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

Following the Company's entry into the FTSE 250 index during the year ended January 2013, the Company became subject to additional requirements of the UK Corporate Governance Code (the "Code"). The Code is issued by the Financial Reporting Council and is available for review 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, except in respect of Code  Provisions  C.3.1 and D.2.1 (audit and remuneration committees to have at least three independent non-executive directors). Provision A.3.1 of the Code requires that the chairman should on appointment meet the independence criteria prescribed by the Code. The Company considers chairman David Bernstein to be independent notwithstanding that, prior to his appointment as chairman in January 2013, he had served on the Board for more than nine years from the date of his first election and therefore did not satisfy the independence criteria under Provision B.1.1 of the Code. The Board considers David Bernstein to be independent in character and judgement, due to his extensive experience and to be a valuable member of the Board.

Statement about applying the Main Principles of the Code

The Company has applied the Main Principles set out in the 2010 and 2012 Codes. 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 pages 27 to 41.

The Board and Committees

The Board currently comprises a non-executive chairman, the chief executive, one other executive director and three independent non-executive directors. Biographies of these directors appear on page 26. 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 Ronald Stewart, Anne Shenfield and Andrew Jennings to be independent for the purposes of the Code. Further, as referred to above, the Board considers chairman David Bernstein to be independent notwithstanding that he has served on the Board for more than nine years from the date of his first election.  

The Board meets regularly throughout the year. It considers 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. 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 Executive Committee. The Executive Committee meets regularly throughout the year.

To enable the Board to function effectively and the directors to discharge their responsibilities, full and timely access is provided to all relevant information. 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 every director has to the Company Secretary.

The Company maintains an appropriate level of director and officer liability insurance cover in place and, through the Articles of Association and director’s terms of appointment, has agreed to indemnify the Directors against certain liabilities to third parties and costs and expenses incurred as a result of holding office as a Director. Save for such indemnity provisions in the Company’s Articles of Association and in the Directors’ terms of appointment, there are no qualifying third party indemnity provisions in force.

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.

During the year in review, the Board undertook an informal evaluation of its own performance, its committees' performance and the performance of its directors, with continuing assessment undertaken throughout the year in review. Informal evaluations and assessments conducted by the Board and its committees covered a range of issues around board and committee membership, board and committee roles and responsibilities and board and committee processes. As referred to above, the Board intends to review the process around a formal externally facilitated evaluation of performance for the year ending January 2015, in light of the provisions of the Code.

Board and committee attendance

The table below details the number of Board and committee meetings held during the year ended 25 January 2014 and the attendance record of each director.

 

Board meetings

Audit committee

Remuneration committee

Nomination committee

Number of meetings held

12

3

4

1

Raymond S Kelvin

11

n/a

n/a

n/a

Lindsay D Page

12

n/a

n/a

n/a

David Bernstein

12

3

4

1

Anne Sheinfield

12

n/a

4

1

Ronald Stewart

12

3

3

1

Audit Committee Statement

During the year, Ronald Stewart was chairman of the Audit Committee (the "Committee"). The other Committee member was David Bernstein.

Following the Company's entry into the FTSE 250 index during the year in review, the Company is no longer a small company for the purposes of the Code and as such is subject to additional obligations, including Provision C.3.1. of the Code which provides that the Committee should comprise of at least three independent non-executive directors, and that the Chairman should not be a member of the Committee. The Board recognises that the Company has not been compliant with Provision C.3.1 of the Code during the year but considers David Bernstein, notwithstanding his appointment as Chairman, to be a valuable member of the Committee because of his recent and relevant financial experience. Andrew Jennings was appointed as a member of the Committee on 14 March 2014.

A summary of the key matters considered by the Committee during the year are set out below:

The terms of reference for the Committee are available here.

Agenda items

March

July

October

Full year report / Interim report

 

 

 

KPMG Audit Committee paper

Y

 

Y

KPMG Management letter

Y

 

 

Internal Audit

 

 

 

Findings of internal audit reviews

Y

 

 

Key tax risks and approach

Y

Y

Y

Risk management

 

Y

 

Policies

 

 

 

Impairment policy review

Y

 

 

Terms of reference of the Committee

 

Y

 

Whistle blowing

 

Y

 

Non-audit services provided by KPMG

 

Y

 

Employment of former KPMG staff

 

Y

 

Non-audit spend

 

Y

 

Other matters

 

 

 

Resourcing

Y

Y

Y

Succession planning

 

Y

 

Systems implementation plan

 

Y

 

Review of changes to the Code

 

 

Y

Post investment appraisal (stores)

 

Y

 

The main areas of judgement and estimation are set out in the accounting policies on pages 57 to 62

The Committee received, reviewed and challenged reports from management and the external auditors setting out the significant issues in relation to the 2014 financial statements which related to: the carrying value of inventory, accounting considerations for a loss of profit claim against AXA and the carrying value of retail fixed assets.

These issues were discussed and challenged with management during the year. They were also discussed with the auditors at the time the Committee reviewed and agreed the auditors’ group audit plan, when the auditors reviewed the half year interim financial statements in October 2013, and also at the conclusion of the audit of the financial statements.

1) Carrying value of inventory

Inventory is carried in the financial statements at the lower of cost and net realisable value. 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 confirmed to the Committee that there have been no significant changes to the approach used to estimate inventory provisions from the prior year. The auditors explained to the Committee the work they had conducted during the year. On the basis of their audit work, the auditors reported no inconsistencies or misstatements that were material in the context of the financial statements as a whole; and in our view this supports the appropriateness of our methodology.

2) Legal claim against AXA

The Group is pursuing a claim against its previous insurers for loss of profit arising from the theft of inventory from its warehouse from 2004 to 2008. There is a significant level of judgment involved in determining the recognition and amount of any contingent asset arising from a successful outcome of the claim or a contingent liability should the Group be unsuccessful in its claim.

Management confirmed to the Committee the basis of its assessment of the outcome of the claim and the accounting implications of its assessment. Management’s assessment was based on the latest reports from independent experts appointed by the court, the outcome of court hearings during the year and advice from the group's external counsel. The auditors explained to the Committee the work they had conducted, including how their audit procedures were focused on the recognition criteria and/ or measurement of any contingent asset or liability arising from the claim. On the basis of their audit work, the auditors reported no inconsistencies or misstatements that were material in the context of the financial statements as a whole.

3) Carrying value of retail fixed assets

The Group has invested a significant amount of capital outside the UK in its retail store portfolio. 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 starting phase. The Audit Committee challenged management on the evidence on which they based their assessment as to when an indicator exists for loss making stores and needs to be formally tested. This included an assessment of performance of retail stores to the original business case, comparing relative performance of stores within each region and confirming that management’s assessment was in line with the Committee’s understanding of the maturity of the brand in each location. The auditors explained to the Committee the work they had conducted during the year. On the basis of their audit work, the auditors reported no inconsistencies or misstatements that were material in the context of the financial statements as a whole; and in our view this supports the appropriateness of our methodology.

4) Misstatements

Management confirmed to the Committee that they were not aware of any material misstatements or immaterial misstatements made intentionally to achieve a particular presentation. The auditors reported to the Committee the misstatements that they had found in the course of their work and no material amounts remain unadjusted. The Committee confirms that it is satisfied that the 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 auditors, the 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 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.

5) Future IFRS developments

The Committee has discussed future accounting developments likely to affect the presentation of the Group’s Financial Statements.

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

The Company has adopted a formal policy on the supply of non-audit services by the external auditors. They may only provide such services on condition that such advice does not conflict with their statutory responsibilities and ethical guidance. The Committee Chairman’s pre-approval is required before the Company uses non-audit services that exceed financial limits set out by that policy and the aggregate spend is also reviewed by the Committee on an annual basis. Details of the auditors’ remuneration for audit and non-audit fees are disclosed in note 3 to the Financial Statements.

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

The Committee has formally reviewed the independence of the auditors during the review year. KPMG Audit Plc has provided a letter to the Committee confirming that it remains independent within the meaning of the regulations on this matter and in accordance with professional standards.

The Committee is responsible for the review of the Company’s procedures for responding to the allegations of whistleblowers and the arrangements by which staff may, in confidence, raise concerns about possible financial reporting irregularities.

To assess the effectiveness of the external auditors, the 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;
  • feedback from the businesses evaluating the performance of each assigned audit team; and
  • a report from the Audit Quality Review Team of the Financial Reporting Council on KPMG.

The Committee holds private meetings with the external auditors before each Committee meeting to review key issues within their sphere of interest and responsibility. To fulfil its responsibility for oversight of the external audit process, the 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 Committee to the need to include the risk of the withdrawal of the external auditors from the market in its risk evaluation and planning.

The Committee considers the reappointment of the external auditors each year and assesses their independence on an ongoing basis. KPMG has been the Company’s external auditors since 2001, with a competitive audit tender process carried out in 2012. The Committee will next tender the position for external auditor in accordance with the 2012 Code.

Nomination Committee

During the year the Nomination Committee (the "Committee") was chaired by David Bernstein and its other members were Ronald Stewart and Anne Sheinfield. The composition of the Committee during the year complied with Provision B.2.1 of the Code.

The Committee is responsible for nominating candidates for appointment to the Board.

All non-executive directors are advised of the time commitment considered necessary to enable them to fulfill their responsibilities prior to appointment.

The terms of reference for the 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.

Appointments to the Board

On 9 January 2014, Andrew Jennings was appointed to the Board as a non-executive Director, effective from 1 February 2014. The Committee considered a shortlist of potential candidates in light of the balance of skills, experience, independence and knowledge on the Board, determining against objective criteria that Andrew would be a suitable and valuable addition to the Board. In light of the wealth of Andrew's international retail experience, the Committee did not consider it necessary to use an external search consultancy and neither was open advertising used in respect of his appointment.

Newly appointed directors are given training appropriate to the level of their previous experience. Non-executive directors meet regularly with members of the executive committee and other personnel within the organisation. In addition, site visits ensure that the non-executive directors gain first-hand experience of developments within the Group.

Any director appointed during the year is required, under the provisions of the Company’s Articles of Association, to retire and seek re-election by the shareholders at the next Annual General Meeting.

The Company’s Articles of Association require one third of the Directors for the time being to retire, and each Director to retire from office at least once every three years. However, in line with Provision B.7.1 of the Code, the Board has determined that all Directors would retire and stand for re-election on an annual basis.

Diversity

We strongly support the principle of boardroom diversity, of which gender is one element and Anne Sheinfield has been on the Board since June 2010 and the Board is very pleased to benefit from her valuable contribution.

Boardroom diversity, including gender, is an important consideration when assessing a candidate's ability to contribute to, and complement the abilities of, a balanced Board.

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.

As noted in the People report on page 24, the continued expansion of the Company means that Ted Baker’s workforce is becoming increasingly more diverse. The Company will continue to support the development and progression of all employees, with the aim of maintaining and achieving diversity throughout all levels of the organisation.

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.

The directors seek to build on a mutual understanding of objectives between the Company and its institutional  shareholders by making general presentations after the interim and preliminary results; meeting shareholders to discuss long-term issues and gather feedback; and communicating regularly throughout the year. All shareholders have access to these presentations, as well as to the annual report and accounts and to other information about the Company, through the website at www.tedbakerplc.com. They may also attend the Company’s Annual General Meeting at which they have the opportunity to ask questions.

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

Conflicts of interests

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

The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.

The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place for the year under review and up to the date of approval of the Annual Report and Accounts, and that this process is regularly reviewed by the Board and accords with the 'Internal Control: Guidance for Directors on the Code' (the “Turnbull guidance”).

The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed. Management is responsible for the identification and evaluation of significant risks applicable to their areas of the business together with the design and operation of suitable internal controls. These risks are assessed on a continual basis and may be associated with a variety of internal or external sources including control breakdowns, disruption in information systems, competition, natural catastrophe and regulatory requirements.

The Group has an independent internal audit function whose findings are regularly reviewed by the executive committee and the Board. The Audit Committee monitors and reviews the effectiveness of the internal audit activities.

Management reports regularly on its review of risks and how they are managed to the Risk Committee, whose main role is to review, on behalf of the Board, the key risks inherent in the business and the system of control necessary to manage such risks, and to present their findings to the Board. The Chief Executive reports to the Board on behalf of the executive committee on significant changes in the business and the external environment which affects significant risks.

The Finance Director provides the Board with monthly financial information which includes key performance indicators. Where areas for improvement in the system are identified, the Board considers the recommendations made by the Risk Committee and the Audit Committee.

The Risk Committee includes the Finance Director and various heads of department. It reviews, on a twice yearly basis, the risk management and control process and considers:

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

Additionally, the Risk Committee keeps abreast of all changes made to the systems and follows up on areas that require improvement. It reports to the Board at twice yearly intervals or more frequently should the need arise.

The Bribery Act 2010
The Board continues to proactively review the Group’s procedures to ensure they are sufficiently robust to prevent corruption.