We continue to develop our presence in new and existing markets and focus on the long term development of Ted Baker as a global lifestyle brand

Corporate Governance

Corporate Governance Code Compliance

Statement of compliance with the Code

During the period, the Company was subject to the UK Corporate Governance Code dated April 2016. The Code was issued by the Financial Reporting Council and is available to view on the Financial Reporting Council’s website https://www.frc.org.uk/. The Board confirms that the Company has complied with the provisions set out in the Code throughout the year.

Statement about applying the Main Principles of the Code

The Company has applied the Main Principles set out in the Code. Further explanation of how the principles have been applied is set out in this section of the Directors’ Report and, in connection with directors’ remuneration, in the Directors’ Remuneration Report on 46.

The Board and Committees

The Board currently comprises the Executive Chairman, the Chief Executive Officer, a Senior Independent Director and four independent Non-Executive Directors. Biographies of these Directors and resignations from the Board appear on pages 34–35. The Board is of the view that its current membership provides an appropriate balance of skills, experience, independence and knowledge, which enables it to discharge its responsibilities effectively.

The Board considers Non-Executive Directors Ron Stewart, Andrew Jennings, Jennifer Roebuck, Sharon Baylay and Helena Feltham to be independent for the purposes of the Code.

The Board meets regularly throughout the year. It considers, with the support of the Board Committees and the Executive Committee, all issues relating to the strategy, direction and future development of the Group. The Board has a schedule of matters reserved to it for decision that is regularly updated. These include decisions on the Group’s strategy, financial budgets, major capital expenditure and transactions, appointment of territorial and product licence partners, store openings, dividend policy, Group bonus and risk profile. The requirement for Board approval on these matters is understood and communicated widely throughout the Group. The Non-Executive Directors meet with the Chairman separately during the year. In addition, the Non-Executive Directors meet without the Chairman present to appraise the Chairman’s performance.

Operational decision making, operational performance and the formulation of strategic proposals to the Board are controlled by the Group’s Executive Committee, which is comprised of the Board of Directors of No Ordinary Designer Label Limited (one of the Group’s operating subsidiaries) together with relevant heads of department as required.

The Executive Committee meets regularly throughout the year.

To enable the Board to function effectively, and for the Directors to discharge their responsibilities, full and timely access is provided to all relevant information. A comprehensive board pack and formal agenda is prepared and circulated in advance of each Board meeting. Board members regularly input into the level and quality of information provided and request specific board papers on additional agenda items. There is an agreed procedure for Directors to take independent professional advice, if necessary, at the Company’s expense. This is in addition to the access each Director has to the Company Secretary. The Company maintains an appropriate level of Director and officer liability insurance cover and, through the Articles of Association and Directors’ terms of appointment, has agreed to indemnify the Directors against certain liabilities to third parties and costs and expenses incurred as a result of holding office as a Director. Save for such indemnity provisions in the Company’s Articles of Association and in the Directors’ terms of appointment (which were in force throughout the period and are in force as at the date of these financial statements), there are no qualifying third-party indemnity provisions in force.

The Code requires that the Board provides a fair, balanced and understandable assessment of the Company’s position and prospects in its external reporting. The Directors were responsible for the preparation and approval of the Annual Report and Accounts and consider them, taken as a whole, to be fair, balanced and understandable and believe that this provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

Following amendments to the UK’s Corporate Governance Code, the Board assessed the length of tenure of the members of its committees. The Board took steps in relation to its Nomination Committee to ensure its ongoing compliance with the Code. The most recent externally facilitated evaluation of the Board and Committees’ effectiveness was undertaken by Sean O’Hare of Boardroom Dialogue Limited, an independent external adviser with no other connection to the Company, in this financial period. That Board evaluation concluded that the Board was working well with an engaged management team and Non-Executive Directors who are regarded as being conscientious. Areas of focus for the Non-Executive Directors continue to be enhancing Board engagement with the Executive Committee and building on steps taken within the current period in relation to the existing long-term succession planning throughout the Group.

The table below details the number of Board and committee meetings held during the year ended 26 January 2019 and the attendance record of each director.

 

Board meetings

Audit committee

Remuneration committee

Nomination committee

Number of meetings held

10

3

3

1

Raymond Kelvin CBE 1

9

n/a

n/a

n/a

Lindsay Page

10

1

n/a

n/a

David Bernstein CBE 4

10

3

3

1

Ron Stewart

10

3

3

n/a

Andrew Jennings

10

3

3

1

Jennifer Roebuck

10

n/a

n/a

1

Sharon Baylay 2

8

1

1

n/a

Anita Balchandani 3

n/a

n/a

n/a

n/a

1 Ray Kelvin was on a leave of absence from 7 December 2018 and resigned from the Board on 4 March 2019.
2 Sharon Baylay was appointed to the Board on 15 June 2018.
3 Anita Balchandani resigned from the Board on 19 February 2018.
4 On 4 March 2019 David Bernstein was appointed as Executive Chairman and will therefore no longer serve on the Remuneration Committee.

Audit Committee Statement

During the period, Ron Stewart was Chairman of the Audit Committee. The other members were Andrew Jennings, Jennifer Roebuck and Sharon Baylay. Anita Balchandani was a member of the Audit Committee until her resignation from the Board and associated committee positions on 19 February 2018. The expertise of the Audit Committee members is considered as part of the annual review of the Committee’s effectiveness. The Board is satisfied that the Committee possesses recent and relevant financial experience, sectoral competence and appropriate levels of independence, and that its members offer a depth of financial and commercial experience across various industries. The terms of reference for the Audit Committee are available here.

AGENDA ITEMS MARCH
2018
JULY
2018
OCTOBER
2018
1. Financial oversight      
Reviewing the progress of the Full Year Report/Interim Report Y   Y
Assessing the KPMG Audit Committee Paper summarising the results from the year-end external audit Y    
Assessing the KPMG Audit Committee Paper summarising the results from the interim review     Y
2. Conduct of the audit      
Overseeing the KPMG Audit Strategy     Y
Receiving and reviewing the KPMG Management Letter on control observations Y    
Monitoring the effectiveness of external auditors Y Y Y
Monitoring the independence of KPMG Y Y Y
Review of FRC investigation     Y
3. Statutory compliance      
Ensuring compliance with mandatory audit rotation and tendering Y    
Tracking and adopting updates to accounting standards     Y
4. Risk management      
Monitoring the Board’s management of risk Y Y Y
Receiving and reviewing the findings of the internal audit Y Y Y
5. Tax      
Identifying and responding to the key tax risks to the Group Y   Y
Overseeing the Group’s tax strategy Y   Y
6. Internal policies      
Setting the terms of reference of the Audit Committee   Y  
Adopting an appropriate whistle blowing policy   Y  
Setting out the non-audit services provided by KPMG   Y  
Setting out the non-audit spend   Y  
Investigating whether the Group employs former KPMG staff   Y  
7. External risks      
Setting and agreeing the level of materiality Y   Y
Monitoring the Group’s Cyber Risk Review   Y Y
Appraising the investment in new stores   Y  
Monitoring the foreign currency risk to the Group Y    
Monitoring the Group’s preparations for compliance with the General Data Protection Regulation   Y Y

The main areas of judgement and estimation are set out in the accounting policies on 85- 90.

The Audit Committee received and reviewed reports from management and the external auditors setting out the significant issues in relation to the financial statements for the period which related to the carrying value of inventory and the carrying value of retail fixed assets (being leasehold improvements and fixtures and fittings). These issues were discussed and challenged with management during the period. They were also discussed with the external auditors at the time the Audit Committee reviewed and agreed the external auditors’ Group audit plan, when the external auditors reviewed the half year interim financial statements in October 2018, and also at the conclusion of the audit of the financial statements for the period.

  1. Carrying value of inventory The Directors have used their knowledge and experience of the fashion industry in determining the level and rates of provisioning required to calculate the appropriate inventory carrying values. Inventory is carried in the financial statements at the lower of cost and net realisable value. Sales in the fashion industry can be extremely volatile with consumer demand changing significantly based on current trends. As a result there is a risk that the cost of inventory exceeds its net realisable value. Management calculates the inventory provision on the basis of the ageing profile of what is in stock. Provisions are considered on a seasonal basis taking into consideration the various channels that are available to the Group to sell existing inventory and the estimated prices that can be achieved. Any changes to the prices that can be achieved could impact the provisions that are required to cover the risks associated with holding older season inventory. Adjustments are made where appropriate based on Directors’ knowledge and experience to calculate the appropriate inventory carrying values. Management confirmed to the Audit Committee that there have been no significant changes to the approach used to estimate inventory provisions from the prior year. The external auditors explained to the Audit Committee the work they had conducted during the year. On the basis of their audit work, the external auditors reported no inconsistencies or misstatements that were material in the context of the financial statements as a whole, and in the view of the Audit Committee this supports the appropriateness of the Group’s methodology.
  2. Carrying value of retail fixed assets (being leasehold improvements and fixtures and fittings) Leasehold improvements and fixtures and fittings for stores are identified for further impairment testing primarily on the basis of current and projected performance, with growth assumptions based on Directors’ knowledge and experience. Given the relative immaturity of the brand outside the UK, the payback period is typically longer and it is not uncommon for new stores to make losses in their start-up phase. Judgement is therefore applied by the Directors in assessing the trigger point for impairment, recognising that losses in the start-up phase are not always indicative of the future performance of a particular store. The future forecasts are inherently judgemental and the key sensitivity includes achieving the growth rates for a particular store and relevant to the specific market. A change in these assumptions will impact the future forecasts and management’s assessment of the profitability of each store. The assumptions are continually reviewed against current trading performance and external factors that impact the fashion industry and consumer demand for specific regions, including for example macro-economic conditions that may impact consumer spending patterns and tourism. The Directors use their knowledge of the fashion industry and experience built over many years to set and monitor the assumptions included within the forecasts. The external auditors explained to the Audit Committee the work they had conducted during the year. On the basis of their audit work, the external auditors reported no inconsistencies or misstatements that were material in the context of the financial statements as a whole, and in the view of the Audit Committee this supports the appropriateness of the Group’s methodology.
  3. Misstatements Management confirmed to the Audit Committee that it was not aware of any material misstatements or immaterial misstatements made intentionally to achieve a particular presentation. The external auditors reported to the Audit Committee the misstatements that they had found in the course of their work and no material amounts remain unadjusted. The Audit Committee confirms that it is satisfied that the external auditors have fulfilled their responsibilities with diligence and professional scepticism. After reviewing and challenging the presentations and reports from management and consulting where necessary with the external auditors, the Audit Committee is satisfied that the financial statements appropriately address the critical judgements and key estimates (both in respect to the amounts reported and the disclosures). The Audit Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust.

The Audit Committee oversees the Group’s relationship with the external auditors and makes recommendations to the Board in relation to their appointment, reappointment and removal and approves their remuneration and terms of engagement. The Board and Audit Committee also review the independence of the external auditors and consider the engagement of the external auditors to supply non-audit services.

The Company has adopted a formal policy on the supply of non-audit services by the external auditors. They may only provide such services on condition that such advice does not conflict with their statutory responsibilities and ethical guidance. The Audit Committee Chairman’s pre-approval is required before the Company uses non-audit DIRECTORS’ REPORT 42 services. Where fees are expected to be above £50,000, this requires approval from the Audit Committee Chairman and one other member of the Audit Committee. The aggregate spend is also reviewed by the Audit Committee on an annual basis. Details of the auditors’ remuneration for audit and non-audit fees are disclosed in Note 3 to the financial statements.

The Audit Committee recognises that the independence of the external auditors is an essential part of the audit framework and the assurance that it provides. The Audit Committee monitors any non-audit work that is undertaken by the external auditors to ensure that their objectivity and independence is not compromised.

To assess the effectiveness of the external auditors, the Audit Committee reviewed:

  • the external auditors’ fulfilment of the agreed audit plan and variations from it;
  • reports highlighting the major issues that arose during the course of the audit; and
  • feedback from the businesses evaluating the performance of each assigned audit team.

The Audit Committee held meetings with the external auditors before each Audit Committee meeting to review key issues within their scope of interest and responsibility. To fulfil its responsibility for oversight of the external audit process, the Audit Committee reviewed:

  • the terms, areas of responsibility, associated duties and scope of the audit as set out in the external auditors’ engagement letter for the forthcoming year;
  • the external auditors’ overall work plan for the forthcoming year;
  • the external auditors’ fee proposal;
  • the major issues that arose during the course of the audit and their resolution;
  • key accounting and audit judgements;
  • the level of errors identified during the audit; and
  • recommendations made by the external auditors in their management letters and the adequacy of management’s response.

Consideration is also given by the Audit Committee to the need to include the risk of the withdrawal of the external auditors from the market in its risk evaluation and planning. As reported by the Financial Reporting Council (FRC) on 20 August 2018, KPMG reached a settlement agreement with the FRC’s Executive Counsel in relation to a matter concerning the provision of non-audit services by KPMG to Ted Baker. Alongside their audit services in respect of the financial years ended 26 January 2013 and 25 January 2014, KPMG provided litigation support to the Group relating to a commercial dispute. The Audit Committee notes the FRC’s clarification that this matter did not allege that KPMG was without integrity and objectivity. As such, the Audit Committee took the view that KPMG could continue to act as an independent and effective auditor.

The Audit Committee considers the reappointment of the external auditors each year and assesses their independence on an ongoing basis. KPMG have been the Company’s external auditors since 2001, with a competitive audit tender process last carried out in 2012. The Audit Committee notes the final Order of the Competition and Markets Authority and the EU regulation on audit rotation and will ensure compliance with these requirements in considering when next to tender the external audit. It is considered advantageous to coincide the tender process with KPMG’s partner rotation policy. The next rotation is due to take place for the financial year 2022/23. In any event, this tender process must be completed by the year ending 25 January 2025 in accordance with the EU regulation. The requirements of the Code and the Order and EU regulation notwithstanding, the Audit Committee will continue to monitor the effectiveness of the external auditors on an annual basis and will tender in accordance with the EU regulations. Accordingly, the Company confirms that it complied with the provisions of the Competition and Markets Authority’s Order for the financial year under review.

The Audit Committee is responsible for the review of the Company’s procedures for responding to the allegations of whistle blowers and the arrangements by which staff may raise concerns in confidence. The whistle blowing provisions have been enhanced by allowing the Group’s team members and stakeholders such as suppliers or licence partners to report on any matter to an independent body. This is available in local languages in many jurisdictions with a local telephone number or reporting website.

Any reports made to this service can be anonymous, if the whistle blower so elects, and will be sent to the Group’s General Counsel and a member of the non-executive team. It is hoped that this service will encourage individuals to speak out without fear of reprisal.

Nomination Committee

During the period the Nomination Committee was chaired by David Bernstein and its other members were Ron Stewart and Andrew Jennings. Following the introduction of the 2018 UK Corporate Governance Code and a review of the composition of the Nomination Committee with regards to tenure, Sharon Baylay was appointed as Chair and Ron Stewart stood down from the Committee, being succeeded by Jennifer Roebuck.

The role of the Nomination Committee is to establish a framework for appointment of new Directors to the Board by considering the organisation and composition of the business as a whole. The Nomination Committee is also responsible for overseeing succession planning requirements for the Board and senior management positions, including the identification and assessment of potential Board candidates, nurturing talent within the business and making recommendations to the Board for its approval.

All Non-Executive Directors are advised of the time commitment considered necessary to enable them to fulfil their responsibilities prior to appointment.

The terms of reference for the Nomination Committee are available here.

Remuneration Committee

The aim of the Group’s remuneration policy is to attract, motivate and retain high quality management and to incentivise them according to the levels of value generated for shareholders. Please follow the link to the Remuneration Report including our latest Annual Report and Account for more information.

The terms of reference for the Committee are available here.

Diversity

Boardroom diversity is an important consideration when assessing a candidate’s ability to contribute to and complement the abilities of a balanced Board. As a global business, the Group recognises the importance of having a team which represents our target audience to deliver the Group’s success and to ensure the brand remains relevant. The Group continues to support the development and progression of all employees, with the aim of maintaining and achieving diversity throughout all levels of the organisation. Our Board appointments will always be made on merit against objective criteria, and this will continue to be the priority rather than aiming to achieve an externally prescribed diversity target. The Board will consider how these criteria can be applied to provide equality of opportunity for candidates from minority groups in relation to appointments made in the coming financial year.

As noted in the People report on page 30, the Group believes in respecting individuals and their rights in the workplace and that diversity supports the dynamic of our teams to deliver success. With this in mind, people policies are in place setting out our commitment to managing harassment and bullying in the workplace, whistle blowing, equality and diversity. Our team represents a wide and diverse workforce from all backgrounds, sexual orientations, nationalities, ethnicities and religious groups. We support sponsorship of visa applications, where appropriate, to retain specific talent within the business. We respect cultural difference and actively seek to learn about each territory we operate within. Our commitment to diversity across the Group continues and consideration to diversity and gender is given with a view to appointing the best placed individual for each new role.

Communication with Shareholders

The Group attaches considerable importance to the effectiveness of its communication with its shareholders. The full report and accounts are sent to all shareholders and further copies are distributed to others with potential interest in the Group’s performance.

Led by the Chief Executive Officer and the Finance Director, the Group seeks to build on a mutual understanding of objectives between the Company and its institutional shareholders by making general presentations after the interim and preliminary results; meeting shareholders and potential investors to discuss long-term issues and gathering feedback; and communicating regularly throughout the year via its investor relations programme. All shareholders have access to these presentations, as well as to the Annual Report and Accounts and to other information about the Company through the investor relations website at www.moviepaces.com. Shareholders may also attend the Company’s Annual General Meeting at which they have the opportunity to ask questions.

Non-Executive Directors are kept informed of the views of shareholders by the Executive Directors and are provided with independent feedback from investor meetings.

Conflicts of interests

The Company’s Articles of Association take account of certain provisions of the Companies Act 2006 relating to directors’ conflicts of interest. These provisions permit the Board to consider, and if thought fit, to authorize situations where a director has an interest that conflicts, or may possibly conflict, with the interests of the Company. The Board has adopted procedures for the approval of such conflicts. The Board’s powers to authorise conflicts are operating effectively and the procedures are being followed.

Internal Control

In order to help manage the Group’s risks and uncertainties, the Board has delegated responsibility for monitoring the effectiveness of the Group’s systems of internal control and risk management to the Audit Committee.

The Audit Committee oversees the Group’s internal audit function, including its role, mandate and audit plan. Certain internal audit functions were outsourced to PwC. The Group has found that the effectiveness of the internal audit has been increased by engaging PwC, as it has allowed the Group’s management to access a wider range of expertise than it otherwise would have, and afforded management the opportunity to have its processes and findings challenged by an independent reviewer. The focus of the internal audit is influenced by the risks, controls and management action plans identified by the Risk Committee, which are presented to the Board by the Finance Director at regular intervals. The Audit Committee assesses the findings of the Risk Committee and tasks the internal audit with investigating how the Group has responded to them. The Audit Committee approves the scope of the internal audit function (permitting for this to change in order to remain abreast of any new developments encountered by the Group) and challenges its conclusions. When appointing the Internal Audit team, the Audit Committee satisfied itself that the people assigned to it have the necessary experience and expertise to effectively fulfil their role. The performance of internal audit is evaluated according not only to the risks it identifies but also to the proposals it offers to remedy those risks.

In addition, the Group has established a Risk Committee that includes the Finance Director and various members of the Executive Board and heads of department. The Risk Committee helps the Executive Board review the risk management and control process in each key business area on an ongoing basis and provides a platform for management to drive improvement across the business. The Risk Committee considers:

  • the authority, resources and co-ordination of those involved in the identification, assessment and management of significant risks faced by the Group;
  • the response to the significant risks which have been identified by management and others;
  • the maintenance of a controlled environment directed towards the proper management of risk; and
  • the annual reporting procedures.
The Bribery Act 2010

The Group has an established anti-bribery policy in place designed to manage risks relating to bribery and corruption. Ted’s Handbook, which is provided to all Ted employees, includes information and instructions on how to manage these risks and is supplemented by internal training. Ted also ensures that suppliers are made aware of Ted’s anti-bribery policy and how to manage risks by including relevant provisions in Ted’s Supplier Manual and other supply contracts. Both the handbook and the supplier manual are regularly kept under review to ensure they are sufficiently robust to prevent bribery and corruption.

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