Triumph Bancorp Inc
Annual Report 2012

Plain-text annual report

TED’S PASSPORT TO SUCCESS UNITED NATIONS OF TED REPORT & ACCOUNTS 2011/12 Inside Front Cover - Blank This passport contains 80 pages passport united nations of ted Name of bearer ted baker esq National status british - born & bred Place of birth london Height 6ft in my socks Distinguishing marks stylish menswear, womenswear and accessories… and much more besides No. of Stores/Concessions 275 and counting Usual signature of bearer visas Contents Directors’ Report: Overview Chairman’s Statement ............................................................................................................................................................................... 05 Business Review ........................................................................................................................................................................................ 07 Financial Review ....................................................................................................................................................................................... 10 Principal Risks and Uncertainties ........................................................................................................................................................... 12 Directors’ Report: Governance Corporate Governance Statements Corporate Governance Statements ......................................................................................................................................................... 17 Sustainability and Th e Environment Sustainability and Th e Environment ...................................................................................................................................................... 21 People ......................................................................................................................................................................................................... 23 Directors’ Report: Other Statutory Disclosures Board of Directors .................................................................................................................................................................................... 27 Directors’ Remuneration Report ............................................................................................................................................................. 28 Other Disclosures ..................................................................................................................................................................................... 34 Statement of Directors’ Responsibilities ................................................................................................................................................. 37 Independent Auditors’ Report to the Members of Ted Baker PLC ..................................................................................................... 38 Financial Statements Group and Company Primary Financial Statements ............................................................................................................................ 43 Notes to the Financial Statements ........................................................................................................................................................... 49 Five Year Summary ................................................................................................................................................................................... 78 Ted’s advisers Registered Offi ce: Secretary: Th e Ugly Brown Building, 6a St. Pancras Way, London NW1 OTB Charles Anderson ACMA Financial Advisers and Stockbrokers: Espirito Santo Investment Bank, 10 Paternoster Square, London, EC4M 7AL Solicitors: Auditors: Bankers: Jones Day, 21 Tudor Street, London EC4Y ODJ KPMG Audit Plc, 15 Canada Square, Canary Wharf, E14 5GL Barclays Bank PLC, 1 Churchill Place, London, E14 5HP Th e Royal Bank of Scotland PLC, 62-63 Th readneedle Street, London, EC2R 8LA Registrars: Capita Registrars, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Ted Baker PLC - Registered in England No: 03393836 Ted Baker Report and Accounts 2011 / 2012 visas Director s r eport: ove rvi ew 05 Chairman’s Statement Th e Group has delivered an excellent result against a challenging back drop. Th is strong performance resulted in a 14.9% increase in Group revenue to £215.6m (2011: £187.7m) and an 11.7% increase to £27.1m in profi t before tax and exceptional costs. Th e retail division performed well across all markets and delivered an increase in revenue of 14.1% to £174.2m, on an increase in average square footage of 6.6%. Gross margins were broadly maintained at 65.2% (2011: 65.5%). Wholesale sales for the Group increased by 18.5% to £41.4m (2011: £35.0m). Th is refl ected a good performance from our UK wholesale business, which also includes the results of our UK export business, and the continued growth of our US wholesale business, which contributed its fi rst full year of trading under our own management. Licence income from our territorial and product licences increased by 8.1% to £6.7m (2011: £6.2m). Results Group revenue for the 52 weeks ended 28 January 2012 rose by 14.9% to £215.6m (2011: £187.7m). Th e composite gross margin has decreased slightly to 61.3% (2011: 61.7%), refl ecting a change in mix between retail and wholesale sales whilst input margins were largely maintained. Profi t before tax and exceptional costs increased by 11.7% to £27.1m (2011: £24.2m) and profi t before tax was slightly above the prior year at £24.3m (2011: £24.2m). anticipation of the planned expansion of the Group in the coming year. Dividends Th e Board is recommending a fi nal dividend of 16.25p per share, making a total for the year of 23.4p per share (2011: 20.6p per share), an increase of 13.6% on the prior year. Subject to approval, the fi nal dividend will be paid on 15 June 2012 to shareholders on the register on 11 May 2012. People I would like to take this opportunity to thank all of my colleagues around the world. Th is strong performance is testament to the dedication and commitment of the Ted Baker team. Th eir passion and enthusiasm are key factors in the success and continuing development of our brand. Current Trading and Outlook Th e Ted Baker brand continues to perform well in an uncertain trading environment. We are pleased by the initial positive reaction to our Spring/Summer collections and believe that we are well placed to deal with the challenges and opportunities ahead. We are excited by our planned expansion and investment in our businesses overseas, which include openings on Fift h Avenue, New York, Toronto, Canada, Tokyo, Japan, Seoul, Korea and Beijing, China. Adjusted basic earnings per share excluding exceptional costs increased by 17.8% to 48.9p (2011: 41.5p) and basic earnings per share increased by 1.7% to 42.2p (2011: 41.5p). Retail Th e new fi nancial year has started well in all our markets. Exceptional costs incurred during the year of £2.8m (2011: nil) are in respect of rent for stores that will not commence trading until 2012, set up costs in relation to our expansion into China and a provision for bad and doubtful debts in respect of our exposure in Greece. In the US, we have opened a further eight concessions in a leading department store and plan to open a further eleven concessions during the year. We will be opening a store on Fift h Avenue, New York in July. We will be opening our fi rst store in Toronto, Canada in November. Th e Group’s net cash position at the end of the year was £1.8m (2011: £13.5m). Th e reduction in cash was due to our investment in inventory and capital expenditure in In Europe, we have opened three concessions through a leading department store in the Netherlands and we will be opening further concessions in Eire and Spain during the year. Ted Baker Report and Accounts 2011 / 2012 06 Directors rep ort: o ve rvi ew Chairman’s Statement continued In the UK, we will be opening a store on the Brompton Road, London in the middle of the year. We plan to open stores in Kuala Lumpur and Abu Dhabi during the coming year with our licence partners in those territories. In Asia, we have very recently opened a store in Tokyo, Japan and our first concession through a leading department store in Seoul, Korea. We will be opening a store in Beijing, China in the middle of the year and we continue to seek opportunities for further stores in Hong Kong. Wholesale Trading in our wholesale business has started well and in line with our expectations. We anticipate further growth in our US wholesale business and export business in the coming year, with sales from our UK wholesale business broadly level on last year given the challenging environment faced by our Trustees. This should result in single digit growth in our wholesale business in the coming year. Licence Income Our product and territorial licences continue to perform well and are in line with expectations. Group The Ted Baker brand continues to perform well in an uncertain trading environment and we believe we are well placed to deal with the challenges and opportunities ahead. We continue to ensure that our costs and commitments are controlled and in line with trends anticipated for 2012. We remain focused on our multi-channel distribution strategy and look forward to the further expansion of the Ted Baker brand in existing and new international markets. We intend to make our next interim management statement, covering trading since the start of the financial year, on 12 June 2012. Robert Breare Non-Executive Chairman 21 March 2012 Ted Baker Report and Accounts 2011 / 2012 Director s report: o ve rvi ew 07 Business Review Ted Baker is a leading designer brand that operates through three main distribution channels: retail; wholesale; and licensing. We offer a wide range of collections including: Menswear; Womenswear; Global; Phormal; Endurance; Born by Ted Baker; Accessories; Lingerie and Sleepwear; Childrenswear; Fragrance and Skinwear; Footwear; Neckwear; Eyewear; and Watches. Our Business The brand has grown steadily from its origins as a single shirt specialist store in Glasgow to the global business it is today. We distribute through our own and licensed retail outlets, leading department stores and selected independent stores in Europe, the US, the Middle East, Asia and Australasia. Our strategy is to become a leading global designer brand, based on three main elements: • considered expansion of the Ted Baker collections. We review our collections continually to ensure we react to trends and meet our customers’ expectations. In addition, we look for opportunities to extend the breadth of collections and enhance our offer; • controlled distribution through three main channels: retail; wholesale; and licensing. We consider each new opportunity to ensure it is right for the brand and will deliver margin led growth; and • carefully managed development of overseas markets. We continue to manage growth in existing territories while considering new territories for expansion. Underlying our strategy is an emphasis on design, product quality and attention to detail, which is delivered by the passion, commitment and dedication of our teams, licence partners and wholesale customers (“trustees”). Global Group Performance UK, primarily serving the UK and Europe, with a separate site dedicated to the Americas and an e-commerce business with some of our concession partners. The retail division delivered a strong performance with sales up 14.1% to £174.2m (2011: £152.7m). Average retail square footage rose by 6.6% over the year to 240,815 sq ft (2011: 225,828 sq ft). Total retail square footage at 28 January 2012 was 253,635 sq ft (2011: 229,026 sq ft), an increase of 10.7% on the prior year. Retail sales per square foot rose 5.7% from £648 to £685. Sales through our e-commerce business increased by 42.2% to £9.1m (2011: £6.4m). During the period we launched a “Click and Collect” service in the UK and were pleased with the response from our customers. The retail gross margin fell slightly to 65.2% (2011: 65.5%). Input margins have been largely maintained and the slight reduction in the gross margin was as a result of increased promotional activity in the first half of the year and a slight change in mix between full price and outlet sales. Retail operating costs increased in line with our expectations to £81.2m (2011: £72.6m) and as a percentage of retail sales fell to 46.6% (2011: 47.6%), primarily driven by our more established markets, the UK and the US. This combined with the slight reduction in the retail gross margin resulted in an increase in retail operating contribution of 18.5% (2011: 18.0%). Retail We operate stores and concessions across the UK, Europe, the US and Hong Kong, an e-commerce business based in the Wholesale We currently operate a wholesale business in the UK serving 15 countries across Europe and a wholesale business in the US. Ted Baker Report and Accounts 2011 / 2012 08 Directors rep ort: o ve rvi ew Business Review continued Group wholesale sales increased by 18.5% to £41.4m (2011: £35.0m) and the gross margin increased to 45.1% (2011: 44.8%). The increase in sales predominantly reflects a good performance from our UK wholesale business and continuing growth in both our wholesale export business and our US wholesale business, which contributed its first full year of trading under our own management. Licence Income We operate both territorial and product licences. Our territorial licences cover the Middle East, Asia and Australasia, through which we operate licenced retail stores and, in some territories, wholesale operations. Our product licences cover lingerie & sleepwear, perfume & fragrance, watches, footwear, eyewear, neckwear and childrenswear. Licence income was up 8.1% to £6.7m (2011: £6.2m). We have seen good performances from our collections with product licence partner Debenhams, with whom we have an exclusive childrenswear collection and, B by Ted Baker, an exclusive lingerie and sleepwear collection, and our licensed footwear partner, Pentland Group. Our licensed stores in the Middle East and Asia performed well during the period. Collections Ted Baker Womenswear delivered a strong performance with sales up 20.0% to £107.4m (2011: £89.5m). Womenswear benefited from a greater proportion of the space added during the period and as a result represented 49.8% of total sales (2011: 47.7%). Ted Baker Menswear performed well with sales increasing by 10.2% to £108.3m (2011: £98.2m). Menswear represented 50.2% of total sales in the period (2011: 52.3%). Ted Baker Report and Accounts 2011 / 2012 Director s report: o ve rvi ew 09 GEOGRAPHIC PERFORMANCE United Kingdom and Europe Sales in our UK and Europe retail division were up 8.7% to £148.6m (2011: £136.7m). This good performance was delivered despite a subdued start to retail trading at the start of the year and the unseasonably warm weather experienced in the Autumn. Average retail square footage rose by 2.8% over the period to 193,389 sq ft (2011: 188,035 sq ft). At 28 January 2012 total retail square footage was 201,223 sq ft (2011: 187,043 sq ft) representing an increase of 7.6%. Retail sales per square foot increased by 4.2% from £694 to £723. During the year we opened a store in Manchester, a second store in Paris, fourteen concessions through a leading department store in Spain and Portugal and a further concession in Dublin and we were pleased with their performances during the period. During the second half of the year we relocated our stores in the Bluewater shopping centre and Bicester Outlet Village to larger units and these have performed well. As part of an ongoing review of our store portfolio we disposed of our Langley Court and Westbourne Grove, London stores, whilst our store in the South Terminal of Gatwick was closed as a result of redevelopment plans for the terminal building. During the year we took the decision to close our concessions in Italy. At 28 January 2012 we operated 33 stores (2011: 33), 169 concessions (2011: 165) and 10 outlet stores (2011: 10). Our e-commerce business performed well during the period with a significant increase in sales compared to last year. Sales from our UK wholesale division increased by 15.6% to £35.5m (2011: £30.7m) reflecting a good performance from our UK wholesale business and continued growth in our wholesale export business. US Sales from our US retail division increased by 69.4% to $34.9m (2011: $20.6m) which, in sterling, resulted in a 62.7% increase to £21.8m (2011: £13.4m). During the year we opened eleven concessions through a leading department store and are very pleased with their performance. Towards the end of the year we opened a further store in San Diego and an outlet store in Wrentham, near Boston, and are pleased with their performances at this early stage. Average square footage rose by 24.4% to 42,761 sq ft (2011: 34,368 sq ft) and retail sales per square foot increased 35.1% from $595 to $804. This partly reflects an improvement in consumer confidence in this market and partly due to higher sales densities in the concessions opened during the year. As at 28 January 2012 we had 14 stores (2011: 13), 11 concessions (2011: nil) and 3 outlet stores (2011: 2). Sales from our US wholesale business increased by 45.5% to $9.6m (2011: $6.6m) reflecting the first full year of trading and an improved performance under our own management. Middle East, Asia and Australasia We continue to develop the Ted Baker brand across the Middle East, Asia and Australasia working closely with our partners in those territories to ensure the visual merchandising of the stores and the training of the teams reflect the Ted Baker culture. As at 28 January 2012 we operated a total of 26 stores (2011: 23 stores) across these territories. Our licensed stores across the Middle East performed particularly well during the period and as a result our partners are seeking further opportunities to expand in the region. As at 28 January 2012 we operated 7 stores across the Middle East (2011: 7 stores). During the year we opened a further store in Hong Kong and, with our licence partner in the territory, a concession in Singapore. As at 28 January 2012 we operated 15 stores across Asia (2011: 13 stores). In August, we opened our first store in Auckland, New Zealand through a joint venture with our licence partner in that territory, Flair Industries Pty Ltd, and we are pleased with its performance. As at 28 January 2012 we operated 4 stores in Australasia (2011: 3 stores). Ted Baker Report and Accounts 2011 / 2012 10 Directors rep ort: o ve rvi ew Financial Review Revenue and Gross Margin Group revenue increased by 14.9% to £215.6m (2011: £187.7m), driven by a 14.1% increase in retail sales to £174.2m (2011: £152.7m) and an 18.5% increase in wholesale sales to £41.4m (2011: £35.0m). The composite gross margin for the Group was 61.3% (2011: 61.7%). Whilst input margins were broadly maintained, this net reduction reflects a higher level of promotional activity in our retail markets in the first half of the year, a change in mix between retail and wholesale sales, with wholesale representing a greater proportion of our sales mix than in the comparative period, and a change in mix between full price and outlet sales. Operating Expenses Pre-Exceptional Costs Operating expenses rose by 14.3% to £112.0m (2011: £97.9m). Excluding the employee performance related bonus of £3.1m (2011: £2.4m), operating expenses rose by 14.0%. Distribution costs increased in line with our expectations to £82.4m (2011: £73.7m) and as a percentage of sales fell to 38.2% (2011: 39.3%), this was primarily driven by our more mature markets, the UK and the US. Administration expenses increased by 22.2% to £29.6m (2011: £24.3m). Excluding the employee performance related bonus, administrative expenses rose by 21.4%, reflecting growth in the US team to support the growth in our retail and wholesale businesses, growth in other central functions and the continued development of our distribution and information technology infrastructures to support our expansion into international markets. The Group has a net impairment credit of £0.4m (2011: nil). This was the result of the write-back of a previous impairment loss in relation to the carrying value of retail assets in Eire (£0.8m), offset by impairment losses in respect of the carrying value of other retail assets (£0.4m). Exceptional costs The exceptional costs, which include both distribution costs and administration expenses, incurred during the year of £2.8m (2011: nil) are in respect of rent for stores that will not commence trading until 2012, set up costs in relation to our expansion into China and a provision for bad and doubtful debts in respect of our exposure in Greece. Profit Before Tax Profit before tax and exceptional costs increased 11.7% to £27.1m (2011: £24.2m) and profit before tax increased by 0.1% to £24.3m (2011: £24.2m). This result was after the payment of an employee performance related bonus of £3.1m (2011: £2.4m), Bonus payments in both years were the result of exceeding internal targets in the financial year. Finance Income and Expenses Net interest payable during the year was £201,000 (2011: £30,000). This increase reflects higher Group borrowing compared to the prior year. The foreign exchange gain during the year of £38,000 (2011: loss of £48,000) was due to the retranslation of monetary assets and liabilities denominated in foreign currencies. Taxation The Group tax charge for the year was £6.7m (2011: £6.9m), an effective tax rate of 27.6% (2011: 28.7%). This reduction reflects the fall in the UK corporation tax rate from 1 April 2011.  The Budget on 23 March 2011 announced that the UK corporation tax rate will fall from 28.0% to 23.0% over a four year period. We expect to see a future reduction in our effective tax rate in line with these changes although the rate will be impacted where future profits arise in overseas jurisdictions with higher tax rates than the UK. Cash Flow Net cash generated from operating activities was £11.5m (2011: £18.1m). The decrease on the prior year is principally due to an increase in working capital. Total working capital as per the Group balance sheet, which comprises inventories, trade and other receivables and trade and other payables increased by £12.3m to £47.2m (2011: £34.9m). The increase in inventories was in respect of the anticipated growth of the business and a continued recent trend in respect of our Spring / Summer collections being receipted into the business earlier. This, combined with the timing of the Chinese New Year, which fell before the end of the Group’s financial year, resulted in earlier payment for inventory than the prior year. Capital expenditure of £15.0m (2011: £10.0m) reflected the opening and refurbishment of stores, concessions and outlets and the continued investment in the infrastructure Ted Baker Report and Accounts 2011 / 2012 Director s report: o ve rvi ew 11 of the business. Included within this figure is £3.7m (2011: £1.0m) of expenditure which relates to stores that are due to open in 2012. Proceeds from the sale of property, plant and equipment of £0.5m (2011: nil) relates to payments received on the disposal of our Langley Court and Westbourne Grove, London stores. Borrowing Facilities The Group has a three year committed borrowing facility of £40.0m (2011: £20.0m), which is due to expire on 1 March 2015. The facility is a multi-currency revolving credit facility with The Royal Bank of Scotland and Barclays. The facility will be used to the extent necessary to fund capital expenditure to support the Group’s growth strategy. Shareholder Return Basic earnings per share increased by 1.7% to 42.2p (2011: 41.5p). Adjusted earnings per share, which exclude exceptional costs of £2.8m, increased by 17.8% to 48.9p (2011: 41.5p). The facilities contain financial covenants which are believed to be appropriate in the current economic climate and tested on a quarterly basis. The Group monitors actual and prospective compliance with these on a regular basis. The proposed final dividend of 16.25p per share will make a total for the year of 23.4p per share (2011: 20.6p per share), an increase of 13.6% on the previous year. Free cash flow per share, which is calculated using the net cash generated from operating activities, was 26.7p (2011: 41.8p), this reduction was due to the increase in working capital. Currency Management The most significant exposure to foreign exchange fluctuation relates to purchases made in foreign currencies, principally the US Dollar and the Euro. A proportion of the Group’s purchases are hedged in accordance with the Group’s risk management policy, typically 12 months in advance. The balance of purchases is hedged naturally as the business operates internationally and income is generated in the local currencies. At the balance sheet date, the Group had hedged its projected commitments in respect of the year ending January 2013. Cautionary statement regarding forward-looking statements This document contains certain forward-looking statements. These forward-looking statements include matters that are not historical facts or are statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies, and the industries in which the Company operates. Forward-looking statements are based on the information available to the directors at the time of preparation of this document, and will not be updated during the year. The directors can give no assurance that these expectations will prove to be correct. Due to inherent uncertainties, including both economic and business risk factors underlying such forward-looking information, actual results may differ materially from those expressed or implied by these forward-looking statements. Ted Baker Report and Accounts 2011 / 2012 12 Directors rep ort: o ve rvi ew Principal Risks and Uncertainties The Board recognises there are a number of risks and uncertainties that face the Group. The Board, with the help of the chief executive, the finance director and subsidiary directors (the “Executive Committee”), has established a structured approach to identify, assess and manage these risks and this is regularly monitored and updated by the Risk Committee. Although not exhaustive, the following list highlights some of the principal risks which are not shown in order of importance: Issue Potential impact Mitigation Strategic Risks External events External events may occur which may affect the global, economic and financial environment in which we operate. These events can affect our suppliers, customers and partners, risking an increase in our cost base and adversely affecting our revenue Brand and reputational risk The strength of our brand and its reputation are important to the business. There is a risk that our brand may be undermined or damaged by our actions or those of our partners Fashion and Design As with all fashion brands there is a risk that our offer will not satisfy the needs of our customers Operational Risks Supply chain If garments do not reach us on time and to specification, there is a risk of a loss of revenue and customer confidence All factors affecting these stakeholders are monitored closely on an ongoing basis ensuring that we are prepared for and can react to changes in the external environment, allowing us to reduce our exposure as early as possible. The spread of our business and supply chain also helps to mitigate these risks We carefully consider each new opportunity and each wholesale customer and partner with whom we do business. These are monitored on an ongoing basis to ensure they remain appropriate to the brand The Group maintains a high level of market awareness and an understanding of consumer trends and fashion to ensure that we remain able to respond to changes in consumer preference Our supply chain is diversified across a number of suppliers in different regions, reducing reliance on a small number of key suppliers. Suppliers are treated as key business partners and we work closely with them to mitigate these risks Operating costs are monitored regularly to ensure that any cost pressures are quickly identified and appropriate action is taken We may face increases in our operating costs due to growth in raw material, labour, property and other costs, some of which are outside the scope of our control There is a risk of operational problems, including disruption to the infrastructure that supports our business, which may lead to a loss of revenue, data and inventory The business continuity plan is constantly reviewed and updated by the Risk Committee. In addition, business disruption is covered by our insurance policies We are committed to operating in a responsible and sustainable manner as regards our supply chain, environment and community. If we fail to operate in a manner that supports our philosophy, this could damage the trust and confidence of our stakeholders Four members of the Executive Committee have been tasked with overseeing specific areas of our social responsibility agenda. The Group has an employee whose sole responsibility is to monitor this agenda and ensure our practices fall in line with it Cost inflation Infrastructure Social Responsibility Ted Baker Report and Accounts 2011 / 2012 Director s report: o ve rvi ew 13 Issue Potential impact Mitigation Operational Risks - (continued) IT security People Advances in technology have resulted in more data being transmitted electronically, posing an increased security risk. There is also the possibility of unintentional loss of controlled data by authorised users The Group’s performance is linked to the performance of our people and, in particular, to the leadership of key individuals. The loss of a key individual whether at management level or within a specialist skill set could have a detrimental effect on our operations and, in some cases, the creative vision for the brand Regulatory and legal framework The Group operates within many markets globally and is subject to regulations affecting its activities Financial Risks Currency, interest, credit and counterparty credit risks In the course of its operations, the Group is exposed to these financial risks which if they were to arise may have material financial impacts of the Group Commitment of additional specialist resources and the continual upgrading of security equipment and software mitigate these risks Retention of key talent is important and we take active steps to provide stability and security to the key team. We carry out an annual benchmarking review to ensure that we provide competitive remuneration and total reward packages. We also utilise long-term incentive schemes to retain key talent. Employee engagement through our culture and environment strengthen the commitment of team members and has a positive impact on our attrition rate The Group closely monitors changes in the legal and regulatory framework within the markets in which it operates. We work closely with specialists in each market to ensure compliance with local laws and regulations The Group’s policies for dealing with these risks are discussed in detail in note 22 on pages 70-77 Ted Baker Report and Accounts 2011 / 2012 Cut a fine figure Ted’s always prided himself on tailoring everything he does to meet the specific needs of his beloved customer, wherever they are in the world. He may have taken several leaps of faith along the way, but Ted’s always trusted his wit and instincts and landed on his feet, wherever he goes… Today, Ted Baker – renowned for its quality, wit and unswerving attention to detail – has become a truly global brand. visas  Director s ’ rep ort: Governa nc e 17 Corporate Governance Statements Statement of compliance with the Code Th e Board considers that the Company has complied throughout the year with all of the provisions of the UK Corporate Governance Code (the “Code”). Statement about applying the Main Principles of the Code Th e Company has applied the Main Principles set out in the Code. Further explanation of how the principles have been applied is set out below and, in connection with directors’ remuneration, in the Directors’ Remuneration Report on pages 28 to 33. Th e Board Th e Board currently comprises a non-executive chairman, a chief executive, one other executive director and three independent non-executive directors. Biographies of these directors appear on page 27. Th e Board comprises an appropriate balance of skills, experience, independence and knowledge, which enables it to discharge its responsibilities eff ectively. David Bernstein has held the position of non-executive director since 2003 and has been confi rmed by the Board as the Company’s senior independent director, notwithstanding the length of Mr Bernstein’s tenure, the Board considers that he continues to be independent in character and judgment. Mr Stewart and Mrs Sheinfi eld, also non-executive directors, are considered by the Board to be independent of management and free of any relationship that could materially interfere with the exercise of their independent judgement. Th e Board meets regularly throughout the year. It considers all issues relating to the strategy, direction and future development of the Group. Th e Board has a schedule of matters reserved to it for decision that is regularly updated. Th e requirement for Board approval on these matters is understood and communicated widely throughout the Group. Th e non-executive directors meet with the chairman separately during the year. In addition the non-executive directors meet without the chairman present to appraise the chairman’s performance. Operational decision making, operational performance and the formulation of strategic proposals to the Board are controlled by the Executive Committee. Th e Executive Committee meets regularly throughout the year. To enable the Board to function eff ectively and the directors to discharge their responsibilities, full and timely access is provided to all relevant information. Th ere is an agreed procedure for directors to take independent professional advice, if necessary, at the Company’s expense. Th is is in addition to the access every director has to the Company Secretary. Th e Company maintains an appropriate level of director and offi cer liability insurance cover in place and, through the Articles of Association and director’s terms of appointment, has agreed to indemnify the Directors against certain liabilities to third parties and costs and expenses incurred as a result of holding offi ce as a Director. Save for such indemnity provisions in the Company’s Articles of Association and in the Directors’ terms of appointment, there are no qualifying third party indemnity provisions in force. Board and committee attendance Th e table below details the number of Board and committee meetings held during the 52 weeks ended 28 January 2012 and the attendance record of each director. Number of meetings held Robert Breare David A Bernstein Ronald Stewart Anne Sheinfi eld Raymond S Kelvin Lindsay D Page Lindsay D Page Board meetings Audit committee Remuneration committee Nomination committee 10 10 10 10 9 9 10 4 4 4 4 - - - 2 2 2 2 - - - - - - - - - - Ted Baker Report and Accounts 2011 / 2012 18 Directo rs ’ rep ort: Gover na nc e Corporate Governance Statements continued Audit Committee During the year, Ronald Stewart was chairman of the Audit Committee (the "Committee"). The other committee members were Robert Breare and David Bernstein. In compliance with provision C.3.1. of the Code, as applicable to the Company, the Chairman, Robert Breare, who was considered independent on appointment, is a member of, but does not chair, the Committee. The Committee considered its composition during the year and is satisfied that it continues to be independent and its members have a range of skills, knowledge and experience. The Board considers all members to have recent and relevant financial experience. During the year the Committee undertook a formal evaluation of its own performance. Committee members were asked to independently complete a checklist designed to evaluate the Committee’s performance and highlight areas of improvement in line with best practice. Results from this evaluation were compiled by the Company Secretary and a report outlining the findings will be presented to the Committee for consideration in the coming year. All Committee members are non-executive directors and meet at least twice a year to review and recommend the interim and annual financial statements, before submission for approval by the Board and consider any matters raised by the auditors. The Committee considers all significant financial reporting judgements contained in the financial statements, including accounting policies and compliance, areas of management judgements and estimates and the effectiveness of financial reporting and controls. The Committee oversees the Company’s relationship with the external auditors and makes recommendations to the Board in relation to their appointment, re-appointment and removal and approves their remuneration and terms of engagement. The Board and Committee also review the independence of the external auditors and consider the engagement of the external auditors to supply non-audit services. The Company has adopted a formal policy on the supply of non- audit services by the external auditors. They may only provide such services on condition that such advice does not conflict with their statutory responsibilities and ethical guidance. The Committee Chairman’s pre-approval is required before the Company uses non-audit services that exceed financial limits set out by that policy and the aggregate spend is also reviewed by the Committee on an annual basis. Details of the auditors’ remuneration for audit and non-audit fees are disclosed in note 3 to the Financial Statements. The Committee recognises that the independence of the auditors is an essential part of the audit framework and the assurance that it provides. The Committee monitors any non- audit work that is undertaken by the external auditors to ensure that their objectivity and independence is not compromised. The committee is responsible for the review of the Company’s procedures for responding to the allegations of whistleblowers and the arrangements by which staff may, in confidence, raise concerns about possible financial reporting irregularities. During the year, the Committee considered the effectiveness of the external audit process. The appointment of KPMG was made in 2000 and, given the length of their tenure and the significant geographical and financial expansion of the Group, the Committee concluded that, as a matter of corporate governance best practice, it was appropriate to review the effectiveness of the external audit process by inviting each of KPMG LLP, PricewaterhouseCoopers LLP, Ernst & Young LLP, Deloitte LLP and BDO LLP to tender for the appointment as the Group’s external auditors. The Committee, supported by senior management, are conducting a rigorous tender process focusing on quality, resources, independence and value. The tendering firms have been invited to put forward a proposal to the Committee, with presentations to be made by the personnel whom each firm proposes to conduct the external audit. Nomination Committee The Nomination Committee (the "Committee") is chaired by Robert Breare and its other members are David Bernstein and Ronald Stewart, both are independent non-executive Directors and served throughout the course of the year. The Chairman was considered independent on appointment and, in the opinion of the other non-executive directors, continues to demonstrate independence of character and judgment. The Committee is responsible for nominating candidates for appointment to the Board. The Board has been satisfied that the size and composition of the Board has been appropriate throughout the year and it has been unnecessary for the Committee to meet during the year. Ted Baker Report and Accounts 2011 / 2012  Director s ’ re port: G over nance 19 All non-executive directors are advised of time commitment considered necessary to enable them to fulfil their responsibilities prior to appointment. the continue to support the development and progression of all employees, with the aim of maintaining and achieving diversity throughout all levels of the organisation. The terms of reference for the Committee are available on request from the Company Secretary. Appointments to the Board Newly appointed directors are given training appropriate to the level of their previous experience. Non-executive directors meet regularly with members of the executive committee and other personnel within the organisation. In addition, site visits ensure that the non-executive directors gain first hand experience of developments within the Group. Any director appointed during the year is required, under the provisions of the Company’s Articles of Association, to retire and seek re-election by the shareholders at the next Annual General Meeting. The Company’s Articles of Association require one third of the Directors for the time being to retire, and each Director to retire from office at least once every three years. However, the UK Corporate Governance Code, introduced in June 2010, provides that all directors of FTSE 350 companies should retire and stand for re-election annually. The Company is committed to maintaining high standards of corporate governance and accordingly, the Board has decided that all directors shall retire and stand for re-election annually. Diversity Further to the publication of Lord Davies' report entitled "Women on Boards", we strongly support the principle of boardroom diversity, of which gender is one element. Boardroom diversity, including gender, is an important consideration when assessing a candidate's ability to contribute to, and complement the abilities of, a balanced Board. Anne Sheinfield has been on the Board since June 2010 and the Board is very pleased to benefit from her valuable contribution. Our Board appointments will always be made on merit against objective criteria, and this will continue to be the priority rather than aiming to achieve an externally prescribed diversity target. Communication with Shareholders The Group attaches considerable the effectiveness of its communication with its shareholders. The full report and accounts are sent to all shareholders and further copies are distributed to others with potential interest in the Group’s performance. importance to The directors seek to build on a mutual understanding of objectives between the Company and its institutional shareholders by making general presentations after the interim and preliminary results; meeting shareholders to discuss long-term issues and gather feedback; and communicating regularly throughout the year. All shareholders have access to these presentations, as well as to the annual report and accounts and to other information about the Company, through the website at www.tedbakerplc.com. They may also attend the Company’s Annual General Meeting at which they have the opportunity to ask questions. Non-executive directors are kept informed of the views of shareholders by the executive directors and are provided with independent feedback from investor meetings. Conflicts of interests Following approval at the 2008 Annual General Meeting, the Company’s Articles of Association were amended to take account of certain provisions of the Companies Act 2006 relating to directors’ conflicts of interest. These provisions permit the Board to consider, and if thought fit, to authorise situations where a director has an interest that conflicts, or may possibly conflict, with the interests of the Company. The Board has adopted procedures for the approval of such conflicts. The Board’s powers to authorise conflicts are operating effectively and the procedures are being followed. Internal Control The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. As noted in the People report on page 23, the continued expansion of the Company means that Ted Baker’s workforce is becoming increasingly more diverse. The Company will Following publication of guidance for directors on internal control “Internal Control: Guidance for Directors on the Ted Baker Report and Accounts 2011 / 2012 20 Directo rs ’ rep ort: Gover na nc e Corporate Governance Statements continued Code” (the “Turnbull guidance”), the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, that has been in place for the year under review and up to the date of approval of the annual report and accounts, and that this process is regularly reviewed by the Board and accords with the Turnbull guidance. The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed. Management is responsible for the identification and evaluation of significant risks applicable to their areas of the business together with the design and operation of suitable internal controls. These risks are assessed on a continual basis and may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements. Finance Director provides the Board with monthly financial information which includes key performance indicators. Where areas for improvement in the system are identified, the Board considers the recommendations made by the Risk Committee and the Audit Committee. The Risk Committee includes the Finance Director and various heads of department. It reviews, on a twice yearly basis, the risk management and control process and considers: • • • the authority, resources and co-ordination of those involved in the identification, assessment and management of significant risks faced by the Group; the response to the significant risks which have been identified by management and others; the maintenance of a controlled environment directed towards the proper management of risk; and • the annual reporting procedures. The Group has an independent internal audit function whose findings are regularly reviewed by the executive committee and the Board. The Audit Committee monitors and reviews the effectiveness of the internal audit activities. Additionally, the Risk Committee keeps abreast of all changes made to the systems and follows up on areas that require improvement. It reports to the Board at twice yearly intervals or more frequently should the need arise. Management reports regularly on its review of risks and how they are managed to the Risk Committee, whose main role is to review, on behalf of the Board, the key risks inherent in the business and the system of control necessary to manage such risks, and to present their findings to the Board. The Chief Executive reports to the Board on behalf of the executive committee on significant changes in the business and the external environment which affects significant risks. The The Bribery Act The Bribery Act 2010 came into force in July 2011. The Board welcomes this legislation and continues to proactively review the Group’s procedures to ensure they are sufficiently robust to prevent corruption. Ted Baker Report and Accounts 2011 / 2012  Director s ’ re port: G over nance 21 Sustainability and the Environment We believe in being open and honest in the way we do business and doing the right thing by all of our stakeholders; by operating in a responsible and sustainable manner. wave of this programme, which involves working closely with these suppliers to improve their social and working practices for managing risks arising How we work Mr L D Page has been given specific responsibility for overseeing the formulation of the Group’s policies and procedures from social, environmental and ethical matters (“SEE”). In addition, the Board has tasked four members of the Executive Committee to oversee specific areas of our SEE agenda for the Group. These Executive Committee members participate because of the relevance of their departments to our ongoing commitment in these areas – Brand Communication, Product Design, Production and Special Projects (Interior Design). Our full time Green Guardian manages these areas and the Group’s cross-functional team which is responsible for addressing SEE concerns of the Group (the “Green Team”). Ethical and Sustainable Sourcing Ethical and sustainable sourcing is an area of great importance to the Group. We believe that our products should be produced in factories that are committed to providing a fair and safe environment for their workers. Our trusted partners within the supply chain are one of our most valuable assets. • All Ted Baker suppliers are governed by our Company Code of Conduct, which is based on the Social Accountability International Code, an recognised benchmark for ethical excellence, and can be found at www.tedbaker.com internationally • Through our partnership with MADE-BY, a non-profit multi-stakeholder initiative set up to improve sustainability within the fashion industry, our MADE-BY Social Scorecard for 2010 was released during the period and can be found at http://www.made-by.org/partner-brand/34/ ted-baker/scorecard • This partnership has enabled us to access MADE-BY’s expertise on sustainable fibres and, along with the benchmarking from our Scorecard, we have been able to set long-term internal targets for the amount of sustainable fibres we use in our collections Environmental Impacts The Group is committed to reducing our impact on the environment, reducing our use of resources and increasing efficiencies wherever possible. • All of our business travel is CarbonNeutral®. This means that the unavoidable emissions generated by the air, road and rail journeys, required to visit our stores and suppliers, have been reduced to net zero through purchasing carbon credits from Voluntary Carbon Standard (“VCS”) validated projects • We continue to participate in The Carbon Disclosure Project to measure and disclose our greenhouse gas emissions and climate change strategies • We participate in the Wastepak Compliance Scheme as part of the Producer Responsibility Obligation (Packaging Waste) Regulations 1997, and continue to reduce unnecessary packaging • We are constantly looking at the waste our business creates, and working towards our overall aim to ensure no waste goes to landfill. We participate in recycling schemes in all properties. During the period we successfully trialled a new waste reduction scheme at our London head office. As a result, we sent no waste to landfill from this location • We work with the National Industrial Symbiosis Programme (“NISP”) to recycle as much waste as we can through their network of charities, such as Scrapstores, that can make use of or raise funds from the waste • Our employees are our greatest asset, and we have Green Team members in every department and store encouraging colleagues to be more environmentally aware. During the period we extended this by inviting our international licence partners to join the team • We have two buckfast bee colonies on the roof of our London head office, to help give the bees a haven in which to recuperate their local population • During the period we continued a long-term social improvement programme as part of our partnership with MADE-BY. Workshops held by MADE-BY helped us to identify key inventory suppliers to be part of the first • We are part of the Sustainable Clothing Action Plan, a co-ordinated action plan led by the Department of Environment Food and Rural Affairs (“Defra”), which Ted Baker Report and Accounts 2011 / 2012 22 Directo rs ’ rep ort: Gover na nc e Sustainability and the Environment continued sets out agreed actions for member organisations from within the clothing and fashion industry and supports these organisations to improve the sustainability of their collections Community Our Charity Partner in 2011 was Everyman, a prostate and testicular cancer charity. We used our underwear boxes as a vehicle to further raise awareness of their charity and funds for research into prostate and testicular cancer. During 2011 our London head office became an official ‘Oxfam Collects’ collection point. This enables our team members to donate any unwanted items to Oxfam during the course of their usual working week. The items are collected from our London head office by Oxfam and sold in their stores to raise money to help fund their projects. The total amount of donations paid during the year can be found on page 36. Ted Baker Report and Accounts 2011 / 2012  Director s ’ re port: G over nance 23 People The talent, commitment and passion of the Ted Baker team are key factors in the success of our business and brand. The value we place on our team is shown in the way we motivate them, encourage learning and development, nurture their growth and potential, and recognise and reward their contributions. Culture The spirit in which we conduct our business and interact with our team always takes into consideration ‘Would Ted do it that way?’. We regularly host internal events, including Teducation sessions with the chief executive, telling the story behind the brand and also Family Days where we open our doors to family and friends. Reward and Recognition Remuneration is reviewed annually and a benchmarking review is undertaken to ensure we remain competitive and fair across all areas of the business. Our rewards include bonus schemes linked to sales targets and individual and corporate performance. We encourage our people to join our Save As You Earn (“SAYE”) schemes. This year we celebrated our second year of Wisdom Awards; recognition for the longer serving members of the team and a chance for them to celebrate and share their stories with the rest of the team. Learning and Development is reviewed bi-annually with each team Performance member to discuss personal and career development. Within this process, goals and objectives are set and linked to personal growth and business development as well as Ted’s environmental and social commitments. We allow our people to broaden their abilities and knowledge by exposing them to new experiences. We invest in training which ranges from specialist and technical skills training, to in-house developed courses focussing on management skills, leadership skills, brand awareness and self awareness. Firm career paths exist across the Group and inter-departmental and international moves play a large part in maintaining and growing talent. Diversity The Group believes in respecting individuals and their rights in the workplace. With this in mind, specific policies are in place covering harassment and bullying, whistle blowing and equal opportunities. Our team represents a wide and diverse workforce from all backgrounds, sexual orientation, nationality, ethnic and religious groups. We support sponsorship of visa applications, where appropriate, to retain specific talent within the business. With continued overseas expansion our workforce is becoming more diverse and we respect cultural differences and actively seek to learn about them in each territory we operate. Health, Safety and Welfare Our duty and commitment to the well being of our team is supported by activity such as private healthcare, occupational health, health seminars and funding for flu jabs. During the period, we conducted a Wellness health assessment day and we offer health and fitness classes to our team members at our head office. We also have a Cycle to Work Scheme and a Childcare Voucher Scheme. An Employee Assistance Programme will be launched early in the new year which will further support our genuine concern for the well-being of our team. The prevention and identification of risks and accidents is supported by an external Health and Safety service provider and ongoing training of management teams. A dedicated Health & Safety focused team member has been appointed and will strengthen our knowledge and commitment in this area of our business. Disabled Employees Applications for employment by disabled persons are always fully and fairly considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the Group continues and that where appropriate reasonable adjustments are made and relevant training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. Employee Engagement The Group places considerable value on the involvement of its employees and continues to keep them informed on matters affecting them and on the significant factors affecting the performance of the Group. This is achieved through formal and informal meetings and employee representatives are consulted regularly on a wide range of matters affecting employees current and future interests. Employees are regularly informed of the Group’s performance and the factors affecting its performance during the year. Ted Baker Report and Accounts 2011 / 2012 Thread Carefully They say a stitch in time saves nine and Ted, for one, is a firm believer in taking the time to do things properly. Be it sourcing environmentally sustainable buttons or dreaming up the very finest way to dress his new store on Fifth Avenue, Ted knows that each and every detail is but a thread in the larger tapestry. After all, it’s not easy creating a global brand that’s just sew… visas 14 (+3 Outlets) EVER (Ted never goes out of style) 1996 (fi rst standalone store opened in NYC in 98) Directors’ re port – o th er s tat utory D i s clos ures 27 Board of Directors Robert Breare Non-Executive Chairman (59) Robert has extensive experience of consumer facing businesses and was formerly a founder and chief executive officer of Arcadian International Plc, which included Malmaison Hotels. Robert is chief executive officer of Snoozebox Ltd, a luxury portable events hotel operating both in the UK and internationally. He is chairman of the nomination committee and a member of the audit and remuneration committees. Robert is an independent director. David Alan Bernstein Non-Executive Director (68) David is chairman of The Football Association and non- executive director of Wembley National Stadium Limited. Previously he was joint managing director of Pentland Group Plc, chairman of Manchester City plc, Blacks Leisure plc and French Connection plc. He is chairman of the remuneration committee and a member of the audit and nomination committees. David is an independent director and the senior non-executive director. Raymond Stuart Kelvin, CBE Chief Executive (56) (‘Closest Man To Ted’) Ray, the founder of Ted Baker, has worked in the fashion industry for over 38 years. In 1973 he founded PC Clothing Limited, a supplier of womenswear to high street retailers. In 1987 Ray developed the Ted Baker brand and has been chief executive of Ted Baker since its launch in 1988. Lindsay Dennis Page, MA, ACA Finance Director (53) Lindsay joined Ted Baker as finance director in February 1997. He joined Binder Hamlyn in 1981, became a founder member of the corporate finance department in 1986 and a partner in 1990. Binder Hamlyn subsequently merged with Arthur Andersen in 1994. Ronald Stewart Non-Executive Director (64) Ron spent all his 39 year banking career at The Royal Bank of Scotland PLC, retiring in 2003 as Deputy Managing Director of its Corporate Banking Department in London. He is a Trustee of several Christian charities and a Governor of Reeds School in Surrey. He is chairman of the audit committee and a member of the nomination and remuneration committees. Ron is an independent director. Anne Sheinfield Non-Executive Director (46) Anne was appointed as a non-executive director on 15 June 2010. Anne is a commercial lawyer with 21 years’ post qualification experience in the theatre, TV and music areas of entertainment and has a wealth of intellectual property and commercial legal experience. Anne is an independent director. (fi rst standalone store opened in NYC in 98) Ted Baker Report and Accounts 2011 / 2012 28 Directors’ rep ort – o th er s tat utory D i s clos ures directors' Remuneration Report This report has been prepared in accordance with section 420 of the Companies Act 2006 and in compliance with the provisions of the Code, as disclosed in the Company’s corporate governance statements, and the requirements of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 regarding the contents of the report. Remuneration Committee The Remuneration Committee (the “Committee”) is chaired by David Bernstein and its other members are Robert Breare and Ronald Stewart. David Bernstein and Ronald Steward are independent non-executive Directors as noted in the corporate governance statements. In line with provision D.2.1. of the Code Robert Breare, as non-executive Chairman, may be a member of but not chair the Committee, as he was considered to be independent on appointment. The Committee met twice during the year with full attendance. The Committee consulted Ernst & Young LLP (which also provided tax, legal and accounting services to the Group in the year) on executive remuneration issues. The Committee is responsible for setting the remuneration packages of the executive directors of the Board and other senior executives who fall within the scope of the Committee. It approves all service contracts or other contracts between the Company and its executive directors and senior executives and considers and, if thought fit, approves any outside interests and other directorships of the executive directors. The Committee also reviews and approves the design of the Company's share based incentive schemes and determines the level of awards to be made and approves the performance targets. The terms of reference for the Committee are available on request from the Company Secretary. During the period the Committee considered and approved the terms, including the option exercise price, of the 2011 Sharesave Scheme and considered Board and Executive Committee training and development plans. The Committee also considered the salary increases for the executive directors and senior executives having regard to salary levels across the overall Group and the findings of the remuneration report produced by Ernst & Young LLP. The salary increases were in line with the recommendations made by Ernst & Young LLP and recognise the significant geographical and financial expansion of the Group. The Remuneration Committee has completed a review of the existing incentive schemes and, with the Ted Baker 2009 Value Creation Plan vesting in August 2012, intends to adopt a new arrangement. The Committee will seek the relevant shareholder approval once details of an appropriate long term incentive plan have been finalised. Remuneration Policy The aim of the Group’s remuneration policy is to attract, motivate and retain high quality management and to incentivise them according to the levels of value generated for shareholders. The total size of the remuneration package is judged by comparison with the value of packages of similar companies, having regard to: • the size of the company, its turnover, profits and number of people employed; • the diversity and complexity of the business; • the geographical spread of the business; and • the growth and expansion profile. Non-executive directors are remunerated with fees in line with market rates. They do not receive any pension or other benefits, other than reasonable expenses, and they do not participate in any bonus or share schemes. Remuneration Package Key Components of Executive Remuneration Remuneration packages are structured to provide a balance between fixed basic salary and variable remuneration based on individual and Group performance. Basic Salary This is reviewed annually by the Committee having regard to competitive market practice and each director’s contribution to the business, thus allowing for individual performance. When reviewing the salaries of the Executive Directors, the Committee also has regard to pay and employment conditions elsewhere in the Group. Annual Bonus The annual grant of bonuses is conditional upon achievement of targets by reference to agreed financial performance measures and external expectations, namely profit before tax and growth in earnings per share. These are designed to provide a direct link between the rewards for executives and returns to shareholders. Bonuses are capped at 100 percent Ted Baker Report and Accounts 2011 / 2012 Directors’ re port – o th er s tat utory D i s clos ures 29 of basic salary. This scheme is applicable to Mr R S Kelvin and Mr L D Page. Amounts received in the year may be found on page 32. Pensions and Other Benefits The Company operates a money purchase scheme with a Company contribution of 12.5 per cent of basic salary for executive directors apart from Mr R S Kelvin. Taxable benefits include such items as company cars, fuel and medical expense insurance. Life assurance is provided as a non-taxable benefit. Long Term Incentive Schemes The Committee strongly believes that executives should participate in equity-based incentives which support the Company’s overall business strategy and objectives. In addition, share ownership by executives strengthens the link between their personal interests and those of the shareholders. This was historically approached through annual grants of conditional share awards under the Performance Share Plan and grants of share options every three to five years under the 1997 Executive Share Option Scheme and/or the Performance Share Plan. These plans impose an aggregate individual limit on the market value of shares which may be subject to options or awards of ten times that individual’s annual remuneration. The Committee’s policy was usually to grant share options based on between one and four times an individual’s annual remuneration, and to grant conditional awards based on one times an individual’s annual remuneration. Following the Committee’s extensive review of the existing conditional share awards and share options in 2009, the Committee introduced the Value Creation Plan. The Value Creation Plan focuses executives on shareholder returns as the rewards earned are directly linked to share price performance and total shareholder return exceeding the return on an appropriate index. Since the introduction of the Value Creation Plan, no awards or options have been granted under the Performance Share Plan or the 1997 Executive Share Option Scheme. The provisions of Long Term Incentive Schemes cannot be altered to the benefit or advantage of participants without prior shareholder approval in a General Meeting. The following schemes are in operation for the benefit of executive directors: The Ted Baker 2009 Value Creation Plan Under this plan, an award of units is made which has no value at grant but, subject to satisfaction of earnings per share, share price and total shareholder return performance targets, converts into nil cost options to acquire ordinary shares in the Company at the end of the three year performance period. Conversion of units is based on each unit having a value calculated by reference to a pool of value, being 12.5 per cent of the market value of all issued ordinary shares in the Company above the share price growth target (described in the next paragraph) multiplied by the number of ordinary shares in issue at that date, and then divided by the total number of units awarded. The aggregate value of the units held by an executive is then divided by the market price per share on conversion to determine the number of shares subject to that executive’s nil cost options. A nil cost option over 50 per cent of the shares will be granted to the executive at the end of the performance period and a further nil cost option over the balance of the shares after a further year. The terms and conditions of the awards of units granted on 13 August 2009 are as follows: • no benefit is provided unless the earnings per share growth over the performance period is greater than 5 per cent per annum compound above the consensus forecasts for the financial year ending January 2010; • no benefit is provided unless the share price growth is greater than 10 per cent per annum compound over the performance period; and • no benefit is provided unless total shareholder return exceeds the return on the FTSE General Retail Sector Index over the performance period. The 2009 awards under the plan have been supplemented, in accordance with the plan rules, with a parallel linked issue of B ordinary shares in the Company’s subsidiary, No Ordinary Designer Label Limited, to recipients of the 2009 awards with the aim of delivering the benefits under the 2009 awards in a more tax efficient manner. The award holders purchased the B ordinary shares at fair market value and they will only be able to realise any value in those shares by reference to the value of No Ordinary Designer Label Limited above a predetermined hurdle value at the end of the three year performance period applicable to the 2009 awards described above. At the end of the performance period, an award holder can therefore receive his benefit under the plan either by exercising the nil cost option under the 2009 award or selling B ordinary shares, but the gross benefit to the award holder cannot exceed the gross value realisable under the 2009 award and he cannot receive any benefit earlier than the time described above in relation to the nil cost option. Ted Baker Report and Accounts 2011 / 2012 30 Directors’ rep ort – o th er s tat utory D i s clos ures directors' Remuneration Report continued The Ted Baker 1997 Executive Share Option Scheme Under this scheme, options may be granted to subscribe for new shares and to acquire shares from the Ted Baker Group Employee Benefit Trust. The exercise of currently subsisting options is subject to earnings per share growth over three accounting periods, the first being the one in which the grant is made. If compound earnings per share growth is at least 7.5 per cent per annum, 25 per cent of the options will be exercisable, rising on a straight line basis to 100 per cent if compound growth of 12.5 per cent per annum is achieved. Mr R S Kelvin and Mr L D Page held options under this scheme, all of which have now lapsed. The Ted Baker Performance Share Plan Under this plan, both conditional share awards and share options may be granted. Awards made on 4 April 2008 were also subject to compound earnings per share growth performance conditions, with 25 per cent vesting only on 7.5 per cent per annum growth and the balance vesting on a straight line basis thereafter up to 100 per cent if growth of 12.5 per cent per annum was achieved. Mr R S Kelvin and Mr L D Page held awards under this plan, all of which have now lapsed. The exercise of subsisting share options was subject to the same performance conditions as the 1997 Executive Share Option Scheme. The Ted Baker Sharesave Scheme Under this scheme, options are made available to all employees to encourage share ownership. The exercise of options is not subject to performance conditions. Mr L D Page holds options under this scheme. Contracts of Service Each executive director has a service contract with a notice period of 12 months. Service contracts and letters of appointment are available for inspection at the registered office. The Board sets non-executive directors’ fees. Robert Breare David A Bernstein Raymond S Kelvin Lindsay D Page Ronald Stewart Anne Sheinfield Date of service contract 1 November 2001 24 January 2003 17 July 1997 17 July 1997 25 February 2009 15 June 2010 Unexpired term Notice period Provision for compensation 6 months 6 months 12 months 12 months 6 months 6 months 6 months 6 months 12 months 12 months 6 months 6 months None None None None None None Ted Baker Report and Accounts 2011 / 2012 Directors’ re port – o th er s tat utory D i s clos ures 31 Total Shareholder Value The following graph charts the total cumulative shareholder return of the Company from January 2007 to January 2012. Total Shareholder Return 5 Years Ted Baker PLC FTSE All Share General Retailers Jul ‘07 Jan ‘08 Jul ‘08 Jan ‘09 Jul ‘09 Jan ‘10 Jul ‘10 Jan ‘11 Jul ‘11 Jan ‘12 180 160 140 120 100 80 60 40 20 0 Jan ‘07 Source: Bloomberg Audited Information The auditors are required to report on the individual aspects of remuneration, which may be found in the following section of this report. Directors’ Remuneration, Interests and Transactions Emoluments Money purchase pension contributions 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 1,269 40 1,309 £’000 1,145 35 1,180 Ted Baker Report and Accounts 2011 / 2012 32 Directors’ rep ort – o th er s tat utory D i s clos ures directors' Remuneration Report continued Directors’ Emoluments Executive R S Kelvin L D Page Non-executive R Breare D A Bernstein R Stewart A Sheinfield Fees / basic salary £’000 Benefits £’000 Performance related bonus 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 £’000 £’000 338 322 50 40 40 40 830 6 2 - - - - 8 225 206 - - - - 569 530 50 40 40 40 527 487 43 33 33 22 431 1,269 1,145 Performance related bonuses are determined by the Committee based on achievement of targets by reference to agreed financial performance measures and external expectations, namely profit before tax and growth in earnings per share. Bonuses are capped at 100% of basic salary. Directors’ Long Term Incentive Schemes Awards under the Ted Baker 2009 Value Creation Plan On 13 August 2009, the Committee made the award of units set out below under the Ted Baker 2009 Value Creation Plan (the “VCP”) subject to a three year performance period ending 12 August 2012. Awards under the VCP are subject to growth in earnings per share, share price and total shareholder return over a three year period, details of which may be found on page 29. R S Kelvin L D Page Average share price at award date No. of units awarded Share price at first vesting date No. of shares vested 376.1p 376.1p 17,900 (17.9% of total issued units) 15,600 (15.6% of total issued units) - - - - Share Options Share options granted to directors under the 1997 Executive Share Option Scheme were as follows: 29 January 2011 No. of shares Options (exercised / lapsed) or granted No. of shares 28 January 2012 No. of shares Option price p Earliest date of exercise Expiry Date R S Kelvin L D Page 8,453 8,499 (8,453) (8,499) - - 354.9 353.0 28 October 2011 27 October 2018 22 October 2011 21 October 2018 The exercise of options was subject to the growth in the Company’s earnings per share over a three year period, details of which can be found on pages 30 and 31. Diluted earnings per share rose by a compound rate of 4.9 per cent during the three years resulting in none of the options vesting. Ted Baker Report and Accounts 2011 / 2012 Directors’ re port – o th er s tat utory D i s clos ures 33 Share options granted to directors under the Ted Baker Sharesave Scheme were as follows: 29 January 2011 No. of shares 5,165 Options (exercised) or granted No. of shares - 28 January 2012 No. of shares 5,165 Option price p Earliest date of exercise 303.0 1 July 2014 Expiry Date 1 July 2015 L D Page Directors’ Pensions L D Page David Bernstein, Chairman of the Remuneration Committee 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 40 £’000 35 Ted Baker Report and Accounts 2011 / 2012 34 Directors’ rep ort – o th er s tat utory D i s clos ures Other Disclosures The directors present their annual report on the affairs of the Group, together with the accounts and auditors’ report, for the 52 weeks ended 28 January 2012. The comparative period is for the 52 weeks ended 29 January 2011. Principal Activities Ted Baker is a leading designer brand and the principal activities of the Group comprise the design, wholesale and retail of menswear, womenswear and related accessories. The subsidiary undertakings principally affecting the profits and net assets of the Group in the period are listed in Note 12 to the accounts. The Group also has branches operating in Eire, Portugal and Hong Kong and a representative office in Italy. Business Review and Future Prospects A commentary on the Group’s progress during the period and its future prospects are set out in the Chairman’s Statement and Business Review on pages 5 to 9. The contents of this Directors’ Report together with: • the Chairman’s Statement on pages 5 and 6; • the Business Review on pages 7 to 9; • the Principal Risks and Uncertainties on pages 12 and 13; • the Sustainability and the Environment report on page 21 and 22; and • the People report on page 23 constitute the Business Review and are incorporated into this report by reference. Results and Dividends The audited accounts for the 52 weeks ended 28 January 2012 are set out on pages 30 to 67. The Group profit for the 52 weeks, after taxation, was £17,557,000 (2011: £17,280,000). The directors recommend a final dividend of 16.25p per ordinary share (2011: 14.3p) payable on 15 June 2012 to ordinary shareholders on the register on 11 May 2012 which, together with the interim dividend of 7.15p per share (2011: 6.3p per share) paid on 25 November 2011, makes a total of 23.4p per share for the period (2011: 20.6p per share). Directors The directors during the financial year were those listed on page 27. Details of the directors’ beneficial interests in the shares of the Company are shown on page 35. Details of their options are given in the Directors’ Remuneration Report on pages 32 and 33. Brief details of the career of each director are set out on page 27. Substantial Shareholdings On 21 March 2012, the Company had been notified, in accordance with the Disclosure Rules and Transparency Rules (DTR5), of substantial interests in the ordinary share capital of the Company. For details see the table below. Name of Holder R S Kelvin Fidelity Investments Schroder Investment Management Scottish Windows Number 16,537,276 4,349,069 3,404,777 3,200,635 % Held 39.7 10.4 8.2 7.7 On 30 March 2012 the Company was notified of a change in interest of R S Kelvin in the ordinary share capital of the Company. R S Kelvin now holds 16,537,899 ordinary shares in the Company, representing 39.7% of the Company’s issued ordinary share capital with voting rights. On 11 April 2012 the Company was notified of a change in interest of Legal & General Group Plc (“L&G”). L&G now holds 1,663,588 ordinary shares in the Company, representing 3.99% of the Company’s issued ordinary share capital with voting rights. During the period between 28 January 2012 and 8 May 2012, being the latest date prior to the posting of the annual report and accounts, there were no further disclosures made to the Company pursuant to DTR 5. Ted Baker Report and Accounts 2011 / 2012 Directors’ re port – o th er s tat utory D i s clos ures 35 Share Capital and Control As at 28 January 2012, the Company’s authorised share capital was 80,000,000 ordinary shares of 5 pence each (in nominal value). Details of the Company’s share capital are shown in Note 19 to the consolidated financial statements on page 67. On 28 January 2012 there were 43,198,033 ordinary shares in issue of which the Company holds 1,557,111 ordinary shares in treasury. The rights and obligations attaching to the Company’s shares, in addition to those conferred on their holders by law, are set out in the Articles of Association. The holders of ordinary shares are entitled to receive all shareholder documents, attend and speak at general meetings of the Company, exercise all voting rights and to receive dividends and participate in other distributions of assets. The Company may not exercise any rights (such as voting rights) in respect of the treasury shares and the treasury shares carry no right to receive dividends or other distributions of assets. The Company is not aware of any agreements between shareholders restricting the voting rights or the right to transfer shares in the Company. The rules about the appointment and replacement of directors are contained in the Company’s Articles of Association. Changes to the Articles of Association must be approved by the shareholders in accordance with the legislation in force from time to time. The powers of the directors are determined by legislation and the Articles of Association of the Company in force from time to time. Powers relating to the issuing and buying back of shares are included in the Company’s Articles of Association and shareholder approval of such authorities may be sought, if considered appropriate by directors, at the Annual General Meeting. There are a number of agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid, such as commercial contracts, bank loan agreements and employee share schemes. None of these is deemed to be significant in terms of its potential impact on the business of the Company. The Company does not have agreements with any director or employee that would provide compensation for loss of office or employment resulting from a takeover, save that the Company’s share schemes contain provisions which may cause options and awards granted to employees to vest on a takeover. Directors’ Interests The directors who held office at 28 January 2012 had interests in the shares of Ted Baker PLC as shown in the table below. R S Kelvin L D Page R Stewart % of share capital 28 January 2012 Beneficial 29 January 2011 Beneficial 39.7 16,537,276 16,537,276 - - 43,851 300 293,851 300 On 30 March 2012 the Company was notified of a change in interest of R S Kelvin in the ordinary share capital of the Company. R S Kelvin now holds 16,537,899 ordinary shares in the Company, representing 39.7% of the Company’s issued ordinary share capital with voting rights. During the period between 28 January 2012 and 8 May 2012, being the latest date prior to the posting of the annual report and accounts, there were no further changes in the interests of directors. Going Concern The directors have reviewed the Group’s budgets and long term projections. After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Creditor Payment Policy The Company’s policy, in relation to all of its suppliers, is to settle the terms of payment when agreeing the terms of the transaction and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Company does not follow any code or statement on payment practice. The number of days’ purchases outstanding for payment by the Group at the end of the year was 40 days (2011: 52 days). At the year end the Company had no trade creditors. Ted Baker Report and Accounts 2011 / 2012 36 Directors’ rep ort – o th er s tat utory D i s clos ures Other Disclosures continued Donations The value of charitable donations made during the period was £33,293 (2011: £27,368). Social Responsibility Details of the Group’s social, ethical and environmental responsibility initiatives are set out in the Sustainability and the Environment statement on pages 21 and 22. People Details of the Group’s policies with respect to people and employees are set out in the People statement on page 23. Health and Safety The Group remains committed to providing a safe place to work and shop for all employees and customers. Annual risk assessments are carried out at all locations and a committee, comprised of representatives within the business and an external adviser, reviews and resolves any health and safety issues. Risk Management The Company’s policies on currency and interest rate risk are outlined in Note 22 of the Financial Statements on pages 70 to 77. Directors’ Statement Regarding Disclosure of Information to Auditors The directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are aware, there is no relevant audit information of which the Company’s auditors are unaware. Further, each director has taken all the steps that he ought to have taken as a director to ensure the Board is aware of any relevant audit information and to establish that the Company’s auditors are aware of any such information. Auditors The directors will place a resolution before the annual general meeting to appoint the selected audit firm (as a result of the tender process discussed in greater detail on page 18 of this document) as auditors for the ensuing year. The report was approved by the Board of Directors on 21 March 2012 and signed on its behalf by: C F Anderson, Secretary Registered office - The Ugly Brown Building, 6a St. Pancras Way, London NW1 0TB Ted Baker Report and Accounts 2011 / 2012 Directors’ re port – o th er s tat utory D i s clos ures 37 Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and Group and Parent company 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 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; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. 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. Responsibility statement of the directors in respect of the Annual Report We, the directors of the Company, confirm that to the best of our knowledge: (a) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit for the Group and the undertakings included in the consolidation taken as a whole; and (b) pursuant to Chapter 4 of the Disclosure and Transparency Rules, the Group’s annual report contains a fair review of the development and performance of the business and the position of the Group, and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. On behalf of the Board R S Kelvin Chief Executive 21 March 2012 L D Page Finance Director 21 March 2012 Ted Baker Report and Accounts 2011 / 2012 38 Directors’ rep ort – o th er s tat utory D i s clos ures Independent Auditors’ Report to the Members of Ted Baker PLC We have audited the financial statements of Ted Baker PLC for the 52 weeks ended 28 January 2012 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Parent Company Statement of Changes in Equity, the Group and Parent Company Balance Sheets, the Group and Parent Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 37, 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 statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/ private.cfm. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 28 January 2012 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 and, as regards the group financial statements, Article 4 of the IAS Regulation. Opinion on other matter prescribed by the Companies Act 2006 In our opinion: • • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Ted Baker Report and Accounts 2011 / 2012 Directors’ re port – o th er s tat utory D i s clos ures 39 Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited 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; or Under the Listing Rules we are required to review: • the directors’ statement, set out on page 35, in relation to going concern; • the part of the Corporate Governance Statement on pages 17 to 20 relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review; and • certain elements of the report to shareholders by the Board on directors’ remuneration. Mike Barradell (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 21 March 2012 Ted Baker Report and Accounts 2011 / 2012 Fashion to a Tea If there’s one thing Ted takes extremely seriously, it’s the importance of the perfect fi t. Much like the ideal cup of tea, the perfect fi t is a highly personal commodity and one that Ted has studied at length. But with a mixture of carefully selected ingredients, exacting standards and a dash of charm (always raise that little fi nger while sipping), he has become a dab hand at delivering exquisite results. Ted Baker: brewed to perfection. visas Fina nci a l stat ements 43 Group and company primary financial statements Group Income Statement For the 52 weeks ended 28 January 2012 Revenue Cost of sales Gross profi t Distribution costs Administrative expenses Exceptional costs Licence income Other operating income Operating profi t Finance income Finance expenses Share of profi t of jointly controlled entity, net of tax Profi t before tax Income tax expense Profi t for the period Earnings per share Basic Diluted Note 2 4 4 12 3,6 6 9 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 £’000 215,625 (83,419) 132,206 (82,358) (29,640) (2,814) 6,733 142 24,269 45 (208) 149 24,255 (6,698) 17,557 187,700 (71,923) 115,777 (73,690) (24,259) - 6,227 77 24,132 42 (120) 174 24,228 (6,948) 17,280 42.2p 40.6p 41.5p 41.4p Ted Baker Report and Accounts 2011 / 2012 44 Financi al s tat ements Group and company primary financial statements continued Group Statement of Comprehensive Income For the 52 weeks ended 28 January 2012 Profit for the period Other comprehensive income Net effective portion of changes in fair value of cash flow hedges Net change in fair value of cash flow hedges transferred to profit or loss Exchange rate movement Other comprehensive income for the period 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £‘000 £‘000 17,557 17,280 (190) 26 (92) (256) 143 (279) 112 (24) Total comprehensive income for the period 17,301 17,256 Total comprehensive income attributable to: - Equity shareholders of the parent company - Non-controlling interest Total comprehensive income for the period 17,301 - 17,301 17,256 - 17,256 Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 45 Group Statement of Changes in Equity For the 52 weeks ended 28 January 2012 Balance at 29 January 2011 Comprehensive income for the period Profit for the period Deferred tax associated with movement in hedging reserve Effective portion of changes in fair value of cash flow hedges Net change in fair value of cash flow hedges transferred to profit or loss Exchange rate movement Total comprehensive income for the period Transactions with owners recorded directly in equity Share options / awards charge Movement on current / deferred tax on share options / awards Disposal of own / treasury shares Dividends paid Total transactions with owners Share capital Share premium £’000 2,160 £’000 9,137 Cash flow hedging reserve £’000 (148) Translation Reserve Retained earnings £’000 236 £’000 64,639 Total equity attributable to equity shareholders of the parent £’000 76,024 - - - - - - - - - - - - - - - - - - - - - - - 50 (240) 26 - (164) - - - - - - - - - (92) (92) - - - - - 17,557 17,557 - - - - 50 (240) 26 (92) 17,557 17,301 446 275 69 (8,930) (8,140) 446 275 69 (8,930) (8,140) Balance at 28 January 2012 2,160 9,137 (312) 144 74,056 85,185 For the 52 weeks ended 29 January 2011 Non- controlling interest £’000 - - - - - - - - - - - - - Balance at 30 January 2010 Comprehensive income for the period Profit for the period Deferred tax associated with movement in hedging reserve Effective portion of changes in fair value of cash flow hedges Net change in fair value of cash flow hedges transferred to profit or loss Exchange rate movement Total comprehensive income for the period Transactions with owners recorded directly in equity Share options / awards charge Movement on current / deferred tax on share options / awards Purchase of non-controlling interest Disposal of own / treasury shares Dividends paid Total transactions with owners Share capital Share premium £’000 2,160 £’000 9,137 Cash flow hedging reserve £’000 (12) Translation Reserve Retained earnings £’000 124 £’000 54,906 Total equity attributable to equity shareholders of the parent £’000 66,315 Non- controlling interest £’000 (85) - - - - - - - - - - - - - - - - - - - - - - - - - 55 88 (279) - (136) - - - - - - - - - - 112 112 - - - - - - 17,280 17,280 - - - - 17,280 426 298 (715) 19 (7,575) (7,547) 55 88 (279) 112 17,256 426 298 (715) 19 (7,575) (7,547) - - - - - - - - 85 - - 85 Total equity £’000 76,024 17,557 50 (240) 26 (92) 17,301 446 275 69 (8,930) (8,140) 85,185 Total equity £’000 66,230 17,280 55 88 (279) 112 17,256 426 298 (630) 19 (7,575) (7,462) Balance at 29 January 2011 2,160 9,137 (148) 236 64,639 76,024 - 76,024 Ted Baker Report and Accounts 2011 / 2012 46 Financi al s tat ements Group and company primary financial statements continued Company Statement of Changes in Equity For the 52 weeks ended 28 January 2012 Balance at 29 January 2011 Profit for the period Transactions with owners recorded directly in equity Share options / awards charge Share options / awards granted to subsidiary employees Disposal of own shares Dividends paid Total transactions with owners Share capital Share premium Other reserves Retained earnings Total Equity £’000 2,160 £’000 9,137 £’000 14,962 £’000 15,954 £’000 42,213 - - - - - - - - - - - - - - 377 - - 377 14,123 14,123 69 - 69 (8,930) (8,792) 69 377 69 (8,930) (8,415) Balance at 28 January 2012 2,160 9,137 15,339 21,285 47,921 For the 52 weeks ended 29 January 2011 Balance at 30 January 2010 Profit for the period Transactions with owners recorded directly in equity Share options / awards charge Share options / awards granted to subsidiary employees Disposal of own shares Dividends paid Total transactions with owners Share capital Share premium Other reserves Retained earnings Total Equity £’000 2,160 £’000 9,137 £’000 14,605 £’000 15,381 £’000 41,283 - - - - - - - - - - - - - - 357 - - 357 8,060 8,060 69 - 19 (7,575) (7,487) 69 357 19 (7,575) (7,130) Balance at 29 January 2011 2,160 9,137 14,962 15,954 42,213 Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 47 Group and Company Balance Sheet At 28 January 2012 Non-current assets Intangible assets Property, plant and equipment Investments in subsidiary Investment in equity accounted investee Deferred tax assets Prepayments Current assets Inventories Trade and other receivables Amount due from equity accounted investee Derivative financial assets Cash and cash equivalents Current liabilities Trade and other payables Bank overdraft Income tax payable Derivative financial liabilities Non-current liabilities Deferred tax liabilities Net assets Equity Share capital Share premium Other reserves Translation reserve Retained earnings Total equity attributable to equity shareholders of the parent company Non-controlling interest Total equity Note Group 28 January 2012 £’000 Company 28 January 2012 £’000 Group 29 January 2011 £’000 Company 29 January 2011 £’000 10 11 12 12 13 14 15 12 16 17 18 17 16 13 19 19 19 19 19 968 35,680 - 494 3,418 695 41,255 51,872 30,587 407 411 8,560 91,837 (35,281) (6,790) (3,353) (1,063) (46,487) (1,420) (1,420) 85,185 2,160 9,137 (312) 144 74,056 85,185 - 85,185 - - 17,428 - - - 17,428 - 30,053 - - 444 30,497 (4) - - - (4) - - 47,921 2,160 9,137 15,339 - 21,285 47,921 - 47,921 997 28,368 - 345 2,470 777 32,957 42,492 27,384 286 102 13,536 83,800 (34,970) - (3,761) (455) (39,186) (1,547) (1,547) 76,024 2,160 9,137 (148) 236 64,639 76,024 - 76,024 - - 17,051 - - - 17,051 - 24,712 - - 464 25,176 (14) - - - (14) - - 42,213 2,160 9,137 14,962 - 15,954 42,213 - 42,213 These financial statements were approved by the Board of Directors on 21 March 2012 and were signed on its behalf by: L D Page Director Ted Baker Report and Accounts 2011 / 2012 48 Financi al s tat ements Group and company primary financial statements continued Group and Company Cash Flow Statement For the 52 weeks ended 28 January 2012 Group 52 weeks ended 28 January 2012 Company 52 weeks ended 28 January 2012 Group 52 weeks ended 29 January 2011 Company 52 weeks ended 29 January 2011 £’000 £’000 £’000 17,557 14,123 17,280 6,698 7,656 (352) 30 446 201 85 (149) 62 (9,302) (3,720) 242 (192) (7,738) 11,524 (14,993) - 451 8 (14,534) 69 (8,930) (8,861) (11,871) 13,536 105 1,770 8,560 (6,790) 1,770 - - - - 69 (4) - - - - (5,341) (10) - - 8,837 - - - 4 4 69 (8,930) (8,861) (20) 464 - 444 444 - 444 6,948 6,470 - 225 426 30 138 (174) 61 (9,026) (7,511) 10,140 (83) (6,859) 18,065 (10,036) (630) 32 38 (10,596) 19 (7,575) (7,556) (87) 13,698 (75) 13,536 13,536 - 13,536 £’000 8,060 - - - - 69 (5) - - - - (600) 2 - - 7,526 - - - 5 5 19 (7,575) (7,556) (25) 489 - 464 464 - 464 Cash generated from operations Profit for the period Adjusted for: Income tax expense Depreciation Net impairment credit Loss on disposal of property, plant & equipment Share options / awards charge Net finance losses / (gains) Net change in derivative financial assets and liabilities Share of profit in joint venture Decrease in non-current prepayments Increase in inventory Increase in trade and other receivables Increase / (decrease) in trade and other payables Interest paid Income taxes paid Net cash generated from operating activities Cash flow from investing activities Purchases of property, plant & equipment Purchase of non-controlling entity Proceeds from sale of property, plant & equipment Interest received Net cash from investing activities Cash flow financing activities Proceeds from option holders for exercise of options Dividends paid Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 29 January 2011 / 30 January 2010 Exchange rate movement Net cash and cash equivalents at 28 January 2012 / 29 January 2011 Cash and cash equivalents at 28 January 2012 / 29 January 2011 Bank overdraft at 28 January 2012 / 29 January 2011 Net cash and cash equivalents at 28 January 2012 / 29 January 2011 Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 49 Notes to the Financial Statements 1) Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated and parent financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. a) Basis of preparation Both the consolidated and parent 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 consolidated financial statements, the Company is taking advantage of the exemption in Section 408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved financial statements. The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out on pages 5 to 13. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Chairman’s Statement on pages 5 and 6. In addition Note 22 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Group’s forecasts and projections, taking into account reasonably possible changes in trading performance, show that the Group has sufficient financial resources. As a consequence the Directors have a reasonable expectation that the Company and the Group are well placed to manage their business risks and to continue in operational existence for the foreseeable future, despite the current uncertain global economic outlook. Accordingly, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements. The consolidated and parent financial statements have been prepared under the historical cost convention, except for financial assets and financial liabilities (including derivative instruments), which are held at fair value. The preparation of financial statements in conformity with Adopted IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The Group’s significant judgement areas relate to inventory provisions and impairment of assets. Revised and amended standards and interpretations There were no revisions to Adopted IFRSs that became applicable in the period which had a significant impact on the Group’s financial statements. Revisions to IFRS not applicable in 2011 Standards and interpretations issued by the IASB are only applicable if endorsed by the EU. The following may be applicable in the future: • IFRS 9, Financial Instruments, will simplify the classification of financial assets for measurement purposes, but is not anticipated to have a significant impact on the financial statements. If endorsed, this will be effective for 2015; • Amendments to IAS 19, Employee Benefits, will require the financing on post-retirement benefits to be calculated on the net surplus or deficit using an ‘AA’ corporate bond rate. This is not going to impact the Group as there is currently no defined benefit obligation. This will be effective for 2013; Ted Baker Report and Accounts 2011 / 2012 50 Financi al s tat ements Notes to the Financial Statements continued • IFRS 11, Joint Arrangements, may result in certain entities currently classified as joint ventures being classified as joint operations. This would result in the Group’s share of the individual assets and liabilities of these entities being included in the financial statements rather than the equity method accounting adopted under the requirements of IAS 31, Interests in Joint Ventures. This will not affect the Group’s net assets or profit for the period. This will be effective for 2013. The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements. b) Basis of consolidation The consolidated accounts include the accounts of the Company and its subsidiary undertakings made up to 28 January 2012. Unless otherwise stated, the acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated financial statements from the date of acquisition or up to the date of disposal. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are 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. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring the venturers’ unanimous consent for strategic financial and operating decisions. Jointly controlled entities are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The consolidated financial statements include the Group’s share of the total recognised income and expense and equity movements of equity accounted investees, from the date that significant influence or joint control commences until the date that significant influence or control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discounted except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee. c) Foreign currency Transactions in foreign currencies are translated to the respective functional currencies of Group entities 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 to functional currency 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 denominated in foreign currencies that are stated at fair value are translated to functional currency at foreign exchange rates ruling at the dates the values were determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to sterling at average foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation since the transition date are recognised directly in a separate component of equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign currency translation reserve is transferred to profit or loss. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 51 d) Revenue recognition Revenue represents amounts receivable for goods provided in the normal course of business, net of trade discounts, VAT and other sales related taxes. Retail revenue is recognised when a Group entity sells a product to the customer. Wholesale revenue is recognised when goods are delivered and title has passed. Licence income is recognised on an accruals basis in accordance with the risks and rewards of the relevant agreements. The Group sells retail products with the right of return and experience is used to estimate and provide for the value of such returns at the time of sale when considered significant. Credit notes or exchanges are available to customers returning unwanted products with proof of purchase within 28 days of the date of purchase. Sale of gift vouchers are treated as future liabilities, and revenue is recognised when the gift vouchers are redeemed against a later transaction. e) Leases Rentals under operating leases are charged as incurred, unless there are pre-determined rental increases in the lease, in which case they are recognised on a straight-line basis over the lease term. Leasehold incentives received are recognised as an integral part of total lease expense, over the term of the lease. Certain rental expense is determined on the basis of revenue achieved in specific retail locations and is accrued for on that basis. The Group’s intangible asset, as shown in Note 10, relates to leased premises which have a guaranteed residual value. The guaranteed value arises because the next tenant, based on current market conditions, will pay this amount to the Group. Due to the likelihood that the money will be recoverable, the asset is not amortised. f) Pension costs Contributions payable to defined contribution schemes in respect of pension costs and other post retirement benefits are charged to the consolidated income statement in the period to which they relate. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet. g) Share based payments The Group operates an equity settled share based compensation plan. Share options and conditional share awards Share options and conditional share awards are measured at fair value at the date of grant using the Black-Scholes pricing model, taking into account the terms and conditions of the options/awards vesting. The grant date fair value is expensed on a straight line basis over the vesting period (i.e. the period in which the employees become unconditionally entitled to share options/ awards) based on an estimate of shares that will eventually vest. Shares of Ted Baker PLC held by the Company for the purpose of filling obligations in respect of employee share plans are deducted from equity in the balance sheet. Any surplus or deficit arising on the sale of the Ted Baker PLC shares held by the Company is included as an adjustment to reserves. Value Creation Plan The Group also operates a Value Creation Plan (VCP) which awards entitlements to certain employees and directors of the Group. These entitlements are convertible into options over ordinary shares subject to the Group’s share price reaching certain targets. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in equity. The fair value is initially recognised at the date of the award of the entitlements and spread over the period during which the entitlements are convertible into ordinary shares. The fair value of the entitlements is based on a Monte Carlo valuation model, taking into account the terms and conditions upon which the instruments were granted. Ted Baker Report and Accounts 2011 / 2012 52 Financi al s tat ements Notes to the Financial Statements continued Transactions of the Company-sponsored Employee Benefit Trust (EBT) are treated as being those of the Company and are therefore reflected in the parent company and group financial statements. In particular, the EBT’s purchases and sales of shares in the Company are debited and credited directly to equity. Where the Company grants options over its own shares to the employees of its subsidiaries, it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity. h) Derivatives The Group holds derivative financial instruments to hedge its foreign currency exposure. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in other comprehensive income to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss. i) Taxation Corporation tax payable is recognised on taxable profits using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax is recognised in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax is not recognised for temporary differences relating to investments in subsidiaries to the extent they will not reverse in the foreseeable future. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Income 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. Income tax comprises current and deferred tax. j) Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group and Company financial statements in the period in which it is declared. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 53 k) Intangible assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight line basis over the estimated useful lives of intangible assets unless such lives are indefinite. l) Property, plant and equipment Property, plant and equipment are stated at cost, net of accumulated depreciation and impairment losses. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost, less estimated residual value, of each asset over its expected useful life, on the following bases: Leasehold improvements: Fixtures, fittings and office equipment: Motor vehicles: Assets under construction: Straight line over the period of the lease. 20% to 25% per annum on a straight-line basis apart from computer equipment, which is 33% per annum on a straight-line basis. 25% per annum on a straight-line basis. Are deemed to have not started their useful lives and as such are not depreciated until the assets are in use and transferred to one of the categories above. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the income statement. m) Investments Investments in subsidiaries by the Company are shown at cost less accumulated impairment losses which are recognised in the income statement. n) Impairment of property, plant and equipment and indefinite life intangible assets Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its estimated recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Recoverable amounts for cash-generating units are based on value in use, which is calculated from cash flow projections using data from the Group’s latest internal forecasts, the results of which are reviewed by the Board. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management use a pre-tax discount rate derived from the Group’s weighted average cost of capital. Internal forecasts reflect the current market assessment and risks specific to the cash-generating units. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. Impairment losses are recognised in the income statement. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of the recoverable amount, but so that the increased carrying value does not exceed the carrying value that would have been determined if no impairment loss had been recognised for the asset in prior years. A reversal of an impairment loss is recognised in income immediately. Ted Baker Report and Accounts 2011 / 2012 54 Financi al s tat ements Notes to the Financial Statements continued o) Inventories Inventories and work in progress are stated at the lower of cost and net realisable value. Cost includes materials, direct labour and inward transportation costs. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. Provision is made for obsolete, slow moving or defective items where appropriate. p) Cash and cash equivalents Cash and cash equivalents comprises cash balances and money market 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. q) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value 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. r) Finance income and expenses Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in the income statement. Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established which in the case of quoted securities is usually the ex-dividend date. s) Segment reporting A segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s Board to make decisions about resources to be allocated to a segment and assess its performance, and for which discrete financial information is available (see note 2). t) Financial guarantee contracts Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. u) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly incremental costs (net of income taxes), is deducted from retained earnings in equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 55 v) Accounting estimates and judgments The directors have made significant accounting estimates and judgements in applying the Group’s accounting policies in the following areas: Impairment – the directors have used forecast models and an appropriate pre-tax weighted average cost of capital in its property, plant and equipment impairment calculations. Growth assumptions are based on directors’ knowledge and historical experience. Inventory valuation – the directors have used their knowledge and experience of the fashion industry in determining the level and rates of provisioning required to calculate the appropriate inventory carrying values. w) Non-GAAP performance measures The directors believe that the profit before exceptional items and adjusted earnings per share measures provide additional useful information for shareholders on the underlying performance of the business. These measures are consistent with how underlying business performance is measured internally. The exceptional profit before tax measure is not a recognised profit measure under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Exceptional items in the current year include: • Significant pre opening costs (including rental and others) for new store openings • One-off bad debt provision which is considered unusual and has materially impacted the results 2. Segment information The Group has three reportable segments; retail, wholesale and licence income. For each of the three segments, the Group’s chief operating decision maker (the “Board”) reviews internal management reports on a four weekly basis. The accounting policies of the reportable segments are the same as described in note (s) on page 54. Information regarding the results of each reportable segment is included below. Performance for the retail segment is measured based on operating contribution, whereas performance of the wholesale segment is measured based on gross profit and performance of the licence segment is measured based on royalty income, as included in the internal management reports that are reviewed by the Board. Segment results are used to measure performance as management believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm’s length basis. Ted Baker Report and Accounts 2011 / 2012 56 Financi al s tat ements Notes to the Financial Statements continued a) Segment revenue and segment result 52 weeks ended 28 January 2012 Revenue Cost of sales Gross profit Operating costs Operating contribution Licence income Segment result Reconciliation of segment result to profit before tax Segment result Other operating costs Exceptional costs Other operating income Operating profit Net finance expense Share of profit of jointly controlled entity, net of tax Profit before tax Capital expenditure Unallocated capital expenditure Total capital expenditure Depreciation Unallocated depreciation Total depreciation Segment assets Other assets Total assets Segment liabilities Other liabilities Total liabilities Net assets Retail £’000 174,185 (60,667) 113,518 (81,207) 32,311 - 32,311 Wholesale Licence income £’000 £’000 41,440 (22,752) 18,688 - 18,688 - 18,688 - - - - - 6,733 6,733 32,311 18,688 6,733 12,178 159 5,460 157 100,512 23,691 (33,986) (8,085) - - - - Total £’000 215,625 (83,419) 132,206 (81,207) 50,999 6,733 57,732 57,732 (30,791) (2,814) 142 24,269 (163) 149 24,255 12,337 2,752 15,089 5,617 2,039 7,656 124,203 8,889 133,092 (42,071) (5,836) (47,907) 85,185 Wholesale sales are shown after the elimination of inter-company sales of £20,348,000 (2011: £14,596,000). Ted Baker Report and Accounts 2011 / 2012 52 weeks ended 29 January 2011 Revenue Cost of sales Gross profit Operating costs Operating contribution Licence income Segment result Reconciliation of segment result to profit before tax Segment result Other operating costs Other operating income Operating profit Net finance expense Share of profit of jointly controlled entity, net of tax Profit before tax Capital expenditure Unallocated capital expenditure Total capital expenditure Depreciation Unallocated depreciation Total depreciation Segment assets Other assets Total assets Segment liabilities Other liabilities Total liabilities Net assets Fina nci a l s tat ements 57 Retail £’000 152,724 (52,615) 100,109 (72,649) 27,460 - 27,460 Wholesale Licence income £’000 £’000 34,976 (19,308) 15,668 - 15,668 - 15,668 - - - - - 6,227 6,227 27,460 15,668 6,227 6,336 360 4,980 132 86,784 22,946 (28,824) (6,601) - - - - Total £’000 187,700 (71,923) 115,777 (72,649) 43,128 6,227 49,355 49,355 (25,300) 77 24,132 (78) 174 24,228 6,696 2,812 9,508 5,112 1,358 6,470 109,730 7,027 116,757 (35,425) (5,308) (40,733) 76,024 Ted Baker Report and Accounts 2011 / 2012 58 Financi al s tat ements Notes to the Financial Statements continued b) Geographical information 52 weeks ended 28 January 2012 Revenue Non-current assets* 52 weeks ended 29 January 2011 Revenue Non-current assets* *Non-current assets exclude deferred tax assets. c) Revenue by collection Menswear Womenswear 3. Profit before tax Profit before tax is stated after charging: Depreciation Exceptional costs Net impairment reversal of property, plant and equipment Operating lease rentals for leasehold properties Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and associates for the audit of the Company’s subsidiaries, pursuant to legislation Fees payable to the Company’s auditor for other services supplied, pursuant to legislation Other services provided by the Company’s auditor Loss on sale of property, plant & equipment UK & Europe £’000 184,094 25,474 167,422 23,431 US £’000 27,787 9,210 17,678 6,922 HK £’000 3,744 3,153 2,600 134 Total £’000 215,625 37,837 187,700 30,487 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 108,252 107,373 215,625 £’000 98,229 89,471 187,700 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 7,656 2,814 (352) 18,915 9 76 20 20 30 £’000 6,470 - - 15,865 9 76 20 20 225 The exceptional costs incurred during the year of £2.8m (2011: nil) are in respect of rent paid in advance for stores that will not commence trading until 2012, set up costs in relation to our expansion into China and provision for bad and doubtful debts in respect of our exposure in Greece. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 59 4. Finance income and expenses Finance income - Interest receivable - Foreign exchange gains Finance expenses - Interest payable - Foreign exchange losses 5. Staff numbers and costs The average number of employees (including executive directors) was: Sales Design Administration Their aggregate remuneration comprised: Wages and salaries Share based charge Social security costs Pension costs 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 £’000 7 38 45 (208) - (208) 35 7 42 (65) (55) (120) 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 No. 1,706 37 236 1,979 £’000 34,782 446 3,252 549 39,029 No. 1,472 34 194 1,700 £’000 32,007 426 2,880 515 35,828 The figures stated above are Group staff costs and as such include the costs for Mr R S Kelvin, who is the only salaried employee of the parent company for both years. Further details of his remuneration may be found in the Directors’ Remuneration Report on page 32. 6. Income tax expense a) The tax charge comprises Current tax Deferred tax Prior year under provision 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 7,155 (692) 235 6,698 £’000 7,461 (633) 120 6,948 Ted Baker Report and Accounts 2011 / 2012 60 Financi al s tat ements Notes to the Financial Statements continued b) Deferred tax movement by type Property, plant & equipment Share based payments Overseas losses Inventory Other For further details please refer to note 13. 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 (380) (151) (192) (35) 66 (692) £’000 (412) (159) (41) (12) (9) (633) c) Factors affecting the tax charge for the period The tax assessed for the period is higher than the tax calculated at domestic rates applicable to profits in the respective countries. The differences are explained below. Profit before tax Profit multiplied by the standard rate in the UK – 26.32%, (2011: standard rate in the UK of 28%) Expenses not deductible for tax purposes Overseas losses not previously recognised Movement in current and deferred tax on share awards and options Prior year under provision Effect of rate change on corporation tax Difference due to overseas tax rates Total income tax expense d) Deferred and current tax recognised directly in equity Deferred tax credit on share awards and options Deferred tax associated with movement in hedging reserve 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 24,255 6,384 55 408 (61) 235 (131) (192) 6,698 £’000 24,228 6,784 191 133 (46) 120 (66) (168) 6,948 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 (275) (50) (325) £’000 (298) (55) (353) There was a reduction in the UK corporation tax rate from 28% to 26% with effect from 1 April 2011. There are further proposed reductions of 1% per annum for the next 3 years such that the headline rate will decrease to 23% by 1 April 2014. As the deferred tax assets and liabilities should be recognised based on the corporation tax rate substantively enacted at the balance sheet date, the assets and liabilities have been recognised at a rate of 25%. Had the further tax rate changes been substantively enacted before the balance sheet date, it would have had the effect of reducing the net deferred tax liability to UK operations by a further £114,000. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 61 7. Profit attributable to Ted Baker PLC The profit after tax for the 52 weeks ended 28 January 2012 of Ted Baker PLC, the parent company was £14,123,000 (2011: £8,060,000). The directors have approved the income statement for the parent company. 8. Dividends per share Final dividend paid for prior year of 14.3p per ordinary share (2011: 0.5p) Second interim dividend paid for prior year of £Nil per ordinary share (2011: 11.4p) Interim dividend paid of 7.15p per ordinary share (2011: 6.3p) 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 5,953 - 2,977 8,930 £’000 208 4,745 2,622 7,575 A final dividend in respect of 2012 of 16.25p per share, amounting to a dividend payable of £6,766,650, is to be proposed at the Annual General Meeting on 12 June 2012. 9. Earnings per share Number of shares: Weighted number of ordinary shares outstanding Effect of dilutive options Weighted number of ordinary shares outstanding – diluted Earnings: Profit for the period basic and diluted Profit for the period adjusted * Basic earnings per share Adjusted earnings per share * Diluted earnings per share 52 weeks ended 28 January 2012 No. 41,637,410 1,571,313 43,208,723 52 weeks ended 29 January 2011 No. 41,622,472 163,956 41,786,428 £’000 17,557 20,371 42.2p 48.9p 40.6p £’000 17,280 17,280 41.5p 41.5p 41.4p Own shares held by the Ted Baker Group Employee Benefit Trust, the Ted Baker 1998 Employee Benefit Trust and treasury shares have been eliminated from the weighted average number of ordinary shares. The options exercised during the year, and conditional share awards distributed, if they vest, are covered by shares held either in treasury or by these Trusts. Diluted earnings per share have been calculated using additional ordinary shares of 5p each available under the 1997 Unapproved Share Option Scheme, the 1997 Executive Share Option Scheme, the Ted Baker Performance Share Plan and the Ted Baker 2009 VCP. There were no share related events after the balance sheet date that may affect earnings per share. * Adjusted profit for the period and adjusted earnings per share are shown before the exceptional costs of £2,814,000 (2011: £nil). Ted Baker Report and Accounts 2011 / 2012 62 Financi al s tat ements Notes to the Financial Statements continued 10. Intangible assets Cost and net book value At 29 January 2011 Exchange rate movement At 28 January 2012 Cost and net book value At 30 January 2010 Additions Exchange rate movement At 29 January 2011 £’000 997 (29) 968 £’000 634 366 (3) 997 The intangible assets, both brought forward and added during the Period, relate to the right to lease stores that have a guaranteed residual value. The guaranteed value arises because the next tenants based on current market conditions are required to pay these amounts to the Group. Due to the nature of this, the assets are considered recoverable and therefore not amortised. The current market rate rents, for both stores included within the intangible assets, continue to be above the rent under the lease terms and hence no decline in values are foreseen. 11. Property, plant and equipment Cost At 29 January 2011 Additions Disposals Exchange rate movement At 28 January 2012 Depreciation At 29 January 2011 Charge for the year Impairment Disposals Exchange rate movement At 28 January 2012 Net book value At 29 January 2011 At 28 January 2012 Leasehold Improvements Fixtures, fittings & office equipment £’000 £’000 Motor vehicles £’000 37,657 7,396 (841) 67 44,279 18,615 3,628 (305) (706) 50 21,282 19,042 22,997 34,358 4,992 (1,989) (3) 37,358 26,078 4,023 (47) (1,671) 27 28,410 8,280 8,948 126 - - - 126 111 5 - - - 116 15 10 Assets under construction £’000 1,031 2,701 - (7) 3,725 - - - - - - 1,031 3,725 Total £’000 73,172 15,089 (2,830) 57 85,488 44,804 7,656 (352) (2,377) 77 49,808 28,368 35,680 Additions included within the assets under construction category are stated net of transfers to other property, plant and equipment categories. Transfers from the assets under construction category in the period amounted to £1,031,000 (2011: £506,000) whilst additions into this category were £3,725,000 (2010: £1,031,000). The net impairment credit of £352,000 relates to the reversal of an impairment charge of £733,000 incurred during the 52 weeks ended 30 January 2010 in relation to the carrying value of retail assets in Eire and offset by an impairment charge relating to retail assets in the year of £391,000. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 63 Impairment of property, plant and equipment The Group has determined that for the purposes of impairment testing, each store and outlet is a cash-generating unit. Cash- generating units are tested for impairment if there are indications of impairment at the balance sheet date. Recoverable amounts for cash-generating units are based on value in use, which is calculated from cash flow projections using data from the Group’s latest internal forecasts, the results of which are reviewed by the Board. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the cash-generating units. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. The pre-tax discount rate used to calculate value in use is derived from the Group’s weighted average cost of capital. The impairment losses relate to stores whose recoverable amounts (value in use) did not exceed the asset carrying values. In all cases, impairment losses arose due to stores performing below projected trading levels. Cost At 30 January 2010 Additions Disposals Exchange rate movement At 29 January 2011 Depreciation At 30 January 2010 Charge for the year Impairment losses Disposals Exchange rate movement At 29 January 2011 Net book value At 30 January 2010 At 29 January 2011 Leasehold Improvements Fixtures, fittings & office equipment £’000 £’000 Motor vehicles £’000 Assets under construction £’000 33,485 4,380 (279) 71 37,657 15,926 2,785 - (105) 9 18,615 17,559 19,042 29,974 4,603 (249) 30 34,358 22,562 3,679 - (178) 15 26,078 7,412 8,280 170 - (45) 1 126 139 6 - (35) 1 111 31 15 506 525 - - 1,031 - - - - - - 506 1,031 Total £’000 64,135 9,508 (573) 102 73,172 38,627 6,470 - (318) 25 44,804 25,508 28,368 Ted Baker Report and Accounts 2011 / 2012 64 Financi al s tat ements Notes to the Financial Statements continued 12. Investments (Company) a) Subsidiary undertakings The Company and Group have shares in the following subsidiary undertakings. All of the subsidiaries have been included in the consolidated accounts (*held directly by Ted Baker PLC). Country of incorporation & operation Principal activity Holding Ordinary Shares Subsidiary undertaking No Ordinary Designer Label Ltd (formerly Ted Baker Limited)* Ted Baker Investments (Jersey) Ltd* Ted Baker Limited Ted Baker (New York) Inc Ted Baker (France) SARL Ted Baker Japan KK Ted Baker Hong Kong Limited Ted Baker Spain, S. L. Ted Baker Korea Yuhan Hoesa Ted Baker Netherlands B. V. Ted Baker Beijing The People’s Republic of China b) Subsidiary undertakings - cost and net book value At 29 January 2011 Increase in cost of investment for share options / awards granted to subsidiary employees At 28 January 2012 At 30 January 2010 Increase in cost of investment for share options / awards granted to subsidiary employees At 29 January 2011 UK Jersey US US France Japan Hong Kong Spain Korea Netherlands Design, wholesale & retail of designer clothing & accessories Investment holding company Retail & wholesale of designer clothing & accessories Retail of designer clothing & accessories Retail of designer clothing & accessories Retail of designer clothing & accessories Retail of designer clothing & accessories Retail of designer clothing & accessories Retail of designer clothing & accessories Retail of designer clothing & accessories Retail of designer clothing & accessories 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Company £’000 17,051 377 17,428 Company £’000 16,694 357 17,051 c) Interest in Joint Venture The Group has a 50% interest in a joint venture with Flair Industries Pty Ltd which is represented by three stores in Australia and one store in New Zealand (2011: three stores in Australia). Investment in Joint Venture 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 494 £’000 345 The above carrying value represents the initial cost of the investment undertaken, as well as any subsequent change in net assets of the venture, as at 28 January 2012. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 65 Amounts due from equity accounted investee 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 407 £’000 286 There are no contingent liabilities relating to the Group’s interest in the joint venture, and no contingent liabilities of the venture itself. The joint venture’s assets, liabilities and profit at 28 January 2012 are as follows: Non-current assets Current assets Non-current liabilities Current liabilities Net assets Share capital Retained earnings Current year profit, net of tax Exchange rate movement Total equity 13. Deferred tax assets and liabilities Deferred tax liability on UK operations arising from: Assets Share based payments Derivative financial instruments Liabilities Property, plant & equipment Other * Net deferred tax liability Deferred tax asset on foreign operations arising from: Foreign trading losses Inventory Property, plant and equipment Other – vacation accrual Net deferred tax asset 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 1,935 1,201 - (1,993) 1,143 23 762 298 60 1,143 £’000 1,509 425 - (1,077) 857 23 395 348 91 857 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 £’000 900 104 (144) (2,280) (1,420) 2,675 389 305 49 3,418 474 55 (403) (1,673) (1,547) 1,904 349 178 39 2,470 Recognition of deferred tax assets is based on the generation of future taxable profits that will allow utilisation of losses. Deferred tax assets are only recognised on the foreign trading losses when these businesses pass their development phase, and when management considers it probable that future taxable profits will be available against which they can be utilised. Ted Baker Report and Accounts 2011 / 2012 66 Financi al s tat ements Notes to the Financial Statements continued The amount of unused cumulative tax losses for which no deferred tax asset has been recognised in the balance sheet is £1,155,000 (2011: £689,000). *Other includes a deferred tax liability for UK tax payable on US operations for which no double tax relief will be available. 14. Inventories Raw materials and packaging Work in progress Finished goods and goods for resale Cost of inventories recognised as an expense Inventories written down and recognised as an expense in the period 15. Trade and other receivables Trade receivables Amounts owed by Group undertakings Prepayments and accrued income 16. Derivative financial instruments Forward foreign exchange contracts 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 2,547 760 48,565 51,872 72,715 1,949 Group 29 January 2011 £’000 18,182 - 9,202 27,384 Assets 29 January 2011 £’000 102 £’000 2,174 805 39,513 42,492 62,881 1,683 Company 29 January 2011 £’000 - 24,710 2 24,712 Liabilities 29 January 2011 £’000 (455) Group 28 January 2012 £’000 19,744 - 10,843 30,587 Assets 28 January 2012 £’000 411 Company 28 January 2012 £’000 - 30,053 - 30,053 Liabilities 28 January 2012 £’000 (1,063) Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates that arise in the normal course of the Group’s business. The ineffective portion recognised in the income statement that arises from cash flow hedges amounts to a loss of £nil (2011: £nil). Gains and losses in equity of forward exchange contracts at 28 January 2012 will be released to the income statement at various dates within 12 months of the balance sheet date, as the hedged forecast transactions occur. 17. Reconciliation of cash and cash equivalents per balance sheet to cash flow statement Group 52 weeks ended 28 January 2012 Company 52 weeks ended 28 January 2012 Group 52 weeks ended 29 January 2011 Company 52 weeks ended 29 January 2011 £’000 8,560 (6,790) 1,770 £’000 444 - 444 £’000 13,536 - 13,536 £’000 464 - 464 Cash and cash equivalents per balance sheet Bank overdraft per balance sheet Net cash and cash equivalents per cash flow statement Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 67 18. Trade and other payables Trade payables Accruals and deferred income Other taxes and social security 19. Capital and reserves Authorised – 80,000,000 ordinary shares of 5p each Allotted, called up and fully paid – 43,198,033 ordinary shares of 5p each (2011: 43,198,033) Group 28 January 2012 £’000 15,910 15,260 4,111 35,281 Company 28 January 2012 £’000 - 4 - 4 Group 29 January 2011 £’000 18,888 13,385 2,697 34,970 Company 29 January 2011 £’000 - 14 - 14 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 4,000 2,160 £’000 4,000 2,160 At 28 January 2012, the Ted Baker Group Employee Benefit Trust (“Employee Trust”) and the Ted Baker 1998 Employee Benefit Trust (“1998 Trust”) did not hold any ordinary shares in Ted Baker PLC (2011: Employee Trust - £Nil, 1998 Trust - £Nil). The Company held 1,557,111 shares in treasury at 28 January 2012 (2011: 1,574,249). Other Reserves and retained earnings Other Reserves and retained earnings include the following reserve accounts: Cash Flow Hedging reserve The effective portion of financial instruments that is designated as hedging instruments and is documented as part of an effective hedge of future cash flows is recognised directly in equity and recycled to the income statement when the underlying cash flows occur, or are no longer expected to occur. At 28 January 2012, the value of financial instruments that are designated as hedging instruments recorded in equity was -£312,000 (2011: -£148,000). Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the Group’s financial statements of foreign operations. Other reserves - Company This reserve relates to the premium on equity consideration used in the acquisition of a subsidiary, No Ordinary Designer Label Limited, by Ted Baker PLC in 1997, which is classified within Other Reserves under the Companies Act. This reserve also includes the cost of share options and awards granted to subsidiary employees of the parent company. This reduction in other reserves is reflected in retained earnings in the Group Statement of Changes in Equity. Retained Earnings In 2010 the Group acquired an additional 34% in Ted Baker (New York) Inc for £0.6m in cash increasing its ownership to 100%. The carrying amount of net assets in the Group’s financial statements on the date of acquisition was £0.1m. The Group eliminated its non controlling interest of £0.1m and recognised a decrease in retained earnings of £0.7m. Ted Baker Report and Accounts 2011 / 2012 68 Financi al s tat ements Notes to the Financial Statements continued 20. Share based payments Share options and conditional share awards Equity settled awards are granted to employees in the form of share options or share awards. Share options are granted at an option price equal to the Company’s share price at the grant date, or at a discount of up to 20% in the case of SAYE share options. No consideration is payable where share awards vest. The vesting period is generally between three and five years. Movements in the number of share options and awards outstanding and their related weighted average exercise prices are as follows: At beginning of period Granted during the period Exercised during the period Lapsed during the period Outstanding at the end of period Weighted average exercise price 2012 Number of options/awards 2012 Weighted average exercise price 2011 Number of options/awards 2011 344.7p 552.0p 414.6p 441.9p 382.4p 154,247 42,966 (17,138) (15,238) 164,837 240.7p 432.0p 361.0p 235.9p 344.7p 1,921,415 42,093 (5,308) (1,803,953) 154,247 Exercisable at end of period - - - - The charge for the year to the income statement amounted to £58,926 (2011: £38,868). The weighted average share price at the date of exercise of share options exercised during the year was 665.0p (2011: 531.0p). Share options and awards outstanding at the end of the period were as follows: Grant Date 17 November 2005 27 November 2007 15 May 2009 15 May 2009 14 May 2010 14 May 2010 20 April 2011 20 April 2011 Expiry date Exercise price Fair value at grant date Number of options / awards at 28 January 2012 Number of options / awards at 29 January 2011 31 January 2012 31 January 2014 1 January 2013 1 January 2015 31 January 2015 31 January 2017 1 January 2015 1 January 2017 334.0p 429.0p 303.0p 303.0p 432.0p 432.0p 552.0p 552.0p 160.0p 144.6p 82.5p 84.6p 124.6p 129.4p 168.8p 189.0p - 3,916 23,445 74,963 17,875 6,832 29,930 7,876 2,602 18,810 23,445 78,584 22,537 8,269 - - 164,837 154,247 The fair value of employee share options and awards were calculated using the Black-Scholes model. The range of inputs into the Black-Scholes model were as follows: Weighted average share price Weighted average exercise price Risk free interest rate Expected life of options Share price volatility Dividend yield 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 478.0p 382.4p 441.4p 241.6p 1.49% - 4.70% 1.49% - 5.29% 3-5 years 3-5 years 22.7% - 32.1% 19.1% - 32.1% 2.24% - 4.62% 2.24% - 4.62% The share price volatility was determined by calculating the historic volatility of the Group’s share price over a time period matching the expected life of the option. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 69 Value Creation Plan The award of units is made under the Ted Baker 2009 Value Creation Plan (“2009 VCP”), which was approved by shareholders at the General Meeting held on 16 June 2009. Units have no value at grant, but subject to the satisfaction of earnings per share, share price and total shareholder return performance targets can convert and give participants the right to be granted nil-cost options at the end of the performance. Further details of the plan are outlined in the notice of meeting dated 13 May 2009. The terms and conditions of the award of units granted under the 2009 VCP are as follows: Grant date Type of award Number of units Vesting conditions Vesting period 13 August 2009 Award of units 100,000 VCP awards outstanding at the end of the period were as follows: Growth in earnings per share, share price and total shareholder return over a three year performance period 50% after three years and the balance one year later At 29 January 2011 / 30 January 2010 VCP entitlements awarded during the year Lapsed during the year Outstanding at 28 January 2012 / 29 January 2011 At 28 January 2012 At 29 January 2011 No. of entitlements No. of entitlements 100,000 100,000 - - - - 100,000 100,000 The VCP awards are valued using a Monte Carlo model. The inputs into the model are as follows: Share price on award date Average share price at award date Number of simulations Expected life of options Dividend yield Risk free interest rate Ted Baker volatility FTSE index volatility Correlation between Ted Baker and FTSE index Share price hurdle per annum Payout over share price hurdle Vesting percentage for meeting performance conditions Shares in issue 13 August 2009 £3.98 £3.76 10,000 3 years 4.18% 2.21% 25.0% 33.0% 12.0% 10.0% 12.5% 100.0% 41,618,476 The charge for the year to the income statement amounted to £387,264 (2011: £387,264). Included in the charge for the year is an amount in respect of R S Kelvin who is employed by the Company, amounting to £69,320 (2011: £69,320). 21. Financial commitments a) Capital commitments The Group has capital commitments of £6,408,000 at 28 January 2012 (2011: £2,682,000) which were not provided in the financial statements. Ted Baker Report and Accounts 2011 / 2012 70 Financi al s tat ements Notes to the Financial Statements continued b) Operating leases Total of future lease payments under non-cancellable operating leases are as follows: Within one year Between one and five years Later than five years 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 17,599 64,831 50,086 £’000 18,267 58,980 36,626 132,516 113,873 The Group leases a number of stores, warehouses and head office facilities under operating leases. The leases are of varied length with the longest lease running until 2029. Leases of land and buildings are typically subject to rent reviews at specified intervals and provide for the lessee to pay all insurance, maintenance and repair costs. Certain rental expense is determined on the basis of revenue achieved in specific retail locations and is accrued for on that basis. The total amount paid under these agreements was £14,793,000 (2011: £12,934,000). c) Pension arrangements The Group operates a number of defined contribution schemes for senior management and a stakeholder pension scheme for employees, for which the pension cost charge for the period amounted to £549,000 (2011: £515,000). Contributions totalling £24,474 (2011: £18,778) are included in other receivables at the year end. 22. Financial instruments and risk management a) Carrying amount and fair values of financial assets and liabilities Financial assets and liabilities - Group The fair values of financial assets and liabilities of the Group, together with the carrying amounts shown in the balance sheet, are as follows: Carrying amount 28 January 2012 £’000 19,744 1,092 407 411 8,560 30,214 (35,281) (1,063) (6,790) (43,134) (12,920) Fair value 28 January 2012 £’000 19,744 1,092 407 411 8,560 30,214 (35,281) (1,063) (6,790) (43,134) (12,920) Carrying amount 29 January 2011 £’000 18,182 1,099 286 102 13,536 33,205 Fair value 29 January 2011 £’000 18,182 1,099 286 102 13,536 33,205 (34,970) (34,970) (455) - (35,425) (2,220) (455) - (35,425) (2,220) Financial assets Trade receivables Accrued income Amount due from equity accounted investee Derivative financial assets Cash and cash equivalents Total financial assets Financial liabilities Trade and other payables Derivative financial liabilities Bank overdraft Total financial liabilities Net financial liabilities Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 71 Financial assets and liabilities - Company The fair values of financial assets and liabilities of the Company, together with the carrying amounts shown in the balance sheet, are as follows: Financial assets Amounts owed by group undertakings Cash and cash equivalents Total financial assets Financial liabilities Trade and other payables Total financial liabilities Net financial assets Carrying amount 28 January 2012 £’000 30,053 444 30,497 (4) (4) Fair value 28 January 2012 £’000 30,053 444 30,497 (4) (4) 30,493 30,493 Carrying amount 29 January 2011 £’000 24,710 464 25,174 (14) (14) 25,160 Fair value 29 January 2011 £’000 24,710 464 25,174 (14) (14) 25,160 The methods and assumptions used to estimate fair values of financial assets and liabilities are as follows: 1. Cash and cash equivalents have been stated at their book values due to their short maturities or immediate or short- term access. 2. The fair values of trade receivables, amount due from equity accounted investee and amounts owed by Group undertakings have been stated at their book value due to their short maturities. 3. The fair value of derivatives is determined by reference to third party valuations (usually from a bank) or by reference to readily observable market prices. 4. The fair values of trade and other payables have been stated at their book values due to their short maturities. 5. Valuation of all financial derivative assets and liabilities carried at fair value by the Group is based on hierarchy Level 2. Fair value hierarchy levels are defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 3: b) Derivative financial instruments Currency derivatives Contractual/ notional amounts 28 January 2012 £’000 26,434 26,434 Assets 28 January 2012 £’000 411 411 Liabilities 28 January 2012 £’000 (1,063) (1,063) Contractual/ notional amounts 29 January 2011 £’000 26,598 26,598 Assets 29 January 2011 £’000 102 102 Liabilities 29 January 2011 £’000 (455) (455) c) Cash flow hedging reserve movements The following table indicates the cash flow hedging reserve balance at 28 January 2012 and the periods in which the cash flows are expected to occur. The periods in which the cash flows are expected to impact the profit and loss are materially the same. Ted Baker Report and Accounts 2011 / 2012 72 Financi al s tat ements Notes to the Financial Statements continued Within six months Between six months and one year Between one and two years Unrecognised losses Currency derivatives 28 January 2012 Currency derivatives 29 January 2011 £’000 (312) - - (312) £’000 (148) - - (148) The following table identifies the movements in the cash flow hedging reserve during the year, including where gains and losses have been recognised in the income statement. Opening balance (Losses) / gains recognised in hedging reserve Amounts recovered from hedging reserve and recognised in income statement Deferred tax associated with movement in the hedging reserve Closing balance Currency derivatives 28 January 2012 Currency derivatives 29 January 2011 £’000 (148) (240) 26 50 (312) £’000 (12) 88 (279) 55 (148) d) Financial risk identification and management The Group’s multinational operations and debt financing requirements expose it to a variety of financial risks. In the course of its business the Group is exposed to: • market risk; • credit risk; and • liquidity risk The Group’s financial risk management process seeks to enable the early identification, evaluation and effective management of key risks facing the business. Risk management policies and systems have been established and are reviewed regularly to reflect changes in the market conditions and the Group’s activities. The Group, through its standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. i) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. At the balance sheet date, the only significant market risk to the Group arises from foreign currency risk. The Group operates internationally and is therefore exposed to foreign currency risk primarily on purchases denominated in US dollars and Euros. The Board reviews and agrees policies for managing exchange rate risks on a regular basis. Where appropriate, the Group uses financial instruments to mitigate these risks. All transactions in derivatives, principally forward exchange contracts, are taken solely to manage these risks. No transactions of a speculative nature are entered into. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 73 The Group’s policy is to hedge substantially all the risks of such currency fluctuations by using forward contracts taking into account forecast foreign currency cash inflows and outflows. The Group’s risk management policy is to hedge the vast majority of anticipated cash flows (mainly purchases of inventory) in each major foreign currency for the subsequent 12 months. The vast majority of projected purchases in each major currency qualifies as ‘highly probable’ forecast transactions for hedge accounting purposes. Foreign cturrency risk The Group operates internationally and is therefore exposed to foreign currency transaction risk, primarily on purchases denominated in US dollars and Euros. Where appropriate, the Group uses financial instruments to mitigate these risks. The Group also publishes its financial statements in sterling and is therefore exposed to foreign currency translation risks due to movements in foreign exchange rates on the translation of the results and underlying net assets of its foreign operations into sterling. Transaction risk Currency transaction exposure occurs where a business makes sales and purchases in a currency other than its functional currency. It also arises where monetary assets and liabilities of a business are not denominated in its functional currency, and where dividends or surplus funds are remitted from overseas. The Group’s policy is to match transaction exposures wherever possible, and to hedge actual exposures and firm commitments as soon as they occur by using forward foreign exchange contracts. An element of this risk is mitigated by natural hedges as the Group operates internationally and income is generated in the local currencies. Economic (forecast) risk The Group also uses forward foreign currency contracts to hedge its exposure to movements in exchange rates on its highly probable forecast foreign currency purchases on a rolling 12 month basis. The Group does not formally define the proportion of highly probable forecast purchases to hedge, but agrees an appropriate percentage on an individual basis with each business by reference to the Group’s risk management policies and prevailing market conditions. The Group documents currency derivatives used to hedge its forecast transactions as cash flow hedges. To the extent that cash flow hedges are effective, gains and losses are deferred in equity until the forecast transaction occurs, at which point the gains and losses are recycled either to the income statement or to the non-financial asset acquired. The majority of the Group’s currency derivatives have original maturities of less than one year. The Group’s most significant currency transaction exposure is the purchases of inventories which are denominated in a number of currencies, predominantly Euros and US dollars. The analysis of the Group’s foreign currency exposure to financial assets and liabilities by currency of denomination is as follows: Financial assets Trade receivables Cash and cash equivalents* Financial liabilities Trade and other payables US Dollar 28 January 2012 £’000 1,602 (5,152) (3,550) (4,362) (4,362) Euro 28 January 2012 £’000 1,276 795 2,071 (3,210) (3,210) (7,912) (1,139) Other 28 January 2012 £’000 44 2,362 2,406 (256) (256) 2,150 * The US Dollar overdraft forms part of a multi-currency overdraft facility and as such is netted off against other cash balances and is not recognised as an overdraft in its own right. Ted Baker Report and Accounts 2011 / 2012 74 Financi al s tat ements Notes to the Financial Statements continued Financial assets Trade receivables Cash and cash equivalents* Financial liabilities Trade and other payables US Dollar 29 January 2011 £’000 84 (7,291) (7,207) (3,597) (3,597) Euro 29 January 2011 £’000 1,425 4,780 6,205 (2,857) (2,857) (10,804) 3,348 Other 29 January 2011 £’000 125 1,031 1,156 (255) (255) 901 The following significant exchange rates applied during the year: US dollar Euro Average Rate 28 January 2012 1.602 1.154 Mid-spot rate 28 January 2012 1.569 1.195 Average Rate 29 January 2011 1.543 1.170 Mid-spot rate 29 January 2011 1.589 1.161 Sensitivity Analysis The Group has used a sensitivity analysis technique that measures the estimated change to the income statement and equity of a 10% strengthening or weakening in sterling against all other currencies, using the rates applicable at 28 January 2012. The analysis assumes that all other variables, in particular, interest rates, remain constant. The following sensitivity analysis illustrates the impact that a 10% strengthening of the Group’s reporting currency against local functional currencies would have had on profit before tax and non-controlling interest and equity. The analysis covers currency translation exposures at the year end on the Group’s financial assets and liabilities that are not denominated in the functional currencies of those businesses. A 10% (2011: 10%) strengthening or weakening of the sterling against the following currencies at 28 January 2012 would have increased / (decreased) equity and profit by the amounts shown in the following table: Test of 10% (2011: 10%) strengthening in sterling against other currencies US Dollar Euro Test of 10% (2011: 10%) weakening in sterling against other currencies US Dollar Euro Impact on profit 28 January 2012 Impact on equity 28 January 2012 Impact on profit 29 January 2011 Impact on equity 29 January 2011 £’000 (719) (104) (823) 879 127 1,006 £’000 (719) (104) (823) 879 127 1,006 £’000 (982) 304 (678) 1,200 (372) 828 £’000 (982) 304 (678) 1,200 (372) 828 Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 75 Interest rate risk The Group’s exposure to interest rate risk is limited to floating rate financial assets and liabilities. The interest rate profile of the financial assets and liabilities of the Group are as follows: Financial assets subject to interest rate risk Sterling US Dollar Euro Other Group 28 January 2012 £’000 (2,718) (2,220) 1,419 5,232 1,713 Company 28 January 2012 £’000 444 - - - 444 Group 29 January 2011 £’000 11,785 (4,586) 5,252 1,030 13,481 Company 29 January 2011 £’000 464 - - - 464 There were no fixed rate financial assets or liabilities at 28 January 2012 and 29 January 2011. ii) Credit risk Credit risk is the risk that counterparties to financial instruments do not perform according to the terms of the contract or instrument. The Group is exposed to counterparty credit risk when dealing with its credit customers, and from certain financing activities. The immediate credit exposure of financial instruments is represented by those financial instruments that have a net positive fair value by counterparty at 28 January 2012. The Group considers its maximum exposure to credit risk to be: Net cash and cash equivalents Trade receivables Accrued income Amount due from equity accounted investee Derivative financial assets 52 weeks ended 28 January 2012 52 weeks ended 29 January 2011 £’000 1,713 19,744 1,092 407 411 23,367 £’000 13,481 18,182 1,099 286 102 33,150 All cash balances and derivative financial assets are held with reputable banks or financial institutions. As at 28 January 2012, there were no significant financial guarantees or third-party obligations that increase the credit risk of the financial assets set out above. Although the Group has seen no direct evidence of changes to the credit risk of its counterparties that hold cash balances and derivative financial assets, the current focus on financial liquidity in all international markets has introduced increased financial volatility. The Group uses market knowledge, changes in credit ratings and other techniques to identify significant changes to the financial profile of its counterparties. Trade receivables Credit risk arises on credit exposure to wholesale customers including outstanding receivables and committed transactions. However, this risk is substantially mitigated by insurance being taken out up to the amount of the credit limit. All new wholesale customers are checked against appropriate trade references and details such as frequency/delinquency. The limits applied to each customer are set in conjunction with our credit insurer’s advice. Monitoring of credit limits is undertaken on a daily basis. Ted Baker Report and Accounts 2011 / 2012 76 Financi al s tat ements Notes to the Financial Statements continued No credit limits were exceeded in the reporting period and management will continue with its current approach to credit control to prevent any future losses from non-performance arising. The Group is not able to protect its royalty income with credit insurance, although it does not consider this a significant credit risk, as a prudent approach to income recognition is taken in the accounts. Forecasts are obtained from all its licence partners throughout the year to allow extensive visibility of future income. iii) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group treasury maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Group’s liquidity reserve (comprises undrawn borrowing facility and cash and cash equivalents) on the basis of expected cash flow. This is generally carried out at entity level in the operating companies of the Group in accordance with practice and limits set by the Group. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these; and monitoring balance sheet liquidity ratios against internal and external regulatory requirements. Based on current cash flow projections, the Group expects to have sufficient headroom against its borrowing facilities (see section below for further details on the borrowing facilities). The table below analyses the Group’s financial liabilities and derivative financial liabilities into relevant maturity groupings based on the remaining period to the contractual maturity date, at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. At 28 January 2012 Non-derivative financial liabilities Trade and other payables Derivative financial liabilities Derivative financial instruments At 29 January 2011 Non-derivative financial liabilities Trade and other payables Derivative financial liabilities Derivative financial instruments Less than 1 year £’000 Between 1-2 years £’000 Between 2-5 years £’000 Over 5 years £’000 Contracted amount £’000 Carrying amount £’000 35,281 1,063 34,970 455 - - - - - - - - - - - - 35,281 35,281 1,063 1,063 34,970 34,970 455 455 Borrowing facilities The Group has a three year committed borrowing facility of £40.0m (2011: £20.0m), which is due to expire on 1 March 2015. The facility is a multi-currency revolving credit facility with The Royal Bank of Scotland and Barclays. The facility will be used to the extent necessary to fund capital expenditure to support the Group’s growth strategy. The facilities contain financial covenants which are believed to be appropriate in the current economic climate and tested on a quarterly basis. The Group monitors actual and prospective compliance with these on a regular basis. Ted Baker Report and Accounts 2011 / 2012 Fina nci a l s tat ements 77 The Financial covenant tests are based upon the following: • a ratio of total net debt to EBITDA; • a fixed charge cover ratio; and • minimum net tangible assets. The Group, as part of its regular forecasting process, has a forward looking view of these financial covenant tests and based on current projections there are no indications that any of these covenants will be breached during the term of the agreement. No covenants were breached during the year to 28 January 2012. e) Capital management The Board’s policy is to maintain a strong capital base, defined as total shareholders’ equity, totalling £85,185,000 at 28 January 2012 (2011: £76,024,000), so as to maintain investor, creditor and market confidence and to sustain future development of the business. From time to time the Company purchases its own shares on the market; the timing of these purchases depends on market prices. Primarily the shares are intended to be used for issuing shares under the Group and Company’s share option and award programmes. Buy and sell decisions are made on a specific transaction basis by the Board; the Group and Company do not have a defined share buy-back plan. It is the Board’s intention to achieve a dividend cover ratio of 2 times every year. There were no changes in the Group and Company’s approach to capital management during the year. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements. 23. Related Parties The Company has a related party relationship with its directors and executive officers. Directors of the Company and their immediate relatives control 40 per cent of the voting shares of the Company. At the 28 January 2012, the main trading company owed the parent company £30,053,000 (2011: £24,710,000). The main trading company was owed £38,987,000 (2011: £23,313,000) from the other subsidiaries within the Group. Transactions between subsidiaries were priced on an arms length basis. The Group has a 50% interest in a joint venture, with Flair Industries Pty Ltd. As at 28 January 2012, the joint venture owed £407,000 to the main trading company (2011: £286,000). In the period the value of sales made to the joint venture by the Group was £726,000 (2011: £565,000). The Group considers the Board of executive directors as key management. Further details are provided in the Remuneration Report. Ted Baker Report and Accounts 2011 / 2012 78 Financi al s tat ements Five Year Summary Results Revenue Operating profit Profit before tax Profit before tax and impairment Profit before tax and exceptional costs Profit for the period Assets employed Property, plant and equipment Non-current assets Net current assets / (liabilities) Non-current liabilities 52 weeks ended 26 January 2008 53 weeks ended 31 January 2009 52 weeks ended 30 January 2010 52 weeks ended 29 January 2011 52 weeks ended 28 January 2012 £’000 £’000 £’000 £’000 £’000 142,231 22,142 22,057 22,057 22,057 15,242 23,061 1,738 31,756 (843) 152,661 17,161 17,766 19,552 17,766 12,568 28,701 2,623 31,417 (575) 163,586 19,782 19,504 20,254 19,504 13,527 25,508 3,245 38,793 (1,316) 187,700 24,132 24,228 24,228 24,228 17,280 28,368 4,589 44,614 (1,547) 215,625 24,269 24,255 23,903 27,069 17,557 35,680 5,575 45,350 (1,420) Net assets 55,712 62,166 66,230 76,024 85,185 Financed by Shareholders’ funds Non-controlling interest Total equity Key statistics Basic earnings per share Adjusted earnings per share Diluted earnings per share Dividends per share Dividend cover Dividend cover before exceptional costs Return on capital employed Return on capital employed before exceptional costs 55,723 (11) 55,712 36.1p 36.1p 35.9p 16.4p 2.2 times 2.2 times 51.4% 51.4% 62,202 (36) 62,166 29.6p 29.6p 29.6p 16.65p 1.8 times 1.8 times 32.6% 32.6% 66,315 (85) 66,230 32.6p 32.6p 32.6p 17.15p 1.9 times 1.9 times 37.4% 37.4% 76,024 - 76,024 41.5p 41.5p 41.4p 20.6p 2.0 times 2.0 times 39.3% 39.3% 85,185 - 85,185 42.2p 48.9p 40.6p 23.4p 1.8 times 2.1 times 29.8% 33.2% Ted Baker Report and Accounts 2011 / 2012 Fina nci a l stat ements 79 VISAS Ted Baker Report and Accounts 2011 / 2012 visas visas Emergencies: The holder should insert below particulars of two local Ted Baker stores who may be contacted in the event of a sartorial emergency: Name Address Telephone Name Address Telephone NOTES 1. From a scrap of fabric found in Morocco to a pattern spotted in Peru, you never know when or where inspiration will strike. Rest assured though, Ted travels the world and back again to ensure each new season is better than the last. 2. With over 275 stores and concessions worldwide, Ted Baker has travelled to all four corners of the globe, setting rather than following fashion, mixing business and pleasure. 3. His quest for the perfect mix of distinctive design, beautiful quality, simple yet unswerving attention to detail and unconventional approach to fashion (all liberally spiced with Ted’s irreverent sense of humour and a firm commitment to good old-fashioned values) has seen him cement his reputation as a purveyor of the finest in fashionable clothing and stylish accessories 4. While Ted’s travels around the world have become the stuff of legend, it is a fact that – today – all four corners of the world have now cottoned onto what Ted still likes to call ‘fashion’s best kept secret’. PASSPORT Name of bearer Accompanied by spouse stores 

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