such contingent rental payments.

The Group sublets properties under operating leases. The operating lease rent receivable in the next 12 months is £146,340 (2017: £98,187).

COMPANY

The Company has no operating leases.

23. Capital commitments and contingent liabilitiesGROUP AND COMPANY

Capital commitmentsAt 2 June 2018, the Group had entered into contracts to open new stores and develop the Group’s IT infrastructure, which will require estimated capital expenditure of £617,465 (3 June 2017: £3,016,791). The decrease in the year is driven by the completion of the ecommerce replatform and the IT integration Hub in the previous year.

The Company had no capital commitments at either 2 June 2018 or 3 June 2017.

21(D) MARKET RISK (CONTINUED)

Sensitivity analysisIn managing its foreign currency risk, the Group aims to reduce the impact of short-term fluctuations on the Company and Group‘s earnings. The impact of a movement of $0.01 in USD exchange rates in the 2018/19 financial year on the Group is estimated to be £450,000 (2017: £370,000). Following the EU referendum, it was agreed with a number of suppliers to move to USD payments to better reflect their input cost currencies therefore increasing our USD requirement. Over the longer-term permanent changes in foreign exchange rates 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.

CompanyThe Company has no direct income or purchases that is denominated in foreign currency and therefore has no foreign currency risk.

MARKET RISK – INTEREST RATE RISK

GroupAt the 2 June 2018, the interest rate profile of the Group’s interest-bearing financial instruments was as described in note 16.

Following the 2014 refinancing exercise in order to manage the risk of interest rate fluctuations, the Group entered into an interest rate cap. This cap expired in May 2017, the Group monitors the viability of a replacement cap on an ongoing basis, in accordance with our risk principles; there are currently no plans to enter into a new cap.

Sensitivity analysisA change of 100 basis points in interest rates applied to the Group’s borrowings as at the 2 June 2018 would increase or decrease profit or loss for a full year by £1.4m (3 June 2017: £1.5m). This increase is driven by the expiration of the interest rate cap, leaving the debt portfolio unhedged. The Board are reviewing their options in respect of future options to manage interest rate risk.

CompanyThe Directors do not believe that the Company suffers a material interest rate risk.

While the Company is funded by floating rate debt from a fellow Group company, interest rate hedging is undertaken by members of the Group.

21(E) CAPITAL MANAGEMENT

The Group’s objectives when managing capital are to facilitate the on-going trade and expansion of the Group and to safeguard its ability to continue as a going concern in order to provide returns for shareholders, and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

The Directors look to optimise the debt and equity balance and to maintain headroom on financial covenants. Management have continued to measure and monitor covenant compliance throughout the period and the Group has complied with the requirements set.

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. There were no changes in the Group’s approach to capital management during the year.

The funding requirements of the Group are met by the utilisation of external loans and borrowings together with available cash, as detailed in note 16.

85 84


24. Related PartiesDirectors of the Company control, or have held in trust on their behalf, as at 2 June 2018: 6.1% (3 June 2017: 6.1%) votes over shares of FatFace Group Limited.

The Group and Company have related party relationships with shareholders and key management. All dealings with related parties are conducted on an arm’s length basis.

Credits/Purchases£000

Amounts owed to related party

£000

3 June 2017

Bridgepoint Capital (Nominees) Limited (5,319) (29,500)

Bridgepoint Advisers Limited — —

Employee Benefit Trust — —

(5,319) (29,500)

Credits/Purchases £000

Amounts owed to related party

£000

2 June 2018

Bridgepoint Capital (Nominees) Limited (5,119) (34,595)

Bridgepoint Advisers Limited — —

Employee Benefit Trust — —

(5,119) (34,595)

Bridgepoint Capital (Nominees) Limited acquired the right to the exit fee (£10,863,000 owed to Bridgepoint) from the previous debt syndicate during 2014/15 (and holds it as nominee for the Bridgepoint Europe III partnerships, which are the beneficial owners).

In the prior year the Group’s ultimate controlling party, Bridgepoint Europe III acquired £22,222,222 of debt in the Group on an arm’s length basis. This debt is subject to PIK interest (see note 6).

Bridgepoint Advisers Limited manages the ultimate controlling party of Group; Bridgepoint Europe III Fund. The Group incurred an annual management charge of £nil (2017: £nil) to Bridgepoint Advisers Limited.

The Employee Benefit Trust is operated as an independent trust, separately from the management structure of the FatFace Group of companies and Bridgepoint. The purchases incurred relate to administration of the trust.

Key management personnel are considered to be the current senior management of the Group (“the FFB”). The emoluments of these individuals during the period were as follows:

2018£000

2017£000

Wages and salaries 1,942 1,860

Company contributions to defined contribution pension plans

41 38

Share-based payments 1,643 357

Total 3,626 2,255

Key management personnel of the Company are considered to be the Directors (see note 5).

25. New standards and interpretationsThere have been no significant changes to accounting under IFRS which have affected the Group’s results. The IFRS IC has issued the annual improvements to IFRS: 2014-2016 cycle. The majority of amendments in this cycle are effective for annual periods on or after 1 January 2018 with the exception of the changes to IFRS 12 which have already been implemented and have not impacted the Group.

IFRS 15 Revenue from Contracts with Customers mandatorily replaces IAS 18 for periods beginning on or after 1 January 2018. The standard introduces a five step process for a principle based approach for revenue recognition. As the Group has straightforward revenue streams it is anticipated that this standard will not have any significant impact on the consolidated financial statements in future.

During 2014 the IASB issued IFRS 9 ‘Financial Instruments’, which will become effective from our financial year ending 2019. The actual impact of adopting IFRS 9 on the Group’s consolidated financial statements in 2018 is not known and cannot be reasonably estimated because it will be dependent on the financial instruments that the Group holds

and economic conditions at that time, as well as accounting elections and judgements that it may make in future. The new standard may require the Group to revise its accounting processes and internal controls related to reporting financial instruments and these changes are not yet complete. This standard implements changes to classification and measurement of financial assets, expected credit losses and hedge accounting.

However, the Group has performed a preliminary assessment based on the current position. As the Group does not hold complex financial assets or financial liabilities nor significant receivables balances, these aspects of the new standard are not expected to have a significant impact on the consolidated financial statements. The Group currently applies hedge accounting and will need to assess their eligibility under the new requirements, as well as considering the disclosure requirements more widely under IFRS 9.

IFRS 16 Leases mandatorily replaces IAS 17 for periods beginning on or after 1 January 2019. A key change arising from the standard is that most

operating leases will be accounted for “on balance sheet” giving rise to both a right-of-use asset and a lease liability for future lease payables. The right-of-use asset will be depreciated on a straight-line basis over the life of the lease. Interest will be recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. In addition, despite there being no impact on cash flows, the presentation of the Statement of Cash Flows will change significantly.

From work performed to date by the Company it is anticipated IFRS 16 will have a material impact on both the Statement of Financial Position and Income Statement. Given the total lease commitments of £122,865,000 shown in note 20, the impact will be substantial and is being assessed in detail, including consideration of key assumptions such as, discount rates, and the facts and economic conditions at the time of transition.

26. Ultimate Parent Company and Parent Company of Larger GroupThe Company is the ultimate parent company of the FatFace Group of Companies incorporated in England. The ultimate controlling party is the Bridgepoint Europe III Fund managed by Bridgepoint Advisers Limited which holds 77% of votes over shares of FatFace Group Limited, the Company and controls syndicated holdings of a further 12%. The registered address of Bridgepoint Advisers Limited is 95 Wigmore Street, London, W1U 1FB.

No other financial statements include the results of the Company.

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