TIDMTED
RNS Number : 6779H
Ted Baker PLC
07 December 2020
7 December 2020
Ted Baker Plc
("Ted Baker", the "Group")
Interim Results Announcement for the 28 weeks ended 8 August
2020
Good progress against Ted's Formula for Growth and strong cash
generation despite ongoing COVID disruption
Rachel Osborne, Chief Executive Officer, commented: "This has
been an unprecedented period for Ted Baker and today's Interim
Results clearly show both the impact of the COVID-19 pandemic and
the steps we have taken to reset the business. I believe that these
actions and the early progress we have made with Ted's Growth
Formula means we now have the right foundations in place for the
future.
"Even with some of our legacy issues being amplified by
COVID-19, our balance sheet is materially stronger than we had
envisaged this early in the plan and operational cashflow will be
positive for the full-year. At the same time, we have strengthened
our leadership team, made good progress against our brand, product
and digital ambitions, and are on track or ahead of our operational
KPIs for the first year of our plan.
"While these are still very early days in Ted's transformation,
and the economic outlook remains uncertain, we are confident that
we have the right strategy and team in place and that we are
setting the business up for future success."
28 weeks 28 weeks Change
ended ended
8 August 10 August
2020 2019
Group Revenue GBP169.5m GBP313.3m** (45.9)%
Underlying (Loss)/Profit Before Tax* GBP(39.0)m GBP(2.7)m 1,370.4%
(Loss)/Profit Before Tax GBP(86.4)m GBP(23.0)m 276.0%
Basic EPS (64.1)p (46.1)p 39.0%
Adjusted EPS (28.6)p (4.5)p 535.6%
Interim Dividend nil 7.8p (100.0)%
* Before IFRS 16 and non-underlying items
** Restated for reclassification of license income to
revenue
Financial Summary
-- Group revenue down ( 45.9)% (down (46.2)% in constant
currency) to GBP169.5m, driven by the ongoing impact of COVID
restrictions on trading globally.
-- Underlying loss before tax pre-IFRS 16 of GBP(39.0)m,
primarily driven by lower revenue levels, and partially offset by
our cost actions.
-- Retail sales including eCommerce down (42.2)% (down (42.5)%
in constant currency) to GBP124.0m.
-- ECommerce sales up 41.8% (up 41.1% in constant currency) to
GBP74.2m, supported by continued investment in our digital business
and significant improvements to our customer journey. Growth in our
directly operated eCommerce channels of 56%.
-- Wholesale sales down (55.7)% (down (56.1)% in constant
currency) to GBP39.5m reflecting market pressure on our
Trustees.
-- Free cash flow* generated since 25 January 2020 of 19.0m.
-- Significant cost out programme to deliver annualised GBP31.0m
of payroll savings, up from GBP27.0m announced at July AGM.
-- Net cash of GBP60.8m at 28 August 2020, well ahead of management's expectations.
-- Upgrade of target Net Debt/EBITDA of 1x or less by FY2023 to now be achieved by FY2022.
*Operating cashflow less capital expenditure, before
recapitalisation and other financing items
Operational and strategic highlights
In June 2020 we launched our three-year strategic transformation
programme, Ted's Growth Formula. Even though some of the legacy
issues facing the business have been amplified by COVID, our
progress in executing this plan has been very encouraging. Most
importantly, alongside a rapid and effective response to the
pandemic, the foundations of our business are now solid with key
highlights for the period including:
- Refreshing and strengthening of the Group's leadership. We
continued to strengthen our Executive Leadership team with the
recent appointments of Anthony Cuthbertson as Chief Creative
Officer and Helen Costello as Group Commercial and Business
Development Director.
- Recapitalisation of the business. The combination of
additional banking facilities from our existing lending group, sale
of our HQ and issuance of new equity materially improved our
headroom against peak borrowing requirements.
- Full operational and efficiency review. The Group has acted to
reduce Head Office costs, both in the UK and North America, which
has allowed us to simplify the organisation, remove previous silo
working practices and reset the business for greater
collaboration.
- Significant cost action taken. The Group commenced a full cost
review at the start of the year, which increased in scope and scale
during COVID.
- Enhanced and strengthened operational and financial controls.
Full programme of remedial actions to improve controls across the
Group.
These strong foundations have supported our further progress
across the three core pillars of Ted's Growth Formula which are
designed to deliver a structurally more profitable business with
higher ROCE and higher sustainable free cash flow generation.
Highlights for the half-year period and following the period end
include:
1. Refresh and reenergise the product and brand
- New product pyramid in place ensuring that brand identity is
reflected in product while maintaining appropriate alignment with
the market.
- Mad(e) in Britain collection which sits at the top of the
pyramid and sets the creative tone for the collection overall.
- New Global Creative Director Anthony Cuthbertson joined in
November and has hit the ground running, bringing a new energy and
creative vision to Ted Baker.
- Good progress against our sustainability targets and a broader ESG programme in development
2. Prioritise digital & asset light growth
- All our key metrics relating to eCommerce and digital improved
year-on-year in H1, including new customer acquisition, total
customers, online conversion rate, social media engagement, and
retention.
- Significant enhancements to our digital experience. Key
initiatives delivered during the period include:
o Major upgrade of our payment options to now include Apple Pay,
Google Pay, Klarna and a series of local payment options.
o Introduction of virtual appointments via Hero, with in-store
colleagues
o Launch of our new VIP programme DevoTED.
- We have signed two new high-quality product licence deals with
category-leaders in recent months:
o Building on the successful start to our Childrenswear licence,
NEXT has been appointed as our new licence partner for lingerie and
nightwear.
o Baird Group has been appointed as our new licence partner for
Men's Formalwear for the UK and Ireland.
3. Significant cost out programme
- We have made material savings across our central costs and
retail store costs which will become apparent in the second half of
this year and beyond.
o Central and retail store costs: Annualised savings across both
functions will be GBP31.0m per annum at a cash cost of GBP3.9m,
ahead of previous guidance.
o Store estate: We are on track to deliver fixed rent savings of
GBP7.0m for the current financial year, up from the GBP3.0m
announced at the July AGM. We are also on track to benefit from
GBP20.0m of turnover-related rent savings, reflecting the flexible
nature of a large amount of our Retail space. We will be continuing
our programme of rent renegotiations in the months ahead to reflect
the new commercial realities.
Enquiries:
Ted Baker Plc Tel: +44 (0) 20 7255 4800
Rachel Osborne, Chief Executive Officer
David Wolffe, Chief Financial Officer
Tulchan Communications Tel: +44 (0) 20 7353 4200
Jonathan Sibun/Jessica Reid
Media images available for download at:
http://www.tedbakerplc.com/ted/en/mediacentre/imagelibrary
Notes to Editors
Ted Baker Plc - "No Ordinary Designer Label"
Ted Baker is a global lifestyle brand distributing across five
continents through its three main distribution channels: retail
(including eCommerce); wholesale; and licensing.
Ted Baker has 534 stores and concessions worldwide, comprising
191 in the UK, 102 in Europe, 138 in North America, 94 in the
Middle East, Africa and Asia, and 9 in Australasia.
We offer a wide range of collections including Menswear;
Womenswear; Global; Endurance; Accessories; Bedding; Childrenswear;
Eyewear; Footwear; Fragrance and Skinwear; Gifting and Stationery;
Jewellery; Lingerie and Sleepwear; Luggage; Neckwear; Rugs;
Suiting; Technical Accessories; and Watches.
Chief Executive Officer's Statement
There is little doubt that 2020 will go down in history as a
year without precedent. We have all faced challenges not seen
before and we have been required to take actions previously almost
unthinkable. COVID has created a major demand shock across the
global economy, most especially in consumer sectors, that few, if
any, have been able to avoid. It has been an unforgettable period
mostly for the wrong reasons, during which Ted Baker has had to
navigate a challenging demand environment while also addressing the
problems of our past.
Over the last 12 months, there has been significant change at
the top of Ted Baker, including well documented changes at PLC
Board level and within the Executive Leadership team. I joined Ted
Baker as Chief Financial Officer in November 2019. Within a few
weeks, we launched an inventory review and reduced profit guidance.
Within three months, the COVID pandemic was hitting the UK and
European markets.
I was appointed Acting Chief Executive in December 2019 and
confirmed as Chief Executive Officer in March 2020. David Wolffe
was appointed as Interim Chief Financial Officer in January 2020
and confirmed as Chief Financial Officer in May 2020. Together with
the Executive leadership team, we launched a thorough review of our
business model, accounting policies and practices, our weakened
operational performance and confronted our historic challenges.
Though painful and challenging for the team, this diagnostic was
critical to understand the actions that would be required to
improve our business and enable us to drive towards world class
operational performance.
It was clear early on that our brand is strong and our
opportunities are great, but to execute a sustainable recovery it
would require a significantly stronger balance sheet. Accordingly,
in June we announced Ted's Growth Formula, our detailed strategy to
return Ted Baker to growth over the next three years. This strategy
addressed our balance sheet issue with the sale of our headquarters
for gross proceeds of GBP77.8m and the issuance of new equity,
raising gross proceeds of GBP105.0m. Both the sale of the building
and the capital raise received overwhelming support from our
shareholders.
With the generous support of our shareholders, many of who
maintained or increased their shareholding, and new investors who
joined our share register through the capital raise, we can look
ahead with confidence with an exciting strategic plan for recovery.
Our confidence remains despite the prolonged negative impact from
COVID which continues to ravage most of the markets in which the
brand is sold. We entered this financial year in an operationally
and financially weak position and COVID has only served to amplify
some of these weaknesses and consequently our financial results.
The Board remains very confident that Ted's Growth Formula will
generate material shareholder value over the medium term.
Our financial statements for the first half of the year do not
yet reflect the progress we have made on execution against our
strategic plan. Progress made to date, despite the challenges
caused by COVID, have allowed us to fix our foundations. We cannot
fix all our problems overnight and due to the nature of our lead
times, we still expect that it will take another 12-18 months for
the hard work and effort of hundreds of people internally to become
visible to our customers and consequently improved financial
results. I am encouraged by how much the team has achieved in the
first six months of the year and we're delivering against all our
operational KPIs for the current financial year and remain on track
to deliver our medium-term targets.
We are behind where we want to be on revenue. A slow recovery in
consumer demand due to COVID, the latest round of government
lock-down measures and the well-publicised heavy discounting online
across global markets by many of our peers has led to many of our
shops closing for a second time, severely impacted footfall into
city centres and a heightened level of promotional activity. This
has also impacted our margins and we have taken additional
inventory provisions at the half to reflect the impact of COVID. We
have worked hard to offset these shortfalls through cost savings
and here we are ahead of our plans. Higher cost savings and the
ongoing tight control of cash have resulted in a far stronger
balance sheet than we envisaged this early in the plan, with
significant cash balances and liquidity to see us through the COVID
crisis and beyond. Despite reporting material operating losses as
expected this year, underlying free cash flow will be positive for
the year. I am extremely pleased to see this level of agility in
our cash management.
I would like to take a moment to reflect on the impact of our
plan, as well as COVID, on the team at Ted Baker. At the peak of
lockdown measures in the Spring, we had over 2,600 team members on
furlough at every level across head offices, warehouses and stores.
I know being on furlough will have led to anxiety and created lots
of challenges for many. For those working from home, colleagues
were required to juggle a combination of family schedules,
sometimes unusual working hours and a lack of human interaction. We
have worked hard to improve 'at home' working environments, but we
understand that it has been a very difficult period for some
colleagues. Finally, we have had to make 953 of our colleagues
redundant across head offices and stores. This was an extremely
hard but necessary decision and wherever possible we have tried to
protect customer facing roles. I want to thank all my colleagues
during this difficult period for their hard work and efforts that
have helped to maintain such a strong brand.
Ted's Growth Formula - strong execution
Our strategic transformation programme, Ted's Growth Formula,
which was launched in June 2020, was the culmination of six months
of rigorous analysis, assessment work and the bringing together of
insights from the business, industry trends and external
experts.
Our immediate priority at the start of Ted's Growth Formula was
to stabilise the Group's foundations. We have made rapid and
successful progress against this objective. Our foundations are now
solid and fit for purpose. Key achievements included:
-- Refreshing and strengthening of the Group's leadership. John
Barton was appointed as Chairman of the PLC Board in July 2020
bringing a wealth of experience. I would like to thank Sharon
Baylay for her significant contribution to the board during a
challenging time. We continued to strengthen our Executive
Leadership team with the appointments of Anthony Cuthbertson as
Global Creative Officer and Helen Costello Group Commercial and
Business Development Director.
-- Full operational and efficiency review. The Group has acted
to reduce Head Office costs, both in the UK and North America,
which has allowed us to simplify the organisation, start to remove
previous silo working practices and reset the business for greater
collaboration. Working with skeleton team structures during the
peak of COVID lock-down over the early summer, gave us confidence
to be more ambitious on cost savings
-- Enhanced and strengthened the operational and financial
controls. A full programme of remedial actions to improve controls
across the Group has been initiated with the support of Deloitte,
the structure of the Finance team has been reshaped to increase
control and governance, and risk management processes have been
upgraded.
-- Reset the Group's vision and commercial strategy. The
creation of an organisational structure that focuses on customer,
digital and scale markets, enabling us to deliver faster and more
profitable growth at a greater return on capital employed.
-- Rapid and effective response to COVID. The Group took swift
action to ensure the safety of our colleagues, customers and all
stakeholders. We have ensured full compliance with guidance on
re-opening stores and our head offices. Furthermore, we have taken
a series of steps to structurally reduce costs and protect
cashflow.
A critical component of stabilising the Group's foundations was
strengthening our balance sheet, which had seen net debt rising
steadily over several years. We engaged with all our stakeholders
to rebuild the balance sheet and in aggregate we raised a gross
GBP105.0m from the issuance of new equity, agreed to an additional
GBP25m facility from our lending banks, sold our London HQ for
GBP77.8m gross proceeds, stopped all non-essential capex,
renegotiated payment terms across our suppliers and took advantage
of available government schemes. The aggregate result of these
measures and ongoing active cash management is our net cash
position of GBP60.8m at the end of the first half and GBP58.5m as
of 28 November. Based on our latest cash flow forecasts, our cash
headroom at the low point in our cash flow cycle of
September/October 2021 will be materially higher than previously
expected.
I am pleased to report that the business has made solid progress
during the first half of the financial year on each of our
strategic priorities.
Refresh and re-energise the product and brand
Significant work has been underway behind the scenes in the Ugly
Brown Building on refreshing our product and reenergising our
brand. Much of this work will start to become apparent to our
existing and new customers during our financial year 2021/2022.
Anthony Cuthbertson, our new Chief Creative Officer, joined the
business in November and has hit the ground running, bringing a new
energy and creative vision to Ted. Anthony's first full collection
from design ideas to the shop floor, will be Autumn/Winter 2021,
though customers should start to see the creative direction improve
during the Spring/Summer 2021 collections.
The design teams have been working towards our new product
pyramid, as presented as part of Ted's Growth Formula. The team has
been designing to this new pyramid and A/W21 will be the first full
collection under this new approach. Most of the collection will sit
within the core and trend product categories - product with proven
characteristics of selling well for the business. A new sub-brand
was launched in early November - MIB (Mad(e) in Britain) - that
sits at the top of the Ted Baker product pyramid. MIB will set the
creative tone for the upcoming collections. MIB is a concept
collection inspired by the eclectic creativity and culture of
Britain that will drop four times per year in partnership with
well-known talent, energizing creativity and help to elevate the
brand holistically.
That's not to say the design team haven't been busy moving Ted
forward. Refreshed product ranges have started flowing into the
business from October, including a deeper and wider offer on more
casual product, such as loungewear and modernised prints on
Womenswear. We have reviewed and implemented new pricing structures
for Autumn/Winter 2020 collections across both our Womenswear and
Menswear business. This has included increasing the weighting of
some entry priced product, building on the success we saw in
Spring/Summer 2020, as well as new higher priced product. Within
the Men's Tops range we introduced a GBP29 price point and already
had 80% sell through on these options. We bought more heavily into
nylon bags after seeing a strong sales reaction and our core wool
coat now has a new entry price point of GBP299 from GBP339 last
year. In the Womenswear range we have moved our entry price point
mix from 10% to 20%. We have also had a great reaction to our GBP89
joggers and to sweat tops.
To re-energise our brand, the team has been working closely with
an external agency to update how we engage with customers across
all our touch points. Our tone of voice and visual expression has
evolved across our social media channels and engagement has seen a
positive reaction. The shooting of our campaign imagery and talent
selection has changed. We are hard at work updating our internal
showrooms, which will represent our new brand vision for our next
wholesale selling campaign in January 2021. On a similar theme, our
store design team is working on delivering our store of the future
concept which we aim to trial in 2021. These initiatives closely
link with the product evolution and new creative direction.
Fashioning a Better Future, a programme with purpose - solid
progress
Alongside the dramatic effect COVID has had across our industry
there has been an intense spotlight on how and where product is
sourced. Media coverage and exposure to some high-profile
inappropriate practices has been a wake-up call to some in the
industry. We are fully confident in our factory audit process and
conduct social compliance audits on 100% of our tier one factories
globally, measured against our Code of Conduct. We are currently
working with nine factories in the UK and are working with all of
them to map their subcontracting units. Ted Baker has always been
proud of our leadership in environmental and social policies and a
year ago we combined all our initiatives into launching our
'Fashioning a Better Future' programme. This year we have expanded
this programme into a fuller ESG initiative and are developing a
vision of the role we want our brand and company to play in the
world. The three pillars of this programme align with the World
Economic Forum pillars of People, Prosperity and Planet.
We have made good progress in each area and remain firmly on
track to achieve our medium-term sustainability objectives while we
develop our long-term vision.
-- People - We are working with the BRC to develop Social
Mobility in retail; developing our Diversity & Inclusion
strategy; developing our wellness programme and have launched our
wellbeing hub; developing our Learning Experience Platform - all
for launch during 2021.
-- Prosperity - 12% of our collection is now sustainable; 52% of
our cotton is now from sustainable sources, on track for 100% by
2024; we joined Leather working group to aid mapping of 100% of
tanneries; 26% of our leather is now coming from Leather Working
Group and on track for our 100% target by 2025; Launched Conscious
Shop, listing all Ted products with more than 50% sustainable
attributes
-- Planet - developing Carbon net zero strategy; joined BRC
Climate Action Road Map; we are a founding signatory of WRAP
Textile 2030 initiative; we diverted 38 tonnes of terminal stock to
charities rather than go to landfill; we have 100% renewable energy
in our UK stores and Ugly Brown Building.
Prioritise digital & asset light growth
The business has made good progress on this key component of
Ted's Growth Formula. On digital growth, I am very pleased to see
the material improvement in our eCommerce performance during the
first half. eCommerce growth was up materially year-on-year before
COVID negatively impacted the performance of our stores and this
momentum accelerated and was maintained throughout the first half.
Encouragingly, all our key metrics relating to eCommerce and
digital improved year-on-year in H1, including new customer
acquisition, total customers, online conversion rate, social media
engagement, and retention. Our UK business benefitted from
ship-from-store, the fulfilment of online demand from store-based
inventory, which was fully rolled out by August 2019.
Our digital business has clearly benefited from the market
dynamics of both more working from home as well as stores being
closed during the period, and in a fast-moving market we have made
significant enhancements to our digital experience. Key initiatives
delivered during the period include a major upgrade of our payment
options, including Apple Pay, Google Pay, Klarna and local payment
options; the introduction of live chat/text and virtual
appointments (via Hero) with store colleagues and online
pre-booking of store appointments. We have implemented
cross-merchandise shopping capabilities and sharpened our trading
mechanics. There has been an increase in digital marketing spend to
drive customer acquisition, but we have maintained and achieved
healthy ROI on this spend.
Our licencing business is another key driver for delivering
asset light growth. Licencing delivered GBP19.1m of gross profit in
FY20 and has immense potential for us. Building on the momentum we
had last year, we have signed 2 new product licence deals since the
start of the financial year. Building on the successful start to
our new Childrenswear licence, NEXT has been appointed as our new
licence partner for lingerie and nightwear. Second, we have
appointed Baird Group as our new licence partner on men's
formalwear for the UK & Ireland. This deal mirrors the
successful relationship we have with Jack Victor in North America.
Following the start of this agreement with Baird, Ted Baker will no
longer supply formalwear, thus reducing our inventory risk for this
product category and leveraging our partners' expertise in sourcing
and distribution.
Significant cost out programme
One of the key issues identified in our diagnostic of past
challenges was that operating expenses had been growing faster than
our gross profit and that both central costs and store costs were
above benchmark levels. The Group had commenced a full cost review
at the start of the year, which was increased in scope and scale
during the COVID pandemic, as the business implemented new ways of
working and started to reap the benefits of more cross-functional
working.
The cost saving programme has delivered material savings across
our central costs and retail store costs which will become apparent
in the second half of this year and beyond. Annualised savings
across both functions will be GBP31.0m per annum at a cash cost of
GBP3.9m, lower than the GBP6.0m we expected in July. Combined, we
have achieved higher savings than previously outlined. This has
been a very challenging programme of work and difficult decisions
have had to be made.
We delivered a series of mechanisation projects in our Derby
warehouse to drive improvements in our inbound and outbound boxed
throughput by a factor of 10. We continue to evaluate further
opportunities for mechanisation across our warehousing facilities
as well as opportunities for automation across other functions and
processes.
Like many brands, our store footprint was not designed for an
event such as COVID, which effectively changed consumer behaviour
overnight. Our store estate is predominantly large city centre
based, in prime footfall locations with some limited presence in
outlet centres but minimal presence on out-of-town retail parks. We
are on track to deliver GBP7.0m in fixed rent savings for the
current financial year, as well as GBP20.0m of turnover-related
rent savings, reflecting the flexible nature of a large amount of
our Retail space. We will be continuing our programme of rent
renegotiations in the months ahead to reflect the new commercial
realities.
Market challenges and legacy issues amplified by COVID
As a business, we are going through a transformation programme
at the same time as navigating through the challenges of COVID. At
the time of launching Ted's Growth Formula, we highlighted a series
of historical challenges that had been negatively impacting
financial and operational performance. Issues included a lack of
operational agility in the business, exposure to product categories
that were losing market share and elevated market pressures and
discounting. We have made good progress in the first half in
addressing our organisational complexity and heavy operating
expenses to ensure much more agility both operationally and in our
supply chain, the benefits of which will start to flow in the
second half and beyond, but we had not expected all of the
challenges to be quick fixes. Several of the inherited challenges
have been amplified by COVID and the rapid changes in consumer
behaviour that have been triggered.
-- Product. Our over-reliance on formalwear and occasionwear has
hurt sales performance during the first half and will continue to
drag in the second half. We are expanding our product offer into
more versatile and casual product, but as we flagged at the full
year, our lead times mean positive impact of these changes will not
be tangible until Summer 2021 and the full new creative direction
under our new creative team will not be until Autumn/Winter
2021.
-- Store footprint. Footfall has been significantly down across
all our directly operated markets since the start of government
mandated store closures and restrictions on movement in the Spring.
Our physical store locations, which have been the right footprint
over the last decade, has been the most impacted by consumer
reaction to government restrictions. Our business is heavily
exposed to city centre locations, tourist-based locations and high
traffic travel retail - all of which have seen the greatest hit to
footfall, and conversely has limited out of town presence, which
have proven more resilient locations for other retailers. We are in
active discussions with landlords around restructuring rental
agreements.
-- Demand and discounting. Restrictions on consumer movement
have lasted longer than anticipated back in the summer, creating
greater consumer uncertainty and negatively impacting consumer
confidence. The negative impact on demand has triggered a more
intense promotional backdrop across the market. The recently
announced series of second lockdowns across the UK and EU has
further increased this pressure. Ted Baker has not led this, but we
have been forced to participate, and inventory has had to be
cleared, these factors have had a negative impact on gross
margin.
-- Legacy inventory. As we move to a 2-year stock lifecycle from
the previous 3-year cycle, we have been more aggressively clearing
through aged inventory. This commercial stance is the right thing
to do. Alongside changes to our buying process and more active use
of open to buy, we anticipate to end the current financial year in
a clean inventory position, which would be a great achievement
position us well for the new collections that we will be
introducing under Anthony Cuthbertson's creative leadership.
Fundamentals remain strong
It seems almost an understatement when I say a lot has happened
in my first year at Ted Baker. The external market has been far
more challenging than expected, which has made life harder, but we
have achieved a huge amount during that time and there are plenty
of reasons to be optimistic about the future.
As an example, we have seen in our Chinese joint venture what
life can look like after COVID. Overall sales have recovered
quickly and sales through full-price channels are up 48%
year-on-year in China for our Q3. The team has done a fantastic job
to ramp up our eCommerce capabilities as well as optimising our
online to offline customer journey.
Inevitably the competitive landscape will evolve post COVID. We
also expect our landlords to adapt to the new economic reality
which means Ted Baker will have structurally lower and more
variable rent. Underpinning all of this, I am very confident we
have the right strategy in place with Ted's Growth Formula and that
the Ted brand remains strong. Our social media followers have grown
over 12% versus last year, our prompted brand awareness in the UK
remains extremely high and we ranked highly in social media buzz.
We are on track or ahead on all our operational KPIs for the
current year and we will deliver on the transformation plan. We can
achieve significant change and have the right team and people in
place to deliver. It's been a hugely challenging year for everyone
at Ted and I want to thank every single one of my team for coming
to work every day with the right attitude to get stuff done.
Rachel Osborne
Chief Executive Officer
Chief Financial Officer's Statement
I joined Ted Baker as Interim Chief Financial Officer in January
2020 and faced an immediate set of complex challenges, including
the inventory review that ultimately led to GBP54m of non-cash
adjustments, the need to significantly bolster our liquidity and
balance sheet strength, the need to implement much greater
financial controls across the business and resource gaps in key
roles in the finance team. I am pleased with the progress we have
made on fixing all these issues.
The financial performance of the Group in the first half is not
reflective of our potential in terms of revenues and profits, but
the business has shown great ability to deliver cash flow. Our net
cash position of GBP60.8m at the end of the period is well ahead of
management expectations. Combining our net cash position and our
banking facilities, we have material headroom to deliver our
transformation plan and weather the ongoing COVID headwinds. We
remain on track to deliver on our three-year financial targets as
set out in Ted's Growth Formula, and today have upgraded our target
of Net Debt/EBITDA of 1x or less by FY2023 to now be achieved by
FY2022.
Strategic financial priorities
When I was appointed Chief Financial Officer in May 2020, I laid
out five strategic financial priorities for the Group, as detailed
below. As a team, we are at different stages of progress against
each of these priorities, but I am pleased to report solid progress
against each.
-- Cash management and strengthen balance sheet. The Group
started the financial year with GBP127.1m of net debt and a mixed
track record of free cash flow generation. We have pulled all the
levers available to us that demonstrate much greater agility in our
cash management and despite significant operating losses during the
half, our underlying operating cash generation has been strong. We
end the half with a materially stronger balance sheet due to four
main drivers:
o Strong cost & cash management. At the start of the year,
we suspended all non-essential capex and renegotiated payment terms
with all groups of suppliers and business partners. We have
maintained this operational discipline and embedded new processes
to ensure ongoing compliance.
o Government programmes. We utilised all local and national
Government support programmes, including the UK Job Retention
scheme and similar schemes across our EU business, UK property rate
relief, and deferment of VAT (and other tax) payments.
o Recapitalisation of the business. The combination of
additional banking facilities from our existing lending group, sale
of our HQ and issuance of new equity deleveraged the business,
created adequate liquidity headroom to deliver the transformation
even in a downside scenario and increased the resilience of the
Group.
o Inventory management. We took robust action to reduce stock
levels in a controlled way, clearing aged stock to generate cash,
as well as reducing or cancelling orders with our suppliers to
realign intake with likely demand and to conserve cash.
The Group has made material progress in improving cash
management, as demonstrated by our net cash balance of GBP58.5m as
of 28 November, and we anticipate ending the current financial year
with a higher level of net cash. The Group is running ahead of
management's expectations in terms of our cash position and has
sufficient liquidity to deliver Ted's Growth Formula and manage the
negative demand impact from COVID.
-- Structural cost improvement. A core part of Ted's Growth
Formula is to structurally improve our operating cost structure. As
part of our diagnostic of past performance, we identified that
operating costs had been running ahead of gross profit for several
years. The Group commenced an efficiency programme at the start of
the year to improve both central and store cost structures. We
suspended the programme during the Spring due to COVID. The
programme was broadened and made more far reaching and was
concluded in June. The annualised cost saving equates to GBP31.0m
in central and store payroll, across the UK, Europe and North
America, up from GBP27.0m announced in July. The increased savings
have come from store payroll, as we have found ways of reducing
effort in stores without impacting the focus on customers. The
associated cash cost is GBP3.9m, down from the previous estimate of
GBP6.0m.
-- More flexible property portfolio and cost structure. The
Group has successfully been evolving its property portfolio towards
more variable rental structures, shorter lease lengths without
minimum guarantees to reflect the more uncertain economic
environment. Over the last 6 months, we have been negotiating with
landlords in the US, UK and Europe to secure immediate rent
savings, in the light of the current economic conditions, without
increasing lease lengths. This round of tactical negotiations will
generate GBP7m of rent savings this financial year. In addition,
where lease renewals have arisen, we have been moving from fixed
rent to turnover rent.
COVID has accelerated the urgency to change commercial lease
terms. The Group has deferred rental payments of GBP10.4m during
the first half. Progressive landlords have used the backdrop of the
pandemic to reflect the new economic reality in new rental terms
which is welcome. Some landlords still must recognise the new
landscape. The Group expects to renegotiate more of our lease
agreements in the months ahead, but there is the possibility of
store closures if we are unable to agree commercially acceptable
terms.
-- Inventory clean up. The Group has seen inventory grow faster
than sales for several years and that has restricted free cash flow
generation. Progress was made in improving our inventory position
during FY2019/20 with more active clearance of aged stock. Progress
has continued in the first half of this financial year, despite the
challenges created by COVID, and improving net working capital to
sales ratio is a key component to structurally improving our free
cash flow generation.
As part of our transformation programme, we have moved to a
two-year stock cycle from a three-year stock cycle. In practice,
this means only selling stock in our outlet stores for one year.
Consequently, discount levels have been higher than in prior years
as we transition to this new lifecycle. In addition, we have been
more dynamic in using other clearance channels for aged stock.
The other operational change that will deliver an improved
inventory position on a sustainable basis is the implementation of
open to buy within our buying process. This allows the Group to be
more responsive to demand trends as we are not fully committed on
inventory ahead of the season.
-- Greater controls. I inherited a finance function with key
resource and controls gaps and a clear need for process and
governance improvements following the uncovering of the
overstatement of inventory value. A comprehensive internal review,
with external support, has led to the implementation of several
measures to strengthen our control environment. We have reorganised
the Finance function with clearer responsibilities, greater focus,
and more senior and experienced leaders. We have introduced
increased and detailed detective review by senior management of
journal entries, balance sheet reviews and revenue-impacting
balances, as well as the documentation of correct stock accounting
procedures.
The Group intends to further strengthen its control environment
in the second half. We will continue the implementation of our
controls remediation programme, under the auspices of the Audit
Committee. More generally, we are making improvements to
spreadsheet controls, segregation of duties, system logs and
approval matrices. These measures will be followed by the
progressive simplification, standardisation and automation of
reporting processes.
Rebuilding gross margin
Our gross margin has been under pressure over the last couple of
years on the back of elevated promotional activity and discounting
due to demand challenges across the industry as well as internal
issues of product relevance and requirement to clear excess
inventories. These issues have become more acute during the first
half on account of the pandemic.
The Group had been making good progress in correcting its
elevated inventory position coming into this year, but we found
ourselves over-stocked as COVID created a demand shock for the
consumer sector. As a result of three months of lockdown with a
season of stock now displaced, we had too much stock, of the wrong
product type, with an excess of aged stock to clear. This would
have been a challenge under normal trading conditions but was made
much harder under COVID. We took aggressive, but wholly necessary,
actions to convert excess stock into cash during the first half as
a self-help measure to improve our cash position during the period
before securing our recapitalisation. Product mix added further
negative margin pressure, with our highest margin product
categories underperforming due to overnight changes in demand
trends. We have a strong reputation in formal and occasionwear,
which have not been consumer priorities during lockdown. Finally,
we have continued to actively clear through aged stock in our
outlet channels and other off-price distribution.
While gross margin is behind plan due to the factors noted
above, all the levers that were identified as part of Ted's Growth
Formula remain in place and will be executed on. We are delivering
on our supplier consolidation targets for the current year which
will allow us post COVID to drive more volume with fewer suppliers.
Our new product and pricing pyramid has a base of non-discounted
continuity product. New product at the top of the pyramid will
enhance brand relevance and re-establish consumer excitement,
driving full price. Finally, our new buying approach of less
upfront commitment, greater use of speed to market and introduction
of open to buy combined with faster lead times will enable us to
have more relevant product when the customer wants it and should
improve achieved margin.
Financial Highlights
The Group's performance was significantly impacted by COVID,
which depressed demand in all territories and resulted in stores
remaining closed for a significant proportion of the period. As a
result Group revenue decreased by 45.9% (46.2% decrease in constant
currency(1) ) to GBP169.5m (2019: GBP313.3m) for the 28 weeks ended
8 August 2020. The gross margin before non-underlying items(2)
decreased to 50.3% (2019: 55.7%), as the Group was forced to react
to the market becoming highly promotional, as retailers sought to
stimulate demand and generate cash.
The Group reacted rapidly to unprecedentedly challenging
conditions of rapidly shrinking sales by reducing operational
expenditure, furloughing staff in both stores and head office,
taking advantage of support schemes offered by the British and
other governments, and initiating cost control and restructuring
programmes. This brought total operating expenditure before
non-underlying items down by 28.8% to GBP124.3m (2019:
GBP174.6m).
Non-underlying before tax items during the period were GBP48.1m
(2019: GBP17.4m). This included GBP45.8m of impairment charges to
PPE and right-of-use assets, as a result of the weaker trading
environment and profit forecasts from the retail estate; GBP10.1m
of restructuring and other costs associated with refinancing and
the redundancy programme; GBP6.1m of inventory changes in estimates
as we simplified and standardised our inventory accounting to
exclude certain logistics and freight costs as at the period close
date; and GBP4.4m as a provision against the liability for
materials relating to cancelled orders. This was partially offset
by a gain of GBP17.6m on the disposal of the Ugly Brown
Building.
We took prompt action to support the Group's cash position, to
ensure it has sufficient resources to trade through a continuing
period of weak demand and to invest in profitable growth. As
highlighted above, we brought in additional financing through the
sale of the Ugly Brown Building for gross proceeds of GBP77.8m and
the issuance of GBP105.0m new equity (gross). As a result, despite
challenging trading conditions, the Group's net cash rose to
GBP60.8m at 8 August 2020 (2019: net debt GBP127.1m).
The Group made a net foreign exchange gain of GBP1.9m during the
period (2019: GBP0.7m). Net interest payable, excluding the impact
of IFRS 16, during the period was GBP1.8m (2019: GBP2.0m), as cash
from the refinancing was used to repay the Revolving Credit
Facility.
The loss before tax, non-underlying items and IFRS 16(2)
deteriorated to GBP39.0m (2019: a loss of GBP2.7m) and the loss
before tax worsened to GBP86.4m (2019: a loss of GBP23.0m).
Adjusted earnings per share(3) , which excludes non-underlying
items and IFRS 16, decreased to a loss per share of 28.6p (2019:
loss per share of 4.5p) and basic earnings per share deteriorated
to a loss per share of 64.1p (2019: loss per share of 46.1p).
The forecast effective tax rate in respect of continuing
operations (2019 full year effective rate: 11.8%) is 17.4%. The
income tax credit on non-underlying items at half year is
calculated and disclosed separately. This has a significant impact
on the total effective tax rate at the half year given the
significant number of non-underlying items. Our future effective
tax rate is expected to remain above the UK tax rate as a result of
the proportion of overseas results in jurisdictions with higher tax
rates than the UK.
Total working capital, which comprises inventories, trade and
other receivables and
trade and other payables, decreased since 25 January 2020 by
GBP51.1m to GBP51.7m (25 January 2020: GBP102.7m)
This was mainly driven by a decrease in inventories of GBP41.9m
to GBP89.8m (25 January 2020: GBP131.7m), reflecting increased
sell-through of stock as the Group liquidated older, excess stock
to improve its cash position and maintain liquidity, significant
intake reductions to align stock levels with demand, and the
GBP6.1m change in estimates to exclude certain logistics and
freight costs as at the period close date.
Trade and other receivables decreased by GBP13.3m to GBP54.0m
(25 January 2020: GBP67.3m).as our concession partners, wholesale
trustees and license partners also saw demand impacted by
COVID.
Trade and other payables decreased by GBP4.1m to GBP92.1m (25
January 2020: GBP96.2m). This reflects the significant reduction in
orders with our suppliers as inventory was aligned with the lower
level of demand in the market. This is largely offset by the
extension in payment terms we agreed with our suppliers as
disruption relating to COVID impacted our sales, as well as
deferrals in rent payments, as we managed the Group's cash
position.
Group capital expenditure of GBP3.1m (2019: GBP17.2m) relating
to refurbishment of stores, concessions and outlets and the ongoing
investment in business-wide IT systems, has been significantly
reduced. We are continuing to invest in systems and infrastructure
to support our digital businesses and improve efficiency, but
investment on physical locations has been limited only to essential
works. We expect full year capital expenditure of GBP8.0m, below
previous guidance of GBP10.0m.
Dividends
Given current trading conditions and the high level of
uncertainty about the future, the Board has determined that no
interim dividend is to be paid (2019: 7.8p).
Global Group Performance
28 weeks 28 weeks Variance Constant
ended ended currency
8 August 10 August variance(1)
2020 2019
Group Revenue GBP169.5m GBP313.3m (45.9)% (46.2)%
-------------------------------- ---------- ----------- ---------- -------------
Gross margin (excluding
non-underlying items) 50.3% 55.7% (550) bps
-------------------------------------------- ---------- ----------- ---------- -------------
Operating contribution
(excluding non-underlying
items and IFRS 16(4)
) * 0.9% 0.1% (80) bps
-------------------------------------------- ---------- ----------- ---------- -------------
Operating (loss)/ (4,290)
contribution** (48.3)% (5.4)% bps
-------------------------------------------- ---------- ----------- ---------- -------------
(Loss)/Profit before
tax (excluding non-underlying
items and IFRS 16(2) (2,220)
) as a % of revenue (23.0)% (0.8)% bps
-------------------------------------------- ---------- ----------- ---------- -------------
(Loss)/Profit before (4,370)
tax as a % of revenue (51.0)% (7.3)% bps
-------------------------------------------- ---------- ----------- ---------- -------------
Retail Revenue GBP124.0m GBP214.5m (42.2)% (42.5)%
-------------------------------- ---------- ----------- ---------- -------------
Ecommerce GBP74.2m GBP52.3m 41.8% 41.1%
-------------------------------------------- ---------- ----------- ---------- -------------
Gross margin 54.6% 61.3% (663) bps
-------------------------------------------- ---------- ----------- ---------- -------------
Average square footage*** 432,175 444,134 (2.7)%
-------------------------------------------- ---------- ----------- ---------- -------------
Closing square footage*** 419,797 448,440 (6.4)%
-------------------------------------------- ---------- ----------- ---------- -------------
Sales per square
foot including eCommerce GBP287 GBP483 (40.6)% (40.9)%
-------------------------------------------- ---------- ----------- ---------- -------------
Sales per square
foot excluding eCommerce GBP115 GBP365 (68.4)% (68.6)%
-------------------------------------------- ---------- ----------- ---------- -------------
Wholesale Revenue GBP39.5m GBP89.3m (55.7)% (56.1)%
-------------------------------- ---------- ----------- ---------- -------------
Gross margin 28.9% 37.6% (867) bps
-------------------------------------------- ---------- ----------- ---------- -------------
Licensing Revenue GBP6.0m GBP9.4m (36.6)% (36.6)%
-------------------------------- ---------- ----------- ---------- -------------
*Operating contribution/(loss) (excluding non-underlying items
and IFRS 16) is defined as operating profit/(loss) before
non-underlying items and IFRS 16 adjustments as a percentage of
revenue.
**Operating contribution is defined as operating profit/(loss)
as a percentage of revenue.
***Excludes licence partner stores.
Retail
Our retail channel comprises stores, concessions and eCommerce,
providing an omni-channel experience. We operate stores and
concessions across the UK, Europe, North America and South Africa,
and localised eCommerce sites in the UK, continental Europe, the
US, Canada and Australia. We also have eCommerce businesses with
many of our concession partners. Our stores are key to the success
of our digital businesses through supporting brand awareness and
showcasing our products. The relatively high number of concession
locations and short lease length on our stores (averaging 4 years)
allow us to maintain a flexible business model.
Retail sales decreased by 42.2% (42.5% in constant currency(1) )
to GBP124.0m (2019: GBP214.5m). Online sales grew by 41.8% (41.1%
in constant currency(1) ) to GBP74.2m (2019: GBP52.3m) to represent
59.8% (2019: 24.4%) of total retail sales. Our own directly
operated eCommerce business grew by 56%. Store sales decreased by
69.3% (69.4% in constant currency) to GBP49.8m (2019: GBP162.2m).
This performance, while disappointing, reflects the unprecedented
trading conditions across the world, with stores closed for a
significant proportion of the period as different territories went
into lockdown and restricted stores selling goods deemed
non-essential from opening. In addition, in H2 2020 14 stores in
China and Hong Kong transferred to joint ventures and 4 stores in
Japan transferred to a license partner. These stores generated
GBP5.8m in sales during H1 2020.
As the period progressed, it became clear that several locations
would no longer be viable to operate and could be exited
cost-effectively. We closed four stores during the half year,
contributing to a reduction in the average retail square footage of
2.7% to 432,175 sq ft (2019: 444,134 sq ft). Retail sales per
square foot (excluding eCommerce) decreased 68.4% (68.6% in
constant currency(1) ) to GBP115 (2019: GBP365).
The retail gross margin decreased to 54.6% (2019: 61.3%). The
apparel market exhibiting a high level of promotional activity
during the period as retailers sought to stimulate demand amongst
cash-strapped consumers, who traded into lower-priced product, and
it was necessary for us to participate to compete. Margin was
further affected by the sell-through of older, discounted product
during the period as the Group sought to liquidate aged stock and
release cash.
Retail operating costs excluding non-underlying items decreased
by 30.5% to GBP83.2m (2019: GBP119.7m), as the Group furloughed
store colleagues in response to government-imposed lockdowns. This
also reflects the benefit of government support, such as business
rates holidays and job support schemes, as well as rent savings
through negotiations with landlords and reductions in
turnover-related rent. As a percentage of sales, retail operating
costs increased to 67.1% (2019: 55.8%), reflecting the fixed costs
of the distribution channel, principally property, as well as
increased marketing expenditure to drive traffic through digital
channels.
Wholesale
Our wholesale business in the UK serves countries across the
world, primarily in the UK and Europe, as well as supplying
products to stores operated by our territorial licence partners. In
addition, we operate a wholesale business in North America serving
the US and Canada.
Wholesale sales decreased by 55.7% (56.1% in constant
currency(1) ) to GBP39.5m (2019: GBP89.3m) as our wholesale
trustees' businesses were also affected by COVID. We offered
discounts to support number of key trustee business, which
contributed to the reduction in wholesale gross margin to 28.9%
(2019: 37.7%) in the period.
Licence Income in revenue
We operate both territorial and product licences. Our licence
partners are carefully selected as experts in their field and share
our passion for unwavering attention to detail and firm commitment
to quality.
Territorial licences cover specific countries or regions in
Asia, Australasia, Europe, the Middle East, Africa and Central
America, where our partners operate licensed retail stores and, in
some territories, wholesale operations.
Product licences cover Bedding; Childrenswear; Eyewear;
Footwear; Fragrance and Skinwear; Gifting and Stationery;
Jewellery; Lingerie and Sleepwear; Luggage; Neckwear; Rugs;
Suiting; Ted's Grooming Rooms; Technical Accessories; and
Watches.
Licence income decreased 36.6% to GBP6.0m (2019: GBP9.4m).
Income was impacted by the challenging trading environment, with a
drop in royalties from our formalwear licence partners, accounting
for c.25% of the decline, as the increase in working from home
affected sales of men's suits. There were further headwinds from
the termination of relationships with Geneva Watch Group and
Debenhams Childrenswear, partly offset by new and developing
partnerships with NEXT for Childrenswear, Timex for watches and
Fulton for umbrellas.
Collections
Ted Baker Menswear sales were down 53.0% to GBP54.2m (2019:
GBP115.3m) and represented 33.1% of total sales (2019: 38.0%).
Ted Baker Womenswear sales were down 42.0% to GBP109.3m (2019:
GBP188.5m) and represented 66.9% (2019: 62.0%) of total sales.
Geographic Performance
United Kingdom and Europe
28 weeks 28 weeks Variance Constant
ended ended currency
8 August 10 August variance(1)
2020 2019
Total retail revenue GBP88.7m GBP141.3m (37.2)% (37.3)%
---------- ----------- --------- -------------
ECommerce revenue GBP56.2m GBP41.2m 36.4% 36.3%
---------- ----------- --------- -------------
Average square footage* 285,299 280,324 1.8%
---------- ----------- --------- -------------
Closing square footage* 276,802 284,312 (2.6)%
---------- ----------- --------- -------------
Sales per square foot
including eCommerce sales GBP311 GBP504 (38.3)% (38.4)%
---------- ----------- --------- -------------
Sales per square foot
excluding eCommerce sales GBP114 GBP357 (68.1)% (68.2)%
---------- ----------- --------- -------------
Wholesale revenue GBP25.2m GBP55.6m (54.7)% (52.0)%
---------- ----------- --------- -------------
Own stores 46 41 5
---------- ----------- --------- -------------
Concessions 217 250 (33)
---------- ----------- --------- -------------
Outlets 21 22 (1)
---------- ----------- --------- -------------
Partner stores/concessions 9 10 (1)
---------- ----------- --------- -------------
Total 293 323 (30)
---------- ----------- --------- -------------
*Excludes licence partner stores
Retail sales in the period in the UK and Europe decreased by
37.2% (37.3% in constant currency(1) ) to GBP88.7m (2019:
GBP141.3m) due to unprecedentedly challenging trading conditions
throughout the period. Lockdowns in several territories meant that
our stores had to remain closed for parts of the period. On
reopening, footfall remained depressed, particularly in city
centres and areas traditionally popular with tourists.
ECommerce sales increased by 36.4% (36.3% in constant
currency(1) ) to GBP56.2m (2019: GBP41.2m), representing 63.4%
(2019: 29.2%) of UK and Europe retail sales, as, with stores
closed, demand shifted to online channels.
Sales per square foot excluding eCommerce sales decreased by
68.1% (68.2% in constant currency(1) ). However, our stores remain
key to the long-term success of the eCommerce business through
initiatives such as ship-from-store in the UK, order in store and
click and collect, as well as showcasing the brand.
Sales from our UK wholesale business decreased by 54.7% to
GBP25.2m (2019: GBP55.6m), with our trustees and licence partners
also having been impacted by the very difficult trading
conditions.
North America
28 weeks 28 weeks Variance Constant
ended ended currency
8 August 10 August variance(1)
2020 2019
Total retail revenue GBP34.4m GBP63.8m (46.1%) (47.1%)
---------- ----------- --------- -------------
ECommerce revenue GBP17.9m GBP9.7m 85.4% 81.6%
---------- ----------- --------- -------------
Average square footage* 139,772 137,341 1.8%
---------- ----------- --------- -------------
Closing square footage* 135,891 138,008 (1.5%)
---------- ----------- --------- -------------
Sales per square foot
including eCommerce sales GBP246 GBP464 (47.1%) (48.0%)
---------- ----------- --------- -------------
Sales per square foot
excluding eCommerce sales GBP118 GBP394 (70.1%) (70.6%)
---------- ----------- --------- -------------
Wholesale revenue GBP14.3m GBP33.6m (57.6%) (58.4%)
---------- ----------- --------- -------------
Own stores 35 38 (3)
---------- ----------- --------- -------------
Concessions 66 61 5
---------- ----------- --------- -------------
Outlets 12 12 -
---------- ----------- --------- -------------
Partner stores/concessions 25 25 -
---------- ----------- --------- -------------
Total 138 136 2
---------- ----------- --------- -------------
*Excludes licence partner stores.
Sales from our North American retail division decreased by 46.1
% (decrease of 47.1% in constant currency(1) ) to GBP34.4m (2019:
GBP63.8m). In comparison to the UK & Europe, disruption to
trading in stores started later but was longer lasting, reflecting
the varying local responses to COVID across the region, as well as
political and social unrest. We closed stores in Malibu, Santa
Monica (both CA) and Scottsdale (AZ), where the economics of
reopening were unattractive. Sales per square foot excluding
eCommerce sales decreased to GBP118 (2019: GBP394), a drop of 70.1%
(70.6% in constant currency(1) ) .
Our eCommerce business delivered a strong performance with sales
increasing by 85.4% (81.6% in constant currency(1) ) to GBP17.9m
(2019: GBP9.7m). As a percentage of North America retail sales,
eCommerce sales represented 52.0% (2019: 15.2%).
Sales from our North American wholesale business decreased by
57.6% (58.4% in constant currency(1) ) to GBP14.3m (2019:
GBP33.6m), reflecting the impact of COVID on our trustees.
Rest of the World
28 weeks 28 weeks Variance Constant
ended ended currency
8 August 10 August variance(1)
2020 2019
Total retail revenue GBP0.9m GBP9.5m (90.6)% (89.4)%
---------- ----------- --------- -------------
ECommerce revenue GBP0m GBP1.4m (100.0)% (100.0)%
---------- ----------- --------- -------------
Average square footage* 7,104 26,469 (73.2)%
---------- ----------- --------- -------------
Closing square footage* 7,104 26,120 (72.8)%
---------- ----------- --------- -------------
Sales per square foot
including eCommerce sales GBP125 GBP358 (65.0)% (60.5)%
---------- ----------- --------- -------------
Sales per square foot
excluding eCommerce sales GBP125 GBP306 (59.0)% (53.7)%
---------- ----------- --------- -------------
Own stores 4 11 (7)
---------- ----------- --------- -------------
Concessions - 10 (10)
---------- ----------- --------- -------------
Outlets - 1 (1)
---------- ----------- --------- -------------
Partner stores/concessions 84 83 1
---------- ----------- --------- -------------
Joint venture locations 15 - 15
---------- ----------- --------- -------------
Total 103 105 (2)
---------- ----------- --------- -------------
*Excludes licence partner stores.
Sales decreased 90.6% (89.4% in constant currency(1) ) to
GBP0.9m (2019: GBP9.5.m) and sales per square foot excluding
eCommerce sales decreased 59.0% (53.7% in constant currency (1) ).
This performance reflects the evolution of our distribution
strategy outside of our core European and North American
businesses.
In the second half of FY20, we transitioned our businesses in
China (including Hong Kong S.A.R. and Macau S.A.R.) to a joint
venture, covering 12 stores and concessions, and eCommerce, with
the income from these businesses now reflected in other income.
In China, our venture's expansion plans have been delayed by
COVID, but managed to open three stores during the period, and now
operates 15 stores and concessions across the region (2019: 14
locations).
In Japan, we announced an agreement with our licence partner
Sojitz Infinity in August 2019, and transitioned operations into
the partnership during the second half of FY20. Our partner opened
two new stores, and now operates five stores and concessions across
the region (2019: six locations).
The joint venture with our Australian licence partner, Flair
Industries Pty Ltd, operates nine stores in Australasia (2019: nine
stores).
Current trading
The Group provides an update on trading for both its Q3,
covering the 12 week period from 9 August to 31 October, and the
first 4 weeks of Q4 to 28 November. Overall, Group trading has been
resilient, with a particularly strong performance online. The Group
has continued to take a more dynamic trading stance, reflecting
more sophisticated cross-category merchandising, refreshed social
media activity and increased marketing spend. Our promotional
stance has been in line with the market. The Group continues to
make good progress against the key operational KPIs set for the
first year of our three-year transformation programme, Ted's Growth
Formula.
Q3 trading highlights:
-- Group revenue fell year on year by 40% for Q3, and 37% for
the 4 weeks to 28 November. The Group has seen an improvement in
performance compared to Q2, reflecting more consistent operating
hours and fewer lockdowns, although trading is still affected by
ongoing, localised COVID-related restrictions and footfall shift
towards out-of-town and neighbourhood retail locations.
-- As at 28 November, net cash was GBP58.5m, ahead of management
expectations and reflecting actions taken to maximise cash and
reduce expenditure.
-- As at 28 November, the Group has a further GBP133m of
available headroom on current bank facilities. The Group did not
draw on any bank facilities during the period.
-- Online trading has remained significantly ahead of management
expectations, with consumer demand shifting online, the
uninterrupted operations of our global distribution centres and
enhanced trading mechanics introduced during the year. Our
eCommerce sales increased 15% and represented 44.6% of total retail
sales (2019: 24.5%). Our directly operated eCommerce sales
increased 25%. The four weeks to 28 November have seen total online
retail sales increase by 22%, with our directly operated eCommerce
sales increasing by 30%.
-- Our Retail stores have been negatively affected by ongoing
restrictions on trade during Q3. Reported sales decreased 53%,
reflecting a material decline in footfall and stores being closed
for part of the period.
-- Wholesale and licence revenue decreased by 46%. The
performance reflects cautious ordering from store-based trustees
since the beginning of COVID.
Brexit
The Group continues to prepare for a no-deal Brexit on 1 January
2021 at the end of the current transitional period and plan for
mitigation strategies to offset the negative impact of higher
duties. There is material risk to our future profit if the UK is
not successful in signing new trade agreements with the EU and
other markets in which we operate. We have made administrative and
legal changes to our operational processes, which will improve
operational efficiency in both deal and no deal scenarios. The
Group has been making good progress in the creation of a customs
warehouse in the UK, expected to be in place before the end of
2020. The main operational risk remains the flow of goods into the
UK through the ports.
The worst-case scenario full year impact is GBP16.1m negative
profit impact before any mitigation effects, reflecting no new
trade deals. The Group anticipates, only to a limited extent,
mitigating the extra cost of duties through the introduction of a
customs warehouse in the UK, reflowing inventory for our EU stores
and selective price increases supported by a detailed benchmarking
exercise conducted by an external consultancy.
David Wolffe
Chief Financial Officer
NOTES:
(1) Constant currency comparatives are obtained by applying the
exchange rates that were applicable for the 28 weeks ended 10
August 2019 to the financial results in overseas subsidiaries for
the 28 weeks ended 8 August 2020 to remove the impact of exchange
rate fluctuations.
(2) (Loss)/Profit before tax, non-underlying items and IFRS 16
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 Note 3 of the
Condensed Financial Statements.
(3) Adjusted basic earnings per share 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 Notes 3 and 5 of the Condensed
Financial Statements.
(4) Operating (loss)/contribution (excluding non-underlying
items and IFRS 16) 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 Note 2 of the Condensed Financial Statements.
Condensed Group Income Statement
For the 28 weeks ended 8 August 2020
Unaudited 28 weeks Unaudited 28 weeks
ended ended
8 August 10 August
2020 2019
Notes Underlying Non-underlying Reported Underlying Non-underlying Reported
items(1) items(1)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue(2) 2 169,470 - 169,470 313,271 - 313,271
Cost of sales (84,311) (10,461) (94,772) (138,712) (2,449) (141,161)
Gross profit 85,159 (10,461) 74,698 174,559 (2,449) 172,110
Distribution
costs (87,450) (45,829) (133,279) (126,754) (11,824) (138,578)
Administrative
costs (36,888) (11,299) (48,187) (47,825) (3,120) (50,945)
Other operating
(loss)/income(2) 7,307 17,566 24,873 346 - 346
Operating
profit/(loss) (31,872) (50,023) (81,895) 326 (17,393) (17,067)
Share of post-tax
(losses)/profits
from joint
ventures 13 (566) (6) (572) 212 - 212
Finance income 4 82 1,942 2,024 878 - 878
Finance expense 4 (6,001) - (6,001) (7,016) - (7,016)
Loss before tax 3 (38,357) (48,087) (86,444) (5,600) (17,393) (22,993)
Taxation 7 6,736 7,619 14,355 1,355 1,103 2,458
----------- --------------- ---------- ----------- ---------------
Loss after tax
attributable
to owners of the
company (31,621) (40,468) (72,089) (4,245) (16,290) (20,535)
----------- --------------- ---------- ----------- ---------------
Loss before tax,
IFRS16
and
non-underlying
items (38,995) (2,652) - -
----------- --------------- ---------- ----------- ---------------
Loss per share 5
Basic (64.1p) (46.1p)
Diluted (64.1p) (46.1p)
Adjusted loss per
share 5
Basic (28.6p) (4.5p)
Diluted (28.6p) (4.5p)
Dividends per
share 6
Interim - 7.8
Final - -
(1) More detail on non-underlying items are included in Note
3
(2) Restated for reclassification of license income to
revenue
The accompanying notes are an integral part of the financial
statements.
Condensed Group Statement of Comprehensive Income
For the 28 weeks ended 8 August 2020
Unaudited 28 weeks Unaudited 28 weeks
ended ended
8 August 10 August
2020 2019
GBP'000 GBP'000
Loss for the period (72,089) (20,535)
Other comprehensive income Items that may be reclassified subsequently to the
income statement:
Net effective portion of changes in fair value of cash flow hedges 743 5,427
Exchange differences on translation of foreign operations net of tax (141) 304
--------- -------------------
Other comprehensive income for the period, net of tax 602 5,731
Total comprehensive (expense)/income for the period (71,487) (14,804)
--------- -------------------
Condensed Group Statement of Changes in Equity - Unaudited
For the 28 weeks ended 8 August 2020
Total equity
attributable
Cash flow to equity
hedging Translation Retained shareholders
Share capital Share premium reserve reserve earnings of the parent
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 25
January 2020 2,228 10,555 (743) 6,328 130,263 148,631
--------------- --------------- --------------- --------------- --------------- ---------------
Prior year
restatements* - - - - (7,958) (7,958)
Balance at 25
January 2020
(restated) 2,228 10,555 (743) 6,328 122,305 140,673
--------------- --------------- --------------- --------------- --------------- ---------------
Comprehensive
income for the
period
Loss for the
period - - - - (72,089) (72,089)
Exchange
differences on
translation of
foreign
operations - - - (141) - (141)
Effective
portion of
changes in
fair value of
cash flow
hedges - - 765 - - 765
Deferred tax
associated
with movement
in hedging
reserve - - (22) - - (22)
--------------- --------------- --------------- --------------- --------------- ---------------
Total
comprehensive
income for the
period - - 743 (141) (72,089) (71,487)
--------------- --------------- --------------- --------------- --------------- ---------------
Other - - - 282 - 282
Increase in
issued share
capital 9,231 88,521 - - - 97,752
Share-based
payment
charges - - - - 415 415
Total 9,231 88,521 - 282 415 98,449
--------------- --------------- --------------- --------------- --------------- ---------------
Balance at 8
August 2020 11,459 99,076 - 6,469 50,631 167,635
=============== =============== =============== =============== =============== ===============
* See Note 1e) for details of the prior year restatement
Condensed Group Statement of Changes in Equity - Unaudited
For the 28 weeks ended 10 August 2019
Total equity
attributable
to equity
Cash flow Retained shareholders
hedging Translation earnings of the Company
Share capital Share premium reserve reserve (Restated) (Restated)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 26
January 2019 2,228 10,555 (183) 4,856 227,262 244,718
--------------- --------------- --------------- --------------- --------------- ---------------
Adjustment on
initial
application of
IFRS 16 - - - - 894 894
Balance at 27
January 2019 2,228 10,555 (183) 4,856 228,156 245,612
Comprehensive
income for the
period
Loss for the
period - - - - (20,535) (20,535)
Exchange
differences on
translation of
foreign
operations - - - 1,874 - 1,874
Current tax on
foreign
currency
translation - - - (1,570) - (1,570)
Effective
portion of
changes in
fair value of
cash flow
hedges - - 6,264 - - 6,264
Deferred tax
associated
with movement
in hedging
reserve - - (837) - - (837)
--------------- --------------- --------------- --------------- --------------- ---------------
Total
comprehensive
income for the
period - - 5,427 304 (20,535) (14,804)
--------------- --------------- --------------- --------------- --------------- ---------------
Net change in
fair value of
cash flow
hedges
transferred to
cost of
inventory - - (1,341) - - (1,341)
Share-based
payment
charges - - - - 222 222
Movement on
current and
deferred tax
on share-based
payments - - - - (25) (25)
Dividends paid - - - - (18,138) (18,138)
--------------- --------------- --------------- --------------- --------------- ---------------
Total - - (1,341) - (17,941) (19,282)
--------------- --------------- --------------- --------------- --------------- ---------------
Balance at 10
August 2019 2,228 10,555 3,903 5,160 189,680 211,526
=============== =============== =============== =============== =============== ===============
Condensed Group Balance Sheet
At 8 August 2020 Unaudited 8 August 2020 Audited
25 January 2020
(Restated)*
Note GBP'000 GBP'000
Non-current assets
Intangible assets 8 33,921 42,265
Property, plant and equipment 9 53,125 127,429
Right-of-use assets 10 93,400 137,987
Investment in equity accounted investee 5,730 5,088
Deferred tax assets 22,998 17,638
Prepayments 611 634
------------------------ ----------
209,785 331,041
------------------------ ----------
Current assets
Inventories 89,786 131,663
Trade and other receivables 54,007 67,271
Amount due from equity accounted investee 5,077 4,462
Derivative financial assets 12 - 203
Income tax receivable 9,393 2,343
Cash and cash equivalents 60,752 52,912
219,015 258,854
------------------------ ----------
Current liabilities
Trade and other payables (92,125) (96,202)
Bank overdraft - (180,000)
Lease liabilities (38,511) (36,381)
Derivative financial liabilities 12 - (1,095)
(130,636) (313,678)
------------------------ ----------
Non-current liabilities
Deferred tax liabilities (3,685) (3,588)
Provisions (4,408) -
Lease liabilities (122,436) (131,956)
------------------------ ----------
(130,529) (135,544)
------------------------ ----------
Net assets 167,635 140,673
------------------------ ----------
Equity
Share capital 11,459 2,228
Share premium 99,076 10,555
Other reserves - (743)
Translation reserve 6,469 6,328
Retained earnings 50,631 122,305
------------------------ ----------
Total equity 167,635 140,673
------------------------ ----------
(*) The prior period restatements are detailed further in Note
1(e).
Condensed Group Cash Flow Statement
For the 28 weeks ended 8 August 2020
Unaudited Unaudited
28 weeks ended 28 weeks ended
8 August 10 August
2020 2019*
GBP'000 GBP'000
Cash generated from operations
Loss for the period (72,089) (20,535)
Adjusted for:
Income tax (credit)/expense (14,355) (2,458)
Non-cash adjustments/profit on disposal of property, plant and equipment and (19,188) -
intangibles
Depreciation and amortisation 30,811 37,686
Amortisation of reacquired right 1,182 -
Impairments 45,777 -
Fair value adjustments on assets held for sale - 11,016
Loss on disposal of property, plant and equipment 80 106
Share-based payments charge/(credit) 417 222
Net finance expense 5,919 6,138
Net change in derivative financial assets and liabilities carried at fair
value (151) (383)
Share of profit in joint venture 566 (212)
Decrease/(increase) in non-current prepayments 23 67
Decrease/(increase) in inventory 43,095 15,946
(Increase)/decrease in trade and other receivables 14,016 (330)
(Decrease)/increase in trade and other payables 224 850
Income taxes received/ (paid) 2,097 (4,817)
Net cash generated from operating activities 38,424 43,296
---------------- ----------------
Cash flow from investing activities
Purchases of property, plant and equipment and intangibles (3,199) (16,904)
Proceeds from sale of property, plant and equipment 77,782 -
Business acquisition (net of cash acquired) - 475
Interest received 81 94
Dividends received from joint venture - 278
Payments to joint venture (642) -
---------------- ----------------
Net cash from investing activities 74,022 (16,057)
---------------- ----------------
Cash flow from financing activities
Repayment of term loan/overdraft (180,000) (2,000)
Drawdown of overdraft - 16,642
Repayment of capital element of leases (16,467) (19,144)**
Repayment of interest element of leases (4,080) (4,903)**
Interest paid (1,921) (1,953)
Dividends paid - (18,138)
Proceeds from issue of shares 105,003 -
Cost of issue of shares (7,251) -
---------------- ----------------
Net cash from financing activities (104,716) (29,496)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 7,730 (2,257)
Cash and cash equivalents at the beginning of the period 52,912 14,654
Exchange rate movement 110 1,015
---------------- ----------------
Net cash and cash equivalents at the end of the period 60,752 13,412
---------------- ----------------
Cash and cash equivalents at the end of the period 60,752 11,689
Cash and cash equivalents included in assets held for sale - 1,723
---------------- ----------------
Net cash and cash equivalents at the end of the period 60,752 13,412
---------------- ----------------
*10 August 2019 has been restated to exclude overdrafts from
cash and cash equivalents and include GBP16,642k drawdown of
overdraft within financing activities
**Interest element of leases in the 28 weeks to 10 August 2019
has been separately identified from the capital element
Notes to the Unaudited Condensed Interim Financial
Statements
For the 28 weeks ended 8 August 2020
1. Basis of preparation
a. Reporting entity
Ted Baker Plc (the "Company") is a company domiciled in the
United Kingdom. The condensed interim financial statements
("interim financial statements") of Ted Baker Plc as at, and for
the 28 weeks ended, 8 August 2020 comprise the Company and its
subsidiaries (together referred to as the "Group").
The Group financial statements as at, and for the 52 weeks ended
25 January 2020 are available upon request from the Company's
registered office at Ted Baker Plc, The Ugly Brown Building, 6a St.
Pancras Way, London NW1 0TB and at www.tedbakerplc.com .
b. Statement of compliance
These condensed interim financial statements have been prepared
in accordance with "IAS 34 Interim Financial Reporting" as adopted
by the EU and the requirements of the Disclosures and Transparency
Rules. They do not include all of the information required for full
annual financial statements and should be read in conjunction with
the Group financial statements as at, and for the 52 weeks ended 25
January 2020. These interim financial statements were approved by
the Board of Directors on 7 December 2020.
The comparative figures for the 52 weeks ended 26 January 2019
are not the Company's statutory accounts for that financial year.
Those accounts have been reported on by the Company's previous
auditor and delivered to the registrar of companies. The report of
the previous auditor was (i) unqualified; (ii) included a reference
to draw attention to the Directors' conclusion that a material
uncertainty existed that may cast significant doubt of the Group's
ability to continue as a going concern; and (iii) did not contain a
statement under Section 498(2) or (3) of the Companies Act 2006.
These sections address whether proper accounting records have been
kept, whether the Company's accounts are in agreement with these
records and whether the auditor has obtained all the information
and explanations necessary for the purposes of the audit.
The financial information in this document is unaudited but has
been reviewed by the auditor in accordance with the Auditing
Practices Board guidance on Review of Interim Financial
Information.
c. Going concern
In light of the current economic uncertainty caused by the
COVID-19 pandemic, the Directors have reviewed the current
financial performance and liquidity of the business, and assessed
its resilience to a reduction in sales through a series of
scenarios. The Group has modelled a Base Case forecast alongside a
Severe but Plausible downside scenario based on further waves of
the pandemic and a no deal Brexit.
The Base Case forecast includes prudent growth assumptions,
factoring a continued challenge to physical retail, wholesale and
licence channels, with only moderate growth in online sales. This
scenario assumes there is no break from intermittent lockdowns
until vaccination becomes effective for vulnerable groups assumed
to be not before May 2021 and a slow return to global economic
recovery thereafter. Compared with FY20, the FY22 Base Case
scenario assumes a 35% decrease in H1 and 14% decrease in H2
physical retail, wholesale and licence channels, and a 36% increase
in full year online sales.
The Severe but Plausible downside scenario includes significant
reductions against FY22 Base Case trade assumptions, including a
30% reduction in H1 and 15% reduction in H2 physical retail,
wholesale and licence channels, and a 15% reduction in full year
online sales. Compared with FY20, the FY22 Severe but Plausible
scenario assumes a 55% decrease in H1 and 27% decrease in H2
physical retail, wholesale and licence channels, and a 16% increase
in full year online sales. In this scenario, H1 trade is forecast
to be materially worse than observed since the end of full global
lockdown. The Severe but Plausible scenario also assumes a
significant increase in Brexit related duty costs and minimal
changes to operating expenditures.
As part of the going concern assessment, the Group have modelled
both cash and covenant headroom over the next 12 months. Under both
the Base Case and Severe but Plausible downside
1. Basis of preparation (continued)
scenario, the Group would have adequate cash headroom without
the need to draw on any of the existing loan facilities. This is
the result of milestones achieved in the first half, including the
successful completion of equity fundraising, the sale and leaseback
of the Ugly Brown Building and significant cash conservation
efforts around overhead costs and working capital. As sufficient
cash headroom exists to operate without any loan facilities during
the 12 month going concern period, the Directors believe there is a
reasonable expectation that the Group has adequate liquidity
headroom and so they continue to adopt the going concern basis in
preparing the financial statements.
Under the Severe but Plausible scenario, the covenant tests for
the quarter ended April 2021, reported in June 2021 would not be
passed. The Directors note that they hold a good relationship with
their lenders and anticipate their continued support due to the
significant deleverage of the Group, forecast performance and
forecast to remain cash positive. A refinancing in the normal
course of events is planned to commence in Q1 of FY22 and therefore
will precede any of the covenant test dates.
d. Significant accounting policies
The interim financial statements for the 28 weeks ended 8 August
2020 have been prepared on a basis consistent with the accounting
policies published in the Group's financial statements for the 52
weeks ended 25 January 2020.
1. Basis of preparation (continued)
e. Changes in accounting estimates, errors or misstatements
Changes in accounting estimates
In the prior accounting period, our inventory accounting basis
of estimating inventory cost included certain logistics and freight
costs in getting stock from the distribution centre to its final
location. The Directors now believe that this basis of estimating
is not suitable due to an increasingly multi-channel business in
which purchases may reach the consumer through a variety of
different routes. As a result of these changes, the estimation of
costs relating to this has become less reliable. The amount
capitalised in respect of these costs at 26 January 2020 was
GBP6.1m which has been expensed in the current period with no
similar amounts capitalised in the 28 weeks ended 10 August
2019.
Flagship stores
In previous accounting periods flagship stores were considered
corporate assets and were considered to support the wider business
in the geographic territory in which that store was located. The
Directors now believe that this treatment is not suitable due to an
increasingly multi-channel business which has reduced the
significance of flagship stores. Therefore, the impairment
estimation basis has been revised in the current period to align it
with the remainder of the store portfolio. This has resulted in an
impairment in the period of GBP9.0m.
IFRS16 - rent concessions
The Group has applied the practical expedient for the
application of rent concessions provided as a response to the
COVID-19 pandemic, as allowed by the amendment to IFRS16.
Significant accounting judgments or estimates
Taxation
Deferred tax assets are recognised to the extent it is probable
that future taxable profits (including the future release of
deferred tax liabilities) will be available, against which the
deductible temporary differences can be utilised, based on
management's assumptions relating to the amounts and timing of
future taxable profits. Estimates of future profitability on an
entity basis are required to ascertain whether it is probable that
sufficient taxable profits will arise to support the recognition of
deferred tax assets relating to the corresponding entity.
Onerous contract provision
In the period GBP4.4m has been provided in relation to onerous
contracts in relation to cancelled purchase orders due to the
COVID-19 pandemic. This is management's best estimate of the
unavoidable costs in meeting their obligations under these
contracts.
Errors or misstatements
i) Incorrect classification of lease incentives - GBP13.3m
During the prior period GBP10.2m of creditor balances relating
to lease incentives were taken to reserves as an IFRS16 adjustment,
when they should have been offset against the right of use asset
for the lease they relate to. In addition, GBP3.1m of lease
incentives were held in other creditors at transition, when they
should have been offset against the right of use asset for the
lease they relate to.
Accordingly, GBP13.3m has been corrected retrospectively by
restating the right of use asset, other creditors has been restated
by GBP3.1m and retained earnings by GBP10.2m on the balance sheet
as at 25 January 2020. There was no impact on earnings for the
period or EPS.
ii) Incorrect impairment of assets - GBP2.2m
At 25 January 2019 the impairment of right of use assets was
overstated as a result of the above incorrect classification.
Accordingly, the GBP2.2m impact has been corrected
retrospectively by restating the income statement for the period to
25 January 2020 and the corresponding increase to right of use
assets and retained earnings. The Income Statement for the period
to 10 August 2019, and EPS for August 2019 was not impacted.
iii) Adjustments to the carrying amount of inventory at 26
January 2019 - GBP20.2m
As previously described in the Annual Report 2020, in December
2019 the Group identified that the value of inventory held on its
balance sheet at that time had been overstated following an
internal review. As a result of these findings, the Group engaged
Deloitte LLP to undertake an independent review of this issue.
Following the conclusion of Deloitte's review and the completion
of the year-end process and audit, the Group restated the balance
of inventory at 26 January 2019 from GBP225.8m to GBP205.6m, a
GBP20.2m restatement. The restatement was due to inappropriate cost
values being attributed to inventory, inventory reflected on the
balance sheet which did not physically exist and intercompany
profit in stock that was not adjusted for in previous
calculations.
The treatment for the items identified from the inventory review
were classified as changes in accounting estimates or errors or
misstatements, and is governed by IAS 8 'Accounting policies,
changes in accounting estimates and errors.'
(i) Stock that did not physically exist - GBP6.5m
The adjustments primarily related to inventory held in system
locations that were not subject to inventory counts and were not
written off despite not physically existing. These balances
primarily arose as stock were moved between warehouses, between
retail and outlet stores and warehouses over seasons, and due to
weaknesses in the control environment over those moves and stock
locations.
(ii) Adjustments to correct calculations - GBP13.7m
Adjustments were identified to correct calculations, including
to correct for the capitalisation of duties that should not have
been capitalised to inventory, and to eliminate parts of
intercompany profit in stock that was not adjusted for in previous
calculations.
Management are unable to reliably estimate the impact of this
restatement on inventory values at 10 August 2019 and the resulting
impact on the Income Statement for the 28 week period then ended
without significant expense and effort. Given that the impact is in
respect of comparative financial information the Directors consider
that the significant expense and effort to determine this impact
would not materially benefit the users of the accounts or the
Group.
In addition, the Group reviewed its approach to estimating the
carrying value of stock and adopted a more prudent methodology
which resulted in a GBP32.4m reduction in stock value, being
accounted for as a change in estimate booked as a non-underlying
expense in the income statement for the 52 weeks ended 25 January
2020.
2. Segment information
Segment revenue and segment result
Unaudited - 28 weeks ended 8 August 2020 Retail Wholesale Licensing Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 123,975 39,511 5,984 169,470
Cost of sales (56,251) (28,060) - (84,311)
---------- ---------- ---------- ----------
Gross profit before non-underlying items 67,724 11,451 5,984 85,159
Operating costs (83,161) - - (83,161)
---------- ---------- ---------- ----------
Operating contribution (15,437) 11,451 5,984 1,998
Reconciliation of segment
result to profit before tax
Segment result before non-underlying items (15,437) 11,451 5,984 1,998
Other operating costs - - - (41,177)
Other operating (expense)/income - - - 7,307
----------
Operating profit before non-underlying items (31,872)
Finance income - - - 82
Finance expense - - - (6,001)
Share of losses from joint ventures - - - (566)
----------
Profit before tax before non-underlying items (38,357)
==========
Non-underlying items before tax (48,087)
==========
Loss before tax (86,444)
==========
Capital expenditure 1,141 - - 1,141
Additions to right of use assets - - - 8,413
Unallocated capital expenditure - - - 2,286
Total capital expenditure and additions to right of use assets 11,840
==========
Depreciation and amortisation (1,325) (122) - (1,447)
Unallocated depreciation and amortisation - - - (14,717)
Depreciation of right of use assets (15,829) - - (15,829)
----------
Total depreciation and amortisation (31,993)
==========
Segment assets 270,662 72,103 - 342,765
Property, plant and equipment - central - - - 3,180
Intangible assets - central - - - 33,041
Deferred tax assets - - - 22,998
Income tax receivable - - - 9,393
Other assets(1) - - - 17,423
Total assets 428,800
==========
Segment liabilities (230,737) (23,226) - (253,963)
Lease liability - central - - - -
Current tax liability - - - -
Other liabilities(2) - - - (7,202)
----------
Total liabilities (261,165)
==========
Net assets 167,635
==========
(1) Other assets include prepayments, derivatives and central
allocations of inventory, cash and cash equivalents and other
receivables.
(2) Other liabilities include derivatives and central
allocations of trade and other payables and borrowings.
2. Segment information (continued)
Unaudited - 28 weeks ended 10 August 2019 Retail Wholesale Licensing Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 214,538 89,290 9,443 313,271
Cost of sales (82,847) (55,865) - (138,712)
---------- ---------- ---------- ----------
Gross profit 131,691 33,425 9,443 174,559
Operating costs (119,697) - - (119,697)
---------- ---------- ---------- ----------
Operating contribution before non-underlying items 11,994 33,425 9,443 54,862
Segment result 11,994 33,425 9,443 54,862
Reconciliation of segment result to profit before tax
Segment result 11,994 33,425 9,443 54,862
Other operating costs - - - (54,882)
Other operating income - - - 346
Operating profit - - - 326
Finance income - - - 878
Finance expenses (7,016)
Share of profit of jointly controlled entity, net of tax - - - 212
----------
Loss before tax before non-underlying items - - - (5,600)
----------
Non-underlying items before tax (17,393)
----------
Loss before tax (22,993)
----------
Capital expenditure 10,545 277 - 10,822
Additions to right of use assets 7,366 7,366
Unallocated capital expenditure - - - 6,404
----------
Total capital expenditure and additions to right of use assets - - - 24,592
----------
Depreciation and amortisation (8,564) (304) - (8,868)
Unallocated depreciation and amortisation - - - (6,782)
Depreciation of right of use assets (22,034) - - (22,034)
----------
Total depreciation and amortisation (37,686)
----------
Segment assets 420,641 108,318 - 528,959
Deferred tax assets - - - 6,791
Derivative financial assets - - - 5,514
Intangible assets - head office - - - 38,177
Plant, property and equipment - head office - - - 80,592
Other assets - - - 2,881
----------
Total assets - - - 662,914
----------
Segment liabilities (336,703) (63,828) - (400,531)
Income tax payable - - - (810)
Term loan - - - (45,000)
Other liabilities - - - (5,941)
----------
Total liabilities - - - (452,282)
----------
Net assets 210,632
----------
3. Reconciliation of profit before tax to profit before tax,
non-underlying items and IFRS 16 and profit before tax
Note Unaudited Unaudited
28 weeks ended 28 weeks ended
8 August 10 August
2020 2019
---------------------------------------- ----- ---------------- ----------------
GBP'000 GBP'000
Loss before tax (86,444) (22,993)
Included in cost of sales:
Inventory changes in estimates 1 (6,065) -
Onerous contract provision 2 (4,408) -
Other 12 -
---------------- ----------------
Included in Gross Profit (10,461) -
Included in distribution costs
:
Gain/(Loss) on disposal of business 3 - (11,824)
Impairment of intangible assets,
property, plant and equipment and
right-of-use assets 4 (45,829) -
Included in administrative costs:
Acquisition costs and unwind of
fair value accounting adjustments 5 (1,182) (3,535)
Reorganisation cost, restructuring
costs and other legal and professional
costs 6 (10,117) (2,034)
Included in Other operating (loss)
/ income
Gain/(Loss) on disposal of business 7 17,566 -
Included in operating profit (50,023) (17,393)
Included in share of post-tax profits
from joint venture:
Unwind of fair value adjustments (6) -
Foreign exchange on the translation
of monetary assets and liabilities
denominated in foreign currencies 8 1,942 -
---------------- ----------------
Non-underlying items (48,087) (17,393)
Loss before tax and non-underlying
items (38,357) (5,600)
Impact of IFRS 16 (638) 2,948
---------------- ----------------
Loss before tax, non-underlying
items and IFRS 16 (38,995) (2,652)
================ ================
Notes
1. Further details surrounding the changes in accounting
estimates for inventory can be found in Note 1e)
2. Details of the onerous contract provision can be found in note 1e)
3. In the prior period the Group reorganisation of distribution
partners and related operations in Asia (Hong Kong, China and
Japan), resulted in a loss on disposal.
4. The Group impaired a number of assets in retail stores
resulting in a charge of GBP45.8m, including leasehold
improvements, fixtures and fittings, intangible assets and
right-of-use assets.
5. Charges in the current and prior period relate to
amortisation of reacquired rights, fair value and accounting
adjustments in relation to the acquisition of the footwear business
in financial year 2019.
6. Costs relate to the refinancing and restructuring of the
business previously announced and include redundancy costs, legal
and professional fees. Prior period costs relate to further costs
incurred in relation to the investigation into the allegations of
misconduct of the former Chief Executive Officer and the Group's
policies, procedures and handling of HR-related complaints and
other legal matters
7. Relates to the sale of the corporate head office building.
8. Foreign exchange gain on re-translation of intercompany
balances denominated in foreign currencies
4. Finance income and expenses
Unaudited Unaudited
28 weeks 28 weeks
ended ended
8 August 10 August
2020 2019
GBP'000 GBP'000
Finance income
- Interest receivable 81 94
- Foreign exchange gains 1,943 784
---------- -----------
2,024 878
---------- -----------
Finance expenses
- Interest payable (1,921) (2,078)
- Interest on lease liabilities (4,080) (4,903)
- Foreign exchange losses - (35)
---------- -----------
(6,001) (7,016)
---------- -----------
5. Earnings per share
Unaudited Unaudited
28 weeks 28 weeks
ended ended
8 August 10 August
2020* 2019
Number of shares: No. No.
Weighted number of ordinary shares outstanding 112,416,515 44,564,951
Effect of dilutive options 28,518 61,275
------------ -----------
Weighted number of ordinary shares outstanding - diluted 112,445,033 44,626,226
------------ -----------
Earnings:
(Loss)/Profit for the period - basic and diluted (72,089) (20,535)
(Loss)/Profit for the period - adjusted* (32,148) (2,011)
Basic earnings per share (64.1p) (46.1p)
Adjusted earnings per share* (28.6p) (4.5p)
Diluted earnings per share (64.1p) (46.1p)
Adjusted diluted earnings per share (28.6p) (4.5p)
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.
*Adjusted (loss)/profit for the period and adjusted earnings per
share are shown before non-underlying costs and IFRS 16 (net of
tax). Non-underlying items net of tax were GBP40.5m (28 weeks ended
10 August 2019: non-underlying costs of 16.3m) and the impact of
IFRS 16 net of tax was GBP0.5m (28 weeks ended 10 August 2019: IFRS
16 impact of GBP2.2m).
6. Dividends per share
Unaudited Unaudited
28 weeks ended 8 August 2020 28 weeks ended 10 August 2019
GBP'000 GBP'000
Final dividend paid for the prior year
(2020: nil; 2019: 40.7p per share) - 18,138
- 18,138
------------------------------- ------------------------------
The Board has declared an interim dividend of Nil pence per
share (2019: 7.8 pence).
7. Income tax expense
An income tax credit is recognised on losses before
non-underlying items at the full year forecast effective tax rate
of 17.4% for the 28 weeks ended 8 August 2020 (28 weeks ended 10
August 2019: 24.2%). The income tax credit on non-underlying items
at half year is calculated and disclosed separately. This has a
significant impact on the total effective tax rate at the half year
given the significant number of non-underlying items.
Our future effective tax rate is expected to remain above the UK
tax rate as a result of the proportion of overseas results in
jurisdictions with higher tax rates than the UK.
8. Intangible assets
Intangible asset additions during the period were GBP1.4m (25
January 2020: GBP6.4m) in relation to investment in business-wide
systems to support the long-term development of the business.
GBP3.1m of depreciation was reclassified in the period from
property, plant & equipment to intangible assets.
Impairment in the period was GBP0.6m.
9. Property, plant and equipment
Property, plant and equipment asset additions during the period
were GBP1.7m (25 January 2020: GBP19.5m) primarily in relation to
store refurbishments and openings. GBP3.1m of depreciation was
reclassified in the period from property, plant & equipment to
intangible assets.
Impairment in the period was GBP11.0m.
10. Right-of-use assets
The Group initially applied IFRS 16 at 27 January 2019, which
required the recognition of right-of-use assets for lease contracts
that were previously classified as operating leases.
Right-of-use assets are recognised in relation to the Group's
leases, representing the economic benefits of the Group's right to
use the underlying leased assets. The Group's lease portfolio is
principally comprised of property leases of stores, distribution
centres and head offices.
The Group has applied the practical expedient for the
application of rent concessions provided as a response to the
COVID-19 pandemic, as allowed by the amendment to IFRS16.
Right-of-use
asset
---------------------- ------------
GBP'000
Cost
At 25 January 2020 201,495
Restatement* (13,276)
------------
At 25 January 2020 188,219
Gross adjustment** (2,019)
------------
Additions 6,772
Disposals (2,474)
At 8 August 2020 190,498
------------
Amortisation
At 25 January 2020 (52,462)
Restatement* 2,230
------------
At 25 January 2020 (50,232)
Gross adjustment** 2,019
------------
Charge for the period (15,829)
Disposals 866
Impairments (33,922)
At 8 August 2020 (97,098)
------------
Net book value
------------
At 25 January 2020 137,987
============
At 8 August 2020 93,400
============
*Details of the restatement can be found in note 1e).
**Gross adjustment between cost and amortisation brought forward
to better reflect underlying gross split
11. Inventory provisioning
Where necessary, provision is made to reduce cost to no more
than net realisable value having regard to the nature and condition
of inventory, as well as its anticipated utilisation and
saleability.
In previous periods management have not provided for inventory
which has been reclassified into a future season ('re-seasoned
stock'). During the period, as a result of unusual trading
conditions there has been a material increase in the inventory
holding that has been re-seasoned. Consequently, management have
considered it appropriate to make a provision against this
category, amounting to GBP4.8m at the balance sheet date.
12. Financial instruments
The Group held no financial instruments at 08 August 2020.
The definitions and valuation techniques employed for financial
instruments at 25 January 2020 are disclosed in Note 22 on pages
160 to 166 of the Annual Report and Accounts for the 52 weeks ended
25 January 2020.
Level 2 assets and liabilities are shown as:
Unaudited Audited
8 August 25 January
2020 2020
GBP'000 GBP'000
Assets at fair value:
Currency derivatives - 203
Liabilities at fair value:
Currency derivatives - (1,095)
13. Related parties
The Group considers its Executive and Non-Executive Directors as
key management and therefore has a related party relationship with
them.
Directors of the Company and their immediate relatives control
0.2% (10 August 2019: 0.2%) of the voting shares of the
Company.
The Group has a 50% interest in the ordinary share capital of No
Ordinary Retail Company Pty, a company incorporated in Australia.
As at 8 August 2020, the joint venture owed GBP126,276 to No
Ordinary Designer Ltd (25 January 2020: GBP530,000). The value of
sales made to the joint venture by the Group in the period was
GBP486,584 (10 August 2019: GBP1,587,000).
The Group also has a 50% interest in the shares in TBHK. As at 8
August 2020, the joint venture owed GBP4,950,200 to No Ordinary
Designer Ltd (25 January 2020: GBP3,933,000). In the period the
value of sales made to the joint venture by the Group was
GBP1,433,654 (2019: GBPnil).
14. Principal risks and uncertainties
The principal risks and uncertainties affecting the Group were
identified as part of the Group Strategic Report, set out on pages
36 to 44 of the Ted Baker Annual Report and Accounts for the 52
weeks ended 25 January 2020, a copy of which is available on the
Group's investor relations website at www.tedbakerplc.com.
The Group has established a structured approach to identify,
assess and manage these risks and this is regularly monitored and
updated by the Risk Committee. The following list highlights some
of the principal risks, which are unchanged from the prior year end
and remain relevant for the second half of the financial year:
Strategic risks
-- COVID-19 making it more difficult to model outcomes as
uncertainty remains over what strategy various governments may put
in place for opening non-essential stores and over the broader
implications
-- The loss of key personnel or managers without the prompt
addition of appropriate replacements could adversely affect the
Group's operations and prospects as success is dependent on its
capacity to attract and retain effective personnel
-- The Group has significant and increased borrowings and
liabilities, the amount and terms of which may limit its financial
and operational flexibility
-- External events such as the COVID-19 pandemic and related
Government and regulatory guidelines pose a challenge to getting
our revenue back to historic levels as it depends on the policies
and practises deployed in each territory and these may differ by
geography.
-- Brand and reputational risk as a result of our actions or
those of our partners or supply chain plus unmanaged exposure
through user-generated content platforms
-- Execution of new strategy to stabilise our foundations in
building block 1 or adequately drive operational performance
required in building block 2
-- Development of eCommerce business could lead to higher
operational costs and lower profitability
-- Development of overseas markets risk has increased as a result of changes during the year
-- Competitive Environment leading to the business failing to
price products competitively or excessive promotions and sales that
will in turn lower the Group's profit margin
-- Risk that our offer will not satisfy the needs of our
customers or that we fail to correctly identify trends
-- Trends in the retail industry which have recently faced an
increasingly challenged trading environment
-- Negative Publicity and media speculation disrupting the Group's ability to do business with counterparties
-- Defaults under the facility agreement, increasing risk to the
shareholders of losing value of their investment
Operational risks
-- Failure in our supply chain affecting our ability to deliver
our offer to customers and/or partners
-- Outlook in the retail sector remains uncertain with
increasing pressures on the Group's customers
-- Operational problems affecting the infrastructure of our business
-- Failure to operate in a sustainable and responsible manner
-- Cybersecurity or IT breach and unauthorised data access or loss
-- Poorly managed implementation or take-up of new systems, leading to business disruptions
-- Privacy breaches or any failure to protect clients' confidential information
-- Non-compliance with applicable legislation and regulations
-- Unauthorised use of our designs, trademarks and other intellectual property rights
-- Natural events and governmental policy changes may evolve
from climate change effecting supply chain
-- Investigations into people policies and practices, including
internal reviews related to business' inventory position
-- Regulatory or other investigations as to the inventory overstatement
Financial risks
-- Currency, interest, credit and counterparty risks
-- Insufficient robust financial controls policies and practices
in place to appropriately manage the business
Brexit risks
-- The lack of clarity arising from the UK leaving the European
Union has increased the levels of economic and consumer uncertainty
if the UK's withdrawal is on any basis that is not subject to a
free trade agreement
-- Unpredictable VAT and customs duty regimes
-- Trade arrangements at risk with third countries which rely on
the UK's membership with the European Union
-- Supply chain delays could result from additional customs
requirements without a free trade deal
-- EU national employees may not have automatic residency
-- Increased fluctuations in foreign currencies
-- Increased complexity in regulatory and legal compliance
surrounding the manufacture and sale of products
-- Procurement and contractual arrangements such as delivery
terms or price clauses could have an adverse commercial effect
Responsibility statement of the Directors in respect of the
interim financial statements
The Directors confirm that to the best of their knowledge:
-- the condensed financial statements have been prepared in
accordance with IAS 34, Interim Financial Reporting as adopted by
the EU; and
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first 28 weeks of the financial year and their impact on the
condensed financial statements, and a description of the principal
risks and uncertainties for the remaining 24 weeks of the financial
year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first 28
weeks of the current financial year and that have materially
affected the financial position or performance of the entity during
that period, and any changes in the related party transactions
described in the last Annual Report that could do so.
The Directors of Ted Baker Plc are listed on pages 49 and 50 of
the Annual Report and Accounts as at, and for, the 52 weeks ended
25 January 2020. A list of current Directors is maintained on the
Ted Baker Plc website, at: www.tedbakerplc.com .
By order of the Board
J Barton R Osborne
Executive Chairman Chief Executive Officer
6 December 2020 6 December 2020
Cautionary statement regarding forward-looking statements
This announcement contains certain forward-looking statements.
These forward-looking statements include matters that are not
historical facts or are statements regarding the Group's
intentions, beliefs or current expectations concerning, among other
things, the Group's results of operations, financial condition,
liquidity, prospects, growth, strategies, and the industries in
which the Group operates. Forward-looking statements are based on
the information available to the Directors at the time of
preparation of this announcement, and will not be updated during
the year. The Directors can give no assurance that these
expectations will prove to have been 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.
INDEPENT REVIEW REPORT TO TED BAKER PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
28 weeks ended 8 August 2020 which comprises the Condensed Group
Income Statement, the Condensed Group Statement of Comprehensive
Income, the Condensed Group Statement of Changes in Equity, the
Condensed Group Balance Sheet, the Condensed Group Cash Flow
Statement and the related explanatory notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and
has been approved by the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International
Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Basis for our conclusion which is qualified solely in respect of
the unaudited comparative figures for the 28 week period ended 10
August 2019
As explained in note 1.e) to the condensed financial statements,
the Group recorded, in its financial statements for the 52 weeks
ended 25 January 2020, a number of adjustments to inventory values,
including amendments to inventory which had been overstated at the
previous year end.
It has not been possible for us to determine what the impact of
these adjustments would have been on inventory values at 10 August
2019 and 26 January 2019 and consequently on retained profit at
those dates and on the income and expenditure and calculated cash
flows for the 28 week period ended 10 August 2019.
Accordingly we have been unable to determine whether the
unaudited comparative figures shown in the condensed financial
statements relating to the 28 week period ended 10 August 2019 are
presented on a basis comparable with that applied for the 28 week
period ended 8 August 2020.
Qualified Conclusion
Except for the matters described in the Basis for the qualified
conclusion section of our report, based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the half-yearly financial report for
the 28 weeks ended 8 August 2020 is not prepared, in all material
respects, in accordance with International Accounting Standard 34,
as adopted by the European Union, and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting its responsibilities in
respect of half-yearly financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
55 Baker Street
London
W1W 7EU
Date: 6 December 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
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