Wednesday 21 March 2018

French Connection raises hope of return to profit as takeover interest revealed

French Connection revealed it received an unwanted takeover approach last year (Nick Ansell/PA)
French Connection revealed it received an unwanted takeover approach last year (Nick Ansell/PA)

Holly Williams

Fashion chain French Connection has revealed it received an unwanted takeover approach last year as it insisted it was "very close" to returning to profit after six years in the red.

The firm said the unsolicited approach came from an unnamed US suitor and led to months of talks, although no formal offer was made.

French Connection said: "In the interest of all shareholders, we entered a period of full due diligence and negotiation over a number of months.

"This ultimately did not lead to an offer for the group."

The takeover tilt - made in the middle of last year - was made public as French Connection reported fees in connection with the approach in full year results showing sharply narrowed losses.

It is understood that while no offer was made, the approach was seen as credible at the time.

Shares surged as much as 19pc at one stage on the bid revelation and as French Connection said it was on the brink of finally returning to profit.

The fashion chain saw annual pre-tax losses nearly halve to £2.3 million from £5.3 million the previous year as it axed loss-making stores and overhauled ranges.

On an underlying basis, its operating losses narrowed to just £600,000, down from £3.7 million the previous year.

Retail like-for-like sales grew 0.8pc over the year to January 31 in a "particularly challenging" UK retail market - a marked slowdown on the 4.4% rise seen the previous year.

An 8.6pc surge in wholesale revenues helped boost overall group sales, up 0.5pc to £154 million.

French Connection said there was unlikely to be any let-up in the tough trading hammering British retailers, but put faith in its ongoing turnaround plans and store overhaul to help it weather the storm.

Chairman and chief executive Stephen Marks said: "Our goal has been to return the group to profitability and I believe we are very close to achieving that aim, given the momentum that we are currently seeing within the business.

"While it is clear that the retail market in which we are operating in the UK is unlikely to improve in the near future, we have clear visibility on the benefits we will obtain from the ongoing portfolio rationalisation."

French Connection closed 11 stores and concessions over the last financial year and said it would continue to axe unprofitable sites, with an ultimate aim to have around 30 full-price stores by the end of next January.

This is down from 65 full-price stores in 2013 and around 36 currently.

Overall, the group has 116 stores and concessions and a further 212 franchised outlets.

However, it opened its first new store in years in Manchester last November.

Mr Marks, who launched the business 44 years ago and holds a 41pc stake, has been leading an overhaul to revive French Connection's fortunes after it struggled to compete with fast-fashion brands such as ASOS and Zara.

Last year it came under heavy fire from activist investors calling for a break-up of the company and for Mr Marks to give up his double role as chairman and chief executive.

Sports Direct founder Mike Ashley bought out the activist investors, raising his stake to 27pc last summer, just below the level required to trigger a takeover bid.

Analysts at Numis Security said the group's recovery was "increasingly visible".

Press Association

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