Final Results

Topps Tiles PLC 29 November 2005 Topps Tiles Plc Preliminary Results Topps Tiles Plc ('Topps'), the UK's largest tile and wood flooring specialist with 244 stores, announces preliminary results for the 52 weeks ended 1 October 2005. Financial Highlights •Group turnover up 10% to £173.3m (2004: £157.6m) •Like for like sales increased by 3.4% (2004:21.5%) •Core store (stores opened pre September 2002) like for like sales up 1.6% •Group gross margin improved to 61.3% (2004: 60.5%) •Operating costs represented 40% of turnover (2004: 39.9%) •Profit Before Tax up 16.1% to £39.2m (2004: £33.8m) •Profit before tax, excluding exceptional capital items, up 12.9% to £37.5m (2004: £33.3m) •Basic EPS up 18.1% to 13.34p (2004:11.30p) •Final net dividend 6.00 pence payable 31 January 2006 •Total dividend of 9.50 pence per share (2004: 8.00 pence) up 18.8% •Strong cash generation with net cash balances of £21.8 m at period end Operational Highlights •Net 24 new store openings •20 Topps Tiles •4 Tile Clearing House •Topps and TCH Distribution and Marketing Centres fully operational with capacity to support new store roll out •Market continues to grow - UK retail sales of ceramic tiles expect to increase 26% by 2010 •First 7 weeks of new financial period total sales increased 1.2% and like for like sales are down 4.7% reflecting the tough UK trading environment •Controlled store roll out programme continues Commenting on the results, Nick Ounstead, Chief Executive said: 'There is no doubt that we, along with the rest of the UK retail sector, are experiencing a very tough trading environment. However, given the strength of these results we believe we have the right business model and the best people to continue to gain market share and we are well placed to maintain our goal of providing sustainable returns for shareholders.' For further information: Topps Tiles Nick Ounstead, CEO Barry Bester, Chairman C/o Bell Pottinger 020 7861 3232 Bell Pottinger Ann-marie Wilkinson/Sarah Landgrebe 020 7861 3232/07866 735 532 CHAIRMAN'S STATEMENT I am pleased to report another strong performance by the Group with record profits and increased UK market share. We have consolidated our position as the leading UK ceramic tile and wood flooring specialist, backed by what is now a truly national brand. The new Topps Distribution and Marketing Centre is fully integrated with the capacity to support our UK store target of a minimum of 350 stores. The period has seen a particularly weak UK consumer environment, however I am pleased to report the resilience of our business model has enabled us to continue to deliver record results and to outperform the market. Since flotation in 1997 total shareholder return has grown by over 2,000% and we have consistently been a top performing company in the FTSE Index. Financial Results Group turnover has increased by 10.0% over the period to £173.3 million, with profit before tax increasing by 16.1% to £39.2 million. Gross margins have improved to 61.3% compared to 60.5% in 2004. 2004 was an exceptional year in respect of trading and if you look at the trend over the last two years like-for-like sales have improved 24.9% Set against extremely strong comparatives last year and the tough UK trading, growth in like-for-like sales for the period was 3.4%, with overall sales growth of 10.0%. Our business continues to be highly cash generative and at the year end we had net cash balances of £21.8 million. Board Changes As announced at the Annual General Meeting on 11 January 2005, Stuart Williams, my co-founder of Topps, stepped down as Co-Chairman and Board Director on 31 March 2005. I am delighted however that Stuart has taken on the newly created non Board advisory role of President and continues to offer his expertise and guidance to the business. Dividend The Board continues to be committed to a progressive dividend policy and is recommending a final dividend of 6.00 pence per share. Together with the interim dividend of 3.50p per share the total dividend for the period will be 9.50 pence per share, an increase of 18.8%. The dividend will be paid on 31 January 2006 to all shareholders on the register as at 13 January 2006. People Our staff are fundamental to the success of the business and I would like to take this opportunity to thank all our employees for their inspiring contributions and continued commitment during the period. We have created another 174 jobs as a direct result of our expansion programme. Outlook Although the current UK trading environment continues to be volatile, I remain confident that the strength of our business model and the expertise of the strong management team will enable us to continue to grow the business and ensure the delivery of sustainable growth for shareholders. Barry Bester Chairman CHIEF EXECUTIVE'S STATEMENT This year, in a turbulent UK trading environment, we have again demonstrated the fundamental strength of our business through the continued delivery of improved profits. Store Development and Expansion Our national store opening programme continues apace with a net 24 new stores (20 Topps and 4 Tile Clearing House) opened in this financial year. We now have a total of 244 trading stores (207 Topps and 37 Tile Clearing House) and are firmly on our way to achieving our stated target of a minimum of 350 UK outlets. We continue to enjoy a good pipeline of suitable sites for occupation or development. In line with our policy of continued store development and refurbishment, 3 stores were closed or relocated, 15 re-fitted and a net 24 new stores opened in the period. We have a total of 64 stores offering our tile studio concept of extra choice of up-market tiles, available on a special order basis and 17 floorstores with an enhanced stock range of laminate and real wood flooring. The average square footage of our stores has increased gradually and is now over 6,300 square feet. Our Stoneworks concept has continued to be popular, as consumers' appetite for natural product grows. We now have 19 stores open with a full Stoneworks offering and we also offer a selected range of these products in all our other stores. Holland We now have a total of 13 stores trading in Holland under our 50/50 joint venture including two new stores opened in the period. It is our intention to open a minimum two stores in the next financial period. Marketing, advertising and sponsorship As part of our strategy to be 'the brand' of choice in the UK we have again continued our nationwide marketing and advertising programme. Our approach is two fold: using national television advertising both digital and terrestrial coupled with print and radio advertising on a regional basis. This is not only an effective strategy in respect of maximising our reach UK wide but is also a cost effective approach, spreading costs across each store in concentrated areas such as central London, for example, the Carlton Weather sponsorship. Topps Tiles is one of Britain's biggest supporters of youth football. Topps stores currently sponsor 225 teams nationwide and our yellow kit is arguably the most famous in the beautiful game. Staff Development and Customer Service Our vision is of high-performing, motivated and well-trained people who can make a difference to our customers, shareholders, the business and themselves. We live by our values of friendly, helpful and expert advice. The quality of leadership in the company is key to the successful delivery of our strategy for growth and our commitment to training, development and career progression is demonstrated through our in-house training school, incentive schemes, bonus system, share save schemes and other incentives including the 'Home Computing Initiative' and the 'Cycle to Work' schemes. We have recently introduced a comprehensive employee benefits scheme which includes a whole range of internal and external company benefits from discounts on holidays to an employee helpline service. We understand the true value of all our employees and actively encourage the recruitment of staff from all age groups. We have a policy of internal promotion, encouraging employees to advance their careers both in the stores and the Head Office functions. The market Despite a widely reported slow down in spending, we believe that in the mid-longer term DIY retail remains a relatively stable sector. There are a number of factors underpinning the future of the retail DIY market. The UK population is growing steadily, particularly in the 35- 64 key age band for DIY; and household numbers are growing faster than the population up from 22.4 million in 1991 to 24.5 million in 2003; and owner occupancy is also on the rise and with an ageing UK housing stock that requires constant repair and maintenance. More specifically, in 2004 the UK ceramic tile market grew 12% to 77.2 million square metres, an increase of 49% compared with 2000. At manufacturers selling prices the market was worth close to £400 million in 2004 (source MBD). The UK still has a very low consumption rate compared to its European counterparts with only 1.1% of world consumption in 2004 compared with, for example Spain at 5.9% (Source: Ceramic World Review). Consumption continues to increase driven by issues such as health and hygiene, an increase in second bathrooms, shower rooms, conservatories and utility rooms and an increase in the use of underfloor heating systems. UK Retail sales of ceramic tiles are expected to increase by 26% by 2010 (source: MBD) and we are confident therefore of the continued growth in the ceramic tile market. Current trading In the first seven weeks of the new financial period we have recorded a like-for-like sales decrease of 4.7%, however, the two year like-for-like sales shows an increase of 14.1%. Overall sales have increased by 1.2% over last year and 24.8% over two years. We have opened stores in Hayes, Lewes and Pentonville Road already this new financial year with our target roll-out of 24 new stores for 2005/06. There is no doubt that we, along with the rest of the UK retail sector, are experiencing a very tough trading environment. However, given the strength of these results we believe we have the right business model and the best people to continue to gain market share and we are well placed to maintain our goal of providing sustainable returns for shareholders. Nicholas Ounstead Chief Executive Officer OPERATING AND FINANCIAL REVIEW This does not represent a statutory Operating and Financial Review as set out in the Companies Act 1985 (Schedule 72A) and in RS1. Nature, Objectives and Strategies of the business Topps Tiles Plc is Britain's biggest tile and wood flooring specialist group with over 244 stores throughout the UK. We have an opening programme of 24 stores per financial year and a long term target of a minimum of 350 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 group 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 sales 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 20% 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. In the UK there is one other significant chain, Tiles R Us but they also sell bathrooms and kitchens. 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 Profit 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 such as customer satisfaction questionnaires and Mystery Shopper surveys. 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. In addition, we provide a range of services offering practical support at every stage of the job including Loan-a-Tile, free 'How to' video or 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 Profit and Loss Account Turnover During the period Group turnover increased by 10.0% to £173.3 million from £157.6 million last year. Like-for-like sales increased by 3.4%, with new store openings contributing a further 8.7% increase, with the difference of 2.1% being due to the 53 week comparison in the prior period. Gross margin Overall gross margin was 61.3% compared to 60.5% last year. At the interim point of this period gross margin was 61.9%. The second half of the period has shown a gross margin of 60.7% which reflects the tougher trading conditions in this period. Operating expenses Overall costs have increased from £62.8 million to £69.3 million which is an increase of 10.4%. New stores accounted for 6.9% with the remaining 3.5% due to like for like increases. Costs as a percentage of sales were 40.0% compared to 39.9% last year. Profit before tax We have achieved an overall increase in profit before tax of 16.1% to £39.2 million compared to a profit before tax of £33.8 million last year. This period's profit before tax includes £1.7 million of exceptional profit, compared to £542,000 last year, following the sale and leaseback of four freehold properties. Profit before tax margin Group profit before tax margin has increased to 22.6% from 21.4% last year. This increase of 1.2 percentage points has been achieved primarily by an increase in gross margin of 0.8 percentage points less a slight increase in operating costs of 0.1 percentage points with the remainder being reflected in the exceptional profit on disposal of fixed assets and interest receivable. Taxation The effective rate of Corporation Tax was 23.1% (53 weeks ended 2 October 2004: 24.1%) and we have continued to fully provide for deferred taxation in line with FRS19. The effective rates of tax for both financial periods have been favourably affected by statutory deductions for share options exercised and intra-Group restructuring benefits. Earnings per share Basic earnings per share has grown to 13.34 pence compared to 11.30 pence last year, an increase of 18.1%. Diluted earnings per share were 13.24 pence compared to 11.12 pence last year, an increase of 19.1%. Dividend and dividend policy The Board is recommending a final dividend of 6.00 pence per share, which will give a total dividend for the period of 9.50 pence compared to 8.00 pence last year an increase of 18.8%. This maintains our dividend cover at 1.41 times. Balance Sheet Capital expenditure Capital expenditure in the period amounted to £8.8 million. This includes the cost of acquiring two freehold sites for £3.6 million and development stores site costs of £0.1 million. We have also opened 27 new stores and undertaken preparatory work on a further two stores at a cost of £3.0 million and undertaken major refurbishment of a further 15 stores at a cost of £0.7 million and other re-fit costs of £0.8 million. We continue to update and expand our IT systems within the business and this coupled with some motor vehicle renewals accounted for £0.6 million. At the period end the Group owned six freehold sites, two development sites and both the Topps and Tile Clearing House distribution and marketing centres, which have a total net book value of £12.0 million. Stock Stock at the period end represents 137 days turnover compared to 143 days for the same period last year. Capital structure Cash reserves at the period end were £27.8 million and borrowings were £6.0 million, the latter being to help fund the cost of the new Topps distribution and marketing centre which was opened in April 2004. This gives the Group a net funds position of £21.8 million compared to £23.1 million as at 2 October 2004. 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. The Group expects that the business will continue to be cash generative and may look to repay part or all of the £6.0 million borrowings in 2006. Cash flow Net cash inflow from operating activities was £35.8 million, £2 million below last year. Higher trading profit for the Group was offset by higher cash outflows on working capital. This is due primarily to a decrease in Creditors as the Group now pays its employee bonuses on a quarterly basis rather than on an annual basis. Share buy-backs In the financial period the Group has bought back 1,722,115 Ordinary Shares at a cost of £3.77 million. This primarily is to stop any dilution occurring as employee share options are exercised and sold. However the Group has also, on occasion, acquired shares when the Board considers there is an opportunity to do so in the market. All of the shares acquired have now been cancelled. Joint venture in Holland The joint venture in Holland continues to develop with two new stores opened in the period to bring the total to 13 stores. The Group owns 50% in the joint venture with the other 50% owned by the Dutch management team. The Group's Profit and Loss Account shows turnover of £2.3 million (2004 : £1.8 million) and operating profit before tax of £56,000 (2004 : £39,000) from the venture which reflects the Group's 50% holding. Change in accounting policies During the financial period there have been no changes to the accounting policies of a material nature compared to the previous financial period. International Financial Reporting Standards (IFRS) The Group is working closely with its auditors to implement these changes. The Group is required to adopt IFRS for the financial period commencing 2 October 2005. However, the Group intends to make an announcement in January 2006 to show the impact of the changes. Post balance sheet events The Board confirms that there have been no events after the Balance sheet date requiring adjustment or disclosure in the financial statements for the period ended 1 October 2005. Annual General Meeting The Annual General Meeting for the period to 1 October 2005 will be held on 10 January 2006 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 Group Profit and Loss Account For the 52 week period ended 1 October 2005 52 weeks 53 weeks ended ended 1 October 2 October 2005 2004 Audited Audited £'000 £'000 -------- -------- Turnover, group and share of joint venture 175,640 159,430 Less: share of joint venture turnover (2,314) (1,818) -------- -------- -------- Group turnover 173,326 157,612 Cost of sales (67,146) (62,282) -------- -------- Gross profit 106,180 95,330 Operating expenses - employee profit sharing (7,502) (7,853) - other operating expenses (61,844) (54,968) -------- -------- Group operating profit 36,834 32,509 Share of operating profit in joint venture 56 39 -------- -------- Group and share of joint venture's operating profit 36,890 32,548 Exceptional profit on disposal of fixed assets 1,700 542 -------- -------- Profit on ordinary activities before finance income 38,590 33,090 Finance income (net) 642 704 -------- -------- Profit on ordinary activities before taxation 39,232 33,794 Tax on profit on ordinary activities (9,043) (8,146) -------- -------- Profit on ordinary activities after taxation 30,189 25,648 Dividends paid and proposed (21,492) (18,155) -------- -------- Retained profit for the year transfered to reserves 8,697 7,493 ======== ======== Earnings per ordinary share - basic 13.34p 11.30p - diluted 13.24p 11.12p ======== ======== All activity has arisen from continuing operations. There are no recognised gains or losses in the period (53 weeks ended 2 October 2004 - £9,000 foreign exchange gain). Balance Sheets As at 1 October 2005 Group Company 1 October 2 October 1 October 2 October 2005 2004 2005 2004 £'000 £'000 £'000 £'000 ------- ------- -------- -------- Fixed assets Goodwill 517 551 - - Tangible assets 32,072 29,236 - - Investments - - 15,122 15,122 Joint venture undertaking - share of assets 1,196 1,059 - - - share of liabilities (971) (866) - - ------- ------- -------- -------- 32,814 29,980 15,122 15,122 Current assets Stocks 25,338 24,373 - - Debtors within one year 4,071 3,809 76,209 40,103 Debtors after one year 115 110 6,200 6,200 Cash at bank and in hand 27,829 29,624 - - ------- ------- -------- -------- 57,353 57,916 82,409 46,303 Creditors: amounts falling due within one year (39,775) (45,452) (44,214) (19,195) ------- ------- -------- -------- Net current assets 17,578 12,464 38,195 27,108 ------- ------- -------- -------- Total assets less current liabilities 50,392 42,444 53,317 42,230 Creditors: amounts falling due after more than one year (9,394) (7,571) (3,394) - Provisions for liabilities and charges (2,345) (1,864) - - ------- ------- -------- -------- Net assets 38,653 33,009 49,923 42,230 ======= ======= ======== ======== Capital and reserves Called-up share capital 5,655 5,673 5,655 5,673 Share premium 5,575 4,889 5,575 4,889 Merger reserve (399) (399) - - Special reserve - - 14,917 14,917 Treasury Shares - (733) - (733) Capital redemption reserve 190 137 190 137 Other reserve - - 6,200 6,200 Profit and loss Account 27,632 23,442 17,386 11,147 ------- ------- -------- -------- Equity shareholders'funds 38,653 33,009 49,923 42,230 ======= ======= ======== ======== Consolidated Cash Flow Statement For the 52 week period ended 1 October 2005 52 weeks 53 weeks ended ended 1 October 2 October 2005 2004 Notes £'000 £'000 -------- --------- Net cash inflow from operating activities (a) 35,766 37,770 Returns on investments and servicing of finance (b) 634 530 Taxation (8,864) (5,236) Capital expenditure and financial investment (c) (4,272) (8,266) Equity dividends paid (21,489) (11,534) -------- --------- Cash inflow before financing 1,775 13,264 Financing (d) (3,570) (2,220) -------- --------- (Decrease)/increase in cash in the period (e) (1,795) 11,044 ======== ========= The accompanying notes are an integral part of this Consolidated Cash Flow Statement a) Reconciliation of operating profit to operating cash flows 52 weeks 53 weeks ended ended 1 October 2 October 2005 2004 £'000 £'000 -------- --------- Operating profit 36,834 32,509 Depreciation 3,363 2,729 Loss on disposal of fixed assets - 269 Goodwill amortisation 34 35 Increase in stocks (965) (4,660) (Increase)/decrease in debtors (267) 793 (Decrease)/Increase in creditors (3,233) 6,095 -------- -------- Net cash inflow from operating activities 35,766 37,770 ======== ======== b) Returns on investments and servicing of finance 52 weeks 53 weeks ended ended 1 October 2 October 2005 2004 £'000 £'000 -------- --------- Interest received 942 930 Interest paid (308) (400) -------- --------- Net cash inflow from returns on investments and servicing of finance 634 530 -------- --------- c) Capital expenditure and financial investment 52 weeks 53 weeks ended ended 1 October 2 October 2005 2004 £'000 £'000 -------- --------- Purchase of tangible fixed assets (8,564) (11,491) Sale proceeds of tangible fixed assets 4,292 3,225 -------- --------- Net cash outflow from capital expenditure and financial investment (4,272) (8,266) ======== ========= d) Financing 52 weeks 53 weeks ended ended 1 October 2 October 2005 2004 £'000 £'000 -------- --------- Proceeds from issue of ordinary share capital 721 3,325 New loans - 3,095 Purchase of Treasury Shares (3,774) (8,640) Repayment of loans (517) - -------- --------- Net cash outflow from financing (3,570) (2,220) ======== ========= e) Analysis and reconciliation of net funds At At 2 October 1 October 2004 Cash flow 2005 £'000 £'000 £'000 -------- -------- --------- Cash at bank and in hand 29,624 (1,795) 27,829 Debt due within1 year (517) 517 - Due debt after 1 year (6,000) - (6,000) -------- -------- --------- Net funds 23,107 (1,278) 21,829 ======== ======== ========= Decrease)/Increase in cash in the period (1,795) 11,044 Cash inflow (outflow) from increase/ (decrease) in debt and finance leasing 517 (3,095) -------- --------- Movements in net funds in the period (1,278) 7,949 Net funds at start of period 23,107 15,158 -------- --------- Net funds at end of period 21,829 23,107 ======== ========= NOTES TO FINANCIAL STATEMENTS For the 52 week period ended 1 October 2005 1 Basis of Preparation The accounting policies used in preparation of the accounts for the period ended 1 October 2005 are consistent with those in the preceding period. 2 Turnover Turnover and profit before taxation are 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 2005. The Directors recommend a final dividend of 6.00 pence per ordinary share to be paid on 31 January 2006 to shareholders on the register on 13 January 2006, making a total dividend for the period of 9.50 pence (2004: 8.00 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 1 October At 2 October 2005 2004 Number of Number of Shares Shares Weighted average number of shares For basic earnings per share 226,351,825 226,881,069 Weighted average number of shares under option 1,678,222 3,868,815 For diluted earnings per share 228,030,047 230,749,884 5 Financial information The financial information set out above does not constitute the Group's statutory financial statements for the 52 week period ended 1 October 2005 but is derived from those statements. Statutory financial statements for the 53 week period ended 2 October 2004 have been delivered to the Registrar of Companies and those for the 52 week period ended 1 October 2005 will be delivered following the Company's Annual General Meeting to be held on 10 January 2006. The Auditors have reported on the accounts to 2 October 2004 and 1 October 2005 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 1 October 2005 will be posted to Shareholders on 29 November 2005 and additional copies will be available from the Company Secretary at the Company's registered office: Topps Tiles Plc, Rushworth House, Handforth, Wilmslow, Cheshire, SK9 3HJ This information is provided by RNS The company news service from the London Stock Exchange

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