Ted Baker Plc (LON:TED), the global lifestyle brand, today announced that on 10 April 2019 it entered into an agreement with Shanghai LongShang Trading Company Ltd. (“LS”) to create a Joint Venture in Mainland China, Hong Kong and Macau. LS will assign its rights under the JV to a newly incorporated Hong Kong investment vehicle to be wholly owned and formed by LongGoal Holdings Co Limited and Infra-Apparel Group Pte Ltd.
The JV, which is conditional on approval from three Chinese governmental authorities, being NDRC, MOFCOM and SAFE, will be responsible for operating Ted Baker exclusively in Mainland China, Hong Kong and Macau. The JV will drive the long-term expansion of Ted Baker in the region, combining the local expertise of the JV Partner, including the knowledge to support expansion into Tier 2 and Tier 3 cities in Mainland China, with the proven buying, merchandising, training and brand-building expertise of Ted Baker. The Company anticipates receiving regulatory approvals before 31 August 2019.
Over recent years, the Company has invested in introducing and developing the Ted Baker brand in the Mainland China and Hong Kong markets. The Company has opened eight stores in these markets to build and support awareness and understanding of the Ted Baker brand, including three stores in Hong Kong as well as five stores and one outlet store in Mainland China. The Ted Baker Board believes the JV will support delivery of the significant growth potential of the brand in the Chinese market. The JV intends to build on Ted Baker’s existing store portfolio, expand the concession network and further invest in Ted Baker’s local market online capabilities.
Under the JV agreement, Ted Baker will issue shares in the share capital of its wholly owned subsidiary Ted Baker Hong Kong (“TBHK”) to the JV Partner for a total subscription price of RMB50m (c.£5.7m), in return for a 50% interest in the shares in TBHK. Ted Baker’s net cash contribution is anticipated to be in the region of RMB30m (c.£3.4m). As part of the deal, Ted Baker anticipates approximately £6.5m of transaction related costs at completion, which are mainly non-cash and include an amount of stock and tax assets that will transfer to the joint venture at nil-value, restructuring charges and deal related costs.
The JV will have six directors, evenly split between Ted Baker and the JV Partner. The JV is expected to break-even in the 2021/22 financial year and all initial capital expenditure requirements will be self-funded by the initial cash investment made by the JV Partner and Ted Baker in the creation of the JV and subsequent operational cash flow. We would anticipate around RMB 40m (c.£4.6m) of total capex for the JV for the current year and next full financial year.
The JV will build on the existing eight full price stores, five concessions and one outlet store, primarily into Tier 2 and Tier 3 cities as well as existing online capabilities.
The joint venture is expected to be marginally enhancing to Group PBT in the current financial year.
About the JV Partner
LongGoal and Infra together bring a wealth of experience in digital marketing, eCommerce operations and building successful joint ventures in China.
Infra has established brand-building and store roll-out credentials in developing the Golfino brand to 60 stores across China over the last five years. Infra also has strong digital marketing and eCommerce operations experience. LongGoal currently operates as a successful Retail Distributor for Gant AB, operating more than 165 directly owned and 25 sub-franchised locations in China as well as 44 directly owned and franchised Bebe stores. The JV will be able to leverage LongGoal’s existing nationwide network of human, physical and supply-chain infrastructure to drive Ted Baker’s long-term growth in the region.
Commenting, Lindsay Page, Acting Chief Executive Officer of Ted Baker, said:
“We are very excited about the next stage in the growth of Ted Baker across the significant Chinese market. Over recent years we have invested in introducing the Ted Baker brand to Chinese customers, and we are confident that the creation of this JV will build on this platform and deliver meaningful long-term growth.
In LongGoal and Infra-Apparel, we have extremely capable partners that bring local market expertise to our brand and already well-established design, buying and merchandising skillset. We firmly believe that China has the long-term potential to become one of the largest single global territories for the Ted Baker brand.
I would like to take this opportunity to thank all my colleagues who have helped establish the brand in China. This is another step forward in our strategy to further expand Ted Baker as a global lifestyle brand.”
Commenting, Chen Xiaoling, Chairwoman of LongGoal, said:
“Ted Baker’s global lifestyle appeal has resonated well in China, and we are confident in our ability to amplify the brand’s growth. In over 20 years, LongGoal has amassed an infrastructure and presence in more than 65 cities, which presents a strong, compelling and proven platform that Ted Baker can leverage. The transformational JV we’ve forged brings together a leading brand, strong management team and unparalleled opportunity to expand Ted Baker into cities that desire its fresh vision of style.”
Commenting, Jing Yin, Co-Founder and Chairwoman of Infra, said:
“We are thrilled to have the opportunity to help build and develop Ted Baker in the significant and exciting but complex Chinese market. Ted Baker is an amazing brand that we have admired for a long time and has already demonstrated its relevance and appeal in the Chinese market. Our knowledge and experience in building fashion brands through stores, concessions and online should prove invaluable to Ted Baker and we look forward to working together.”