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FAT FACE GROUP LIMITED

Directors’ Report & Consolidated Financial Statements for the 52 weeks ended 1 June 2013

~Registered Number: 06148029

SECTION ONE ~ Business Review2 Group Chairman’s Statement4 Business Review and Directors’ Report

SECTION TWO ~ Financial Statements10 Statement of Directors’ Responsibilities11 Independent Auditor’s Report13 Consolidated Income Statement14 Statement of Comprehensive Income15 Statement of Financial Position16 Statement of Changes in Equity18 Cash Flow Statements

SECTION THREE ~ Notes20 Notes to the Financial Statements

CONTENTS

FATFACE.COM

http://www.fatface.com

2 / Directors’ Report & Consolidated Financial Statements

As Fat Face celebrates its first 25 years I am delighted to report a record year, with EBITDA 29% up on last year. The hard work of

Chief Executive Anthony Thompson and his team over the last three years is now bearing fruit, and although there is still much to do,

the company is well positioned for continuing success.

Group Chairman’s Statement

A resilient first half was followed by a strong trading

performance over the Christmas period where the business

overall, and many established stores, achieved record results.

The momentum has continued into the new calendar year,

despite unhelpful weather conditions during the key spring

holiday periods and subdued consumer sentiment. Pleasingly,

the organisational focus on womenswear has paid off, with

exceptional results throughout the year.

We are seeing the benefits of investing in quality, style and

value for money and have restored integrity to the brand by

trading predominantly with a full price offer. E-commerce is

becoming a larger share of the business, with sales growth

of 27% during the year, with an increasing proportion from

the mobile site we launched during the year.

We continued to see excellent results from our capital

investment programme, including important resites in

Glasgow, Belfast, and Edinburgh. Meanwhile the early results

from the refit of one of our largest stores, Norwich, and the

opening of our first retail park store at Whiteley promise

further investment opportunities in the future.

Electronic Point of Sale (EPoS) systems throughout the estate

were replaced on time and within budget in the run up to

Christmas, and the extension of our distribution centre was

completed in May. Both programmes provide an important

platform for future growth. After extensive research we can

also confirm plans to open our first stores in the US as well

as the launch of a dedicated website for US customers within

18 months to two years.

Simon Greene joined the business as Retail Director in

January, and Helen Cowing joins as Chief Financial Officer in

August. Both Simon and Helen bring a wealth of experience to

their roles. Their predecessors Becky Bateman and Emily Tate

left the business during the year, and on behalf of the Board I

would like to thank them for their contribution to the business.

After seven years as Chairman I will be leaving Fat Face at the

end of July. I am delighted that Sir Stuart Rose has joined the

Board and will take over as Chairman from 26 July. Stuart has

achieved great success over many years in the fashion and

retail industries, and is ideally suited to work with Anthony

and the team to take Fat Face on to the next stage in its

development. I wish him, my fellow directors and everyone

in Fat Face every success for the future.

Alan Giles Group Chairman

‘We are seeing the benefits of investing in quality, style and value for money

and have restored integrity to the brand by trading predominantly

with a full price offer.’

Headline Underlying Results

2013(52 week

period)

2012(53 week

period)

Total revenue £178.6m £163.5m

Earnings before interest, tax,

depreciation and amortisation

(excluding non recurring items)

£31.2m £24.1m


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Our GroupFat Face is a UK based retailer, specialising in the design

and sale of active lifestyle clothing and related accessories.

From a few sweatshirts in 1988, 25 years later the Fat Face

brand has grown to over 200 stores in the UK and Ireland,

with a strong e-commerce and catalogue business. We

offer a wide range of premium womenswear, menswear,

childrenswear, footwear and accessories for those who

love to get out there.

Our VisionOur vision is to ensure that “absolutely everything we

do is designed to be loved by all our customers for life

outside 9–5!”

Our Strategic PrioritiesWork continued during the year to establish the future

drivers of growth for the business, as summarised below:

• UK property strategy; primarily focused on the store

opening, resite and refurbishment programme;

• Development of a differentiated multichannel offering

to customers; and

• Research into medium term international expansion.

During the year we were delighted that our continued focus

and hard work put into our store design saw us gain industry

recognition through winning the Retail Week ‘Store Design

of the Year’ Award for our Chichester store.

We were equally pleased to gain industry recognition with

the Retail Week Technology Award for our infrastructure

investment in a new till system into all of our stores in order

to enhance our customers shopping experience and to

strengthen the platform for the Group’s multi-channel strategy.

Our Trading PerformanceThe positive momentum from last year continued resulting

in strong growth in the period from both the like for like

estate as well as from store openings, with sales up +9%

to £179m. To have achieved this despite the continued

challenging trading environment demonstrates the strength

of the brand, strategy and management team.

The benefits of investments in product ranges, particularly

around womenswear, have become clear with a continued

restoration of brand integrity through increased full price

trading. Additionally, further e-commerce investment,

including the launch of the new mobile site, has delivered

online sales growth of 27%. Investment in the estate

continues to be a key area for growth, with 10 new stores

(2012: 12) and 6 relocations (2012: 3) bringing the total

number of wholly-owned stores to 207, including 7 stores

in Ireland. The store portfolio continues to generate strong

positive cash flow for the Group and this year’s new stores

have shown a strong pay-back performance. As a result of the

investment in the new stores, it is pleasing to report that the

Group has created over 130 new jobs during the past year.

Costs have remained controlled with underlying cost

growth less than sales growth, leading to a 44% increase

in operating profit (2012: 32%). Fat Face remains a

highly cash generative business and made significant

improvements in working capital during the year which

resulted in free cash flow, before debt and interest

payments, of £29.6m (2012: £23.2m).

Key Performance IndicatorsA summary of the Group’s KPIs are presented below:

2013(52 week

period)

2012(53 week

period)

Sales 1 £178.6m £163.5m

EBITDA 2 £31.2m £24.1m

EBITDA % to sales 3 17.5% 14.7%

Employee turnover 4 38.7% 47.2%

Creditor days 5 52 56

Payroll % to sales 6 16.5% 16.7%

Free cash flow 7 £29.6m £23.2m

Net debt repayments 8 £17.9m £8.6m

1. Revenue

2. Underlying operating profit (excluding non recurring items) before interest, tax, depreciation and amortisation.

3. EBITDA as a % of sales

4. Total leavers as a % of average headcount

5. Trade creditor days

6. Payroll costs as a % of sales, excluding share based payments and bonus

7. Cash flow excluding financing activities

8. Total repayments made across the Group against external debt in the year

Period Ended 1 June 2013

The directors present their Directors’ Report and the audited financial statements for the 52-week period ended

1 June 2013 (2012: 53 week period ended 2 June 2012).

Business Review

Business Review & Directors’ Report


Outlook ~ trends and factors affecting future performanceWhilst we are starting to see some improvements in the

UK economy, the outlook for the year ahead remains

challenging. The market is expected to remain highly

competitive. However consumer confidence appears

to be more optimistic than 12 months ago.

Despite the market remaining highly competitive, by

continuing to focus on developing the product ranges,

strengthening margin through improved sourcing and

retaining focus on cost and cash management, Fat Face is in a

strong position to continue to grow and invest for the future.

Financial PositionThe Group is in a strong financial position with Sales and

EBITDA growth year on year. The balance sheet improved

over the financial year ending with £27.4m of cash

(2012: £22.9m), cash from operating activities of £36.2m

(2012: £27.4m), with net liabilities reducing by £6.8m to

£10.3m (2012: £17.1m).

Fat Face Group is supported by financing arrangements

sourced through Fat Face World Borrowings. On 1st October

2012, the Group’s financing arrangements with its lenders

were amended to extend the tenure of the loans, provide

additional headroom and improve cashflow. The details of

this are discussed in note 17.

At 1st June 2013 the carrying value of external debt held

by the Group was £167.7m (2012: £178.3m). The Group

also benefits from access to a revolving credit facility of

£18.2m (2012: £18.9m) from which the £0.7m (2012: £1.4m)

capex facility is drawn. The remaining facility available at

1st June 2013 was £17.5m (2012: £17.5m) and includes an

ancillary facility which provides the Group with an overdraft,

guarantee and supplier credit facilities for the day to day

operations of the Group. The Group facilities and borrowings

are denominated in Sterling, and to a lesser extent Euros.

Repayments of £17.9m were made against the Group’s

external debt during the year (2012: £8.6m).

Proposed DividendThe directors do not recommend the payment of a dividend

(2012: nil).

Principal Risks and UncertaintiesTrading RiskThe retail sector has continued to face difficult market

conditions. However, by focusing on our core strengths and

continuing to invest in the business, the Group has seen

strong performance in a difficult market and the Group

has many opportunities to improve performance further.

Exchange RiskThe Group is significantly reliant on production overseas

with substantial creditors denominated in US dollars and,

to a lesser extent, Euros. The Group arranges currency

hedge instruments to manage the foreign currency risk

in accordance with its treasury policy. Under this policy,

the Group ensures that at least 90% of significant foreign

currency exposures are protected by hedging arrangements

at all times.

Euro-denominated sales are more than sufficient to offset the

exchange risk arising from purchases and debt denominated

in Euros. The excess Euro cash generated from sales is not

sufficient to represent a material risk to the business and has

been reduced in the financial year as a result of part of the

debt being retranslated into Euros (see note 17).

Financial RiskFat Face manages its exposure to interest rate risk by the

use of an interest rate cap covering most of its variable rate

debt. This expires in 2015. In addition, detailed reporting and

cash forecasting ensures that liquidity is maintainable into

the medium term.

Fat Face’s external financing arrangements include

conventional covenant tests as is customary with

agreements of this type. The performance against those

tests is measured on a quarterly basis and management

maintains ongoing forecasts of performance to ensure that

all tests can be met. All covenant tests were comfortably met

during the period.

Liability RiskFat Face maintains usual commercial insurance policies for

a business of this type and undertakes a critical review of

all coverage limits and the applicability of deductibles and

franchises during each annual review process.

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• no forced labour;

• no inappropriate disciplinary practices;

• freedom of association for all employees; and

• health and safety policies must be established

and enforced.

To underpin the Group’s commitment in this area, Fat Face

is a member of the Ethical Trading Initiative (ETI). Under this

initiative, the Group agrees to audit the ethical standards of

its suppliers and make the results of these audits available

to other members. Equally, Fat Face is able to access

the investigations carried out by other members into its

current and potential suppliers. During the year the Group

maintained its “Achiever” status by the ETI (2012: “Achiever”).

The India satellite office enables management to maintain

a close link with local suppliers in India and Bangladesh.

In addition to having a constant presence in this important

location to the Group, head office management make

regular visits to the site which allows the Group to directly

manage any associated risk.

EmployeesFat Face is committed to providing equal opportunities

across our workforce, be it through recruitment, promotion,

development or benefits. We work as one team, striving to

achieve the vision and values; encouraging and recognising

individual initiative and respecting individual contributions.

Our aim is to make Fat Face a place where people are able to

develop their full potential, learn from their experience and

have fun doing it.

It is the policy of Fat Face to provide employment and

development opportunities to persons regardless of age,

race, colour, religion, sex, sexual preference, marital status,

nationality, ethnic origin or disability. It is Group policy

to wherever possible retain in employment employees

who become disabled, providing retraining opportunities

where appropriate.

EnvironmentFat Face continually reviews its production processes to

ensure that it produces high quality product in ways that

reduce the impact on the environment. The Group recycled

413 (2012: 386) tonnes of cardboard out of Fat Base (Head

Office) and plastic out of many of its stores.

Fat Face continues to encourage better waste management

and energy efficiency around the business, continuing

to invest in smart meters across the estate to measure

emissions within stores. This provides information to stores

allowing them to control their energy usage more efficiently.

The Group also tries wherever possible to ensure that

the electrical supply comes from green energy or energy

efficient sources.

All product suppliers are required to have an environmental

policy signed by their Chief Executive.

In addition to the risks above, the Board has a policy of on-

going identification and review of key business risks, which

may restrict or seriously impact the ability of the Group to

carry on its operations or may damage the brand.

These are monitored via the risk register. The directors

oversee the development of internal control processes

to ensure that these risks are managed appropriately.

Executive directors and operational management are

delegated with the task of implementing these processes

and reporting to the Board on their outcomes.

Topics included on the register or which are reviewed

regularly by the Board include:

Health and SafetyThe directors recognise the importance of health and safety

at work. The health and safety of the employees, customers,

contractors, sites and equipment is of great importance.

There is a comprehensive structure of processes and

procedures to mitigate the health and safety risk, including

risk assessments, accident reporting and nominated health

and safety representatives across the business. Policies and

procedures are reviewed and audited regularly to make

safety management more robust and fully up to date.

Ethical TradingWith a large global supplier base, the directors recognise

that there is a potential risk that certain suppliers may not

work within the required ethical standards of Fat Face. This

could result in a poor perception of the Group in the market

and could have a negative impact on the brand. Fat Face has

developed an ethical trading policy with which it ensures

that all suppliers are in agreement. It is also a member of the

Ethical Trading Initiative. For further details please refer to

the Corporate Social Responsibility section of this report.

The Group would like to confirm that it has signed up to the

recent Ethical Trading Initiative endorsed Accord following

the recent disaster in Bangladesh.

Corporate Social ResponsibilitySuppliersFat Face’s supplier base is crucial to meeting our required

quality and ethical standards and ensuring that the product

is available on time. Through a combination of extending the

supplier base and managing the existing suppliers, the Group

is able to reduce any over-reliance on particular suppliers and

improve on the competitiveness of the product.

Fat Face continues to ensure that all suppliers are aware of

and agree to its ethical and operating standards. In addition

to ensuring that all local laws are adhered to, these require:

• remuneration for employees must be fair and

commensurate with the work undertaken;

• children may not be employed;

• no discrimination on the basis of race, gender,

religion or ethnic background;


Fat Face FoundationThis year is the 4th year of operation

of the Fat Face Foundation. This is a

registered charity with the objective

of enabling people to actively enjoy the

outdoors and respect the environments

we play in. The Foundation makes grants

to charitable organisations that work in conserving and

protecting the environment, as well as giving people the

opportunity to undertake a wide variety of charitable

projects, both on a local and national scale. Fat Face

employees and members of the public have been able to

actively get involved through taking part in sponsored

events and buying Foundation-related products.

Donations to UK charities by the Group during the year

amounted to £92,786 (2012: £29,502). Of this amount

£90,726 (2012: £26,502) was donated to the Foundation.

During the year, the Fat Face Foundation made donations

of £46,938 (2012: £53,577). Donations made include

the following:

• MCS - Donations were awarded to the ‘Big Sea Swim 2012’

campaign of the Marine Conservation Society (MCS).

MCS is a UK charity for the protection of marine wildlife,

sustainable fisheries, clean seas and beaches. The event

allowed MCS to raise awareness of the problems facing

our seas and also raised further funds to help MCS

continue its conservation work.

• Camsley Grange – a small volunteer run charity offering

horse riding and pony care sessions to people with physical

or learning disabilities in and around Warrington, Cheshire.

• Waveney Stardust – Broadland waterway cruising for the

disabled and elderly, enabling people to enjoy the Norfolk

and Suffolk waterways.

• Friends of Chichester Harbour – a locally funded charity

responsible for supporting the conservancy project of

the Harbour, educating children through hands on school

programmes and sporting events such as sailing and

cycling, and keeping the environment maintained in its

natural state, allowing everyone to enjoy the beautiful

natural environment.

• Forest Schools Camp – This charity runs camping holidays

for boys and girls between the ages of 6 and 18 years from

all backgrounds, encouraging them to take responsibility

and reach their own decisions.

Other Charity and Community ActivitiesFat Face is committed to supporting the local community,

both in respect of employment and social responsibility. We

encourage our employees to take part in various community

initiatives and charity events. This year employees have

taken part in various events, including the Great South Run,

a swim across the Channel and a climb of Mount Kilimanjaro.

Our design team is also working with colleagues offering

students the opportunity to gain some work experience

designing their own prints. This will be running for the first

time in 2013/14.

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

Executive DirectorsAnthony Thompson Appointed Chief Executive Officer in April 2010. Anthony

was previously Managing Director of the George brand

within the international division of Walmart Stores, and an

executive director of ASDA Stores Ltd. He is a former Retail

Director of Marks and Spencer plc, Senior Vice President

of Gap Europe and Chief Executive of Blackwell Limited.

Simon Pickering Appointed Design, Buying, Merchandising and Sourcing

Director in November 2010. Simon previously held a Senior

Director role within the Arcadia Group, responsible for

BHS and Burton. He is a former Director of Gap Europe,

responsible for Menswear. Simon has previously held

senior buying roles in Debenhams and Burton Group.

Mark Seager Mark joined Fat Face in January 1997 as a store manager.

He progressed through the retail channel with various

field and centrally-based operational roles before taking

on the wholesale, licensing and franchise programmes in

2008. In 2010 Mark was promoted to E-Commerce and

Marketing Director.

Simon Greene (appointed 14 January 2013) Appointed Retail Director in January 2013. Simon previously

held senior roles across a number of retail brands including

Marks and Spencer, Arcadia, T.M. Lewin and White Stuff.

Helen Cowing (appointed 1 August 2013) Appointed Chief Financial Officer in August 2013. Helen was

previously Chief Financial Officer and Co Chief Executive

Officer at Selecta Group. Helen has extensive international

experience and has previously held a number of senior roles

across a broad range of industries.

Emily Tate (resigned 1 February 2013).

Rebecca Bateman (resigned 14 December 2012).

Directors

Anthony Thompson Simon Pickering

Simon Greene Helen Cowing

Mark Seager


Non-Executive DirectorsSir Stuart Rose (Appointed 1 March 2013) Stuart has worked in retail all his life having joined Marks

& Spencer in 1971. After leaving Marks & Spencer in 1989

he successively managed the multiple retail chains at The

Burton Group, Argos, Booker, and Arcadia and returned to

Marks & Spencer in 2004 as Chief Executive then Chairman,

leaving in 2011. He is a non-executive director of Land

Securities and Woolworths (South Africa) and is on the

advisory board of Bridgepoint Capital. He is also Chairman

of Blue Inc., Dressipi and Ocado. He was knighted in 2008.

Alan Giles (resigned as Chairman and Director 25 July 2013)

Guy Weldon (Appointed by Bridgepoint)

Guy Weldon is a Partner and the Chief Investment Officer

of Bridgepoint. He currently sits on the boards of Fat Face

and Hobbycraft and has worked extensively on private

equity transactions across Europe, particularly within the

Consumer sector.

Benoit Alteirac (Appointed by Bridgepoint)

Benoit joined Bridgepoint in 2002 and is also a member

of Bridgepoint’s European Consumer investment team.

He is based in Bridgepoint’s London office.

The Group provides directors’ and officers’ insurance

protection for all of the directors of the companies in

the Group with a £10,000,000 (2012: £10,000,000) limit

of indemnity.

ShareholdersAs set out in note 26, Bridgepoint has been Fat Face Group

Limited’s major shareholder since 2007. For details of

their shareholding, please refer to note 26. Bridgepoint

hold the investment within its Bridgepoint Europe III Fund.

Guy Weldon and Benoit Alteirac are monitoring the fund’s

investment on behalf of Bridgepoint.

Going ConcernIn adopting the going concern basis for preparing the financial

statements, the directors have considered the principal

activities as well as the business risks as set out on pages 4 to 6.

While market conditions have been challenging, the

Group has returned a strong trading performance in the

financial period. In addition the Group balance sheet has

strengthened, resulting in significant cash generation over

the period. Forecasts indicate that the Group will continue

to be cash generative and return a positive operating profit

before interest, tax, depreciation and amortisation.

The Group has access to long term debt financing and

short term facilities which are subject to covenant tests, as

is customary with these types of financing arrangements.

Detailed cash flow projections have been prepared which

show that the Group is expected to trade within its financial

covenants for the foreseeable future. In making this

assessment these projections have been sensitised and

on-going mitigating actions considered and this has

satisfied the Board that the Group will continue to operate

within these facilities. As a result, the Company and the

Group continues to adopt the going concern principle

in the preparation of these financial statements.

Disclosure of Information to AuditorThe directors who held office at the date of approval of

this Directors’ Report confirm that, so far as they are each

aware, there is no relevant audit information of which the

Company’s auditor is unaware; and each director has taken

all the steps that they ought to have taken as a director to

make themselves aware of any relevant audit information

and to establish that the Company’s auditor is aware of

that information.

AuditorPursuant to Section 487 of the Companies Act 2006, the

auditor will be deemed to be reappointed and KPMG LLP

will therefore continue in office.

By order of the board:

Anthony Thompson Chief Executive OfficerUnit 3, Ridgway, Havant, Hampshire, PO9 1QJ

27 August 2013

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The directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law

and regulations.

Company law requires the directors to prepare group and parent company financial statements for each financial year. Under

that law, they have elected to prepare both the Group and the parent company financial statements in accordance with

International Financial Reporting Standards (IFRSs) as adopted by the EU and applicable law.

Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and

fair view of the state of affairs of the Group and parent company and of their profit or loss for that period.

In preparing each of the Group and parent company financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

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

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the

parent company will continue in business.

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

parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and parent

company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general

responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and

detect fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the

company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

Statement of Directors’ Responsibilities in Respect of the Directors’ Report and the Financial Statements


We have audited the financial statements of Fat Face Group

Limited for the 52 week period ended 1 June 2013 set out

on pages 13 to 43. The financial reporting framework that

has been applied in their preparation is applicable law

and IFRSs as adopted by the EU and, as regards the parent

company financial statements, as applied in accordance

with the provisions of the Companies Act 2006.

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.

Respective Responsibilities of Directors and AuditorAs explained more fully in the Directors’ Responsibilities

Statement set out on page 10, the directors are responsible

for the preparation of the financial statements and for

being satisfied that they give a true and fair view. Our

responsibility is to audit, and express an opinion on, the

financial statements in accordance with applicable law and

International Standards on Auditing (UK and Ireland). Those

standards require us to comply with the Auditing Practices

Board’s (APB’s) Ethical Standards for Auditors.

Scope of the Audit of the Financial StatementsA description of the scope of an audit of financial statements

is provided on the Financial Reporting Council’s website at:

www.frc.org.uk/auditscopeukprivate

Opinion on Financial StatementsIn our opinion:

• the financial statements give a true and fair view of the

state of the Group’s and of the parent company’s affairs

as at 1 June 2013 and of the Group’s profit for the period

then ended;

• the Group financial statements have been properly

prepared in accordance with IFRSs as adopted by the EU;

• the parent company financial statements have been

properly prepared in accordance with IFRSs as adopted

by the EU and as applied in accordance with the

provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance

with the requirements of the Companies Act 2006.

Opinion on Other Matter Prescribed by the Companies Act 2006In our opinion the information given in the Directors’ Report

for the financial year for which the financial statements are

prepared is consistent with the financial statements.

Matters on Which we are Required to Report by ExceptionWe have nothing to report in respect of the following

matters where the Companies Act 2006 requires us to

report to you if, in our opinion:

• adequate accounting records have not been kept by the

parent company, or returns adequate for our audit have

not been received from branches not visited by us; or

• the parent company financial statements are not in

agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by

law are not made; or

• we have not received all the information and explanations

we require for our audit.

William Smith Senior Statutory Auditor

For and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants, Dukes Keep,

Marsh Lane, Southampton SO14 3EX

27 August 2013

to the Members of Fat Face Group Limited

Independent Auditor’s Report

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Financial Statements

http://www.frc.org.uk/auditscopeukprivate


Note Trading Results

2013 £000

Non- Recurring

Items £000

2013£000

Trading Results

2012£000

Non- Recurring

Items £000

2012£000

Revenue 2 178,620 — 178,620 163,528 — 163,528

Other income 2 209 — 209 94 — 94

178,829 — 178,829 163,622 — 163,622

Changes in inventories of finished goods 780 — 780 (3,578) — (3,578)

Staff costs 4,5 (30,901) (172) (31,073) (27,165) (163) (27,328)

Other trading expenses including non-recurring items

(117,525) (369) (117,894) (108,794) (314) (109,108)

Total trading expenses before depreciation and amortisation

(147,646) (541) (148,187) (139,537) (477) (140,014)

Operating profit/(loss) before interest, tax, depreciation and amortisation

31,183 (541) 30,642 24,085 (477) 23,608

Depreciation and amortisation 9-10 (7,815) — (7,815) (8,838) — (8,838)

Share based payments 19 (1,881) — (1,881) (181) — (181)

Operating profit/(loss) 21,487 (541) 20,946 15,066 (477) 14,589

Financial income 7 622 — 622 11 — 11

Financial expenses 7 (13,018) (1,781) (14,799) (14,121) — (14,121)

Net financing income/(expenses) (12,396) (1,781) (14,177) (14,110) — (14,110)

Profit/(loss) before tax 9,091 (2,322) 6,769 956 (477) 479

Taxation 8 (2,333) 553 (1,780) 3,373 123 3,496

Profit/(loss) for the period 6,758 (1,769) 4,989 4,329 (354) 3,975

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

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Consolidated Income Statement ~ for the 52 weeks ended 1 June 2013 ~


Note Group2013

£000

Group2012

£000

Company2013

£000

Company2012

£000

Profit/(loss) for the period 4,989 3,975 15,146 732

Other comprehensive income

Effective portion of changes in fair value of cash flow hedges net of tax (226) 494 — —

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

185 461 — —

Net other comprehensive income (41) 955 — 732

Total comprehensive income/(loss) 4,948 4,930 15,146 732

Total comprehensive income/(loss) is attributable to:

Equity holders of the parent 4,948 4,930 15,146 732

Statement of Comprehensive Income ~ for the 52 weeks ended 1 June 2013 ~


Registered Number: 06148029 Note Group2013

£000

Group2012

£000

Company2013

£000

Company2012

£000

Non-current assets

Property, plant and equipment 9 14,682 14,175 — —

Intangible assets 10 158,876 160,648 — —

Investments in subsidiaries 11 — — 26,199 19,268

Deferred tax assets 13 2,163 1,849 — —

Financial assets 12 1 24 — —

175,722 176,696 26,199 19,268

Current assets

Inventories 14 16,839 16,059 — —

Trade and other receivables 15 2,990 4,146 85,254 68,752

Cash and cash equivalents 16 27,416 22,905 129 111

Other financial assets 12 367 646 — —

47,612 43,756 85,383 68,863

Total assets 223,334 220,452 111,582 88,131

Current liabilities

Other interest-bearing loans and borrowings 17 (14,479) (16,531) — —

Trade and other payables 18 (23,852) (17,649) (32,688) (25,664)

Employee benefits (10) (14) — —

Provisions 20 (2,470) (623) — —

Tax payable (4,967) (4,177) — —

(45,778) (38,994) (32,688) (25,664)

Non-current liabilities

Other interest-bearing loans and borrowings 17 (153,229) (161,756) — —

Deferred lease incentives (4,698) (4,651) — —

Accrued expenses (5,913) (6,482) (2,508) (3,108)

Deferred tax liabilities 13 (23,989) (25,671) — —

(187,829) (198,560) (2,508) (3,108)

Total liabilities (233,607) (237,554) (35,196) (28,772)

Total net current assets/(liabilities) 1,834 4,762 52,695 43,199

Total net non-current assets/(liabilities) (12,107) (21,864) 23,691 16,160

Net assets/(liabilities) (10,273) (17,102) 76,386 59,359

Equity

Share capital 1,202 1,202 1,202 1,202

Capital contribution reserve 234,709 234,709 234,709 234,709

Share premium 15,805 15,805 15,805 15,805

Hedging reserve (98) (57) — —

Retained earnings (261,891) (268,761) (175,330) (192,357)

Total equity (10,273) (17,102) 76,386 59,359

The notes on pages 20 to 43 are an integral part of these financial statements.

These financial statements were approved by the board of directors on

27 August 2013 and were signed on its behalf by:

Anthony Thompson, Chief Executive Officer

Statement of Financial Position ~ as at 1 June 2013 ~

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Share Capital

£000

Prepaid Share

Capital £000

Capital Contribution

Reserve £000

Share Premium

£000

HedgingReserve

£000

RetainedEarnings

£000

TotalEquity

£000

Balance as at 29 May 2011 1,202 — 234,709 15,805 (1,012) (272,917) (22,213)

Profit/(loss) for the period — — — — — 3,975 3,975


— — — — 461 — 461

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

— — — — 494 — 494

Total other comprehensive income for the period

— — — — 955 3,975 4,930

Transactions with owners

Equity settled share based payments — — — — — 181 181

Total transactions with owners recorded in equity

— — — — — 181 181

Balance at 2 June 2012 1,202 — 234,709 15,805 (57) (268,761) (17,102)

Balance at 3 June 2012 1,202 — 234,709 15,805 (57) (268,761) (17,102)

Profit/(loss) for the period — — — — — 4,989 4,989


— — — — 185 — 185

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

— — — — (226) — (226)

Total other comprehensive income for the period

— — — — (41) 4,989 4,948


Equity settled share based payments — — — — — 1,881 1,881

Total transactions with owners recorded in equity

— — — — — 1,881 1,881

Balance at 1 June 2013 1,202 — 234,709 15,805 (98) (261,891) (10,273)

Statement of Changes in Equity: Group~ for the 52 weeks ended 1 June 2013 ~


Share Capital

£000

PrepaidShare

Capital£000

Capital Contribution

Reserve£000

SharePremium

£000

RetainedEarnings

£000

TotalParentEquity

£000

Balance at 29 May 2011 1,202 — 234,709 15,805 (193,270) 58,446

Profit/(loss) for the period — — — — 732 732

Total comprehensive income for the period — — — — 732 732


Equity settled share based payments — — — — 181 181

Issue of shares — — — — — —

Total transactions with owners — — — — 181 181

Balance at 2 June 2012 1,202 — 234,709 15,805 (192,357) 59,359

Profit/(loss) for the period — — — — 15,146 15,146

Total comprehensive income for the period — — — — 15,146 15,146


Equity settled share based payments — — — — 1,881 1,881

Issue of shares — — — — — —

Total transactions with owners — — — — 1,881 1,881

Balance at 1 June 2013 1,202 — 234,709 15,805 (175,330) 76,386

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Statement of Changes in Equity: Company~ for the 52 weeks ended 1 June 2013 ~


Note Group2013

£000

Group2012

£000

Company2013

£000

Company2012

£000

Cash flows from operating activities

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

6,769 479 19,720 15,941

Depreciation, amortisation and impairment 9,10 7,815 8,838 — —

Equity settled share-based payment expenses 19 1,881 181 — —

Financial income 7 (622) (11) (22,276) (17,679)

Financial expense 7 14,799 14,121 2,060 1,388

Cash generated from operations 30,642 23,608 (496) (350)

Change in trade and other receivables 1,156 232 125 33

Change in inventory (780) 3,578 — —

Change in trade and other payables 6,611 1,325 389 425

Change in provisions and employee benefits 1,830 (653) — —

39,459 28,090 18 108

Tax paid (3,263) (653) — —

Net cash from operating activities 36,196 27,437 18 108

Cash flows from investing activities

Interest received 7 22 11 — —

Acquisition of property plant and equipment 9 (6,216) (4,529) — —

Lease incentives, net of amortisation 513 1,171 — —

Acquisition of other intangible assets 10 (914) (890) — —

Net cash from investing activities (6,595) (4,237) — —

Free cash flow 29,601 23,200 18 108

Cash flows from financing activities

Proceeds from new loans 17 152,886 — — —

Interest paid (7,189) (6,165) — —

Repayment of borrowings 17 (170,787) (8,412) — —

Net cash from financing activities (25,090) (14,577) — —

Net increase/(decrease) in cash and cash equivalents 4,511 8,623 18 108

Cash and cash equivalents at start of period 22,905 14,282 111 3

Cash and cash equivalents at end of period 16 27,416 22,905 129 111

Cash Flow Statements~ for the 52 weeks ended 1 June 2013 ~


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1. Accounting PoliciesFat Face Group Limited (the ‘Company’) is a company

incorporated in the UK.

The Group financial statements consolidate those of the

Company and its subsidiaries (together referred to as the

‘Group’). The parent company financial statements present

information about the Company as a separate entity and

not about its Group.

Both the parent company financial statements and the

Group financial statements have been prepared and

approved by the directors in accordance with International

Financial Reporting Standards as adopted by the EU

(‘Adopted IFRSs’). On publishing the parent company

financial statements here together with the Group financial

statements, the Company is taking advantage of the

exemption in s408 of the Companies Act 2006 not to

present its individual income statement and related notes

that form a part of these approved financial statements.

Except for the revisions to IAS 24 which have been adopted

in these financial statements, there were no other new

accounting policies or amendments that became effective

for the first time in the financial year that are considered to

impact upon these financial statements, nor are there any

new standards to be adopted next year that are expected

to have a material impact on the financial statements.

The accounting policies set out below have, unless

otherwise stated, been applied consistently to all periods

presented in these consolidated financial statements.

Judgements made by the directors, in the application of

these accounting policies that have significant effect on

the financial statements and estimates with a significant

risk of material adjustment in the next year are discussed

in notes 10, 19 and 20, and in the lives of intangible assets

as noted below.

Measurement conventionThe 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 – subsidiariesSubsidiaries are entities controlled by the Group. Control

exists when the Group has the power, directly or indirectly,

to govern the financial and operating policies of an entity so

as to obtain benefits from its activities. In assessing control,

potential voting rights that are currently exercisable or

convertible are taken into account. The financial statements

of subsidiaries are included in the consolidated financial

statements from the date that control commences until the

date that control ceases.

Foreign currencyTransactions in foreign currencies are translated at the

foreign exchange rate ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign

currencies at the balance sheet date are translated at the

foreign exchange rate ruling at that date. Foreign exchange

differences arising on translation are recognised in the

income statement. Non-monetary assets and liabilities

that are measured in terms of historical cost in a foreign

currency are translated using the exchange rate at the

date of the transaction. Non-monetary assets and liabilities

denominated in foreign currencies that are stated at fair

value are translated at foreign exchange rates ruling at

the date of transaction the fair value was determined.

Exchange differences related to qualifying hedges are taken

directly to the translation reserve. They are released into the

income statement upon disposal.

Where the Group holds applicable hedged positions, the

accounting policy is reported below.

(forming part of the Financial Statements)

Notes to the Financial Statements


When a hedging instrument expires or is sold, terminated

or exercised, the cumulative gain or loss at that point

remains in equity and is recognised in accordance with the

above policy when the transaction occurs. If the hedged

transaction is no longer expected to take place,

the cumulative unrealised gain or loss in equity is

recognised in the income statement immediately.

Classification of financial instruments Financial instruments often consist of a combination of debt

and equity and the Group has to decide how to attribute

values to each. Instruments are treated as equity only to

the extent that they meet the following two conditions:

(a) where the instrument includes no contractual

obligations upon the Group to deliver cash or other

financial assets or to exchange financial assets or

financial liabilities with another party under conditions

that are potentially unfavourable to the Group; and

(b) where the instrument will or may be settled in the

Group’s own equity instruments, it is either a non-

derivative that includes no obligation to deliver a

variable number of the Group’s own equity instruments,

or is a derivative that will be settled by the Group

exchanging a fixed amount of cash or other financial

assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of

issue are classified as a financial liability, and where such

an instrument takes the legal form of the company’s own

shares, the amounts presented in these financial statements

for called up share capital and share premium account

exclude amounts in relation to those shares.

Property, plant and equipmentProperty, plant and equipment are stated at cost less

accumulated depreciation and impairment losses.

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:

Freehold buildings 2% per annum

Leasehold land and buildings Life of lease

Equipment and fixtures:

Computer and communications equipment 33%

Shopfit, fixtures and fittings, furniture, mannequins

20%

Plant and machinery 25%

Motor vehicles 25%

Assets in the course of construction are not depreciated.

Assets in the course of construction refers to expenditure on

new stores not yet trading. On-going refurbishment projects

in respect of existing stores are charged directly into the

appropriate asset categories.

CurrenciesThe 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 concernIn adopting the going concern basis for preparing the

financial statements, the directors have considered the

principal activities as well as the business risks as set out

on pages 4 to 6. For further details of the assessment of the

going concern principle please refer to the Directors’ report.

Non-derivative financial instrumentsNon-derivative financial instruments comprise investments

in equity and debt securities, cash and cash equivalents, and

loans and borrowings.

Investments in debt and equity securities Investments in debt and equity securities held by the

Company are stated at the lower of original cost and fair

value with any resultant cumulative impairment losses

recognised in profit or loss. Where these investments are

interest-bearing, interest calculated using the effective

interest method is recognised in profit or loss.

Cash and cash equivalents Cash and cash equivalents comprise cash balances and call

deposits. Bank overdrafts that are repayable on demand and

form an integral part of the Group’s cash management are

included as a component of cash and cash equivalents for

the purpose of the statement of cash flows only.

Interest-bearing borrowings Interest-bearing borrowings are recognised at amortised

cost plus accumulated unpaid interest costs incurred.

Derivative financial instruments and hedgingDerivative financial instruments Derivative financial instruments are recognised at fair

value. The gain or loss on re-measurement to fair value is

recognised immediately in the income statement. However,

where derivatives qualify for hedge accounting, recognition

of any resultant gain or loss depends on the nature of the

item being hedged (see below).

Cash flow hedges Where a derivative financial instrument is designated as

a hedge of the variability in cash flows of a recognised

asset or liability, or a highly probable forecast transaction,

the effective part of any gain or loss on the derivative

financial instrument is recognised directly in the hedging

reserve. Any ineffective portion of the hedge is recognised

immediately in the income statement.

For cash flow hedges, the associated cumulative gain or

loss is removed from equity and recognised in the income

statement in the same period or periods during which the

hedged forecast transaction affects profit or loss.

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Notes


Lease incentivesContributions received from landlords are deemed to be

incentives and as such are recognised as deferred income

and subsequently released over the life of the lease.

Trade and other payablesTrade and other payables are recognised at face value.

ImpairmentThe carrying amounts of the Company’s and the Group’s

assets other than inventories and deferred tax assets are

reviewed at each balance sheet date to determine whether

there is any indication of impairment. If any such indication

exists, the asset’s recoverable amount is estimated.

An impairment loss is recognised whenever the carrying

amount of an asset or its cash generating unit exceeds its

recoverable amount. Impairment losses are recognised in

the income statement.

The results of the impairment review on groups of assets are

disclosed in the relevant notes below.

Interest-bearing borrowingsInterest-bearing borrowings are recognised initially at

fair value being proceeds less attributable transaction

costs. Subsequent to initial recognition, interest-bearing

borrowings are stated at amortised cost with any difference

between cost and redemption value being recognised in the

income statement over the period of the borrowings on an

effective interest basis.

The effective interest basis is the implicit interest rate which,

over the life of an investment or liability, will compound to

the expected final asset or liability value, including all of the

costs and revenues expected from that asset or liability over

its life. Debt instruments issued by Group companies that

are held by other Group companies are reported net in these

Consolidated Financial Statements.

Debt modification/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.

Employee benefitsDefined contribution plans The Group operates a defined contribution pension

plan under which the Group pays fixed contributions into

a separate entity and will have no legal or constructive

obligation to pay further amounts. Obligations for

contributions to defined contribution pension plans

are recognised as an expense in the income statement

as incurred.

Intangible assets and goodwillAll business combinations are accounted for by applying

the purchase method. Goodwill represents amounts

arising on acquisition of subsidiaries, associates and

jointly controlled entities being the difference between

the cost of the acquisition and the net fair value of the

identifiable assets, liabilities and contingent liabilities

acquired. Identifiable intangibles are those which can be

sold separately or which arise from legal rights regardless

of whether those rights are separable.

Goodwill is stated at cost less any accumulated impairment

losses. Goodwill is not amortised but is tested annually

for impairment.

Other intangible assets that are acquired by the Group

are stated at cost less accumulated amortisation and

impairment losses.

Internally generated intangible assets arising from the

group’s development activities are recognised only when

all of the following conditions are met:

– an asset is created and can be identified;

– 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 cost of the asset

comprise of the external direct costs of goods, and services,

in addition to internal payroll related costs for employees

who are directly associated with the project.

Amortisation is charged to the income statement on a

straight-line basis over the estimated useful lives of the

assets unless such lives are indefinite. Intangible assets

with an indefinite useful life and goodwill are systematically

tested for impairment at each balance sheet date. Property

leases are valued against their estimated marketability and

an impairment charge is recorded if appropriate. Other

intangible assets are amortised from the date they are

available for use. The estimated useful lives are as follows:

Trademarks acquired Over the registered life

Trademarks – Internally generated value

2%

Customer lists 25%

Software and licences Over the estimated useful life

Trade and other receivablesTrade and other receivables are recognised at their nominal

amount less any impairment losses and provisions for bad

and doubtful debts.

InventoriesInventories 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.

1. Accounting Policies (continued)


Non recurring items Non recurring items comprise of material items of income and

expense which are not considered to be part of the normal

operations of the company. These are separately disclosed on

the face of the income statement in arriving at operating profit

to assist with the understanding of the financial statements.

ProvisionsA provision is recognised in the balance sheet when the

Group has a present legal or constructive obligation as a

result of a past event, that can be reliably measured and

it is probable that an outflow of economic benefits will be

required to settle the obligation.

The onerous leases provision is made to cover the costs of

vacant or sublet properties, where the cost of serving the

head lease is not covered by the sublease income.

TaxationTax on the profit or loss for the period comprises current

and deferred tax. Tax is recognised in the income statement

except to the extent that it relates to items recognised

directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable

income for the period, using tax rates enacted or

substantively enacted at the balance sheet date, and any

adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between

the carrying amounts of assets and liabilities for financial

reporting purposes and the amounts used for taxation

purposes. The following temporary differences are not

provided for:

• the initial recognition of goodwill;

• the initial recognition of assets or liabilities that affect

neither accounting nor taxable profit other than in a

business combination; and

• differences relating to investments in subsidiaries to

the extent that they will probably not reverse in the

foreseeable future.

The amount of deferred tax provided is based on the

expected manner of realisation or settlement of the carrying

amount of assets and liabilities, using tax rates enacted or

substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is

probable that future taxable profits will be available against

which the assets can be utilised.

Share-based payment transactions Some employees of Fat Face Limited, an indirect subsidiary,

have been granted shares in the Company. In these

consolidated financial statements the fair value of shares

acquired is recognised as an employee expense with a

corresponding increase in equity. The company financial

statements also record an increase in investment in

subsidiaries and corresponding increase in equity.

The fair value is measured at grant date and spread over the

period during which the employees became unconditionally

entitled to the fair value of the shares. The fair value of the

shares acquired is measured using an EBITDA multiple,

taking into account the terms and conditions upon which

the shares were granted. The amount recognised as an

expense is adjusted to reflect the forecast number of shares

expected to be forfeit without reaching full fair value.

For the tranches of C2 shares issued in 2010, the directors

of the Company considered that the fair value could not

be estimated reliably. In accordance with IFRS2 the Group

adopted the intrinsic value methodology for these shares,

whereby the intrinsic value of this share based payment

is re-measured at each reporting date, with changes

recognised in profit or loss until the instrument is settled.

All other C2 shares are accounted for as normal equity

settled arrangements under IFRS2.

RevenueRevenue represents the invoiced amounts of goods sold

and services provided during the period, stated net of value

added tax.

Revenue arising from the sale of gift vouchers and gift

cards is deferred and recognised at the point of redemption.

Revenue arising from wholesale is recognised when invoiced.

ExpensesOperating lease payments Payments made under operating leases are recognised in the

income statement on a straight-line basis over the term of the

lease. Lease incentives received are recognised in the income

statement as an integral part of the total lease expense.

Net financing costs Net financing costs comprise interest payable, finance

charges on finance leases, interest receivable on funds

invested and foreign exchange gains and losses that are

recognised in the income statement. Interest income and

interest payable is recognised in profit or loss as it accrues,

using the effective interest method.

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2. Revenue2013

£0002012

£000

Sale of goods 178,620 163,528

Rent receivable 124 72

Royalties 85 22

178,829 163,622

Revenue and other income attributable to geographical markets outside the United Kingdom amounted to 2.97% (2012: 3.1%).

3. Other Operating Income2013

£0002012

£000

Net gain on disposal of property, plant and equipment — —

Other trading expenses are shown net of other operating income.

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

2013£000

2012£000

Staff restructuring costs expensed as incurred 172 163

Impairment of loan notes issued by external party 254 —

Professional services and other one-off items 115 314

Debt write off costs 1,781 —

2,322 477

Operating profit is stated after

Inventories written down/(back) in the period (38) 373

Inventories loss recognised as an expense in the period 1,262 1,241

Operating leases: Land and buildings 20,423 20,295

Operating leases: Other 246 195

Depreciation of tangible assets (net of third party contributions) 5,129 6,433

Amortisation 2,686 2,404

Auditor’s remuneration

Audit of these financial statements 7 7

Amounts receivable by auditors and their associates in respect of:

Audit of financial statements of subsidiaries pursuant to legislation 72 70

Other services relating to taxation and sundry matters 59 57


5. Staff Numbers and CostsThe contracted number of persons employed by the Group (excluding non-executive directors) during the period, analysed by

category, was as follows:

Number of employees

Group 2013

Group 2012

Fat Base (head office) 298 301

Stores 1,967 1,890

Total 2,265 2,191

The Company had no employees during the period.

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

2013£000

2012£000

Wages and salaries 28,683 25,132

Social security costs 1,957 2,063

Other pension costs 159 96

Healthcare costs 102 37

Total before share based payments 30,901 27,328

Share based payments (see note 19) 1,881 181

Total 32,782 27,509

6. Directors’ EmolumentsDirectors’ emoluments on behalf of the Group are as follows:

2013£000

2012£000

Directors’ emoluments 1,144 1,390

Company contributions to defined contribution pension plans 24 11

Share based payments 1,536 37

Total 2,704 1,438

The aggregate of emoluments of the highest paid director was £452k (2012: £435k) and company pension contributions of £nil

(2012: nil) were made to a defined contribution scheme on their behalf.

Number of directors

2013

Number of directors

2012

Retirement benefits are accruing to the following number of directors:

Defined contribution benefit plans: 2 3

The amount accrued in respect of directors’ pensions at 1 June 2013 was nil (2012: £2,219).

7. Finance Income and Expense 2013

£0002012

£000

Bank interest income 22 11

Exit fee (accrual adjustment) 600 —

Financial income 622 11

Bank interest expense 11,020 12,071

Other interest payable 3,368 1,933

Net foreign exchange loss 411 117

Financial expense 14,799 14,121

Of the Bank interest expenses, £5,342,000 relates to cash interest payable on bank debt (2012: £6,165,000) with the remainder

relating to payment in kind (PIK) interest which is added to the loan principal. Other interest payable consists of non-cash interest

on loan notes which is added to the loan principal (see note 17), and non-recurring debt costs that have been written off of

£1,781,000 (2012: nil).

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Notes


8. TaxationRecognised in income statement 2013

Total£000

2012Total

£000

Current tax expense

Current year 3,444 1,484

Adjustments for prior years 256 (143)

Total current tax 3,700 1,341

Deferred tax expense

Current year (965) (710)

Adjustments in respect of previous periods 29 (2,192)

Release of discounted debt deferred tax liability — (1,634)

Deferred tax rate change (984) (301)

Total deferred tax (1,920) (4,837)

Total tax in income statement 1,780 (3,496)

Reconciliation of effective tax rate 2013£000

2012£000

Profit/(loss) before tax 6,769 479

Tax using the UK corporation tax rate of 23.833% (2012: 25.667%) 1,613 123

Non-deductible expenses 1,014 608

Non-taxable income (181) —

Utilisation of unrecognised losses (221) —

Under/(over) provided in prior years 509 (444)

Release of discounted debt deferred tax liability — (1,634)

Impact of rate change on brought forward balance (988) (2,059)

Rate difference on deferred tax 34 (90)

Total tax in income statement 1,780 (3,496)

Tax recognised directly in equity 2013£000

2012£000

Deferred tax recognised directly in equity (76) 155

The Finance Act 2012, which provides for a reduction in the main rate of corporation tax from 24% to 23% effective from 1 April

2013, was substantively enacted on 3 July 2012. This rate reduction has been reflected in the calculation of deferred tax at the

balance sheet date.

The Government intends to enact a future reduction in the main tax rate down to 20% by 1 April 2015. As this tax rate was

not substantively enacted at the balance sheet date, the rate reduction is not yet reflected in these financial statements in

accordance with IAS 10, as it is a non-adjusting event occurring after the reporting period.


9. Property, Plant and Equipment: GroupFreeholdland and

buildings£000

Asset in thecourse of

construction£000

Short leaseholdland and

buildings£000

Equipmentand fixtures

£000

Motorvehicles

£000

Total

£000

Cost

Balance at 28 May 2011 124 257 3,411 40,810 36 44,638

Additions — 145 326 4,029 — 4,500

Transfers between categories — (257) 78 179 — —

Disposals — — (124) (2,223) (1) (2,348)

Balance at 2 June 2012 124 145 3,691 42,795 35 46,790

Balance at 3 June 2012 124 145 3,691 42,795 35 46,790

Additions — 11 360 5,845 — 6,216

Transfers between categories — (145) 71 74 — —

Disposals — — (169) (1,673) — (1,842)

Balance at 1 June 2013 124 11 3,953 47,041 35 51,164

Depreciation and impairment

Balance at 28 May 2011 (12) — (925) (26,974) (36) (27,947)

Depreciation charge for the period (3) — (244) (6,762) — (7,009)

Disposals — — 153 2,187 1 2,341

Balance at 2 June 2012 (15) — (1,016) (31,549) (35) (32,615)

Balance at 3 June 2012 (15) — (1,016) (31,549) (35) (32,615)

Depreciation charge for the period (3) — (216) (5,489) — (5,708)

Disposals — — 168 1,673 — 1,841

Balance at 1 June 2013 (18) — (1,064) (35,365) (35) (36,482)

Net book value

At 28 May 2011 112 257 2,486 13,836 — 16,691

At 2 June 2012 109 145 2,675 11,246 — 14,175

At 1 June 2013 106 11 2,889 11,676 — 14,682

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

2013£000

2012£000

Depreciation of tangible property, plant and equipment

Tangible assets 5,708 7,009

Unwinding of deferred lease incentives (579) (576)

Depreciation and lease amortisation 5,129 6,433

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10. Intangible Assets: GroupGoodwill

£000

TradeMarks£000

PropertyLeases

£000

CustomerLists

£000

Software andLicences

£000

Total

£000

Cost

Balance at 28 May 2011 263,150 118,078 1,500 84 443 383,255

Disposals during the period — — — — (61) (61)

Other additions – externally purchased — 2 — — 886 888

Balance at 2 June 2012 263,150 118,080 1,500 84 1,268 384,082

Balance at 3 June 2012 263,150 118,080 1,500 84 1,268 384,082

Disposals during the period — — — — — —

Other additions – externally purchased — 8 — — 906 914

Balance at 1 June 2013 263,150 118,088 1,500 84 2,174 384,996

Amortisation and Impairment

Balance at 28 May 2011 (209,700) (9,595) (1,300) (69) (427) (221,091)

Disposals during the period — — — — 61 61

Amortisation for the period — (2,377) — (15) (12) (2,404)

Balance at 2 June 2012 (209,700) (11,972) (1,300) (84) (378) (223,434)

Balance at 3 June 2012 (209,700) (11,972) (1,300) (84) (378) (223,434)

Disposals during the period — — — — — —

Amortisation for the period — (2,392) — — (294) (2,686)

Balance at 1 June 2013 (209,700) (14,364) (1,300) (84) (672) (226,120)

Net book value

At 28 May 2011 53,450 108,483 200 15 16 162,164

At 2 June 2012 53,450 106,108 200 — 890 160,648

At 3 June 2013 53,450 103,724 200 — 1,502 158,876

Goodwill represents amounts arising on the acquisitions of subsidiaries, being the difference between the cost of the acquisition

and the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. This will include the value of the

workforce in place, the future marketability of the brand, represented by potential income streams not yet being exploited, and the

synergies arising from the utilisation of the Group’s assets as a whole, over and above their individual value-generating capacity.

The assessment of trade mark valuation has been determined internally using a method based on a 6% (2012: 6%) discounted

future notional royalty stream. The customer file has been valued internally using market rates for customer list rental. A discount

rate of 12% (2012: 12%) has been used, which was based on an industry standard average weighted cost of capital.

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

2013Total

£000

2012Total

£000

Depreciation and amortisation of trading assets 294 27

Amortisation of non-trading intangibles 2,392 2,377

2,686 2,404


Discount rateThe Group’s weighted average cost of capital (WACC) as

adjusted for a market based interest rate and capital structure

has been used as a discount rate in the calculation, adjusted

to arrive at a pre tax rate. The pre tax discount rate, the rate

stakeholders could reasonably expect as an average return

for their investment, has been estimated at 14% (2012: 14%).

This calculation has been built up by comparing the equity

returns expected from a range of similar companies, both UK

and overseas, and adjusting this for specific Group factors

such as debt structure, company size, and the effects of a

private, rather than public, equity structure.

SensitivityThe key assumptions as noted above are net operating

cash flows generated and the WACC used. A decrease in net

operating cash flows in each year of 1% would reduce the

valuation of the business by approximately £3m. An increase

in the WACC from 14% to 15% would reduce the valuation of

the business by approximately £20m but would not trigger

any impairment charges.

Impairment testingThe Group’s management has reviewed the carrying value of

goodwill for possible impairment based on the group of cash

generating units which comprise the lowest level at which

goodwill is monitored. This is equivalent to the business as

a whole. As in previous years, the Group’s management has

determined that the income approach (which is equivalent

to utilising the ‘value in use’ valuation technique) is the most

appropriate method for valuing the business at the current

stage of its development in the present market. The Group’s

management does not believe an impairment of the goodwill

in the business is required (2012: nil).

Income stream forecastsThe key revenue driver for the business will continue to

be the development of the retail portfolio. The directors

believe that there is significant capacity for growth through

improving sales densities, relocating and refitting stores in

successful markets and expanding the portfolio. However,

longer term forecasts are inherently less reliable and the

impairment assessment consequently includes very prudent

growth assumptions beyond 2016.

Cost growth forecastsCosts are assumed to grow at a reasonable rate to support

the continued expansion.

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11. Investments in SubsidiariesCompany 2013

£0002012

£000

Opening investment 19,268 27,230

Accumulated interest on loan notes 5,050 4,130

Intergroup restructuring (see below) — (12,273)

Additions during the year arising from share based payments 1,881 181

Closing investment 26,199 19,268

The directors have reviewed the carrying value of the loan notes issued by Fat Face World Investments Limited as part of the

overall valuation of the Group. The underlying operating performance of the Group remains strong with forecasts showing that

external bank debt will continue to be repaid. However, there remains doubt over the subsidiary’s ability to make full repayment

to the Company, therefore there has been no reversal of previous impairments. Whilst there are strong indications that direct/

indirect subsidiaries will be able to repay most of the debt with the Company, due to the sensitivities around this no reversal of

previous impairments has been made. The Group and Company have the following investments in subsidiaries:

Country ofincorporation

Class of shares held

Ownership2013

Ownership2012

Group and Company

Fat Face World Investments Limited UK Ordinary 100% 100%

Group

Fat Face World Borrowings Limited UK Ordinary 100% 100%

Fat Face Fulham Limited UK A Ordinary 100% 100%

B Ordinary 100% 100%

C Ordinary 100% 100%

D Ordinary 100% 100%

E Ordinary 100% 100%

Deferred 100% 100%

Fat Face Newco1 Limited UK Ordinary 100% 100%

Fat Face Newco2 Limited UK Ordinary 100% 100%

Preference 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%

12. Other Financial Assets and LiabilitiesGroup

2013£000

Group2012

£000

Company2013

£000

Company2012

£000

Current

Fair value of exchange rate hedge 367 646 — —

Fair value of interest rate hedge 1 24 — —

For details on valuation methodology adopted see note 22.


13. Deferred Tax Assets and Liabilities: GroupRecognised deferred tax assets and liabilitiesDeferred tax assets and liabilities are attributable to the following:

Assets2013

£000

Assets2012

£000

Liabilities2013

£000

Liabilities2012

£000

Property, plant and equipment (1,506) (1,622) — —

Intangible assets — — 23,905 25,511

Financial assets — — — —

Accruals (657) (227) — —

Provisions and employee benefits — — — —

Discounted debt — — — —

Financial liabilities — — 84 160

Tax (assets)/liabilities (2,163) (1,849) 23,989 25,671

Net of tax (assets) — — (2,163) (1,849)

Net tax liabilities — — 21,826 23,822

Movement in deferred tax during the period

29 May 2011

£000

Recognisedin income

£000

Recognisedin equity

£000

2 June 2012

£000

Property, plant and equipment (1,332) (290) — (1,622)

Intangible assets 28,254 (2,743) — 25,511

Accruals (193) (34) — (227)

Discounted debt 1,770 (1,770) — —

Financial liabilities 5 — 155 160

28,504 (4,837) 155 23,822

3 June 2012

£000

Recognisedin income

£000

Recognisedin equity

£000

3 June 2013

£000

Property, plant and equipment (1,622) 116 — (1,506)

Intangible assets 25,511 (1,606) — 23,905

Accruals (227) (430) — (657)

Financial liabilities 160 — (76) 84

23,822 (1,920) (76) 21,826

At the balance sheet date, the Group has an unrecognised deferred tax asset of £nil (2012: £nil) arising from losses. The Company

has no deferred tax assets or liabilities.

14. InventoriesGroup

2013£000

Group2012

£000

Company2013

£000

Company2012

£000

Finished goods and goods for resale 16,839 16,059 — —

Cost of inventories recognised as an expense 67,748 68,330 — —

All inventories are expected to be sold within 12 months

Inventory provisions comprise amounts in respect of inventories expected to be sold at less than cost price, together with an

estimate of inventory shrinkage. The value of inventories expected to be sold at less than cost price is determined based on

historic cost, current sales price, together with volumes held. The estimate of inventory shrinkage is calculated based on historic

data of levels of inventory adjustments not recognised through the stock take process.

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15. Trade and Other ReceivablesGroup

2013£000

Group2012

£000

Company2013

£000

Company2012

£000

Amounts due from group companies — — 85,162 68,535

Prepayments 2,542 3,193 91 102

Trade receivables 448 648 — —

Other receivables — 305 1 115

2,990 4,146 85,254 68,752

As at 1 June 2013, £94,000 (2012: £382,000) of the other short term trade receivables balance was overdue. In the month

following the year end over half of the overdue balance was recovered. Receivables of £59,000 (2012: £54,000) have been

provided against at the end of the period.

Of trade receivables, 100% (2012: 100%) are in respect of UK debtors. Trade receivables mostly arise from the Company’s

wholesale operations. No collateral is held against the outstanding amounts and no other amounts are past due except as

disclosed. The maximum credit risk from financial assets is £448,000 (2012: £761,000).

Prepayments relating to expenses incurred in establishing and maintaining the Fat Face Employee Benefit Trust (the EBT) are nil

(2012: £192,000). The EBT is operated as an independent trust, separately from the management structure of the Fat Face group

of companies and it has therefore not been consolidated into these results.

All group receivables are recoverable on demand. In the Company accounts, management has analysed forecast future cash

flows of the Group in determining that group receivables are recoverable. Other receivables are expected to be recovered within

12 months.

16. Cash and Cash EquivalentsGroup

2013£000

Group2012

£000

Company2013

£000

Company2012

£000

Cash and cash equivalents per balance sheet 27,416 22,905 129 111

Cash and cash equivalents per cash flow statements 27,416 22,905 129 111

17. Other Interest-Bearing Loans and BorrowingsThis note provides information about the contractual terms of the Group and Company’s interest-bearing loans and borrowings.

For more information about the Group and Company’s exposure to interest rate and foreign currency risk, see note 22.

Group2013

£000

Group2012

£000

Company2013

£000

Company2012

£000

Non-current liabilities

Shareholder loan notes 16,883 15,350 — —

Related party loan notes 1,148 152 — —

Secured bank loans 135,198 146,254 — —

153,229 161,756 — —

Current liabilities

Current portion of secured bank loans 14,479 16,531 — —

Bank overdrafts — — — —

14,479 16,531 — —


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

Terms and debt repayment schedule

At 2 June 2012 Currency

Nominal interest rateCash paid

Payment in kind

Year of final

maturity

Face value (Group)

£000

Carrying amount(Group)

£000

Facevalue

(Company)£000

Carrying amount

(Company)£000

Senior facility A £ LIBOR+3.0% 3.90% 2014 28,650 31,413 — —

Senior facility B £ LIBOR+3.625% 1.00% 2015 102,125 103,686 — —

Second Lien £ — LIBOR+6.75% 2015 22,500 26,250 — —

Revolving facility £ LIBOR+3.0% 0.50% 2014 1,422 1,436 — —

Related party loan notes

£ — — 2016 152 152 — —

Shareholder loan notes

£ — 10.00% 2016 12,967 15,350 — —

167,816 178,287 — —

Overdraft — — n/a — — — —

167,816 178,287 — —

At 1 June 2013 Currency

Nominal interest rateCash paid

Payment in kind

Year of final

maturity

Face value (Group)

£000

Carrying amount(Group)

£000

Facevalue

(Company)£000

Carrying amount

(Company)£000

Facility A £ LIBOR+3.0% 2.375% 2016 20,030 23,529 — —

Facility B £ LIBOR+4.75% 1.00% 2016 86,786 89,459 — —

Facility B EURO € LIBOR+4.0% 1.00% 2016 7,274 7,504 — —

2nd Lien £ — LIBOR+6.75% 2017 21,600 27,232 — —

2nd Lien EURO € — LIBOR +6.0% 2017 966 1,210 — —

Revolving facility £ LIBOR+2.875% — 2016 704 743 — —

Related party loan notes

£ — — 2017 1,148 1,148 — —

Shareholder loan notes

£ — 10.00% 2016 12,967 16,883 — —

151,475 167,708 — —

Overdraft — — n/a — — — —

151,475 167,708 — —

Following negotiations with its lenders, on 1st October 2012 the Company entered into revised banking facilities. The principal

changes to the facilities were as follows:

• Senior facility A maturity of 31 July 2014 extended to 30 June 2016.

• Senior facility B maturity of 17 May 2015 extended to 31 December 2016.

• Second lien maturity of 17 November 2015 extended to 17 November 2017.

• Revolving facility maturity of 17 May 2015 extended to 30 June 2016.

• Portion of senior facility B and second lien has been redenominated into Euros.

• Senior facility A margin for PIK has decreased by 0.9%.

• Senior facility B margins have increased by 1.125% cash paid and 0.625% PIK.

• Financial covenants have been reset to provide additional headroom.

Upon completion of the revision to the banking facilities, the Group assessed this modification and determined the modification

was substantive. Accordingly the modification was treated as the extinguishment of the old debt, and the issue of new debt.

Therefore brought forward unamortised costs of £1,781,000 were written off in the period and £1,433,350 (2012: £nil) of costs

associated with the issue of debt facilities was capitalised and will be amortised over the life of the associated debt. Of the total

debt costs capitalised to date £596,775 (2012: £1,522,000) was amortised in the period of which £304,667 related to the brought

forward debt and £292,108 related to the new debt.

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

Repayments of £17.9m were made against the Group’s external debt during the year (2012: £8.6m). The Group’s banking facilities

include a £18.2m revolving credit facility from which the capex facility loan above is drawn. Of the remaining £17.5m, Fat Face

Limited, an indirect subsidiary of the Company, has drawn £10m under an Ancillary Facilities agreement. This provides overdraft,

guarantee, and supplier credit facilities for the day-to-day operations of the Group. The Group has paid a non-utilisation fee of 1%

on the remaining £7.5m revolving credit facility plus any unutilised portion of the Ancillary Facilities Agreement.

The Group’s banking facilities are subject to EBITDA, interest and cash cover covenants typical for borrowings of this nature.

All covenants were met comfortably throughout the year.

All of the direct and indirect subsidiaries of the Company are obligors and joint guarantors of the Group’s banking facilities.

The Group has entered into a security document which comprises fixed and floating charges over the Group’s assets, together

with assignments (by way of security) of insurance policies, specified bank accounts and certain specified contracts.

All group term facilities and borrowings are denominated in Sterling, and to a lesser extent Euros. All term facilities and

borrowings are carried at face value net of unamortised acquisition costs plus (where applicable) accumulated unpaid dividends

and interest.

Some of the Group’s subsidiaries (including the principal operating company) have entered into long-standing security

documents in favour of the banking syndicate which comprise fixed and floating charges over each company’s assets, together

with assignments (by way of security) of insurance policies, specified bank accounts and certain specified contracts.

The term loans include £29.6m (2012: £12.0m) of debt held by 101 Investments Nominees No.1 Limited, which is an affiliate of

Bridgepoint, and Hamilton Lane Inc, which is a shareholder of the Group. This debt is on the same terms as that held by other lenders.

The Group has issued loan notes in the year to the sum of £1.0m (2012: £152k) in respect of interest which would otherwise have

been payable to 101 Investments Nominees No.1 Limited, and £39k (2012:£nil) in respect of interest which would otherwise have

been payable to Hamilton Lane inc.

CompanyThe Company incurred no costs associated with the establishment of new debt facilities during the period (2012: nil).

18. Trade and Other PayablesGroup

2013£000

Group2012

£000

Company2013

£000

Company2012

£000

Current

Amounts due to Group companies — — 32,583 25,546

Trade payables 11,864 9,467 — —

Non—trade payables and accrued expenses 11,165 7,460 105 118

Interest payable 823 722 — —

23,852 17,649 32,688 25,664

Accrued expenses includes £100,000 (2012: £100,000) in respect of amounts owed to an ex-director of the Group.

All group payables are payable on demand. Other payables are expected to be paid within 12 months.


19. Employee Benefits

Defined contribution plansThe Group operates a defined contribution pension plan.

The total expense relating to this plan in the current year was £159,000 (2012: £96,000). The total owed by the plan at the end of

the year was £1,000 (2012: £9,000 owed to the plan).

Share-based paymentsSenior management of Fat Face Limited are invited to become shareholders in the ultimate parent. ‘C2’ ordinary shares and

‘C1A’ ordinary shares are offered at a price reflecting the performance and future prospects of the business. An earlier incentive

scheme offered ‘B’ ordinary shares on a similar basis.

The Articles of Association of the ultimate parent (‘the Articles’) define ‘Good Leavers’ and ‘Bad Leavers’, where a ‘Bad Leaver’ is an

employee-shareholder leaving the business because of voluntary resignation or termination in circumstances justifying summary

dismissal. All other employee-shareholders leaving the business are ‘Good Leavers’. On leaving the business, the Articles require

that a Bad Leaver surrenders their ‘B’, ‘C1A’ and ‘C2’ ordinary shares at the lower of fair value and the cost for which the shares

were acquired.

On leaving the business, the Articles require that a Good Leaver sells their ‘B’, ‘C1A’ and ‘C2’ ordinary shares as directed by the

majority investors at a value between cost and fair value calculated by reference to length of service.

It is expected that the shares will be surrendered to other employee-shareholders in the business.

The benefits of share grant are estimated by using an EBITDA multiple applied to the then current estimate for the results of

the Group at the expected time of realisation of the share value as a proxy for an option pricing model. The multiple has been

determined by reference to market values for similar businesses.

Grant dateNumber of

instruments

Charged to income2013

£000

Charged to income2012

£000

Award of ‘B’ ordinary shares granted on 17 May 2007 27,500,000 — —

Award of ‘C2’ ordinary shares granted 15 April 2010 48,936,165 115 —

Award of ‘C2’ ordinary shares granted 28 May 2010 41,010,636 63 —

Award of ‘C2’ ordinary shares granted 4 May 2011 10,638,297 144 144

Award of ‘C2’ ordinary shares granted 28 February 2012 2,765,957 37 37

Award of ‘C1A’ ordinary shares granted 4 January 2013 378,682,631 1,023 —

Award of ‘C1A’ ordinary shares granted 14 January 2013 134,308,765 363 —

Award of ‘C1A’ ordinary shares granted 1 February 2013 50,615,995 136 —

Total expense recognised for the year 1,881 181

For the tranches of C2 shares issued in 2010, the directors of the Group considered that the fair value could not be estimated

reliably. In accordance with IFRS2 the Group adopted the intrinsic value methodology for these shares, whereby the intrinsic

value of this share based payment is re-measured at each reporting date, with changes recognised in profit or loss until the

instrument is settled. All other C2 shares are accounted for as normal equity settled arrangements under IFRS2.

As set out above, the directors consider the charge based on the fair value of the C2 share based payment under this

methodology to be £530,000 per annum (2012: £800,000). SECT

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20. Provisions

Onerous lease Provision £000

Dilapidation Provision £000

Total£000

Balance at 29 May 2011 959 307 1,266

Provisions utilised/released during the year (677) (307) (984)

Provisions created during the year 245 96 341

Balance at 2 June 2012 527 96 623

Balance at 3 June 2012 527 96 623

Provisions utilised/released during the year (104) (96) (200)

Provisions created during the year 1,738 309 2,047

Balance at 1 June 2013 2,161 309 2,470

Current 2,161 309 2,470

The onerous leases provision is made to cover the costs of vacant or sublet properties, where the cost of serving the head lease is

not covered by the sublease income. The dilapidations provision is made to cover the cost of returning properties to the condition

required by the lease on exit and is based on the management’s assessment of the store relocation programme and the current

state of properties in the Group’s portfolio.


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21. Capital and Reserves

Share CapitalIn thousands of shares

Deferredshares

Preferredordinary

sharesC1

sharesC1A

sharesC1B

sharesC2

sharesOrdinary

shares

On issue at 29 May 2010 – fully paid 179,682 15,138 471,063 — — 75,691 100,000

Prepaid shares at 29 May 2010 — — 131,774 — — 14,256 —

Issued for cash — — — — — 10,638 —

Total shares paid up at 28 May 2011 179,682 15,138 602,837 — — 100,585 100,000

Issued for cash — — — — — 2,765 —

Total shares paid up at 2 June 2012 179,682 15,138 602,837 — — 103,350 100,000

Share split — — (602,837) 602,837 602,837 — —

Issued for cash — — — — — — —

Total shares paid up at 1 June 2013 179,682 15,138 — 602,837 602,837 103,350 100,000

2013Authorised

£000

2013 Allotted, called up

and fully paid£000

2012 Authorised, allotted, called

up and fully paid£000

Share capital

A Ordinary shares of £0.01 each 725 725 725

B Ordinary shares of £0.01 each 275 275 275

Deferred shares of £1.00 each 18 18 18

Preferred ordinary shares of £0.01 each 151 151 151

C1 Shares of £0.000047 each — — 28

C1A Shares of £0.000001 each 1 1 —

C1B shares of £0.000046 each 27 27 —

C2 Shares of £0.000047 each 5 5 5

1,202 1,202 1,202

Share premium

Deferred shares 179,664 179,664

Shares classified in equity 180,866 180,866

The holders of A and B ordinary shares and C1B shares are entitled to receive dividends as declared from time to time and are

entitled to one vote per share at meetings of the Company.

The holders of C1A and C2 shares are entitled to receive dividends as declared from time to time but are not entitled to vote at

meetings of the Company.

During the period, the C1 class of shares were split into 2 new share classes, C1A and C1B. At the time of this change, each C1

shareholder was given 1 C1A share and 1 C1B share for each of their C1 shares with no additional cash consideration paid.

During the prior period, the Company issued C2 shares for a total consideration of £130. No additional C2 shares were issued

during this financial period.

Cash flow hedging reserveThe hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging

instruments related to hedged transactions that have not yet occurred – see note 22.


22. Financial Instruments

22(a) Fair values of financial instruments Investments in debt and equity securities

Investments in subsidiary companies are carried at acquisition cost and reviewed for impairment. There has been no impairment

in 2013, as discussed in note 11.

Trade and other receivables Trade and other receivables are carried at recoverable amount, less provisions for any amounts where recovery is doubtful. All

trade and other receivables are expected to be short term and therefore no discounting of value is appropriate.

Trade and other payables

Trade and other payables are carried at the face value payable. All trade and other payables are expected to be short term and

therefore no discounting of future cash flows is appropriate.

Cash and cash equivalents

The fair value of cash and cash equivalents is estimated at its carrying amount.

Interest-bearing borrowings

Fair value which, after initial recognition is determined for disclosure purposes only, is calculated based on the range of values at

which debt is being traded in the secondary market and is shown as a mid-point of that expected range.

Derivative financial instruments The fair value of forward exchange contracts is estimated by reference to the difference between the contractual forward price

and the current forward price for the residual maturity of the contract. The contracts are a level 2 fair value instrument in terms of

the Fair Value hierarchy.

The fair value of the interest rate cap is based on broker quotes. Those quotes are tested for reasonableness by discounting

estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar

instrument at the measurement date. The cap is a level 2 fair value instrument in terms of the Fair Value hierarchy.

The fair values for each class of financial assets and financial liabilities together with their carrying amounts shown in the balance

sheet are as follows:

Group

Carryingamount

2013£000

Fair value2013

£000

Carryingamount

2012£000

Fair value2012

£000

Assets

Financial assets held for hedging 368 368 670 670

Trade and other receivables 2,990 2,990 4,146 4,146

Cash and cash equivalents 27,416 27,416 22,905 22,905

30,774 30,774 27,721 27,721

Liabilities

Financial liabilities at amortised cost (167,708) (125,931) (178,287) (126,596)

Trade and other payables (23,852) (23,852) (17,649) (17,649)

(191,560) (149,783) (195,936) (144,245)

The fair value of the term borrowings was calculated with reference to observable market rates where these have been available.

Company

The Company holds no material balances of this nature other than inter-company balances, which are not subject to a fair value adjustment.

22(b) Credit riskGroup

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its

contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.

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

receivables and makes appropriate allowances where recovery is deemed to be doubtful.

The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the

amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly.

Company

The Company has no material external credit risk.


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22. Financial Instruments (continued)

22(c) Liquidity riskGroup

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The £10m Ancillary Facility

(see note 17), is a working capital facility providing cash facilities for several Group companies and funds the day-to-day overdraft

as and when required.

The Group retains ample headroom in its available working capital with an unutilised facility of £7.5m (2012: £7.5m). In the year

ended 1 June 2013 this facility was not utilised (2012: nil).

The directors believe that the Group will be able to continue to meet its need for liquidity from these facilities. The Group monitors its

headroom daily, forecasts its cash flow on a daily basis for approximately three months ahead and monthly for approximately a year

ahead, and monitors monthly its exposure to banking covenants in order to ensure that there are no unforeseen liquidity problems.

At the period end, the Group had £0.9m (2012: £0.9m) of letters of credit in issue which were not yet payable. These were all

expected to fall due within one year and are not included in the balance sheet liabilities figure.

Company

The Company has no third party debt and therefore no material liquidity risk. Long term liabilities are not expected to fall payable

in the foreseeable future and current liabilities are substantially payable to Group companies.

Liquidity risk – Group The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effect

of netting agreements:

2012 at balance sheet date

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

Secured bank loans 162,785 195,636 20,326 14,632 160,678 —

Shareholder loan notes 15,350 22,474 — — 22,474 —

Related party loan notes 152 1,625 — — 1,625 —

Trade and other payables 17,649 17,649 17,649 — — —

Overdraft — — — — — —

Derivative financial assets

Interest rate cap used for hedging (24) (24) — — (24) —

195,912 237,360 37,975 14,632 184,753 —


Carryingamount

£000

Contractualcash flows

£000

1 yearor less

£000

1 to<2 years

£000

2 to<5 years

£000

5 years and over

£000


Secured bank loans 149,677 185,063 18,947 16,623 149,493 —

Shareholder loan notes 16,883 28,568 — — 28,568 —

Related party loan notes 1,148 7,283 — — 7,283 —

Trade and other payables 23,852 23,852 23,852 — — —

Overdraft — — — — — —

Derivative financial assets

Interest rate cap used for hedging (1) (1) — (1) — —

191,559 244,765 42,799 16,622 185,344 —



22(c) Liquidity Risk (continued)

Liquidity risk –Company


Carrying amount

£000

Contractual cash flows

£000

1 year or less£000

1 to <2 years

£000

2 to <5 years

£000

5 years and over

£000


Trade and other payables 118 118 118 — — —

Accrued expenses 3,108 3,108 — — 3,108 —

3,226 3,226 118 — 3,108 —


Carrying amount

£000

Contractual cash flows

£000

1 year or less

£000

1 to <2 years

£000

2 to <5 years

£000

5 years and over

£000


Trade and other payables 105 105 105 — — —

Accrued expenses 2,508 2,508 — — 2,508 —

2,613 2,613 105 — 2,508 —

22(d) Cash flow hedges – Group Foreign currency risk The Group imports finished goods from overseas, some

of which are settled in US dollars. In accordance with the

Group’s Treasury Policy, the Group manages the risk of

foreign exchange fluctuations through foreign exchange

forward contracts and options.

The total purchase in USD for each season is estimated in

advance. The Group takes a contract allowing the purchase

of that quantity of dollars between a range of dates at a

fixed dollar rate. As US dollar payments are made, dollars

are called down from those contracts to cover the exposure.

Although at the time of purchase, fixed orders have not been

placed for product, the expected payment profile can be

predicted with a high degree of accuracy.

Due to the variability of exchange rates, the Group takes a

succession of smaller dollar contracts to benefit from 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 1 June 2013, the Group had fixed forward cover contracts

in place in respect of $18m expiring by 15 November 2013

with a fair value gain of £345,947. The Group also had options

in place in respect of $2.5m expiring by 15 October 2013 with

a fair value gain of £21,195.

Management have tested the effectiveness of these

hedging relationships and concluded that they meet the

requirements for hedge accounting. The effect of the hedged

exchange rate is released to the profit and loss account as

the purchases are made. No further impact to cash flow is

expected. Some goods are purchased denominated in euros.

However, since the Group also has sales operations in the

euro-zone, further hedging is not required.

Interest rate

In order to manage the risk of interest rate fluctuations, the

Group has in place an interest rate cap covering approximately

66% of the Group’s term facilities (2012: 71%). The settlement

dates for the interest rate cap coincide with the expected

maturity dates for the Group’s term debts (substantially every

month) and consequently the hedge is effective. The current

rate caps LIBOR at 5% and remaining at this rate through to

the maturity date of the cap.

Fair value is determined by obtaining a market price

valuation from the relevant broker.

Principal Value Capped LIBOR Fair value

£99,451,000 5.0% £748

This contract has been tested and proved to be effective and

therefore meets the requirements for hedge accounting.

The effect of the hedged interest rate is released to the profit

and loss account as interest costs are incurred. Cash flow is

affected on each settlement date.


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22(e) Market RiskMarket risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the

Company’s income or the value of its holdings of financial instruments.

Group The Group uses interest rate and forward exchange hedges to manage its exposure to changes in these market values as

discussed above.

Aside from changes that are reflected in those variables, the Group has only limited exposure to changes in raw material prices

since these represent a relatively small part of the business’s costs. UK labour costs tend to follow UK inflation rates and can

therefore be reflected in selling prices and overseas labour costs to be relatively inflexible to the extent that they are passed on

to UK distributors.

Fat Face monitors its pricing proposition against major competitors.

Company As explained in note 17, the Company has a liability to pay an exit fee to the senior facility A debt holders on the sale or flotation of

the Group. This fee will be based on the equity value of the business at that time after the satisfaction of all preferential claims and

will therefore reflect the expected improvements in the Group’s results over the medium term.

An exit resulting in the payment of an exit fee is not expected in the near term. The directors have determined that the fair value of

this fee measured through the income statement is currently £2,507,620 (2012: £3,107,620). This is re-measured on an annual basis.

Market risk – Foreign currency riskGroup

The Group’s exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial

instruments except derivatives when it is based on notional amounts.

Sterling£000

Euro£000

US Dollar£000

Other£000

Total£000

Cash and cash equivalents 22,035 2,784 2,579 18 27,416

Short term receivables 448 — — — 448

Secured bank loans (140,963) (8,714) — — (149,677)

Trade payables (9,346) (129) (2,389) — (11,864)

Forward exchange contracts (13,166) — 13,533 — 367

Balance sheet exposure (6,059) 13,723 18

Estimated forecast sales* 4,209 — —

Estimated forecast purchase* (1,957) (36,042) —

Net exposure (3,807) (22,319) 18

* Next twelve months; approximates to two trading seasons.

Sensitivity analysis

In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Company and Group’s earnings.

The impact of a movement of 100 basis points in exchange rates has been quantified and is not a material amount. Over the longer-

term, however, permanent changes in foreign exchange would have an impact on consolidated earnings. This impact would be

mitigated by many factors both internal and external, making it impossible to estimate the final size of that impact reliably.



22(e) Market Risk (continued)

Market risk – interest rate riskProfile At the balance sheet date the interest rate profile of the Group’s interest-bearing financial instruments was as described in note 17.

Sensitivity analysis A change of 100 basis points in interest rates applied to the Group’s borrowings as at the balance sheet date would increase or

decrease profit or loss for a full year by £1.1m (2012: £0.1m). The Group’s interest rate hedge is expected to be fully effective, and

therefore there should be no additional impact on equity.

22(f) Capital ManagementThe directors of the Company manage working capital in order to facilitate the ongoing trade and expansion of the Group.

In determining sources of capital the directors consider with regard to the best interests of shareholders the availability of

capital, the cost of capital instruments, including the likely tax impact, and market conditions at the time.

23. Operating Leases

GroupNon-cancellable operating lease rentals are payable as follows:

Land and building

leases 2013£000

Other leases

2013£000

Land and building

leases 2012£000

Other leases

2012£000

Less than one year 19,589 101 18,177 130

Between one and five years 65,749 132 62,414 219

More than five years 43,844 — 46,408 —

129,182 233 126,999 349

The Group leases store and warehouse locations under operating leases. The Group also has operating leases in respect of its

vehicles and some items of plant and equipment.

Company The Company has no operating leases.

24. Capital Commitments

GroupAt 1 June 2013, the Company had entered into contracts to open new stores and develop the Group’s IT infrastructure, which will

require estimated capital expenditure of £2,308,486 (2012: £1,375,516).

CompanyThe Company has no capital commitments at the balance sheet date


25. Related Parties

During the period the Group incurred an annual management charge of £100,000 to Bridgepoint Advisers Limited (2012: £100,000).

Transactions with key management personnel Directors of the Company control, or have held in trust on their behalf, 6.8% (2012: 6.6%) of the voting shares of Fat Face Group Limited.

The compensation of key management personnel (the directors) is as disclosed in note 6.

26. Ultimate Parent Company and Parent Company of Larger Group

The Company is the ultimate parent company of the Fat Face Group of Companies incorporated in England. The ultimate

controlling party is the Bridgepoint Europe III Fund managed by Bridgepoint Advisers Limited which holds 77% of the ordinary

share capital of the Company and controls syndicated holdings of a further 12%.

No other group financial statements include the results of the Company.

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FATFACE.COM


Fat Face Group Limited Unit 3 Ridgway, Havant, Hampshire PO9 1QJ

t: 02392 441 100 / e: [email protected] / w: fatface.com


fat face group limited€¦ · fat face is a uk based retailer, specialising in the design and sale...

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