Triumph Bancorp Inc
Annual Report 2018

Plain-text annual report

A n n u a l R e po r t & A c co u n ts 2 0 17 / 18 CONTENTS STRATEGIC REPORT CHAIRMAN’S STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 BUSINESS MODEL AND STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 BUSINESS REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 PRINCIPAL RISKS AND UNCERTAINTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SUSTAINABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 PEOPLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 DIRECTORS’ REPORT BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 CORPORATE GOVERNANCE STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 NOMINATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 DIRECTORS’ REMUNERATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 OTHER STATUTORY AND REGULATORY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 STATEMENT OF DIRECTORS’ RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TED BAKER PLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 FINANCIAL STATEMENTS GROUP AND COMPANY PRIMARY FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 NOTES TO THE FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 FIVE YEAR SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 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. Registered Office: Company Secretary: Financial Advisers and Sponsor: Auditors: Bankers: Registrars: The Ugly Brown Building, 6a St. Pancras Way, London NW1 0TB Charles Anderson ACMA Liberum Capital Limited, 25 Ropemaker St, London EC2Y 9LY KPMG LLP, 15 Canada Square, Canary Wharf, London E14 5GL Barclays Bank Plc, 1 Churchill Place, London E14 5HP The Royal Bank of Scotland Plc, 62-63 Threadneedle Street, London EC2R 8LA HSBC Bank Plc, 8 Canada Square, Canary Wharf, London E14 5HQ Link Asset Services, 34 Beckenham Road, Beckenham, Kent BR3 4TU Ted Baker Plc - Registered in England No: 03393836 1 Ted Baker Plc Annual Report and Accounts 2017/18 DISTRIBUTION CHANNELS Ted carefully manages distribution through three main channels: RETAIL £442.5m (10.4% INCREASE) WHOLESALE £149.2m (14.6% INCREASE) LICENSING £21.4m (17.6% INCREASE) UK AND EUROPE NORTH AMERICA ASIA AFRICA MIDDLE EAST AUSTRALASIA 41 STORES* 54 STORES* 34 STORES* 4 STORES* 34 STORES* 9 STORES* 252 CONCESSIONS 61 CONCESSIONS 14 CONCESSIONS 15 OUTLETS 12 OUTLETS 2 OUTLETS …AND WHOLESALE AND LICENSING RELATIONSHIPS IN OVER 35 COUNTRIES ACROSS THE GLOBE. *Store numbers include licence partner stores. STRATEGIC REPORT CHAIRMAN’S STATEMENT I am pleased to report that Group revenue increased by 11.4% (9.6% in constant currency)1 to £591.7m (2017: £531.0m) and profit before tax and exceptional items2 increased by 11.7% to £73.5m (2017: £65.8m) for the 52 weeks ended 27 January 2018 (the “period”). Profit before tax increased by 12.3% to £68.8m (2017: £61.3m). This good performance reflects the strength of the Ted Baker brand and business model and was achieved despite a backdrop of on-going challenging external factors across our global markets. STRATEGIC REPORT The retail channel performed well, with retail sales including e-commerce up 10.4% (8.5% in constant currency)1 to £442.5m (2017: £400.7m) on an increase in average square footage of was a result of an increased retail margin driven by an improved full price sell-through and change in mix of full price and outlet sales, offset by a decrease in the wholesale margin, reflecting 5.9%. Our e-commerce business is an integral and increasingly a prior-year foreign exchange benefit that was not expected important component within our retail proposition and has to re-occur and a greater proportion of wholesale sales to our performed very well, delivering strong sales growth of 39.8% (38.7% in constant currency)1 to £101.1m (2017: £72.3m). We continued our controlled geographic expansion with openings territorial licence partners which carry a lower margin. Profit before tax and exceptional items2 increased by 11.7% to £73.5m (2017: £65.8m) and profit before tax increased across the UK and Europe, North America and the Rest of the by 12.3% to £68.8m (2017: £61.3m). Adjusted basic earnings World and we continue to invest and build brand awareness in per share, which excludes exceptional items, increased by our newer markets for the long-term development of the brand. 12.0% to 127.7p (2017: 114.0p) and basic earnings per share The wholesale channel delivered a strong performance, with sales up 14.6% (13.3% in constant currency)1 to £149.2m (2017: £130.3m). This reflects a good performance from our UK increased by 12.6% to 119.0p (2017: 105.7p). Exceptional items in the period amounted to £4.7m (2017: £4.5m) and comprised the impairment of retail assets, relating wholesale business, which includes the supply of goods to our to three stores in the US and one store in Europe of £4.5m, licensed stores and our export business, as well as a strong and restructuring costs of £1.3m, partially offset by income of performance from our North American wholesale business. £1.1m related to the release of provisions against the Group’s Licence income delivered strong growth of 17.6% to legacy warehouses following assignment of the leases. £21.4m (2017: £18.2m). During the period, our licence partners Exceptional items in the 52 weeks ended 28 January 2017 of opened further stores and concessions in Australia, Dubai, £4.5m included a provision for lease commitments relating to Indonesia, Kuwait, Lebanon, Mexico, Qatar, Saudi Arabia the Group’s legacy warehouses of £2.9m along with £0.7m of and Turkey. other closure costs and £0.9m in respect of closure costs for a In May 2017, we launched the next phase of the Microsoft concept store in London. Dynamics AX system across our UK and European businesses The Group’s net borrowing position at the end of the period to fully support our retail, e-commerce and wholesale was £111.8m (2017: £95.2m) being the secured term loan of channels. We anticipate completing the final phases of this £52.5m (2017: £58.5m) used to purchase The Ugly Brown project towards the end of this year, and this will allow us to Building and other net debt of £59.3m (2017: £36.7m). The continue to enhance efficiency, streamline our operations and increase in other net debt primarily reflects the ongoing capital support the development of the business. expenditure during the period and increased working capital. We have now successfully completed the transition from our three legacy distribution centres to our single European distribution centre in the UK. The new distribution centre now DIVIDENDS Reflecting the Group’s continued good performance and the handles all logistic operations for our retail, e-commerce and Board’s confidence in the outlook, the Board is recommending wholesale businesses across the UK and Europe, supporting a final dividend of 43.5p per share (2017: 38.8p), making a total our long-term growth strategy. In September 2017, we for the period of 60.1p per share (2017: 53.6p per share), an successfully assigned the leases for our three UK legacy increase of 12.1% on the prior period. Subject to approval by distribution centres to third parties. shareholders at the Annual General Meeting to be held on 12 The Group continues to consider its expansion and June 2018, the final dividend will be paid on 22 June 2018 to development plans for The Ugly Brown Building and has shareholders on the register on 18 May 2018. decided not to exercise the option to purchase 50% of neighbouring Block A, as future capacity requirements will be accommodated within our enhanced plans for the current site. FINANCIAL RESULTS Group revenue for the period increased by 11.4% (9.6% in constant currency)1 to £591.7m (2017: £531.0m). The Group gross margin remained constant at 61.0% (2017: 61.0%). This PEOPLE I would like to take this opportunity to thank all of my colleagues across the world for their continued hard work and commitment. The performance in the period is testament to our talented teams, whose skill and passion are key to our success as we continue to grow the business and develop Ted Baker as a global lifestyle brand. 4 5 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT CURRENT TRADING AND OUTLOOK RETAIL In the UK and Europe, we have opened a new store in London GROUP The recent unseasonal weather across Europe and the East Coast of America has had an impact on the early part of trading for Spring/Summer and we anticipate that external trading Luton Airport and plan to open new stores in Barcelona Airport conditions will remain challenging across many of our global and London Bridge station, an outlet in Lyon and our first outlet markets. However, the new season collections have been well in Neumunster, Germany, along with further concessions in the received and the strength of our brand and business model UK, France, Germany and Spain. We will continue to invest in means that we remain well positioned to continue the Group’s our e-commerce sites to enhance the customer experience. momentum and long-term development. We have a clear In North America, we will continue to develop our presence strategy for the continued expansion of Ted Baker as a global with plans to open stores in Austin and Orlando, along with lifestyle brand across both established and newer markets. further licence partner concessions in Mexico. This is underpinned by our controlled distribution across In the Rest of the World, we remain focused on building channels as well as the design, quality and attention to detail brand awareness, as we are still in the relatively early stages that are central to everything we do. of investment. In line with our development strategy in this To deliver our expansion plans, capital expenditure in the territory, we plan to open a further concession in Japan. new financial period is planned to be at £30.0m (2018: £36.6m). WHOLESALE We anticipate further growth across our wholesale businesses, which should result (in constant currency)1 in the coming period. in high single-digit sales growth This relates to further store openings and refurbishments, and the ongoing investment in new IT systems across the business. We intend to make our trading statement covering trading from the start of the financial period in mid-June 2018. LICENCE INCOME Our product and territorial licences continue to perform well. We have opened a store in India, with further store openings David Bernstein CBE Non-Executive Chairman planned in Egypt, India, Indonesia, Kazakhstan, Saudi Arabia, 22 March 2018 Singapore and Thailand. NOTES: 1 Constant currency comparatives are obtained by applying the exchange rates that were applicable for the 52 weeks ended 28 January 2017 to the financial results in overseas subsidiaries for the 52 weeks ended 27 January 2018 to remove the impact of exchange rate fluctuations. 2 Profit before tax and exceptional items is a non-GAAP measure. For further information about this measure, and the reasons why we believe it is important for an understanding of the performance of the business, please refer to page 18 in the Financial Review, and Note 1(x) and Note 3 of the Financial Statements. The Directors believe these measures provide a consistent and comparable view of the underlying performance of the Group’s ongoing business. 6 STRATEGIC REPORT STRATEGIC REPORT BUSINESS MODEL AND STRATEGY E-commerce enables us to offer our customers access is localised to each of Canada and the US, and a fast-growing to an extended product range and provides us with a means wholesale business. STRATEGY Our strategy is to enhance our position as a leading global Ted Baker has grown steadily from its origins as a specialist to talk directly with our customers and engage them with the As part of our strategy to invest for the longer-term lifestyle brand by the continuous development of three main shirt store in Glasgow to the global lifestyle brand it is today. brand in non-traditional ways. We focus on ensuring that we development of the brand, we have launched the brand in Asia elements of our business model: In order to protect the ethos and persona for which we have provide a user-friendly online brand and shopping experience with stores and concessions in China, Hong Kong and Japan. gained an enviable reputation, we always ask ourselves the across multiple devices. We also understand the growing desire of our customers to • considered extension of the Ted Baker collections to question: “Would Ted do it that way?” The wholesale business in the UK serves countries buy our products online and trade on renowned local websites achieve our brand growth potential. We review our PRODUCT Ted Baker is a quintessentially British brand with a quirky yet across the world, primarily in the UK and Europe, as well as in this region. collections continually to ensure we anticipate and react supplying products to stores operated by our territorial licence Through our territorial licences we also trade in many other to trends and meet our customers’ expectations. In partners. In addition, we operate a wholesale business in North countries across Africa, Asia, Australasia and the Middle East. addition, we look for opportunities to extend the breadth of collections and enhance our offer; • controlled distribution through three main channels: retail (including e-commerce); wholesale; and licensing. We consider each new opportunity to ensure it is right for the brand and will deliver margin led growth; and • further international growth through 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, delivered by the passion, commitment and skill of our teams, licence partners and wholesale customers. commercial fashion offering that prides itself in always being America serving the US and Canada. Our wholesale partners able to satisfy the needs of our customer. Our approach is (“Trustees”) are custodians of our collections and uphold focused on unwavering attention to detail and firm commitment our brand integrity by ensuring that their retail environment to quality. and brand adjacencies are in keeping with the profile and We offer a wide range of collections including Menswear; positioning of the brand. We have built up strong relationships Womenswear; Global; Phormal; Endurance; Accessories; with some of the best independent retailers and department Bedding; Childrenswear; Crockery; Eyewear; Footwear; stores around the world. Fragrance and Skinwear; Gifting and Stationery; Jewellery; We operate both territorial and product licences. Our Lingerie and Sleepwear; Luggage; Neckwear; Rugs; Suiting; licence partners are all experts in their field and share Technical Accessories; Tiles; and Watches. our passion for unwavering attention to detail and firm The menswear collection is a reflection of popular commitment to quality. contemporary culture, with a sense of humour and style mixed Territorial licences cover specific countries or regions in in. It also includes our Phormalwear range, offering a number Asia, Australasia, Europe, the Middle East and North America, of distinctive suiting collections that combine heritage British where our partners operate licensed retail stores and, in some tailoring with a modern outlook. The womenswear collection territories, wholesale operations. is a fresh and feminine mix of European elegance with London Product licences cover Bedding; Childrenswear; Crockery; flair, and is a celebration of beauty, individuality and exquisite Eyewear; Footwear; Fragrance and Skinwear; Gifting and attention to detail. Stationery; Jewellery; Lingerie and Sleepwear; Luggage; Neckwear; Rugs; Suiting; Technical Accessories; Tiles; DISTRIBUTION CHANNELS The brand operates through three main distribution channels: and Watches. retail, which includes e-commerce; wholesale; and licensing, which includes territorial and product licences. We want our GEOGRAPHIC REACH Ted Baker is a truly global lifestyle brand with 532 stores and customers to enjoy a seamless experience regardless of how concessions worldwide, comprised of 195 in the UK, 113 in they choose to shop and interact with the brand. Europe, 127 in North America, 88 in the Middle East, Africa and The retail channel comprises stores, concessions and Asia, and 9 in Australasia. e-commerce, which is now an integral part of our retail The Group opened its first shop in the UK in Glasgow in experience. We operate stores and concessions across 1988 and has since established itself in all the major fashion the UK, Europe, North America and Asia, and localised destinations in the UK. We have also built a growing presence e-commerce sites for the UK, Europe, US, Canada and Australia. We also have e-commerce businesses with some of in Europe with stores and concessions in Belgium, France, Germany, Ireland, the Netherlands, Portugal, and Spain. Our our concession partners. e-commerce and wholesale businesses complement our Stores and concessions are designed to showcase locations in Europe. the brand’s unique style of retail theatre and to ensure our In 1998, the Group opened its first store in North America customers enjoy a welcoming and pleasurable shopping experience. Each store boasts a fully bespoke design that is in New York. Since then, the Group has established a presence across the US from the East to West Coasts and into Canada full of innovative and distinctive touches. through both own stores and concessions. In addition, the Group has a standalone e-commerce site in North America that 8 9 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT KEY PERFORMANCE INDICATORS We review the ongoing performance of the business using key performance indicators. The Key Performance Indicators (“KPI’s”) that the Directors judge to be most effective in assessing progress against the Group’s objectives and strategy have been detailed below and are considered throughout the Strategic Report. KEY PERFORMANCE INDICATOR Group Revenue Gross margin Operating contribution (excluding exceptional items) %2 Operating contribution (including exceptional items) %2 Profit before tax (excluding exceptional items) as a % of revenue2 Profit before tax (including exceptional items) as a % of revenue2 Retail Total revenue Store revenue E-commerce revenue Gross margin Average square footage3 Closing square footage3 Sales per square foot excluding e-commerce sales Wholesale Revenue Gross margin Licence income Revenue Group Operating cashflow per share4 Working capital5 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 VARIANCE CONSTANT CURRENCY VARIANCE1 £591.7m £531.0m 11.4% 9.6% 61.0% 12.7% 12.0% 12.4% 11.6% £442.5m £341.4m £101.1m 67.0% 410,190 420,158 £832 £149.2m 43.3% £21.4m 98.4p £168.6m 61.0% 12.6% 11.8% 12.4% 11.5% £400.7m £328.4m £72.3m 66.1% 387,373 395,088 £848 £130.3m - 10 bps 20 bps - 10 bps 10.4% 4.0% 39.8% 90 bps 5.9% 6.3% (1.9%) 14.6% 45.1% (180 bps) £18.2m 118.4p £136.8m 17.6% (16.9%) 23.3% 8.5% 1.8% 38.7% (3.9%) 13.3% 1 Constant currency comparatives are obtained by applying the exchange rates that were applicable for the 52 weeks ended 28 January 2017 to the financial results in overseas subsidiaries for the 52 weeks ended 27 January 2018 to remove the impact of exchange rate fluctuations. 2 Operating contribution is defined as operating profit as a percentage of revenue. For information about exceptional items please refer to page 18 in the Financial Review and Note 1(x) and Note 3 of the Financial Statements. 3 Excludes licensed partner stores. 4 Operating cashflow per share is defined as net cash generated from operating activities divided by the weighted number of ordinary shares (diluted). 5 Working capital comprises inventories, trade and other receivables and trade and other payables. 11 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT BUSINESS REVIEW DISTRIBUTION CHANNELS The brand operates through three main distribution channels: retail, which includes e-commerce; wholesale; and licensing, which includes territorial and product licences. As part of STRATEGIC REPORT The retail gross margin increased to 67.0% (2017: 66.1%), reflecting a change in mix between full price and outlet sales LICENCE INCOME We operate both territorial and product licences. Our licence and also an improved full price sell-through in our retail channel. partners are carefully selected as experts in their field and Retail operating costs increased 10.8% (8.6% in constant currency)1 to £225.2m (2017: £203.3m) and as a percentage of retail sales, slightly increased to 50.9% (2017: 50.7%) due to share our passion for unwavering attention to detail and firm commitment to quality. Both territorial and product licences delivered good our strategy we look to further develop each of these routes investment in online marketing costs to increase awareness of performances, with licence income up 17.6% to £21.4m (2017: to market, while ensuring the controlled distribution of local e-commerce sites offset by the decrease in dual running £18.2m). There were notable performances from our product our product. costs associated with the transition to our new single European licensees in Childrenswear, Eyewear, Skinwear and Suiting. In the second half of the period, we transitioned our retail operations in South Korea to a distributor with the knowledge and experience to drive growth locally. distribution centre. RETAIL Our retail channel comprises stores, concessions and e-commerce, which is now an integral part of our retail WHOLESALE Our wholesale business in the UK serves countries across the experience. We operate stores and concessions across the UK, world, primarily in the UK and Europe, as well as supplying Europe, North America and the Rest of the World, and localised products to stores operated by our territorial licence partners. e-commerce sites for the UK, Europe, the US, Canada and In addition, we operate a wholesale business in North America Australia. We also have e-commerce businesses with some serving the US and Canada. of our concession partners. Our unique stores showcase the Ted Baker brand and are key to the growth and success of our e-commerce business. Our relatively low number of own Group wholesale sales increased by 14.6% (13.3% in constant currency)1 to £149.2m (2017: £130.3m), reflecting a good performance from our UK wholesale business, with sales stores and higher number of concession locations allows us to increasing by 9.3% to £94.1m (2017: £86.1m), and a strong maintain a flexible store business model. The retail division performed well, with sales up 10.4% (8.5% in constant currency)1 to £442.5m (2017: £400.7m) despite a challenging trading environment across some of performance from our North American wholesale business, with sales increasing by 24.7% (21.0% in constant currency)1 to £55.1m (2017: £44.2m). The wholesale gross margin decreased to 43.3% (2017: our global markets. The growth was driven by continued 45.1%), reflecting a prior-year foreign exchange benefit that investment across the retail channel in new and existing stores was not expected to re-occur and a greater proportion of sales and our e-commerce platform. We are particularly pleased to our territorial licence partners, which carry a lower margin. with our strong e-commerce performance, where sales grew by 39.8% (38.7% in constant currency)1 to £101.1m (2017: £72.3m) and represented 22.8% (2017: 18.0%) of our total retail sales. The growth in retail sales (including e-commerce) of 10.4% (8.5% in constant currency)1 exceeded the increase in average retail square footage of 5.9% to 410,190 sq ft COLLECTIONS Ted Baker Menswear performed well with sales up 10.1% to £249.7m (2017: £226.7m). Menswear represented 42.2% of total sales in the period (2017: 42.7%). Ted Baker Womenswear delivered a good performance with sales up 12.4% to £342.0m (2017: £304.3m). Womenswear represented 57.8% of total (2017: 387,373 sq ft). Retail sales per square foot (excluding sales (2017: 57.3%). The growth in the womenswear mix e-commerce) decreased 1.9% (decrease of 3.9% in constant currency)1 to £832 (2017: £848) demonstrating the changing customer behaviour with customers shopping both online and was driven by allocation of space as well as the increased proportion of e-commerce sales where we experience a higher percentage of womenswear sales. in store. 12 13 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT GEOGRAPHIC PERFORMANCE UNITED KINGDOM AND EUROPE Total retail revenue* Store revenue* E-commerce revenue Average square footage* Closing square footage* Sales per square foot including e-commerce sales Sales per square foot excluding e-commerce sales Wholesale revenue Own stores Concessions Outlets Partner stores Total 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 VARIANCE CONSTANT CURRENCY VARIANCE1 6.4% (1.4%) 34.7% 2.2% (5.5%) £301.1m £218.6m £82.5m 257,367 261,261 £1,170 £849 £94.1m 37 252 15 4 308 £279.5m £218.4m £61.1m 246,826 250,624 £1,132 £885 £86.1m 36 237 14 3 290 7.7% 0.1% 35.0% 4.3% 4.2% 3.4% (4.1%) 9.3% 1 15 1 1 18 STRATEGIC REPORT NORTH AMERICA Total retail revenue* Store revenue* E-commerce revenue Average square footage* Closing square footage* Sales per square foot including e-commerce sales Sales per square foot excluding e-commerce sales Wholesale revenue Own stores Concessions Outlets Partner Stores Total * Excludes licensed partner stores. 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 VARIANCE CONSTANT CURRENCY VARIANCE1 £120.1m £103.8m £16.3m 121,081 126,524 £992 £857 £55.1m 32 61 12 22 127 £103.4m £93.6m £9.8m 112,110 116,590 £922 £835 £44.2m 31 55 11 14 111 16.2% 10.9% 66.3% 8.0% 8.5% 7.6% 2.6% 24.7% 1 6 1 8 16 12.4% 7.3% 61.4% 4.1% (1.3%) 21.0% * Excludes licensed partner stores. in UK and Europe Retail sales increased by 7.7% (6.4% in constant currency)1 to £301.1m (2017: £279.5m) (6.4% in constant currency)1 despite ongoing challenging trading conditions. T3, and our outlets in Bicester and La Vallee. We opened We are confident that the Ted Baker brand is becoming more During the period, we opened new stores in Houston, further concessions with premium department stores in the established and continues to gain recognition in this territory. Los Angeles and Montreal and expanded our Miami Aventura Our e-commerce business performed very well during with the performance of the new openings and remain positive the period with sales increasing by 35.0% to £82.5m (2017: about further growth opportunities for our brand across £61.1m) demonstrating that e-commerce sales are an integral these markets. During the period, we closed a concept store part of the retail proposition in the UK and European markets. in London, and temporarily closed a store and an outlet UK, France, Germany, the Netherlands and Spain. We also opened two licence partner stores in Turkey. We are pleased Sales from our retail division in North America increased by 16.2% (12.4% in constant currency)1 to £120.1m (2017: £103.4m). Our e-commerce business performed particularly increasing 66.3% well with sales in constant currency)1 to £16.3m (2017: £9.8m). As a percentage of North America retail sales, e-commerce sales represented 13.6% (61.4% As a percentage of UK and Europe retail sales, e-commerce for refurbishment. Given the ongoing challenging trading (2017: 9.5%). sales represented 27.4% (2017: 21.9%). conditions, in the period the Group has impaired one store in Sales per square foot excluding e-commerce sales Europe that failed to deliver on its potential. decreased reflecting the move to online. However our stores Sales from our UK wholesale division, which include our Sales per square foot excluding e-commerce sales decreased in constant currency1 due to in part higher levels of competitor promotional activity in the North American market store. We opened an outlet in Chicago and concessions in Canada with a premium department store. We also opened concessions in Mexico with our licence partner. We closed one store in Los Angeles and one in New York and impaired three stores in light of the above trading conditions. Sales from our North American wholesale business increased by 24.7% (21.0% in constant currency)1 to £55.1m (2017: £44.2m) reflecting a strengthening relationship with key trustees that attract domestic customers across North America, further demonstrating increased brand recognition remain key to the success of the e-commerce business wholesale export business and the supply of product to our and lower international tourism in the first half of the year. in this territory. through initiatives such as order in store and click and collect retail licence partners, increased by 9.3% to £94.1m (2017: However, the second half of the year has seen an improving as well as showcasing the brand and the collections and £86.1m) reflecting a good performance from sales to Trustees, trend in this territory. contribute a healthy financial return. particularly those with a strong online customer proposition. Expansion continued with store openings in London, Oxford and Paris and outlets in Gloucester and Roermond. We also relocated three of our stores which included Heathrow 14 15 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT REST OF THE WORLD Total retail revenue* Store revenue* E-commerce revenue Average square footage* Closing square footage* Sales per square foot including e-commerce sales Sales per square foot excluding e-commerce sales Own stores Concessions Outlets Partner stores Total * Excludes licensed partner stores. 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 VARIANCE CONSTANT CURRENCY VARIANCE1 £21.3m £19.0m £2.3m 31,742 32,373 £670 £599 12 14 2 69 97 £17.8m £16.4m £1.4m 28,438 27,874 £625 £576 8 15 3 63 89 19.7% 15.9% 64.3% 11.6% 16.1% 7.2% 4.0% 4 (1) (1) 6 8 17.3% 13.8% 57.8% 5.1% 1.9% We continue to develop the Ted Baker brand across the During the period, our Middle Eastern licence partners Middle East, Asia, Africa and Australasia through our retail and performed particularly well and opened stores in each of licensing channels. Dubai, Kuwait, Lebanon, Qatar and Saudi Arabia. Our South We remain positive about the long-term opportunities East Asian licence partner opened a store in Indonesia and in Asia. However, as has been widely reported, the trading Malaysia. As at 27 January 2018, our licence partners operated environment continues to be challenging. Retail sales in Asia 60 stores and concessions across the Middle East, South East increased 19.7% (17.3% in constant currency)1 to £21.3m Asia and Africa (2017: 54). (2017: £17.8m). In China, we opened a store in Shanghai, and in The joint venture with our Australasian licence partner, Japan, we relocated our Tokyo store and opened a concession. Flair Industries Pty Ltd, continued to perform well. During the In South Korea, we closed our concessions and transitioned period, we opened one new store in Bondi and closed one in our retail operations to a distributor with the knowledge and Melbourne. As at 27 January 2018, we operated 9 stores in experience to drive growth locally. Australasia (2017: 9 stores). NOTES: 1 Constant currency comparatives are obtained by applying the exchange rates that were applicable for the 52 weeks ended 28 January 2017 to the financial results in overseas subsidiaries for the 52 weeks ended 27 January 2018 to remove the impact of exchange rate fluctuations. The Directors believe this measure provides a consistent and comparable view of the underlying performance of the Group’s ongoing business. 16 STRATEGIC REPORT FINANCIAL REVIEW REVENUE AND GROSS MARGIN Group revenue increased by 11.4% (9.6% in constant currency)1 to £591.7m (2017: £531.0m), driven by a 10.4% (8.5% in constant currency)1 increase in retail sales to £442.5m (2017: £400.7m) and a 14.6% (13.3% in constant currency)1 increase in wholesale sales to £149.2m (2017: £130.3m). STRATEGIC REPORT Exceptional items in the 52 weeks ended 28 January 2017 of £4.5m included a provision for lease commitments relating to CASH FLOW The net decrease in cash and cash equivalents of £21.9m The increased facility provides the resources to fund the planned investment in capital expenditure and working capital the Group’s legacy warehouses of £2.9m along with £0.7m of (2017: £13.5m) primarily reflected an increase in working required to support the Group’s long-term growth strategy. The other closure costs and £0.9m in respect of closure costs for a capital and further capital expenditure to support our long- new borrowing facility is on the same terms and contains the concept store in London. term development. same covenants as the previous facility. The Group monitors For further information about this measure, and the Total working capital, which comprises inventories, trade actual and prospective compliance on a regular basis. The gross margin for the Group remained constant at the Financial Statements. by an increase in inventories of £28.7m to £187.2m (2017: 61.0% (2017: 61.0%) as a result of improved full price sell- through in our retail channel offset by an increased proportion of wholesale sales to trustees, which carry a lower margin. FINANCE INCOME AND EXPENSES Net interest payable during the period was £3.2m (2017: £2.9m). £158.5m) reflecting the growth of our business, stock on hand relates to purchases made in foreign currencies, principally the for our wholesale customers and territorial licence partners, US Dollar and the Euro. and the impact of the movement in foreign exchange rates. A proportion of the Group’s purchases are hedged in TREASURY RISK MANAGEMENT The most significant exposure to foreign exchange fluctuation reasons why we believe it is important for an understanding and other receivables and trade and other payables, increased of the performance of the business, please refer to Note 1(x) of by £31.8m to £168.6m (2017: £136.8m). This was mainly driven OPERATING EXPENSES BEFORE EXCEPTIONAL ITEMS2 Distribution costs, which comprise the cost of retail operations and distribution centres increased by 11.4% (9.3% in constant currency)1 to £232.0m (2017: £208.2m) and as a percentage of sales remained consistent at 39.2% (2017: 39.2%). During decrease in dual running costs associated with the transition to our new single European distribution centre. Administrative costs increased by 14.3% to £80.2m (2017: £70.1m). Administration expenses excluding exceptional costs2 increased by 15.1% (14.3% in constant currency)1 to £75.5m (2017: £65.6m). This increase is due to the growth in our The increase was largely due to higher average borrowings on Group capital expenditure of £36.6m (2017: £43.8m) relates accordance with the Group’s risk management policy, which the revolving credit facility as well as an increase in LIBOR to the opening and refurbishment of stores, concessions allows for foreign currency to be hedged for up to 24 months in rates in the fourth quarter of the year. and outlets and the ongoing investment in business-wide IT advance. The balance of purchases is hedged naturally as the The net foreign exchange gain during the period of £0.7m systems to support our continued growth. business operates internationally and income is generated in (2017: £1.1m) was due to the translation of monetary assets The Group’s net borrowing position at the end of the period the local currencies. In June 2016, ahead of the UK referendum and liabilities denominated in foreign currencies. The decrease was £111.8m (2017: £95.2m). from the prior period was due to the appreciation of Sterling this SHAREHOLDER RETURN Basic earnings per share increased by 12.6% to 119.0p (2017: 105.7p). Adjusted earnings per share, which exclude exceptional items4, increased by 12.0% to 127.7p (2017: 114.0p). The proposed final dividend of 43.5p per share will make a on Brexit, the Group extended its hedging arrangements for US Dollars to April 2018. At the balance sheet date, the Group has hedged its projected commitments in respect of the period ending 26 January 2019 as well as a proportion of its requirements for the following period. The Group is exposed to movements in UK interest rates as both the revolving credit facility and term loan accrue interest TAXATION The Group tax charge for the year was £16.0m (2017: £14.7m), an effective tax rate of 23.3% (2017: 24.0%). This effective tax total for the period of 60.1p per share (2017: 53.6p per share), based on LIBOR plus a fixed margin. rate is higher than the UK tax rate for the period of 19.16% largely an increase of 12.1% on the previous period. During the previous period, the Group entered into due to higher overseas tax rates and to the non-recognition Operating cash flow per share was 98.4p (2017: 118.4p) interest rate swap agreements, fixing £30.0m of the floating the period we invested in online marketing costs to increase year compared to the devaluation in the prior year following the awareness of local e-commerce sites which was offset by a UK’s EU referendum result. central functions, both in the UK and overseas, the continued of losses in overseas territories. The UK corporation tax rate and reflected a decrease in cash generated from operating rate net debt. deployment of our information technology infrastructure to reduced to 19% from 1 April 2017 and will reduce to 17% from activities. The decrease was largely due to increased working support our growth, and investment in customer engagement. 1 April 2020. The US federal corporate income tax rate has capital, in particular inventory, reflecting the growth of our Dual running costs incurred in respect of our new European reduced to 21% with effect from 1 January 2018. business and increased stock on hand. distribution centre and the systems roll-out were £2.1m (2017: Our closing UK deferred tax assets and liabilities have been £4.0m) in the period, some of these are expected to continue measured at 19% based on the corporation tax rate at which into the next financial year. they are largely anticipated to unwind. Overseas deferred tax BORROWING FACILITIES During the period, the Group agreed an extension of its multi- PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS3 AND PROFIT BEFORE TAX Profit before tax and exceptional items3 increased by 11.7% to £73.5m (2017: £65.8m) and profit before tax increased by 12.3% to £68.8m (2017: £61.3m). EXCEPTIONAL ITEMS2 Exceptional items in the period amounted to £4.7m (2017: £4.5m) and comprised the impairment of retail assets, relating to three stores in the US and one store in Europe of £4.5m, and restructuring costs of £1.3m, partially offset by income of £1.1m related to the release of provisions against the Group’s legacy warehouses following assignment of the leases. 18 assets and liabilities have been measured at the applicable currency revolving credit facility. A new agreement was signed overseas tax rates. on 25 September 2017 which increased the Group’s committed Our future effective tax rate is expected to be higher borrowing facility from £110.0m to £135.0m, expiring in than the UK tax rate as a result of overseas profits arising in September 2020. jurisdictions with higher tax rates than the UK. The Group’s effective tax rate will, however, benefit from the fall in the US federal tax rate to 21%. We would expect future reductions in the effective tax rate given the US federal rate reduction and the UK rate reduction to 17% from 1 April 2020. NOTES: 1 Constant currency variances are calculated by applying the exchange rates for the 52 weeks ended 28 January 2017 to results financial results in overseas subsidiaries for the 52 weeks ended 27 January 2018 to remove the impact of exchange rate fluctuations. 2 For information about exceptional items please refer to Note 1(x) and Note 3 of the Financial Statements. 3 Profit before tax and exceptional items is a non-GAAP measure, adjusted for exceptional items. 4 Adjusted earnings per share is a non-GAAP measure, adjusted for exceptional items. 19 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES STRATEGIC REPORT In addition, the Group has established a Risk Committee Having considered the key risks inherent in the business and operation of suitable internal controls. These risks are that includes the Finance Director and various members of the the system of control necessary to manage such risks, the assessed on a continual basis and may be associated with Executive Board and heads of department. The Risk Committee Finance Director presents the Risk Committee’s findings to a variety of internal or external sources including control The Board is ultimately responsible for the Group’s system helps the Executive Board review the risk management and the Board on a regular basis. In addition, the Chief Executive breakdowns, disruption in information systems, competition, of risk management and internal control and for reviewing its control process in each key business area on an ongoing basis, reports to the Board on changes in the business and the natural catastrophes and regulatory requirements, and also effectiveness, and for determining the Group’s risk appetite. and provides a platform for management to drive improvement external environment which affect significant risks. with reference to the Group’s five year strategic and financial The Board confirms that there is an ongoing process for across the business. The Risk Committee considers: In turn, the Audit Committee assesses the findings plan. During the period, the Board has continued to place identifying, evaluating and managing the significant risks and recommendations of the Risk Committee and the Group’s significant focus on risk management. Following the Audit faced by the Group, which has been in place for the period and • the authority, resources and co-ordination of those external and internal audit processes and looks critically Committee’s engagement of PricewaterhouseCoopers LLP up to the date of approval of these financial statements, and involved in the identification, assessment and at how the business responds, as well as investigating (“PwC”) to undertake a detailed review of the Group’s risk that this process is regularly reviewed by the Board. However, management of significant risks faced by the Group; material issues and what actions they implement to prevent framework and internal audit function in the prior period, the such systems are designed to manage rather than eliminate • the response to the significant risks which have been future issues. Board has again retained PwC to assist the Risk Committee the risk of failure to achieve business objectives, and can identified by management and others; On behalf of the Board, the Audit Committee has reviewed and Audit Committee in managing the Group’s risk profile and provide only reasonable and not absolute assurance against • the maintenance of a controlled environment directed the effectiveness of the system of risk management and increasing engagement with stakeholders in the Group. material misstatement or loss. towards the proper management of risk; and internal control during the period, covering all material The Group has an independent internal audit function RISK MANAGEMENT PROCESS In order to help manage the Group’s risks and uncertainties, • the annual reporting procedures. controls, including financial, operational and compliance whose findings are regularly reviewed by the Board and the controls. In particular, it has reviewed and updated the process Executive Committee. The Audit Committee monitors and An overview of the Group’s Risk Management Process is for identifying and evaluating the significant risks affecting reviews the effectiveness of the internal audit activities. the Board has delegated responsibility for monitoring the set out below: effectiveness of the Group’s systems of internal control and risk management to the Audit Committee. the business and the policies and procedures by which The Chief Operating Officer and Group Finance Director these risks are managed. Management is responsible for the provides the Board with monthly financial information identification and evaluation of significant risks applicable which includes updates by reference to the Group’s key to their areas of the business together with the design and performance indicators. TED BAKER PLC BOARD Ultimately responsible for risk management AUDIT COMMITTEE Monitors the effectiveness of system of risk management and internal controls EXECUTIVE BOARD Oversees the Group’s risk management processes and monitors mitigating actions RISK COMMITTEE Reviews and challenges key risks, associated controls and management action plans RISK FRAMEWORK Ensures consistent approach across Group WIDER BUSINESS I n t e r n a l a n d e x t e r n a l a u d i t 22 23 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT STRATEGIC REPORT The Board has carried out a robust assessment of the identified by the Group (which are not shown in order of principal risks facing the Group, including those that would importance). Additional risks and uncertainties not presently threaten its business model, future performance, solvency known, or currently considered to be less material, may also or liquidity. The following list highlights the principal risks have an adverse effect on the Group: ISSUE POTENTIAL IMPACT MITIGATION STRATEGIC RISKS Brand and reputational risk The strength and reputation of the Ted Baker brand is important to the business. There is a risk that our brand may be undermined or damaged by our actions or those of our partners or supply chain. We carefully consider each new partner with whom we do business. Such partners are subject to due diligence and are monitored on an ongoing basis to ensure they remain appropriate to the brand. Development of overseas markets Fashion and design Our dedicated social media team closely monitors social media channels and addresses any reputational issues in accordance with our protocol. Failure in growing the international business through franchise operations, licensees and e-commerce. Risk that the Group fails to prioritise the right territories or investment or fails to support these markets with systems and supply chain capability. We perform extensive due diligence on all potential partners and territories and to assess our appropriate routes to market. We operate in a range of international markets, which helps to mitigate over-reliance and exposure to any one territory. As with all fashion brands there is a risk that our offer will not satisfy the needs of our customers or we fail to correctly identify trends in an increasingly competitive market, resulting in lower sales and reduced market share. 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, increasing our cost base and adversely affecting our revenue. Brexit The UK’s decision to leave the European Union has increased the level of economic and consumer uncertainty. 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. Over-reliance on key suppliers could also have an impact on our business. We maintain 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. We use customer data to develop targeted marketing and promotional activity. We continue to focus on product design, quality and attention to detail. These risk factors 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 geographic spread of our business and supply chain also helps to mitigate these risks. The Group has established a Brexit Committee which, together with its external advisers, continues to carefully monitor the potential impact of Brexit. Scenario planning includes the impact of additional customs duties, VAT and customs duty declarations; and the restriction on the free movement of people. In addition to this ongoing monitoring and mitigation, our presence in a range of international markets helps mitigate the impact of this risk. 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. The Group continues to improve and evolve its supply chain CHANGE IN LEVEL OF RISK No material change No material change No material change Increased risk Increased risk No material change ISSUE POTENTIAL IMPACT MITIGATION OPERATIONAL RISKS CONTINUED Infrastructure 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. Social responsibility 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. A sub-committee of the Executive Committee has been tasked with overseeing specific areas of our social responsibility agenda. Ted’s Conscience Team is responsible for monitoring this agenda and ensure our practices fall in line with it. More information is set out on page 28 (Sustainability). CHANGE IN LEVEL OF RISK No material change No material change Cybersecurity The business is subject to threats from hacking or viruses or other unauthorised data breaches. The Group has invested in additional specialist IT resources. Increased risk There is the possibility of unintentional loss of controlled data by authorised users. The continual upgrading of security equipment and software also mitigates these risks. IT infrastructure and implementation of ERP The Group’s IT infrastructure is key to the operation of its business. We are in the process of implementing the final phases of Microsoft Dynamics AX across the business. With any project of this scale, there is a risk of a poorly managed implementation or take-up of new systems, which could lead to business disruptions. This, and the implementation of other new business systems, has potential to impact interdependent systems and the business. People Our 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 We operate in a range of international markets and must comply with various regulatory requirements. Failure to do so could lead to financial penalties and/or reputational damage. Tightly controlled security controls, an extensive penetration testing programme, and data recovery and business continuity plans have been implemented with the support of specialist third parties. The Group’s IT Steering Committee meets on a two weekly basis to review the implementation and all other major IT projects. This Committee comprises members of the Executive Committee and is advised by external professional advisers. The IT Steering Committee has established a Design Authority charged with overseeing the scheduling of the implementation of any new system. Robust change management and professional project managers recruited to oversee the project team which includes key business stakeholders. Identification and 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 retention rate. Succession plans are in place and have been reviewed during the period. The Group closely monitors changes in the legal and regulatory framework within the markets in which it operates. We work closely with specialist advisers in each market to ensure compliance with local laws and regulations. For example, the Group has established a cross-functional GDPR steering committee that has worked with external advisers to ensure the Group’s policies and procedures are GDPR compliant. No material change No material change No material change Retail sector outlook Outlook in the retail sector remains uncertain, with increasing pressures on the Group’s customers. The Group’s Credit Committee closely monitors any outstanding debts and takes appropriate action where necessary. Increased risk The Group manages its credit risk through insurance, standby letters of credit or other supplier financing products wherever possible. Infringement of the Group’s intellectual property Unauthorised use of the Group’s designs, trademarks and other intellectual property rights could damage the Ted Baker brand and the Group’s reputation. The Group, with its external advisers, rigorously manages and defends its intellectual property. No material change The Group deals with counterfeit goods in accordance with its robust enforcement strategy. 24 25 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT ISSUE POTENTIAL IMPACT MITIGATION 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 on the Group. The Group’s policies for dealing with these risks are discussed in detail in Note 23 to the financial statements. FINANCIAL RISKS Currency, interest, credit and counterparty credit risks, including financial covenants under the Group’s credit facilities CHANGE IN LEVEL OF RISK No material change Foreign exchange The Group is exposed to fluctuations in the exchange rates of key currencies. The Group’s Foreign Exchange strategy is closely managed by the Finance Director and the Group’s external advisers. The Group has adopted a hedging policy to mitigate short-term foreign exchange risk. No material change VIABILITY STATEMENT In accordance with Provision C.2.2 of the UK Corporate principal risks, and taking into account the effectiveness of any mitigating actions. In addition, the Board has considered the Governance Code dated April 2016 (the “Code”), the Directors impact on the Group’s cash flows, headroom, covenants and have assessed the prospects and viability of the Group over other key financial ratios having stress tested the potential a five year period, taking into account the Group’s current impact of these scenarios, both individually and in combination. position and the potential impact of the principal risks Sensitivity analysis was also used to stress test the Group’s documented above. strategic plan and to confirm that sufficient headroom would The Group operates a five year plan, which is updated remain available under the Group’s credit facilities. The Board and reviewed regularly by the Board. Within the five year plan, considers that under each scenario tested, the mitigating detailed scenario planning and stress testing has been carried actions would be effective and sufficient to ensure the out over a five year period. The Directors therefore consider continued viability of the Group. For the reasons stated above, the five year period to 29 January 2022 to be the appropriate based on the robust assessment undertaken, the Directors period to assess the viability and prospects of the Group with confirm they have a reasonable expectation that the Group will a high level of certainty. be able to continue in operation, and meet its liabilities as they The Directors’ assessment has been further enhanced by fall due, over the period of assessment. analysing the current and future risks, controls and assurances available, resulting in a clear picture of the risk profile across the whole business. The principal risks, including specific GOING CONCERN The Directors have reviewed the Group’s budgets and long- operational risks, that could affect the future viability of the term projections. After making enquiries, the Directors have Group over the next five years are identified on pages 22 to 26 a reasonable expectation that the Company and the Group in Principal Risks and Uncertainties. have adequate resources to continue in operational existence In making this assessment the Directors have considered for twelve months from the approval of these accounts. For the resilience of the Group to the occurrence of these risks in this reason, they continue to adopt the going concern basis of severe but plausible scenarios, including by reference to certain accounting in preparing the financial statements. 26 STRATEGIC REPORT SUSTAINABILITY PLANET The Group has engaged in a number of environmental projects PEOPLE Our employees and the people who work in our supply chains PRODUCT As part of our commitment to product we place great emphasis STRATEGIC REPORT At Ted Baker we believe in being open and honest in the way during the course of the period: are our greatest asset and it is very important to the Group on producing more sustainable products. we do business. This includes doing the right thing by all of our that our products are produced in factories that are committed stakeholders throughout our supply chain and operating in a • We continue to participate in the Carbon Disclosure to providing a fair and safe environment for their workers. • We are part of the Sustainable Clothing Action Plan fair and sustainable manner. During the period we continued Project to measure and disclose our greenhouse gas To enable this: emissions and climate change strategies. We maintained (“SCAP”), a DEFRA sponsored action plan organised to improve the sustainability of clothing throughout its implementing our sustainability strategy “Fashioning a Better Future”, developed from our Ted3 plan which was introduced in 2012. our disclosure score of B. • We have begun working with Segura, an online platform lifecycle by bringing together industry, government and • All of our UK head office business travel within Scopes 1 that will help us to map our supply chain. We have so far third parties. SCAP members collaborate to develop We approach our social, environmental and ethical commitments (“SEE”) with the same focus and attention to and 3 is CarbonNeutral®. This means that the unavoidable emissions generated by air, road and rail journeys required brought on board all of our Chinese factories and their sector-wide targets along with the tools and guidance subcontractors. It is helping us to reach beyond our direct necessary to achieve them. As a SCAP 2020 signatory, detail that permeates the rest of the business. To ensure that to visit our stores, trustees and suppliers have been offset suppliers and ensure we have more visibility of the supply we are challenged to reduce carbon, water and the we continue to meet our responsibilities in these important in full through the purchase of carbon credits from verified chains that make Ted Baker product. amount of waste generated or consumed by our areas Fashioning a Better Future focuses on Planet, People carbon reduction projects. • Ted Baker Ethical, Production and Buying teams products by 15% by 2020. and Product. Our Global Sustainability Strategy has been • We are constantly reviewing the waste our business regularly visit our suppliers to build and maintain • We have introduced internal sustainable fibre targets to developed and continues to be advanced and improved generates in an effort to achieve our overall aim of relationships. These are key in ensuring open and our collections to ensure that we are meeting our SCAP ensuring that every department is included. sending no waste to landfill. We participate in the honest communication. commitment, and, as part of SCAP, we participate in the Wastepack Compliance Scheme as part of the Producer • All Ted Baker suppliers are governed by our Ethical Metrics group. This Group identifies the key industry HOW WE WORK The Chief Operating Officer and Group Finance Director is Responsibility Obligations (Packaging Waste) Regulations Code of Conduct. We review and revise our Code of metrics that businesses should measure and is working 1997 and continue to reduce unnecessary packaging. Conduct regularly to ensure that it reflects legislative on a tool to measure baseline carbon, water and waste responsible for overseeing the formulation of the Group’s • We work with local schools and charities to recycle as changes and make sure that our suppliers continue to footprints. It also identifies improvement actions that policies and procedures to manage risks arising from SEE. In much waste from head office as we can. make improvements. The Code is based on international businesses could take in this area. addition, the Board has tasked four members of the Executive • We have been working with the charity Newlife to ensure conventions such as the Ethical Trade Initiative Base • We became a member of the Better Cotton Initiative Committee to oversee specific areas of our SEE agenda for that all faulty garments returned to our UK stores do Code, the United Nations Universal Declaration of (BCI) in 2016. The aim of the BCI is to make global cotton the Group. These Executive Committee members participate not end up in landfill. Since March 2014 we have been Human Rights and the Fundamental Conventions of the production better for the people who produce it, better because of the relevance of their departments to our ongoing sending these faulty garments to Newlife for resale as International Labour Organisation, and can be found at for the environment it grows in and better for the cotton commitment in these areas – Brand Communication, Product second-hand garments. http://www.tedbakerplc.com/~/media/Files/T/Ted-Baker/ industry’s future. Through education and training the Design, Production and Special Projects (Interior Design). Our • Through our relationships with Oxfam, Newlife and Age UK documents/ted-ethical-code-of-conduct-2016.pdf. farmers learn more sustainable farming methods and pool full-time Ted’s Conscience team co-ordinates these areas and we have been able to ensure that our end of line garments • Through our partnership with MADE-BY, a non-profit their resources with the aim of reducing environmental the Group’s cross-functional team which is responsible for are utilised in the best way, raising over £580,000 and multi-stakeholder initiative set up to improve sustainability impacts, using less water and harmful pesticides, and addressing SEE concerns of the Group. diverting over 44 tonnes of waste from landfill since the within the fashion industry, we report through MODE increasing yields. Earlier this year we made a public start of these relationships. Tracker, a new progress tracking tool. It is aimed at commitment to source 50% of our cotton as “more OUR SUSTAINABILITY FOCUS We believe in three very important areas of sustainability: 1. Planet: the Group is committed to managing and reducing its impact on the environment; 2. People: the Group is committed to looking after those who create, make and wear our product; and 3. Product: the Group is committed to producing beautiful, more sustainable product. supporting fashion brands to become more sustainable, sustainable cotton” by 2020. More sustainable cotton focusing on eight areas of fashion business including includes Better Cotton through BCI, Organic Cotton and People, Product and Own Operations. Recycled Cotton. • In December 2014, we started to collect donations of leftover restaurant food. Those proceeds are donated to Magic Breakfast, a charity that provides underprivileged school children in London with much needed breakfasts before school. During the period, we raised enough money to provide 6,309 Magic Breakfasts. • We keep two Buckfast bee colonies on the roof of our London head office from which we had a hugely successful honey harvest for the eighth year running. 28 29 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT GREENHOUSE GAS EMISSIONS The Group has for a number of years participated in the Carbon In measuring the Group’s GHG emissions, all of the Group’s stores, warehouses and head offices around the world were Disclosure Project and is now required, in accordance with the taken into account. The space occupied by the Group within Companies Act 2006 (Strategic Report and Directors’ Report) concession stores is excluded from Scope 1 and 2 calculations Regulations 2013 (the “Regulations”) to report its greenhouse because the Group has neither financial nor operational gas (“GHG”) emissions. control over a concession area. Such emissions are included in The Group has adopted a GHG reporting policy and a the Group’s Scope 3 figures which are published in our annual management system based on the methodology established Carbon Disclosure Project Report. under the Greenhouse Gas Protocol, which has been used to calculate the Group’s Scope 1 and 2 emissions in the period for activities within the financial control of the Group. The Group’s GHG emissions during the period are disclosed in the table below: Scope 1 – Direct CO2 emissions (tonnes CO2e) Scope 2 – Indirect CO2 emissions (tonnes CO2e) Total tonnes CO2e emissions tCO2e per square foot tCO2e per thousand GBP sales 2018 175 4,389 4,564 0.012 0.008 2017 129 4,469 4,598 0.012 0.009 GHG emissions for the period ended 27 January 2018 have been calculated using the appropriate 2017 UK Government Conversion Factors for Company Reporting and, for energy consumed overseas, the International Energy Agency Emission Factors. THE BRIBERY ACT 2010 The Group has an established anti-bribery policy in place MODERN SLAVERY ACT 2015 The Group has issued its second statement in compliance with designed to manage risks relating to bribery and corruption. the Modern Slavery Act which is available at www.tedbakerplc. Ted’s Handbook, which is provided to all Ted employees, com. The statement sets out the Group’s policies for assessing includes information and instructions on how to manage these the risk of modern slavery within its supply chain and the risks and is supplemented by internal training. Ted also ensures steps taken to improve transparency. The Group’s cross- that suppliers are made aware of Ted’s anti-bribery policy functional committee, the Modern Slavery Act Working Group and how to manage risks by including relevant provisions in (“MSWAG”), was established to critically assess and address Ted’s Supplier Manual and other supply contracts. Both the Ted’s modern slavery objectives. During the period, we have handbook and the supplier manual are regularly kept under introduced a tailored training programme to understand the review to ensure they are sufficiently robust to prevent bribery warning signs of modern slavery and also understand how our practices can directly impact suppliers and their workforces. We are also working with Segura to develop an online platform, to enhance our existing supply chain management systems. MSWAG will continue to develop the Group’s policies in line with the evolving business and landscape, with a focus on supply chain management and compliance. and corruption. 30 STRATEGIC REPORT PEOPLE Talent, commitment and passion are three essential strands to STRATEGIC REPORT LEARNING, DEVELOPMENT AND TALENT MANAGEMENT Employee performance is reviewed formally during the DIVERSITY The Group believes in respecting individuals and their rights applications, where appropriate, to retain specific talent within the business. We respect cultural difference and actively seek in the workplace and that diversity supports the dynamic to learn about each territory we operate within. the success of the Group. The energy and inspired performance probationary period as the employee settles in to life at Ted and of our teams to deliver success. With this in mind, specific Our commitment to diversity across the Group continues of our team are key factors in helping the Group to deliver then bi-annually. This focuses on behaviours, competence, policies are in place setting out our stance and commitment and consideration to diversity and gender is given with a view growth and drive innovation. The Group places significant talent and career development. Goals and objectives linked to managing harassment and bullying, whistle blowing, to appointing the best placed individual for each new role. The importance in building an out of the ordinary employee to business development and contribution are a key focus to equality and diversity. Our team represents a wide and diverse tables below demonstrate the gender split across the Board experience, creating learning and development opportunities, ensure performance is directly linked to Group delivery. Talent workforce from all backgrounds, sexual orientation, nationality, of Directors, the Group’s leadership and senior management nurturing individual employee growth and recognising and is mapped every quarter to identify high performers, areas for ethnic and religious groups. We support sponsorship of visa teams and global employees as at 27 January 2018. rewarding contribution. development and gap analysis. This supports the development REWARD AND RECOGNITION The Group entered into its second year of a pay for performance of dynamic and diversified teams. We invest in employee development from specialist and technical skills to bespoke courses developed by Ted’s Ted Baker Plc Board of Directors remuneration approach for employees at our London head Academy. During the period we launched “Ted’s Fountain”, an Executive Committee and other senior managers office (“Tedquarters”) and also rolled out the scheme to the online learning resource that allows each employee to easily Global team members 2018 2017 Male Female 5 60 2 88 1,141 2,441 Total 7 148 3,582 Male Female Total 5 55 1 64 6 119 1,063 2,160 3,223 USA head office. Such employees’ performance is measured access trusted information to quickly improve their skills, against competency criteria, objectives linked to business knowledge and understanding of essential business topics. success and behavioural identifiers that directly support our Continuing to bring in fresh and specialist talent as well unique culture and brand values. This approach enables Ted as nurturing our existing employee population remains high to award remuneration annually based directly on individual on our business and people agenda. Inter-departmental success and achievement. We continue to review all other and international transfers play a large part in retaining and employee groups’ remuneration annually and a benchmarking growing talent as well as ensuring the Ted story translates analysis is undertaken against market intelligence to ensure across the globe. we remain competitive and commensurate across all areas of During the period, we established a Development Board the business. comprised of senior management across the business. Their In each territory we offer reward and recognition schemes focus is on assisting the Executive Board to achieve key 2018 UK North America Europe Asia Ted Baker Plc Board of Directors Executive Committee and other senior managers Global team members Male Female Male Female Male Female Male Female 5 46 687 2 60 - 9 1,358 294 - 15 513 - 1 98 - 4 424 - 4 62 - 9 146 Total 7 148 3,582 HEALTH, SAFETY AND WELFARE Our duty and commitment to the well-being of our team is EMPLOYEES WITH DISABILITIES Applications for employment by persons with disabilities are in line with local legislative and market requirements for strategic aims and provides an opportunity to develop future supported by activity such as private healthcare, occupational always fully and fairly considered, focusing on the aptitudes employees but also seek to bring parity across the Group Ted leaders for the Group. health, health seminars and funding for flu jabs. During and abilities of the applicant concerned. In the event of an where feasible. Our reward packages include bonus Following the success of Ted’s Extraordinary Diploma, the period, we conducted a Well-being Week including employee becoming disabled during their employment, schemes linked to sales targets and individual and corporate our latest and third programme, “Ted’s Extras”, now helps financial, health and mental well-being seminars, to health every effort is made to ensure that their employment with the performance. We encourage all UK employees to join our Save to identify highly motivated and engaged talent with multi- assessments and healthy eating options. We offer health and Group continues and that where appropriate reasonable As You Earn share scheme. Ted also provides a Long-Term faceted knowledge and develops their expertise across fitness classes to our employees at Tedquarters. We also adjustments are made and relevant training and education of Incentive Plan (“LTIP”) for key senior employees throughout various departmental functions. run a Childcare Voucher Scheme in the UK. An Employee the wider team is arranged. It is the policy of the Group that the business spanning a three year award period. The LTIP is currently in its fifth tranche of issue and it is anticipated that this will continue on a rolling yearly award basis to enhance total annual reward and support retention. During the period we celebrated the seventh year of Wisdom Awards, our Group scheme that recognises long serving members of the team and provides the opportunity for employees to share their unique Ted stories. Additionally during the period we launched “The Bank of Tedland”, an “in the moment” recognition scheme with cash rewards for out of the ordinary performance. Assistance Programme in the UK and US further supports our the training, career development and promotion of persons commitment to the well-being of our employees. To support with disabilities should, as far as possible, be identical with health and welfare we launched a new ‘Buy Holiday’ option for that of other employees. Tedquarters employees to ‘buy’ additional holiday. The Group employs a dedicated Health and Safety team to support the identification of risks and prevention of accidents CULTURE Our brand values are important in everything we do and are in the workplace. The team provides ongoing education and training to strengthen employees’ knowledge and instilled into the hearts and minds of all our employees from initial inductions with the Founder and Chief Executive telling commitment in this area. This includes emergency and crisis the story behind the brand. Employees are encouraged event management and business continuity plans. to always ask: ‘Would Ted do it that way?’ We continue employees’ cultural journeys throughout their employment with Ted through various events. 32 33 Ted Baker Plc Annual Report and Accounts 2017/18 STRATEGIC REPORT EMPLOYEE ENGAGEMENT The Group places considerable value on the involvement of its employees and continues to keep them informed on matters affecting them and the Group, communicating in a way that aligns with the brand tone of voice and actively encourages feedback. This is achieved through formal and informal meetings, BroadcasTED communications, Talk to Ted sessions, team member surveys and e-postcard messages from Ted. 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 any factor affecting its performance during the period, in addition to business development initiatives to maintain interest and encourage participation. During the period we launched our first engagement survey across the Group with exceptional results and validation that the employee experience is a positive one. Results have been shared with the global teams and Ted will continue to drive continuous enhancement and improvement and work hard to exceed employee expectations. SYSTEMS Our new integrated HR and Payroll system has been implemented in the UK Tedquarters and we will continue its implementation across the UK Retail population during 2018/19 along with adding modules in learning and development, resourcing and talent management. The phased roll-out will continue in forthcoming periods to the remainder of the Group. With focus on self-serve technology we can expect improved people processes and analytics. The Strategic Report was approved by the Board of Directors on 22 March 2018 and signed on its behalf by: Charles Anderson Finance Director and Company Secretary 22 March 2018 34 ANITA BALCHANDANI – NON-EXECUTIVE DIRECTOR (43) (RESIGNED) Anita was appointed as a Non-Executive Director on 29 September 2017 and resigned on 19 February 2018 following her acceptance of a new full-time role which does not permit her to hold any non-executive positions. Committee Membership: During her time on the Board, Anita was Chairman of the Remuneration Committee and a member of the Audit Committee. Anita was an Independent Director. DIRECTORS’ REPORT BOARD OF DIRECTORS CURRENT DIRECTORS: DAVID ALAN BERNSTEIN CBE, FCA – NON-EXECUTIVE CHAIRMAN (74) David is Chairman of the British Red Cross and also Chairman RON STEWART, FCIB – NON-EXECUTIVE DIRECTOR (70) Ron was appointed as a Non-Executive Director on 25 February 2009. 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 DIRECTORS’ REPORT DIRECTORS WHO RESIGNED DURING THE PERIOD: ANNE SHEINFIELD – NON-EXECUTIVE DIRECTOR (52) (RESIGNED) Anne was appointed as a Non-Executive Director on 15 June is Chairman of the PCC at St Andrew’s Church in Oxshott, a 2010 and resigned on 29 September 2017. Committee Membership: During her time on the Board, Anne was Chairman of the Remuneration Committee and a member of the Nomination Committee. Anne was an Independent Director. of Autorama UK Ltd and Cogress Limited. Previously he was Trustee of several local charities, a Governor of Reeds School Chairman of Manchester City Plc, the Football Association and Chairman of Reeds School Enterprises in Surrey. and Blacks Leisure Plc, he was also joint Managing Director of Pentland Group Plc. In the New Year Honours List of 2014, David was appointed Commander of the Order of the British Committee Membership: Ron is Chairman of the Audit Committee and a member of the Nomination and Remuneration Empire (CBE) for services to football. Committees. Ron is the Senior Independent Director. Committee Membership: David is Chairman of the Nomination Committee and a member of the Remuneration Committee. RAYMOND STUART KELVIN CBE – CHIEF EXECUTIVE (62) (“CLOSEST MAN TO TED”) Ray, the founder of Ted Baker, has worked in the fashion industry ANDREW JENNINGS – NON-EXECUTIVE DIRECTOR (69) Andrew was appointed as a Non-Executive Director on 1 February 2014. He has worked in the international retail industry for over 45 years at some of the world’s most respected high- end speciality and department stores. Previously he was Chief for over 40 years. In 1973 he founded PC Clothing Limited, a Executive Officer of the Karstadt Group in Germany and prior to supplier of womenswear to high street retailers. In 1987 Ray this has held a number of senior executive positions at leading developed the Ted Baker brand and has been Chief Executive UK and international retailers including Saks Fifth Avenue in of Ted Baker since its launch in 1988. In the New Year Honours the USA; Holt Renfrew in Canada; Harrods and House of Fraser List of 2011, Ray was appointed Commander of the Order of the in the UK; and Brown Thomas in Ireland. British Empire (CBE) for services to the fashion industry. Committee Membership: not applicable. LINDSAY DENNIS PAGE, MA, ACA – CHIEF OPERATING OFFICER AND GROUP FINANCE DIRECTOR (59) Lindsay joined Ted Baker as Finance Director in February 1997. He joined Binder Hamlyn in 1981, and became a founder Committee Membership: Andrew is a member of the Audit, Nomination and Remuneration Committees. Andrew is an Independent Director. With effect from 19 February 2018, Andrew is the Chairman of the Remuneration Committee. JENNIFER ROEBUCK – NON-EXECUTIVE DIRECTOR (43) Jennifer was appointed as a Non-Executive Director on member of the corporate finance department in 1986 and a 29 September 2017. Jennifer is an experienced digital partner in 1990. Binder Hamlyn subsequently merged with and e-commerce executive with a background in digital Arthur Andersen in 1994. Lindsay was appointed as the transformation and brand marketing, particularly in the lifestyle Group’s Chief Operating Officer in addition to his role as Group and clothing sector. Jennifer is the co-founder of REVL, the Finance Director on 8 July 2014. events app, and has wide experience working in the hospitality Committee Membership: not applicable. sector and also with technology led start-ups. Committee Membership: Jennifer is a member of the Audit Committee. Jennifer is an Independent Director. 36 37 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT CORPORATE GOVERNANCE STATEMENT STATEMENT OF COMPLIANCE WITH THE CODE During the period, the Company was subject to the UK Corporate Governance Code dated April 2016. The Code was issued by Ted Baker’s culture and values are central to the success of the the Financial Reporting Council and is available to view on the business, and that includes strong governance throughout the Financial Reporting Council’s website https://www.frc.org.uk/. business, while asking ourselves the question: “Would Ted do The Board confirms that the Company has complied with the it that way?” provisions set out in the Code throughout the year, except in respect of Code Provision C.3.1. An explanation of the reason for this departure from the Code is set out on page 42. An explanation of how the Main Principles have been applied is set out below: LEADERSHIP EFFECTIVENESS ACCOUNTABILITY REMUNERATION The Board has clear divisions of responsibility and is collectively responsible for the long-term success of Ted Baker. Our Non-Executive Directors constructively challenge and help develop proposals on strategy. See pages 38–40. We evaluate the balance of skills, experience, independence and knowledge of the Board and its committees to ensure we are effective. See pages 38–40. We present a fair, balanced and understandable assessment of Ted’s position and prospects. The Board maintains sound risk management and internal control systems. See pages 22–26. Director remuneration is set to promote the long-term success of Ted. See the Directors’ Remuneration Report on pages 50–68. RELATIONSHIPS WITH SHAREHOLDERS Strong relationships with our shareholders are key to fulfilling our objectives. The Board ensures that effective and frequent dialogue with our shareholders takes place. See page 40. TED BAKER PLC BOARD OF DIRECTORS NOMINATION COMMITTEE REMUNERATION COMMITTEE AUDIT COMMITTEE EXECUTIVE COMMITTEE RISK COMMITTEE IT STEERING COMMITTEE SOCIAL RESPONSIBILITY COMMITTEE To enable the Board to function effectively and for the Directors to discharge their responsibilities, full and timely BOARD EVALUATION During the period, the Board undertook an informal evaluation access is provided to all relevant information. A comprehensive of its own performance, its committees’ performance and board pack and formal agenda is prepared and circulated in the performance of its Directors, with continuing assessment advance of each Board meeting. Board members regularly undertaken throughout the year in review. Informal evaluations input into the level and quality of information provided, and and assessments conducted by the Board and its committees BOARD COMPOSITION The Board currently comprises the Non-Executive Chairman, of matters reserved to it for decision that is regularly updated. request specific board papers on additional agenda items. covered a range of issues around Board and Committee These include decisions on the Group’s strategy, financial There is an agreed procedure for Directors to take independent membership, roles and responsibilities, and succession. the Chief Executive, the Chief Operating Officer and Group budgets, major capital expenditure and transactions, professional advice, if necessary, at the Company’s expense. The most recent externally facilitated evaluation of the Finance Director and three independent Non-Executive appointment of territorial and product licence partners, store This is in addition to the access each Director has to the Board and Committees’ effectiveness was undertaken by Directors. Biographies of these Directors appear on page openings, dividend policy, Group bonus and risk profile. Company Secretary. Sean O’Hare of Boardroom Dialogue Limited, an independent 36. The Board is of the view that its current membership The requirement for Board approval on these matters is The Company maintains an appropriate level of Director external adviser with no other connection to the Company, in provides an appropriate balance of skills, experience, understood and communicated widely throughout the Group. and officer liability insurance cover and, through the Articles the 2015/16 financial period. independence and knowledge, which enables it to discharge The Non-Executive Directors meet with the Chairman of Association and Directors’ terms of appointment, has That Board evaluation concluded that the Board was its responsibilities effectively. separately during the year. In addition, the Non-Executive agreed to indemnify the Directors against certain liabilities to working well, considering the right topics on a timely basis BOARD INDEPENDENCE The Board considers Non-Executive Directors Ron Stewart, Directors meet without the Chairman present to appraise the third parties and costs and expenses incurred as a result of and with an appropriate level of challenge. Areas of focus for Chairman’s performance. holding office as a Director. Save for such indemnity provisions the Non-Executive Directors continue to be enhancing Board Operational decision making, operational performance in the Company’s Articles of Association and in the Directors’ engagement with the Executive Committee and building on Andrew Jennings and Jennifer Roebuck to be independent for and the formulation of strategic proposals to the Board are terms of appointment (which were in force throughout existing long-term succession planning throughout the Group, the purposes of the Code. controlled by the Group’s Executive Committee, which is the period and are in force as at the date of these financial which have been addressed during the current period. BOARD OPERATION The Board meets regularly throughout the year. It considers, comprised of the Board of Directors of No Ordinary Designer statements), there are no qualifying third-party indemnity The next externally facilitated Board evaluation will be Label Limited (one of the Group’s operating subsidiaries) provisions in force. conducted in accordance with the requirements of the Code together with relevant heads of department as required. during the 2018/19 financial period. with the support of the Board Committees and the Executive The Executive Committee meets regularly throughout Committee, all issues relating to the strategy, direction and future development of the Group. The Board has a schedule the year. 38 39 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT BOARD AND COMMITTEE ATTENDANCE The table below details the number of Board and Committee meetings held during the period and the attendance record AUDIT COMMITTEE REPORT 3. TAX The Audit Committee has considered a range of tax of each Director. NUMBER OF MEETINGS HELD Ray Kelvin CBE Lindsay Page David Bernstein CBE1 Ron Stewart Andrew Jennings Anne Sheinfield2 Jennifer Roebuck Anita Balchandani3 BOARD MEETINGS AUDIT COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE 9 9 9 9 9 9 5 5 5 4 N/A N/A 2 4 4 N/A 2 2 2 N/A N/A 2 2 2 2 N/A N/A 1 N/A N/A 1 1 1 1 N/A N/A 1 David Bernstein CBE resigned from the Audit Committee on 29 September 2017. 2 Anne Sheinfield resigned from the Board on 29 September 2017. 3 Anita Balchandani resigned from the Board on 19 February 2018. DEAR SHAREHOLDER, The role of the Audit Committee is to monitor the integrity of the matters including: Group’s financial statements and reporting responsibilities and • the potential impact of any tax matters on the Group’s to maintain its internal control and compliance procedures. financial statements; This year, the Audit Committee met four times. In its • the Group’s tax strategy; and meetings it focused on the Group’s risk management, internal • the impact of Brexit on the Group’s tax strategy. controls, tax, and external risk factors. 1. RISK MANAGEMENT The Audit Committee regularly reviews how the Board is 4. EXTERNAL RISK FACTORS As described in more detail in Principal Risks and Uncertainties set out on pages 22–26, the Audit Committee is responsible managing the risks the Group is facing throughout the year. for reviewing the effectiveness of the Group’s system of risk This year, the Board has specifically acted to: management and internal controls. During the period, the • review the robustness of the Group’s systems in external advisors to monitor the Group’s risk profile and to Audit Committee has worked with the Risk Committee and response to the growing threat to its cyber security, assess external risk factors. including external penetration testing; COMMUNICATION WITH SHAREHOLDERS importance The Group attaches considerable Company’s Annual General Meeting at which they have the • ensure that the Group is prepared for the forthcoming to the opportunity to ask questions. General Data Protection Regulation; and PREPARATION OF THE REPORT This Audit Committee Report has been prepared in accordance effectiveness of its communication with its shareholders. Non-Executive Directors are kept informed of the views of • mitigate the foreign currency risks that the Group’s with the Code and includes: The full report and accounts are sent to all shareholders and shareholders by the Executive Directors and are provided with global business is exposed to, as a result of recent further copies are distributed to others with potential interest independent feedback from investor meetings. market volatility. in the Group’s performance. • a description of the significant issues that the Audit Committee considered in relation to the financial Led by the Chief Executive, the Chief Operating Officer and the Finance Director, the Group seeks to build on a mutual CONFLICTS OF INTEREST The Company’s Articles of Association take account of certain The Audit Committee is satisfied that the risk management statements, and how these issues were addressed; process adopted by the Board has remained robust and • an explanation of how the Audit Committee has understanding of objectives between the Company and its provisions of the Companies Act 2006 relating to Directors’ effective during the period. institutional shareholders by making general presentations conflicts of interest. These provisions permit the Board to after the interim and preliminary results; meeting shareholders consider, and if thought fit, to authorise situations where a and potential investors to discuss long-term issues Director has an interest that conflicts, or may possibly conflict, 2. INTERNAL AUDIT The Audit Committee considered the Group’s range of internal of the external auditors and information on the length of tenure of the current audit firm and when a tender assessed the effectiveness of the external audit process and the approach taken to the reappointment and gathering feedback; and communicating regularly with the interests of the Company. The Board has adopted control systems, including those in relation to: was last conducted; and throughout the year via its investor relations programme. All procedures for the approval of such conflicts. The Board’s shareholders have access to these presentations, as well as powers to authorise conflicts are operating effectively and the to the Annual Report and Accounts and to other information procedures are being followed. During the period no situational • inventory and supply chains; • digital branding and PR; and • an explanation of how the Group’s auditors’ objectivity and independence are safeguarded when providing non-audit services. about the Company through the investor relations website at conflicts of interest were disclosed by the Directors. • the detection of fraud, bribery and corruption. www.tedbakerplc.com. Shareholders may also attend the Having analysed and challenged the results of the internal the external auditors, together with the regular circulation audit at regular intervals, the Audit Committee is satisfied that and review of board papers and financial information, have the Group had suitable and effective internal controls in place enabled the Audit Committee to discharge its duties and during the period. responsibilities effectively. Meetings with senior management, internal audit and More information in respect of the Audit Committee’s role in reviewing internal controls and risk management practices is set out on page 23. 40 41 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT AUDIT COMMITTEE MEMBERSHIP During the period, Ron Stewart was Chairman of the Audit of the Audit Committee because of his extensive, relevant and necessary financial experience. Committee. The other members were Andrew Jennings Anita Balchandani was a member of the Audit Committee and, from her appointment on 29 September 2017, from her appointment on 29 September 2017 until her Jennifer Roebuck. resignation from the Board and associated committee Provision C.3.1 of the Code provides that the Audit positions on 19 February 2018. Committee should comprise of at least three independent The expertise of the Audit Committee members is Non-Executive Directors, and that the Chairman of the considered as part of the annual review of the Committee’s DIRECTORS’ REPORT AGENDA ITEMS 4. Risk management Monitoring the Board’s management of risk Receiving and reviewing the findings of the internal audit 5. Tax Identifying and responding to the key tax risks to the Group Overseeing the Group’s tax strategy Company should not be a member of the Audit Committee. effectiveness. The Board is satisfied that the Committee 6. Internal policies This notwithstanding, David Bernstein CBE, Chairman of the possesses recent and relevant financial experience, sectoral Setting the terms of reference of the Audit Committee Company, was a member of the Audit Committee until his competence and appropriate levels of independence, and Adopting an appropriate whistle blowing policy resignation from that committee on 29 September 2017. In that its members offer a depth of financial and commercial Setting out the non-audit services provided by KPMG this regard, the Board recognises that the Company has not experience across various industries. been fully compliant with Provision C.3.1 of the Code during The terms of reference for the Audit Committee are the period but, prior to additional NED appointments being available on the Company’s website, www.tedbakerplc.com. made, considered David Bernstein to be a valuable member KEY MATTERS A summary of the key matters considered by the Audit Committee during the period are set out below. The Audit Committee has considered matters according to the following broad themes: Setting out the non-audit spend Investigating whether the Group employs former KPMG staff 7. External risks Reviewing cash flow forecasts Setting the level of materiality Assessing how external influences will affect the Groups ability to resource Monitoring the Group’s Cyber Risk Review Appraising the investment in new stores Monitoring the foreign currency risk to the Group Monitoring the likely impact of Brexit on the market Monitoring the Group’s preparations for compliance with the General Data Protection Regulation MARCH 2017 JULY 2017 OCTOBER 2017 NOVEMBER 2017 Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y The main areas of judgement and estimation are set out in the accounting policies on pages 89–95. MARCH 2017 JULY 2017 OCTOBER 2017 NOVEMBER 2017 1. Financial oversight; 2. Conduct of the audit; 3. Statutory compliance; 4. Risk management; 5. Tax; 6. Internal policies; and 7. External risks. AGENDA ITEMS 1. Financial oversight Reviewing the progress of the Full Year Report/Interim Report Assessing the KPMG Audit Committee Paper summarising the results from the year-end external audit Assessing the KPMG Audit Committee Paper summarising the results from the interim review 2. Conduct of the audit Overseeing the KPMG Audit Strategy Receiving and reviewing the KPMG Management Letter on control observations Monitoring the effectiveness of external auditors Monitoring the independence of KPMG 3. Statutory compliance Ensuring compliance with mandatory audit rotation and tendering Tracking and adopting updates to accounting standards 42 Y Y Y Y Y Y Y Y Y Y Y Y Y Y 43 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT SIGNIFICANT ISSUES The Audit Committee received and reviewed reports from basis of current and projected performance, with growth 4) Future IFRS developments above set monetary thresholds. In approving any non-audit assumptions based on Directors’ knowledge and experience. The Audit Committee has discussed future accounting services the Audit Committee considers any threats, perceived management and the external auditors setting out the Given the relative immaturity of the brand outside the UK, the developments likely to affect the presentation of the Group’s or actual, to the auditors’ independence taking regard of the significant issues in relation to the financial statements for payback period is typically longer and it is not uncommon for financial statements. guidance contained in the relevant ethical standards. the period which related to the carrying value of inventory new stores to make losses in their start-up phase. Judgement and the carrying value of retail fixed assets (being leasehold is therefore applied by the Directors in assessing the trigger improvements and fixtures and fittings). point for impairment, recognising that losses in the start-up TAX GOVERNANCE FRAMEWORK The Finance Director is responsible for the Group’s tax policy To assess the effectiveness of the external auditors, the Audit Committee reviewed: These issues were discussed and challenged with phase are not always indicative of the future performance which is implemented with the assistance of the senior finance management during the period. They were also discussed with of a particular store. The future forecasts are inherently and Group tax team. This is reviewed on an ongoing basis as • the external auditors’ fulfilment of the agreed audit plan the external auditors at the time the Audit Committee reviewed judgemental and the key sensitivity includes achieving the part of the regular financial planning cycle. In addition, the and variations from it; and agreed the external auditors’ Group audit plan, when growth rates for a particular store and relevant to the specific Group’s tax status is reported regularly to the Board and Audit • reports highlighting the major issues that arose during the the external auditors reviewed the half year interim financial market. A change in these assumptions will impact the future Committee. The Audit Committee is responsible for monitoring course of the audit; and statements in October 2017, and also at the conclusion of the forecasts and management’s assessment of the profitability all significant tax matters including the Group’s tax policy. • feedback from the businesses evaluating the performance audit of the financial statements for the period. of each store. The assumptions are continually reviewed In accordance with the measures announced in Finance of each assigned audit team. against current trading performance and external factors that Act 2016, Ted Baker has published on its website details of the 1) Carrying value of inventory impact the fashion industry and consumer demand for specific Group’s tax strategy as it relates to or affects UK taxation. The The Audit Committee held meetings with the external The Directors have used their knowledge and experience regions, including for example macro-economic conditions Group’s tax strategy is available on the Company’s website at auditors before each Audit Committee meeting to review key of the fashion industry in determining the level and rates of that may impact consumer spending patterns and tourism. http://www.tedbakerplc.com/investor-relations/tax-strategy. issues within their scope of interest and responsibility. To fulfil provisioning required to calculate the appropriate inventory The Directors use their knowledge of the fashion industry carrying values. Inventory is carried in the financial statements and experience built over many years to set and monitor the at the lower of cost and net realisable value. Sales in the fashion assumptions included within the forecasts. EXTERNAL AUDIT The Audit Committee oversees the Group’s relationship with the Audit Committee reviewed: its responsibility for oversight of the external audit process, the industry can be extremely volatile with consumer demand The external auditors explained to the Audit Committee external auditors and makes recommendations to the Board • the terms, areas of responsibility, associated duties changing significantly based on current trends. As a result there the work they had conducted during the year. On the in relation to their appointment, reappointment and removal and scope of the audit as set out in the external is a risk that the cost of inventory exceeds its net realisable basis of their audit work, the external auditors reported no and approves their remuneration and terms of engagement. auditors’ engagement letter for the forthcoming year; value. Management calculates the inventory provision on the inconsistencies or misstatements that were material in the The Board and Audit Committee also review the independence • the external auditors’ overall work plan for the basis of the ageing profile of what is in stock. Provisions are context of the financial statements as a whole, and in the view of the external auditors and consider the engagement of the forthcoming year; considered on a seasonal basis taking into consideration the of the Audit Committee this supports the appropriateness of external auditors to supply non-audit services. • the external auditors’ fee proposal; various channels that are available to the Group to sell existing the Group’s methodology. The Company has adopted a formal policy on the supply • the major issues that arose during the course of the inventory and the estimated prices that can be achieved. Any changes to the prices that can be achieved could impact the 3) Misstatements of non-audit services by the external auditors. They may only audit and their resolution; provide such services on condition that such advice does • key accounting and audit judgements; provisions that are required to cover the risks associated with Management confirmed to the Audit Committee that they not conflict with their statutory responsibilities and ethical • the level of errors identified during the audit; and holding older season inventory. Adjustments are made where were not aware of any material misstatements or immaterial guidance. The Audit Committee Chairman’s pre-approval is • recommendations made by the external auditors appropriate based on Directors’ knowledge and experience to misstatements made intentionally to achieve a particular required before the Company uses non-audit services that in their management letters and the adequacy of calculate the appropriate inventory carrying values. presentation. The external auditors reported to the Audit exceed £25,000. Where fees are expected to be above £50,000, management’s response. Management confirmed to the Audit Committee that there Committee the misstatements that they had found in the course this requires approval from the Audit Committee Chairman and have been no significant changes to the approach used to of their work and no material amounts remain unadjusted. The one other member of the Audit Committee. The aggregate Consideration is also given by the Audit Committee to estimate inventory provisions from the prior year. The external Audit Committee confirms that it is satisfied that the external spend is also reviewed by the Audit Committee on an annual the need to include the risk of the withdrawal of the external auditors explained to the Audit Committee the work they auditors have fulfilled their responsibilities with diligence and basis. Details of the auditors’ remuneration for audit and non- auditors from the market in its risk evaluation and planning. had conducted during the year. On the basis of their audit professional scepticism. audit fees are disclosed in Note 3 to the financial statements The Audit Committee considers the reappointment of the work, the external auditors reported no inconsistencies or misstatements that were material in the context of the financial After reviewing and challenging the presentations and reports from management and consulting where necessary for the period. The Audit Committee recognises that the independence of external auditors each year and assesses their independence on an ongoing basis. KPMG have been the Company’s external statements as a whole, and in the view of the Audit Committee with the external auditors, the Audit Committee is satisfied the external auditors is an essential part of the audit framework auditors since 2001, with a competitive audit tender process this supports the appropriateness of the Group’s methodology. that the financial statements appropriately address the critical and the assurance that it provides. The Audit Committee last carried out in 2012. The Audit Committee notes the final 2) Carrying value of retail fixed assets (being leasehold improvements and fixtures and fittings) reported and the disclosures). The Audit Committee is also satisfied that the significant assumptions used for determining auditors to ensure that their objectivity and independence is not compromised. The Audit Committee regularly reviews the EU Regulation on audit rotation and will ensure compliance with these requirements in considering when next to tender Leasehold improvements and fixtures and fittings for stores the value of assets and liabilities have been appropriately level of non-audit fees and as noted above pre-approval for any the external audit, which must be completed by the year ended are identified for further impairment testing primarily on the scrutinised, challenged and are sufficiently robust. such services is required from the Audit Committee Chairman 25 January 2025. The requirements of the Code and the Order judgements and key estimates (both in respect to the amounts monitors any non-audit work that is undertaken by the external Order of the Competition and Markets Authority and the new 44 45 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT and EU Regulation notwithstanding, the Audit Committee will Director at regular intervals. The Audit Committee assesses continue to monitor the effectiveness of the external auditors the findings of the Risk Committee and tasks the internal NOMINATION COMMITTEE REPORT on an annual basis and will tender in accordance with the new audit with investigating how the Group has responded to EU regulations. Accordingly, the Company confirms that it them. The Audit Committee approves the scope of the internal DEAR SHAREHOLDER, The role of the Nomination Committee is to establish a Jennifer is an experienced digital and e-commerce executive with a background in digital transformation and brand marketing, particularly in the lifestyle and clothing sector. Jennifer is the co-founder of REVL, the events app, and complied with the provisions of the Competition and Markets audit function (permitting for this to change in order to remain framework for the process of appointment of new Directors to has wide experience working with technology led start-ups. Authority’s Order for the financial year under review. abreast of any new developments encountered by the Group) the Board. The Nomination Committee is also responsible for On 19 February 2018, Anita Balchandani resigned from the KPMG have expressed their willingness to continue and challenges its conclusions. When appointing the Internal overseeing succession planning requirements, including the Board and associated committees following her acceptance of in office as external auditors. The Audit Committee has Audit team, the Audit Committee satisfied itself that the people identification and assessment of potential Board candidates a new full-time role which does not permit her to hold any non- recommended to the Board that KPMG LLP be appointed as assigned to it have the necessary experience and expertise to and making recommendations to the Board for its approval. executive positions. the Group’s external auditors for the 2018/19 financial period effectively fulfil their role. The performance of internal audit is and the Directors will be proposing the reappointment of evaluated according not only to the risks it identifies but also KPMG at the Annual General Meeting in 2018. to the proposals it offers to remedy those risks. NOMINATION COMMITTEE MEMBERSHIP During the period the Nomination Committee was chaired by Nomination Committee considered long-term succession planning including the timing and the process for recruitment David Bernstein and its other members were Ron Stewart, and transition during the period. In addition to the above directorate changes, the INTERNAL AUDIT The Audit Committee also oversees the Group’s internal WHISTLEBLOWING The Audit Committee is responsible for the review of the Andrew Jennings and, prior to her resignation from the Board and associated committee positions on 29 September audit function, including its role, mandate and audit plan. Company’s procedures for responding to the allegations 2017, Anne Sheinfield. The composition of the Nomination DIVERSITY Boardroom diversity, including gender, is an important Certain internal audit functions were outsourced to PwC. The of whistle blowers and the arrangements by which staff may, Committee during the year complied with Provision B.2.1 of consideration when assessing a candidate’s ability to Group has found that the effectiveness of the internal audit in confidence, raise concerns about possible financial the Code. contribute to, and complement the abilities of, a balanced has been increased by engaging PwC, as it has allowed the reporting irregularities. On behalf of the Board I would like to thank Anne for Board. We strongly support the principle of boardroom Group’s management to access a wider range of expertise than it otherwise would have, and afforded management the opportunity to have its processes and findings challenged by an independent reviewer. The focus of the internal audit is influenced by the risks, Ronald Stewart Chairman of the Audit Committee controls and management action plans identified by the Risk 22 March 2018 Committee, which are presented to the Board by the Finance her major contribution and dedicated service during her diversity, as evidenced by Anne Sheinfield’s tenure from time with Ted Baker, in particular her stewardship of the June 2010 to 29 September 2017, and the appointments of Remuneration Committee. Jennifer Roebuck and Anita Balchandani. The Nomination Committee is responsible for nominating Our Board appointments will always be made on merit candidates for appointment to the Board. against objective criteria, and this will continue to be the All Non-Executive Directors are advised of the time priority rather than aiming to achieve an externally prescribed commitment considered necessary to enable them to fulfil diversity target. their responsibilities prior to appointment. The Group continues to support the development and The terms of reference for the Nomination Committee are progression of all employees, with the aim of maintaining and available on the Company’s website, www.tedbakerplc.com. achieving diversity throughout all levels of the organisation. APPOINTMENTS TO THE BOARD The Company’s Articles of Association require one third of the Directors for the time being to retire each year, and for each Director to retire from office at least once every three years. David Bernstein CBE Chairman of the Nomination Committee However, in line with Provision B.7.1 of the Code, the Board 22 March 2018 has determined that all Directors must retire and stand for re-election by shareholders on an annual basis. During the period, Jennifer Roebuck and Anita Balchandani were appointed to the Board on 29 September 2017. With the assistance of an external search consultancy, Blackbook Executive Search, the Committee considered a shortlist of potential candidates in light of the balance of skills, experience, independence and knowledge on the Board, determining against objective criteria. Other than the provision of executive search services, Blackbook does not have any other connection with the Company. 46 47 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT DIRECTORS’ REMUNERATION REPORT 2017/18 – A YEAR IN REVIEW Our unique and talented teams are dedicated to developing 2018/19 – THE YEAR AHEAD The Remuneration Committee has proposed a 1.8% and 2.0% The Gender Pay Gap Report will be published on the investor relations website at http://www.tedbakerplc.com. PART A: ANNUAL STATEMENT the brand and furthering the growth of the business. Their increase in the basic salaries of the Chief Executive Officer The Remuneration Committee will review this report and is commitment to take on diverse and complex challenges with and Chief Operating Officer and Group Finance Director committed to ensuring equitable pay considerations across DEAR SHAREHOLDER, I am pleased to present the Directors’ Remuneration passion and professionalism has increased the strength of respectively. The increase was determined after considering gender and relative scaled roles. the Ted Baker brand to deliver continued levels of profitability. inflation and other global economic factors. This is broadly Report, which has been prepared on behalf of the Board However, while the Group has achieved a good performance in consistent with the salary increases for employees across by the Remuneration Committee in accordance with the the year, challenging conditions meant that the stretch profit the Group where a 1.5% increase has been introduced by IN CONCLUSION Part B of this Report contains the Directors’ Remuneration requirements of the Companies Act 2006 and Schedule 8 of the target for the annual bonus set at the beginning of the period reference to a pay for performance model with direct linkage Policy, as approved by shareholders. Part C, the Annual Report Large and Medium-sized Companies and Groups (Accounts has not been exceeded. As a result, no annual bonus payment to the successful achievement of key business objectives. on Remuneration, provides further details on remuneration and Reports) Regulations 2008, as amended, and meets the to the Executive Directors or the wider employee population This Group methodology for rewarding individual performance during the period. relevant requirements of the Listing Rules of the Financial will be made. ensures that each individual employee is challenged on Conduct Authority and the UK Corporate Governance Code. I am pleased to report that the second award made under achieving goals linked with their departmental and wider I would like to thank you for your ongoing support. The Remuneration Report is split into three parts: Plan 2013 (the “2013 LTIP”) vested in full in April 2017. Both linked to strategic objectives are providing greater awareness, the shareholder-approved Ted Baker PLC Long-Term Incentive business objectives. While in its infancy, measures directly the share price and profit growth performance conditions were ownership and contribution. Exceptional increments above • Part A: The Annual Statement. • Part B: The Directors’ Remuneration Policy which sets out the Company’s policy on Directors’ remuneration which confidently achieved. Furthermore, a fifth award of options the pay for performance increment are reserved for significant was made under the 2013 LTIP Scheme in April 2017. This change in role or responsibilities, market value at the median Andrew Jennings Chairman of the Remuneration Committee award of options carries the equivalent share price and profit level, and relative value to Ted. 22 March 2018 was approved at the Annual General Meeting (“AGM”) growth performance conditions as the four previous awards Awards will be made to Executive Directors under the annual held on 13 June 2017, and the key factors that were taken and will vest in April 2020. bonus scheme and the LTIP. These awards will be subject to into account in setting the policy. You will not be asked to At the AGM held on 13 June 2017, the last period’s Directors’ share price and profit growth performance conditions as set vote on the Directors’ Remuneration Policy this year, as it Remuneration Report (excluding the Remuneration Policy) was out in the Directors’ Remuneration Policy. These performance is only usually subject to a binding shareholder vote every approved by 99.5% of shareholders, and the new Directors’ conditions have enabled consistent incremental development third year following its approval. Remuneration Policy was approved by 95.2% of shareholders. of Ted’s business model enhancing our position as a leading • Part C: The Annual Report on Remuneration which sets out payments and awards made to Executive Directors As such, the Remuneration Policy will apply for the three years global lifestyle brand. from 13 June 2017. The high level of shareholder approval and Non-Executive Directors during the 2017/18 confirms our approach to remuneration, which is intended to financial year and details the synergy between Company attract, motivate and retain high quality management. performance and remuneration for that period. 50 51 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT PART B: DIRECTORS’ REMUNERATION POLICY Remuneration packages for Executive Directors are REMUNERATION POLICY TABLE – EXECUTIVE DIRECTORS REMUNERATION POLICY The policy described in this section was approved by structured to provide a balance between fixed basic salary and variable remuneration based on individual and Group performance. shareholders on 13 June 2017 at the Company’s Annual Non-Executive Directors are remunerated with fees in General Meeting and applies for three years commencing on line with market rates. They do not receive any pension or that date. No changes have been made to the policy since other benefits, other than the reimbursement of reasonable it came into effect on that date. The policy can be found in expenses, and they do not participate in any bonus or share the Group’s annual accounts for the year ended 28 January schemes. In the period, benchmarking of Non-Executive 2017 at www.tedbakerplc.com. The original policy approved Director fees was undertaken and the recommended by shareholders on 10 June 2014 can be found in the Group’s changes actioned. annual accounts for the year ended 25 January 2014 at www.tedbakerplc.com. The aim of the Group’s remuneration policy is to attract, SHORT AND LONG-TERM REMUNERATION Group policy is to use fixed annual elements of remuneration motivate and retain high quality management. The policy such as salary, pension and benefits to recognise the status is designed to incentivise senior executives according to of our Executive Directors and to ensure current and future the levels of value generated for shareholders, and to use market competitiveness. performance metrics that create a strong linkage between The use of short-term annual bonus incentives and senior management remuneration and business performance Long-Term Incentive Plans (“LTIPs”) provides a direct link over the short and the longer term. between remuneration and KPI’s. It also creates a synergy The total breadth of the remuneration package is evaluated between the Executive Directors’ personal return and the upon comparison with the individual components and total return to investors. reward value of packages offered within similar companies, Both the short and long-term incentives are used to having regard to: motivate and reward them for sustaining and growing the ELEMENT MAXIMUM POTENTIAL OPERATION AND LINK TO STRATEGY PERFORMANCE TARGETS AND TIME PERIOD BASE SALARY No maximum salary but annual increases will be broadly consistent with increase in base salary of wider employee population unless there is a change in role or responsibility, or where periodic benchmarking demonstrates that the overall remuneration package falls below the Group’s policy of the targeted median level. ANNUAL BONUS* Up to 100% of base salary. Salary reviewed annually and reflects the role and sustained value of the individual in terms of skills, experience and contribution. N/A Increases will be applied taking into account inflation and global economic conditions, and are in line with wider employee increases, unless the results of benchmarking reports demonstrate a further increase is necessary to achieve targeted median level for any Executive Director. Drives and rewards annual performance. Profit targets are reviewed annually at the start of the financial period. Payment is determined by the Remuneration Committee following the end of the financial period. success of the Ted Baker Group. LTIPS** Annual award of up to 150% of base salary. The Remuneration Committee has the right to award up to 200% of basic salary in exceptional circumstances. Annual award of options over shares which vest dependent on the achievement of profit targets with a share price underpin. Drives the overall business strategy and objectives, and aligns the interests of shareholders and the executive team over the longer term. • 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. We use target performance to estimate the total potential reward and benchmark it according to the criteria outlined above. External benchmarking analysis is commissioned as and when required to ensure that we remain competitive within the broader retail sector and with other companies of similar size. The latest benchmarking report was carried out during the prior period and the results presented to the Remuneration Committee in February 2017. This used a comparator model of the median salary of the CEO role in similar companies using the criteria above, and structured on a percentage scaling for relative levels within the Executive Management Board group. 52 53 THE TED BAKER SHARESAVE SCHEME All Executive Directors, excluding Ray Kelvin, have the option to save up to the statutory limit towards options over shares in Ted Baker Plc over any three or five year period. To align the interests of Executive Directors with the long-term interests of the shareholders. N/A Achievement of profit before tax, annual bonus and exceptional/ non-recurring items against targets* for the financial period. The Remuneration Committee reserves the right to make adjustments if the outcome does not reflect underlying performance. Threshold vesting is 0%. Malus and clawback provisions introduced for annual bonus payments made after 1 April 2017. Malus can be applied up to the date of payment. Clawback can be applied for a period of two years after the date of payment. 25% vesting if compound annual growth of profit before tax per share of 10% over the three year performance period beginning with the financial period in which the awards are made, rising to 100% vesting at 15% growth.** Share awards will only vest if the share price has risen by 10% over the 3 year period commencing on the date that the awards are made. Dividends are only paid on LTIP options which have vested and been exercised. Malus and Clawback provisions introduced for Awards made after 1 April 2017. Malus can be applied up to the date of vesting. Clawback can be applied for a period of two years after the date of vesting. Performance conditions for future awards may vary but the Remuneration Committee will consult with shareholders on any major changes proposed. Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT ELEMENT MAXIMUM POTENTIAL OPERATION AND LINK TO STRATEGY PERFORMANCE TARGETS AND TIME PERIOD SHARE OWNERSHIP GUIDELINES N/A Increase alignment between the Executive Directors and shareholders. Shows a clear commitment by Executive Directors to creating value in the long term. The guideline encourages existing Executive Directors to hold a minimum 200% of base salary in shares. Any new Executive Director is encouraged to hold at least 100% of base salary in shares. Shareholding for new Executive Directors can be acquired over five years. RETIREMENT BENEFITS OTHER BENEFITS All Executive Directors excluding Ray Kelvin are entitled to pension contributions to a money purchase scheme of up to 12.5% of base salary. Entitlements include car allowance and medical expense insurance. Positioned to ensure broad competitiveness with market practice. N/A Maximum car allowance entitlements are based on the estimated costs of running a private car. N/A NOTES TO THE EXECUTIVE DIRECTORS’ POLICY TABLE *Annual bonus Profit targets are set by the Remuneration Committee at the start of the financial year by reference to internal budgets and taking account of consensus market expectations for profit before tax and exceptional/non-recurring items. Market expectations for profit are considered a key measure of business performance for our shareholders. The funds available for payment of the annual bonus are determined by the achievement of profit before tax, annual bonus and exceptional/non-recurring items in a financial period in excess of the target. The maximum bonus payable to employees is capped as a percentage of base salary which varies according to individual contracts. The maximum annual bonus payable to an Executive Director is capped at 100% of base salary. **LTIPs In arriving at the performance criteria for the 2013 LTIP, the comparator group used for benchmarking purposes consisted of listed companies in the retail sector and other companies with similar enterprise value to Ted Baker. This scheme was introduced in July 2013 for Executive Directors and other senior executives across the Group. The criteria used to measure performance are growth targets based on adjusted profit before tax per share over the performance period and share price growth over the award period. The profit per share growth targets were set following consideration of consensus market analyst expectations and the share price growth target was agreed in consultation between the Remuneration Committee and shareholders. The Remuneration Committee felt that these criteria were appropriate for the Group in view of its investment in expansion and should encourage management to focus on longer-term profitable growth. The share price growth target has been favoured over a total shareholder return (“TSR”) based measure because the unique profile of the Group’s business means that a readily comparable TSR benchmark was not available. A commitment has, however, been made to apply the existing dividend policy consistently. 54 REMUNERATION POLICY TABLE – NON-EXECUTIVE DIRECTORS The Board aims to recruit high-calibre Non-Executive companies of a similar size and complexity. A benchmarking exercise of NED fees was undertaken in the period. When recruiting NEDs, the remuneration arrangements Directors (“NEDs”) with broad commercial, international or offered will generally be in line with those set out in the Non- other relevant experience. The remuneration policy for NEDs is Executive Directors’ Remuneration Policy Table below. set by the Board having taken account of the fees paid by other APPROACH TO SETTING FEES BASIS OF FEES OTHER ITEMS Fees are reviewed at appropriate intervals taking into account the time commitment expected and practice in peer companies of a similar size, sector and complexity. Each NED is paid a basic fee for undertaking Non-Executive Director and Board duties. A higher fee is typically paid to the Chairman of the Board. The NEDs do not participate in the Group’s annual bonus scheme, long-term incentive plans, health care arrangements or employee share schemes and do not receive any retirement benefits. Non-Executive Director fees are not subject to clawback or withholding arrangements. The Group provides each NED with relevant liability insurance for the duration of their appointment. NEDs are reimbursed for reasonable expenses, none of which comprises taxable benefits. All NEDs stand for reappointment on an annual basis at every AGM. DIFFERENCES IN REMUNERATION POLICY FOR ALL EMPLOYEES A consistent remuneration approach is applied at all levels throughout the Group, except as outlined below, to ensure that STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE COMPANY The Group Head of Human Resources presents to the business strategy and performance are aligned and that the Remuneration Committee at its General Meeting in February total reward is sufficient to attract and retain high-performing of each year on proposed pay for performance salary and talented individuals. increment potential for the general employee population and All employees of Ted Baker are entitled to a base salary, on any changes to remuneration policy within the Group. The access to a discretionary company and individual performance Remuneration Committee limits any increases in base salary based annual or periodic bonus and a range of benefits for Executive Directors so that they are broadly in line with the dependent upon their role within the Group. The maximum mechanics applied across the general employee population potential annual base salary increase in any one year is for pay for performance and exceptional increases as consistent across all employees via a pay for performance detailed above. This includes the ability to make incremental scheme. Any exceptional increase to base salary is structured changes if the salary and total reward falls below the targeted around specific criteria linked to significant change in role or median range. level of responsibility, market value at a median level, value Proposed remuneration arrangements are discussed with to Ted and cross departmental equality for like roles. The employee communication groups and senior management. maximum opportunity for bonus and benefits is based on The Remuneration Committee does not specifically seniority, responsibility and function of the role. invite employees to comment on the Executive Directors’ Conditional long-term share awards are only available to remuneration policy but any comments made by employees Executive Directors and other members of senior management are taken into account. across the Group. Share option grants under the Ted Baker As well as benchmarking the remuneration packages Sharesave scheme are available to all UK employees. of an Executive Director peer group as and when required, Malus and clawback provisions for Executive Director annual bonus payments and awards made under the 2013 LTIP any benchmarking exercise undertaken which subsequently underpins the Group’s remuneration policy for Executive after 1 April 2017 are similarly applied to senior members of the Directors also considers the remuneration levels of other Group management team. senior executives within the Group. The Remuneration Committee continues to support its established commitment to the Company policy of targeting for senior management and total remuneration levels employees across the Group within the median range in order to retain and reward key individuals. 55 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT SERVICE CONTRACTS AND POLICY OF PAYMENTS FOR LOSS OF OFFICE STANDARD PROVISION POLICY DETAILS Notice periods in Executive Director service contracts Twelve months’ notice from the Company. Twelve months’ notice from the Executive Director. Executive Directors may be required to work during their notice period, be placed on gardening leave for all or part of the notice period or be provided with pay in lieu of notice if not required to work the full period of notice. Compensation for loss of office in service contracts No more than twelve months’ salary, pension and benefits (excluding bonus). Payable monthly and adjusted if the Executive Director obtains alternative employment. Treatment of annual bonus on termination No payment unless employed on the date of payment of bonus except for “good leavers”. The Remuneration Committee retains discretion to determine whether an Executive Director is a “good leaver” taking account of circumstances including in particular death, disability and redundancy. “Good leavers” are entitled to a bonus pro-rated to the period of service during the period provided the financial targets have been achieved and all necessary conditions have been met. The Remuneration Committee has discretion to reduce the entitlement of a “good leaver” in line with performance and the circumstances of the termination. OTHER PROVISIONS IN SERVICE CONTRACTS Executive Directors’ service contracts include non-compete and non-poaching provisions. N/A N/A Treatment of unvested and deferred share awards on termination under plan rules All awards lapse except for “good leavers” (e.g. on death, disability, ill health, injury, retirement, redundancy). The Remuneration Committee retains discretion to treat an Executive Director as a “good leaver” in other circumstances. For “good leavers”, the extent of vesting is at the discretion of the Remuneration Committee taking account of performance to date of leaving and pro-rated for period of employment in the vesting period for the award. N/A Treatment of unvested and deferred share awards in the event of a change in control of the Group Outside appointments Executive Directors may accept one board appointment in another listed company. Non-Executive Directors 56 NEDs have letters of appointment with the Company which provide: Three to six months’ notice from the Company. Three to six months’ notice from the NED. The Remuneration Committee’s discretion to treat an Executive Director as a “good leaver” will take into account the particular circumstances of the Executive Director’s departure. In the event of a change in control of the Group prior to the end of the period set for achievement of performance targets the performance period will be shortened to the date of change of control and awards will vest on change of control based on the extent to which any performance conditions are satisfied by reference to that shortened performance period. If the change of control occurs after the end of the performance period, awards will vest on change of control to the extent that the performance conditions have been satisfied. The Remuneration Committee Chairman’s approval must be sought before accepting appointment. Fees may be retained by the Executive Director. NEDs may be required to work during the notice period, be placed on gardening leave for all or part of the notice period, or may be provided with pay in lieu of notice if not required to work the full period of notice. N/A N/A N/A CONTRACTS OF SERVICE AND LETTERS OF APPOINTMENT Each Executive Director has a service contract. Service contracts and letters of appointment are available for inspection at the registered office. The Board sets NEDs’ fees. David Bernstein Ray Kelvin Lindsay Page Ron Stewart Anne Sheinfield* Andrew Jennings Anita Balchandani** Jennifer Roebuck DATE OF SERVICE CONTRACT/LETTER OF APPOINTMENT UNEXPIRED TERM NOTICE PERIOD PROVISION FOR COMPENSATION 24/1/2003 17/7/1997 17/7/1997 1/4/2017 1/4/2017 1/4/2017 29/9/2017 29/9/2017 N/A N/A N/A 2 years 2 months N/A* 2 years 2 months 2 years 8 months** 2 years 8 months 6 months 12 months 12 months 3 months 3 months 3 months 3 months 3 months None None None None None None None None *Anne Sheinfield resigned as Non-Executive Director after more than seven years in the role on 29 September 2017. **Anita Balchandani resigned as Non-Executive Director on 19 February 2018. RECRUITMENT REMUNERATION The Group’s strong brand identity, cultural and family ethos awarded would be no greater than the value forfeited by the individual. The Committee may choose to apply performance engages and attracts talented candidates of a high calibre. conditions to these awards. If required, external recruitment agencies are engaged to A relocation package within HMRC guidelines will be support the search for specialist roles however the employer offered to Executive Directors who are required to relocate to brand enables significant attraction through our own direct take up their appointment within the Group. hiring sources. The remuneration package for any new Executive The Remuneration Committee’s approach to recruitment Directors would be made up of the same or broadly similar remuneration is to set pay levels at the comparable internal components to those used to reward existing Executive rate and no more than is necessary to attract candidates with Directors of the Group. The remuneration package would the appropriate level of skill and experience to the role. The comprise an appropriate mixture of fixed and variable Remuneration Committee retains the principle of a median remuneration as may be required to attract a candidate level total remuneration package when benchmarking for new of appropriate skill and level of qualification. Minimum and senior roles. shareholding requirements would be set at a lower level for all In order to attract key talent to Ted Baker, the Remuneration new Executive Directors joining the Group. Committee will, in certain circumstances, consider making a Consistent with the policy applied to existing Executive buy-out award to compensate a candidate for losses incurred Directors, the maximum variable pay elements for any new by leaving a previous employer to join the Group. The specifics recruit would comprise annual bonus of up to 100% of base of any buy-out award would be dependent on the individual salary, and awards under the 2013 LTIP of up to 150% of base circumstances of recruitment and would not be considered as salary (200% in exceptional circumstances). regular practice and nor would the Remuneration Committee commit to matching any expected value of awards. If a buy-out award were made, the Remuneration Committee would seek to make them on a like-for-like basis to ensure that the value 57 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT TOTAL REMUNERATION OPPORTUNITY The total remuneration for each of the Executive Directors that could result from the remuneration policy in 2018/19 under three different performance scenarios is shown below: RAY KELVIN 2,000 LTIP 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Annual Bonus Fixed Pay 929 18% 30% 481 1,629 42% 28% 100% 52% 30% LINDSAY PAGE 2,000 LTIP Annual Bonus Fixed Pay 944 17% 28% 516 1,614 41% 27% 100% 55% 32% 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 FIXED TARGET MAXIMUM FIXED TARGET MAXIMUM (Note: Figures are stated in £’000) (Note: Figures are stated in £’000) NOTES: Fixed pay is base salary plus pension and benefits for 2018/19. Target performance is the level of performance required to deliver 60% of the maximum bonus and 25% of the full LTIP award and the scenario assumes that the share price growth target of 10% is met at the vesting date. Maximum performance would result in a bonus payment of 100% of salary and 100% vesting of the LTIP award. Again, this assumes that the share price growth target is met. For the purpose of the scenarios illustrated above, the LTIP variable amount is calculated by reference to basic salary at the percentage of the Award that would vest under each scenario. STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWS The Remuneration Committee reviews annual shareholder During 2016/17 a review of the ongoing suitability of the design of the 2013 LTIP was undertaken. It was concluded that the design of the 2013 LTIP and its performance conditions feedback on the Directors’ Remuneration Report to ensure remained appropriate for the Company and no significant their views are given due consideration in forming the changes were proposed. The only amendment to the 2013 LTIP Company’s remuneration policy. Feedback is sought from in the Directors’ Remuneration Policy was the introduction key shareholders on any major changes to components of of malus and clawback provisions to awards made after executive remuneration, including the level of awards to be 1 April 2017. This was approved by shareholders in a binding made and the performance targets in respect of the Company’s shareholder vote at the 13 June 2017 Annual General Meeting. long-term incentive schemes. In accordance with the views shared by shareholders, In 2013 the Remuneration Committee consulted with key malus and clawback provisions were also proposed and shareholders on the design of the Ted Baker PLC Long-term agreed by shareholders on 13 June 2017 for bonus payments Incentive Plan 2013. The consultation included consideration made after 1 April 2017. These measures protect shareholder of the move from a single performance period spanning three interests and, taken together with the introduction of years to rolling annual awards, performance metrics and minimum shareholding guidelines help align the interests of conditions, and the level of awards. A number of meetings shareholders with the executive team. were held with key shareholders to discuss their comments and feedback before the scheme was finalised and approved at the General Meeting on 20 June 2013. 58 59 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT PART C: ANNUAL REPORT ON REMUNERATION ANNUAL RATES OF SALARY IN FORCE DURING THE PERIOD The tables below set out in a single figure the total amount of remuneration, including each element, received by each of the Ray Kelvin Executive and Non-Executive Directors for the periods ended 27 January 2018 and 28 January 2017. DIRECTORS’ SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED) PERIOD ENDED 27 JANUARY 2018 SALARY BENEFITS* PERFORMANCE RELATED BONUS LONG-TERM INCENTIVE PLANS** PENSION TOTAL 2018 29 January 2017–31 March 2017 1 April 2017–27 January 2018 Lindsay Page 29 January 2017–31 March 2017 1 April 2017–27 January 2018 £’000 445 452 425 431 £’000 £’000 £’000 £’000 £’000 EXECUTIVE Ray Kelvin Lindsay Page NON-EXECUTIVE David Bernstein Ron Stewart Anne Sheinfield Andrew Jennings Anita Balchandani Jennifer Roebuck 451 434 83 58 50 54 19 19 18 18 - - - - - - 1,168 36 - - - - - - - - - 852 796 - - - - - - - 54 - - - - - - £’000 1,321 1,302 83 58 50 54 19 19 1,648 54 2,906 PERIOD ENDED 28 JANUARY 2017 SALARY BENEFITS* PERFORMANCE RELATED BONUS LONG-TERM INCENTIVE PLANS** PENSION TOTAL 2017 £’000 £’000 £’000 £’000 £’000 £’000 EXECUTIVE Ray Kelvin Lindsay Page NON-EXECUTIVE David Bernstein Ron Stewart Anne Sheinfield Andrew Jennings 445 425 70 50 50 50 1,090 15 18 - - - - 33 - - - - - - - 757 702 - - - - 1,459 - 53 - - - - 53 1,217 1,198 70 50 50 50 2,635 *Benefits comprise private medical insurance, car benefits and the discount on any SAYE options granted during the period. **The value of LTIPs included in the Directors’ single total figure of remuneration tables above relates to Award 2 of the 2013 LTIP which vested in full on 30 April 2017 (2016: Award 1 of the 2013 LTIP which vested in full on 2 July 2016). The value included is calculated using the number of options that vested at the share price on the date the Award vested (£28.07), less the cost of exercise (nominal cost of 5p per ordinary share). 60 ANNUAL BONUS (AUDITED) For the financial period ended 27 January 2018, the financial targets set at the beginning of the period were not exceeded, and therefore no bonus was achieved. ACTUAL PERFORMANCE AGAINST PERFORMANCE TARGETS (AUDITED) PERFORMANCE RELATED BONUS The profit targets for the annual bonus and the extent of their achievement are summarised in the table below (straight-line interpolation between points in the range). Profit target* Percentage of bonus payable to Ray Kelvin Percentage of bonus payable to Lindsay Page THRESHOLD BONUS 2018 £77.3m 0% 0% MAXIMUM BONUS 2018 ACTUAL PERFORMANCE 2018 £85.3m 100% 100% £73.5m 0% 0% *The profit target is arrived at after adjusting profit before tax for exceptional items and annual bonus, as explained earlier in the Directors’ Remuneration Policy. LONG-TERM INCENTIVE SCHEMES (AUDITED) AWARDS UNDER THE TED BAKER PLC LONG-TERM INCENTIVE PLAN 2013 (AUDITED) During the period, the second award granted under the 2013 LTIP vested in full on 30 April 2017. The table below summarises actual outcomes against the performance conditions set for that Award. Threshold performance target Maximum performance target Actual performance achieved Percentage of maximum achieved SHARE PRICE INCREASE UNDERPIN* PROFIT PER SHARE GROWTH** PERFORMANCE CONDITIONS 10.0% 10.0% 30.5% 100% 10.0% 15.0% 17.8% 100% *Based on base average six month share price at the award date of £21.03 and the six month average at the vesting date of £27.45. **Based on base profit per share in 2013/14 of 91.1p and final profit per share of 148.9p in 2016/17. Awards made under the 2013 LTIP are subject to performance conditions of compound annual growth in profit before tax and exceptional items per share over the three year performance period and share price growth over the three year award period as detailed below. PERFORMANCE CONDITIONS THRESHOLD TARGET STRETCH SUPER-STRETCH Adjusted profit before tax per share Share price growth* 10% 10% 12% 10% 13.5% 10% *Share awards will only vest if the share price has risen by 10% over the three year period commencing on the date that the awards are made. 15% 10% 61 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT EXECUTIVE DIRECTORS’ INTERESTS IN THE COMPANY’S SHARE SCHEMES (AUDITED) DATE OF GRANT MAXIMUM RECEIVABLE AT 28 JANUARY 2017 AWARDED DURING THE YEAR EXERCISED DURING THE YEAR LAPSED DURING THE YEAR MAXIMUM RECEIVABLE AT 27 JANUARY 2018 OPTION PRICE (PENCE) SHARE PRICE ON DATE OF GRANT (PENCE) SHARE PRICE ON DATE OF EXERCISE (PENCE) EXERCISE PERIOD/ VESTING DATE Ray Kelvin 2013 LTIP 3 July 2013 1 May 2014 30 April 2015 5 May 2016 6 April 2017 TOTAL Lindsay Page 1 May 2014 30 April 2015 5 May 2016 6 April 2017 20 May 2014 2013 LTIP SAYE TOTAL 32,106 30,421 23,380 28,236 - - - - - 114,143 24,574 24,574 28,393 22,329 26,967 - - - - 23,469 1,875 - (32,106) (30,421) - - - (62,527) (28,393) - - - - 79,564 23,469 (28,393) - - - - - - - - - - - - - - 5.0 1,705.0 2,760.0 5.0 1,849.0 2,760.0 23,380 5.0 2,855.0 28,236 5.0 2,364.0 24,574 76,190 5.0 2,757.0 - - - - 5.0 1,849.0 3,050.0 22,329 5.0 2,855.0 26,967 5.0 2,364.0 23,469 5.0 2,757.0 1,875 1,600.0 2,000.0 74,640 - - - - 2 July 2016 - 2 July 2023 30 April 2017 - 30 April 2024 29 April 2018 - 29 April 2025 4 May 2019 - 4 May 2026 5 April 2020 - 5 April 2027 30 April 2017 - 30 April 2024 29 April 2018 - 29 April 2025 4 May 2019 - 4 May 2026 5 April 2020 - 5 April 2027 1 July 2019 - 1 January 2020 LTIP awards granted in respect of Ray Kelvin and Lindsay Page represent 22% of the total number of LTIP awards granted during the period (2017: 24%). The balance included other senior executives across the Group. DIRECTORS’ SHAREHOLDING (AUDITED) The Directors who held office during the period and at 27 January 2018 had the following interests, including family interests, in the shares of the Company. Director Ray Kelvin Lindsay Page David Bernstein Ron Stewart Andrew Jennings Anita Balchandani Jennifer Roebuck Anne Sheinfield UNVESTED VESTED BUT UNEXERCISED Shares beneficially owned as at 27 January 2018 Share options granted under 2013 LTIP subject to performance conditions Share options granted under Ted Baker Sharesave Scheme without performance conditions LTIP 2013 share options Shareholding guideline met 15,540,280 81,229 6,000 334 5,005 - - - 76,190 72,765 - - - - - - - 1,875 - - - - - - - - - - - - - - Yes Yes N/A N/A N/A N/A N/A N/A PAYMENTS FOR LOSS OF OFFICE (AUDITED) No payments were made in the period for loss of office (2017: £nil). PAYMENTS TO PAST DIRECTORS (AUDITED) No payments were made in the period to past Directors (2017: £nil). 62 63 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT PERFORMANCE GRAPH AND TABLE The following graph charts the total cumulative shareholder return of the Company from January 2009 to January 2018. Ted Baker Plc FTSE All Share Personal Goods FTSE All Share 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 January ‘09 January ‘10 January ‘11 January ‘12 January ‘13 January ‘14 January ‘15 January ‘16 January ‘17 January ‘18 The graph above shows the Company’s performance against the FTSE All Share Personal Goods index, the sector against which it is tracked by market analysts, and also against the FTSE All Share index to illustrate the Company’s performance in the general market. 64 DIRECTORS’ REPORT CEO REMUNERATION For the financial periods ended: Total remuneration % of maximum performance related bonus paid DIRECTORS’ REPORT 2010 £’000 2011 £’000 2012 £’000 2013 £’000 493 Note 1 527 Note 1 569 Note 1 4,126 Note 2 2014 £’000 701 2015 £’000 757 2016 £’000 665 2017 £’000 2018 £’000 1,217 Note 3 1,321 Note 4 75% 76% 67% 0% 90% 100% 50% 0% 0% STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN THE FOLLOWING FINANCIAL PERIOD The Remuneration Policy in effect during the period was REMUNERATION COMMITTEE AND ADVISERS REMUNERATION COMMITTEE The Remuneration Committee is responsible for setting the approved at the Annual General Meeting on 13 June 2017 and remuneration packages of the Executive Directors of the took effect for the three years commencing on that date. Board and other senior executives who fall within the scope of The Remuneration Committee approved base salaries the Remuneration Committee. It approves all service contracts that will be in force from 1 April 2018 of £460,000 for the Chief and other contracts between the Company and its Executive % of maximum LTIP vesting 0% 0% 0% 100% 0% 0% 0% 100% 100% Executive Officer and £440,000 for the Chief Operating Officer Directors and senior executives and, if thought fit, approves Note 1: The performance criteria in respect of LTIP schemes due to vest in these years were not met and therefore no value crystallised under these schemes. and Group Finance Director. The 1.8% and 2.0% increases in any outside interests and other directorships of the Executive Note 2: The amount included in total remuneration in respect of variable LTIP awards in 2013 comprises the number of nil-cost option awards vesting under the Ted Baker 2009 Value Creation Plan in August 2012 at the share price on the date the awards first became exercisable. Under this scheme awards converted into a number of options which was dependent upon the satisfaction of various performance targets. These options were exercisable over two tranches, the first in October 2012 and the second in October 2013. Note 3: The first of the awards made under the Ted Baker PLC Long-Term Incentive Plan 2013 vested in full in July 2016. Note 4: The second of the awards made under the Ted Baker PLC Long-Term Incentive Plan 2013 vested in full in April 2017. Subsequent awards will vest, dependent on performance conditions being met, annually in future years. PERCENTAGE CHANGE IN CEO’S REMUNERATION The table below shows how the percentage change in the CEO’s total remuneration excluding share-based payments in 2017 and 2018 compares with the percentage change in the average remuneration for all employees within the Group over the same period. Chief Executive Officer All Employees *The percentage change is 0% as no bonus was paid in either year. SALARY AND BENEFITS CHANGE ANNUAL BONUS CHANGE 2.0% (1.1)% 0%* 0%* RELATIVE IMPORTANCE OF SPEND The following table sets out the percentage change in dividends and employee remuneration for the period ended 28 January 2017, compared to the period ended 30 January 2016. the base salary of these Executive Directors was determined Directors. The Remuneration Committee also reviews and after considering inflation and other global economic factors, approves the design of the Company’s long-term incentive and is broadly consistent with the general increase available schemes and determines the level of awards to be made and in the Company pay for performance model for employees approves the performance targets. across the Group. The Remuneration Committee is chaired by Andrew There is no increase in the fees payable to Non-Executive Jennings in an acting capacity and its other members are David Directors in 2018/19. Fees were increased in the year with Bernstein and Ron Stewart. Ron Stewart and Andrew Jennings effect from 1 April 2017 following the conclusions of an external are independent NEDs as noted in the corporate governance benchmarking report carried out during the period, which statements. In line with Provision D.2.1 of the Code, David revealed that previous fees were below median and therefore Bernstein, as Non-Executive Chairman, may be a member, but fees were increased to be consistent with Company policy to not chair the Remuneration Committee, as he was considered remunerate at a median level. to be independent on appointment. The target profit before tax, annual bonus and exceptional The terms of reference for the Remuneration Committee are items, on which the 2018/19 annual bonus is based, is derived available on the Company’s website at www.tedbakerplc.com. after considering consensus market analyst expectations and maximum bonus pool thresholds in line with the existing annual bonus policy. The target for the 52 weeks ending 26 January 2019 is not disclosed for reasons of commercial sensitivity, but 2017 PERCENTAGE CHANGE will be disclosed in the annual accounts for that period. Dividends* Employee Remuneration 2018 £’000 26,723 94,320 £’000 23,658 87,624 13.0% 7.6% *The value of dividends disclosed is the total interim dividend paid during the period and the final dividend proposed for the respective period. A further award of options under the 2013 LTIP will be made during the current financial year. Awards to Executive Directors under this scheme will likely be based on up to 150% of basic salary. However, the Board has approval from shareholders to grant awards of up to 200% of basic salary under this scheme in exceptional circumstances. The performance criteria for the next round of 2013 LTIP awards will be the same as those applied to the five awards previously made under the 2013 LTIP scheme, that is, profit per share growth with a share price increase underpin of 10%. Details of the profit per share growth targets for the 2018/19 awards will be disclosed on the vesting of those awards. 66 67 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT ADVISERS During the period, the Remuneration Committee was assisted in its work by PwC, who was appointed by the Company in consultation with the Remuneration Committee. PwC is retained by the Remuneration Committee as its independent executive OTHER STATUTORY AND REGULATORY DISCLOSURES Directors’ Report and the Strategic Report comprise the Management Report. remuneration adviser. The Remuneration Committee assesses advice provided by PwC from time to time to consider whether it is The Directors present their annual report on the affairs of the independent. Comfort is obtained from PwC’s adherence to the Remuneration Consultants Group Code of Conduct. Group, together with the accounts and auditors’ report, for the SUBSIDIARY UNDERTAKINGS The subsidiary undertakings of the Group in the period are ADVISER APPOINTED BY PricewaterhouseCoopers LLP Company SERVICE PROVIDED TO THE REMUNERATION COMMITTEE Review of LTIP design and performance conditions Review of Directors’ Remuneration Report FEES BASED ON HOURLY RATES £14,140 OTHER SERVICES PROVIDED TO THE COMPANY Tax, legal, project management, accounting and internal audit services to the Group STATEMENT OF VOTING AT GENERAL MEETING At the last Annual General Meeting, votes on the Remuneration Report (excluding the Directors’ Remuneration Policy) were cast as follows. Approval of the 2017 Directors’ Remuneration Report FOR % NUMBER 99.47% 38,562,292 AGAINST % NUMBER 0.53% 204,213 ACTION TAKEN BY REMUNERATION COMMITTEE N/A WITHHELD NUMBER REASONS FOR VOTES AGAINST, IF APPLICABLE 8 The number of votes against the Remuneration Report was not considered to be significant The Directors’ Remuneration Policy is subject to a binding vote by shareholders every three years and was last approved at the Annual General Meeting held on 13 June 2017. Approval of Directors’ Remuneration Policy included within the 2017 Directors’ Remuneration Report FOR % NUMBER 95.23% 35,496,307 AGAINST % NUMBER 4.77% 1,777,901 ACTION TAKEN BY REMUNERATION COMMITTEE N/A WITHHELD NUMBER REASONS FOR VOTES AGAINST, IF APPLICABLE 1,492,305 The number of votes against the updated policy was not considered to be significant The Directors’ Remuneration Report was approved on behalf of the Board on 22 March 2018 and signed on its behalf by: Andrew Jennings Chairman of the Remuneration Committee 22 March 2018 68 52 weeks ended 27 January 2018. The comparative period is listed in Note 12 to the accounts. The Group also has branches for the 52 weeks ended 28 January 2017. operating in Eire and Portugal. The information on the following pages, together with the sections of the Annual Report incorporated by reference, constitutes the Strategic Report: RESULTS AND DIVIDENDS The audited accounts for the 52 weeks ended 27 January 2018 are set out on pages 82–126. The Group profit for the 52 weeks, • Chairman’s Statement on page 4 after taxation, was £52.7m (2017: £46.6m). The Directors • Business Model and Strategy on page 8 recommend a final dividend of 43.5p per ordinary share (2017: • Business Review on page 12 • Financial Review on page 18 38.8p) payable on 22 June 2018 to ordinary shareholders on the register on 18 May 2018 which, together with the interim • The use of financial instruments on page 118 dividend of 16.6p per share (2017: 14.8p per share) paid on 17 • Indication of likely future developments on page 44 November 2017, makes a total of 60.1p per share for the period • Principal Risks and Uncertainties on page 22 (2017: 53.6p per share). The Group maintains a dividend policy • Sustainability on page 28 • People on page 32 of broadly achieving a 2.1x dividend cover. • Employment of disabled persons on page 33 • Employee involvement on page 34 DIRECTORS The Directors during the period were those listed on pages • Greenhouse Gas Emissions on page 30 36–37. Details of the Directors’ beneficial interests in the shares of the Company are shown on pages 60–68. Details The information on the following pages, together with of their interests in share options are given in the Directors’ the sections of the Annual Report incorporated by reference, Remuneration Report on page 50. Brief details of the career of constitutes the Directors’ Report: each Director are set out on pages 36–37. • Governance on page 38 • Board of Directors on page 36 SUBSTANTIAL SHAREHOLDINGS As at 27 January 2018, the Company had been notified, in • Other Statutory and Regulatory Disclosures on page 69 accordance with the Disclosure Guidance and Transparency Rules (DTR5), of substantial interests in the ordinary share The Directors’ Report also includes additional disclosures capital of the Company set out below. In addition, pursuant required by the UKLA’s Disclosure and Transparency Rules to LR9.8.6(2) the table below also sets out the changes in and Listing Rules. interests disclosed to the Company in accordance with DTR 5 For the purposes of DTR 4.1.5R(2) and DTR 4.1.8, this between the end of the period and 13 April 2018. AS AT 27 JANUARY 2018 AS AT 13 APRIL 2018 NAME OF HOLDER Ray Kelvin The Capital Global Companies, Inc Standard Life Aberdeen Aviva Plc Wasatch Advisors Baillie Gifford & Co. Highclere International Investors BlackRock Inc NUMBER 15,540,280 3,358,397 2,057,506 1,818,759 1,449,770 1,422,559 1,357,452 N/A % HELD 34.94% 7.55% 4.63% 4.09% 3.26% 3.20% 3.05% N/A NUMBER 15,540,280 3,214,397 2,040,092 1,783,316 1,448,102 1,554,016 1,357,452 1,382,907 % HELD 34.94% 7.23% 4.59% 4.01% 3.26% 3.49% 3.05% 3.11% 69 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT DIRECTORS’ REPORT SHARE CAPITAL AND CONTROL As at 27 January 2018, the Company’s authorised share capital an ordinary resolution at a general meeting. The Articles also empower the Board to appoint any person as a Director. The DIRECTORS’ INTERESTS The Directors who held office at 27 January 2018 and their connected persons had interests in the shares of the Company as shown was 80,000,000 ordinary shares of 5p each (in nominal value). Articles set out when a Director must leave office. These include in the table below. Details of the Company’s share capital are shown in Note 20 where a Director resigns, becomes bankrupt or is prohibited to the consolidated financial statements on page 115. As at 27 from acting as a director for other reasons, is absent from the January 2018 there were 44,474,208 ordinary shares in issue. business for the long term or where a Director is required to The rights and obligations attaching to the Company’s shares, resign by all the other Directors. in addition to those conferred on their holders by law, are set The Articles provide that any Director who was appointed out in the Articles of Association. The holders of ordinary shares by the Board during the period shall retire at the next Annual are entitled to receive all shareholder documents, attend General Meeting following his or her appointment, but and speak at general meetings of the Company, exercise all that Director may then stand for election by the Company’s voting rights and to receive dividends and participate in other shareholders. Additionally, at each Annual General Meeting one distributions of assets. The Company may not exercise any third of the Directors must retire from office and each Director rights (such as voting rights) in respect of the treasury shares must retire at least once every three years. Retiring Directors and the treasury shares carry no right to receive dividends may stand for re-election by the Company’s shareholders. or other distributions of assets. Other than as set out in the Notwithstanding the provisions of the Articles, the Company’s Articles of Association, the Company is not aware of any current practice, in accordance with the recommendations of agreements between shareholders restricting the voting rights the Code, is to require each Director to stand for election or or the right to transfer shares in the Company. re-election by the Company’s shareholders on an annual basis. The Directors were granted authority at the 2017 Annual Changes to the Articles of Association must be approved by General Meeting (the “2017 AGM”) to allot shares in the the shareholders in accordance with the legislation in force capital of the Company up to an aggregate nominal amount of from time to time. The powers of the Directors are determined £736,169 (being approximately 33% of the total ordinary share by legislation and the Articles of Association of the Company capital in issue prior to the 2017 AGM). This authority is due to in force from time to time. Powers relating to the issuing and lapse at the Annual General Meeting in 2018 (the “2018 AGM”). buying back of shares are included in the Company’s Articles At the 2018 AGM, shareholders will be asked to grant a similar of Association and shareholder approval of such authorities allotment authority. The Directors were also empowered at the may be sought, if considered appropriate by Directors, at the 2017 AGM to make non pre-emptive issues for cash up to an Annual General Meeting. aggregate nominal amount of £110,425 (which, in line with the The Articles can only be amended, or new Articles adopted, Pre-Emption Group Statement of Principles (the “Principles”), by a resolution passed by shareholders in general meeting by reflected the customary disapplication power over 5% of the at least three quarters of the votes cast. issued ordinary share capital as it stood prior to the 2017 AGM), There are a number of agreements that take effect, alter or together with a further 5% of the issued ordinary share capital terminate upon a change of control of the Company following provided that this additional element could only be used in a takeover bid, such as commercial contracts, bank loan connection with acquisitions and specified capital investments agreements and employee share schemes. None of these is (as defined in the Principles). Both powers are due to lapse at deemed to be significant in terms of its potential impact on the the 2018 AGM at which shareholders will be asked to grant a business of the Company. similar powers in line with best practice and the Pre-Emption The Company does not have agreements with any Director Group’s Principles. The Company did not seek an authority at or employee that would provide compensation for loss of the 2017 AGM to buy back its own shares and there was no authority in place as at the end of the period. office or employment resulting from a takeover, save that the Company’s share schemes contain provisions which may The Articles of Association provide that the Company’s cause options and awards granted to employees to vest on shareholders may appoint any person to act as a Director or, a takeover. on special notice, remove any Director from office by passing 70 Ray Kelvin Lindsay Page David Bernstein Ron Stewart Andrew Jennings % OF SHARE CAPITAL 27 JANUARY 2018 28 JANUARY 2017 BENEFICIAL NUMBER BENEFICIAL NUMBER 34.94% 0.18% - - - 15,540,280 15,540,280 81,229 6,000 334 5,005 81,229 6,000 313 5,000 Pursuant to LR9.8.6R(1) the Company confirms it was notified on 28 March 2018 that Lindsay Page acquired 303 Ordinary Shares (0.18%) in the share capital of the Company. There were no other changes in the beneficial interests of the Directors between the end of the period and 13 April 2018. CONTROLLING SHAREHOLDER Pursuant to LR 9.8.4R(14)(a), the Directors confirm that HEALTH AND SAFETY The Group remains committed to providing a safe place to the Company entered into a written and legally binding work and shop for all employees and customers. Annual relationship agreement with Ray Kelvin on 14 November risk assessments are carried out at all locations and a 2014 which is intended to ensure that Ray Kelvin complies committee, comprised of representatives within the business with the independence provisions set out in LR 6.1.4D R (the and an external adviser, reviews and resolves any health and “Relationship Agreement”). safety issues. Pursuant to LR 9.8.4R(14)(c)(i), the Directors confirm that the Company has complied with the independence provisions set out in the Relationship Agreement during the period. In RISK MANAGEMENT The Company’s policies on financial risk management are addition, pursuant to LR 9.8.4R(14)(c)(ii), the Directors confirm outlined in Note 23 of the financial statements. Such information that, so far as the Company is aware, Ray Kelvin and his is incorporated into this Directors’ Report by reference. associates have complied with the independence provisions set out in the Relationship Agreement during the period. This paragraph sets out all information required by POST BALANCE SHEET EVENTS There have been no important events affecting the Group since LR9.8.4R that is applicable to the Company during the period. the end of the period. DONATIONS The value of charitable donations made during the period was £23,010 (2017: £15,617). There were no political donations DIRECTORS’ STATEMENT REGARDING DISCLOSURE OF INFORMATION TO AUDITORS The Directors who held office at the date of approval of this made during the period (2017: £nil). Directors’ Report confirm that, so far as they are aware, there is no relevant audit information of which the Company’s auditors SOCIAL RESPONSIBILITY Details of the Group’s social, ethical and environmental are unaware. Further, each Director has taken all the steps that he ought to have taken as a Director to ensure the Board is responsibility initiatives are set out in the Sustainability and the aware of any relevant audit information and to establish that Environment statement at page 28. the Company’s auditors are aware of any such information. PEOPLE Details of the Group’s policies with respect to people and employees are set out in the People statement at page 32. The report was approved by the Board of Directors on 22 March 2018 and signed on its behalf by: Charles Anderson Finance Director and Company Secretary 22 March 2018 71 Ted Baker Plc Annual Report and Accounts 2017/18 DIRECTORS’ REPORT STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also The Directors are responsible for preparing the Annual Report responsible for preparing a strategic report, directors’ report, and the Group and parent company financial statements in directors’ remuneration report and corporate governance accordance with applicable law and regulations. statement that complies with that law and those regulations. Company law requires the Directors to prepare Group The Directors are responsible for the maintenance and and parent company financial statements for each financial integrity of the corporate and financial information included on year. Under that law they are required to prepare the Group the Company’s website. Legislation in the UK governing the financial statements in accordance with International Financial preparation and dissemination of financial statements may Reporting Standards as adopted by the European Union differ from legislation in other jurisdictions. (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent company financial statements on the same basis. 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 RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT We confirm that to the best of our knowledge: company and of their profit or loss for that period. In preparing • the financial statements, prepared in accordance with the each of the Group and parent company financial statements, applicable set of accounting standards, give a true and fair the Directors are required to: view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the • select suitable accounting policies and then apply consolidation taken as a whole; and them consistently; • the Management Report, which comprises the Strategic • make judgements and estimates that are reasonable, Report and the Directors’ Report, includes a fair review of relevant and reliable; the development and performance of the business and the • state whether they have been prepared in accordance with position of the issuer and the undertakings included in the IFRSs as adopted by the EU; consolidation taken as a whole, together with a description • assess the Group and parent company’s ability to continue of the principal risks and uncertainties that they face. as a going concern, disclosing, as applicable, matters related to going concern; and We consider the Annual Report and Accounts, taken as a • use the going concern basis of accounting unless they whole, is fair, balanced and understandable and provides the either intend to liquidate the Group or the parent company information necessary for shareholders to assess the Group’s or to cease operations, or have no realistic alternative but position and performance, business model and strategy. to do so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial On behalf of the Board Ray Kelvin Founder and Lindsay Page Chief Operating Officer and statements comply with the Companies Act 2006. They are Chief Executive Group Finance Director responsible for such internal control as they determine is 22 March 2018 22 March 2018 necessary to enable the preparation of financial statements 72 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TED BAKER PLC INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TED BAKER PLC 1. OUR OPINION IS UNMODIFIED We have audited the financial statements of Ted Baker Plc for the 52 week period ended 27 January 2018 which comprise the 2. KEY AUDIT MATTERS: OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT Key audit matters are those matters that, in our professional Group Income Statement, Group Statement of Comprehensive judgment, were of most significance in the audit of the financial Our response: Our procedures were designed to challenge whether there were any indicators of impairments and the need The risk: Subjective estimate. Inventory is carried in the Financial Statements at the lower of cost and net realisable for any provisions against the asset carrying value and include: value. Sales in the fashion industry can be extremely volatile with consumer demand changing significantly based on Income, Group Statement of Changes in Equity, Company statements and include the most significant assessed risks of • Test of detail: evaluating the methodology, completeness current trends. As a result, there is a risk that the carrying value Statement of Changes in Equity, Group and Company Balance material misstatement (whether or not due to fraud) identified and accuracy of the Group’s impairment trigger of inventory exceeds in net realisable value. Sheet, Group and Company Cash Flow Statement, and the by us, including those which had the greatest effect on: the assessment. This assessment is undertaken by the related notes, including the accounting policies in Note 1. overall audit strategy; the allocation of resources in the Directors for all stores regardless of the period of time the Our response: Our procedures were designed to challenge the adequacy of the Group’s provisions against inventory by In our opinion: audit; and directing the efforts of the engagement team. We store has been open. This analysis is used to identify those seasonal collection. Our procedures included: summarise below the key audit matters (unchanged from stores performing below expectations and accordingly • the financial statements give a true and fair view of the 2017), in decreasing order of audit significance, in arriving at with assets at a greater risk of impairment. For stores • Control operation: testing on a sample basis the design state of the Group’s and of the parent Company’s affairs our audit opinion above, together with our key audit procedures identified by this analysis, we considered whether there and operation of controls related to inventory stock counts as at 27 January 2018 and of the Group’s profit for the 52 to address those matters and, as required for public interest was an indicator of impairment based on the number and purchases; weeks then ended; entities, our results from those procedures. These matters of years the store has been open, as well as store • the Group financial statements have been properly were addressed, and our results are based on procedures performance; prepared in accordance with International Financial undertaken, in the context of, and solely for the purpose of, • Where there were indicators of impairment, our Reporting Standards as adopted by the European Union our audit of the financial statements as a whole, and in forming procedures over the Directors’ calculation of recoverable (IFRSs as adopted by the EU); our opinion thereon, and consequently are incidental to amount included: • Test of detail: testing on a sample basis that items on the stock ageing listing by season were classified in the appropriate ageing bracket by reference to season; • Historical trends: evaluated the current year provision by assessing historical trends. We examined the Group’s • the parent Company financial statements have been that opinion, and we do not provide a separate opinion properly prepared in accordance with IFRSs as adopted by on these matters. the EU and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in • Valuation of store assets (leasehold improvements, fixtures, fittings and office equipment) £73.9m accordance with the requirements of the Companies Act (2017: £80.7m) 2006 and, as regards the Group financial statements, • Our business understanding: Assessing the key historical trading patterns of inventory sold at full price assumptions including growth rates in turnover and and inventory sold below full price through alternative margin expectations by reference to historical rates clearance routes, together with the related margins achieved, and our understanding of the specific factors achieved for each channel. We used the information on relevant to each store; trading patterns to assess whether the provisions held • Sensitivity analysis: Applying sensitivity analysis on the have historically been set at an appropriate level; and key assumptions used in the cash flow forecasts to assess • Our business understanding: assessing, based Article 4 of the IAS Regulation. Refer to page 41 (Audit Committee Report), the possible range of outcomes and the overall risk of any on our knowledge of the Group and the market, the BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. page 93 (accounting policy) and pages 106 and 107 material impairment. (financial disclosures). The risk: Forecast-based valuation. The Group has invested a significant amount of capital both within and outside Our results: The results of our testing were satisfactory and we found the carrying value of retail store assets to be Our responsibilities are described below. We believe that the the UK in its store portfolio. Given the relative immaturity of the acceptable (2017: acceptable). audit evidence we have obtained is a sufficient and appropriate brand outside the UK, the payback period is typically longer basis for our opinion. Our audit opinion is consistent with our than for UK stores. The Group had 503 (2017: 462) stores and • Valuation of Inventory £187.2m (2017: £158.5m) report to the Audit Committee. 29 (2017: 28) outlets as at 27 January 2018. There is a risk that We were appointed as auditors for the 52 week period the carrying value of the retail store leasehold improvements, Refer to page 41 (Audit Committee Report), page 93 ended 27 January 2001. The period of total uninterrupted fixtures, fittings and office equipment may be overstated if (accounting policy) and page 113 (financial disclosures). appropriateness of the provision percentages applied by challenging the assumptions made by the Directors on the extent to which older season inventory can be sold through various channels. Our results: From the evidence obtained, we considered the level of provisioning to be acceptable (2017: acceptable). engagement is for the 18 financial years ended 27 January the profitability expectations for the related stores are 2018. We have fulfilled our ethical responsibilities under, and adversely impacted by trading and other conditions that we remain independent of the Group in accordance with, UK were not anticipated in the initial business case. The level of ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services judgement involved in assessing impairment indicators on retail stores is one of the key judgemental areas that our audit prohibited by that standard were provided. is concentrated on. 74 75 Ted Baker Plc Annual Report and Accounts 2017/18 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TED BAKER PLC INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TED BAKER PLC • Recoverability of parent company’s investment in subsidiaries £24.8m (2017: £23.1m) and recoverability of parent’s debt due from Group entities £55.2m (2017: £51.9m) the results of that work, on those net assets, including For the remaining components, we performed analysis any form of assurance conclusion thereon. assessing the ability of the subsidiary to obtain liquid at an aggregated Group level to re-examine our assessment Our responsibility is to read the other information and, in funds and therefore the ability of the subsidiary to fund the that there were no significant risks of material misstatement doing so, consider whether, based on our financial statements repayment of the receivable. within these. audit work, the information therein is materially misstated Our results: We found the Group’s assessment of the recoverability of the investment in subsidiaries and the The Group audit team instructed component auditors in the or inconsistent with the financial statements or our audit US as to the significant areas to be covered, including where knowledge. Based solely on that work we have not identified relevant the risks detailed above and the information to be material misstatements in the other information. parent’s debt due from Group entities to be acceptable (2017: reported back. The UK components audits were covered by the Refer to page 93 (accounting policy) and page 108 to 109 and 113 (financial disclosures). The risk: Low risk, high value. The carrying amount of the parent company’s investments in subsidiaries represents 31% (2017: 30%) of the parent company’s total assets. The acceptable). carrying amount of the intra-group debtor balance represents 68% (2017: 67%) of the parent company’s total assets. Their recoverability is not at a high risk of significant misstatement 3. OUR APPLICATION OF MATERIALITY AND AN OVERVIEW OF THE SCOPE OF OUR AUDIT The materiality for the Group financial statements as a whole Group team. The Group audit team approved the components’ materiality’s which ranged from £0.6m to £2.3m (2017: £2.2m Strategic Report and Directors’ Report Based solely on our work on the other information: to £2.9m), having regard to the mix of size and risk profile of the Group across the components. The work on 2 components • we have not identified material misstatements in the (2017: 2 components) was performed by component auditors Strategic Report and the Directors’ Report; or subject to significant judgement. However, due to their was set at £3.4m (2017: £3.0m), determined with reference to and the rest, including the audit of the parent company, was • in our opinion the information given in those reports materiality in the context of the parent company financial a benchmark of Group profit before tax (of which it represents performed by the Group team. for the financial year is consistent with the financial statements, this is considered to be the area that had the 4.9% (2017: 4.8%). In 2018 and 2017, the Group team visited the component statements; and greatest effect on our overall parent company audit. Materiality for the parent company financial statements auditor in the US and telephone conference meetings were held • in our opinion those reports have been prepared in Our response: Our procedures included: as a whole was set at £0.8m (2017: £0.8m), determined with with the US component auditor. At these meetings the Group accordance with the Companies Act 2006. • Tests of detail: Comparing the carrying amount of 100% of investments with the relevant subsidiaries’ trial balance to reference to a benchmark of company total assets (of which it team discussed the audit strategy and the findings reported represents 1.0% (2017: 1.0%). to the Group audit team were discussed in more detail, and We agreed to report to the Audit Committee any corrected any further work required by the Group audit team was then Directors’ Remuneration Report In our opinion the part of the Directors’ Remuneration Report identify whether their net assets, being an approximation or uncorrected identified misstatements exceeding £175,000 performed by the US component auditor. to be audited has been properly prepared in accordance with of their minimum recoverable amount, were in excess (2017: £150,000) in addition to other identified misstatements of their carrying amount and assessing whether those that warranted reporting on qualitative grounds. subsidiaries have historically been profit-making. Of the Group’s 24 reporting components (2017: 22 • Tests of detail: Assessing a sample of the highest value Group debtors representing 92% of the total Group reporting components), we subjected 4 components (2017: 3 components) to an audit for Group reporting purposes (3 UK 4. WE HAVE NOTHING TO REPORT ON GOING CONCERN We are required to report to you if: the Companies Act 2006. Disclosures of Principal Risks and Longer-Term Viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw debtors balance to identify, with reference to the relevant components and 1 US component (2017: 3 UK components) • we have anything material to add or draw attention to attention to in relation to: debtors’ trial balance, whether they have a positive net and 1 component (Canada) to specified risk focused audit in relation to the Directors’ statement in Note 1 to the asset value and therefore coverage of the debt owed, as procedures (2017: 1 component, US). The latter were not financial statements on the use of the going concern basis • the Directors’ confirmation within the Viability Statement well as assessing whether those debtor companies have individually financially significant enough to require a full scope of accounting with no material uncertainties that may cast on page 26 that they have carried out a robust assessment historically been profit-making. audit for group purposes, but did present specific individual significant doubt over the Group and Company’s use of of the principal risks facing the Group, including those that • Assessing subsidiary audits: Assessing the work risks that needed to be addressed. performed by the subsidiary audit team, and considering that basis for a period of at least twelve months from the would threaten its business model, future performance, date of approval of the financial statements; or solvency and liquidity; • the related statement under the Listing Rules set • the Principal Risks and Uncertainties disclosures The components within the scope of our work accounted for the following percentages of the Group’s results: out on page 26 is materially inconsistent with our describing these risks and explaining how they are being NUMBER OF COMPONENTS TOTAL GROUP REVENUE TOTAL PROFITS AND LOSSES THAT MADE UP GROUP PROFIT BEFORE TAX TOTAL GROUP ASSETS 4 1 5 3 1 4 83% 4% 87% 61% 24% 85% 88% 2% 90% 92% 4% 96% 88% 2% 90% 64% 22% 86% 2018 Audits for Group reporting purposes Specified risk focused audit procedures TOTAL 2017 Audits for Group reporting purposes Specified risk focused audit procedures TOTAL 76 audit knowledge. managed and mitigated; and We have nothing to report in these respects. how they have assessed the prospects of the Group, over • the Directors’ explanation in the Viability Statement of 5. WE HAVE NOTHING TO REPORT ON THE OTHER INFORMATION IN THE ANNUAL REPORT The Directors are responsible for the other information what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their presented in the Annual Report together with the financial statements. Our opinion on the financial statements does assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, 77 Ted Baker Plc Annual Report and Accounts 2017/18 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TED BAKER PLC INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TED BAKER PLC Under the Listing Rules we are required to review the Viability Statement. We have nothing to report in this respect. Corporate Governance Disclosures We are required to report to you if: 7. RESPECTIVE RESPONSIBILITIES Directors’ Responsibilities As explained more fully in their statement set out on page We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included 72, the Directors are responsible for the preparation of the communication from the Group to component audit teams of financial statements including being satisfied that they give relevant laws and regulations identified at Group level, with • we have identified material inconsistencies between the a true and fair view; such internal control as they determine a request to report on any indications of potential existence knowledge we acquired during our financial statements is necessary to enable the preparation of financial statements of non-compliance with relevant laws and regulations audit and the Directors’ statement that they consider that that are free from material misstatement, whether due to fraud (irregularities) in these areas, or other areas directly identified the Annual Report and financial statements taken as a or error; assessing the Group and parent Company’s ability by the component team. whole is fair, balanced and understandable and provides to continue as a going concern, disclosing, as applicable, As with any audit, there remained a higher risk of the information necessary for shareholders to assess the matters related to going concern; and using the going concern non-detection of non-compliance with relevant laws and Group’s position and performance, business model and basis of accounting unless they either intend to liquidate the regulations (irregularities), as these may involve collusion, strategy; or Group or the parent Company or to cease operations, or have forgery, intentional omissions, misrepresentations, or the • the section of the Annual Report describing the work of the no realistic alternative but to do so. override of internal controls. Audit Committee does not appropriately address matters communicated by us to the Audit Committee. Auditor’s Responsibilities Our objectives are to obtain reasonable assurance about We are required to report to you if the Corporate whether the financial statements as a whole are free from 8. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR RESPONSIBILITIES This report is made solely to the Company’s members, Governance Statement does not properly disclose a departure material misstatement, whether due to fraud or other as a body, in accordance with Chapter 3 of Part 16 of the from the eleven provisions of the UK Corporate Governance irregularities (see below), or error, and to issue our opinion in Companies Act 2006. Our audit work has been undertaken so Code specified by the Listing Rules for our review. an auditor’s report. Reasonable assurance is a high level of that we might state to the Company’s members those matters We have nothing to report in these respects. assurance, but does not guarantee that an audit conducted we are required to state to them in an auditor’s report and for 6. WE HAVE NOTHING TO REPORT ON THE OTHER MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION Under the Companies Act 2006, we are required to report to in accordance with ISAs (UK) will always detect a material no other purpose. To the fullest extent permitted by law, we misstatement when it exists. Misstatements can arise from do not accept or assume responsibility to anyone other than fraud, other irregularities or error and are considered material the Company and the Company’s members, as a body, for our if, individually or in aggregate, they could reasonably be audit work, for this report, or for the opinions we have formed. expected to influence the economic decisions of users taken you if, in our opinion: on the basis of the financial statements. A fuller description of our responsibilities is provided on • adequate accounting records have not been kept by the the FRC’s website at www.frc.org.uk/auditorsresponsibilities. 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 Irregularities – Ability to Detect We identified areas of laws and regulations that could the Directors’ Remuneration Report to be audited are not reasonably be expected to have a material effect on the in agreement with the accounting records and returns; or financial statements from our sector experience, and through • certain disclosures of Directors’ remuneration specified by discussion with the Directors and other management (as law are not made; or required by auditing standards). • we have not received all the information and explanations We had regard to laws and regulations in areas that we require for our audit. We have nothing to report in these respects. directly affect the financial statements including financial reporting (including related company legislation) and taxation legislation. We considered the extent of compliance with those laws and regulations as part of our procedures on the related financial statement items. Lourens de Villiers (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 22 March 2018 78 79 Ted Baker Plc Annual Report and Accounts 2017/18 FINANCIAL STATEMENTS FINANCIAL STATEMENTS GROUP AND COMPANY PRIMARY FINANCIAL STATEMENTS GROUP STATEMENT OF COMPREHENSIVE INCOME NOTE 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 2 3 4 4 12 3 6 9 9 £’000 591,670 (230,865) 360,805 (231,996) (80,160) (75,484) (4,676) 21,443 635 70,727 802 (3,314) 574 68,789 73,465 (4,676) (16,045) (16,868) 823 52,744 119.0p 118.3p £’000 530,986 (207,257) 323,729 (208,221) (70,103) (65,590) (4,513) 18,237 (1,145) 62,497 1,597 (3,373) 550 61,271 65,784 (4,513) (14,703) (15,605) 902 46,568 105.7p 104.5p GROUP INCOME STATEMENT FOR THE 52 WEEKS ENDED 27 JANUARY 2018 Revenue Cost of sales GROSS PROFIT Distribution costs Administrative expenses Administrative expenses before exceptional items Exceptional items Licence income Other operating income/(expense) OPERATING PROFIT Finance income Finance expense Share of profit of jointly controlled entity, net of tax PROFIT BEFORE TAX PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS Exceptional items Income tax expense Income tax expense before exceptional items Income tax relating to exceptional items PROFIT FOR THE PERIOD EARNINGS PER SHARE Basic Diluted 82 FOR THE 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 PROFIT FOR THE PERIOD OTHER COMPREHENSIVE INCOME/(EXPENSE) ITEMS THAT MAY BE RECLASSIFIED TO THE INCOME STATEMENT 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 differences on translation of foreign operations net of tax OTHER COMPREHENSIVE (EXPENSE)/INCOME FOR THE PERIOD TOTAL COMPREHENSIVE INCOME FOR THE PERIOD GROUP STATEMENT OF CHANGES IN EQUITY £‘000 52,744 (5,139) (4,599) (7,926) (17,664) 35,080 £‘000 46,568 10,521 (5,435) 5,580 10,666 57,234 FOR THE 52 WEEKS ENDED 27 JANUARY 2018 SHARE CAPITAL SHARE PREMIUM CASH FLOW HEDGING RESERVE TRANSLATION RESERVE RETAINED EARNINGS TOTAL EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE PARENT £’000 2,208 £’000 9,935 £’000 6,736 £’000 7,891 £’000 183,774 £’000 210,544 BALANCE AT 28 JANUARY 2017 COMPREHENSIVE INCOME FOR THE PERIOD Profit for the period Exchange differences on translation of foreign operations Current tax on foreign currency translation 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 Deferred tax associated with movement in hedging reserve TOTAL COMPREHENSIVE INCOME FOR THE PERIOD TRANSACTIONS WITH OWNERS RECORDED DIRECTLY IN EQUITY Increase in issued share capital Share-based payment charges Movement on current and deferred tax on share-based payments Dividends paid - - - - - - - 16 - - - - - - - - - - 552 - - - TOTAL TRANSACTIONS WITH OWNERS BALANCE AT 27 JANUARY 2018 16 2,224 552 10,487 - - - (7,423) (4,599) 2,284 - 52,744 (9,889) 1,963 - - - - - - - - 52,744 (9,889) 1,963 (7,423) (4,599) 2,284 (9,738) (7,926) 52,744 35,080 - - - - - - - - - - (3,002) (35) - 1,876 535 (24,553) (22,142) 214,376 568 1,876 535 (24,553) (21,574) 224,050 83 Ted Baker Plc Annual Report and Accounts 2017/18 FINANCIAL STATEMENTS FINANCIAL STATEMENTS GROUP STATEMENT OF CHANGES IN EQUITY COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE 52 WEEKS ENDED 28 JANUARY 2017 SHARE CAPITAL SHARE PREMIUM CASH FLOW HEDGING RESERVE TRANSLATION RESERVE RETAINED EARNINGS TOTAL EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE PARENT £’000 2,199 £’000 9,617 £’000 1,650 £’000 2,311 £’000 156,822 £’000 172,599 BALANCE AT 30 JANUARY 2016 COMPREHENSIVE INCOME FOR THE PERIOD Profit for the period Exchange differences on translation of foreign operations Current tax on foreign currency translation 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 Deferred tax associated with movement in hedging reserve TOTAL COMPREHENSIVE INCOME FOR THE PERIOD TRANSACTIONS WITH OWNERS RECORDED DIRECTLY IN EQUITY Increase in issued share capital Share-based payment charges Movement on current and deferred tax on share-based payments Dividends paid TOTAL TRANSACTIONS WITH OWNERS BALANCE AT 28 JANUARY 2017 2,208 - - - - - - - 9 - - - 9 - - - - - - - 318 - - - 318 9,935 - - - 11,714 (5,435) (1,193) - 46,568 7,038 (1,458) - - - - - - - - 46,568 7,038 (1,458) 11,714 (5,435) (1,193) 5,086 5,580 46,568 57,234 - - - - - - - - - - 6,736 7,891 - 1,839 281 (21,736) (19,616) 183,774 327 1,839 281 (21,736) (19,289) 210,544 FOR THE 52 WEEKS ENDED 27 JANUARY 2018 SHARE CAPITAL SHARE PREMIUM OTHER RESERVES RETAINED EARNINGS TOTAL EQUITY BALANCE AT 28 JANUARY 2017 Profit for the period TRANSACTIONS WITH OWNERS RECORDED DIRECTLY IN EQUITY Increase in issued share capital Share-based payment charges Share-based payment charges for awards granted to subsidiary employees Dividends paid TOTAL TRANSACTIONS WITH OWNERS BALANCE AT 27 JANUARY 2018 £’000 2,208 - 16 - - - £’000 9,935 - 552 - - - £’000 20,680 - - - £’000 44,426 25,825 - 185 £’000 77,249 25,825 568 185 1,691 - 1,691 - (24,553) (24,553) 16 2,224 552 10,487 1,691 22,371 (24,368) (22,109) 45,883 80,965 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE 52 WEEKS ENDED 28 JANUARY 2017 SHARE CAPITAL SHARE PREMIUM OTHER RESERVES RETAINED EARNINGS TOTAL EQUITY BALANCE AT 30 JANUARY 2016 Profit for the period TRANSACTIONS WITH OWNERS RECORDED DIRECTLY IN EQUITY Increase in issued share capital Share-based payment charges Share-based payment charges for awards granted to subsidiary employees Dividends paid TOTAL TRANSACTIONS WITH OWNERS £’000 2,199 - 9 - - - 9 BALANCE AT 28 JANUARY 2017 2,208 £’000 9,617 - 318 - - - 318 9,935 £’000 19,060 - - - £’000 38,697 27,246 - 219 £’000 69,573 27,246 327 219 1,620 - 1,620 - (21,736) (21,736) 1,620 20,680 (21,517) (19,570) 44,426 77,249 84 85 Ted Baker Plc Annual Report and Accounts 2017/18 FINANCIAL STATEMENTS FINANCIAL STATEMENTS GROUP AND COMPANY BALANCE SHEET AT 27 JANUARY 2018 NOTE GROUP 27 JANUARY 2018 GROUP 28 JANUARY 2017 COMPANY 27 JANUARY 2018 COMPANY 28 JANUARY 2017 FOR THE 52 WEEKS ENDED 27 JANUARY 2018 GROUP AND COMPANY CASH FLOW STATEMENT £’000 34,373 £’000 24,445 139,075 144,354 £’000 £’000 - - - - - 24,793 23,102 - 1,893 4,114 353 179,808 187,227 64,273 666 478 1,897 4,446 401 175,543 158,500 59,251 653 8,974 16,712 21,401 269,356 (82,858) (76,043) (5,500) (8,522) - (3,918) 248,779 (80,995) (58,074) (6,000) (10,327) (915) (616) (176,841) (156,927) (1,273) - (2,349) (2,002) (47,000) (52,500) (48,273) 224,050 (56,851) 210,544 - - - - - - 24,793 23,102 - - 55,232 51,932 - - 940 56,172 - - - - - - - - - - - - - 2,238 54,170 (23) - - - - - (23) - - - - 80,965 77,249 Intangible assets Property, plant and equipment Investment in subsidiary Investment in equity accounted investee Deferred tax assets Prepayments NON-CURRENT ASSETS Inventories Trade and other receivables Amount due from equity accounted investee Derivative financial assets Cash and cash equivalents CURRENT ASSETS Trade and other payables Bank overdraft Term loan Income tax payable Provisions for liabilities and charges Derivative financial liabilities CURRENT LIABILITIES Deferred tax liabilities Provisions for liabilities and charges Term loan NON-CURRENT LIABILITIES NET ASSETS EQUITY Share capital Share premium Other reserves Translation reserve Retained earnings 10 11 12 12 13 14 15 12 16 17 18 17 23 19 16 13 19 23 20 20 20 20 20 2,224 10,487 (3,002) (35) 2,208 9,935 6,736 7,891 2,224 10,487 22,371 - 2,208 9,935 20,680 - CASH FLOW FINANCING ACTIVITIES Repayment of term loan Dividends paid Proceeds from issue of shares 214,376 183,774 45,883 44,426 NET CASH FROM FINANCING ACTIVITIES TOTAL EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE PARENT COMPANY TOTAL EQUITY 224,050 224,050 210,544 210,544 80,965 80,965 77,249 77,249 These financial statements were approved by the Board of Directors on 22 March 2018 and were signed on its behalf by: Lindsay Page Chief Operating Officer and Group Finance Director Company number: 03393836 86 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Net cash and cash equivalents at the beginning of the period Exchange rate movement NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD Cash and cash equivalents at the end of the period Bank overdraft at the end of the period NET CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD CASH GENERATED FROM OPERATIONS Profit for the period Adjusted for: Income tax expense Depreciation and amortisation Impairments Loss on disposal of property, plant and equipment Share-based payments Net finance expense Net change in derivative financial assets and liabilities carried at fair value through profit or loss 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 (Decrease)/increase in provisions for liabilities and charges Interest paid Income taxes paid NET CASH GENERATED FROM OPERATING ACTIVITIES 43,886 52,770 22,687 23,032 CASH FLOW FROM INVESTING ACTIVITIES Purchases of property, plant and equipment and intangibles (36,562) (43,753) Proceeds from sale of property, plant and equipment Dividends received from joint venture Interest received 115 578 61 93 294 15 NET CASH FROM INVESTING ACTIVITIES (35,808) (43,351) GROUP 52 WEEKS ENDED 27 JANUARY 2018 GROUP 52 WEEKS ENDED 28 JANUARY 2017 COMPANY 52 WEEKS ENDED 27 JANUARY 2018 COMPANY 52 WEEKS ENDED 28 JANUARY 2017 £’000 £’000 £’000 £’000 52,744 46,568 25,825 27,246 16,045 23,238 4,533 166 1,876 2,512 1,517 (574) 63 (34,067) (6,779) 2,845 (2,917) (3,341) 14,703 20,966 - 416 1,839 1,776 677 (550) 59 (27,128) (16,335) 20,392 2,917 (2,886) (13,975) (10,644) - - - - - - - - 185 219 - - - - - (3,299) (24) - - - - - - - - (4,446) 13 - - - - - - - - - - - - - - - (24,553) (21,736) 568 327 (23,985) (21,409) (1,298) 2,238 - 940 940 - 940 1,623 615 - 2,238 2,238 - 2,238 87 (6,000) (24,553) 568 (29,985) (21,907) (36,673) (751) (59,331) 16,712 (76,043) (59,331) (1,500) (21,736) 327 (22,909) (13,490) (24,574) 1,391 (36,673) 21,401 (58,074) (36,673) Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of The consolidated and parent financial statements have been prepared under the historical cost convention, except for certain financial assets and financial liabilities (including these consolidated and Company financial statements are set derivative instruments), which are held at fair value. out below. These policies have been consistently applied to all The preparation of financial statements in conformity with the periods presented, unless otherwise stated. Adopted IFRSs requires management to make judgements, A) BASIS OF PREPARATION Both the consolidated and Company financial statements estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions have been prepared and approved by the Directors in are based on historical experience and various other factors accordance with International Financial Reporting Standards that are believed to be reasonable under the circumstances, as adopted by the EU (“Adopted IFRSs”). On publishing the the results of which form the basis of making the judgements parent company financial statements here together with the about carrying values of assets and liabilities that are not consolidated financial statements, the Company is taking readily apparent from other sources. Actual results may differ advantage of the exemption in Section 408 of the Companies from these estimates. Act 2006 not to present its income statement and related notes The estimates and assumptions are reviewed on an ongoing that form a part of these approved financial statements. basis. Revisions to accounting estimates are recognised in the The Group’s business activities, together with the factors period in which the estimate is revised if the revision affects likely to affect its future development, performance and only that period, or in the period of the revision and future position are set out on pages 4–19. The financial position of the periods if the revision affects both current and future periods. Group, its cash flows, liquidity position and borrowing facilities The Group’s significant judgement areas relate to inventory are described in the Chairman’s Statement on pages 4–6. valuation and impairment of assets. In addition, Note 23 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. REVISED AND AMENDED STANDARDS AND INTERPRETATIONS No new standards, amendments or interpretations, effective for the first time for the period beginning on or after 29 January As highlighted in Note 23 to the financial statements, the 2017 have had a material impact on the Group or Company. Group meets its day-to-day working capital requirements IFRS 15, Revenue from Contracts with Customers, which through a committed overdraft facility expiring in September is effective from 1 January 2018, has been considered by the 2020 which is a multi-currency revolving credit facility with the Group and it was concluded this will not be significant to the Royal Bank of Scotland, Barclays and HSBC. The facility will Group’s financial statements in the future. be used to the extent necessary to fund working capital and At the balance sheet date there are a number of new capital expenditure to support the Group’s growth strategy. standards and amendments to existing standards in issue The Group’s forecasts and projections, taking into account but not yet effective. None of these is expected to have a reasonably possible changes in trading performance, show that significant effect on the financial statements of the Group or the Group has sufficient financial resources. As a consequence Company, except the following, set out below: the Directors have a reasonable expectation that the Company IFRS 9, Financial Instruments, which is effective for periods and the Group are well placed to manage their business risks beginning on or after 1 January 2018, replaces IAS 39 and and to continue in operational existence for the twelve months from the date of signing these financial statements, despite addresses the classification, measurement and recognition of financial assets and financial liabilities. This was endorsed by the current uncertain global economic outlook. Accordingly, the EU in November 2016 and as such the full impact on the the Directors continue to adopt the going concern basis in Group is currently being assessed. If the Group adopted this preparing the consolidated financial statements. standard in the financial statements for the 52 weeks ended 27 January 2018, the impact of the change in hedge accounting for financial instruments on the consolidated income statement would have been a decrease in profit before tax of £767,000 with no impact on net assets. 89 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS IFRS 16, Leases, addresses the definition of a lease, even if doing so causes the non-controlling interests to have a recognition and measurement of leases and establishes deficit balance. D) REVENUE RECOGNITION Revenue represents amounts receivable for goods provided in charged to the consolidated income statement in the period to which they relate. Differences between contributions payable principles for reporting useful information to users of financial Jointly controlled entities are those entities over whose the normal course of business, net of trade discounts, VAT and in the period and contributions actually paid are shown as statements about the leasing activities of both lessees activities the Group has joint control, established by contractual other sales related taxes. Retail revenue is recognised when a either accruals or prepayments in the balance sheet. and lessors. A key change arising from IFRS 16 is that most agreement and requiring the venturers’ unanimous consent for Group entity sells a product to a customer. Wholesale revenue operating leases will be accounted for on balance sheet for strategic financial and operating decisions. Jointly controlled is recognised when title has passed in accordance with the lessees. The standard replaces IAS 17, Leases, and related entities are accounted for using the equity method (equity individual terms of trade. Licence income receivable from G) SHARE-BASED PAYMENTS The Group operates an equity-settled share-based interpretations. The standard is effective for annual periods accounted investees) and are initially recognised at cost. licensees is accrued as earned on the basis of the terms of compensation plan. beginning on or after 1 January 2019. The quantitative impact The consolidated financial statements include the Group’s the relevant licence agreement, which is typically on the basis of IFRS 16 on the Group’s net assets and results is being share of the total recognised income and expense and equity of a minimum payment spread over the licence period and a assessed and will be quantified closer to the date of adoption. movements of equity accounted investees, from the date that variable amount based on turnover. Accrued income is from IFRS 16 is expected to have a material impact on the balance significant influence or joint control commences until the date licence income earned but not billed in the period. SHARE OPTIONS AND CONDITIONAL SHARE AWARDS Share options granted under the Sharesave scheme and the sheet as both assets and liabilities will increase and is also that significant influence or control ceases. When the Group’s The Group sells retail products with the right of return and Ted Baker PLC Long-Term Incentive Plan are measured at expected to have a material impact on key components share of losses exceeds its interest in an equity accounted experience is used to estimate and provide for the value of fair value at the date of grant using the Black-Scholes and within the income statements because operating lease investee, the Group’s carrying amount is reduced to £nil and such returns at the time of sale when considered significant. Monte-Carlo pricing models respectively. The pricing models rental charges will be replaced by depreciation and finance recognition of further losses is discounted except to the extent Credit notes or exchanges are available to customers returning take into account the terms and conditions of the options/ costs. IFRS 16 will not have any impact on the underlying that the Group has incurred legal or constructive obligations or unwanted products with proof of purchase within 28 days of awards vesting. The grant date fair value is expensed on a commercial performance of the Group or the cash flow made payments on behalf of an investee. the date of purchase. Cash refunds are available to customers straight-line basis over the vesting period (i.e. the period in generated in the period. B) BASIS OF CONSOLIDATION The consolidated accounts include the accounts of the C) FOREIGN CURRENCY Transactions in foreign currencies are translated to the returning unwanted products with proof of purchase within 14 which the employees become unconditionally entitled to days of the date of purchase. share options/awards) based on an estimate of shares that will Sales of gift vouchers are treated as future liabilities, and eventually vest. respective functional currencies of Group entities at the foreign revenue is recognised when the gift vouchers are redeemed Shares of Ted Baker Plc held by the Company for the Company and its subsidiary undertakings made up to 27 exchange rate ruling at the date of the transaction. Monetary against a later transaction. January 2018. Unless otherwise stated, the acquisition assets and liabilities denominated in foreign currencies at the method of accounting has been adopted. Under this balance sheet date are translated to functional currency at the method, the results of subsidiary undertakings acquired or foreign exchange rate ruling at that date. Foreign exchange E) LEASES Rentals under operating leases are charged as incurred, unless purpose of fulfilling 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. disposed of in the period are included in the consolidated differences arising on translation are recognised in the income there are pre-determined rental increases in the lease, in which Transactions of the Company-sponsored Employee financial statements from the date of acquisition or up to the statement. Non-monetary assets and liabilities denominated case they are recognised on a straight-line basis over the lease Benefit Trusts (“EBT”) are treated as being those of the date of disposal. in foreign currencies that are stated at fair value are translated term. Leasehold incentives received are recognised as an Company and are therefore reflected in the parent company Inter-company transactions, balances and unrealised gains to functional currency at foreign exchange rates ruling at the integral part of total lease expense, over the term of the lease. and Group financial statements. In particular, the EBT’s on transactions between Group companies are eliminated. dates the values were determined. Certain rental expense are determined on the basis of purchases and sales of shares in the Company are debited and Unrealised losses are also eliminated unless the transaction Exchange differences arising from a monetary item revenue achieved in specific retail locations and are accrued credited directly to equity. provides evidence of an impairment of the asset transferred. receivable from or payable to a foreign entity, the settlement for on that basis. The Group engages in lease and concession Where the Company grants options over its own shares to Accounting policies of subsidiaries have been changed where of which is neither planned nor likely in the foreseeable arrangements that include fixed and variable elements, the employees of its subsidiaries, it recognises, in its individual necessary to ensure consistency with the policies adopted by future, are considered to form part of a net investment in a depending on the terms of the underlying agreement. The financial statements, an increase in the cost of investment in the Group. foreign operation and are recognised directly in equity in the Group has disclosed in Note 3 the amounts charged in the its subsidiaries equivalent to the equity-settled share-based Subsidiaries are entities controlled by the Group. The translation reserve. period, and in Note 22 sets out the firm commitments for payment charge recognised in its consolidated financial Group controls an entity when it is exposed to, or has rights The assets and liabilities of foreign operations, including future periods. statements with the corresponding credit being recognised to, variable returns from its involvement with the entity and has goodwill and fair value adjustments arising on consolidation, The Group’s intangible assets, as shown in Note 10, include directly in equity. the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration are translated to Sterling at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of leased premises which have a guaranteed residual value. The guaranteed value arises because the next tenant, based on potential voting rights that are currently exercisable. The foreign operations are translated to Sterling at average current market conditions, will pay this amount to the Group. H) DERIVATIVES The Group holds derivative financial instruments to hedge acquisition date is the date on which control is transferred foreign exchange rates ruling at the dates of the transactions. Due to the likelihood that the money will be recoverable, the its foreign currency and interest rate exposures. Derivatives to the acquirer. The financial statements of subsidiaries Foreign exchange differences arising on retranslation since asset is not amortised. are included in the consolidated financial statements from the date that control commences until the date that control the transition date are recognised directly in a separate component of equity. When a foreign operation is disposed of, ceases. Losses applicable to the non-controlling interests in part or in full, the relevant amount in the foreign currency in a subsidiary are allocated to the non-controlling interests translation reserve is transferred to profit or loss. F) PENSION COSTS Contributions payable to defined contribution schemes in respect of pension costs and other post retirement benefits are are recognised initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. 90 91 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CASH FLOW HEDGES Changes in the fair value of foreign currency and interest rate I) TAXATION Corporation tax payable is recognised on taxable profits using L) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. derivatives which are designated as effective hedges of future tax rates enacted or substantively enacted at the balance sheet Depreciation is provided on property, plant and equipment at rates calculated to write off the cost, less estimated residual cash flows are recognised in equity in the cash flow hedging date. Deferred tax is recognised in full, using the balance sheet value, of each asset on the following bases: reserve, and remain there until the forecast transaction occurs. liability method, on temporary differences arising between the When the hedged item is a non-financial asset, the amount tax bases of assets and liabilities and their carrying amounts in recognised in equity is transferred to the carrying amount of the consolidated financial statements. However, if the deferred the asset when it is recognised. In other cases the amount tax arises from initial recognition of an asset or liability in a recognised in other comprehensive income is transferred to transaction other than a business combination that at the time Freehold land: Freehold buildings: Leasehold improvements: the income statement in the same period that the hedged item of the transaction affects neither accounting nor taxable profit Fixtures, fittings and office equipment: Not depreciated. Straight line over fifty years. Straight line over the shorter of the period of the unexpired term of the lease or the useful economic life of the improvement. 20% to 25% per annum on a straight-line basis apart from computer equipment, which is 33% per annum on a straight-line basis or over the expected useful economic life of the asset. affects the income statement. or loss, it is not accounted for. Deferred tax is determined using If the hedging instrument no longer meets the criteria for tax rates (and laws) that have been enacted or substantively hedge accounting, expires or is sold, terminated or exercised, enacted by the balance sheet date and are expected to apply then hedge accounting is discontinued prospectively. The when the related deferred tax asset is realised or the deferred cumulative gain or loss previously recognised in other tax liability is settled. comprehensive income remains there until the forecast Deferred tax is not recognised for temporary differences transaction occurs. relating to investments in subsidiaries to the extent they will Changes in the fair value of foreign currency derivatives not reverse in the foreseeable future. which are ineffective or do not meet the criteria for hedge Deferred tax assets are recognised to the extent that it accounting are recognised in the income statement. is probable that future taxable profit will be available against The Group does not hold any fair value hedging which the temporary differences can be utilised. instruments. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, Motor vehicles: 25% per annum on a straight-line basis over the expected useful economic life of the asset. Assets under construction: Assets in the course of construction are stated at cost less transfers to completed assets when substantially all of the activities necessary for the asset to be ready for use have occurred. 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) IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Assets that are subject to depreciation or amortisation are 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 in which case it is recognised in equity. Income tax comprises reviewed for impairment whenever events or changes in if no impairment loss had been recognised for the asset in current and deferred tax. circumstances indicate that the carrying amount may not be prior years. A reversal of an impairment loss is recognised in J) DIVIDEND DISTRIBUTION Dividend distribution to the Company’s shareholders is recognised as a liability in the Group and Company financial statements in recoverable. An impairment loss is recognised for the amount income immediately. by which the asset’s carrying amount exceeds its estimated the period in which it is declared. K) INTANGIBLE ASSETS Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. N) INVESTMENTS Investments in subsidiaries by the Company are shown at cost Recoverable amounts for cash-generating units are based on less accumulated impairment losses which are recognised in value in use, which is calculated from cash flow projections the income statement. Expenditure on development activities is capitalised if the product is technically and commercially feasible and the Group using data from the Group’s latest internal forecasts, the intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable results of which are reviewed by the Board. and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. Development The key assumptions for the value in use calculations are O) INVENTORIES Inventories and work in progress are stated at the lower of cost activities involve a plan or design for the production of new or substantially improved products or processes. The expenditure those regarding discount rates, growth rates and expected and net realisable value. Cost includes materials, direct labour capitalised includes direct labour and an appropriate proportion of overheads. Capitalised development expenditure is stated at changes in margins. Management use a pre-tax discount and inward transportation costs. Net realisable value is based cost less accumulated amortisation and less accumulated impairment losses. rate derived from the Group’s adjusted weighted average on estimated selling price, less further costs expected to be Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets. cost of capital. Internal forecasts reflect the current market incurred to completion and disposal. Provision is made for Key money is not amortised but systematically tested for impairment at each balance sheet date as the Directors are of the opinion assessment and risks specific to the cash-generating units. obsolete, slow moving or defective items where appropriate. the residual value of the asset is in excess of the carrying value. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Key money: No amortisation charged. Computer software: Three to ten years. Computer software under development: Assets under development are stated at cost less transfers to completed assets when substantially all of the activities necessary for the asset to be ready for use have occurred. 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. P) CASH AND CASH EQUIVALENTS Cash and cash equivalents comprises cash balances and For the purposes of assessing impairment, assets are grouped money market deposits. Bank overdrafts that are repayable at the lowest levels for which there are separately identifiable on demand and form an integral part of the Group’s cash cash flows (cash-generating units). Where an impairment loss subsequently reverses, the carrying amount of the management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 92 93 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Q) INTEREST-BEARING BORROWINGS Interest-bearing borrowings are recognised initially at fair Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, INVENTORY VALUATION The Directors have used their knowledge and experience Exceptional items in the period included: value less attributable transaction costs. Subsequent to including any directly incremental costs (net of income taxes), of the fashion industry in determining the level and rates of • the impairment of assets in three retail stores in the US initial recognition, interest-bearing borrowings are stated is deducted from retained earnings in equity attributable to provisioning required to calculate the appropriate inventory and one in Europe. The Directors believe this to be at amortised cost with any difference between cost and the Company’s equity holders until the shares are cancelled carrying values. Inventory is carried in the financial statements exceptional as the Group does not frequently impair redemption value being recognised in the income statement or reissued. Where such shares are subsequently reissued, at the lower of cost and net realisable value. Sales in the assets of this quantum; over the period of the borrowings on an effective interest basis. any consideration received, net of any directly attributable fashion industry can be extremely volatile with consumer • restructuring costs incurred in aligning internal structures 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 incremental transaction costs and the related income tax demand changing significantly based on current trends. As to the Group’s strategic aims. The Directors believe this to effects, is included in equity attributable to the Company’s a result there is a risk that the cost of inventory exceeds its be exceptional due to the infrequent occurrence of such equity holders. net realisable value. Management calculates the inventory costs; and V) PROVISIONS A provision is recognised in the balance sheet when the Group Adjustments are made where appropriate based on Directors’ warehouses following assignment of the leases. The knowledge and experience to calculate the appropriate Directors believe this to be exceptional as the initial provision on the basis of the ageing profile of what is in stock. • the release of the provision for the Group’s legacy instruments that are recognised in the income statement. has a present legal or constructive obligation as a result of a inventory carrying values. recognition of the cost of provision was treated Interest income is recognised in the income statement as it past event, it is more likely than not that an outflow of economic as exceptional. accrues, using the effective interest method. Dividend income benefits will be required to settle the obligation and the is recognised in the income statement on the date the entity’s obligation can be estimated reliably. Provisions are discounted X) NON-GAAP PERFORMANCE MEASURES Exceptional items are added back/deducted to derive certain Exceptional items in the prior period included: right to receive payments is established which in the case of if the impact on the provision is deemed to be material. non-GAAP measures as follows: quoted securities is usually the ex-dividend date. • costs in relation to the closure of the Group’s legacy S) SEGMENT REPORTING A segment is a component of the Group that engages in W) ACCOUNTING ESTIMATES AND JUDGMENTS The Directors have made significant accounting estimates and • profit attributable to the owners of the Company, to arrive warehouses in the UK. The Directors believe this cost to at adjusted earnings per share (after the tax effect of be infrequent in nature as the Group do not close existing exceptional items); and warehouses or move to new warehouses regularly; and business activities from which it may earn revenues and incur judgements in applying the Group’s accounting policies in the • profit before tax, to arrive at profit before tax and • costs in relation to the closure of a concept store in expenses, including revenues and expenses that relate to following areas: exceptional items. London. The Directors believe this cost to be infrequent in nature as the Group does not open concept 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 IMPAIRMENT Leasehold improvements for stores are identified for further Exceptional items are those items which, in the opinion stores frequently. of the Directors, should be excluded in order to provide a be allocated to a segment and assess its performance, and for impairment testing primarily on the basis of current and consistent and comparable view of the underlying performance The Directors believe that the profit before tax and which discrete financial information is available (see Note 2). projected performance, with growth assumptions based of the Group’s ongoing business. Generally, exceptional items exceptional items and adjusted earnings per share measures on Directors’ knowledge and experience. Given the relative include those items that do not occur often and are material. provide useful information for shareholders on the underlying T) FINANCIAL GUARANTEE CONTRACTS Where the Company enters into financial guarantee contracts immaturity of the brand outside the UK, the payback period is We believe the non-GAAP performance measures performance of the business. These measures are also typically longer and it is not uncommon for new stores to make presented along with comparable GAAP measurements consistent with how underlying business performance is to guarantee the indebtedness of other companies within losses in their start-up phase. Judgment is therefore applied is useful to provide information with which to measure our measured internally. its group, the Company considers these to be insurance by the Directors in assessing the trigger point for impairment, performance, and our ability to invest in new opportunities. The profit before tax and exceptional items and adjusted arrangements, and accounts for them as such. In this recognising that losses in the start-up phase are not always Management uses these measures with the most directly earnings per share are not recognised measures under IFRS respect, the Company treats the guarantee contract as a indicative of the future performance of a particular store. The comparable GAAP financial measures in evaluating our and may not be directly comparable with adjusted profit and contingent liability until such time as it becomes probable that Directors have used forecast models and an appropriate pre- operating performance and value creation. Non-GAAP earnings per share measures used by other companies. the Company will be required to make a payment under tax adjusted weighted average cost of capital in its property, financial measures should not be considered in isolation Constant currency comparatives are obtained by applying the guarantee. plant and equipment impairment calculations. from, or as a substitute for, financial information presented the exchange rates that were applicable for the 52 weeks 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. in compliance with GAAP. The requirements for identifying exceptional items are on a consistent basis each period and ended 28 January 2017 to the financial results in overseas subsidiaries for the 52 weeks ended 27 January 2018 to remove presented consistently, and a reconciliation of profit before tax the impact of exchange rate fluctuations. and exceptional items to profit before tax is included in Note 3 to the financial statements. 94 95 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS 2. SEGMENT INFORMATION The Group has three reportable segments: retail, wholesale and licensing. wholesale segment is measured based on gross profit and performance of the licensing segment is measured based on royalty income, as included in the internal management reports For each of the three segments, the Executive Committee that are reviewed by the Board. reviews internal management reports on a four weekly basis. Segment results before exceptional items are used to The accounting policies of the reportable segments are measure performance as management believes that such the same as described in Note 1 on pages 89–95. Information information is the most relevant in evaluating the performance regarding the results of each reportable segment is included of certain segments relative to other entities that operate below. Performance for the retail segment is measured based within these industries. Inter-segment pricing is determined on on operating contribution, whereas performance of the an arm’s length basis. 96 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2. SEGMENT INFORMATION CONTINUED A) SEGMENT REVENUE AND SEGMENT RESULT 52 WEEKS ENDED 27 JANUARY 2018 RETAIL WHOLESALE LICENSING 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 items 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 and amortisation Unallocated depreciation and amortisation TOTAL DEPRECIATION AND AMORTISATION Segment assets Deferred tax assets Derivative financial assets Intangible assets – head office Property, plant and equipment – head office Other assets TOTAL ASSETS Segment liabilities Income tax payable Provisions for liabilities and charges Term loan Other liabilities TOTAL LIABILITIES NET ASSETS £’000 442,451 (146,230) 296,221 (225,224) 70,997 - 70,997 £’000 149,219 (84,635) 64,584 - 64,584 - 64,584 £’000 - - - - 21,443 21,443 70,997 64,584 21,443 - - - - - - - 21,621 - - 16,386 - - - - - - - - - 396 - - 455 - - 241,427 92,343 - - - - - - - - - - - - (117,940) (40,961) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Wholesale sales are shown after the elimination of inter-company sales of £113,081,488 (2017: £89,695,272). 98 TOTAL £’000 591,670 (230,865) 360,805 (225,224) 135,581 21,443 157,024 157,024 (82,256) (4,676) 635 70,727 (2,512) 574 68,789 22,017 14,821 36,838 16,841 6,397 23,238 333,770 4,114 478 79,279 28,611 2,912 449,164 (158,901) (8,522) - (52,500) (5,191) (225,114) 224,050 2. SEGMENT INFORMATION CONTINUED A) SEGMENT REVENUE AND SEGMENT RESULT CONTINUED 52 WEEKS ENDED 28 JANUARY 2017 RETAIL WHOLESALE LICENSING 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 items Other operating expense 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 and amortisation Unallocated depreciation and amortisation TOTAL DEPRECIATION AND AMORTISATION Segment assets Deferred tax assets Derivative financial assets Intangible assets – head office Property, plant and equipment – head office Other assets TOTAL ASSETS Segment liabilities Income tax payable Provisions for liabilities and charges Term loan Other liabilities TOTAL LIABILITIES NET ASSETS £’000 400,724 (135,704) 265,020 (203,253) 61,767 - 61,767 £’000 130,262 (71,553) 58,709 - 58,709 - 58,709 £’000 - - - - - 18,237 18,237 61,767 58,709 18,237 - - - - - - - 21,358 - - 16,588 - - - - - - - - - 411 - - 397 - - 225,632 83,161 - - - - - - - - - - - - (104,953) (34,116) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - TOTAL £’000 530,986 (207,257) 323,729 (203,253) 120,476 18,237 138,713 138,713 (70,558) (4,513) (1,145) 62,497 (1,776) 550 61,271 21,769 21,985 43,754 16,985 3,981 20,966 308,793 4,446 8,974 21,718 77,440 2,951 424,322 (139,069) (10,327) (2,917) (58,500) (2,965) (213,778) 210,544 99 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 2. SEGMENT INFORMATION CONTINUED B) GEOGRAPHICAL INFORMATION 52 WEEKS ENDED 27 JANUARY 2018 Revenue Non-current assets* 52 WEEKS ENDED 28 JANUARY 2017 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 and amortisation Exceptional items LEASEHOLD PROPERTIES: Fixed lease payments* Variable rental payments* CONCESSIONS: Fixed lease payments* Variable rental and commission payments* Loss on sale of property, plant and equipment and intangibles AUDITORS’ REMUNERATION: Audit of these financial statements Amounts receivable by the Company’s auditors and their associates in respect of: Audit of financial statements of subsidiaries of the Company Interim financial statements review Other assurance services Taxation compliance and other advisory services UK £’000 336,056 127,429 USA REST OF WORLD £’000 153,603 26,795 £’000 102,011 21,470 TOTAL £’000 591,670 175,694 316,542 118,879 130,941 34,571 83,503 17,647 530,986 171,097 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 249,685 341,985 591,670 £’000 226,731 304,255 530,986 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 23,238 4,676 41,238 3,725 18,177 34,866 166 12 348 17 20 - £’000 20,966 4,513 38,022 2,780 18,536 33,345 416 12 300 17 21 10 *Disclosed above are the costs charged in the period relating to leasehold properties and concession arrangements. These are either fixed in nature or variable based on revenue levels for a particular store or concession, where relevant, including e-commerce sales with concession partners. 100 RECONCILIATION OF PROFIT BEFORE TAX TO PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS PROFIT BEFORE TAX Impairment of retail assets, relating to three stores in the US and one store in Europe Restructuring costs Movement in provisions related to the Group’s legacy warehouses Other closure costs Closure costs for a concept store in London EXCEPTIONAL ITEMS PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS 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 payment charges Social security costs Pension costs 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 68,789 4,533 1,251 (1,108) - - 4,676 73,465 £’000 61,271 - - 2,917 659 937 4,513 65,784 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 61 741 802 (3,301) (13) (3,314) £’000 15 1,582 1,597 (2,933) (440) (3,373) 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 No. 2,677 92 693 3,462 £’000 82,217 1,876 8,579 1,648 94,320 No. 2,429 94 643 3,166 £’000 76,240 1,841 7,779 1,782 87,642 The figures stated above are Group staff costs and as such include the costs for Ray Kelvin, who is the only salaried employee of the parent company for both periods. Further details of his remuneration may be found in the Directors’ Remuneration Report on pages 50–68. 101 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 5. STAFF NUMBERS AND COSTS CONTINUED DIRECTORS’ REMUNERATION 6. INCOME TAX EXPENSE CONTINUED B) DEFERRED TAX MOVEMENT BY TYPE Executive Directors’ remuneration Non-Executive Directors’ remuneration Amounts received by Executive Directors under long-term incentive schemes Company contributions to Executive Directors’ money purchase pension plans 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 921 281 2,587 54 £’000 903 220 875 53 The aggregate of remuneration and amounts receivable under long-term incentive schemes of the highest paid Director was £2,191,000 (2017: £1,318,000). In the period ended 27 January 2018, amounts received under long-term incentive schemes related Property, plant and equipment Share-based payments Overseas losses Inventory Other 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 (388) (174) 757 475 336 1,006 £’000 (464) (49) 379 (41) 236 61 to the exercise of options due to Ray Kelvin under Award 1 of the 2013 LTIP and Ray Kelvin and Lindsay Page under Award 2 of the For further details please refer to Note 13. 2013 LTIP. In the period ended 28 January 2017, amounts received under the long-term incentive schemes related to the exercise of options due to Lindsay Page under Award 1 of the 2013 LTIP. Further details can be found in the Directors’ Remuneration Report. No amounts in relation to pension contributions to a money purchase scheme were made on behalf of Ray Kelvin during the 52 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. weeks ended 27 January 2018 or the 52 weeks ended 28 January 2017. Amounts in relation to pension contributions to a money The differences are explained below. purchase scheme were made on behalf of Lindsay Page during the period totalling £53,922 (2017: £53,125). Retirement benefits are accruing to the following number of Directors under money purchase schemes 1 1 Profit before tax 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 6. INCOME TAX EXPENSE A) THE TAX CHARGE COMPRISES: Current tax United Kingdom corporation tax Overseas tax Deferred tax United Kingdom corporation tax Overseas tax PRIOR PERIOD (OVER)/UNDER PROVISION Current tax Deferred tax 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 12,190 5,499 827 (1,833) (2,403) 1,765 16,045 12,343 3,625 977 (1,038) (4,481) 3,277 14,703 The movements in prior year current and deferred tax provisions are largely as a result of claiming interest deductions in US tax returns previously not taken (2017: movements largely due to accelerated tax relief claims on fixed assets in the US). Profit multiplied by the standard rate in the UK of 19.16% (2017: standard rate in the UK of 20%) Income not taxable/expenses not deductible for tax purposes Overseas losses not recognised Movement in current and deferred tax on share awards and options Prior period overprovision Difference due to overseas tax rates TOTAL INCOME TAX EXPENSE D) DEFERRED AND CURRENT TAX RECOGNISED DIRECTLY IN EQUITY Current tax credit on share awards and options Deferred tax charge on share awards and options Deferred tax (credit)/charge associated with movement in hedging reserve Current tax (credit)/charge associated with foreign exchange movements in reserves 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 68,789 13,180 771 1,334 103 (638) 1,295 16,045 £’000 61,271 12,254 675 1,494 31 (1,204) 1,453 14,703 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 (1,058) 523 (2,284) (1,963) (4,782) £’000 (554) 273 1,193 1,458 2,370 There was a reduction in the UK corporation tax rate to 19% from 1 April 2017 and there will be a further reduction to 17% from 1 April 2020. There was a reduction in the US federal corporate income tax rate to 21% from 1 January 2018. As the deferred tax assets and liabilities should be recognised based on the corporation tax rate at which they are anticipated to unwind, the assets and liabilities on UK operations have been recognised at a rate of 19%. Assets and liabilities arising on foreign operations have been recognised at the applicable overseas tax rates. 102 103 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 7. PROFIT ATTRIBUTABLE TO TED BAKER PLC The profit after tax for the 52 weeks ended 27 January 2018 of Ted Baker Plc, the parent company was £25,825,000 10. INTANGIBLE ASSETS (2017: £27,246,000). The Directors have approved the income statement for the parent company. 8. DIVIDENDS PER SHARE Final dividend paid for prior period of 38.8p per ordinary share (2017: 34.6p) Interim dividend paid of 16.6p per ordinary share (2017: 14.8p) 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 17,176 7,377 24,553 £’000 15,215 6,521 21,736 A final dividend in respect of 2018 of 43.5p per share, amounting to a dividend payable of £19,346,280 is to be proposed at the Annual General Meeting on 12 June 2018. 9. EARNINGS PER SHARE Number of shares: Weighted number of ordinary shares outstanding Effect of dilutive options 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 No. No. 44,306,134 44,034,459 289,241 516,310 WEIGHTED NUMBER OF ORDINARY SHARES OUTSTANDING – DILUTED 44,595,375 44,550,769 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 Adjusted diluted earnings per share* £’000 52,744 56,597 119.0p 127.7p 118.3p 126.9p £’000 46,568 50,178 105.7p 114.0p 104.5p 112.6p Diluted earnings per share and adjusted diluted earnings per share have been calculated using additional ordinary shares of 5p each available under the Ted Baker Sharesave Scheme and the Ted Baker PLC Long-Term Incentive Plan 2013. 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 items (net of tax) of £3.9m (2017: £3.6m). 104 COST At 28 January 2017 Additions/transfers Disposals Exchange rate movement AT 27 JANUARY 2018 AMORTISATION At 28 January 2017 Charge for the period Disposals Exchange rate movement AT 27 JANUARY 2018 NET BOOK VALUE AT 28 JANUARY 2017 AT 27 JANUARY 2018 COST At 30 January 2016 Additions/transfers Disposals Exchange rate movement AT 28 JANUARY 2017 AMORTISATION At 30 January 2016 Charge for the period Disposals Exchange rate movement AT 28 JANUARY 2017 NET BOOK VALUE AT 30 JANUARY 2016 AT 28 JANUARY 2017 KEY MONEY COMPUTER SOFTWARE COMPUTER SOFTWARE UNDER DEVELOPMENT TOTAL £’000 £’000 £’000 £’000 624 738 - 19 1,381 - - - - - 624 1,381 13,619 14,300 - (119) 27,800 4,652 3,377 - (106) 7,923 8,967 19,877 14,854 (1,739) - - 13,115 - - - - - 14,854 13,115 KEY MONEY COMPUTER SOFTWARE COMPUTER SOFTWARE UNDER DEVELOPMENT 29,097 13,299 - (100) 42,296 4,652 3,377 - (106) 7,923 24,445 34,373 TOTAL £’000 £’000 £’000 879 - (351) 96 624 - - - - - 879 624 £’000 8,361 5,134 - 124 10,649 4,205 - - 13,619 14,854 2,642 1,925 - 85 4,652 5,719 8,967 - - - - - 10,649 14,854 19,889 9,339 (351) 220 29,097 2,642 1,925 - 85 4,652 17,247 24,445 105 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 10. INTANGIBLE ASSETS CONTINUED The key money brought forward relates to the right to lease Additions included within key money relate to the right to lease a new store that has a guaranteed residual value. stores that have a guaranteed residual value. The guaranteed Additions included within computer software relate to the value arises because the next tenants based on current market Microsoft Dynamics AX system and further development of our conditions are required to pay these amounts to the Group. Due e-commerce platforms and other business systems. Additions to the nature of this, the assets are considered recoverable and included within the computer software under development no amortisation is charged each period as the residual value of category relate to the Microsoft Dynamics AX system and are the asset is considered to be in excess of the carrying value. stated net of transfers to computer software. Transfers from the The current market rate rents, for both stores included within computer software under development category in the period the intangible assets, continue to be above the rent under the amounted to £14,300,000 (2017: £5,134,000) while additions lease terms and hence no decline in values is foreseen. into this category were £12,561,000 (2017: £9,339,000). 11. PROPERTY, PLANT AND EQUIPMENT FREEHOLD LAND AND BUILDINGS LEASEHOLD IMPROVEMENTS FIXTURES, FITTINGS AND OFFICE EQUIPMENT MOTOR VEHICLES ASSETS UNDER CONSTRUCTION TOTAL £’000 £’000 £’000 £’000 £’000 £’000 COST At 28 January 2017 Additions/transfers Disposals Exchange rate movement 57,973 116,013 - - - 10,570 (3,608) (5,225) AT 27 JANUARY 2018 57,973 117,750 DEPRECIATION At 28 January 2017 Charge for the period Disposals Impairment Exchange rate movement AT 27 JANUARY 2018 NET BOOK VALUE AT 28 JANUARY 2017 AT 27 JANUARY 2018 483 448 - - - 931 57,490 57,042 56,654 10,573 (3,435) 4,072 (2,018) 65,846 59,359 51,904 80,163 10,789 (2,799) (1,991) 86,162 58,866 8,839 (2,690) 461 (1,326) 64,150 21,297 22,012 111 - - - 111 107 1 - - - 108 4 3 6,204 2,180 - (270) 8,114 - - - - - - 260,464 23,539 (6,407) (7,486) 270,110 116,110 19,861 (6,125) 4,533 (3,344) 131,035 6,204 8,114 144,354 139,075 11. PROPERTY, PLANT AND EQUIPMENT CONTINUED FREEHOLD LAND AND BUILDINGS LEASEHOLD IMPROVEMENTS FIXTURES, FITTINGS AND OFFICE EQUIPMENT MOTOR VEHICLES ASSETS UNDER CONSTRUCTION TOTAL £’000 £’000 £’000 £’000 £’000 £’000 COST At 30 January 2016 Additions/transfers Disposals Exchange rate movement 57,973 - - - 87,384 23,816 (1,538) 6,351 AT 28 JANUARY 2017 57,973 116,013 DEPRECIATION At 30 January 2016 Charge for the period Disposals Impairment Exchange rate movement AT 28 JANUARY 2017 NET BOOK VALUE AT 30 JANUARY 2016 AT 28 JANUARY 2017 32 451 - - - 483 57,941 57,490 45,120 10,562 (1,466) - 2,438 56,654 42,264 59,359 69,813 8,038 (986) 3,298 80,163 49,934 8,026 (898) - 1,804 58,866 19,879 21,297 110 1 - - 111 105 2 - - - 107 5 4 3,308 2,560 - 336 218,588 34,415 (2,524) 9,985 6,204 260,464 - - - - - - 95,191 19,041 (2,364) - 4,242 116,110 3,308 6,204 123,397 144,354 Additions included within the assets under construction in margins. Management estimates discount rates using category are stated net of transfers to other property, plant pre-tax rates that reflect the current market assessment and equipment categories. Transfers from the assets under of the time value of money and the risks specific to the construction category in the period amounted to £21,359,000 cash-generating units. Changes in selling prices and direct (2017: £31,855,000) while additions into this category were costs are based on past experience and expectations of £23,539,000 (2017: £34,415,000). future changes in the market. IMPAIRMENT OF LEASEHOLD IMPROVEMENTS The Group has determined that for the purposes of impairment The pre-tax discount rate used to calculate value in use is derived from the Group’s adjusted weighted average cost of capital. testing, each store and outlet is tested for impairment if there The impairment losses relate to stores whose recoverable are indications of impairment at the balance sheet date. amounts (value in use) did not exceed the asset carrying Recoverable amounts for cash-generating units are values. In all cases, impairment losses arose due to stores based on value in use, which is calculated from cash flow projections using data from the Group’s latest internal performing below projected trading levels. The impairment charge of £4.5m (2017: £nil) for the 52 forecasts, the results of which are reviewed by the Board. The weeks ended 27 January 2018 is in respect of three stores key assumptions for the value in use calculations are those in the US and one store in Europe that have not performed regarding discount rates, growth rates and expected changes as expected. 106 107 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 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 12. INVESTMENTS (COMPANY) A) SUBSIDIARY UNDERTAKINGS CONTINUED COUNTRY OF INCORPORATION AND OPERATION ADDRESS PRINCIPAL ACTIVITY consolidated accounts. SUBSIDIARY UNDERTAKING No Ordinary Designer Label Ltd (formerly Ted Baker Limited)* Ted Baker Limited Ted Baker Canada Inc. Ted Baker (France) SARL Ted Baker Spain S. L. UK US Canada France Spain Ted Baker Netherlands B. V. The Netherlands Ted Baker Germany GmbH Germany Ted Baker Belgium N.V. Belgium Ted Baker Hong Kong Limited Hong Kong Ted Baker Japan KK Ted Baker Korea Yuhan Hoesa Japan Korea Ted Baker (Beijing) Commercial Company The People’s Republic of China HOLDING ORDINARY SHARES 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Design, wholesale and retail of designer clothing and accessories Retail and wholesale of designer clothing and accessories Retail and wholesale of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories Retail of designer clothing and accessories The Ugly Brown Building 6a St Pancras Way London NW1 0TB United Kingdom 1072 North State Street Ukiah, California 95482 USA 1959 Upper Water Street Halifax, Nova Scotia Canada B3J 3E5 c/o Regus 9 Rue du 4 Septembre 75002 Paris, France c/Arturo Soria 263B 28033 Madrid, Spain Leidsestraat 64 Amsterdam 1017PD The Netherlands c/o Roever Broenner Susat Mazars GmbH & Co. KG Alt-Moabit 2 10557 Berlin, Germany De Keyserlei 5 Box 58 2018 Antwerp Belgium Room 3001-2 Tower 2 The Gateway 25–27 Canton Road Tsim Sha Tsui Hong Kong 4-25-14, Jingumae, Shibuya-Ku Tokyo, Japan Seoul Finance Center Level 21 136 Sejong-daero Jung-gu Unit LG1-08 and 09 Floor LG1 Parkview Green FangCaoDi No. 9 Dongdaqiao Rd Chaoyang District Beijing, PRC ADDRESS PRINCIPAL ACTIVITY HOLDING ORDINARY SHARES 100% Retail of designer clothing and accessories SUBSIDIARY UNDERTAKING Ted Baker SA (Pty) Ltd COUNTRY OF INCORPORATION AND OPERATION South Africa Big Lobster Limited Little Lobster Limited *Held directly by Ted Baker Plc UK UK Building 5 Inanda Greens Business Park, 54 Wierda Rd Westwierda Valley Sandton 2146 South Africa The Ugly Brown Building 6a St Pancras Way London NW1 0TB United Kingdom The Ugly Brown Building 6a St Pancras Way London NW1 0TB United Kingdom B) SUBSIDIARY UNDERTAKINGS – COST AND NET BOOK VALUE At 28 January 2017 Increase in cost of investment for share options/awards granted to subsidiary employees AT 27 JANUARY 2018 At 30 January 2016 Increase in cost of investment for share options/awards granted to subsidiary employees AT 28 JANUARY 2017 Property 100% Dormant 100% COMPANY £’000 23,102 1,691 24,793 COMPANY £’000 21,482 1,620 23,102 C) INTEREST IN JOINT VENTURE The Group has a 50% interest in the ordinary share capital of No Ordinary Retail Company Pty, a company incorporated in Australia through its wholly owned subsidiary, No Ordinary Designer Label Limited. The joint venture is represented by eight stores in Australia and one store in New Zealand (2017: eight stores in Australia and one store in New Zealand). Opening investment in joint venture Share of profit of joint venture Dividend received CLOSING INVESTMENT IN JOINT VENTURE 52 WEEKS ENDED 27 JANUARY 2018 52 WEEKS ENDED 28 JANUARY 2017 £’000 1,897 574 (578) 1,893 £’000 1,641 550 (294) 1,897 108 109 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 27 January 2018. Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS 12. INVESTMENTS (COMPANY) C) INTEREST IN JOINT VENTURE CONTINUED AMOUNTS DUE FROM EQUITY ACCOUNTED INVESTEE 27 JANUARY 2018 28 JANUARY 2017 £’000 666 £’000 653 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 profit for the period ended 27 January 2018 and its assets and liabilities are as follows: 27 JANUARY 2018 28 JANUARY 2017 £’000 3,272 3,276 - (3,318) 3,230 29 2,135 1,148 (82) 3,230 £’000 3,710 2,994 - (3,289) 3,415 31 2,246 1,100 38 3,415 Non-current assets Current assets Non-current liabilities Current liabilities NET ASSETS Share capital Retained earnings Current period profit, net of tax Exchange rate movement TOTAL EQUITY 110 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 13. DEFERRED TAX ASSETS AND LIABILITIES 14. INVENTORIES AS AT 27 JANUARY 2018 DEFERRED TAX ASSET/(LIABILITY) ON UK OPERATIONS ARISING FROM: ASSETS Share-based payments Other Derivative financial instruments LIABILITIES Property, plant and equipment NET DEFERRED TAX ASSET/ (LIABILITY) ON UK OPERATIONS DEFERRED TAX ASSET ON FOREIGN OPERATIONS ARISING FROM: Foreign trading losses Inventory Other DEFERRED TAX LIABILITY ON FOREIGN OPERATIONS ARISING FROM: Property, plant and equipment NET DEFERRED TAX ASSET ON FOREIGN OPERATIONS TOTAL ASSET/ (LIABILITY) BROUGHT FORWARD (CHARGE)/CREDIT TO INCOME STATEMENT (CHARGE)/CREDIT TO EQUITY FOREIGN EXCHANGE ON RETRANSLATION ASSET/(LIABILITY) CARRIED FORWARD £’000 £’000 £’000 £’000 £’000 2,050 59 (1,579) (2,879) (2,349) 2,127 1,472 1,436 (589) 4,446 2,097 (174) (39) - (472) (685) (238) (27) 276 (85) (74) (759) (523) - 2,284 - 1,761 - - - - - 1,761 - - - - - (173) (154) (29) 98 (258) (258) 1,353 20 705 (3,351) (1,273) 1,716 1,291 1,683 (576) 4,114 2,841 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. The tax effect of the unused cumulative tax losses for which no deferred tax asset has been recognised in the balance sheet is £7,085,000 (2017: £5,401,000). £3,221,000 of losses will expire in two to five years. A further £2,325,000 of losses will expire in six to ten years. £1,539,000 of losses have no time expiry. 112 Raw materials and packaging Work in progress Finished goods and goods for resale Cost of inventories recognised as an expense within cost of sales during the period Inventories written down and recognised as an expense in the period There were no reversals of write downs during the period (2017: £nil). GROUP 27 JANUARY 2018 GROUP 28 JANUARY 2017 £’000 8,220 1,208 177,799 187,227 226,933 8,468 £’000 6,371 1,331 150,798 158,500 209,386 8,485 Inventories written down and recognised as an expense in the period relates to inventory written down to the net realisable value and the net movement in inventory provisions during the period. The write down and any reversal are included in cost of sales. 15. TRADE AND OTHER RECEIVABLES Trade receivables Amounts owed by Group undertakings Prepayments and accrued income Other taxes and social security 16. DERIVATIVE FINANCIAL INSTRUMENTS DERIVATIVES THAT ARE DESIGNED AND EFFECTIVE AS HEDGING INSTRUMENTS AND CARRIED AT FAIR VALUE: Forward foreign exchange contracts Interest rate swap DERIVATIVES THAT ARE CARRIED AT FAIR VALUE THROUGH PROFIT OR LOSS: Foreign currency options GROUP 27 JANUARY 2018 COMPANY 27 JANUARY 2018 GROUP 28 JANUARY 2017 COMPANY 28 JANUARY 2017 £’000 42,658 - 19,628 1,987 64,273 £’000 - 55,232 - - 55,232 £’000 41,999 - 15,791 1,461 59,251 £’000 - 51,932 - - 51,932 ASSETS 27 JANUARY 2018 LIABILITIES 27 JANUARY 2018 ASSETS 28 JANUARY 2017 LIABILITIES 28 JANUARY 2017 £’000 £’000 £’000 £’000 128 144 206 478 (3,918) - - (3,918) 8,870 - 104 8,974 - (66) (550) (616) 113 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 16. DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED Forward foreign exchange contracts are used to hedge exposure to fluctuations in foreign exchange rates that arise in the normal 20. CAPITAL AND RESERVES course of the Group’s business. Interest rate swaps are used to hedge exposures to fluctuations in the interest rate payable on the Group’s term loan. The Group did not have any ineffective cash flow hedges in the period (2017: £nil). Gains and losses in equity relating to derivatives in effective hedging relationships at 27 January 2018 will remain there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in other comprehensive income is Authorised – 80,000,000 ordinary shares of 5p each (2017: 80,000,000) Allotted, called up and fully paid – 44,474,208 ordinary shares of 5p each (2017: 44,168,656) 27 JANUARY 2018 28 JANUARY 2017 £’000 4,000 2,224 £’000 4,000 2,208 transferred to the income statement in the same period that the hedged item affects the income statement. The increase in issued share capital in the period of 305,552 shares (2017: 197,202 shares) relates to the exercise of share options, The charge to the income statement in respect of charges in the fair value of foreign currency derivatives that do not meet the including LTIPs. criteria for hedge accounting was £767,000 (2017: £677,000). At 27 January 2018, 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 (2017: Employee Trust – nil, 1998 Trust – nil). 17. RECONCILIATION OF CASH AND CASH EQUIVALENTS PER BALANCE SHEET TO CASH FLOW STATEMENT Cash and cash equivalents per balance sheet Bank overdraft per balance sheet NET CASH AND CASH EQUIVALENTS PER CASH FLOW STATEMENT 18. TRADE AND OTHER PAYABLES Trade payables Accruals and deferred income Other taxes and social security GROUP 27 JANUARY 2018 COMPANY 27 JANUARY 2018 GROUP 28 JANUARY 2017 COMPANY 28 JANUARY 2017 £’000 16,712 (76,043) (59,331) £’000 940 - 940 £’000 21,401 (58,074) (36,673) £’000 2,238 - 2,238 GROUP 27 JANUARY 2018 £’000 36,257 37,807 8,794 82,858 COMPANY 27 JANUARY 2018 £’000 - - - - GROUP 28 JANUARY 2017 £’000 45,329 29,093 6,573 80,995 COMPANY 28 JANUARY 2017 £’000 - 23 - 23 19. PROVISIONS FOR LIABILITIES AND CHARGES At 28 January 2017 Released in the period (see Note 3) Utilised in the period AT 27 JANUARY 2018 PROPERTY PROVISIONS £’000 2,917 (1,108) (1,809) - Property provisions comprised an onerous lease provision and a dilapidations provision relating to the Group’s legacy distribution centres. The provisions were partially utilised in the period and the remaining provisions were released to the Consolidated Income Statement as an exceptional item (see Note 3) following the assignment of the leases. 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 are designated as hedging instruments and are documented as part of an effective hedge of future cash flows are recognised directly in equity and recycled to the income statement when the underlying cash flows occur, or are no longer expected to occur. TRANSLATION RESERVE The translation reserve comprises all foreign exchange differences arising from the translation of the 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 employees of the Group. This reduction in other reserves is reflected in retained earnings in the Group Statement of Changes in Equity. 114 115 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 21. SHARE-BASED PAYMENTS LONG-TERM INCENTIVE PLAN Share awards are made in the form of nil-cost options over Ordinary shares in Ted Baker Plc under the Long-Term Incentive Plan 2013 (“LTIP 2013”), which was approved by the shareholders at the general meeting held on 20 June 2013. The options are 22. FINANCIAL COMMITMENTS A) CAPITAL COMMITMENTS The Group has capital commitments of £17,703,635 at 27 January 2018 (2017: £15,095,165) which were not provided in the financial statements. exercisable three years after the date of grant subject to the satisfaction of profit before tax per share and share price performance targets, each measured over a three year period. The profit before tax per share target is calibrated so that the percentage of B) OPERATING LEASES Total of future lease payments under non-cancellable operating leases are as follows: awards that vests is linked to the level of profit growth achieved. Share options and awards granted under the LTIP 2013 and outstanding at the end of the period were as follows: GRANT DATE 3 July 2013 1 May 2014 30 April 2015 5 May 2016 6 April 2017 EXPIRY DATE NUMBER OF OPTIONS GRANTED FAIR VALUE AT GRANT DATE 2 July 2023 30 April 2024 29 April 2025 4 May 2026 5 April 2027 220,226 254,141 192,860 234,159 221,234 1,122,620 1,140.0p 695.0p 1,785.0p 875.0p 1,355.0p NUMBER OF AWARDS OUTSTANDING AT 27 JANUARY 2018 NUMBER OF AWARDS OUTSTANDING AT 28 JANUARY 2017 - 5,604 153,118 187,829 185,148 531,699 42,964 230,646 179,201 231,533 - 684,344 Leasehold properties: Within one year Between one and five years Later than five years Concessions: Within one year Between one and five years Later than five years AS AT 27 JANUARY 2018 AS AT 28 JANUARY 2017 £’000 £’000 42,855 131,705 79,689 11,983 459 - 266,691 45,859 144,993 99,396 12,540 834 - 303,622 The terms and conditions of the awards granted during the period ended 27 January 2018 were the same as those for the awards made under the LTIP 2013 in previous periods and are as follows: GRANT DATE 6 April 2017 TYPE OF AWARD NUMBER OF OPTIONS VESTING CONDITIONS VESTING PERIOD LTIP 2013 221,234 Up to 100% after three years Adjusted profit before tax per share growth of 10–15% per annum and 10% share price growth over the vesting period The charge for the period to the income statement in respect of options issued under the LTIP 2013 amounted to £1,494,000 (2017: £1,505,000). In respect of Ray Kelvin, who is employed by the Company, there is a charge of £185,000 in the period (2017: £219,000). The Monte-Carlo valuation methodology has been used as the basis of measuring the fair value of awards made under the LTIP 2013. The range of inputs into the Monte-Carlo model for awards made was as follows: Share price at grant Share price at grant (based on six month average) for share price performance condition Risk free interest rate Expected life of options Share price volatility Dividend yield 1,849.0p–2,855.0p 2,103.0p–2,744.0p 0.18%–1.18% 3 years 29.0%–32.89% 1.41%–2.02% 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. The above table includes the minimum future commitments assuming no lease terminations. Under certain arrangements C) PENSION ARRANGEMENTS The Group operates a number of defined contribution schemes if a lease is terminated the quantum of any future minimum for senior management and a stakeholder pension scheme for lease payments is subject to the terms of the contract which employees, for which the pension cost charge for the period may result in final payments lower than those disclosed above. amounted to £1,648,000 (2017: £1,782,000). Contributions Our operating leases for retail stores often contain rental totalling £186,328 are included in other payables at the period expenses based on revenue (“revenue leases”). Under end (2017: £129,706). the terms of certain revenue leases there are minimum payments due, together with variable amounts in excess of those minimums which are based on the store’s future revenue levels. For certain other revenue leases there are no minimum payment conditions within the terms of the lease such that rental charges are contingent wholly on future store revenue levels. The table above includes only committed minimum payments and excludes the variable or contingent elements of future rental payments. As a result, the amounts charged to the Income Statement may be materially higher than the financial commitment at the prior period end. 116 117 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT A) CARRYING AMOUNT AND FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES The methods and assumptions used to estimate fair values of 5. The fair value of the term loan considers the present value financial assets and liabilities are as follows: of expected payment discounted using a risk-adjusted discount rate. 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, 1. Cash and cash equivalents have been stated at their Valuation of all financial assets and liabilities carried at fair book values due to their short maturities or immediate value by the Group is based on hierarchy Level 2. Fair value are as follows: or short-term access. hierarchy levels are defined as follows: 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 Provision Term loan TOTAL FINANCIAL LIABILITIES NET FINANCIAL LIABILITIES CARRYING AMOUNT 27 JANUARY 2018 FAIR VALUE 27 JANUARY 2018 CARRYING AMOUNT 28 JANUARY 2017 FAIR VALUE 28 JANUARY 2017 £’000 £’000 £’000 £’000 42,658 1,819 666 478 16,712 62,333 (74,064) (3,918) (76,043) - (52,500) (206,525) (144,192) 42,658 1,819 666 478 16,712 62,333 (74,064) (3,918) (76,043) - (52,500) (206,525) (144,192) 41,999 1,063 653 8,974 21,401 74,090 (74,422) (616) (58,074) (2,917) (58,500) (194,529) (120,439) 41,999 1,063 653 8,974 21,401 74,090 (74,422) (616) (58,074) (2,917) (58,500) (194,529) (120,439) There are no significant trade debtor balances overdue and no significant amounts impaired at the end of the period. 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: 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. B) DERIVATIVE FINANCIAL INSTRUMENTS 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). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). CONTRACTUAL/ NOTIONAL AMOUNTS 27 JANUARY 2018 £’000 59,900 30,000 89,900 ASSETS 27 JANUARY 2018 LIABILITIES 27 JANUARY 2018 £’000 334 144 478 £’000 (3,918) - (3,918) CONTRACTUAL/ NOTIONAL AMOUNTS 28 JANUARY 2017 £’000 72,874 30,000 102,874 ASSETS 28 JANUARY 2017 LIABILITIES 28 JANUARY 2017 £’000 8,974 - 8,974 £’000 (550) (66) (616) Currency derivatives Interest rate swap C) CASH FLOW HEDGING RESERVE MOVEMENTS The following table indicates the cash flow hedging reserve balance at 27 January 2018 and the periods in which the cash flows are expected to occur. The periods in which the cash flows are expected to impact the income statement are materially the same. CARRYING AMOUNT 27 JANUARY 2018 FAIR VALUE 27 JANUARY 2018 CARRYING AMOUNT 28 JANUARY 2017 FAIR VALUE 28 JANUARY 2017 Within six months £’000 £’000 £’000 £’000 Between six months and one year Between one and two years UNRECOGNISED (LOSS)/GAIN CURRENCY DERIVATIVES 27 JANUARY 2018 CURRENCY DERIVATIVES 28 JANUARY 2017 £’000 (1,203) (1,555) (388) (3,146) £’000 2,647 2,982 1,173 6,802 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 118 55,232 940 56,172 - - 55,232 940 56,172 - - 56,172 56,172 51,932 2,238 54,170 (23) (23) 54,147 51,932 2,238 54,170 (23) (23) 54,147 The cash flow hedging reserve relating to interest rate swaps at 27 January 2018 is a gain of £144,000 (2017: loss of £66,000). The cash flows are expected to occur over the period to maturity of the term loan. 119 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS 23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT CONTINUED D) FINANCIAL RISK IDENTIFICATION AND MANAGEMENT The Group’s multinational operations and debt financing 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 requirements expose it to a variety of financial risks. In the outflows. The policy allows for these risks to be hedged for up course of its business the Group is exposed to: to 24 months ahead in order to fix the cost in Sterling. • market risk; • credit risk; and The vast majority of projected purchases in each major currency qualifies as “highly probable” forecast transactions for hedge accounting purposes. • liquidity risks have been established and are reviewed The Group also publishes its financial statements in Sterling regularly to reflect changes in the market conditions and and is therefore exposed to foreign currency translation risks the Group’s activities. The Group, through its standards due to movements in foreign exchange rates on the translation and procedures, aims to develop a disciplined and of the results and underlying net assets of its foreign operations constructive control environment in which all employees into Sterling. understand their roles and obligations. I) MARKET RISK Market risk is the risk that changes in market prices, such as FOREIGN CURRENCY SENSITIVITY ANALYSIS The Group has used a sensitivity analysis technique that measures the estimated change to the income statement foreign exchange rates, interest rates and equity prices, will and equity of a 10% strengthening or weakening in Sterling affect the Group’s income or the value of its holdings of financial against all other currencies, using the rates applicable at 27 instruments. At the balance sheet date, the only significant January 2018. The analysis assumes that all other variables, in market risk to the Group arises from foreign currency and particular, interest rates, remain constant. interest rate risk. FOREIGN CURRENCY RISK The Group operates internationally and is therefore exposed 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 to foreign currency risk primarily on purchases of inventory currency translation exposures at the period end on the Group’s denominated in US Dollars and Euros. financial assets and liabilities that are not denominated in the The Board reviews and agrees policies for managing functional currencies of those businesses. 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. 120 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT CONTINUED A 10% (2017: 10%) strengthening or weakening of the Sterling against the following currencies at 27 January 2018 would have INTEREST RATE SENSITIVITY ANALYSIS The following sensitivity analysis illustrates the impact that a change of 50 basis points in interest rates at the balance sheet date increased/(decreased) equity and profit by the amounts shown in the following table: would have increased/(decreased) equity and profit by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date. TEST OF 10% (2017: 10%) STRENGTHENING IN STERLING AGAINST OTHER CURRENCIES US Dollar Euro TEST OF 10% (2017: 10%) WEAKENING IN STERLING AGAINST OTHER CURRENCIES US Dollar Euro IMPACT ON PROFIT 27 JANUARY 2018 IMPACT ON EQUITY 27 JANUARY 2018 IMPACT ON PROFIT 28 JANUARY 2017 IMPACT ON EQUITY 28 JANUARY 2017 £’000 1,445 89 1,534 (1,766) (108) (1,874) £’000 1,445 89 1,534 (1,766) (108) (1,874) £’000 1,656 (366) 1,290 (2,024) 447 (1,577) £’000 1,656 (366) 1,290 (2,024) 447 (1,577) INTEREST RATE RISK The Group’s exposure to interest rate risk is limited to floating rate financial assets and liabilities. The Group’s policy is to minimise the impact of adverse interest rate movements through the use of interest rate management tools. Any interest rate management tools are to be aligned with timescales of current and forecast net debt for which underlying projections can be made with an appropriate degree of accuracy. The Group’s interest rate derivatives comprise interest rate swap agreements, fixing a portion of the floating rate net debt. The interest rate profile of the financial assets and liabilities of the Group is as follows: FINANCIAL ASSETS AND LIABILITIES SUBJECT TO INTEREST RATE RISK GROUP 27 JANUARY 2018 COMPANY 27 JANUARY 2018 GROUP 28 JANUARY 2017 COMPANY 28 JANUARY 2017 Sterling US Dollar Euro Other £’000 (95,229) 4,668 3,526 5,040 £’000 940 - - - £’000 (83,780) 6,897 5,900 5,661 £’000 2,238 - - - (81,995) 940 (65,322) 2,238 The above table does not include the notional value of net debt for which interest rate swaps are in place. Interest rate increase of 0.5% Interest rate decrease of 0.5% IMPACT ON PROFIT 27 JANUARY 2018 IMPACT ON EQUITY 27 JANUARY 2018 IMPACT ON PROFIT 28 JANUARY 2017 IMPACT ON EQUITY 28 JANUARY 2017 £’000 (410) 410 £’000 (410) 410 £’000 (327) 327 £’000 (327) 327 II) CREDIT RISK Credit risk is the risk that counterparties to financial instruments Certain concession partners operate supplier finance arrangements which allow for early collection of receivable do not perform according to the terms of the contract or balances. When available, the Group participates in such instrument. The Group’s principal financial assets are cash, arrangements thereby reducing risk of any outstanding trade and other receivables, and derivative financial assets. receivable balances. The Group’s credit risk is primarily attributable to its trade and No credit limits were exceeded in the reporting period other receivables. and management will continue with its current approach to credit control to prevent any future losses from non- TRADE AND OTHER RECEIVABLES Credit risk arises on credit exposure to wholesale, license and performance arising. concession partners including outstanding receivables and committed transactions. The Group substantially mitigates III) LIQUIDITY RISK Prudent liquidity risk management implies maintaining credit risk through credit insurance, standby letters of credit or sufficient cash and marketable securities, the availability of supplier finance arrangements when possible. funding through an adequate amount of committed credit Wholesale partner receivables risk is mitigated by credit facilities and the ability to close out market positions. Due to the insurance being taken out up to the amount of the credit limit. dynamic nature of the underlying businesses, Group treasury All new wholesale customers are checked against appropriate maintains flexibility in funding by maintaining availability under trade references and details such as frequency/delinquency. committed credit lines. The limits applied to each customer are set in conjunction Management monitors rolling forecasts of the Group’s with our credit insurer’s advice. Monitoring of credit limits is liquidity reserve (which comprises of the undrawn borrowing undertaken on a daily basis. facility and cash and cash equivalents) on the basis of expected All license partners require a standby letter of credit up to cash flow. This is generally carried out at entity level in the the amount of their credit limit, which is determined based on operating companies of the Group in accordance with practice creditworthiness and volume of business. The Group is not and limits set by the Group. In addition, the Group’s liquidity able to protect its license partner income with credit insurance, management policy involves projecting cash flows in major although it does not consider this a significant credit risk. currencies and considering the level of liquid assets necessary Forecasts are obtained from all its license partners throughout to meet these, and monitoring balance sheet liquidity ratios the period to allow extensive visibility of future income. 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). 122 123 Ted Baker Plc Annual Report and Accounts 2017/18 discounting is not significant. AT 27 JANUARY 2018 NON-DERIVATIVE FINANCIAL LIABILITIES Trade and other payables Bank overdraft Term loan DERIVATIVE FINANCIAL LIABILITIES Derivative financial instruments AT 28 JANUARY 2017 NON-DERIVATIVE FINANCIAL LIABILITIES Trade and other payables Bank overdraft Term loan DERIVATIVE FINANCIAL LIABILITIES Derivative financial instruments NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT CONTINUED The table below analyses the Group’s financial liabilities and derivative financial liabilities into relevant maturity groupings based E) CAPITAL MANAGEMENT The Board’s policy is to maintain a strong capital base, defined as total shareholders’ equity, totalling £224,050,000 at 27 January on the remaining period to the contractual maturity date, at the balance sheet date. The amounts disclosed in the table are 2018 (2017: £210,544,000), so as to maintain investor, creditor and market confidence and to sustain future development of the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances as the impact of the business. CARRYING AMOUNT CONTRACTED AMOUNT LESS THAN 1 YEAR CONTRACTED AMOUNT 1–2 YEARS CONTRACTED AMOUNT 2–5 YEARS 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. £’000 £’000 £’000 £’000 It is the Board’s intention to achieve a dividend cover ratio of two times every year. There were no changes in the Group and Company’s approach to capital management during the period. 74,064 76,043 52,500 74,064 76,043 5,500 - - - - 4,000 43,000 24. CASH FLOWS FROM FINANCING ACTIVITIES Reconciliation of movements of liabilities to cash flows arising from financing activities: TERM LOAN SHARE CAPITAL SHARE PREMIUM 3,918 3,437 481 - - - AS AT 28 JANUARY 2017 CHANGES FROM FINANCING CASH FLOWS Proceeds from issue of share capital Repayment of borrowings Dividends paid 74,422 58,074 58,500 74,422 58,074 6,000 - - 5,500 47,000 TOTAL CHANGES FROM FINANCING CASH FLOWS 616 616 - - TOTAL EQUITY-RELATED OTHER CHANGES £’000 58,500 - (6,000) - (6,000) - £’000 2,208 16 - - 16 - RETAINED EARNINGS £’000 183,774 - - (24,553) (24,553) £’000 9,935 552 - - 552 - 55,155 AT 27 JANUARY 2018 52,500 2,224 10,487 214,376 In September 2017, the Group agreed an extension of its multi- The facilities contain financial covenants which are currency revolving credit facility. A new agreement was signed believed to be appropriate in the current economic climate and on 25 September 2017, increasing the Group’s committed tested on a quarterly basis. The Group monitors actual and borrowing facility from £110.0m to £135.0m expiring in prospective compliance with these on a regular basis. September 2020. This increased facility provides the The financial covenant tests are based upon the following: resources to fund the planned working capital requirements and capital expenditure to support the Group’s long-term • a ratio of total net debt to EBITDA; growth strategy. The new borrowing facility is on the same terms and contains the same covenants as the previous facility. Interest is payable based on LIBOR plus a margin. The Group had utilised £72.9m (2017: £51.5m) of the £135.0m credit facility as at 27 January 2018. In 2015/16, the Group borrowed £60.0m under a five year Sterling-denominated term credit facility with The Royal Bank of Scotland and Barclays. The facility was used to support the purchase of The Ugly Brown Building. The term loan is amortised over 15 years with refinancing required every five years, with an interest rate based on LIBOR plus a margin and quarterly loan repayments which commenced in December 2016. During the period, £6.0m (2017: £1.5m) was repaid. • 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 27 January 2018. 124 125 Ted Baker Plc Annual Report and Accounts 2017/18 NOTES TO THE FINANCIAL STATEMENTS FIVE YEAR SUMMARY 25. RELATED PARTIES The Group considers its Executive and Non-Executive Directors as key management and their compensation therefore comprises a related-party transaction. Total compensation in respect of key management for the period was as follows: Salaries and short-term benefits Contributions to money purchase pension schemes Share-based payment charges 52 WEEKS ENDED 27 JANUARY 2018 552 WEEKS ENDED 28 JANUARY 2017 £’000 2,852 54 364 3,270 £’000 2,582 53 427 3,062 Directors of the Company and their immediate relatives control and, as such, these entities are related parties of the Company 35.2% of the voting shares of the Company. for the purposes of Chapter 11 of the Listing Rules. At 27 January 2018, No Ordinary Designer Label Limited Previously the Group provided design services to THAT (“NODL”), the main trading company owed Ted Baker Bournemouth Company Limited for which licence income fees Plc £55,232,000 (2017: £51,932,000). NODL was owed were charged (2017: £192,000). No services were provided in RESULTS Revenue Operating profit Profit before tax Profit before tax and impairment Profit before tax and exceptional items PROFIT FOR THE PERIOD ASSETS EMPLOYED Property, plant and equipment Non-current assets Net current assets Non-current liabilities 52 WEEKS ENDED 25 JANUARY 2014 53 WEEKS ENDED 31 JANUARY 2015 52 WEEKS ENDED 30 JANUARY 2016 52 WEEKS ENDED 28 JANUARY 2017 52 WEEKS ENDED 27 JANUARY 2018 £’000 £’000 £’000 £’000 £’000 321,921 387,564 456,169 530,986 591,670 39,588 38,923 39,648 39,969 28,852 45,083 12,118 54,863 - 49,759 48,771 48,771 49,452 35,850 51,804 20,265 68,505 - 59,369 58,664 58,853 58,664 44,235 62,497 61,271 61,271 65,784 46,568 70,727 68,789 73,322 73,465 52,744 123,397 144,354 139,075 25,615 82,143 (58,556) 172,599 31,189 91,852 (56,851) 210,544 40,733 92,515 (48,273) 224,050 £138,911,000 (2017: £136,813,000) from the other subsidiaries the year ended 27 January 2018. No amounts were outstanding NET ASSETS 112,064 140,574 within the Group. Transactions between subsidiaries were as at 27 January 2018 (2017: £nil). priced on an arm’s length basis. During the period the main trading company provided office The Group has a 50% interest in the ordinary share capital space to THAT TopCo Limited for which rental charges were of No Ordinary Retail Company Pty*, a company incorporated made of £122,550 (2017: £34,560) and other miscellaneous in Australia, through its wholly owned subsidiary No Ordinary charges of £8,946 (2017: £3,446). As at 27 January 2018, THAT Designer Label Limited. As at 27 January 2018, the joint venture TopCo Limited owed £102,418 to the main trading company owed £666,000 to the main trading company (2017: £653,000). (2017: £nil). In the period the value of sales made to the joint venture by the During the period the main trading company supplied Group was £2,648,000 (2017: £2,696,000). services to THAT Bournemouth Big Hotel Limited for which Ray Kelvin and Lindsay Page are both directors of, and charges were made of £6,741 (2017: £16,551). As at 27 January shareholders in, THAT Bournemouth Company Limited*, THAT 2018, THAT Bournemouth Big Hotel Limited owed £1,849 to TopCo Limited* and THAT Bournemouth Big Hotel Limited* the main trading company (2017: £nil). *The registered office addresses are as follows: RELATED PARTY No Ordinary Retail Company Pty THAT Bournemouth Company Limited THAT TopCo Limited THAT Bournemouth Big Hotel Limited REGISTERED OFFICE ADDRESS 6 Albert St, Preston VIC 3072, Australia 6A St Pancras Way, London, NW1 0TB 6A St Pancras Way, London, NW1 0TB 6A St Pancras Way, London, NW1 0TB FINANCED BY Shareholders' funds Non-controlling interest KEY STATISTICS Basic earnings per share Adjusted earnings per share Diluted earnings per share Dividends per share Dividend cover 112,064 140,574 172,599 210,544 224,050 - - - - - 112,064 140,574 172,599 210,544 224,050 67.2p 69.0p 66.3p 33.7p 82.0p 83.2p 81.0p 40.3p 100.6p 100.6p 99.3p 47.8p 105.7p 114.0p 104.5p 53.6p 119.0p 127.7p 118.3p 60.1p 2.0 times 2.0 times 2.1 times 2.0 times 2.0 times Dividend cover before exceptional costs 2.0 times 2.1 times 2.1 times 2.1 times 2.1 times Pre-tax return on capital employed before exceptional items Post-tax return on capital employed before exceptional items 33.9% 25.1% 32.0% 23.5% 30.5% 23.0% 27.3% 20.8% 26.8% 20.6% 126 127 Ted Baker Plc Annual Report and Accounts 2017/18 

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