TED.L Regulatory News (TED)

Ted Baker Plc

("Ted Baker", the "Group")

Interim Results Announcement for the 28 weeks ended 10 August 2019

Commenting, Lindsay Page, Chief Executive, said:

"We are continuing to pro-actively manage the significant challenges impacting our sector including weak consumer spending, macro-economic uncertainty, and the accelerating channel shift towards e-commerce. However, we are not immune to these pressures which have impacted our financial performance during the first half of the year.

Despite this, we have delivered a number of important strategic developments including reorganising our Asia operations to drive long term growth, integrating the acquired footwear business and signing an important new product licence partnership for childrenswear. Our Autumn/Winter collections have been well received and we are excited about our new product initiatives including monthly product drops and speed to market developments.

We remain actively focussed on cost control and driving further efficiencies. Despite the structural challenges and cyclical pressures on the industry, we remain confident in Ted Baker's ability to navigate the market and further develop as a global lifestyle brand. This confidence remains underpinned by the Group's flexible, omni-channel model, the continuing strength of the brand, and the skill, passion and commitment of our talented teams worldwide."

tedbaker@hudsonsandler.com

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 e-commerce); wholesale; and licensing.

Ted Baker has 560 stores and concessions worldwide, comprised of 199 in the UK, 124 in Europe, 136 in North America, 96 in the Middle East, Africa and Asia, and 9 in Australasia.

We offer a wide range of collections including Menswear; Womenswear; Global; Phormal; Endurance; Colour By Numbers; Accessories; Bedding; Childrenswear; Eyewear; Footwear; Fragrance and Skinwear; Gifting and Stationery; Jewellery; Lingerie and Sleepwear; Luggage; Neckwear; Rugs; Suiting; Technical Accessories; Tiles; and Watches.

Chairman's Statement

It has been a challenging half. Trading conditions have been characterised by unprecedented and sustained levels of promotional activity across the sector with, in several cases, distressed discounting from brands and retailers and heightened competition. The Group's performance has been impacted by very difficult trading conditions throughout the period, amplified by heightened levels of consumer uncertainty across many of Ted Baker's global markets. This has been exacerbated by the well-publicised challenges that continue to face some of the Group's UK trading partners against the backdrop of the continuing shift towards an increasingly digital retail landscape. As previously indicated, we also experienced some challenges with our Spring/Summer collections which we believe have been appropriately addressed as we move into Autumn/Winter.

In light of this, Group revenue decreased by 0.7% (2.5% decrease in constant currency)1 to £303.8m (2018: £306.0m) and profit before tax, exceptional items and IFRS 162 decreased to a loss of £2.7m (2018: profit of £25.0m) for the period. Reported Profit before tax decreased to a loss of £23.0m (2018: profit of £24.5m). Exceptional costs of £17.4m (2018: £0.6m) have largely been incurred as a result of actions taken to strengthen the brand and include £11.8m in respect of the restructure of the legacy Asia businesses and £3.5m in relation to the footwear acquisition in January 2019.

The financial results we delivered in the first half were behind our expectations. Trading in the second half has started slowly, not helped by the unseasonably warm weather in September, and this will have an impact on the full year outcome. If these trends continue, we will achieve a second half result below that of last year. We also have a number of significant trading periods across the balance of the year with forward visibility significantly reduced in these evolving sector dynamics.

Despite these structural challenges and cyclical pressures, we remain confident in Ted Baker's long-term ability to navigate the market and further develop as a global lifestyle brand. This confidence is underpinned by the Group's truly omni-channel distribution model, the high regard in which the brand is held, and the passion and commitment of our talented teams across the world.

STRATEGIC FOCUS AND PROGRESS

Notwithstanding the backdrop, the Group has taken a pro-active approach to managing the business. During the first half of the year, the Board has continued to deliver progress against its strategy and strengthen the Group's platform for future development. The Group's focus remains on the following key strategic priorities:

- Customer and brand-centricity;

- Continuous development of omni-channel routes to market;

- Selective space growth to expand the reach of the brand;

- Development of market leading partnerships;

- Focus on efficiencies, cost-control and leveraging investments;

- Developing and supporting a first-class team and actions to improve focus on our people and culture.

The Board is pleased by the significant progress the Group has made against these priorities during the year to date.

Customer and brand-centricity

The Board remains fully confident that the Ted Baker brand remains strong, highly relevant and in good health. This is supported by the metrics we use to measure the brand strength. Our social presence on Instragram grew 20% on last year, hitting one million followers, which demonstrates the expansion of the brand's appeal.

A number of new product initiatives which went live during the first six months of the year have already demonstrated success with our customers. These initiatives include monthly product drops in-store, online and to our wholesale trustees and the launch of a shorter lead time design process which allows us to quickly identify commercial opportunities among high demand products and styles.

We have also expanded our sustainability commitments, through our strategy 'Fashioning a Better Future'. We have set ourselves ambitious goals and strive to be an industry leader on sustainability. Our business impacts the lives of thousands of people and their environment around the world, meaning we must be proactive in our approach to advancing positive working conditions, protecting human rights and responsibly managing the resources we use. We are committed to operating in a fair and sustainable manner. One of Ted's most ambitious new targets is to make the switch to 100% more sustainable materials in all our collections by 2030. We are also publishing our first-tier factory list and piloting a circular business model in SS20.

Continuous development of omni-channel routes to market

The significant investments made by the Group over recent years in deploying new global systems is improving efficiency and streamlining operations as well as providing an enhanced omni-channel platform for the brand. During the period, we have successfully delivered a significant number of major technology projects as part of our digital and omni-channel strategy.

Ship-from-store has proven highly successful in the UK and unites our physical store inventory with our e-commerce inventory to ensure that wherever an item is, our customers can seamlessly purchase it through our global website. We have also very recently implemented a new CRM system that will now give us a complete single view of our customers across channels enabling us to deeply personalise content and experiences for each customer.

Selective space growth to expand the reach of the brand

The Board remains confident in the long-term value of our focused portfolio of stores which showcase the brand to customers and play an important role in our omni-channel model. We continue to evaluate opportunities for new stores based on their financial return. During the period, we opened exciting new stores in prime locations in Hamburg and Metzingen in Germany and in Detroit, North America, as we continue to expand the brand's global reach and customer base.

Development of market leading partnerships

Asia

There are significant global expansion opportunities for the brand. During 2019 the Group has completed two strategic deals to accelerate Ted Baker's expansion in the Asian market, completing the reorganisation of our operations in the region. Firstly, in April, we announced the creation of a joint venture agreement with Shanghai LongShang Trading Company Ltd to further develop the brand in China including Hong Kong S.A.R. and Macau S.A.R. This joint venture will drive the long-term growth of Ted Baker in these markets, combining extensive local knowledge with the proven global buying, merchandising, training and brand-building expertise of Ted Baker.

Secondly, in August, following the end of the period, we announced the appointment of a new licence partner in Japan, Sojitz Infinity ("Infinity"). Infinity represents a strong partner to drive the long-term expansion of the Ted Baker brand in Japan, bringing significant local expertise, in particular within the department store sector. Infinity is Ted Baker's 17th Retail Licence Partner across the globe, thereby further extending this successful and proven operating model.

Product licences

During the period, two new product licensees commenced trading: a new men's underwear and loungewear global licence with Delta Galil and a global watch licence with Timex Group. Both partners reflect our commitment to working with the best product specialists who support our status as a global lifestyle brand.

In August, the Group was pleased to announce a new product licence agreement with Next Plc ("Next") to accelerate the expansion of the Group's childrenswear collections. Under the agreement, which will run initially for a five-year period, Next will create and sell Ted Baker childrenswear products spanning baby, boys' and girls' clothing, shoes and accessories in collaboration with the creative team at Ted Baker. The new collections will launch in Spring 2020 and will be sold through Next's retail channels and wholesale relationships as well as through Ted Baker's websites. As a multi-channel retailer with global capabilities and wholesale experience, Next is the outstanding partner to take Ted Baker forward in this category, which we believe brings significant opportunity for growth in the coming years.

Focus on efficiencies, cost-control and leveraging investments

Our programme of efficiency and cost saving initiatives has continued in the period. We have strengthened our procurement capabilities, ensuring best practice procurement for the future, and launched multiple operational efficiency workstreams. These initiatives are expected to generate savings in the current year with the annualised benefit seen in the next financial year.

We have also continued our focus on working capital, generating a decrease of £16.8m or 9.0% in our net working capital. In particular, we have seen the benefits of reducing our investment in inventories through tighter, more flexible buying and a proactive approach to current season sell through in response to market conditions, and improved supplier terms.

Following the acquisition of Ted Baker's footwear licensee in January 2019, the footwear business has now been fully integrated into the Group, with the first collection fully designed and fully sourced by Ted Baker launching in SS20. This acquisition provides an exciting opportunity to drive further growth in our footwear business by leveraging our global presence and infrastructure.

Developing and supporting a first-class team

Our talented and dedicated teams remain critical to the Group's development and future strategic plans. Against a challenging backdrop and evolving retail environment, our global teams have remained as focused as ever on delivering results and driving the long-term success of Ted Baker as a global lifestyle brand.

We have recently announced the appointment of Rachel Osborne as Chief Financial Officer. Rachel has more than 20 years' brand and retail sector experience and will join the Company and Board at a date to be agreed within the next few months. Rachel's career to date makes her a great fit for the Board and we are delighted to welcome her to Ted Baker.

The Board has fully considered the results of the independent investigation and as a result a number of actions have been taken.  To enhance the oversight of both people and culture matters at the Board level, Sharon Baylay has taken the role of designated non-executive director for engagement with the Ted Baker workforce. In addition, Helena Feltham was appointed to the Board as Non-Executive Director with significant HR experience. Together with the Board, Helena has overseen the actions that have been taken to address the recommendations from the independent investigation relating to Global HR policy, procedure, organisation, governance, workforce behaviours and employee engagement, including the launch of revised policies, the introduction of a user friendly desktop link to all policies, and further training of the HR team and line managers to better ensure compliance and consistent application.

Financial Results

Against the backdrop of very difficult trading conditions, Group revenue decreased by 0.7% (2.5% decrease in constant currency1) to £303.8m (2018: £306.0m) for the 28 weeks ended 10 August 2019. The gross margin before exceptional items2 decreased to 54.3% (2018: 58.3%) driven by an increase in promotional activity to react to market conditions and a more proactive stance over working capital management. This was partially offset by a marginal benefit relating to duty drawback claims in North America arising from the recent investment in systems.

Distribution costs, which comprise the cost of retail operations and distribution centres, increased by 14.0% to £138.6m (2018: £121.6m). Distribution costs before exceptional items and IFRS 162 increased by 6.3% (2.8% in constant currency1) to £128.7m (2019 constant currency1: £124.5m, 2018: £121.1m). This increase is largely a result of the annualisation of the costs of operating our new North American warehouse which opened in the first half last year as well as the costs of operating the footwear business acquired in January 2019.

Administrative expenses increased by 22.4% to £50.9m (2018: £41.6m). Administrative expenses before exceptional items2 increased by 14.9% (13.5% in constant currency1) to £47.8m (2019 constant currency1: £47.2m, 2018: £41.6m). This increase is a result of continued investment in our people, including the additional headcount to support the recently acquired footwear business, and infrastructure to support the growth of the business as well as a higher depreciation and amortisation charge from prior year investment in systems.

As previously highlighted, exceptional costs of £17.4m (2018: £0.6m) comprised the accounting adjustments in relation to the prior year acquisition of the footwear business of £3.5m (of which £2.4m is included in cost of sales and £1.1m is included in administrative expenses), 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 of £2.0m (included in administrative expenses), and the expected loss on restructure of our legacy businesses in Asia of £11.8m (included in distribution costs).

During the period, the Group adopted IFRS 16 'Leases' for the first time. IFRS 16 specifies how to recognise, measure, present and disclose leases and replaces IAS 17 'Leases'. The Group adopted IFRS 16 from 27 January 2019 using a simplified modified retrospective transition approach, under which the comparative information presented for the 52 weeks ended 26 January 2019 and the 28 weeks ended 11 August 2018 has not been restated and therefore continues to be shown under IAS 17. The net impact on Profit before tax for the 28 weeks ended 10 August 2019 was £2.9m. Further information is provided in Note 1.

The net foreign exchange gain during the period of £0.7m (2018: loss of £0.1m) was due to the translation of monetary assets and liabilities denominated in foreign currencies. Net interest payable, excluding the impact of IFRS 16, during the period was £2.0m (2018: £1.9m) due to higher average borrowings following the payment to acquire the footwear business in January 2019.

Profit before tax, exceptional items and IFRS 162 decreased to a loss of £2.7m (2018: a profit of £25.0m) and profit before tax decreased to a loss of £23.0m (2018: a profit of £24.5m). Adjusted earnings per share3, which excludes exceptional items and IFRS 16, decreased to a loss per share of 4.5p (2018: earning per share of 43.8p) and basic earnings per share decreased to a loss per share of 46.1p (2018: earnings per share of 42.8p).

The forecast effective tax rate of 24.2% in respect of continuing operations (2019 full year effective rate: 19.9%) is higher than the forecast UK corporation tax rate for the period of 19%, largely due to higher overseas tax rates and the non-recognition of losses in overseas territories. The income tax credit on exceptional items at half year is calculated and disclosed separately. This has a significant impact in reducing the total effective tax rate to 10.7% at the half year given the significant number of exceptional items.

In September 2019, the Group successfully completed a refinancing of its existing Revolving Credit Facility of £135.0m and term loan of £45.0m into a new three year secured Revolving Credit facility of £180.0m, bringing an additional lender into its existing syndicate of three banks. The facility contains standard covenant tests that are appropriate to our Group and provides the resources to fund the planned investment in capital expenditure and working capital required to support the Group's long-term growth strategy.

Net borrowings at 10 August 2019 of £141.4m (2018: £132.7m) are higher than last year, however this is due to the acquisition on the footwear business in January 2019. Excluding the consideration paid, net borrowings decreased by £11.2m on the prior year.

The net decrease in cash and cash equivalents of £18.9m (2018: £24.4m) primarily reflects capital expenditure to support our long-term development and the payment of the full year dividend, offset by a significant improvement in working capital. During the period, we made repayments of £2.0m (2018: £3.0m) on the secured term loan used to purchase The Ugly Brown Building.

Total working capital, which comprises inventories, trade and other receivables and trade and other payables, decreased by £16.8m to £171.4m (2018: £188.2m).

This was mainly driven by an increase in trade and other payables of £23.7m to £109.0m (2018: £85.3m). This includes the impact of foreign exchange, the acquisition of the footwear business in January 2019 and the restructure of our legacy businesses in Asia. Excluding the impact of these, there was an increase in trade and other payables of £22.6m, reflecting the benefit of previously announced working capital initiatives, which we continue to focus on.

Inventories increased by £1.4m to £209.6m (2018: £208.2m) and excluding the impact of foreign exchange, the acquisition of the footwear business in January 2019 and the restructure of our legacy businesses in Asia, inventories decreased by £5.1m. This has been achieved through tighter, more flexible buying and a more proactive approach to current season sell through, in line with the heavy promotional market environment.

Trade and other receivables increased by £5.4m to £70.8m (2018: £65.4m), reflecting the acquisition of the footwear business, the impact of movements in foreign exchange rates and the restructure of our legacy businesses in Asia. Excluding the impact of these, there was an increase in trade and other receivables of £2.8m, reflecting the timing of wholesale sales and cash receipts around the half year date.

Group capital expenditure of £16.9m (2018: £18.5m) relates to the opening and refurbishment of stores, concessions and outlets and the ongoing investment in business-wide IT systems and infrastructure to support our continued growth. We expect full year capital expenditure to be in line with previous guidance of £31.0m, subject to the timing of planned openings.

Dividends

The Board has declared an interim dividend of 7.8p (2018: 17.9p), which will be payable on 22 November 2019 to shareholders on the register at the close of business on 11 October 2019.

Global Group Performance

*Operating contribution/(loss) (excluding exceptional items and IFRS 16) is defined as operating profit/(loss) before exceptional 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 e-commerce, providing an omni-channel experience. We operate stores and concessions across the UK, Europe, North America and the Rest of the World, and localised e-commerce sites in the UK, continental Europe, the US, Canada and Australia. We also have e-commerce businesses with many of our concession partners. Our unique stores showcase the Ted Baker brand and are key to the success of our e-commerce business. Our relatively low number of own stores and higher number of concession locations allow us to maintain a flexible business model.

Retail sales decreased by 2.5% (4.1% in constant currency1) to £214.5m (2018: £220.1m). There was a decrease both in stores, which decreased by 2.9% (4.6% in constant currency), and online, where sales decreased 1.3% (2.4% in constant currency1) to £52.3m (2018: £53.0m) and represented 24.4% (2018: 24.1%) of total retail sales. The performance reflects the very difficult trading conditions throughout the period, unseasonable weather experienced across North America in the early part of the period and the highly promotional retail environment across our global markets. This has been exacerbated by the well-publicised challenges that continue to face some of the Group's UK trading partners as well as some challenges with our Spring/Summer collections.

Average retail square footage increased by 5.2% to 444,134 sq ft (2018: 422,343 sq ft). Retail sales per square foot (excluding e-commerce) decreased 7.8% (decrease of 9.3% in constant currency1) to £365 (2018: £396).

The retail gross margin decreased to 61.3% (2018: 64.2%) due to an increase in promotional activity following the unprecedented and sustained levels of promotional activity across the sector globally with, in several cases, distressed discounting from brands that are fighting for survival. This has been partially offset by an improved margin on footwear sales following the acquisition of the footwear business in January 2019.

Retail operating costs excluding exceptional items increased by 2.8% (0.9% in constant currency1) to £119.7m (2018: £116.5m. This includes the impact of IFRS 16. Excluding the impact of IFRS 16, retail operating costs increased by 4.4% (2.6% in constant currency1) to £121.7m (2018: £116.5m), and as a percentage of retail sales increased to 56.7% (2018: 52.9%). This was largely driven by the annualisation of the North American warehouse as well as an increase in employment costs.

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 increased by 4.0% (1.8% in constant currency1) to £89.3m (2018: £85.9m). The period benefited from incremental footwear revenue, following the acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC, which completed on 1 January 2019. On a comparable basis (excluding footwear), wholesale sales decreased by 9.8% (decrease of 11.7% in constant currency1). This reflects the timing of our new monthly product drops as well as very challenging trading conditions impacting both our UK and North America trustees as well as our territorial licence partners across the world.

The wholesale gross margin decreased to 37.6% (2018: 43.4%). This was partly as a result of the introduction of footwear, which carries a lower margin. Excluding the impact of footwear, the wholesale margin decreased to 40.5% (2018: 43.4%) reflecting a more proactive approach to inventory sell through as part of our working capital initiatives.

Licence Income

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; Technical Accessories; and Watches.

Licence income decreased 13.1% to £9.4m (2018: £10.9m). Licence income in the period was adversely impacted by the acquisition of No Ordinary Shoes Limited and No Ordinary Shoes USA LLC on 1 January 2019 as the previously earned licence income ceased from this date. Excluding this impact, underlying licence income increased by 2.8%.

We saw a stronger performance from our product licences during the period despite a number being impacted by the external trading conditions in the UK. There were notable performances from our product licensees in Suiting, Eyewear and Bedding.

During the period, two new product licensees commenced trading: a new men's underwear and loungewear global licence with Delta Galil and a global watch licence with Timex Group. Both partners reflect our commitment to working with the best product specialists that are able to support our status as a global lifestyle brand.

The Group has signed a new product licence agreement with Next Plc ("Next") to accelerate the expansion of Ted Baker's childrenswear collections. Under the agreement, which will run for an initial five-year period, Next will create and sell Ted Baker childrenswear products spanning baby, boys' and girls' clothing, shoes and accessories in collaboration with the creative team at Ted Baker. The new collections will launch in Spring 2020 and will be sold through Next's retail channels and wholesale relationships as well as through Ted Baker's websites. The Group's current childrenswear product relationship with Debenhams will end on 29 February 2020.

Collections

Ted Baker Menswear sales were up 0.5% to £115.3m (2018: £114.7m) and represented 38.0% of total sales (2018: 37.5%). Sales benefited footwear sales in the period following the acquisition of the footwear business in January 2019. Excluding this, menswear sales decreased by 3.8%.

Ted Baker Womenswear sales were down 1.5% to £188.5m (2018: £191.3m) and represented 62.0% (2018: 62.5%) of total sales. Excluding footwear womenswear sales decreased by 5.9%, in part due to the previously reported challenges in the Spring/Summer collection which we believe have since been addressed for the current and future seasons.

Geographic Performance

United Kingdom and Europe

*Excludes licence partner stores.

Retail sales in the period in the UK and Europe decreased by 3.9% (3.9% in constant currency1) to £141.3m (2018: £147.1m) due to the very difficult trading conditions throughout the period amplified by heightened levels of consumer uncertainty. This has been exacerbated by the well-publicised challenges that continue to face some of the Group's UK trading partners.

E-commerce sales decreased by 3.3% (3.1% in constant currency1) to £41.2m (2018: £42.6m) with sales impacted by the very difficult trading conditions and the performance of the Group's UK trading partners. As a percentage of UK and Europe retail sales, e-commerce sales represented 29.2% (2018: 29.0%).

Sales per square foot excluding e-commerce sales decreased 9.7% in constant currency1; however, our stores remain key to the success of the e-commerce business through initiatives such as ship-from-store in the UK, order in store and click and collect, as well as showcasing the brand.

During the period, we opened one store in Hamburg and one outlet in Metzingen, Germany. We opened a further concession in Germany and closed four concessions across the UK, Ireland and Germany. We also refurbished and expanded locations across the UK and Europe. We are pleased with the performance of our new and refurbished stores and concessions and remain positive about longer-term growth opportunities for our brand.

Sales from our UK wholesale business increased by 1.5% to £55.7m (2018: £54.9m), reflecting footwear sales following the acquisition of the footwear business in January 2019. Excluding this, sales from our UK wholesale business decreased by 12.7%. This is partly due to the timing of deliveries with the move to monthly product drops, as well as our trustees and licence partners also having been impacted by the very difficult trading conditions.

North America

*Excludes licence partner stores.

Sales from our North American retail division increased by 3.1% (decrease of 2.3% in constant currency1) to £63.7m (2018: £61.8m) driven by the very difficult trading conditions and unseasonable weather experienced across North America in the early part of the period. Sales per square foot excluding e-commerce sales decreased 10.2% in constant currency1.

In the period, we opened a new store in Detroit and further licence partner stores in Mexico.

Our e-commerce business delivered a good performance with sales increasing by 11.5% (4.2% in constant currency1) to £9.7m (2018: £8.7m). As a percentage of North America retail sales, e-commerce sales represented 15.2% (2018: 14.1%).

Sales from our North American wholesale business increased by 8.4% (2.5% in constant currency1) to £33.6m (2018: £31.0m), reflecting the acquisition of the footwear business. Excluding this, sales decreased by 4.6% (10.0% in constant currency) due to key trustees taking a more cautious stance.

Rest of the World

*Excludes licence partner stores.

We have continued to refine and develop our strategy in Asia, culminating in the announcement of a licence partner in Japan and the creation of a joint venture operating in China including Hong Kong S.A.R. and Macau S.A.R.

In Asia, sales decreased 15.2% (17.2% in constant currency1) to £9.5m (2018: £11.2m) and sales per square foot excluding e-commerce sales decreased 4.6% in constant currency1. In Japan, we closed one concession in the current period but also closed one store and several concessions in the prior year that have annualised in the period.

Our e-commerce concession businesses in China and Japan delivered sales of £1.4m (2018: £1.7m) which as a percentage of Asian retail sales represented 14.7% (2018: 15.2%).

Our licensed stores across the Middle East, Asia and Africa continued to perform well. Our existing licence partners opened new stores in Thailand, Singapore, India and UAE and also closed stores in Indonesia, South Korea, Saudi Arabia and UAE. As at 10 August 2019, we operated a total of 74 partner stores (2018: 66).

The joint venture with our Australian licence partner, Flair Industries Pty Ltd, continues to perform well. As at 10 August 2019, we operated nine stores in Australasia (2018: nine stores).

Current Trading and Outlook

The sector in which we operate continues to face significant challenges, including weak consumer spending against a backdrop of Brexit and broader political and economic uncertainty. As a result, the trading environment remains highly competitive and promotional with competitor discounting at unprecedented levels. We continue to proactively manage these pressures, but are not immune to the external challenges.

Reflecting this, the financial results we delivered in the first half were behind our expectations. Trading in the second half has started slowly, not helped by the unseasonably warm weather in September, and this will have an impact on the full year outcome. If these trends continue, we will achieve a second half result below that of last year. We also have a number of significant trading periods across the balance of the year with forward visibility significantly reduced in these evolving sector dynamics.

We remain actively focussed on product initiatives, cost control and driving further efficiencies through our sourcing and supply chain, as well as our ongoing focus on net working capital initiatives. The strength of the brand and the flexibility of our omni-channel model underpins the Board's continuing confidence in the Group's ability to deal with the structural changes in this evolving retail environment and continue Ted Baker's long term development.

Retail

In the UK and Europe, we have continued our measured and controlled expansion with a new store opened in Madrid and a store in Antwerp due to open later this year. We will continue to invest in our e-commerce sites to enhance the customer experience.

In North America, we will continue our expansion with several concession openings later in the year.

In the Rest of the World, we have completed the transactions in relation to the joint venture that will operate in China including Hong Kong S.A.R. and Macau S.A.R. and the licence partner in Japan. We have also opened our first outlet in Hong Kong and a new store in Durban, South Africa and plan to open another store in Pretoria later in the year.

Wholesale

In our wholesale business, we anticipate reporting mid single-digit sales growth (in constant currency1) for the full year.

Licence Income

Our product and territorial licences continue to perform well. Since the period end, our licence partners have opened stores in Egypt and Mexico with further licence partner store openings planned in Croatia, India and Indonesia.

We currently intend to make our next trading update, covering the period since the start of the second half of the financial year, in early December.

David Bernstein CBE

Executive Chairman

3 October 2019

NOTES:

1 Constant currency comparatives are obtained by applying the exchange rates that were applicable for the 28 weeks ended 11 August 2018 to the financial results in overseas subsidiaries for the 28 weeks ended 10 August 2019 to remove the impact of exchange rate fluctuations.

2 (Loss)/Profit before tax, exceptional 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 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 Note 3 of the Financial Statements.

4 Operating (loss)/contribution (excluding exceptional 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 Financial Statements.

Condensed Group Income Statement

For the 28 weeks ended 10 August 2019

* The Group has initially applied IFRS 16 at 27 January 2019, using the simplified modified retrospective transition approach. Under this approach, comparative information is not restated (see Note 1). 

Condensed Group Statement of Comprehensive Income

For the 28 weeks ended 10 August 2019

* The Group has initially applied IFRS 16 at 27 January 2019, using the simplified modified retrospective transition approach. Under this approach, comparative information is not restated (see Note 1).

Condensed Group Statement of Changes in Equity - Unaudited

For the 28 weeks ended 10 August 2019

Condensed Group Statement of Changes in Equity - Unaudited

For the 28 weeks ended 11 August 2018

Condensed Group Statement of Changes in Equity - Audited

For the 52 weeks ended 26 January 2019

Condensed Group Balance Sheet

* The Group has initially applied IFRS 16 at 27 January 2019, using the simplified modified retrospective transition approach. Under this approach, comparative information is not restated (see Note 1). 

Condensed Group Cash Flow Statement

For the 28 weeks ended 10 August 2019

\* The Group has initially applied IFRS 16 at 27 January 2019, using the simplified modified retrospective transition approach. Under this approach, comparative information is not restated (see Note 1). 

Notes to the Condensed Interim Financial Statements

For the 28 weeks ended 10 August 2019

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, 10 August 2019 comprise the Company and its subsidiaries (together referred to as the "Group").

The Group financial statements as at, and for the 52 weeks ended 26 January 2019 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 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 26 January 2019. These interim financial statements were approved by the Board of Directors on 3 October 2019.

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 auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified; (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; 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

The Group financial statements for the 52 weeks ended 26 January 2019, approved by the Board on 21 March 2019, included information on the business environment in which the Group operates, including the factors that are likely to impact the future prospects of the Group, together with the principal risks and uncertainties that the Group faces. In addition, the notes to the consolidated financial statements set out the Group's objectives, policies and processes for managing its financial and capital risk and its exposures to credit, market and liquidity risk. Many of the risks and uncertainties reported are such that their potential to impact the Group's operations are inherent and remain valid as regards to their potential impact during the second half of the financial year ending 25 January 2020.

The Directors have prepared trading and cash flow forecasts for a period of one year from the date of approval of these interim financial statements. The Directors have a reasonable expectation that the Group has adequate cash headroom and expects to meet all banking covenant requirements. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group.

d. Significant accounting policies

The interim financial statements for the 28 weeks ended 10 August 2019 have been prepared on a basis consistent with the accounting policies published in the Group's financial statements for the 52 weeks ended 26 January 2019, with the exception of the items noted below. These changes in accounting policy will also be reflected in the Group's financial statements as at and for the 52 weeks ending 25 January 2020.

1. Basis of preparation (continued)

IFRS 16 'Leases'

IFRS 16 'Leases' specifies how to recognise, measure, present and disclose leases and replaces IAS 17 'Leases'. The Group adopted IFRS 16 from 27 January 2019 using a simplified modified retrospective transition approach. The comparative information presented for the 52 weeks ended 26 January 2019 and the 28 weeks ended 11 August 2018 has not been restated and therefore continues to be shown under IAS 17.

The main impact of IFRS 16 for the Group is the recognition of all future lease liabilities on the Balance Sheet. Corresponding right of-use assets have also been recognised on the Balance Sheet representing the economic benefits of the Group's right to use the underlying leased assets.

Accounting policy under IFRS16 'Leases'

Under IFRS 16, the Group recognises right-of-use assets and lease liabilities at the lease commencement date.

The lease liabilities are initially measured at the present value of the lease payments that are not yet paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses the incremental borrowing rate as the discount rate and this rate is determined on a portfolio basis, in relation to asset type and location. Lease liabilities are subsequently measured at amortised cost and are increased by the interest charge and decreased by the lease payments made. Lease liabilities are remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a renewal or purchase option is reasonably certain to be exercised or a break clause is reasonably certain not to be exercised. The Group has applied judgement to determine the lease term for those lease contracts that include a renewal or break option. The assessment of whether the Group is reasonably certain to exercise a renewal option or reasonably certain not to exercise a break option significantly impacts the value of lease liabilities and right-of-use assets recognised on the balance sheet.

Right-of-use assets are initially measured at cost, which is an amount equal to the corresponding lease liabilities adjusted for any lease payments made at or before the commencement date, less any lease incentives received. Right-of-use assets are subsequently measured at cost less any accumulated depreciation and impairment losses, adjusted for certain remeasurements of the lease liabilities. Depreciation is calculated on a straight-line basis over the expected useful economic life of a lease which is taken as the lease term.

On transition to IFRS 16, the Group elected to apply the following practical expedients on a lease by lease basis:

(i) applying a single discount rate to a portfolio of leases with reasonably similar characteristics;

(ii) to apply the short-term exemption for all asset classes and to apply low value exemptions;

(iii) to exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application; and

(iv) to rely on the previous assessment of onerous contracts.

1. Basis of preparation (continued)

Impact of IFRS 16 'Leases'

As explained above, the Group has adopted IFRS 16 'Leases' for the first time in the 28 weeks ended 10 August 2019 using the simplified modified retrospective transition approach. Accordingly, the results for the 28 weeks ended 11 August 2018 and 52 weeks ended 26 January 2019 have not been restated. The table below shows the adjustments required to the Consolidated Group Income Statement to reflect the pre-IFRS 16 profit measure.

Accounting policy under IAS 17 'Operating leases'

For all periods prior to 26 January 2019, the Group classified its property leases as operating leases under IAS 17.

Rentals under operating leases were charged as incurred, unless there were pre-determined rental increases in the lease, in which case they were recognised on a straight-line basis over the lease term. Leasehold incentives received were recognised as an integral part of total lease expense, over the term of the lease.

Certain rental expenses were determined on the basis of revenue achieved in specific retail locations and were accrued for on that basis. The Group engages in lease and concession arrangements that include fixed and variable elements, depending on the terms of the underlying agreement.

Assets and liabilities held for sale

An asset or a group of assets and a liability or a group of liabilities is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year.

On initial classification as held for sale, assets and liabilities are measured at the lower of previous carrying amount and fair value less costs to sell with any adjustments taken to profit or loss. The same applies to gains and losses on subsequent remeasurement although gains are not recognised in excess of any cumulative impairment loss.

2. Segment information

Segment revenue and segment result

\* The Group has initially applied IFRS 16 at 27 January 2019, using the simplified modified retrospective transition approach. Under this approach, comparative information is not restated (see Note 1).