Update on AGM resolutions

RNS Number : 8703L

Topps Tiles PLC

06 January 2023

 

6 January 2023

Topps Tiles Plc

Update on AGM resolutions

Topps Tiles Plc (LSE: TPT) ("Topps", the "Company" and together with its subsidiary undertakings, the "Group"), the UK's leading tile specialist, provides an update in connection with the requisition notices received by the Company on 6 December 2022 (the "Requisition Notices"), served on behalf of MS Galleon GmbH ("MSG") which required the Board to include resolutions (the "Requisitioned Resolutions")  in the notice of the Company's annual general meeting to be held on 18 January 2023 (the "AGM").

•	The Topps board of directors (the "Board") has now become aware that MSG has been contacting certain Topps shareholders individually, with information which contradicts previous statements made directly to Topps around the link between sourcing and MSG's equity interest in the Company;
•	In addition to the potential conflict of interest around sourcing, the Board believes MSG may also be preparing to launch its Nexterio tile retail brand in the UK, potentially establishing a direct competitor to Topps, which would create a further material conflict of interest;
•	The Company has secured further support from key shareholders.  Over 41 per cent. of Topps' shareholders have now committed to vote against the Requisitioned Resolutions

In advance of the AGM, the Company would like to provide the following additional key information to its shareholders:

Further information is provided below.

The Requisition Notices

•	that Darren Shapland be removed from office as a director of the Company, and from the position of Non-Executive Chairman of the Company, with immediate effect;
•	that Lidia Wolfinger, having consented to act, be appointed as a non-executive director of the Company with immediate effect; and
•	that Michal Bartusiak, having consented to act, be appointed as a non-executive director of the Company with immediate effect.

As previously announced, the Requisitioned Resolutions served by MSG are as follows:

MSG currently beneficially owns approximately 29.8 per cent. of the Company's voting share capital.  Lidia Wolfinger and Michal Bartusiak are both employees of companies owned by MSG.

The Board does not consider the Requisitioned Resolutions to be in the best interests of the Company and its shareholders as a whole and has therefore recommended that shareholders vote AGAINST the Requisitioned Resolutions at the AGM.

Sourcing linked to equity

The Board outlined its position in detail in its announcement of 7 December 2022.  In summary, the Board believes that the proposed appointment of MSG's non-executive directors has the primary objective of aligning Topps' business and strategy to MSG's commercial objectives as owner of Cersanit, a manufacturer of tiles, and is therefore not in the best interests of the Company and Topps' shareholders as a whole.

Since its announcement of 7 December 2022, the Topps Board understands that MSG has been contacting certain Topps shareholders individually in an attempt to garner support for the Requisitioned Resolutions.  Information provided to shareholders by MSG included a statement that it had recently discussed increasing its share of Topps' product purchases to 5 per cent.

However, this statement is not an accurate representation of the entirety of those discussions and directly contradicts statements made by MSG to Topps.  MSG has, on a number of occasions, directly linked the level of its equity holding in the Company with the level of supply that it wishes Topps to source from Cersanit.  To this end, one of the proposed directors, Lidia Wolfinger, requested as recently as 25 November 2022 that Topps should source 29.9 per cent. of its tile purchases from Cersanit in line with MSG's shareholding in Topps, with interim stage gates for achieving a 5 per cent. and then 10 per cent. share over the short term¹.

Moreover, when Topps has reviewed opportunities to source products from Cersanit, the frequent conclusion has been that as a supplier it is uncompetitive when compared with other manufacturers of similar products.

The Board continues to believe that all sourcing should be conducted on an arms-length commercial basis.  In addition, a diverse global supply chain is a key source of competitive advantage for Topps and the Board believes strongly that becoming overly reliant on a single supplier is not in the best interests of the Company and its shareholders as a whole.  Topps' sourcing policy does not allow for more than 10 per cent. of tile purchases to come from any one supplier in order to avoid concentration risk.  

The Board believes it is incompatible for the proposed non-executive directors to have the target of increasing tile purchases from Cersanit to 29.9 per cent., whilst at the same time acting in the best interests of all shareholders of Topps.

Control linked to equity

The Board has tried to engage constructively with MSG but in its interactions with Topps, MSG has made it clear on a number of occasions that it believes that the size of its shareholding entitles it to expect the Company's management and the Board to comply with its requests.  Previous requests have extended to sourcing, the composition of the Board, and also supporting MSG's strategic plans for UK growth.  The Board sees no linkage between a minority equity stake and control of the Company and believes lack of compliance with MSG's requests led to MSG voting against Darren Shapland's re-election at the 2022 annual general meeting and that this is also driving the proposal to remove Darren from the Board as well as the proposed appointment of two new directors representing MSG in 2023.

The Board is currently compliant with the UK Corporate Governance Code's requirements in relation to board composition.  It is well qualified and experienced and has helped the executive team steer the business through the COVID-19 pandemic to a position which is stronger than before the pandemic.  This is evidenced by Topps' recent FY22 results, which announced a second consecutive record year of revenue and significant market share gains².

Potential competitor

MSG owns Nexterio, a retailer of tiles and associated products with over 40 outlets in Poland, which the Board understands is being prepared for a launch into the UK.  A new company, Nexterio.UK Limited was incorporated on 22 November 2022, the website www.nexterio.co.uk has been registered and the Board understands a search for suitable trading locations around the UK is underway.  Nexterio would be a direct competitor to Topps, and the Board believes that the appointment of non-executive directors onto the Board who represent a direct competitor would be a further conflict of interest and would not be in the interests of all shareholders of Topps.

Update on shareholder engagement

Following its announcement on 7 December 2022, the Board has been contacted by a number of other large institutions to confirm their support for the Board's position.  Together with the major shareholders listed in the original announcement, shareholders representing 41.3 per cent. of the Company's voting share capital have now confirmed their intention to vote against the Requisitioned Resolutions.

Darren Shapland, Non-Executive Chairman of Topps, said:

"The Board continues to believe that these proposals would expose shareholders to a number of serious conflicts of interest and are not therefore in the interests of all shareholders of the Company.  The Board welcomes the strong support received from other large shareholders who support the Board's position in voting against the Requisitioned Resolutions at the AGM."

Keith Down, Senior Independent Director of Topps, said:

"The Board has unanimously rejected these resolutions which it does not believe are in the best interests of the Company and its shareholders as a whole.  MSG is attempting to remove the Chairman, who has been leading communications with MSG on behalf of the Board, to allow it to increase its control over the business."

¹ In the financial year ended 1 October 2022, Topps sourced 1.1 per cent. of its cost of goods sold (by value) from Cersanit on commercial arm's length terms.

² The Group announced full year results on 29 November for the 52 week period ended 1 October 2022.  Revenues of £247.2 million were up 8.4% year on year, the second consecutive record year of revenue for the Group.  Adjusted pre-tax profit was £15.6 million, up 4.0% year on year.  Estimated market share increased 1.4 percentage points to 19.0%.  The full year dividend of 3.6 pence per share (including a proposed final dividend of 2.6 pence per share) was up 16.1% year on year.  Relative to 2019, the last full year before Covid-19, Group sales in 2022 were £28.0 million higher (a 12.8% increase) and adjusted profit before tax was up £1.9 million (a 14.1% increase).  Note that adjusted profit before tax in 2019 has been restated in line with the IFRIC agenda decision on cloud computing and includes the trading loss from the Parkside brand which was excluded from adjusted profit at the time.

Enquiries:

Topps Tiles Plc	[phone]
Helen Evans, Company Secretary
Citigate Dewe Rogerson	[phone]
Kevin Smith/Ellen Wilton	[e-mail]

Notes to editors

Topps Tiles Plc is the UK's leading specialist supplier of tiles and associated products, targeting the UK domestic refurbishment and commercial markets and serving homeowners, trade customers, architects, designers and contractors from 304 nationwide Topps Tiles stores, four commercial showrooms and six websites: www.toppstiles.co.uk , www.parkside.co.uk , www.protilertools.co.uk , www.northantstools.co.uk , www.premiumtiletrim.co.uk and www.tilewarehouse.co.uk .

Since opening its first store in 1963, Topps has maintained a simple operating philosophy ‐ inspiring customers with unrivalled product choice and providing exceptional levels of customer service.  For further information on the Group, please visit http://www.toppstilesplc.com/

 

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