Final Results

Topps Tiles PLC 28 November 2006 Topps Tiles Plc Preliminary Results Topps Tiles Plc ('Topps'), the UK's largest tile and wood flooring specialist with 271 stores, announces preliminary results for the 52 weeks ended 30 September 2006. Financial Highlights • Group revenue up 3.9% (2005: up 10.0%) to £180.2m (2005: £173.3m) • Like-for-like revenue decreased by 1.8% (2005: up 3.4%) • Group gross margin increased to 62.6% (2005: 61.3%) • *Adjusted operating costs represented 40.4% of revenue (2005: 40.0%) • Operating profit up 5.6% to £38.9m (2005: £36.8m) • *Adjusted operating profit up 8.5% to £40.0m (2005: £36.8m) • Profit before tax was £39.1m (2005: £39.2m) • **Adjusted profit before tax up 6.5% to £39.9m (2005: £37.5m) • Basic EPS down 4% to 12.80p (2005: 13.33p) • **Adjusted basic EPS up 2% to 13.07p (2005: 12.81p) • Total dividend of 10.40 pence per share (2005: 9.50 pence) up 9.5% • Return of cash and Share Capital Consolidation completed 14 August 2006 • £122.4m cash returned to shareholders Operational Highlights • Net 27 new store openings • 18 Topps • 9 Tile Clearing House • Holland - since year end extended ownership of Dutch operation to 100% with additional store roll out programme planned • Market conditions remain challenging but UK tile market is forecast to grow by volume by over 15% between 2007 and 2011 (Source: MBD) • First seven weeks of the new financial period total Group revenue was up 10.3% and Group like for like revenue up 3.3% • First national advertising campaign launched late October 2006 • Controlled store roll out programme continues *adjusted to exclude share buy-back costs of £1.1m **adjusted to exclude share buy-back costs of £1.1m (2005: nil) and property gains of £258k (2005: £1.7m) Commenting on the results, Nick Ounstead, CEO of Topps said: 'We are confident in our business model which despite difficult market conditions has remained resilient and have continued to grow market share. Additionally we have increased our store roll-out programme to 30 stores for this financial year and believe our strategy will continue to delivery future growth' For further information: Topps Tiles Nick Ounstead, CEO Barry Bester, Chairman C/o Bell Pottinger 020 7861 3232 Bell Pottinger Ann-marie Wilkinson/Sarah Hilyer 020 7861 3232/07866 735 532 CHAIRMAN'S STATEMENT This has been a challenging year for the home improvement market but I am pleased to report that in the face of tough trading the Group has once again grown both its revenues and operating profits. Financial Results Group revenue was £180.2m an increase of 3.9% on last year with like-for-like revenue for the period down 1.8%. Group operating profit before share buy back costs of £1.1 million was £40.0 million, an increase of 8.5% compared with last year. Gross margins improved to 62.6% compared with 61.3% in 2005. Share Capital Consolidation and Return of Cash Following a review of the Company's financing requirements and given our robust balance sheet and strong record of cash conversion we announced in July a return of £122.4 million in cash to shareholders in conjunction with a share capital consolidation of 3 for 4 ordinary shares. The return of cash, equating to 54 pence per ordinary share, was approved by our shareholders on 31 July 2006 and paid on the 14 August 2006. Dividend In line with our stated dividend policy, the Board proposes an increase of 0.9p (9.5%) in the total dividend for the year to 10.40p. This is covered 1.41 times by earnings. The proposed final dividend of 6.9p (2005: 6.00 pence) will be paid on 31 January 2007 to all shareholders on the register as at 5 January 2007. Board Changes As announced in April we strengthened our Executive Board by the appointment of Matthew Williams, our Chief Operating Officer, as a main Board Director. I am delighted to welcome Matthew to the Board. After 11 years, Andrew Liggett, Finance Director has decided to step down and will be leaving the Company with effect from 30 April 2007. Andy has been an important part of Topps' growth as a quoted Company and I, along with the other members of the Board, wish to thank him for his significant contribution over the last 11 years. All of us wish him well for the future. People These results are testimony to the commitment of all our staff, those in the front line in-store and all our operational support team. On behalf of the Board, I would like to thank them all for their continued enthusiasm and energy. I would also like to extend a warm welcome to the staff who joined the Group in the period. Outlook We are confident that our strategy for organic growth is sound. We strive to offer the best in range, quality and accessibility of our products coupled with outstanding customer service and we continually monitor our performance to ensure we are always one step ahead of the competition. Looking ahead, we believe that we are in a strong position to continue to expand our market share and we now have the potential to trade from over 400 stores UK wide. We are confident that the strength of the management team, our people and our strategy will enable further growth of the business and deliver sustainable returns for shareholders. Barry Bester Chairman CHIEF EXECUTIVE'S STATEMENT Our aim is simple - to deliver sustainable growth and returns to shareholders and central to that aim are our customers. We strive to enhance our customers' buying experience by constantly improving stores and ranges and offering the best in customer service. During the year we delivered another solid performance in difficult trading conditions and we continue to extend our market share. Store Development and Expansion In April 2006 we opened our 250th store in Ashford, Kent - a landmark event in Topps' history and another step in our UK expansion programme. Whilst we have a stated minimum store target of 350 stores UK wide, we now believe there is scope for over 400 stores. Against a target of a net 24 new stores in the period we have actually achieved a net total of 27 new store openings. This has in part been due to the appointment in our property department in Grove Park of an in-house property lawyer which has expedited our property transactions. This also means that in the new financial period we are able to step up our store opening programme with a target in 2007 of a net total of 30 new UK outlets. Topps Tiles In the period under review we have refitted 2 stores and closed or relocated a further 3. We ended the period with a total of 225 stores trading, a net increase of 18 stores. The consumer trend towards natural products continues and we have extended the range in a number of stores. Tile Clearing House ('TCH') TCH has its own store format and brand which is targeted at tradesmen and jobbing builders and the lower end of the tile market. In this financial period we opened a net 9 new TCH outlets and refitted 1. We now have a total of 46 stores in the UK. Holland On the 2nd October 2006 we acquired the remaining 50% of our Dutch operation. The Company currently trades from 15 stores in Holland and we intend to increase the new store opening programme to a minimum of 5 new stores each financial year. The acquisition of the remaining 50% of this business gives us the flexibility to step up the expansion programme. We have a minimum store target of 60 stores in Holland. Marketing, advertising and sponsorship Our marketing strategy comprises high profile national campaigns underpinned by regional activity. We continue to use national television advertising, both digital and terrestrial along with print and radio advertising on a regional basis and this year we continued advertising on UK style channels and sponsored 'improve don't move' on ITV. Additionally we have just launched a national TV campaign, for the first time. This is to expand our reach and consolidate our national brand as we now have over 225 Topps stores and 46 TCH stores nationwide. Like most of our customers, we love our football. It's a major part of our community relations programme and we now sponsor over 260 local football teams through our youth football initiative. Staff Development and Customer Service We believe that a considerable contribution to our business success is due to the quality of our customer service delivered by our highly trained and friendly staff. Our recruitment programme is targeted at ambitious individuals of all ages and our rigorous training programme focuses on product knowledge and customer service. A development in our training programme this year has been the introduction of a Group intranet enabling staff to be trained on-site, in-store. The system is self-administered and more efficient and effective than our previous systems. Corporate responsibility We are committed to behaving as a responsible corporate citizen and we have continued to make progress in the area of social responsibility. The market We are the leading tile retailer in the UK with a market share of circa 21% and continued to grow market share over the last financial year in a market that has showed continual growth. Despite the challenging market conditions, the UK tile market is forecast to grow by volume by over 15% between 2007 and 2011 (source: MBD), reflecting the overall expansion of the DIY retail sector. The UK still has one of the lowest useages per head of ceramic tiles in Europe, at a level around one third of that of other Northern European countries (source: MBD) and has significant potential for growth. Factors expected to drive growth include the growing trend to tile rooms beyond the more traditional kitchen and bathroom applications (e.g. conservatories), a preference for second bathrooms and a widening product offering. Additionally, household numbers continue to grow faster than the UK population, which is anticipated to rise by 12% over the next 25 years (source: ONS). This is in contrast to the increasing number of households, which is expected to grow by almost 23% in the next 20 years, from 20.9m in 2003 to 25.7m in 2026 (source: Government forecasts). We therefore believe Topps is well placed to capitalise on the continued growth in the tile market and to increase market share. Current trading We have embarked on a high profile, mainstream terrestrial television advertising programme which began on 23 October 2006. Whilst it is early days we are encouraged by the response so far. In the first 7 weeks of the new financial period Group overall revenue increased by 10.3% and like-for-like revenue increased by 3.3%. This includes a strong performance from our Dutch business, now contributing 100% to Group numbers. Revenue in the UK increased 9.5% and like-for-like revenue increased by 2.7% for the first 7 weeks of the new financial period. Our business in Holland is performing well and is trading strongly. Revenue has increased by 38.1% and like-for-like revenue has increased by 25.8% over the past 7 weeks. Of the planned 30 new UK stores in the new financial period we have already opened 5 new stores in St. Neots, Brixton, Exmouth, Merton and Merry Hill. In Holland we have opened one new store in Eindhoven. We are confident in our business model which despite a difficult market has remained resilient and this gives us confidence for the future. Nicholas Ounstead Chief Executive Officer BUSINESS REVIEW Nature, Objectives and Strategies of the Business Topps Tiles Plc is Britain's biggest tile and wood flooring specialist group with over 271 stores throughout the UK. We have an opening programme of a net 30 new stores each financial year and a long term target of a minimum of 400 stores UK wide. Our founders, Stuart Williams and Barry Bester, whose vision and enterprise built up the business from just a few shops, are still major shareholders. Topps' first specialist tile centre opened in Manchester in 1963. It was a pioneering concept offering customers quality tiles at bargain prices, sold by friendly, helpful people. This policy has never changed. We operate two brands in the market, Topps Tiles and Tile Clearing House. Topps is Britain's biggest tile and wood flooring specialist with the largest choice in the UK to suit all tastes and budgets. Tile Clearing House is a true 'cash and carry' tile store selling end of lines, job lots and seconds, appealing to small builders, local contractors and bulk purchasers. Today at Topps you will find the best the world can offer in wall and floor tiles, natural stone, laminate and solid wood flooring. Underfloor heating, tools, adhesives, grouts, accessories and cleaning products are also on hand for the perfect finish to any job. Most of the tiles commissioned for Topps go straight to our central warehouse and distribution centre near Leicester. From here, all Topps stores receive at least two bulk deliveries a week, so stock is constantly flowing to keep pace with demand. The business is built on four cornerstones that underpin our success: customer service, store locations, store layout and stock availability. Our aim is to increase shareholder value through the delivery of sustainable earnings growth. Operating Environment Historically, the Group's business has proven to be resilient in the face of economic downturn. The business has traded through a number of recessions and whilst revenues continued to grow we did experience some pressure on margins. However, the business has changed over the years and we are confident that our current business model places us well to continue to deliver future shareholder value. Topps is the market leading brand in the UK, enjoying an estimated 21% market share by value. Estimated market shares are based on external research by MBD. In terms of competitive positioning Topps sits between the DIY chains and the independent tile retailers. Key Performance Indicators The Directors monitor a number of financial metrics and key performance indicators (KPIs) for the Group and by store, including: • Like for like Sales • Sales value per transaction • Gross Margin The Directors receive daily information on these and other metrics and KPIs for the Group as a whole. In addition, the Directors receive information on non financial metrics including: • Customer satisfaction • Utilisation of own fleet Key Strengths and Resources Customer satisfaction is Topps' No.1 priority. We are committed to the highest levels of customer service, it is our policy to be honest, helpful and knowledgeable but never, never pushy. In addition, we provide a range of services offering practical support at every stage of the job including Loan-a-Tile, free 'How to' DVD, tile cutting and Topps buy-back service for unused tiles. The quality and range of products offered is the widest in the market with over 17,000 separate product lines. Risks and Uncertainties Risks to the business include 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 recession and development of substitute products. The Directors routinely monitor all these risks and uncertainties and appropriate actions are taken to mitigate the risks or their potential outcomes. Financial Review Income Statement Revenue During the period Group revenue increased by 3.9% to £180.2 million from £173.3 million last year. Like-for-like sales decreased by 1.8%, with new store openings contributing a 5.7% increase. Average transaction per customer has slightly increased to £62 compared with £61 in the same period last year. Gross margin Overall gross margin was 62.6% compared to 61.3% last year. At the interim point of this period gross margin was 62.4%. The second half of the period has shown a gross margin of 62.7%. Operating expenses Total operating costs have increased from £69.4 million to £73.9 million which is an increase of 6.5%, although this includes non recurring share buy back costs of £1.1 million. However costs, excluding the employee profit sharing and non recurring share buy back costs have increased by 8.1% with new stores accounting for 5.1% and like for like increases of 3.0%. Costs as a percentage of sales excluding the non recurring share buy back costs were 40.4% compared to 40.0% last year. Other Gains and losses In the period there is a net profit on the sale and leaseback of one freehold property of £258,000. This compares to the £1.7 million profit in 2005 which relates to the sale and leaseback of four freehold properties. Profit before tax We have achieved an overall profit before tax of £39.1 million compared to a profit before tax of £39.2 million last year. This period's profit before tax includes £0.3 million of property disposal gains and £1.1 million of non recurring share buy back costs, compared to £1.7 million of property disposal gains last year, excluding these items profit before tax has increased by 6.5%. Profit before tax margin Group profit before tax margin was 21.7% from 22.6% last year. However the profit before tax margin has been affected by the property disposal gains and the non recurring share buy back costs and pre these items was 22.1% (2005: 21.6%). Taxation The effective rate of Corporation Tax was 28.8% (2005: 23.0%) and we have continued to fully provide for deferred taxation in line with IAS12. The effective rates of tax for both financial periods have been favourably affected by intra-Group restructuring benefits. Earnings per share Basic earnings per share is 12.80 pence compared to 13.33 pence last year, a decrease of 4.00%. Diluted earnings per share is 12.74 pence compared to 13.24 pence last year, a decrease of 3.78%. Both years were affected by property gains and non recurring share buy back costs (as above) and excluding these items the Earnings per share for this year would be 13.07 pence compared to 12.81 pence last year, an increase of 2%. Dividend and dividend policy The Board is recommending a final dividend of 6.90 pence per share, which will give a total dividend for the period of 10.40 pence compared to 9.50 pence last year an increase of 9.5%. This maintains our dividend cover policy at 1.41 times. Balance Sheet Capital expenditure Capital expenditure in the period amounted to £9.1 million. This includes the cost of acquiring three freehold sites for £3.8 million and one long leasehold site for £0.8 million and one development store site costs of £0.5 million. We also acquired three leasehold sites from the administrators of Tile and Bath World Limited at a cost of £0.3 million. We have also opened a gross 28 new stores and undertaken preparatory work on a further two stores at a cost of £2.5 million and undertaken major refurbishment of a further 2 stores and other minor re-fits at a cost of £0.7 million. We continue to update and expand our IT systems within the business and this coupled with some motor vehicle renewals accounted for £0.5 million. At the period end the Group owned nine freehold sites, one development site, one long leasehold site and both the Topps and Tile Clearing House distribution and marketing centres. These sites have a total net book value of £16.7 million. Inventory Inventory at the period end represents 146 days of revenue compared to 137 days for the same period last year. This level is within our target of 140 -150 days going forward. Capital structure Cash reserves at the period end were £16.5 million and borrowings were £116.0 million, £110.0 million of the latter being to help fund the £122.4 million cash return and share capital consolidation transaction in August 2006 with the remaining £6 million repaying the existing loan on the Topps distribution and marketing centre. This gives the Group a net debt position of £99.5 million compared to a net funds position of £21.8 million as at 1 October 2005. The highly cash generative nature of our business means that the Group has always been able to fund its new store expansion programme from its own resources and to purchase freehold sites as suitable opportunities arise and this is expected to continue. Cash flow Net cash generated by operations was £37.9 million, £2.1 million higher than last year which reflects the higher trading profit for the Group. The movement in working capital is shown as an outflow of £5.0 million however this is after the payment of the long term incentive plan in September 2006 of £3.6m. Share Capital Consolidation and Cash Return In August 2006 the Group completed the announced Share Capital Consolidation of 3 new ordinary shares for every 4 existing ordinary shares and also the share reorganisation providing for a return of cash to shareholders equivalent to 54 pence per ordinary share. Holland The joint venture in Holland continues to develop with two new stores opened in the period to bring the total to 15 stores. The Group owned 50% in the joint venture during the financial period with the other 50% owned by the Dutch management team. The Group's Income Statement shows net profit of £58,000 (2005: £13,000) from the venture which reflects the Group's 50% holding. However on 2 October 2006 the Group purchased the remaining 50% share capital of the business for a total cost of £1.16 million being a combination of cash £512,500 (€762,500) and 250,000 Topps Tiles Plc shares with a value of £647,500. These shares are subject to a 3 year lock in agreement. The Dutch management team headed by Hans Ebbelink remains in place with Hans initially having a two year service contract and then reducing to a one year contract. International Financial Reporting Standards (IFRS) This is the first financial period for adopting IFRS and comparative figures for the previous year have been adjusted accordingly. Post Balance Sheet Events On 2 October 2006 the Group purchased the remaining 50% of the share capital in the Holland business, to give the Group a 100% holding, at a cost of £1.16 million. Annual General Meeting The Annual General Meeting for the period to 30 September 2006 will be held on 10 January 2007 at 10.30am at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU, which is our Topps distribution and marketing centre. Nicholas Ounstead Andrew Liggett Chief Executive Officer Finance Director Consolidated Income Statement For the 52 weeks ended 30 September 2006 2005 2006 Restated Notes £'000 £'000 Group revenue 2 180,180 173,326 Cost of sales (67,470) (67,146) ------------------------- Gross profit 112,710 106,180 Operating expenses - employee profit sharing (5,907) (7,502) - distribution costs (50,901) (46,348) - other operating expenses (15,981) (15,521) - share buy back costs (1,110) - Share of results of joint ventures 58 13 ------------------------- Group and share of joint venture profit from operations before share buy back costs 39,979 36,822 Share buy back costs (1,110) - ------------------------- Group and share of joint venture profit from operations 38,869 36,822 Other gains and losses 258 1,700 Investment revenue 1,276 1,076 Finance costs (1,339) (407) Profit before taxation 2 39,064 39,191 Taxation (11,260) (9,009) ------------------------- Profit after taxation for the period attributable to equity holders of the parent company 27,804 30,182 ------------------------- Earnings per ordinary share 4 - basic 12.80p 13.33p - diluted 12.74p 13.24p All of the above results relate to continuing operations. Consolidated Statement of Recognised Income and Expense For the 52 weeks ended 30 September 2006 2006 2005 £'000 £'000 Exchange rate loss on retranslation of joint venture (2) - First time adoption of IAS 32 and 39 - (17) Deferred tax on sharesave scheme taken directly to equity 304 (500) Profit for the period attributable to equity holders of the company 27,804 30,182 ----------------------- Recognised income and expense for the period 28,106 29,665 ----------------------- Consolidated Balance Sheet As at 30 September 2006 2005 2006 Restated £'000 £'000 Non-current assets Goodwill 551 551 Tangible assets 36,857 32,072 Joint venture undertaking 281 225 Trade and other receivables - 115 ------------------------- 37,689 32,963 Current assets Inventories 27,031 25,338 Trade and other receivables within one year 5,528 4,071 Cash and cash equivalents 16,533 27,829 ------------------------- 49,092 57,238 Total assets 86,781 90,201 Current liabilities Trade and other payables (25,837) (23,138) Bank loans (4,900) - Current tax liabilities (7,507) (3,640) -------------------------- (38,244) (26,778) -------------------------- Net current assets 10,848 30,460 Bank loans (110,600) (6,000) Other payables - (3,394) Deferred tax liabilities (1,233) (1,799) -------------------------- Total liabilities (150,077) (37,971) -------------------------- Net (liabilities)/assets (63,296) 52,230 -------------------------- Equity Share capital 5,773 5,655 Share premium 531 5,575 Merger reserve (399) (399) Share based payment reserve 166 100 Capital redemption reserve 20,254 190 Retained earnings (89,621) 41,109 -------------------------- Total equity (63,296) 52,230 -------------------------- Consolidated Cashflow Statement For the 52 weeks ended 30 September 2006 2006 2005 £'000 £'000 Cashflow from operating activities Group and share of joint venture operating profit before taxation 38,869 36,822 Adjustments for: Depreciation of property, plant and equipment 3,718 3,363 Share of results in joint venture (58) (13) Share option charge 66 65 Loss on sale of fixed assets 258 - Increase in receivables (1,342) (267) Increase in inventories (1,693) (965) Decrease in payables (1,949) (3,239) -------------------------- Cash generated by operations 37,869 35,766 Interest paid (683) (308) Taxation paid (7,655) (8,864) -------------------------- Net cash from operating 29,531 26,594 activities Cashflows from investing activities Purchase of treasury shares - (3,774) Interest received 1,276 942 Purchase of property/plant/equipment (8,668) (8,564) Proceeds on sale of equipment 573 4,292 -------------------------- Net cash used in investment activities (6,819) (7,104) Cashflows from financing activities Proceeds from issue of share capital 222 721 Repayment of loans (6,000) (517) New loans 115,500 - Share buy back (122,216) - Dividends paid (21,514) (21,489) -------------------------- Net cash used in financing activities (34,008) (21,285) Net decrease in cash equivalents (11,296) (1,795) Cash and cash equivalents at beginning of period 27,829 29,624 -------------------------- Cash and cash equivalents at end of period 16,533 27,829 ========================== NOTES TO FINANCIAL STATEMENTS For the 52 week period ended 30 September 2006 1 Basis of Preparation The accounting policies used in preparation of the accounts for the period ended 30 September 2006 have been prepared in accordance with International Financial Reports Standards (IFRS) and comparative figures for the previous year have been adjusted accordingly. Whilst the financial information included in the preliminary announcement has been compiled in accordance with International Financial Reporting Standards (IFRS's), this announcement does not in itself contain sufficient information to comply with IFRS's. The Company has today published full financial statements that comply with IFRS's. 2 Revenue Revenue and profit before taxation is attributable to one activity, the sales of ceramic tiles, wood flooring and related products, and arises predominantly within the UK. 3 Dividends An interim dividend of 3.50 pence per ordinary share was paid to shareholders of the company on the 30 June 2006. The Directors recommend a final dividend of 6.90 pence per ordinary share to be paid on 31 January 2007 to shareholders on the register on 5 January 2007, making a total dividend for the period of 10.40 pence (2005: 9.50 pence) per ordinary share. 4 Earnings per share The calculation of earnings per share is based on profit of ordinary activities after taxation for the financial period attributable to equity shareholders and the weighted average number of ordinary shares as follows: At 30 September At 1 October 2006 2005 Number of Number of Shares Shares Weighted average number of shares For basic earnings per share 217,252,872 226,351,825 Weighted average number of shares under option 954,715 1,678,222 For diluted earnings per share 218,207,587 228,030,047 5. Reconciliation of Movement in Equity Reconciliation of Movement in Equity For the 52 weeks ended 30 September 2006 £'000 As at 2 October 2005 52230 Recognised income and expense for the period 28106 Decrease in share capital and share premium (4926) Share based payment reserve 66 Capital redemption reserve 20064 Dividends paid (21509) Share buy back (137327) -------- Total as at 30 September 2006 (63296) -------- 6 Financial information The financial information set out above does not constitute the Group's statutory financial statements for the 52 week period ended 30 September 2006 but is derived from those statements. Statutory financial statements for the 52 week period ended 1 October 2005 have been delivered to the Registrar of Companies and those for the 52 week period ended 30 September 2006 will be delivered following the Company's Annual General Meeting to be held on 10 January 2007. The Auditors have reported on the accounts to 1 October 2005 and 30 September 2006 and their report was unqualified and did not contain statements under section 237(2) or 237(3) of the Companies Act 1985. The Annual Report and Financial Statements for the period ended 30 September 2006 will be posted to Shareholders on 28 November 2006 and additional copies will be available from the Company Secretary at Topps Tiles Plc, Oak Green Business Park, Earl Road, Cheadle Hulme, SK8 6QL. Copies of the Annual Report and Financial Statements for the period ended 30 September 2006 will be submitted to the UK Listing Authority and will be available shortly for inspection at the UK Listing Authority's document viewing facility which is situated at: Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS This information is provided by RNS The company news service from the London Stock Exchange

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