26 November 2024

Topps Tiles Plc

Annual Financial Results

Topps Tiles Plc ("Topps Group", the "Company" or the "Group"), the UK's leading tile specialist, announces its unaudited consolidated annual financial results for the 52 weeks ended 28 September 2024.

Strategic and Operational Highlights

Financial Highlights

Financial Summary

Current Trading and Outlook

Commenting on the results, Rob Parker, Chief Executive said:

"2024 has been a challenging year for RMI and especially bigger ticket spend.  In the tile market, volumes remain well below pre-pandemic levels.  Whilst Topps Group is not immune to these pressures, our growth strategy has served us well and we have continued to outperform the wider tile market.

The start of the new financial year has seen a return to modest sales growth for the Group, helped by weaker prior year comparatives and the continued strength of our trade offer.  Whilst pleasing, the forward macro indicators for our market remain mixed, in particular weaker consumer confidence, and we need to see a sustained improvement in these metrics before we can be confident of a consumer recovery.

'Mission 365', which sets ambitious revenue and profit medium-term goals, has focused the business around key areas of growth and we have delivered good progress against these over the second half - notably our trade digital offer, our plans to significantly expand our addressable market into hard surface coverings, trade business to business opportunities with the acquisition of CTD Tiles and the strong growth in online pureplay.  The robust strategic progress being made now to position the business for the future leaves us well-placed for a recovery in market volumes and underpins our confidence in the medium term outlook."

Notes

1 Topps Tiles like-for-like revenue is defined as revenue from Topps Tiles stores that have been trading for more than 52 weeks and revenue transacted through Topps Tiles' digital channels.

2 Adjusted revenue, gross margin %, operating profit, profit before tax and earnings per share exclude the impact of items which are either one-off in nature or fluctuate significantly from year to year.  See the financial review section of this document for more details on each of these measures.

3 Adjusted net cash is defined as cash and cash equivalents, less bank loans, before unamortised issue costs as at the balance sheet date.  It excludes lease liabilities arising from IFRS 16.

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Summary of performance and progress

2024 has been a challenging year for the UK tile industry and many businesses facing into the wider RMI (repairs, maintenance and improvement) sector.  Following a period of strong growth during the two years after the pandemic, market activity started to decline in 2023 and this momentum accelerated in 2024.  We estimate that the tile market this year will be approximately 20% smaller than in the pre-pandemic period (2019), whereas Group revenue is up 14.9% since 2019.

Following three consecutive years of record sales between 2021 and 2023, Topps Group was inevitably impacted by the substantially weaker customer demand this year and saw adjusted revenue decline 5.4% year on year, a substantial out-performance of an overall market which we estimate was down 10-15% year on year.  Due to the operational gearing of the Group, adjusted profit before tax was £6.2 million lower year on year at £6.3 million.  On a statutory basis, the Group reported a loss before tax of £16.2 million, following a significant impairment of right of use assets.

In this difficult context, we believe that the strategic progress and financial results delivered by the Group this year represent a creditable outcome and position the business well for an upturn in the economy, as macroeconomic indicators improve.  Highlights in the year include the acquisition of the CTD Tiles brand and selected assets, significant digital developments in Topps Tiles, the continuation of very strong performance in Pro Tiler (including the acquisition of the remaining share capital), moving Parkside into profit, progressing plans to strengthen our infrastructure and supply chain, and the launch of a major new goal for the Group - Mission 365.  This exciting and ambitious new goal represents a material step up in sales and profits from this year's result over the medium term, supported by a number of key strategic initiatives.

CTD acquisition

In August 2024, CTD Tiles Limited fell into administration and Topps Group acquired all related intellectual property, CTD's Architectural and Housebuilder business, selected stock and a licence to occupy 30 stores for consideration of £9 million.  The stores acquired by Topps Group had total sales of c. £20 million in the year to June 2024, and in addition CTD's commercial business reported revenues of £8 million from the Architect & Designer segment and £16 million from the volume housebuilder segment in the same period (where Topps Group has, respectively, limited or zero representation).  CTD had been losing money and reporting declining sales levels before entering administration, and therefore required immediate support to stabilise the business, which was done in the first few weeks of ownership.  Following the acquisition, the Competition and Markets Authority ('CMA') initiated a Phase 1 review of the transaction, including an Initial Enforcement Order which requires the businesses to be held separately until the review process is complete.  The Group is supporting the CMA with its review and the process remains ongoing as of the date of this report.  The Group believes that the acquisition has the potential to add £30 - £40 million of profitable sales to the Group over the medium term. 

Purpose, goal and strategy

The core purpose of Topps Group is to inspire customers through our love of tiles.  This gives us a very clear focus on our specialism in tiles and associated products and encourages all our colleagues to be passionate about the products we sell. It also puts our customers at the heart of what we do and reminds us that all roles in the Group are either serving customers directly or supporting those colleagues who are. This purpose continues to unite the Group as it has grown into new sectors and added new complementary brands in recent years.

Following the achievement of the Group's '1 in 5 by 2025' goal last year (two years ahead of schedule), in 2024 Topps Group announced an exciting and ambitious new goal - to increase sales to £365 million in the medium term and deliver an adjusted profit before tax margin of 8-10%.  This target implies that we believe that the Group is capable of delivering adjusted profit before tax of at least £30 million in the medium term, almost five times the level of profits this year. We are calling this new goal 'Mission 365 - grow sales, build profit'.

At the half year results, the Group identified five key areas of growth to deliver Mission 365.  These are to modernise the trader digital experience in Topps Tiles, expand into new adjacent product categories, develop our business-to-business sales focus, continue to expand Pro Tiler, and develop Tile Warehouse to maturity.  The performance objectives of Mission 365 are based on conservative market assumptions and assume only a modest recovery in tile volumes, with cumulative market and pricing growth over the medium term of c. 4-8% compared to current levels.  Updates against these growth areas are given in the relevant sections below.  The indicative sales uplifts we expect to deliver from the five growth areas, together with the modest level of market recovery and business as usual price growth are as follows:

The acquisition of the CTD assets provides a strong boost to revenues of £30 - £40 million in the medium term, accelerating our progress towards Mission 365.  Although CTD will contribute to a number of the growth areas, we believe it will play a particularly important role in the growth of B2B sales, specifically allowing the Group to enter the national housebuilder market for the first time, leveraging CTD's strong historic market position in this space.

As part of the launch of Mission 365, and expansion into new product categories, we have re-defined the Group's addressable market.  Topps Group's core focus has historically been on tiles and closely associated products, a market valued at £1.2 billion in 2023.  However, the Group already sells a wider selection of coverings products than just tiles, and the addition of new categories such as luxury vinyl tiles, wood and laminate, shower panels, splashbacks and XXL porcelain expands the Group's addressable market to c. £2.1 billion, a 75% increase.  The Group is now focused on the wider market of all hard wall and floor surface coverings and related products.

In summary, we expect the Group to deliver the following financial outcomes in the medium term:

Following the launch of Mission 365 and the identification of the five key growth areas defined above, this year we have updated the way that we will present the Group's overall business strategy going forward.  The Group's goal will be delivered across four main areas - 'First for Tiles', 'Famous for Hard Surfaces', 'First for Consumer' and 'First for Trade'.  These will be supported by three core areas of strength and focus - 'Topp People, Topp Service', 'Environmental Leadership', and 'Operational Excellence'.  These categories replace the previous brand-focused reporting disclosure, reflecting the more integrated approach, our greater scale and increasing complexity.  Sales performance by business area is disclosed in the Financial Review.

First for Tiles

First for Tiles represents our core product strategy, focused on our specialism of tiles, which is reflected across all the brands in the Group: Topps Tiles, Pro Tiler Tools, Parkside Architectural Tiles, Tile Warehouse and CTD Tiles.  Our expertise in the ranging, sourcing and procurement of tiles and associated products on a global basis has been a core specialism of the Group for 60 years and it remains a significant driver of our competitive advantage today.  Our scale as the largest specialist in the country allows us to work directly with manufacturing partners from all around the world to develop and produce differentiated products that are innovative, of high quality and, often, exclusive to Topps Group.  These direct relationships set us apart from many of our competitors who tend to be more reliant on importers, distributors or agents, and may not enjoy the cost advantage and creative input that direct supplier relationships give us.

Our strategic supplier base remains key for the Group, accounting for 63% of purchases in 2024 (2023 restated: 64%), with this metric now including Pro Tiler Tools. 71 new product launches were completed in Topps Tiles in 2024, up from 63 in 2023 and 34 in 2022, largely delivered through our strategic supplier base.  When new products are launched, the Group protects the intellectual property and design assets that are created and, overall, 80% of tile ranges or closely associated products are either exclusive or own brand (2023: 79%), creating a compelling reason for customers to shop with Topps Tiles.  This year we have also made progress towards a clearer 'good, better, best' pricing hierarchy in tiles, with reduced discounting.  In addition, we maintained a strong pipeline of new product development across the Group with our strategic suppliers, including an outstanding new range of 6mm porcelain for use in domestic and commercial settings, new exclusive tile cutters, developed with the world's largest tiling tool manufacturer, new Premtool own brand preparation products in Pro Tiler, and bespoke terrazzo products for the hospitality sector through Parkside.  These innovations, together with many more new ranges across the business, help to build differentiated offers for all the brands in the Group.

Own brands are increasingly important for Topps Group, including Excel Bond^TM, now one of the leading tile adhesive brands in the UK, Dex^TM, our tiling tools brand aimed at the general builder and DIY enthusiast, Rise^TM, our own brand underfloor heating range, and Everscape Solutions^TM, our outdoor tiling range, now including all the essentials required to do the job.  Own brands now account for 20% of sales in Topps Tiles (2023: 17%).

Famous for Hard Surfaces

As described above, this year the Group has extended its addressable market to include categories outside tiles and directly associated products, increasing the addressable market from £1.2 billion to £2.1 billion based on 2023 market data.  Given the Group's current very low market share in these adjacent categories, we believe that expansion into new product categories will be a key growth lever in the delivery of Mission 365.  A 5% market share in the new categories of luxury vinyl tiles, shower panels, outdoor tiles, laminate and engineered wood, splashbacks and XXL tiles would represent a £25 - £30 million sales opportunity.

This year, the Group has rolled out its Pronto^TM own brand luxury vinyl tile offer into all Topps Tiles stores, Parkside and Tile Warehouse.  Everscape^TM outdoor tiles are now available in all Topps Tiles stores and through Parkside. Shower panels and XXL tiles are currently being rolled out into the business, wood and laminate is currently in trial in 42 stores, and acoustic panels and splashbacks are available online.  In the coming year, the Group intends to activate more marketing campaigns around these product groups and build market share.

First for Consumer

First for Consumer refers to the parts of the Group focused on the homeowner rather than the professional trade customer, led by Topps Tiles, and also including Tile Warehouse.

Topps Tiles remains the leading brand within the specialist tile sector.  Unprompted awareness is at 33% (source: research commissioned from Two Ears One Mouth, November 2023), more than six times higher than the next tile specialist tile retailer and behind only B&Q in the generalist competitor set.  The brand continues to perform very well online, generating high volumes of web traffic.  This year, Topps Tiles launched 'platinum service', a new customer service platform which supports team members as they walk through the buying process with homeowner customers, who purchase tiles infrequently.  Early feedback from customers and colleagues has been very positive.  As we maintain our commitment to world class customer service, our store teams have been more focused on encouraging customers to share their positive experiences and this has resulted in a significant increase in the quantity of Google reviews.  In 2023, just over 1,000 reviews were left with an average rating of 4.7 stars, whereas in 2024 over 13,000 reviews were posted, with an average rating of 5.0 stars out of 5.

Tile Warehouse, the Group's online only, value-oriented tile specialist, has made good progress this year, with the sales run rate trebling over the course of the year.  We continue to make improvements to website functionality, the service model and the range offered and believe this business represents a £10 - £15 million sales opportunity for the Group, making it one of the key growth drivers referenced above.

First for Trade

The Group has a number of brands and initiatives aimed at the professional customer, whether a jobbing trader in Topps Tiles, a contractor buying from Pro Tiler Tools or Parkside, or a housebuilder purchasing from CTD.

Within Topps Tiles, there exists a substantial opportunity to drive additional sales by improving and modernising the digital experience.  At the half year stage, the Group indicated that it would:

Substantial progress has been made in the last six months.  The trade website has been relaunched, with clear and visible pricing available to all potential customers, even without registration.  The process of registering as a trade customer through the website has been simplified and sped up.  Topps have launched a Trade Club, involving advantageous pricing, instant rewards, a referral scheme, the opportunity to apply for trade credit and bulk deals.  Since the relaunch of the website, online trader registrations have more than doubled compared to the pre-relaunch period, with web traffic up in excess of 300% and online spend c. 60% higher.  A Customer Engagement Platform provider has been engaged and work on the trade app has begun, with a launch planned for 2025.  Although it is early in this process, the Group estimates this to be an opportunity worth £15 - £20 million, one of the key growth drivers described above.

Pro Tiler continues to perform extremely well, with sales growth of over 30% this year and an increase in net profit margins, which remain well within the 8-10% net margin target range for all Group businesses.  Supported by a substantial investment in its supply chain (as discussed in the Operational Excellence section below) and the development of new brands, the Group believes that Pro Tiler can add an additional £20 - £25 million of sales to current levels in the medium term.  Topps Group was pleased to complete the acquisition of the remaining 40% of shares in Pro Tiler Limited in May 2024, becoming 100% owners of the business.

Parkside experienced a difficult market in 2024, with a decline in sales based on the deferral or cancellation of projects by key clients.  Despite this backdrop, as a result of a restructure of the business in 2023, Parkside moved out of a loss-making position and into a marginal profit in the year for the first time.

Across the brands in the Group focused on Commercial Trade, which includes Parkside, the Topps Tiles contracts team, Pro Tiler's key accounts and now CTD, the Group believes there exists at least a £15 - £25 million sales opportunity.  The assets which can be deployed by the Group, including a nationwide store network, c. 290,000 sq ft of central warehousing and a specialised distribution fleet, £38 million of stock, unrivalled breadth of product range and world class service will be attractive to both medium and large contractors.  In addition, CTD has a strong heritage in sales to the national housebuilder market.  The Group believes that there is a significant opportunity to build a market leadership position in this new market, following the CMA investigation.

Topp People, Topp Service

The provision of world class service has remained a key competitive advantage of the Group over its history and is a characteristic of all its brands.  For a homeowner customer, buying tiles is a very infrequent activity and so being supported by teams which have the time to explain the variety of products on offer, their suitability for different jobs and the other products needed to complete the job is essential.  For trade customers, technical knowledge and a trusted point of contact is key for maintaining strong relationships.

'Topp Service' can only be delivered by 'Topp People' and the Group is delighted to retain so many of the leading operators in the industry.  This year, colleague turnover improved by 0.9 percentage points to 28.3% in Topps Tiles and by 2.3 percentage points to 26.3% at a Group level.  Colleague retention (meaning the percentage of colleagues employed at the year-end that were employed at the start of the year) improved by 1.5 percentage points to 81.0%.

As a result of our strong teams, the business continued to deliver world class customer service.  In Topps Tiles, overall satisfaction in the year was 92.1%, up again against last year's excellent result of 91.5%.  That means that 92.1% of customers who fill in a survey rate the business as five stars.  In Pro Tiler Tools, online reviews have an average score of 4.9 / 5 and in Tile Warehouse the average score is 4.5 / 5, showing the level of customer service offered across the Group.

Diversity, equity and inclusion remain central to our people strategy, and this year saw the launch of the 'One Topps' strategy into the business, focusing initially on listening groups, and then leading to recommendations to improve opportunities for everyone to forge a career within Topps Group.

Charity fundraising remains a core part of our engagement strategy and this year we were delighted to pass the £500,000 fundraising mark for Alzheimer's Society, as part of our pledge to raise £1 million over five years.

Environmental Leadership

Environmental Leadership remains a central part of the Group's strategy, with two key focus areas of carbon reduction and circularity.  The Group's goal is to be carbon neutral by 2030 across Scope 1 and 2 emissions, which in 2024 were 4,886 tonnes (2023: 5,034 tonnes), showing a slight decrease due to efficiency upgrades and a 2% improvement in miles per gallon on our vehicle fleet.  In 2024 we conducted a successful trial of Hydrotreated Vegetable Oil ('HVO') as a replacement for diesel fuel and are investigating the possibility of rolling this out further in 2026, after the installation of an HVO bunker at one of the Group's central supply chain facilities.  In addition, new tractor units for the primary fleet will be delivered, which will increase fuel economy by approximately 5%.  At the store level, we replaced 22 inefficient gas heaters with modern systems, with further upgrades planned.  This year, we will establish science-based GHG reduction targets, aligned with limiting global warming to 1.5 degrees.  These will be submitted to the Science Based Targets Initiative (SBTi) for validation within 24 months. 

This year, we completed the first measurement of scope 3 emissions, supported by Normative.  Our Scope 3 emissions were reported as 176,718 tonnes, some 36 times greater than scope 1 and 2 emissions.  The two main sources of emissions are from purchased goods (principally tiles and adhesives) and usage of purchased products (in particular underfloor heating).  With the Government committed to 100% renewable energy generation by 2035, the usage aspect of our Scope 3 emissions should reduce to zero by that date.  Please see the Sustainability and TCFD reports in the Annual Report for more information on this subject.

Circularity is the other key focus area in our Environmental Leadership strategy.  Reduction of waste is a key focus and, over the last two years, the Group has targeted a reduction in tile waste in particular.  This year, the Group decreased tile waste by 9%, following a 12% reduction in 2023, equivalent to 497 fewer tonnes of tile waste over the two-year period.  Additionally, the group doubled its volume of recycled baled cardboard by improving the segregation of waste and recycled 112,000 pallets for reuse in the operation, return to suppliers or sale back to pallet suppliers.

Operational Excellence

Underpinning our successful businesses are strong operational disciplines.  This area of the strategy covers support functions such as supply chain, property, IT, finance, legal, central operations, marketing and so on.

Despite the difficult economic environment, investing in the future growth of the business is key and the Group has agreed two significant steps in this area over the last year.

Pro Tiler Tools has been a remarkable growth story in the last two years, growing from £11.9 million of revenue in the 12-month period to January 2022 to £28.8 million in 2024.  As such, the demands on the existing c. 56,000 sq ft Pro Tiler warehousing and supply chain operation in Northampton have become too great, with significant levels of operational inefficiency in recent months, as well as an inability to continue to grow the business past current levels.  The Group therefore committed to a new warehouse in October 2024, agreeing a lease on a 140,000 sq ft facility at the Prologis Park Pineham, next to the M1, also in Northampton.  This move will unlock operational efficiencies and, more importantly, additional growth opportunities for Pro Tiler and will be operational by January 2025.  This new facility will also provide operational capacity for future Group growth initiatives, including the planned integration of CTD.  The capital cost of fit out will be c. £2 - £2.5 million in 2025 and additional operational costs for Pro Tiler relating to the new property will be c. £0.4 million per year.  The initial impact on the Group statement of profit or loss will be c. £0.7 million due to the front loading of lease costs under IFRS 16, reducing to £0.1 million by the end of the 15 year period.  The operational costs for CTD will be similar to its existing site in Kings Norton.

The second investment into operational excellence is the replacement of the main Enterprise Resource Planning (ERP) software in the Group, which supports the Topps Tiles business and central functions.  The business will move onto the latest Microsoft Dynamics 365 Business Central system, provided as a Software as a Service (SaaS) solution and hosted in the cloud.  This will modernise the business's systems and future proof the operations, as well as enhance security and provide resilience and scalability.  The project will start in January 2025 and go live in 2026.  The cost of implementation is estimated at £1.2 million of additional operating costs, spread over 2025 and 2026 and the increased licencing costs at the conclusion of the project are expected to be offset through operating efficiencies.  In addition, new IT hardware for stores will be purchased to unlock operating efficiencies and further sales opportunities, at a capital cost of less than £1.0 million, spread across the next two financial years.

Through these two significant programmes, the business is investing in its core supply chain and systems infrastructure, providing a sound basis for future growth.

Summary

2024 has been a year of substantial strategic progress, including the launch of our new goal, 'Mission 365'.  The Group has significantly outperformed a very tough market and outlined a pathway to increased sales and profit over the medium term with a focus on five key areas of future growth.  In addition, we acquired the assets of CTD Tiles and the remaining shares in Pro Tiler, and made good strategic progress across the business.  Although our financial performance has inevitably been impacted by the weak market backdrop, the hard work done this year to lay the foundations for our future growth has ensured that the Group remains well positioned for the recovery as a broader and more closely integrated business with a significantly expanded addressable market.

Key Performance Indicators ("KPIs")

The Board monitors a number of financial and non-financial metrics and KPIs both for the Group and by individual store.  This information is reviewed and updated as the Directors feel appropriate.  This year, the Board has reviewed the KPIs and updated them in line with the updated goal and strategy.  The metrics have changed as follows:

* as defined in the Financial Review

Notes: Topps Tiles customer overall satisfaction scores are calculated from the responses we receive through our TileTalk customer feedback programme.  Overall satisfaction (OSAT) is the percentage of customers that score us 5 in the scale of 1 - 5, where 1 is highly dissatisfied, and 5 is highly satisfied.  Group colleague retention represents the percentage of employees employed by the Group at the end of the period that were also employed at the start of the period.  Total scope 1 and 2 carbon emissions have been compiled in conjunction with our carbon consultancy partner, Normative. 2023 carbon emissions have been restated due to a change in the Normative methodology (GHG Protocol aligned).

FINANCIAL REVIEW

The 2024 financial year covers the 52 weeks to 28 September 2024.  The previous financial year covers the 52 weeks to 30 September 2023.  Following three consecutive record years for revenue, weaker market demand led to challenging financial performance over the most recent period, although the Group did outperform the market overall and saw strong performance in some of the newer business areas.  In addition, the Group made two strategically important acquisitions, the purchase of the final 40% of shares in Pro Tiler Limited and the acquisition of the brand and certain assets from CTD Tiles Limited (in administration), bringing the CTD brand into the Group and establishing an opportunity to grow in new, complementary areas of the tile market in future.

Acquisition of CTD

On 19 August 2024, the Group acquired the brand and certain assets from CTD Tiles Limited (in administration) including the right to occupy 30 stores, selected stock, intellectual property and branding for consideration of £9.0 million.  The Group recognised plant, property and equipment assets of £0.9 million, £2.2 million of net working capital, £0.4 million of provisions and £6.3 million of goodwill on acquisition.  These values are provisional and will be re-examined during the measurement period as defined in IFRS 3.  The business's performance, transaction costs and costs of the ongoing CMA investigation have all been treated as an adjusting item within the consolidated statement of profit of loss, as detailed in the Adjusting Items section below.

Acquisition of remaining shares in Pro Tiler Limited

As previously reported, the Group acquired the remaining 40% of the shares in Pro Tiler Limited in May 2024, valuing the business at a previously agreed multiple of EBITDA.  As a result, there was an £8.8 million cash outflow in May 2024 which is represented in the cash flow statement as a reduction in provisions, together with a £1.1 million dividend payment to the non-controlling interests, representing the relevant share of post-tax profits during the two-year earn out period.  As a result of the transaction, the Group became the 100% owner of the business, meaning there is no longer a non-controlling interest relating to Pro Tiler Limited, with all profits attributable to the owners of Topps Tiles plc from the second half of 2024.  As outlined in the Adjusting Items section below, there was a £3.2 million expense recognised in the first half year relating to the Pro Tiler share purchase.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

This section provides an analysis of the business's financial performance over the last year.  Generally, adjusted measures are used, with a full description of adjusting items in the relevant section below.  Alongside the usual adjustments, the financial performance of CTD has been excluded from adjusted measures this year, as explained in the Adjusting Items section below.

Revenue

Total Group revenue for the 52-week period decreased by 4.1% to £251.8 million (2023: £262.7 million).  Excluding the £3.3 million revenue contribution from CTD in the six weeks of ownership, adjusted revenue decreased by 5.4% to £248.5 million.  Revenue consolidated into the Group accounts by business area was as follows:

*Online Pure Play includes Pro Tiler Tools and its associated brands, which were acquired in March 2022, and Tile Warehouse, which was launched in May 2022.

** CTD was acquired on 19 August 2024.  Please see the relevant section below for further information.

Topps Tiles like-for-like sales were 9.1% lower than the prior year, with similar rates of decline in both halves of the year but with a slightly better trend in the fourth quarter (down 8.2%) improving further into the new financial year.  Total revenue in Topps Tiles was 8.9% lower year on year at £210.4 million.  Throughout the year, sales to trade customers have been significantly stronger than sales to homeowners and, as a result, trade mix in Topps Tiles increased notably from 59.6% of sales in 2023 to 62.8% of sales in 2024.  Trade customers bring repeat purchases and high degrees of loyalty, and as a result benefit from advantaged pricing which therefore delivers lower gross margins than homeowner customers. 

The commercial market continued to be very challenging with sales to our clients through Parkside down 19.1% year on year to £7.6 million.  Sales in Online Pure Play continue to be extremely strong, led by Pro Tiler Tools, and in total grew 36.2% to £30.5 million (2023: £22.4 million), with £28.8 million from Pro Tiler and £1.7m from Tile Warehouse, which almost tripled its sales year on year.

Gross Margin and Gross Profit

Group gross profits decreased by 3.5% from £139.2 million to £134.3 million, including a contribution of £1.8 million from CTD.  Adjusted gross profit was therefore £132.5 million and adjusted gross margins as a percentage of sales were 53.3% (2023: 53.0%), an increase of 0.3 percentage points.

The change in adjusted gross margin on an annual basis was due to four main factors.  Within Topps Tiles, there were net price, COGS and product mix benefits worth 1.4 percentage points to the Group margin, as shipping and product costs normalised when compared to last year, and with buying gains in some newer product categories.  The strong growth in trade customers, buying higher levels of essentials products, reduced Group margin by 0.5 percentage points.  The continuing growth in the Online Pure Play brands resulted in a 1.2 percentage point decline in Group gross margins, as these brands operate at a structurally lower gross margin than the rest of the Group.  There was also a 0.6 percentage point gain from other factors, predominantly lower stock losses.  The impact of mark-to-market movements on unrealised foreign currency transactions and retranslation of monetary items was a £0.7 million loss, similar to the prior year.

Adjusted gross margins in the Group fell from 53.9% in the first half year to 52.7% in the second half year as a result of the continued growth in Online Pure Play relative to the rest of the Group and some price investment in Topps Tiles.

Operating Expenses and Other Income

Operating expenses and other income were £145.7 million compared to £128.1 million in 2023, including the cost of right of use and fixed asset impairment (see the section on Store Impairment below).  Excluding adjusting items, which are explained below, operating expenses decreased from £122.6 million in 2023 to £121.5 million in 2024. 

The £1.1 million decrease in adjusted operating expenses is explained by the following key items:

Cost inflation was spread across a number of lines, include wage inflation (including the impact of the National Living Wage increase of 9.8% in April 2024), property, IT costs and insurance.  The cost increase in Online Pure Play represents ongoing investment in that business to generate profitable growth, especially in Pro Tiler Tools.  The year on year saving in Parkside includes the annualisation of actions taken last financial year to right size the business and follows a saving of £1.0 million reported in 2023, generating a total saving of £2.2 million over two years, and resulting in Parkside delivering a small profit, for the first time, in 2024.  Profit share represents year on year savings from lower variable payments to colleagues across the Group as a result of the financial performance compared to targets.  Other savings include savings in supply chain and stores due to lower volumes.

Finance Income and Costs

Total net finance costs were £4.8 million (2023: £4.3 million) and adjusted net finance costs (which exclude the interest expense representing the unwind of the discount applied to the Pro Tiler Limited earn out liability) were £4.7 million (2023: £4.1 million.  The adjusted net finance costs consisted of interest payable on lease liabilities of £4.7 million (2023: £4.2 million) which have increased as a result of rising interest rates, amortisation of banking fees relating to the revolving credit facility and bank interest payable of £0.5 million (2023: £0.3 million) and interest receivable on credit balances and finance lease receivables of £0.5 million (2023: £0.4 million).

Profit or Loss Before Tax

Excluding the items detailed in the Adjusting Items section below, adjusted profit before tax was £6.3 million (2023: £12.5 million.  The Group adjusted profit before tax margin was 2.5% (2023: 4.8%) as a result of the lower sales and operational gearing inherent in the Group.

On a statutory basis, the loss before tax was £16.2 million (2023: profit before tax of £6.8 million), with reported profits significantly impacted by the accounting requirement to treat the purchase of the remaining Pro Tiler Limited shares as an employment cost under IFRS 3, and the requirement under IAS 36 to review right of use assets and fixtures & fittings for impairment.  More information is provided in the Adjusting Items and Store Impairment sections below.

Taxation

On an adjusted basis, the effective rate of corporation tax for the period was 22.3% (2023: 24.9%), slightly lower than the headline rate of corporation tax as a result of utilisation of prior year tax losses.

The effective rate of corporation tax for the period on a statutory basis was 21.0% (2023: 42.5%).  The statutory rate of tax is substantially lower than the previous year due to the tax treatment of the Pro Tiler Limited share purchase expense.  This is not treated as an allowable remuneration expense from a tax perspective, instead it is treated as an acquisition of shares.  In the prior year this had the impact of increasing the effective rate on statutory profit considerably above the headline rate of Corporation Tax.  In the current year it has the impact of reducing the tax credit on the statutory loss before tax.  This position has now normalised following the completion of the purchase of remaining shares in Pro Tiler Limited in May 2024.

Earnings per share

Adjusted earnings per share were 2.39 pence (2023: 4.49 pence).  Basic losses per share were 6.63 pence (2023: basic earnings per share of 1.63 pence).  Diluted losses per share were 6.63 pence (2023: diluted earnings per share of 1.61 pence).

Adjusting Items

The Group's management uses adjusted performance measures to plan for, control and assess the performance of the Group.

Adjusted profit before tax differs from the statutory profit before tax as it excludes the effect of one-off or fluctuating items, allowing stakeholders to understand results across years in a more consistent manner.  In line with the prior year, we have included the business-as-usual impact of IFRS 16 in adjusted profit but continue to adjust for any impairment charges or impairment reversals of right of use assets (which were material this year and are further explained in the section below), derecognition of lease liabilities where we have exited a store, and one-off gains and losses through sub-lets.  From this year, the Group has also decided to exclude impairment and impairment reversals of plant, property and equipment from adjusted profit, as the impairment of these assets is a result of the same impairment review process applied to right of use assets, implying the same accounting presentation.  Please see the section below on store impairments for further details.

In the period 2022 - 2024 we excluded the cost relating to the purchase of the remaining 40% of shares in Pro Tiler Limited which was completed in May 2024, which under IFRS 3 is treated as a remuneration expense, rather than a cost relating to the acquisition of the relevant shares.  We have also excluded the remaining costs relating to the store closure programme which ended in 2022, as well as restructuring costs.

Finally, this year, the CTD brand and certain assets were acquired from administration and the financial impact of this business, including trading performance, acquisition costs, and the initial costs of the CMA investigation, have been excluded from adjusted profit.  CTD's trading in the six weeks of ownership was not representative of its ongoing position due to significant disruption and recovery from administration.  It is expected that CTD's trading performance will be included in adjusted profit from 2025, but any remaining costs relating to the transaction or to the ongoing CMA investigation will be excluded until the conclusion of these processes.

An analysis of movements from adjusted profit before tax to statutory (loss)/profit before tax is presented below:

Adjusted earnings per share is adjusted for the items listed above, as well as the impact of corporation tax.  Further information is given in the earnings per share note to the accounts.

Store Impairments

Store impairments have been particularly material this year, against the backdrop of the significant downturn in market conditions.  The impairments relate to the notional 'right of use' (ROU) assets which are created as part of IFRS 16 accounting, representing the business's right to use assets it does not own (in this case physical stores which are leased by the Group), as well as the fixtures and fittings contained in them.  Under IAS 36, the Group is required to assess these assets for indicators of impairment, such as the generally weak market environment, and then, where relevant, impair the value of the assets to the higher of the asset's value-in-use and its fair value less costs of disposal.  Value-in-use calculations require estimates of future cash flows to be made, which are based on the current period of trading and then extrapolated forward using a series of assumptions.  As a result of this review, a non-cash impairment of £17.1 million has been recognised against ROU assets and £2.3 million against fixtures and fittings.  In future years, an assessment will be made to see if a reversal of this impairment is required.  As explained in the section above, these impairments are treated as adjusting items and are included in the 'store impairments and lease exits gains and losses' line in the table above.

In addition, the impact of these impairments will be excluded from adjusted profit in future years.  The impairments imply that these assets will not incur a depreciation charge moving forward in reported profits, and the impact of this is currently estimated at an increase in reported profits before tax of £5.2 million in 2025.  However, the Group's adjusted profit before tax measure will carry a notional depreciation charge, as if the assets had not been impaired in 2024, meaning that adjusted profit before tax will continue to be comparable year on year, and is more reflective of the actual lease payments made by the Group.  None of these changes has any cash impact, in 2024 or in future periods.

Dividend and Dividend Policy

In 2022, the Board outlined a new Capital Allocation and Dividend Policy.  In the policy, the Board indicated that it expected to increase the dividend by 2023 to 67% of the adjusted earnings per share (EPS) generated in the year.  The policy was designed to have some flexibility and, in particular, the Board indicated that it did not intend to reduce the dividend year on year due to short term performance or macroeconomic issues, even if that meant increasing the payout ratio in some years.  A limit on this flexibility was applied, at 100% of adjusted EPS in any given year.

Adjusted EPS this year were 2.4 pence, materially lower than the 3.6 pence dividend which was paid last year.  The Board has applied the dividend policy as stated above and proposed a full year dividend at the upper limit in the policy of 100% of adjusted EPS (2.4 pence per share), implying a final dividend payment of 1.2 pence per share.  This reflects the weaker trading in 2024 but also the Board's confidence in the Group's medium-term prospects.

The shares will trade ex-dividend on 19 December 2024 and, subject to approval from shareholders at the Annual General Meeting in January 2025, the dividend will be paid on 30 January 2025.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND CONSOLIDATED CASH FLOW STATEMENT

Capital Expenditure and Fixed Assets

Capital expenditure in the period amounted to £4.5 million (2023: £4.2 million), an increase of £0.3 million year on year.

Key investments were as follows:

The Board expects capital expenditure in the year ahead to be between £8 million and £9 million.  This includes £2 - 2.5 million relating to the fit out of the new warehouse servicing Pro Tiler and CTD and compares to an average of £8.1 million in the four years before the pandemic (2016 to 2019).

Within the Topps Tiles brand, there was one new store opening, one relocation and three store closures in the year, and the brand finished the trading period with 301 trading stores (2023: 303 stores).  On average, Topps Tiles traded from 303 stores over the year (2023: 304 stores).

CTD ended the trading period with 30 trading stores as well as a trade counter retained at the Kings Norton distribution centre.

Right of Use Assets and Leases

As described in the sections above, following an impairment review under the IAS 36 accounting standard, an impairment of £17.1 million was recognised against the Group's ROU assets in the period, as a result of the projected cash flows of each cash generating unit not being sufficient to support the ROU asset.  ROU assets reduced from £80.9 million at the start of the year to £55.3 million at the period end as a result of this impairment, £17.6 million of depreciation, £3.5 million of disposals and £12.6 million of additions in the period.

Lease liabilities, representing the discounted lease liabilities the Group holds within the scope of IFRS 16, decreased from £94.5 million at the start of the year to £86.0 million at the period end, as a result of £21.8 million of lease repayments, £3.8 million of disposals, £12.4 million of additions (i.e. new leases) and £4.7 million of interest.

Topps retains significant flexibility within its store estate, with an average unexpired lease term until the next break of 2.8 years (2023: 2.9 years), or 2.6 years excluding strategically important stores (2023: 2.8 years).  At the period end, there were two closed stores (2023: five closed stores), all of which have lease exits in 2025.

Inventory

Inventory at the period end was £37.9 million (2023: £36.4 million).  Inventory recognised after stock provisions relating to CTD was £2.9 million, with inventory across the rest of the Group of £35.0 million, a decrease of £1.4 million on a like-for-like basis.  Inventory days excluding CTD were 110 (2023: 107 inventory days) but were 118 days on a reported basis, distorted by the short period of CTD trading included in the results.

Net Cash Flow

The Group's cash balance increased in the period by £0.3 million from £23.4 million at the start of the financial year to £23.7 million at the year end.  Adjusted net cash, defined as cash and cash equivalents, less bank loans before unamortised costs, decreased by £14.7 million from £23.4 million to £8.7 million.

The table below analyses the Group's adjusted net cash flow:

The business's underlying cash flows were representative of the changes in adjusted profits.  Working capital (excluding the impact of CTD) showed an inflow of £6.4 million, including the impact of the timing of the year end (which increased the closing trade payables balance by c. £9 million due to payroll, VAT and supplier payment runs falling due on 30 September, just after the year end date), lower performance-based pay accruals, lower stock and a higher trade debtor balance.  The CTD cash outflow generated by operations includes trading losses, a working capital investment related to trade debtors and a delay in cash receipts due to banking changes following the acquisition.  As described above, the Group conducted two transactions in the year: the purchase of the remainder of the shares in Pro Tiler Limited and the acquisition of certain assets from CTD Tiles Limited.  Total dividend payments of £8.2 million consisted of £7.1 million paid to shareholders of Topps Tiles plc and £1.1 million to the previous owners of the 40% shareholding in Pro Tiler Limited, representing 40% of the post-tax profits of that business during the earn out period.

Return on Capital Employed

The Group's return on capital employed, including the impact of leases, decreased from 15.7% in 2023 to 12.2% in 2024, due to a 33.7% year on year reduction in adjusted operating profit to £11.0 million (2023: £16.6 million).  Closing capital employed was 15.0% lower than opening capital employed as a result of lower lease liabilities and net assets, however net cash was also lower.  The Group defines return on capital employed as the annual adjusted operating profit divided by the average capital employed (net assets plus net debt, including lease liabilities).  At the balance sheet date, lease adjusted capital employed consisted of £5.6 million of net assets, £86.0 million of lease liabilities, offset by £8.7 million of net cash, giving total capital employed of £82.9 million (2023: £97.5 million).

Banking Facilities

The Group retains modest adjusted net cash on its balance sheet (i.e. cash net of bank loans), with the reduction compared to last year as a result of the two acquisitions and the weaker trading environment.  A £30.0 million revolving credit facility is in place which has now been extended to October 2027 (2023: £30.0 million facility committed to October 2026), providing resilience and allowing investment in growth opportunities.  At the year end, £15.0 million of this facility was drawn (2023: £nil drawn).  Based on net cash excluding lease liabilities of £8.7 million, the Group has £38.7 million of headroom to its banking facilities at the period end (2023: £53.4 million headroom to the facility).

Forward Guidance

Despite the return of CPI inflation to around 2%, there remain significant inflationary challenges facing the business in FY25.  Specifically, the recently announced changes in the National Living Wage (up 6.7% from April 2025) and the changes in both the secondary threshold and the rate of employers' national insurance contributions will drive almost £4 million of additional costs into the business on an annual basis from April 2025, of which c. £2 million will impact the FY25 financial year.  Given these cost increases represent a high proportion of the current level of profitability in the Group, they will need to be managed very carefully, and the business is currently formulating plans to mitigate these costs as far as possible.  When combined with other general inflation in the market, the Group is expecting around £5 million of inflationary costs in FY25 compared to FY24.  In addition, it is expected that FY25 will see a return to normal levels of performance related pay across the Group, subject to the relevant targets being met.

The Group's profits in 2025 will continue to show a degree of seasonality based on a number of factors including the impact of the holiday pay accrual together with higher energy costs in the autumn and winter months, which will reduce the proportion of annual profits made in the first half of the financial year.

As described above, the Board expects capital expenditure of between £8 million and £9 million in FY25, including £2 - £2.5 million relating to the fit out of the new warehouse.

Current Trading and Outlook

Trading in the first eight weeks of the new financial year has seen the Group return to modest levels of sales growth.  Group sales were up 1.2% year on year excluding CTD, with like-for-like sales in Topps Tiles down 0.4%.  This performance has been supported by the continued strength of sales made to trade customers, as well as the weaker prior year comparative performance.  Whilst some macroeconomic indicators suggest a more favourable outlook into FY25, including mortgage approvals up substantially year on year, overall there remains significant uncertainty around the timing of any recovery, particularly whilst consumer confidence remains weak and interest rates relatively high.

The Group is focused on significant self-help measures, in particular the five key areas of growth supporting Mission 365 which will drive material upside to both revenue and profit in the medium term.  Therefore, despite our caution with respect to the short term outlook, the Group's strategy, together with its robust balance sheet, gives us confidence that the Group remains well placed for a recovery in market volumes.

Unaudited Consolidated Statement of Profit or Loss

For the 52 weeks ended 28 SEPTEMBER 2024

Unaudited Consolidated Statement of Comprehensive Income

For the 52 weeks ended 28 SEPTEMBER 2024

Unaudited Consolidated Statement of Financial Position

as at 28 SEPTEMBER 2024

Unaudited Consolidated Statement of Changes in Equity

For the 52 weeks ended 28 SEPTEMBER 2024

Unaudited Consolidated Cash Flow Statement

For the 52 weeks ended 28 SEPTEMBER 2024

Notes to the Unaudited Financial Statements

For the 52 weeks ended 28 SEPTEMBER 2024

1 GENERAL INFORMATION

Topps Tiles Plc is a public limited company, limited by shares, incorporated and domiciled in the United Kingdom and registered in England under the Companies Act 2006.

The consolidated financial statements are unaudited and do not constitute statutory accounts of the Company within the meaning of Section 434(3) of the companies Act 2006. Statutory accounts for the year ended 30 September 2023 have been delivered to the Registrar of Companies. The audit report for those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) or (3) of the Companies Act 2006.

Statutory accounts for the 52-week period ended 28 September 2024 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

These audited financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.

ADOPTION OF NEW AND REVISED STANDARDS

In the current period there were no new or revised standards and interpretations adopted that have a material impact on the financial statements. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

STANDARDS ADOPTED IN CURRENT PERIOD

The following new and revised standards and interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements.

2 GROUP REVENUE

An analysis of Group revenue is as follows:

The Group trades in four related sectors which are Topps Tiles, Parkside, CTD and Online Pure Play. The Board receives monthly financial information at this level and uses this information to monitor performance, allocate resources and make operational decisions. These sectors are considered to meet the aggregation criteria as set out in IFRS 8 since the nature of the products, customer base and distribution methods are consistent with each other and the have similar economic characteristics. The Group sells Tiles and Tile associated products in each of these sectors, predominantly to UK-based retail, trade and commercial customers and offers a range of delivery and collection options for orders.

Revenue can be split by the following geographical regions:

Revenue can be split into the following business areas:

The Group's revenue is driven by the consolidation of individual small value transactions and as a result, Group revenue is not reliant on a major customer or group of customers.

3 LOSS/PROFIT BEFORE TAXATION

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

In the reporting of financial information the Group uses certain measures that are not required under IFRS, the generally accepted accounting principles ('GAAP') under which the Group reports.

Adjusted profit before tax excludes the effect of one-off or fluctuating items, allowing stakeholders to understand results across years in a more consistent manner. The Group's management includes an adjusted profit before tax as a key performance indicator within the Strategic Report as one of the measures by which investors can assess the performance of the Group.

The reconciliation of Adjusted Profit Before Tax to Statutory (Loss)/Profit Before Tax is as follows:

Property related costs includes impairment charges or impairment reversals of right of use assets, derecognition of lease liabilities where we have exited a store, one-off gains and losses through sub-lets as well as costs relating to the store closure programme which ended in 2022.

Business development costs include charges relating to the acquisition of Pro Tiler, including the cost associated with the purchase of the remaining 40% of shares which completed in March 2024, and the financial impact of CTD, including trading performance, acquisition and integration costs, and the initial costs of the CMA investigation. Restructuring costs relate to board approved decisions such as business closures or major organisational changes.

Analysis of the auditors' remuneration is provided below:

Additional fees of £125,000 were incurred as part of the finalisation of the audit in 2023.

4 STAFF COSTS

The average monthly number of persons employed by the Group in the UK during the accounting period (including Executive Directors) was:

The average monthly number of persons (full-time equivalents) employed by the Group in the UK during the accounting period (including Executive Directors) was:

Employee profit sharing of £4.1 million (2023: £8.5 million) is included in the above and comprises sales commission and bonuses.

The total charge for share based payments recognised during the year was £0.3 million (2023: £0.9 million)

5 FINANCE INCOME AND FINANCE COSTS

No finance costs have been capitalised in the period, or the prior period.

6 TAXATION

The (credit)/charge for the period can be reconciled to the (loss)/profit per the statement of profit or loss as follows:

In the period, the Group has recognised a corporation tax credit directly to equity of £nil (2023: £1,000) and a deferred tax charge to equity of £4,000 (2023: £8,000) in relation to the Group's share option schemes.

The Group continue to fully provide within current tax liabilities and other creditors for a historic tax claim relating to EU loss relief in relation to the closed Dutch business of £1,071,000 (2023: £1,017,000).

The applicable UK Corporation tax rate to end of March 2023 was 19%, with 25% being applicable from 1^st April 2023. The blended statutory rate in the prior period was 22%.

7 DIVIDENDS

Amounts recognised as distributions to equity holders in the period:

The proposed final dividend for the period ended 28 September 2024 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

Dividends of £1.1 million were paid to non-controlling interests in the period ended 28 September 2024.

8 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.

* Adjusted earning per share is an adjusted performance measure used by the Group's management to plan for, control and assess the performance of the Group.

Diluted earnings per share for the period is not adjusted for the impact of the potential future conversion of preferred equity due to this instrument having an anti-dilutive effect, whereby the positive impact of adding back the associated financial costs to earnings outweighs the dilutive impact of conversion/exercise. Diluted adjusted earnings per share does take into account the impact of this instrument as shown in the table above setting out the weighted average number of shares. Due to the loss incurred in the year, in calculating the diluted loss per share, the share options, warrants and preferred equity are considered to be non-dilutive.

Adjusted earnings per share were calculated after adjusting for the post-tax impact of the following items: vacant property and closure costs of £273,000 (2023: £943,000), store impairments and lease exit gains and losses of £14,140,000 loss (2023: £150,000 gain), Pro Tiler Tools deal costs of £nil (2023: £5,000), Pro Tiler Tools share purchase expense of £3,166,000 (2023: £4,053,000), Tile Warehouse set up costs of £nil (2023: £11,000), CTD trading, transaction costs and CMA investigation costs of £151,500 (2023: £nil), restructuring and other one-off costs of £nil (2023: £618,000) and a deferred tax charge in respect of previous periods of £nil (2023: £119,000).

9 GOODWILL

On 19 August 2024, the Group acquired certain trade and assets from CTD Tiles Limited. This included property, tangible assets and inventory. The excess of consideration paid against the fair value of assets and liabilities acquired was recognised as goodwill. Whilst the Group is recognising the fair values of assets acquired on a provisional basis in accordance with IFRS 3, the goodwill and related assets are being allocated as one single cash-generating unit. This may be revisited in the subsequent period. Further information in relation to the acquired assets is described within Note 15. The remaining carrying value of goodwill relates to the acquisition of Pro Tiler Limited.

The accumulated impairment losses relate to the goodwill recognised on the acquisition of Parkside Ceramics Limited in 2017 and Strata Tiles Limited in 2019, that were written down to £nil in a prior year.

10 INTANGIBLE ASSETS

The carrying value of the brand assets were recognised on the acquisition of Pro Tiler Limited in 2022. Other brand and customer relationships assets relating to the acquisition of Parkside Ceramics Limited in 2017 and Strata Tiles Limited in 2019 were written down to £nil in a prior year.

Software is amortised on a straight-line basis over its estimated useful life of four years.

The Pro Tiler brand is amortised over a period of ten years on a straight-line basis. 

Amortisation is included within Other Operating Expenses within the Consolidated Statement of Profit or Loss.

11 PROPERTY, PLANT AND EQUIPMENT

Cumulative finance costs capitalised in the cost of tangible fixed assets amount to £nil (2023: £nil). At the end of the period there were capital commitments contracted of £nil (2023: £62,972). Details of the impairment recognised are included in note 12.

All assets classified as property, plant and equipment are UK based.

¹In the prior period, £114,000 of cost and £6,000 of accumulated depreciation has been reclassified from Short leasehold improvements to Fixtures & fittings for presentational purposes.

12 LEASES

As a lessee

Right-of-use assets included in the Consolidated Statement of Financial Position were as follows: