Final Results

RNS Number : 8412I
Topps Tiles PLC
25 November 2008
 



Topps Tiles Plc

Preliminary Results


Topps Tiles Plc ('Topps', 'Topps Tiles' or 'the Group'), the UK's largest tile and wood flooring specialist with 342 stores, announces its preliminary results for the 52 weeks ended 27 September 2008.


Financial Performance


  • Total Group revenue grew 0.1% to £208.1m (2007:£207.9m)

  • Like-for-like revenue declined 5.4% (2007: up 4.7%)

  • Group gross margin 61.8% (2007: 62.8%)

  • Operating profit of £34.6m (2007: £44.3m)*

  • Profit before tax of £27.7m (2007: £37.8m)** 

  • Basic Earnings per share of 9.56 pence (2007: 15.09 pence)

  • Adjusted Basic Earnings per share of 11.16 pence (2007: 14.94 pence) ***

  • No final dividend declared in order to accelerate reduction in net debt and improve financial flexibility (2007 : 6.95 pence per share)

  • Net debt position of £92.0m (2007: £95.2m)

  • Renegotiated loan facility, favourable relaxation of covenants and extension of the facility to January 2012

  • Sale and leaseback of 4 freehold properties for £4m, with a profit on disposal of £0.9m (2007 : £0.3m)


* 2008 Operating profit includes a goodwill impairment charge (non-cash) of £1.2m (2007 : £nil)


** 2008 profit before tax includes the following non-recurring items in addition to the above note:

  • £1.5m (non-cash) charge relating to the interest rate hedging the company has in place (per IAS39), (2007 : £0.5m)

  • Property disposal gain of £0.9m (2007 : £0.3m)


*** Adjusted for post tax effect of non-recurring items highlighted above plus:

  • £1.1m deferred tax charge relating to withdrawal of Industrial Buildings Allowances (2007 : £nil)


Operational Performance


  • Net 19 new stores opened in the UK, now trading from 320 stores in the UK (2007: 301 stores)

  • Holland - now trading from 22 stores (2007: 20 stores)

  • First 7 weeks of the new financial period total Group revenue declined by 13.5% and Group like-for-like revenue declined by 18.3%


Commenting on the results, Matt Williams, Chief Executive said:


'This is a credible performance when taking into account that the retail trading environment has become increasingly challenging during the year and our results have been affected accordingly. We intend to capitalise on our market leading position - we have a resilient business model, and an outstanding customer service ethic which will enable us to progress through this downturn, and believe that we will benefit significantly when consumer confidence returns.


For further information please contact:


Topps Tiles Plc

Matt Williams, CEO

Barry Bester, Chairman

c/o Bell Pottinger Corporate & Financial                    020 7861 3232


Emma Kent / Laura Pope

Bell Pottinger Corporate & Financial                         020 7861 3232


Chairman's Statement


This has been a challenging year for the Topps business in a difficult trading environment.  However, we are facing these challenges and managing the business in a robust and prudent manner. We have delivered a credible financial performance in a tough operating environment.  I remain confident that our business will show resilience through this period and we will be well positioned to capitalise on the strong foundations of the company as the economic situation improves.


Financial Results


Total group revenue has been almost flat year on year at £208.1 million (2007: £207.9 million) with like-for-like revenue for the period showing a decline of 5.4% on last year. Operating profit for the period was £34.6 million (2007: £44.3 million) giving a profit before tax of £27.7 million (2007: £37.8 million). Basic earnings per share is 9.56 pence (2007: 15.09 pence). During the period our banking facilities were renegotiated with a relaxation of both covenants associated with the debt and the facility has been extended to 2012. There was a one-off arrangement fee of £0.5 million which will be amortised over the remaining period of the facility.  


Dividend


In order to reduce net debt and improve the Company's financial flexibility, the Board has decided not to pay a final dividend for this financial year.  We believe this is in the best interests of the business in the prevailing economic environment and we will continue to review the dividend policy on a bi-annual basis. 


Board Changes


In March this year we announced the appointment of Alan White, currently CEO of N Brown Group plc, to the Board as a non-executive director. His appointment was effective from 1 April 2008. In addition we also announced the resignation from the Board of Alan McIntosh with effect from 31 March 2008. I would like to thank Alan McIntosh for his support and contribution to the Company during his 10 years as non-executive director.


We are also announcing that Victor Watson will not seek re-election at the next AGM, after 10 very successful years on the Board Victor has decided to step down. I would like to thank Victor for all of his support and contribution to the Company.


People 


The Company's staff are fundamental to the continuing success of the business. Their ability to deliver exceptional customer service is a key factor in differentiating Topps from its competitors and will contribute to the future success of the business.  


I would like to extend the Board's thanks and gratitude to everyone in the Company for their continuing efforts and hard work.


Outlook


We have a very resilient business model and an extremely capable team who are managing the business prudently. The team have made significant progress during the year to ensure that the business is in the best possible condition for the year ahead. We have again tightened our cost base for the coming year, reviewed our plans for growth, focused our attention on cash management, and extended our banking facilities. The Board is confident that as a result of these actions the business can withstand a sustained period of weak consumer activity.


I am confident that we can capitalise on our position as market leader as we trade through the current economic cycle and expect to benefit significantly when consumer confidence returns.


Barry Bester

Chairman


Chief Executive's Statement


We have maintained our market leading position and expect to capitalise on this during the coming year. We will achieve this by continuing to focus on excellent customer service, outstanding value ranges and an anticipated contraction in the competition. We have delivered a credible performance and anticipate that our resilient business model will help us to create an even stronger business.


UK Store Development and Expansion


We are pleased to have achieved our store opening target with a net 19 new stores opened in the period. This now gives us an overall total of 320 trading outlets throughout the UK. For the coming year we will focus the majority of our attention on improvements to our existing estate. In the current economic climate we believe that a more cautious approach to expansion is appropriate. We anticipate that an easing of pressures in the property market should create opportunities for us to open a small number of new stores in strong trading locations.


Topps Tiles


We have opened a net 17 new stores and now have a total of 263 Topps outlets. This includes 24 new openings offset by 2 closures, 3 relocations and 2 rebrands to Tile Clearing House (TCH).  


Alongside our traditional retail channel we have, this year, launched our first online business. This offers a wide selection of our most popular ranges as well as some additional complementary products not found in our stores. These include bathrooms accessories and heated towel radiators. We have developed the online offer during the year and whilst this element of the business is still in its infancy we look forward to it increasing sales as it grows in popularity. Our online offer can be found at www.toppstiles.co.uk.


Tile Clearing House


Tile Clearing House remains focused on trade customers and jobbing builders, operating a 'cash and carry' type format. We have opened a net 2 new stores under the Tile Clearing House brand and now have a total of 57 outlets.  


Holland

In Holland we have opened a further net 2 stores during the year taking the total to 22. This consisted of 3 new openings and 1 closure due to a relocation. The business has had to contend with a difficult trading environment and a number of other issues. Against this backdrop we have seen a decline in like for like revenues and the business has generated a loss for the year.  


We have also conducted a review of the goodwill that arose on acquisition of the Dutch business and decided that against the context of the current year's results and a more cautious outlook for the future it is appropriate to impair the goodwill and write it down by £1.2 million to £nil in the current year.  


Whilst we operate a tight cost base which is appropriate for a small business, the key issues which we are tackling are store sales density and gross profit margins. We have a new management team in place with a very clear agenda. They will be focused on driving sales and improving margins by upweighting the mix of tile sales. The year ahead is likely to be one of continued, measured progress with less focus on expansion than we have seen previously.


Marketing, Advertising and Sponsorship


Over the last year we ran both national and regional marketing and advertising campaigns. These included the launch of a new TV advertising campaign on ITV. The campaign featured works of art created entirely from our tiles and wooden flooring, with the adverts appearing on ITV three times a day straight after the national news. This campaign served us well through the year and we have achieved our goal of continuing to build consumer awareness of the brand. During the year ahead we expect to focus on targeted regional and local marketing where the business requires it.  Topps Tiles is Britain's biggest supporter of community youth football and we currently sponsor over 200 local teams nationwide.  


Staff Development and Customer Service


A core part of our strategy is to deliver outstanding customer service. In order to provide this we place the highest importance on the development of our staff to deliver an excellent standard of service. We are rigorous in our recruitment and retention of capable, ambitious people and are committed to the development and career progression of our employees. We have a sophisticated in store e-learning training system and additionally we incentivise our staff with competitive employee benefit packages. 


We continue to differentiate our business from the competition in a number of ways. All of our storecarry a wide range and supply of stock, we offer a loan-a-tile service, a free 'How to' DVD, a tile cutting service and a buy-back service allowing customers to 'sell back' undamaged tiles within 45 days of purchase. In addition, we have teamed up with traders local to each of our stores to provide customers with a Topps approved tile installation service. These services coupled with friendly and knowledgeable staff offering expert technical advice led to 98.2% of customers surveyed expressing levels of satisfaction as 'good to excellent' (2007: 97.6%).


Corporate Responsibility


The management team at Topps Tiles is committed to conducting the Company's business in a socially responsible manner, taking into consideration social, environmental and ethical matters, whilst at the same time ensuring the Company achieves its objectives. Our policy is published on our website at www.toppstiles.co.uk and more detail on our achievements can be found in this report. 


Topps Tiles is pleased to be a constituent member of the FTSE4Good UK Index.  


The Market


Topps continues to be the leading tile retailer in the UK with a market share in excess of 22%.


As consumers preferences continue to converge with European tastes the relatively low consumption of tiles per head in the UK compared with the rest of Europe (roughly one third of Northern Europe, source: MBD) provides significant opportunities. Consumers are continuing to refurbish the traditional tiling areas such as kitchens, bathrooms and conservatories and are also increasingly extending into general living areas, helped by the broad range of under flooring heating products now commonly available.


During the year we have also seen a reduction in customer choice as some consolidation in the retail market has taken place, particularly with smaller regional tile businesses.


Worldwide consumption for tiles, in particular in the more developed tile markets is likely to continue to weaken in the short term. This has begun to present some buying opportunities, with regard to both price and terms. With a dedicated tile distribution warehouse, Topps is well positioned to take advantage of these opportunities.


Current Trading and Outlook


In the first 7 weeks of the new financial period Group overall revenue decreased by 13.5% and like for like sales decreased by 18.3%.


At the half year we highlighted that the key driver of risk to the business was the general economic climate and since then the economy has continued to weaken. The business is well equipped to deal with the current economic cycle and we have made good progress in tightening our cost base for the coming year, focusing our attention on cash management and improving our financial flexibility by renegotiating our banking facilities.


We will continue to maintain our focus on tight cost control and prudent management of the business at the same time as delivering the service element that our customers expect. We intend to capitalise on our market leading position and believe that we will emerge from the current economic situation a stronger business and benefit significantly when consumer confidence returns.



Matthew Williams

Chief Executive Officer

  

BUSINESS REVIEW 


Cautionary statement


This Business Review has been prepared solely to provide additional information to shareholders to assess the company's strategies and the potential for those strategies to succeed. The Business Review should not be relied on by any other party or for any other purpose.


The Business Review contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.


Nature, Objectives and Strategies of the Business


Topps Tiles is a specialist tile & wood flooring retailer with 342 outlets across the UK and Holland.  In the UK, we are the country's largest retailer of our kind with a total of 320 stores and a 22% market share. We operate two retail brands, Topps Tiles and Tile Clearing House. Topps is the UK's leading branded tile retailer with 263 stores offering wall and floor tiles, natural stone, laminate, solid wood flooring and a comprehensive range of associated products such as underfloor heating, adhesives and grouts. Tile Clearing House is the biggest clearance tile retailer in the UK with 57 stores nationwide focusing on a mini warehouse type format and a 'when it's gone it's gone' style customer offer.


Our European operation in Holland provides a similar style of customer offer to the UK Topps Tiles stores and currently trades from 22 stores.


The Topps' strategy is focused on delivering outstanding value to our customers. This has enabled us to retain our competitive advantage built upon the strong foundations of customer service, store locations, store layout, product choice and availability. We believe that this strategy will continue to serve the company and its many stakeholders well and will see us through the current economic downturn.


Key Operational objectives:


  • Deliver customers outstanding value for money to ensure they always 'return and recommend'

  • Maintain our brand leading position in the market

  • Grow the store estate where excellent property opportunities arise

  • Continue to develop our in store customer offer to maintain our competitive advantage

  • Build an increased online presence and establish the brand as the market leader 

  • Continued measured progress in Holland towards a return to profitability

  • Ongoing review of the store portfolio to ensure our estate is keeping track with consumer shopping patterns and our cost base is as efficient as possible

Financial objectives:


  • Maintaining an appropriate capital structure will continue to be a key financial objective for the group.  

  • Continued management of the business with a priority on revenues, cost control and cash generation.

  • Review our dividend policy on a bi-annual basis.

  • Supplier tendering & benchmarking for non stock suppliers has continued through the year and has seen a change in a number of key suppliers. This will continue to contribute towards our focus on cost control and ensuring that we are as efficient as possible.

  • Manage the Group's exposure to fluctuations in foreign exchange rates.

Key Performance Indicators (KPIs)


The Directors monitor a number of financial and non financial metrics and KPIs for the Group and by individual store, including:


Financial KPIs

52 weeks to

27 September

2008

52 weeks to

29 September

2007

Like-for-like sales growth year-on-year %

-5.4%

+4.7%

Total sales growth year-on-year - %

+0.1%

+15.4%

Gross margin - %

61.8%

62.8%

Net debt

£92.0m

£95.2m

Stock days

140

146


Non-financial KPIs




Customer satisfaction %

98.2%

97.6%

Number of stores

342

321


The Directors receive regular information on these and other metrics and KPIs for the Group as a whole. These KPIs are reviewed and updated as the Directors feel is required.


Risks and Uncertainties


The key risks to the business continue to be its relationship with key suppliers, the potential threat of competitors, the risk that key information technology or EPOS systems could fail, the loss of key personnel, the risk of a prolonged economic downturn, the impact of foreign exchange rates and the development of substitute products.  


Following a modest weakening of results in the first half we highlighted at that time that the key risk for the second half was the general economic climate. The deterioration in the economy has been more pronounced during the second half of the year and when reviewing risks and uncertainties this is currently accounting for the majority of the Board's focus.


The business has responded to these risks by taking the appropriate action as described in this report. Specifically, we have tightened our cost base, reviewed our plans for growth, focused our attention on cash management, and renegotiated and extended our banking facilities. We are also seeking to enhance and improve our retail operations where possible by reviewing our product offer, customer service and marketing strategies.


We also highlighted at the half year point that an appreciation in the Euro had put pressure on gross margins as a result of our overseas sourcing. The US Dollar has also strengthened over the course of the second half of the year. The current general weakness of the Pound will put further pressure on margins for the coming year but we are addressing this risk by constantly reviewing our sourcing opportunities. During the year approximately 20% of purchases were sourced from overseas.


Post the end of the financial reporting period there have been significant reductions in interest rates. The Group will see a small amount of direct benefit from this via our cash interest charge, however, a more significant benefit would be the potential improvement in consumer confidence.


There are currently a number of risks and uncertainties that the Group is managing. If sales performance continues at the current levels we will need to manage costs and cash even more tightly, however, the Board remains confident the business will continue in its ability to generate positive returns and meet all of its financial commitments in full.


The Directors will continue to routinely monitor of all of these risks and uncertainties and the Board will take appropriate actions to mitigate the risks and/or their potential outcomes.  

We have conducted a review of existing contractual relationships and have concluded that there are none which are essential to the business.


  FINANCIAL REVIEW


PROFIT AND LOSS ACCOUNT


Revenue


Revenue for the period ended 27 September 2008 increased by 0.1% to £208.1 million (2007: £207.9 million). Like-for-like store sales declined by 5.4% across the year, falling by 0.9% in the first half and 9.8% in the second half of the year. The deterioration in performance reflects the tightening in the economy and the impact that this has had on both the financial and consumer sector.


Gross margin


Overall gross margin was 61.8% compared with 62.8% last year. At the interim stage of this period gross margin was 62.7%. In the second half of the period we have generated a gross margin of 60.8%. Erosion of gross margin reflects exchange rate impacts and also the pressure of the current trading environment. However, the relatively small deterioration in gross margin reflects the company's strong brand and business model as we are able to invest margin in a controlled way to drive transactions.


Operating expenses


Total operating costs have increased from £86.2 million to £93.9 million, an increase of 8.9%. 


Costs as a percentage of sales were 45.1% compared to 41.4% last year.


The increase in costs has been mainly driven by our enlarged store estate. The average number of stores trading during the financial period was 329 (2007 : 303). This has generated an increase in our total operating expenses of 7.3%.


Further to this there have been several non-recurring items as follows:


We have spent an additional £1.5 million on group marketing activities, in particular a nationwide ITV1 television campaign.


We have incurred a £1.2 million (non cash) charge for goodwill impairment in relation to the acquisition of the Dutch joint venture. This reflects the Boards more cautious outlook for the Dutch business as described in the Business Review section of this report.


Offsetting these additional charges, in part, is a saving of £1.1 million on management bonuses compared to the previous financial period. This saving was due to management bonus targets not being met during the period.


When taking these items into account, the underlying cost base has reduced by 0.2% for the year as a whole.


Operating Profit


Operating profit for the period was £34.6 million (2007 : £44.3 million).


Operating profit as a percentage of sales was 16.6% (2007: 21.3%).


Underlying operating profit, excluding the non cash goodwill impairment highlighted above was £35.8 million (2007 : £44.3 million). 


Other gains and losses


Other gains & losses include the impact of property disposals. During the period we completed the sale and leaseback of 4 freehold properties for £4.0 million, which generated a £0.9 million profit on disposal (2007: £0.3 million).


Financing


The cash interest charge for the year was £6.3 million (2007: £6.3 million), excluding the impact of IAS39 revaluations. Despite higher interest rates we have maintained the interest charge at the same level of the prior year through a combination of reducing net debt and also the economic benefit we have received from the interest rate derivatives we have in place.


The interest rate derivatives give rise to a 'marked to market' revaluation per the requirements of IAS39 'Financial Instruments; Recognition and Measurement'. This revaluation has generated a fair value (non cash) charge of £1.5 million (2007: £0.5 million). Due to the nature of the underlying financial instrument, IAS39 does not allow hedge accounting to be applied to these losses and hence this charge is being applied direct to the income statement rather than offset against balance sheet reserves.


Net interest cover was 6.4 times based on earnings before interest, tax and depreciation, excluding the impact of IAS39 in finance charges.


Profit before tax


Reported profit before tax is £27.7 million (2007: £37.8 million).  


Group profit before tax margin was 13.3% (2007 : 18.2%)


Tax


The effective rate of Corporation Tax was 41.0% (2007 : 32.0%). 


There are a series of key items affecting the tax rate during the year, as follows:


The withdrawal of Industrial Buildings Allowances has resulted in a one off deferred tax charge of £1.1m, accounting for 4.1% of the effective tax rate.


Changes to the capital allowances regime and prior year adjustments have impacted the tax charge by £1.2m, accounting for 4.4% of the effective tax rate.


The impairment of goodwill described under 'Operating Expenses' does not qualify for corporation tax relief, thereby increasing the effective tax rate by a further 1.2%.


The underlying tax rate, excluding the above items, was 31.3% (2007 : 30.8%).


Earnings per Share


Basic earnings per share were 9.56 pence (2007 : 15.09 pence).


Diluted earnings per share were 9.55 pence (2007 : 15.02 pence). 


Dividend and dividend policy


In order to reduce net debt and improve the Company's financial flexibility, the Board has decided not to pay a final dividend for this financial year.  We believe this is in the best interests of the business in the prevailing economic environment and we will continue to review the dividend policy on a bi-annual basis.


BALANCE SHEET


Capital Expenditure


Capital expenditure in the period amounted to £6.6 million (2007: £9.7 million). This includes the cost of developing 2 freehold sites for £1.2 million. In addition we have opened 33 new outlets at a cost of £3.8 million, refitted 11 existing sites at a cost of £0.6 million, plus a further £1.0 million on other associated activities.


At the period end the Group owned 8 freehold or long leasehold sites including 2 warehouse and distribution facilities with a total net book value of £15.6 million (2007: £17.7 million).


Stock


Stock at the period end represents 140 days turnover compared with 146 days for the same period last year.  


Capital Structure and Treasury


Cash and cash equivalents at the period end were £14.0 million (2007: £15.8 million) with repayable borrowings at £106.0 million (2007: £111.0 million). 


This gives the Group a net debt position of £92.0 million compared to £95.2 million as at 1 October 2007.


During the period we renegotiated our current loan facility, securing a favourable relaxation of the covenants associated with our debt and an extension of the facility to January 2012. There is an associated one off fee of £0.5 million which will be amortised over the remaining period of the facility.


Cashflow 


Cash generated by operations was £38.7 million, compared to £49.8 million last year.


Directors' Responsibility Statement


We confirm to the best of our knowledge :


  • the Group's financial statements, prepared in accordance with IFRS, and the Company's financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

  • the management report, which is incorporated into the Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.


After making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements.


ANNUAL GENERAL MEETING


The Annual General Meeting for the period to 27 September 2008 will be held on 13th January 2009 at 10.30am at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU.



Matt William                                      Rob Parker

Chief Executive Officer                            Finance Director


24 November 2008

         


Consolidated Income Statement
For the 52 weeks ended 27 September 2008
 
Notes
 
2008
 
2007
 
 
£’000
£’000
Group revenue
3 & 4
208,084
207,898
Cost of sales
 
(79,537)
(77,344)
Gross profit
 
128,547
130,554
 
 
 
 
Operating expenses
 
 
 
            employee profit sharing
 
(6,514)
(7,943)
            distribution costs
 
(66,142)
(61,504)
            other operating expenses
 
(7,024)
(5,093)
     Administration expenses
 
(8,082)
(7,027)
    Sales and marketing
 
(6,165)
(4,645)
Group operating profit before impairment of goodwill
Impairment of goodwill
 
12
35,805
(1,185)
44,342
-
 
Group profit from operations
 
4
 
34,620
 
44,342
Other gains
7
877
270
Investment revenue
8
992
1,012
Finance costs
8
(8,766)
(7,791)
 
 
 
 
Profit before taxation
5
27,723
37,833
Taxation
9
(11,370)
(12,093)
Profit after taxation for the period attributable to equity holders of the parent company
 
 
16,353
 
25,740
 
 
 
 
Earnings per ordinary share
11
 
 
- basic
 
9.56p
15.09p
- diluted
 
9.55p
15.02p
 
 
 
 


All of the above results relate to continuing operations.


Consolidated Statement of Recognised Income and Expense

For the 52 weeks ended 27 September 2008


 

 

2008

2007

 

 

£'000

£'000

Exchange differences on retranslation of overseas operation

 

248

-

Tax effect of share options exercised

 

-

195

Deferred tax on share options taken directly to equity

20

(305)

(157)

Profit for the period

 

16,353

25,740

Total recognised income and expense for the period attributable to equity holders of the parent company



16,296


25,778

 

 

 

 

.


Consolidated Balance Sheet

 

 

As at 27 September 2008

 

 

 

 

 

2008

2007

 

Notes

£'000

£'000

Non-current assets

 

 

 

Goodwill

12

245

1,430

Property, Plant and Equipment

13

40,386

41,851

 

 

 

 

 

 

40,631

43,281

Current assets

 

 

 

Inventories

 

30,496

31,067

Trade and other receivables

15

7,909

7,002

Cash and cash equivalents

16

13,977

15,781

 

 

 

 

 

 

52,382

53,850

Total assets

 

93,013

97,131

Current liabilities

 

 

 

Trade and other payables

17

(29,961)

(31,016)

Derivative financial instruments

19

(2,110)

(481)

Bank loans

18

(7,250)

(4,907)

Current tax liabilities

 

(8,878)

(8,752)

 

 

(48,199)

(45,156)

Net current assets

 

4,183

8,694

Non current liabilities

 

 

 

Bank loans

18

(97,963)

(105,737)

Deferred tax liabilities

20

(1,964)

(1,062)

Total liabilities

 

(148,126)

(151,955)

 

 

 

 

Net liabilities

 

(55,113)

(54,824)

 

 

 

 

Equity

 

 

 

Share capital

21

5,703

5,686

Share premium

22

1,001

681

Merger reserve

23

240

240

Share based payment reserve

24

322

222

Capital redemption reserve

25

20,359

20,359

Foreign exchange reserve

26

248

-

Retained earnings

27

(82,986)

(82,012)

Total deficit

 

(55,113)

(54,824)


The accompanying notes are an integral part of these financial statements.


The financial statements on pages 34 to 57 of the Annual Report were approved by the Board of Birectors on 24 November 2008 and signed on its behalf by:


Williams

Parker


Directors



Consolidated Cash Flow Statement

For the 52 weeks ended 27 September 2008


Cashflow from Operating Activities

 

 

 

2008

2007

 

£'000

£'000

Group profit from operations

34,620

44,342

Adjustments for:




 

Depreciation of property, plant and equipment

4,792

4,424

 

Impairment of goodwill

1,185

-

 

Share option charge

100

56

 

Loss on sale of fixed assets

513

772

 

Increase in receivables

(833)

(1,144)

 

Decrease / (Increase) in inventories

877

(2,624)

 

(Decrease) / Increase in payables

(2,557)

4,000

Cash generated by operations

38,697

49,826

 

 

 

 

 

Interest paid

(6,154)

(7,805)

 

Payment of loan arrangement fee

(530)

-

 

Taxation paid

(10,650)

(10,980)

 

 

 

 

Net cash from operating activities

 

21,363

31,041

 

 

 

 

Cashflows from investing activities

 

 

 

Acquisition of Joint Venture

-

(1,286)

 

Interest received

960

1,012

 

Purchase of Property, plant and equipment

(6,622)

(9,674)

 

Proceeds on sale of property, plant and equipment

4,004

1,166

Net cash used in investment activities

(1,658)

(8,782)

 

 

 

 

Cashflows from financing activities

 

 

 

 

 

 

 

Proceeds from issue of share capital

337

158

 

Repayment of loans

(5,000)

(5,000)

 

Dividends paid

(17,014)

(18,169)

 

 

 

 

Net cash used in financing activities

(21,677)

(23,011)

 

 

 

 

Net decrease in cash and cash equivalents

(1,972)

(752)

Cash and cash equivalents at beginning of period

15,781

16,533

Effect of foreign exchange rate changes

168

-

Cash and cash equivalents at end of period

13,977

15,781


 

Notes to the Financial Statements

For the 52 week period ending 27 September 2008


    General Information


Topps Tiles Plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on page 22 of the Annual Report. The nature of the Group's operations and its principal activity is set out in the Directors' Report on page 24 of the Annual Report.


These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 2j.


At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:


Standards and interpretations in issue but not yet effective 


IFRS 8    Operating Segments

IAS 23      Amendment 'Borrowing Costs'

IFRS 3    Revised 'Business Combinations'

IAS 27    Amendment 'Consolidated and Separate Financial Statements'

IFRS 2    Amendment 'Share Based Payment'

IFRIC 12    Service Concession Arrangements

IFRIC 13    Customer Loyalty Programmes

IFRIC 14    IAS19 - The Limit on a Deferred Benefit Asset, Minimum Funding Requirements and their Interaction

IFRIC 15     Agreements for the Construction of Real Estate

IFRIC 16     Hedges of a Net Investment in a Foreign Operation

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.


Adoption of new and revised Standards


In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007 and the related amendment to IAS 1: Presentation of Financial Statements. The impact of the adoption of IFRS 7 and changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital (see notes 2o, 15,17 and 19).

 

2    Accounting policies


a)    Basis of accounting

 

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies adopted are set out below.

 

b)    Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the Saturday nearest to the 30 September each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities.


The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. All intra-group transactions, balances, income and expenses are eliminated on consolidation.


c)    Financial period


The accounting period ends on the Saturday which falls closest to 30 September, resulting in financial periods of either 52 or 53 weeks.


Throughout the financial statements, directors' report and financial review, references to 2008 mean at 27 September 2008 or the 52 weeks then ended; references to 2007 mean at 29 September 2007 or the 52 weeks then ended.


d    Business Combinations


The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal Groups) that are classified as held for sale in accordance with IFRS 5: Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.


Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.


e)    Goodwill


Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.


For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.


Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill of £15,080,000 written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.


f)    Revenue Recognition


Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Sales of goods are recognised when title has passed. Sales returns are provided for based on past experience and deducted from income.


Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.


Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.


g)    Property, plant & equipment


Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost of assets, less estimated residual value, over their estimated useful lives, on the following bases:


Freehold buildings - 2% per annum on cost on a straight-line basis

Short leasehold land and buildings - over the period of the lease, up to 25 years on a straight line basis

Fixtures and fittings - over 10 years or at 25% per annum on reducing balance basis as appropriate

Motor vehicles - 25% per annum on reducing balance

Freehold land is not depreciated.


Residual value is calculated on prices prevailing at the date of acquisition.


h)    Inventories


Inventories are stated at the lower of cost and net realisable value and relate solely to finished goods for resale. Cost comprises purchase price of materials and an attributable proportion of distribution overheads based on normal levels of activity and is valued at standard cost. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and costs to be incurred - marketing, selling and distribution.  Provision is made for those items of inventory where the net realisable value is estimated to be lower than cost. 


i)    Taxation


The tax expense represents the sum of the tax currently payable and deferred tax.


The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.


Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.


Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, and interests in jointly controlled entities, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.


Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.


Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.


j)    Foreign currency


Transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of transactions. At each period end, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.


Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.


For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operation are translated at exchange rates prevailing at period end dates. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the dates of transactions are used. Exchange differences arising are classified as equity and transferred to the Group's translation reserve. Such differences are recognised as income or expense in the period in which the operation is disposed of.


k)    Leases


Rentals under operating leases are charged on a straight line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term.


l)    Investments


Fixed asset investments are shown at cost less provision for impairment.


m)    Retirement Benefit costs


For defined contribution schemes, the amount charged to the income statement in respect of pension costs is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.


n)    Finance costs


Finance costs which are directly attributable to the construction of tangible fixed assets are capitalised as part of the cost of those assets. The commencement of capitalisation begins when both finance costs and expenditures for the asset are being incurred and activities that are necessary to get the asset ready for use are in progress. Capitalisation ceases when substantially all the activities that are necessary to get the asset ready for use are complete.


All other finance costs of debt are recognised in the income statement over the term of the debt at a constant rate on the carrying amount


o)     Financial instruments


Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.


Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL, 'held-to-maturity' investments, 'available-for-sale' (AFS) financial assets and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.


Financial assets at FVTPL


Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL. The Group has no designated FVTPL financial assets.


A Financial asset is classified as held for trading if:


  • it has been acquired principally for the purpose of selling in the near future; or

  • it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

  • it is a deivative that is not designated and effective as a hedging instrument.


Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in note 2t.


Loans and receivables


Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.


Impairment of financial assets


Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.


For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 94 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.


The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.


If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.


Cash and cash equivalents 


Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash within three months and are subject to an insignificant risk of changes in value.


Derecognition of financial assets


The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.


Financial liabilities and equity


Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities, Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.


Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. The Group does not have any designated FVTPL liabilities.


A financial liability is classified as held for trading if:


  • it has been incurred principally for the purpose of disposal in the near future; or 

  • it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit taking; or

  • it is a derivative that is not designated and effective as a hedging instrument.

Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in note 2t.


Other financial liabilities


Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.


Derecognition of financial liabilties


The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.


Derivative financial instruments


The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.


The Group uses foreign exchange forward contracts and interest rate swap contracts to manage these exposures. The Group does not hold or issue derivative financial instruments for speculative purposes.


The use of financial derivatives is governed by the Group's policies approved by the board of directors, on the use of financial derivatives.


Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.


derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.


Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss.


p    Share-based payments


The Group has applied the requirements of IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 will be applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 October 2005.


The Group issues equity settled share based payments to certain employees. Equity settled share based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the share based payment is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of the Black Scholes model. 


The Group provides employees with the ability to purchase the Group's ordinary shares at 80% of the current market value through the operation of its share save scheme. The Group records an expense, based on its estimate of the 20% discount related to shares expected to vest on a straight line basis over the vesting period.


q)    TradPayables


Tradpayables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.


r)    Profit from operations


Profit from operations is stated after charging restructuring costs but before property disposals, investment income and finance costs.


s)    Provisions


Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.


t)    Critical accounting judgements and key sources of estimation uncertainty


In the application of the Group's accounting policies, which are described above, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.


The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.


The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.


Management consider the detailed criteria for the recognition of revenue from the sale of goods set out in IAS 18 Revenue and, in particular, whether the Group has transferred to the buyer the significant risks and rewards of ownership of the goods and only recognise revenue where this is the case.


Key sources of estimation uncertainty


The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.


Impairment of goodwill


Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and to discount by a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the balance sheet date is £0.2 million. During the period the Group has incurred an impairment charge of £1.2 million. (Details of the impairment charge calculation are provided in note 12).


Fair value of derivatives and other financial instruments


As described above the directors' use their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an active market. Valuation techniques commonly used by market practitioners are applied, such as discounted cash flows and assumptions regarding market volatility.


Tax


The directors are aware of the material impact that corporation tax has on the Group accounts and therefore they ensure that the Group continues to provide at a sufficient level for both current and deferred tax liabilities.


3    Revenue 


An analysis for the 52 week period of revenue is as follows:


 

2008

2007

 

£'000

£'000

 

 

 

Non-Trade customers

184,107

182,830

Trade customers

23,977

25,068

Revenue from the sale of goods

208,084

207,898

 

 

 

Interest received on interest rate swaps

347

165

Interest receivable

645

847

Total revenue

209,076

208,910


Interest receivable represents gains on loans and receivables. There are no other gains recognised in respect of loans and receivables.


4    Business Segments


The Group is currently organised into three retail operating divisions; Topps Tiles (Topps) and Tile Clearing House (TCH), both based in the UK, and Topps Floorstore (Holland). These divisions are the basis on which the Group reports its primary segment information.


Segmental revenue and profit before taxation by business activity were as follows:


 

Segmental information for the 

52 weeks to 27 September 2008

 



Topps

£'000



TCH

£'000


 

Topps Floorstore

£'000



Consolidated

£'000

Revenue

175,312

23,977

8,795

208,084

Operating profit before central costs

34,353

3,112

(758)

36,707

Head office /distribution centre costs

 

 

 

(2,087)

Group profit from operations

 

 

 

34,620

Other gains

 

 

 

877

Finance costs less investment revenue

 

 

 

(7,774)

 

 

 

 

 

Profit before taxation

 

 

 

27,723

 

 

 

 

 


Other information





Topps

£'000



TCH

£'000


 

Topps Floorstore

£'000

 

 

Head officeDistribution centre

£'000



Consolidated

£'000

 

 

 

 

 

 

Capital additions

4,260

651

401

1,310

6,622

Goodwill impairment

-

-

-

1,185

1,185

Depreciation

2,922

440

353

1,077

4,792

Balance sheet

 

 

 

 

 

Segment assets

75,283

8,833

4,644

-

89,459

Unallocated corporate assets

-

-

-

4,252

3,554

Consolidated total assets

75,283

8,833

4,644

4,252

93,013

 

 

 

 

 

 

Segment liabilities

(16,897)

(5,285)

(3,749)

-

(25,931)

Unallocated corporate liabilities

-

-

-

(122,195)

(122,195)

Consolidated total liabilities

(16,897)

(5,285)

(3,749)

(122,195)

(148,126)



Segmental information for the 

52 weeks to 29 September 2007




Topps

£'000



TCH

£'000


 

Topps Floorstore

£'000



Consolidated

£'000

Revenue

175,380

25,068

7,450

207,898

Operating profit before central costs

40,448

5,273

314

46,035

Head office /distribution centre costs

 

 

 

(1,693)

Group profit from operations

 

 

 

44,342

Other Gains

 

 

 

270

Finance costs less investment revenue

 

 

 

(6,779)

 

 

 

 

 

Profit before taxation

 

 

 

37,833


Other information




Topps

£'000



TCH

£'000


 

Topps Floorstore

£'000

 

 

Head officeDistribution centre

£'000



Consolidated

£'000

Capital additions

4,733

1,087

881

2,973

9,674

Depreciation 

2,683

451

271

1,019

4,424

Balance sheet

 

 

 

 

 

Segment assets

72,626

10,063

5,044

-

87,733

Unallocated corporate assets

-

-

-

9,398

9,398

Consolidated total assets

72,626

10,063

5,044

9,398

97,131

 

 

 

 

 

 

Segment liabilities

(17,272)

(1,578)

(3,712)

-

(22,562)

Unallocated corporate liabilities

-

-

-

(129,393)

(129,393)

Consolidated total liabilities

(17,272)

(1,578)

(3,712)

(129,393)

(151,955)


5    Profit before taxation

Profit before taxation for the period has been arrived at after charging/(crediting):


2008
£'000

2007
£'000




Depreciation of property, plant and equipment

4,792

4,424

Staff costs (see note 6)

42,574

40,156

Impairment of goodwill

1,185

-

Operating lease rentals

19,861

16,725

Cost of inventories recognised as expense

77,735

75,331

Net foreign exchange gains

(32)

(270)

 

 

 


Analysis of auditors' remuneration is provided below:

 
2008
2007
 
£’000
£’000
Audit services:
 
 
Statutory audit of the Company’s annual accounts
32
15
Audit of Company’s Subsidiaries pursuant to legislation
105
110
 
 
 
 
 
 
Total audit fees
137
125
 
 
 
Tax services:
 
 
compliance services
59
57
advisory services
2
73
 
 
 
Total non audit fees
61
130
 
 
 
 
198
255
 
 
 


description of the work of the audit committee is set out on page 28 of the Annual Report and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.


6    Staff costs


The average monthly number of employees (including executive directors) was:


 

2008

    2007


Number

employed

Number

employed

Selling

1,553

1,541

Administration

190

181

 

 

 

 

1,743

1,722

 

 

 


 

2008

    2007

 

£'000

    £'000

Their aggregate remuneration comprised:

 

 

Wages and salaries (including LTIP)

38,713

36,524

Social security costs 

3,666

3,397

Other pension costs (see note 28b)

195

235

 

 

 

 

42,574

40,156

 

 

 


Details of director's emoluments are disclosed on page 31 of the Annual Report.


Employee profit sharing of £6.5 million (2007: £7.9 million) is included in the above and comprises sales commission and bonuses.


7    Other gains and losses


Other gains and losses in 2008 relates to the sale of 4 freehold properties and in 2007 to the sale of a long leasehold property.

 

8. Investment revenue and finance costs


 
2008
2007
 
£’000
£’000
 
 
 
Bank interest receivable and similar income
992
1,012
 
Finance costs
 
 
Interest on bank loans and overdrafts
(7,302)
(7,325)
Fair value loss on interest rate swaps
(1,464)
(480)
Interest costs capitalised
-
14
 
 
 
Finance costs
(8,766)
(7,791)
 
 
 


No finance costs are appropriate to be capitalised in the period. In the prior period finance costs in respect of development sites were capitalised based on a capitalisation rate of 5.1% last year, which was the weighted average of rates applicable to the Group's general borrowings outstanding during the period.


Interest on bank loans and overdrafts represent gains and losses on financial liabilities measured at amortised cost. There are no other gains or losses recognised in respect of financial liabilities measured at amortised cost.  Total losses from the movement in fair value on held for trading on assets and liabilities (derivative instruments) were £1,464,000 (2007: £480,000). Included within bank interest and similar income is £347,000 (2007: £165,000) being interest received on interest rate swaps.


9. Tax



2008
£'000

2007
£'000

Current tax - charge for the year

9,711

11,975

Current tax - adjustment in respect of previous periods

1,209

446

Deferred tax - charge / (credit) for year (note 20)

434

(334)

Deferred tax  - adjustment in respect of previous periods (note 20)

16

6

 

 

 

 

11,370

12,093

 

 

 


Corporation tax in the UK is calculated at 29% (2007: 30%) of the estimated assessable profit for the year.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The charge for the year can be reconciled to the profit per the income statement as follows:



2008
£'000

2007
£'000

Profit before taxation

27,723

37,833

 

 

 

Tax at the UK corporation tax rate of 29% (2007: 30%)

8,040

11,350

Tax effect of expenses that are not deductible in determining taxable profit

604

90

Tax effect of IBA release

1,129

-

Tax effect of change in tax rate

-

(119)

Tax effect of profit in excess of chargeable gains on sale of freehold property

(36)

(6)

Tax effect of different tax rates on overseas earnings

29

-

Tax effect of tangible fixed assets which do not qualify for capital allowances 

379

326

Tax effect of adjustment in respect of prior periods

1,225

452

 

 

 

Tax expense for the period

11,370

12,093

 

 

 


10         Dividends


 
Amounts recognised as distributions to equity holders in the period:
2008
2007
 
£’000
£’000
Final dividend paid for the 52 weeks ended 29 September 2007 of 6.95p (2006: 6.90p) per ordinary share
 
11,860
 
11,767
Interim dividend paid for the 26 weeks ended 29 March 2008 of 3.00p (2007: 3.75p)
 
5,117
 
6,396
Under provision in respect of the prior period final dividend
45
6
 
 
 
 
17,022
18,169
 
 
 
Proposed final dividend for the 52 weeks ended 27 September 2008 of 0.00p (2007: 6.95p) per share
 
-
 
11,860


11    Earnings per share


The calculation of earnings per share is based on the earnings for the financial period attributable to equity shareholders and the weighted average number of ordinary shares as follows:


 

2008

    2007

 

Number of

Number of

 

shares

Shares

Weighted average number of shares

 

 

For basic earnings per share

171,008,982

170,536,121

Weighted average number of shares under option

175,931

823,079

 

 

 

For diluted earnings per share

171,184,913

171,359,200

 

 

 

 

12       Goodwill


 

 

£'000

 

 

 

Cost at 1 October 2006

 

551

Acquisition of joint venture

 

879

Cost and carrying value at 30 September 2007

 

1,430

 Impairment of goodwill in the period

 

(1,185)

Cost and carrying value at 27 September 200

 

245

 

 

 


The balance of goodwill remaining is the carrying value that arose on the acquisition of Surface Coatings Ltd in 1998.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates based on the Groups weighted average cost of capital. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Discounted cashflows are calculated using a post tax rate of 5.8% (2007: 7.5%).

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years based on an estimated growth rate of 2 per cent. This rate does not exceed the average long-term growth rate for the relevant markets.

As a result of the annual test of impairment of goodwill, the Directors have decided that an impairment of the goodwill relating to the Dutch operation is prudent at this stage. The review of the business valuation has taken into account the operating loss in the period of £758,000 and local managements internal budgets and expectations for the next 5 years. As a result of this, it is considered that a business valuation can support the carrying value of the current tangible fixed assets, but not the goodwill that arose on acquisition. Therefore the Group has impaired the full carrying value of goodwill relating to the acquisition of Topps Holding BV

13. Property, plant and equipment


 

Land and buildings

Fixtures

 

 

 

 

Short

And

Motor

 

 

Freehold

leasehold

Fittings

Vehicles

Total

Cost

£'000

£'000

£'000

£'000

£'000

At 1 October 2006

16,482

2,397

32,882

111

51,872

Additions

2,040

115

7,288

221

9,664

Acquisition of joint venture

-

-

1,879

156

2,035

Disposals

-

(746)

(2,390)

(146)

(3,282)

At 30 September 2007

18,522

1,766

39,659

342

60,289

Foreign exchange movement

142

16

373

3

534

Additions

1,231

60

5,311

20

6,622

Disposals

(3,247)

-

(1,740)

(22)

(5,009)

 

 

 

 

 

 

At 27 September 2008

16,648

1,842

43,603

343

62,436

 

 

 

 

 

 

Accumulated depreciation and impairment

 

 

 

 

 

At 1 October 2006

588

902

13,482

43

15,015

Acquisition of joint venture

-

-

649

30

679

Charge for the period 

268

130

3,954

72

4,424

Eliminated on disposals

0

(28)

(1,591)

(61)

(1,680)

At 30 September 2007

856

1,004

16,494

84

18,438

Foreign exchange movement

9

10

169

1

189

Charge for the period 

281

131

4,307

73

4,792

Eliminated on disposals

(124)

-

(1,233)

(12)

(1,369)

 

 

 

 

 

 

At 27 September 2008

1,022

1,145

19,737

146

22,050

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 27 September 2008

15,626

697

23,866

197

40,386

At 29 September 2007

17,666

762

23,165

258

41,851

 

 

 

 

 

 


Freehold land and buildings include £4,104,000 of land (2007: £4,104,000) on which no depreciation has been charged in the current period.


Cumulative finance costs capitalised included in the cost of tangible fixed assets amount to £nil (2007: £422,000), see note 8 for further details.


The group has not contractual commitments for the acquisition of property, plant and equipment (2007 - £nil).


14    Subsidiaries


A list of the significant subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 3 to the company's separate financial statements.

 

15. Trade and other receivables


 

2008

2007

 

£'000

£'000

Amounts fallindue within one year:

 

 

Amounts receivable for the sale of goods

493

357

Other debtors and prepayments

 

 

 -Rent and rates

4,693

4,277

 -Derivative financial instruments

165

-

 -Other

2,558

2,368

 

 

 

 

7,909

7,002

 

 

 


The directors consider that the carrying amount of trade and other receivables at 27 September 2008 and 29 September 2007 approximates to their fair value on the basis of discounted cash flow analysis.

 

Credit risk


The Group's principal financial assets are bank balances and cash and trade receivables.

The Group considers that it has no significant concentration of credit risk.  The majority of sales in the business are cash based sales in the stores.


Total trade receivables (net of allowances) held by the Group at 27 September 2008 amounted to £0.5million (2007: £0.4million). These amounts mainly relate to insurance generated sales and sundry trade accounts. In relation to these sales, the average credit period taken is 94 days and no interest is charged on the receivables. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.


Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed periodically. Of the trade receivables balance at the end of the year, £137,000 (2007: £46,000) is due from Independent Inspections, the Group's largest customer. There are no other customers who represent more than 5 per cent of the total balance of trade receivables.


Included in the Group's trade receivable balance are debtors with a carrying amount of £228,000 (2007: £92,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 200 days (2007340 days), however this ageing is distorted by one account of £6,000 (2007: two accounts totalling £6,300) which is overdue by 1,092 days (2007: 834 days).


Ageing of past due but not impaired receivables


 

2008

2007

 

£'000

£'000

 

 

 

60 - 120 days

228

92

 

 

 


The allowance for doubtful debts was £5,000 at the beginning and end of the period (2007:£5,000). Given the minimal receivable balance, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.


The allowance for doubtful debts includes no individually impaired trade receivables (2007: £nil) which have been placed under liquidation. 


16    Cash and cash equivalents


Cash and cash equivalents comprise cash held by the Group and short term bank deposits (with associated right of set off) with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. A breakdown of significant bank and cash balances by currency is as follows:


 

2008

2007

 

£'000

£'000

 

 

 

Sterling

13,906

18,386

US Dollar

316

(462)

Euro

(245)

(2,143)

 

 

 

Total cash and cash equivalents

13,977

15,781

 

 

 

 

17    Other financial liabilities


Trade and other payables


 

2008

2007

 

£'000

£'000

Amounts fallindue within one year

 

 

Tradpayables

15,373

19,702

Other payables

7,339

4,743

Accruals and deferred income

7,249

6,571

 

 

 

 

29,961

31,016

 

 

 


Tradpayables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 48 days (2007: 65 days). No interest is charged on these payables. 

The Directors consider that the carrying amount of trade payables at 27 September 2008 and 29 September 2007 approximates to their fair value on the basis of discounted cash flow analysis.

 

18. Bank loans 


 

2008
£'000

2007
£'000

 

 

 

Bank loans (all sterling)

105,213

110,644

 

 

 


The borrowings are repayable as follows


 

 

 

On demand or within one year

7,500

5,000

In the second year

7,500

5,000

In the third to fifth year

91,000

101,000

 

 

 

 

106,000

111,000

Less: Total unamortised issue costs

(787)

(356)

 

 

 

 

105,213

110,644

Less: amount due for settlement within 12 months (shown under current liabilities)

(7,500)

(5,000)

Issue costs to be amortised within 12 months

250

93

 

 

 

Amount due for settlement after 12 months 

97,963

105,737

 

 

 


The weighted average interest rates paid were as follows:

 

 

2008
%

2007
%

 

 


 

Loans

6.4658

6.1286





The Group borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk.

The Group has one principal bank loan of £116 million taken out on 1 August 2006. During the period the banking facilities were renegotiated with a relaxation of both covenants associated with the debt.  Repayments commenced on 28 July 2007 and will continue for an extended period until 28 Jan 2012. There was a one-off arrangement fee of £0.5 million which is being amortised over the remaining period of the facility.  The loan is secured by upstream guarantees provided by certain subsidiaries. The LIBOR margin shall be adjusted between 1.5% and 2.75% dependent on the Group's level of compliance with a net debt to EBITDA covenant.

At 27 September 2008, the Group had available £5 million (2007: £5 million) of undrawn committed banking facilities.

 

19. Financial instruments


Capital risk management


The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents disclosed in note 16 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 21 to 27.


Significant accounting policies


Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.


Categories of financial instruments


 

Carrying Value and Fair Value

 

2008

2007

 

£'000

£'000

Financial Assets

 

 

Held for trading

165

-

Loans and receivables (including cash and cash equivalents)


21,721


22,783

 

 

 

Financial liabilities

 

 

Held for trading

2,110

481

Amortised cost

135,174

141,660

 

 

 


The Group considers itself to be exposed to risks on financial instruments, including market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk. 


The Group seeks to minimise the effects of these risks by using derivative financial instruments to hedge these risk exposures economically. The use of financial derivatives is governed by the Group's policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. 


Market Risks


The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: 


  • forward foreign exchange contracts to hedge the exchange rate risk arising on the import of goods from South America and China; and 

  • interest rate swaps and collars to mitigate the risk of movements in interest rates.


Foreign currency risk management


The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts


The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:


 

                Assets

          Liabilities

 

2008

2007

2008

2007

 

£'000

£'000

£'000

£'000

Euro

1,471

552

5,278

4,889

US dollar

317

-

323

1,091


Foreign currency sensitivity analysis 


The Group is mainly exposed to the currency of The Netherlands (Euro currency) and the currency of China and Brazil (US dollar currency) and stock purchases from various European countries (Euro). The following table details the Group's sensitivity to a 10% increase and decrease in the Sterling against the relevant foreign currencies. 10% represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit and other equity where Sterling strengthens 10% against the relevant currency. For a 10% weakening of Sterling against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative.


 

2008
£000

2007
£000

 

 

 

Profit or Loss movement on a 10% strengthening in Sterling against the Euro

479

642

Profit or Loss movement on a 10% strengthening in Sterling against the US Dollar

1

213



Currency derivatives


The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group uses foreign currency forward contracts in the management of its exchange rate exposures. The contracts are denominated in US dollars and Euros.


At the balance sheet date, the total notional amount of outstanding forward foreign exchange contracts that the Group has committed to are as below:


 

2008
£'000

2007
£'000

 

 

 

Forward foreign exchange contracts

400

7,800

 

 

 


These arrangements are designed to address significant exchange exposures for the first half of 2008 and are renewed on a revolving basis as required.

At 27 September 2008 the fair value of the Group's currency derivatives is a £62,000 liability (2007: a liability of £251,000). These amounts are based on market value of equivalent instruments at the balance sheet date.

Gains of £189,000 are included in operating profit in the year (2007losses of £251,000).


Interest rate risk management


The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, by the use of interest rate swap contracts and collars. The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.


Interest rate sensitivity analysis


The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at balance sheet date was outstanding for the whole year. A 50 basis points increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the possible change in interest rates.


If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group's profit would be impacted as follows:


 

50 basis points increase in interest rates

50 basis points decrease in interest rates

 

2008

2007

2008

2007

 

£'000

£'000

£'000

£'000

Profit or (loss)

(558)

689

(3,208)

(1,808)


The Group's sensitivity to interest rates has decreased during the current period mainly due to the

reduction in variable rate debt instruments and the increase in interest rate swaps.


Interest Rate Swaps


The Group uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. 


The Group's interest rate swaps comprise;


  • 5 year interest rate cap with a notional value of £20 million with interest capped at 6%

  • 5 year interest rate swap with a notional value of £20 million paying interest at a fixed rate of 5.63%

  • 10 year cancellable collar with a notional value of £60 million with a cap of 5.6% and a floor of 4.49%, the interest rate within this range is LIBOR less 0.4%. Where LIBOR falls below the floor the interest rate resets to a fixed level of 5.55% 


The fair value liability of the swaps entered into at 27 September 2008 is estimated at £1,945,000 (2007: £481,000). Amounts of £1,464,000 have been charged to finance costs in the year (2007: £481,000).


Credit risk management


Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Management have considered the counterparty risk associated with the cash and derivative balances and do not consider there to be a material risk. The Group has a policy of only dealing with creditworthy counterparties. The Group's exposure to its counterparties is reviewed periodically. Trade receivables are minimal consisting of a number of insurance companies and sundry trade accountsfurther information is provided in note 15. 


The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained.


Liquidity risk management


Ultimate responsibility for liquidity risk management rests with the board of directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 18 is a description of additional undrawn facilities that the Group has at its disposal to reduce liquidity risk further.


Liquidity and interest risk tables


The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows (and on the assumption that the variable interest rate remains constant at the latest fixing level of 7.4536%) of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.


2008

Less then 1 month

1-3 Months

3 moths to 1 year


1-5 Years


5+ Years


Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Non-interest bearing

29,961

-

-

-

-

29,961

Variable interest rate

instruments

 

-

 

3,190

 

12,553

 

114,863

 

-

 

130,606


2007

Less then 1 month

1-3 Months

3 moths to 1 year


1-5 Years


5+ Years


Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Non-interest bearing

31,016

-

-

-

-

31,016

Variable interest rate

instruments

 

-

 

1,900

 

10,242

 

129,412

 

-

 

141,554


The Group has access to financing facilities, of which the total unused amount is £5 million at the balance sheet date (2007: £5 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. The Group expects to continue to reduce its debt to equity ratio, which is currently 1.92.

The following table details the Group's liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/(outflows) on the derivative instruments that settle on a net basis and the undiscounted gross inflows and (outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest and foreign currency rates as illustrated by the yield curves existing at the reporting date.


2008


Less then 1 month


1-3 Months


3 moths to 1 year



1-5 Years



5+ Years



Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Interest rate swaps payments

 

-

 

-

 

(679)

 

(2,462)

 

-

 

(3,141)

Foreign exchange forward contracts payments

 

(400)

 

-

 

-

 

-

 

-

 

(400)

Interest rate swaps receipts

 

18

 

58

 

-

 

-

 

-

 

23

Foreign exchange forward contracts receipts

 

338

 

-

 

-

 

-

 

-

 

338


2007

Less then 1 month

1-3 Months

3 moths to 1 year


1-5 Years


5+ Years


Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Interest rate swaps payments

 

-

 

-

 

-

 

(3,141)

 

-

 

(3,141)

Foreign exchange forward contracts payments

 

(600)

 

(1,200)

 

(5,400)

 

(600)

 

-

 

(7,800)

Interest rate swaps receipts

 

29

 

171

 

144

 

22

 

-

 

366

Foreign exchange forward contracts receipts 

 

594

 

1,157

 

5,208

 

590

 

-

 

7,549


Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

  • Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.
  • Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.
  • Interest rate collars are measured using applicable yield curves derived from quoted interest rates and market volatilities.

Deferred tax

The following are the major deferred tax liabilities / (assets) recognised by the Group and movements thereon during the current and prior reporting period.


 
Accelerated tax depreciation
Tax
Losses
Share Based Payments
Exchange Rate Differences
Interest Rate Hedging
 
Rent Free
 
 
Total
 
£’000
£’000
£’000
£’000
£’000
£’000
£’000
At 2 October 2006
2,088
-
(696)
(17)
-
(142)
1,233
Charge / (credit) to income
(143)
-
(18)
(53)
(135)
21
(328)
Share Options exercised in the period
-
-
195
-
-
-
195
Credit to Equity
-
-
(38)
-
-
-
(38)
 
 
 
 
 
 
 
 
At 30 September 2007
1,945
-
(557)
(70)
(135)
(121)
1,062
Charge / (credit) to income
1,109
(215)
(28)
74
(410)
(80)
450
Share options exercised in the period
-
-
147
-
-
-
147
Charge to equity
-
-
305
-
-
-
305
 
 
 
 
 
 
 
 
At 27 September 2008
3,054
(215)
(133)
4
(545)
(201)
1,964
 
 
 
 
 
 
 
 

 

21. Called-up share capital



2008
£'000

2007
£'000

Authorised 240,000,000 (2007: 240,000,000) ordinary shares of 3.33p each (2007: 3.33p)


8,000 


8,000 

Authorised 37,000,000 (2007: 37,000,000) redeemable B shares of £0.54 each

19,980 

19,980 

Authorised 124,890,948 (2007124,890,948) irredeemable C shares of £0.001 each

125 

125 

 

 

 

 

28,105 

28,105 

 

 

 

Issued and fully-paid 171,092,506 (2007170,579,936) ordinary shares of 3.33p each (2007: 3.33p)


5,703 


5,686 

 

 

 

Total

5,703 

5,686 

 

 

 


During the period the Group allotted 512,570 (2007272,096ordinary shares with a nominal value of £17,000 (2007 £8,000) under share option schemes for an aggregate cash consideration of £337,000 (2007: £158,000).

 

22. Share premium


 

2008
£'000

2007
£'000

 

 

 

Balance at start of period

681 

531 

Premium on issue of new shares

320 

150 

 

 

 

Balance at end of period 

1,001 

681 

 

 

 

 

23. Merger reserve


 

2008
£'000

2007
£'000

 

 

 

Balance at start of period

240 

(399) 

Premium on issue of new shares

639 

 

 

 

Balance at end of period 

240 

240 

 

 

 


250,000 Ordinary Shares with a market value of £647,500 were issued in 2007 as consideration for the acquisition of Topps Tiles Holdings BV leading to an increase in the merger reserve of £639,000.

 

24. Share based payment reserve


 

2008
£'000

2007
£'000

 

 

 

At start of period

222 

166 

Share option charge

100 

56 

 

 

 

At end of period 

322 

222 

 

 

 

 

25. Capital redemption reserve


 

2008
£'000

2007
£'000

 

 

 

At start of period

20,359 

20,254 

Cancellation of shares

 10

 

 

 

At end of period 

20,359 

20,359 

 

 

 


26. Foreign exchange reserve


 

2008
£'000

2007
£'000

 

 

 

At start of period

Exchange differences on consolidation of overseas operations

248 

 - 

 

 

 

At end of period

248 

 

 

 


27    Retained earnings


 

£'000

 

 

At 1 October 2006

(89,621) 

Dividends paid

(18,169

Deferred tax on sharesave scheme taken directly to equity

(157

Tax effect of share options exercised

195 

Net profit for period 

25,740 

 

 

At 30 September 2007

(82,012

Dividends paid

(17,022

Deferred tax on sharesave scheme taken directly to equity

(305) 

 

 

Net profit for the period

16,353 

 

 

At 27 September 2008

(82,986

 

 


28    Financial commitments


a)    Capital commitments


At the end of the period there were no capital commitments contracted (2007: £nil).


b)    Pension arrangements


The Group operates separate defined contribution pension schemes for employees. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to the funds and amounted to £195,000 (2007: £235,000).


c)    Lease commitments


The Group has entered into nonߛcancellable operating leases in respect of motor vehicles, equipment and land and buildings.


Minimum lease payments under operating leases recognised as an expense for the period were £19,861,000 which includes property service charges of £593,000 (2007: £16,725,000 including property service charges of £470,000). 


At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:


 

2008

2007

 

Land and

 

Land and

 

 

buildings

Other

buildings

Other

 

£'000

£'000

£'000

£'000

 

 

 

 

 

- within 1 year

17,953

1,021

16,642

858

- within 2 - 5 years

60,203

1,519

56,421

1,435

- after 5 years

66,116

104

64,131

168

 

 

 

 

 

 

144,272

2,644

137,194

2,461

 

 

 

 

 


Operating lease payments primarily represent rentals payable by the Group for certain of its office and store properties. Leases are negotiated for an average term of 15 years and rentals are fixed for an average of 5 years (2007: same).


29    Share based payments

The Group operates 2 share option schemes in relation to Group employees.  

Equity Settled share option scheme


Options are exercisable at the middle market closing price for the working day prior to the date of grant and are exercisable 3 years from the date of grant if the employee is still employed by the Group at that date.


Details of the share options outstanding during the period are as follows



Date of grant

Option price (p)

Exercisable period

No. of options outstanding

 

 

 

2008

2007

 

 

 

 

 

26th January 2001

0.54p

7 Years

108,520

345,345

12th February 2002

0.54p

7 Years

40,779

47,445

 

 

 

 

 

 

 

 

149,299

392,790

 

 

 

 

 


Movements in share options are summarised as follows:


 
 
2008
number of share options
2008 weighted average exercise price
 
2007 number of share options
2007 weighted average exercise price
 
 
£
£
£
Outstanding at beginning of period
392,790
0.54
422,135
0.54
Exercised during the period
(243,491)
0.54
(28,345)
0.54
Expired during the period
-
-
(1,000)
0.54
Outstanding at end of period
149,299
0.54
392,790
0.54
Exercisable at end of period
149,299
0.54
392,790
0.54


The weighted average share price at the date of exercise for options exercised in the period was 133.88 pence (2007: 259.10 pence). The options outstanding at 27 September 2008 had a weighted averaged exercise price of 54 pence (200754 pence) and a weighted average remaining contractual life of three years (2007four years).


Other Share based payment plans


The employee share purchase plans are open to almost all employees and provide for a purchase price equal to the daily average market price on the date of grant, less 20%. The shares can be purchased during a two-week period each year. The shares so purchased are generally placed in the employee share savings plan for a 3 or 5 year period.


Movements in share based payment plan options are summarised as follows:


 
 
2008
number of share options
2008
weighted average exercise price
 
2007 number of share options
2007 weighted average exercise price
 
 
 
 
 
Outstanding at beginning of period
913,701
129p
1,009,538
96p
Issued during the period
376,805
131p
198,211
217p
Expired during the period
(303,792)
129p
(72,768)
96p
Exercised during the period
(269,079)
76p
(221,280)
60p
Outstanding at end of period
717,635
135p
913,701
129p
Exercisable at end of period
717,635
135p
913,701
129p


The Group recognised total expense of £100,000 (2007: £56,000) relating to share based payments.


The inputs to the Black-Scholes Model are as follows:


 

2008

2007

 

 

 

Weighted average share price      - pence

140.0 

144.8 

Weighted average exercise price     - pence

112.0 

115.8 

Expected volatility - %

88.2 

27.8 

Expected life             - years

3 or 5 

3 or 5 

Risk - free rate of interest         - %

4.5 

4.3 

Dividend Yield          - %

4.6 

4.4 

 

 

 


Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous 3 years. The expected risk used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces.


30    Related parties


S.K.M. Williams has the non-statutory role of President, advising on property matters and is a related party by virtue of his 10.4% shareholding (17,718,950 ordinary shares) in the Group's issued share capital


At 27 September 2008 S.K.M. Williams was the landlord of two properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £66,000 (2007: £66,000) per annum.


No amounts were outstanding at 27 September 2008 (2007: £nil).


The lease agreements on both properties are operated on commercial arms length terms. His salary for the year in his role as President was £40,000 (2007: £96,000).


Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. 


The remuneration of the Board of Directors, who are considered key management personnel of the Group was £1.1 million (2007: £1.9 million). Further information about the remuneration of the individual directors is provided in the Remuneration Report on pages 29 to 31 of the Annual Report.




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