Topps Tiles
Annual Report 2008

Plain-text annual report

Topps Tiles Plc Annual Report & Financial Statements 2008 Contents 02 At a glance 03 Financial performance 04 Chairman’s statement 06 Chief Executive’s statement 10 Business Review 16 Corporate Social Responsibility 20 D irectors 22 Directors and advisors 24 Directors’ Report 27 Corporate governance statement 29 Remuneration Report 32 Independent auditors’ report – consolidated financial statements 34 Consolidated income statement 34 Consolidated statement of recognised income and expense 35 Consolidated balance sheet 36 Consolidated cash flow statement 37 Notes to the financial statements 58 Independent auditors’ report – Company financial statements 59 Company balance sheet 60 Notes to the Company financial statements 62 Five year record 63 Notice of Annual General Meeting 66 Explanatory notes to the Notice of Annual General Meeting 70 The Team 76 Store Locations “Since our first outlet opened in 1963 Topps has successfully adapted to changing consumer tastes and swings in the economic cycle. Our response to the current adverse conditions is as vigorous as in previous downturns. The business is adapting well to meet the challenges it faces and I remain confident that we have a strong business that will grow and prosper over the longer term.” Stuart Williams Group President and Co-Founder 2 Topps Tiles Plc Annual Report & Financial Statements 2008 At a glance Topps Tiles is a specialist tile retailer with 342 outlets across operating 3 retail brands across the UK and Holland. In the UK, we are the country’s largest retailer of our kind with a total of 320 stores and a 22% market share. The Topps’ strategy is focused on delivering outstanding value to our customers. This has enabled us to retain our competitive advantage built upon the strong foundations of customer service, store locations, store layout, product choice and availability. The retail trading environment has become increasingly challenging during the year and our results have been affected accordingly. We intend to strengthen further our market leading position and believe that we will benefit significantly when consumer confidence returns. Our three core brands explained: Topps is the UK’s leading branded tile retailer with 263 stores offering wall and floor tiles, natural stone, laminate, solid wood flooring and a comprehensive range of associated products such as underfloor heating, adhesives and grouts. All of our stores carry a wide range and supply of stock, we offer a loan-a-tile service, a free “How to” DVD, a tile cutting service and a buy-back service allowing customers to “sell back” undamaged tiles within 45 days of purchase. In addition, we have teamed up with traders local to each of our stores to provide customers with a Topps approved tile installation service. These services coupled with friendly and knowledgeable staff offering expert technical advice led to 98.2% of customers surveyed expressing levels of satisfaction as “good to excellent” (2007: 97.6%). Topps Tiles Tile Clearing House Tile Clearing House is the biggest clearance tile retailer in the UK with 57 stores nationwide focusing on a cash and carry type format. The brand is aimed at a slightly different customer sector which in the main are jobbing builders, small contractors, and bulk purchases. The customer offer is geared towards an everyday value proposition with the addition of “when it’s gone it’s gone” type end of line and discounted product offers. The Tile Clearing House brand is located in prominent positions in towns where Topps Tiles are also sited. Topps Holland Trading since 2002 Topps Floorstore with its 22 stores across Holland is the leading specialist retailer of wood flooring in Holland. We are continuing to develop the business and are focused on driving up sales densities and improving business profitability. Topps Tiles Plc Annual Report & Financial Statements 2008 3 Financial performance (cid:129) Total Group revenue grew 0.1% to £208.1 million (2007: £207.9 million) (cid:129) Like-for-like revenue declined 5.4% (2007: up 4.7%) (cid:129) Group gross margin 61.8% (2007: 62.8%) (cid:129) Operating profit of £34.6 million (2007: £44.3 million)* (cid:129) Profit before tax of £27.7 million (2007: £37.8 million)** (cid:129) Basic earnings per share of 9.56p (2007: 15.09p) (cid:129) Adjusted basic earnings per share of 11.16p (2007: 14.94p)*** (cid:129) No final dividend declared in order to accelerate reduction in net debt and improve financial flexibility (2007: 6.95p per share) (cid:129) Net debt position of £92.0 million (2007: £95.2 million) (cid:129) Renegotiated loan facility, favourable relaxation of covenants and extension of the facility to January 2012 (cid:129) Sale and leaseback of four freehold properties for £4 million, with a profit on disposal of £0.9 million (2007: £0.3 million) * 2008 Operating profit includes a goodwill impairment charge (non-cash) of £1.2 million (2007 : £nil) ** 2008 profit before tax includes the following non-recurring items in addition to the above note: – £1.5 million (non-cash) charge relating to the interest rate hedging the Group has in place (per IAS 39), (2007: £0.5 million) – Property disposal gain of £0.9 million (2007: £0.3 million) *** Adjusted for post tax effect of non-recurring items highlighted above plus: – £1.1 million deferred tax charge relating to withdrawal of Industrial Buildings Allowances (2007: £nil) Find out more... For more information, please visit: www.toppstiles.co.uk 4 Topps Tiles Plc Annual Report & Financial Statements 2008 Chairman’s statement I am confident that we can capitalise on our position as market leader as we trade through the current economic cycle and expect to benefit significantly when consumer confidence returns. £208.1m Total group revenue (2007: £207.9m) This has been a challenging year for the Topps business in a difficult trading environment. However, we are facing these challenges and managing the business in a robust and prudent manner. We have delivered a credible financial performance in a tough operating environment. I remain confident that our business will show resilience through this period and we will be well positioned to capitalise on the strong foundations of the Company as the economic situation improves. Group revenue (£m) 173.3 180.2 157.6 207.9 208.1 2004 2005 2006 2007 2008 Financial results Total Group revenue has been almost flat year-on-year at £208.1 million (2007: £207.9 million) with like-for-like revenue for the period showing a decline of 5.4% on last year. Operating profit for the period was £34.6 million (2007: £44.3 million) giving a profit before tax of £27.7 million (2007: £37.8 million). Basic earnings per share is 9.56p (2007: 15.09p). During the period our banking facilities were renegotiated with a relaxation of both covenants associated with the debt and the facility has been extended to 2012. There was a one-off arrangement fee of £0.5 million which will be amortised over the remaining period of the facility. Dividend In order to reduce net debt and improve the Company’s financial flexibility, the Board has decided not to pay a final dividend for this financial year. We believe this is in the best interests of the business in the prevailing economic environment and we will continue to review the dividend policy on a bi-annual basis. Board changes In March this year we announced the appointment of Alan White, currently CEO of N Brown Group plc, to the Board as a Non-Executive Director. His appointment was effective from 1 April 2008. In addition we also announced the resignation from the Board of Alan McIntosh with effect from 31 March 2008. I would like to thank Alan McIntosh for his support and contribution to the Company during his 10 years as Non-Executive Director. We are also announcing that Victor Watson will not seek re-election at the next AGM, after 10 very successful years on the Board, Victor has decided to step down. I would like to thank Victor for all of his support and contribution to the Company. Topps Tiles Plc Annual Report & Financial Statements 2008 5 £27.7m Profit before tax (2007: £37.8m) Profit before tax (£m) 39.2 39.1 37.8 33.8 27.7 2004 2005 2006 2007 2008 People The Company’s staff are fundamental to the continuing success of the business. Their ability to deliver exceptional customer service is a key factor in differentiating Topps from its competitors and will contribute to the future success of the business. I would like to extend the Board’s thanks and gratitude to everyone in the Company for their continuing efforts and hard work. Outlook We have a very resilient business model and an extremely capable team who are managing the business prudently. The team have made significant progress during the year to ensure that the business is in the best possible condition for the year ahead. We have again tightened our cost base for the coming year, reviewed our plans for growth, focused our attention on cash management, and extended our banking facilities. The Board is confident that as a result of these actions the business can withstand a sustained period of weak consumer activity. I am confident that we can capitalise on our position as market leader as we trade through the current economic cycle and expect to benefit significantly when consumer confidence returns. Barry Bester Chairman Find out more... For more information, please visit: www.toppstiles.co.uk 6 Topps Tiles Plc Annual Report & Financial Statements 2008 Chief Executive’s statement We will continue to maintain our focus on tight cost control and prudent management of the business at the same time as delivering the service element that our customers expect. We intend to capitalise on our market leading position and believe that we will emerge from the current economic situation a stronger business and benefit significantly when consumer confidence returns. £34.6m Operating profit (2007: £44.34m) We have maintained our market leading position and expect to capitalise on this during the coming year. We will achieve this by continuing to focus on excellent customer service, outstanding value ranges and an anticipated contraction in the competition. We have delivered a credible performance and anticipate that our resilient business model will help us to create an even stronger business. UK store development and expansion We are pleased to have achieved our store opening target with a net 19 new stores opened in the period. This now gives us an overall total of 320 trading outlets throughout the UK. For the coming year we will focus the majority of our attention on improvements to our existing estate. In the current economic climate we believe that a more cautious approach to expansion is appropriate. We anticipate that an easing of pressures in the property market should create opportunities for us to open a small number of new stores in strong trading locations. Topps Tiles We have opened a net 17 new stores and now have a total of 263 Topps outlets. This includes 24 new openings offset by two closures, three relocations and two rebrands to Tile Clearing House (TCH). Alongside our traditional retail channel we have, this year, launched our first online business. This offers a wide selection of our most popular ranges as well as some additional complementary products not found in our stores. These include bathrooms accessories and heated towel radiators. We have developed the online offer during the year and whilst this element of the business is still in its infancy we look forward to it increasing sales as it grows in popularity. Our online offer can be found at www.toppstiles.co.uk. Tile Clearing House Tile Clearing House remains focused on trade customers and jobbing builders, operating a “cash and carry” type format. We have opened a net two new stores under the Tile Clearing House brand and now have a total of 57 outlets. Holland In Holland we have opened a further net two stores during the year taking the total to 22. This consisted of three new openings and one closure due to a relocation. The business has had to contend with a difficult trading environment and a number of other issues. Against this backdrop we have seen a decline in like-for-like revenues and the business has generated a loss for the year. We have also conducted a review of the goodwill that arose on acquisition of the Dutch business and decided that against the context of the current year’s results and a more cautious outlook for the future it is appropriate to impair the goodwill and write it down by £1.2 million to £nil in the current year. Operating profit (£m) 36.8 38.8 32.5 44.3 34.6 2004 2005 2006 2007 2008 Find out more... For more information, please visit: www.toppstiles.co.uk Topps Tiles Plc Annual Report & Financial Statements 2008 7 11.16p Adjusted basic earnings per share (2007: 14.94p) Whilst we operate a tight cost base which is appropriate for a small business, the key issues which we are tackling are store sales density and gross profit margins. We have a new management team in place with a very clear agenda. They will be focused on driving sales and improving margins by upweighting the mix of tile sales. The year ahead is likely to be one of continued, measured progress with less focus on expansion than we have seen previously. Adjusted basic earnings per share (p) 12.81 13.19 14.94 11.16 9.63 2004 2005 2006 2007 2008 Our website was a Hitwise Top 10 Award winner for the quarter ending July - September 2008. Marketing, advertising and sponsorship Over the last year we ran both national and regional marketing and advertising campaigns. These included the launch of a new TV advertising campaign on ITV. The campaign featured works of art created entirely from our tiles and wooden flooring, with the adverts appearing on ITV three times a day straight after the national news. This campaign served us well through the year and we have achieved our goal of continuing to build consumer awareness of the brand. During the year ahead we expect to focus on targeted regional and local marketing where the business requires it. Topps Tiles is Britain's biggest supporter of community youth football and we currently sponsor over 200 local teams nationwide. Staff development and customer service A core part of our strategy is to deliver outstanding customer service. In order to provide this we place the highest importance on the development of our staff to deliver an excellent standard of service. We are rigorous in our recruitment and retention of capable, ambitious people and are committed to the development and career progression of our employees. We have a sophisticated in-store e-learning training system and additionally we incentivise our staff with competitive employee benefit packages. We continue to differentiate our business from the competition in a number of ways. All of our stores carry a wide range and supply of stock, we offer a loan-a-tile service, a free “How to” DVD, a tile cutting service and a buy-back service allowing customers to “sell back” undamaged tiles within 45 days of purchase. In addition, we have teamed up with traders local to each of our stores to provide customers with a Topps approved tile installation service. These services coupled with friendly and knowledgeable staff offering expert technical advice led to 98.2% of customers surveyed expressing levels of satisfaction as “good to excellent” (2007: 97.6%). Corporate responsibility The management team at Topps Tiles is committed to conducting the Company’s business in a socially responsible manner, taking into consideration social, environmental and ethical matters, whilst at the same time ensuring the Company achieves its objectives. Our policy is published on our website at www.toppstiles.co.uk and more detail on our achievements can be found in this report. Topps Tiles is pleased to be a constituent member of the FTSE4Good UK Index. 8 Topps Tiles Plc Annual Report & Financial Statements 2008 Chief Executive’s statement (continued) 22%+ Group share of the UK tile market (2007: 22%+) 342 Total number of stores trading across the Group (2007: 321) The market Topps continues to be the leading tile retailer in the UK with a market share in excess of 22%. As consumers preferences continue to converge with European tastes the relatively low consumption of tiles per head in the UK compared with the rest of Europe (roughly one-third of Northern Europe, source: MBD) provides significant opportunities. Consumers are continuing to refurbish the traditional tiling areas such as kitchens, bathrooms and conservatories and are also increasingly extending into general living areas, helped by the broad range of under flooring heating products now commonly available. During the year we have also seen a reduction in customer choice as some consolidation in the retail market has taken place, particularly with smaller regional tile businesses. Worldwide consumption for tiles, in particular in the more developed tile markets is likely to continue to weaken in the short term. This has begun to present some buying opportunities, with regard to both price and terms. With a dedicated tile distribution warehouse, Topps is well positioned to take advantage of these opportunities. Current trading and outlook In the seven weeks of the new financial period Group overall revenue decreased by 13.5% and like-for-like sales decreased by 18.3%. At the half year we highlighted that the key driver of risk to the business was the general economic climate and since then the economy has continued to weaken. The business is well equipped to deal with the current economic cycle and we have made good progress in tightening our cost base for the coming year, focusing our attention on cash management and improving our financial flexibility by renegotiating our banking facilities. We will continue to maintain our focus on tight cost control and prudent management of the business at the same time as delivering the service element that our customers expect. We intend to capitalise on our market leading position and believe that we will emerge from the current economic situation a stronger business and benefit significantly when consumer confidence returns. Matthew Williams Chief Executive Officer Topps Tiles Plc Annual Report & Financial Statements 2008 9 The business is well equipped to deal with the current economic cycle and we have made good progress in tightening our cost base for the coming year, focusing our attention on cash management and improving our financial flexibility by renegotiating our banking facilities. The Company’s staff are fundamental to the ongoing success of the business. Their ability to deliver exceptional customer service will continue to be a key differentiator for us in the coming year. Topps stores are purposely located in highly visible, low rental locations, on or close to busy roads and always with parking facilities. Alongside our traditional retail channel this year we launched our first online business which offers a wide selection of our most popular ranges including some additional complementary products. Visit our website at www.toppstiles.co.uk for full details. 10 Topps Tiles Plc Annual Report & Financial Statements 2008 Business Review Gross margins (%) 60.5 61.3 62.6 62.8 61.8 2004 2005 2006 2007 2008 The Topps’ strategy is focused on delivering outstanding value to our customers. This has enabled us to retain our competitive advantage built upon the strong foundations of customer service, store locations, store layout, product choice and availability. Cautionary statement This Business Review has been prepared solely to provide additional information to shareholders to assess the Company’s strategies and the potential for those strategies to succeed. The Business Review should not be relied on by any other party or for any other purpose. The Business Review contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. Nature, objectives and strategies of the business Topps Tiles is a specialist tile and wood flooring retailer with 342 outlets across the UK and Holland. In the UK, we are the country’s largest retailer of our kind with a total of 320 stores and a 22% market share. We operate two retail brands, Topps Tiles and Tile Clearing House. Topps is the UK’s leading branded tile retailer with 263 stores offering wall and floor tiles, natural stone, laminate, solid wood flooring and a comprehensive range of associated products such as underfloor heating, adhesives and grouts. Tile Clearing House is the biggest clearance tile retailer in the UK with 57 stores nationwide focusing on a mini warehouse type format and a “when it’s gone it’s gone” style customer offer. Our European operation in Holland provides a similar style of customer offer to the UK Topps Tiles stores and currently trades from 22 stores. The Topps’ strategy is focused on delivering outstanding value to our customers. This has enabled us to retain our competitive advantage built upon the strong foundations of customer service, store locations, store layout, product choice and availability. We believe that this strategy will continue to serve the Company and its many stakeholders well and will see us through the current economic downturn. Key operational objectives: (cid:129) Deliver customers outstanding value for money to ensure they always “return and recommend”. (cid:129) Maintain our brand leading position in the market. (cid:129) Grow the store estate where excellent property opportunities arise. (cid:129) Continued to develop our in store customer offer to maintain our competitive advantage. (cid:129) Build an increased online presence and establish the brand as the market leader. (cid:129) Continued measured progress in Holland towards a return to profitability. (cid:129) Ongoing review of the store portfolio to ensure our estate is keeping track with consumer shopping patterns and our cost base is as efficient as possible. Topps Tiles Plc Annual Report & Financial Statements 2008 11 Financial objectives: (cid:129) Maintaining an appropriate capital structure will continue to be a key financial objective for the Group. (cid:129) Continued management of the business with a priority on revenues, cost control and cash generation. (cid:129) Review our dividend policy on a bi-annual basis. (cid:129) Supplier tendering and benchmarking for non-stock suppliers has continued through the year and has seen a change in a number of key suppliers. This will continue to contribute towards our focus on cost control and ensuring that we are as efficient as possible. (cid:129) Manage the Group’s exposure to fluctuations in foreign exchange rates. Key Performance Indicators (KPIs) The Directors monitor a number of financial and non-financial metrics and KPIs for the Group and by individual store, including: Financial KPIs Like-for-like sales growth year-on-year – % Total sales growth year-on-year – % Gross margin – % Net debt Stock days Non-financial KPIs Customer satisfaction – % Number of stores 52 weeks to 27 September 2008 52 weeks to 29 September 2007 –5.4% +0.1% 61.8% £92.0m 140 +4.7% +15.4% 62.8% £95.2m 146 98.2% 342 97.6% 321 The Directors receive regular information on these and other metrics and KPIs for the Group as a whole. These KPIs are reviewed and updated as the Directors feel is required. 98.2% Customer satisfaction rating (2007: 97.6%) Find out more... For more information, please visit: www.toppstiles.co.uk 12 Topps Tiles Plc Annual Report & Financial Statements 2008 Business Review (continued) Risks and uncertainties The key risks to the business continue to be its relationship with key suppliers, the potential threat of competitors, the risk that key information technology or EPOS systems could fail, the loss of key personnel, the risk of a prolonged economic downturn, the impact of foreign exchange rates and the development of substitute products. Following a modest weakening of results in the first half we highlighted at that time that the key risk for the second half was the general economic climate. The deterioration in the economy has been more pronounced during the second half of the year and when reviewing risks and uncertainties this is currently accounting for the majority of the Board’s focus. The business has responded to these risks by taking the appropriate action as described in this report. Specifically, we have tightened our cost base, reviewed our plans for growth, focused our attention on cash management, and renegotiated and extended our banking facilities. We are also seeking to enhance and improve our retail operations where possible by reviewing our product offer, customer service and marketing strategies. We also highlighted at the half year point that an appreciation in the Euro had put pressure on gross margins as a result of our overseas sourcing. The US dollar has also strengthened over the course of the second half of the year. The current general weakness of the Pound will put further pressure on margins for the coming year but we are addressing this risk by constantly reviewing our sourcing opportunities. During the year approximately 20% of purchases were sourced from overseas. Post the end of the financial reporting period there have been significant reductions in interest rates. The Group will see a small amount of direct benefit from this via our cash interest charge, however, a more significant benefit would be the potential improvement in consumer confidence. There are currently a number of risks and uncertainties that the Group is managing. If sales performance continues at the current levels we will need to manage costs and cash even more tightly, however, the Board remains confident the business will continue in its ability to generate positive returns and meet all of its financial commitments in full. The Directors will continue to routinely monitor of all of these risks and uncertainties and the Board will take appropriate actions to mitigate the risks and/or their potential outcomes. We have conducted a review of existing contractual relationships and have concluded that there are none which are essential to the business. Find out more... For more information, please visit: www.toppstiles.co.uk Topps Tiles Plc Annual Report & Financial Statements 2008 13 61.8% Gross margin (2007: 62.8%) £35.8m Underlying operating profit (2007: £44.3m) Financial review Profit and loss account Revenue Revenue for the period ended 27 September 2008 increased by 0.1% to £208.1 million (2007: £207.9 million). Like-for-like store sales declined by 5.4% across the year, falling by 0.9% in the first half and 9.8% in the second half of the year. The deterioration in performance reflects the tightening in the economy and the impact that this has had on both the financial and consumer sector. Gross margin Overall gross margin was 61.8% compared with 62.8% last year. At the interim stage of this period gross margin was 62.7%. In the second half of the period we have generated a gross margin of 60.8%. Erosion of gross margin reflects exchange rate impacts and also the pressure of the current trading environment. However, the relatively small deterioration in gross margin reflects the Company’s strong brand and business model as we are able to invest margin in a controlled way to drive transactions. Operating expenses Total operating costs have increased from £86.2 million to £93.9 million, an increase of 8.9%. Costs as a percentage of sales were 45.1% compared to 41.4% last year. The increase in costs has been mainly driven by our enlarged store estate. The average number of stores trading during the financial period was 329 (2007: 303). This has generated an increase in our total operating expenses of 7.3%. Further to this there have been several non-recurring items as follows: We have spent an additional £1.5 million on Group marketing activities, in particular a nationwide ITV1 television campaign. We have incurred a £1.2 million (non-cash) charge for goodwill impairment in relation to the acquisition of the Dutch joint venture. This reflects the Board’s more cautious outlook for the Dutch business as described in the Business Review section of this report. Offsetting these additional charges, in part, is a saving of £1.1 million on management bonuses compared to the previous financial period. This saving was due to management bonus targets not being met during the period. When taking these items into account, the underlying cost base has reduced by 0.2% for the year as a whole. Operating profit Operating profit for the period was £34.6 million (2007: £44.3 million). Operating profit as a percentage of sales was 16.6% (2007: 21.3%). Underlying operating profit, excluding the non-cash goodwill impairment highlighted above was £35.8 million (2007: £44.3 million). 14 Topps Tiles Plc Annual Report & Financial Statements 2008 Business Review (continued) 13.3% Group profit before tax margin (2007: 18.2%) £38.7m cash generated by operations (2007: £49.8m) Find out more... For more information, please visit: www.toppstiles.co.uk Other gains and losses Other gains and losses include the impact of property disposals. During the period we completed the sale and leaseback of four freehold properties for £4.0 million, which generated a £0.9 million profit on disposal (2007: £0.3 million). Financing The cash interest charge for the year was £6.3 million (2007: £6.3 million), excluding the impact of IAS 39 revaluations. Despite higher interest rates we have maintained the interest charge at the same level of the prior year through a combination of reducing net debt and also the economic benefit we have received from the interest rate derivatives we have in place. The interest rate derivatives give rise to a “marked to market” revaluation per the requirements of IAS 39 “Financial Instruments; Recognition and Measurement”. This revaluation has generated a fair value (non-cash) charge of £1.5 million (2007: £0.5 million). Due to the nature of the underlying financial instrument IAS 39 does not allow hedge accounting to be applied to these losses and hence this charge is being applied direct to the income statement rather than offset against balance sheet reserves. Net interest cover was 6.4 times based on earnings before interest, tax and depreciation, excluding the impact of IAS 39 in finance charges. Profit before tax Reported profit before tax is £27.7 million (2007: £37.8 million). Group profit before tax margin was 13.3% (2007: 18.2%). Tax The effective rate of Corporation Tax was 41.0% (2007: 32.0%). There are a series of key items affecting the tax rate during the year, as follows: The withdrawal of Industrial Buildings Allowances has resulted in a one-off deferred tax charge of £1.1 million, accounting for 4.1% of the effective tax rate. Changes to the capital allowances regime and prior year adjustments have impacted the tax charge by £1.2 million, accounting for 4.4% of the effective tax rate. The impairment of goodwill described under “Operating Expenses” does not qualify for corporation tax relief, thereby increasing the effective tax rate by a further 1.2%. The underlying tax rate, excluding the above items, was 31.3% (2007: 30.8%). Earnings per share Basic earnings per share were 9.56p (2007: 15.09p). Diluted earnings per share were 9.55p (2007: 15.02p). Topps Tiles Plc Annual Report & Financial Statements 2008 15 140 Stock at period end as days turnover (2007: 146) £92.0m Net debt (2007: £95.2m) Dividend and dividend policy In order to reduce net debt and improve the Company’s financial flexibility, the Board has decided not to pay a final dividend for this financial year. We believe this is in the best interests of the business in the prevailing economic environment and we will continue to review the dividend policy on a bi-annual basis. Balance sheet Capital expenditure Capital expenditure in the period amounted to £6.6 million (2007: £9.7 million). This includes the cost of developing two freehold sites for £1.2 million. In addition we have opened 33 new outlets at a cost of £3.8 million, refitted 11 existing sites at a cost of £0.6 million, plus a further £1.0 million on other associated activities. At the period end the Group owned eight freehold or long leasehold sites including two warehouse and distribution facilities with a total net book value of £15.6 million (2007: £17.7 million). Stock Stock at the period end represents 140 days turnover compared with 146 days for the same period last year. Capital structure and treasury Cash and cash equivalents at the period end were £14.0 million (2007: £15.8 million) with repayable borrowings at £106.0 million (2007: £111.0 million). This gives the Group a net debt position of £92.0 million compared to £95.2 million as at 1 October 2007. During the period we renegotiated our current loan facility, securing a favourable relaxation of the covenants associated with our debt and an extension of the facility to January 2012. There is an associated one-off fee of £0.5 million which will be amortised over the remaining period of the facility. Cash flow Cash generated by operations was £38.7 million, compared to £49.8 million last year. Annual General Meeting The Annual General Meeting for the period to 27 September 2008 will be held on 13 January 2009 at 10.30am at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU. Matt Williams Chief Executive Officer Rob Parker Finance Director 16 Topps Tiles Plc Annual Report & Financial Statements 2008 Corporate Social Responsibility “Every penny raised goes to the cause rather than overheads. With the help of Royalty, celebrities, the media and thousands of decent, ordinary people we have already raised over £12 million. There is a great deal more to be done and we are indebted to Topps Tiles for their decision to support our work”. Help for Heroes founder, Bryn Parry Corporate Social Responsibility (“CSR”) continues to gain increasing importance in all modern businesses and Topps Tiles is no exception. We have been working on our CSR agenda since 2004 when we established a working party chaired by a main Board Director. We are proud of our achievements in this area and focus our attentions across four primary areas: (cid:129) Community Relations (cid:129) Environment (cid:129) Workplace and Employees (cid:129) Supply Chain The Group is a constituent member of the FTSE4Good Index of socially responsible UK quoted companies. The FTSE4Good Index is designed to measure the performance of companies that meet globally recognised corporate responsibility standards and to facilitate investment in those companies where CSR issues are an influencing factor in the investors’ decision making process. We aim to comply with the criteria set by the operators of this index and are actively engaged in the continued developments of our CSR policies to ensure ongoing compliance. Community relations Topps Tiles has been actively involved in supporting community relations over a long period of time, through our association with youth football. Topps provides new kits and equipment to junior teams local to our stores, a simple and effective way of reaching out to all our local communities and which makes us one of the biggest supporters of youth football in the UK. We currently support over 200 teams with plans to extend this to every store over the coming year. In addition to our football sponsorship, Topps has also been a long term supporter of a nominated corporate charity. For the past six years we have supported Asthma UK and have successfully raised in excess of £600,000 for their worthy causes over that period. We are very proud of our association with Asthma UK and we wish them the very best of luck in all of their future fundraising efforts. In July we hosted our seventh annual charity Golf Day where UK and overseas suppliers meet with Topps friends and colleagues to raise money. The day was dedicated to The Prince’s Trust and we successfully raised £18,985 to support the Trust’s work with disadvantaged young people. 200+ The number of football teams that we sponsor in the UK. Topps Tiles Plc Annual Report & Financial Statements 2008 17 Kate Burt, The Prince’s Trust Deputy Director of Fundraising, confirmed: “we need visionary companies who believe that through investing in young people you can change lives forever. We are delighted that Topps Tiles was inspired to join us and help more young people realise their potential.” We have recently begun work with our new corporate charity, Help for Heroes. Founded in 2007, Help for Heroes funds specialist rehabilitation and adaptive training for servicemen and women maimed in the service of our country in Iraq and Afghanistan. Many wounded servicemen and women come from communities served by our stores and we want to give Help for Heroes the biggest “thank you” we can. We aim to make this our biggest ever fundraising drive and during the coming year our stores will be staging their own Heroes Days with sponsored exploits by “homegrown heroes” who will compete for the coveted title of Topps No.1 Help for Heroes fundraiser Help for Heroes founder, Bryn Parry, confirmed: “Every penny raised goes to the cause rather than overheads. With the help of Royalty, celebrities, the media and thousands of decent, ordinary people we have already raised over £12 million. There is a great deal more to be done and we are indebted to Topps Tiles for their decision to support our work”. Environment There are three primary areas where our business potentially impacts the environment. These are property, waste and transport. We regularly review our progress in these areas and endeavour to use the most environmentally responsible practices possible. Property – energy is a major driver of cost for the business and also forms a significant part of our environmental impact. Energy efficient technology, including low energy lighting, helps to reduce the impact and we are continuing trials to reduce further our environmental impact by adopting new technology wherever possible. Waste – waste management is an important area for our business and we recycle as much as possible. Stores return paper, plastic and cardboard to the central warehouse for recycling. Find out more... For more information, please visit: www.toppstiles.co.uk 18 Topps Tiles Plc Annual Report & Financial Statements 2008 Corporate Social Responsibility (continued) Environment (continued) Our offices recycle all used paper, the majority of which is shredded and used as packaging. We continue to move our reporting away from being paper based and issue increasing numbers of reports in electronic format. Transport – during the year we have started a move towards consolidation of deliveries to stores. This means that we will reduce our reliance on third party transport further and be able to achieve more of the deliveries required from our existing capacity. This has the benefit of reducing the overall mileage and also reduces emissions as a result of us operating our own modern and efficient fleet of vehicles. All new lorries comply with the Euro 4 emissions regulations and come ready equipped with driver efficiency monitoring systems. This technology enables us to plan the most efficient routes and also monitor our drivers’ performance. All new vehicles this year now have new generation engines giving in the region of a 16% saving on fuel. Our new trailers are now specially designed for better weight distribution allowing more weight to be carried and less tyre wear. Workplace and employees We have a duty to our employees to provide them with a safe and comfortable working environment. We maintain regular dialogues with staff and our in-house Health and Safety team carries out regular assessment to ensure that this is happening. We also operate a Health and Safety Committee which meets on a regular basis and is chaired by a main Board Director. Communication with our employees is vital and we have initiatives in place to ensure regular and effective dialogue with staff. We produce a bi-monthly in-house magazine which updates all employees on what is happening across the business. In addition we operate an employee suggestion scheme which is overseen by our Chief Executive, Matthew Williams. This helps to improve the business across a number of areas. We have a policy of internal promotion, where possible, and actively encourage our staff to apply for internal vacancies and promotions. To support this we conduct regular dialogues with employees on job and career development. We are committed to being an equal opportunities employer and have policies in place which are clearly communicated to all of our staff. In April 2008 the Company retained its Investors in People award for a further three years. This award recognises our continued efforts to ensure that all staff understand the goals of the Company and are fully trained to ensure they can contribute fully to achieving these goals. Topps Tiles Plc Annual Report & Financial Statements 2008 19 16% Savings on fuel bills made by new vehicles using new generation engines. Supply chain We source our goods for resale from around the world including tiles, natural stone, wooden flooring and adhesives. Labour standards, factory conditions and human rights are issues we take seriously. To address any possible concerns our buyers conduct regular supplier visits and factory tours and also insert a clause into all contracts with suppliers which stipulates our requirements. We have also developed a policy on timber products and have adopted the principles and criteria of the Forest Stewardship Council as our benchmark. Our full policy and targets can be found on our website at www.toppstiles.co.uk in the investor section under corporate responsibility. Find out more... For more information, please visit: www.toppstiles.co.uk 20 Topps Tiles Plc Annual Report & Financial Statements 2008 Directors Non-Executive Chairman Barry Bester Non-Executive Chairman (aged 51) Member of Nomination Committee Barry was a founder shareholder and Director of Topps Tiles in 1984. His principal responsibility is Group Strategy. Executive Directors Matthew Williams Chief Executive Officer (aged 34) Matt joined the Company in 1998 after completing his Chartered Surveyors exams and took up a role in the property department. In 2004 he was promoted to Chief Operating Officer and on 1 April 2006 joined the Plc Board. In November 2007 he was promoted to Chief Executive Officer. Matt is also responsible for the employee suggestion scheme. Nicholas Ounstead Business Development Director (aged 48) Health and Safety Committee Chairman Nick joined Topps Tiles in April 1997. Prior to this he was Marketing Director at Bellegrove Ceramics Plc which was a major supplier to DIY chains and independent retailers. In November 2007 he moved to the role of Business Development Director responsible for marketing, online business and Holland. Robert Parker Finance Director (aged 36) Company Secretary Social and Environmental Responsibility Chairman Rob Joined Topps Tiles in 2007 as Finance Director. Rob’s previous role before joining the Group was Director of Finance & IT for Savers Health & Beauty Ltd. Prior to that Rob was with the Boots Group Plc for 10 years, including five years with the international side of the business, ultimately as Director of Finance for Boots Retail International. He is responsible for the accounting, financial control, treasury, administration and Group secretarial matters. Topps Tiles Plc Annual Report & Financial Statements 2008 21 Non-Executive Directors Rt. Hon Michael Jack Privy Councillor MP Senior Non-Executive Director (aged 62) Chairman of Audit Committee Member of Nomination Committee Chairman of Remuneration Committee Michael’s business career has seen him in management capacities with Proctor & Gamble and Marks & Spencer. In 1987 he became MP for Fylde and by 1990 had begun a ministerial career that saw him serve in the DSS, Home Office, MAFF and finally the Treasury as Financial Secretary. He joined the Board of Topps Tiles in 1999. Victor Watson CBE Non-Executive Director (aged 80) Member of Audit Committee Chairman of Nomination Committee Member of Remuneration Committee Victor was formerly Chairman of Waddington Plc. He joined the Board of Topps Tiles in 1997. Alan White Non-Executive Director (aged 53) Member of Audit Committee Member of Nomination Committee Member of Remuneration Committee Alan is the Chief Executive of N Brown Group plc, a role he was appointed to in 2002. He qualified as a chartered accountant with Arthur Andersen and has been group finance director for Sharp Electronics (UK), N Brown Group plc and Littlewoods plc. He joined the Board of Topps Tiles in April 2008. 22 Topps Tiles Plc Annual Report & Financial Statements 2008 Directors and advisors President S.K.M. Williams FCA Directors B.F.J. Bester Non-Executive Chairman M.T.M. Williams Chief Executive Officer N.D. Ounstead Business Development Director R. Parker ACMA Finance Director The Rt. Hon. J.M. Jack, Privy Counsellor, MP Non-Executive Director V.H. Watson CBE Non-Executive Director A. White Non-Executive Director Secretary R. Parker ACMA Registered number 3213782 Registered office Thorpe Way Grove Park Enderby Leicestershire LE19 1SU Auditors Deloitte & Touche LLP 2 Hardman Street Manchester M60 2AT Bankers HSBC Bank Plc 56 Queen Street Cardiff CF10 2PX Registrars Capita IRG Plc Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU Solicitors TLT Solicitors 1 Redcliff Street Bristol BS99 7JZ Sinclair Abson Smith Lawyers 19 Market Place Stockport SK1 1HA Beachcroft LLP St. Ann’s House St. Ann Street Manchester M2 7LP Brokers KBC Peel Hunt Ltd 111 Old Broad Street London EC2N 1PH Topps Tiles Plc Annual Report & Financial Statements 2008 23 Financial statements Contents 24 Directors’ Report 27 Corporate governance statement 29 Remuneration Report 32 Independent auditors’ report – consolidated financial statements 34 Consolidated income statement 34 Consolidated statement of recognised income and expense 35 Consolidated balance sheet 36 Consolidated cash flow statement 37 Notes to the financial statements 58 Independent auditors’ report – Company financial statements 59 Company balance sheet 60 Notes to the Company financial statements 63 Notice of Annual General Meeting 66 Explanatory notes to the Notice of Annual General Meeting 70 The Team 76 Store Locations 24 Topps Tiles Plc Annual Report & Financial Statements 2008 Directors’ Report The Directors present their report on the affairs of the Group, together with the financial statements and Auditors’ Report, for the 52 week period ended 27 September 2008. Principal activity The principal activity of the Group comprises the retail and wholesale distribution of ceramic tiles, wood flooring and related products. Business Review The Company is required by the Companies Act to set out in this report a fair review of the business of the Group during the financial period ended 27 September 2008 and of the position of the Group at the end of that financial period. The Company is also required to set out a description of the principal risks and uncertainties facing the Group. The information that fulfils the requirements of the enhanced business review can be found within the Chairman’s statement on pages 4 and 5, the CEO’s statement on pages 6 to 8, the Business Review on pages 10 to 15 and the Corporate Social Responsibility statement on pages 16 to 19, which are incorporated in this report by reference. The Directors monitor a number of financial and non-financial key performance indicators (KPIs) for the Group and by store and these are detailed on page 11. Results and dividends The audited financial statements for the 52 week period ended 27 September 2008 are set out on pages 34 to 57. The Group’s profit for the period, after taxation, was £16,353,000 (2007: £25,740,000). An interim dividend of 3.00p per share, £5,117,000 was paid on 7 July 2008 (2007: 3.75p per share, £6,396,000). The Board has decided not to pay a final dividend in order to accelerate the reduction in net debt and improve financial flexibility (2007: final dividend of 6.95 pence per share, £11,860,000). Directors The Directors of the Company who served throughout the year, and thereafter, except as noted, were as follows: B.F.J. Bester Non-Executive Chairman M.T.M. Williams Chief Executive Officer N.D. Ounstead Business Development Director R. Parker Finance Director J.M. Jack Senior Non-Executive Director V.H. Watson Non-Executive Director A. McIntosh Non-Executive Director (resigned 31 March 2008) A. White Non-Executive Director (appointed 1 April 2008) The Directors’ interests in the shares of the company are set out on page 31. Share capital Details of the Company’s authorised and issued share capital are shown in note 21 to the financial statements. Supplier payment policy The Group’s policy is to negotiate terms of payment with suppliers when agreeing the terms of each transaction, ensuring that suppliers are made aware of the terms of payment and that both parties abide by those terms. The effect of the Group’s negotiated payment policy is that trade payables at the period end represented 48 days purchases (2007: 65 days). Trade creditor days is calculated by dividing the trade and other payables creditor by the aggregate of cost of sales and relevant non-stock expenditure, multiplied by 365. Topps Tiles Plc Annual Report & Financial Statements 2008 25 Charitable and political contributions During the period the Group made charitable donations of £10,000 (2007: £10,000). The Group made no political contributions (2007: £nil). Substantial shareholdings In addition to the Directors’ shareholdings noted on page 31, on 31 October 2008 the Company had been notified, in accordance with sections 198 to 208 of the Companies Act 1985, of the following interests in 3% or more of its issued share capital. Williams S.K.M. Esq Scottish Widows Investment Partnership AXA Framlington Investment Management Allianz Global Investors M&G Investment Management Legal & General Investment Management New Star Asset Management Number % held 17,718,950 12,125,643 12,003,075 10,465,000 7,206,166 6,323,225 5,572,502 10.4 7.1 7.0 6.1 4.2 3.7 3.3 Disabled employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. Employee consultation The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the various factors affecting the performance of the Group. This is achieved through formal and informal meetings and the Company magazine. Employee representatives are consulted regularly on a wide range of matters affecting their current and future interests. Financial risk management, objectives and policies The Group is exposed to certain financial risks, namely interest rate risk, currency risk and credit risk. Information regarding such financial risk is detailed in notes 15, 16, 17,18 and 19. The Group’s risk management policies and procedures are also discussed in the Business Review on page 12. Share option schemes The Directors recognise the importance of motivating employees and believe that one of the most effective incentives is increased employee participation in the Company through share ownership. This has been achieved through the introduction of a number of employee sharesave, share bonus, approved and unapproved share option schemes, since the flotation in 1997. The total of options held by employees, including Directors, is 866,934 (2007: 1,306,491). The Directors will continue to incentivise employees through additional employee share option schemes in the forthcoming financial period, subject to the approval at the AGM. Details on the share option scheme are given in note 29. Information given to auditors Each of the Directors at the date of approval of this report confirms that: (cid:129) So far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and (cid:129) The Directors have taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 234ZA of the Companies Act 1985. Auditors A resolution to re-appoint Deloitte & Touche LLP as the Company’s auditor will be proposed at the forthcoming Annual General Meeting. 26 Topps Tiles Plc Annual Report & Financial Statements 2008 Directors’ Report (continued) Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report, Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial period. The Directors are required by the IAS Regulation to prepare the Group financial statements under IFRSs as adopted by the European Union. The Group’s financial statements are also required by law to be properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. International Accounting Standard 1 requires that IFRS financial statements present fairly for each financial period the Group’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s “Framework for the Preparation and Presentation of Financial Statements”. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. Directors are also required to: (cid:129) properly select and apply accounting policies; (cid:129) present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and (cid:129) provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. The Directors have elected to prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The parent Company financial statements are required by law to give a true and fair view of the state of affairs of the Company. In preparing these financial statements, the Directors are required to: (cid:129) select suitable accounting policies and then apply them consistently; (cid:129) make judgements and estimates that are reasonable and prudent; and (cid:129) state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the parent Company financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ responsibility statement We confirm to the best of our knowledge: 1) 2) the Group’s financial statements, prepared in accordance with IFRS, and the Company’s financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Business Review, which is incorporated into the Directors’ Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face. After making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. On behalf of the Board R. Parker Director and Company Secretary 24 November 2008 Topps Tiles Plc Annual Report & Financial Statements 2008 27 Corporate governance statement Corporate governance statement The Company is committed to the principles of corporate governance contained in the Combined Code of Corporate Governance that was issued in 2006 by the Financial Reporting Council (“the Code”) for which the Board is accountable to shareholders. Statement of compliance with the Code of Best Practice The Company has complied throughout the period with the Provisions of the Code of Best Practice set out in section 1 of the Code except for provision A.6.1, as the Board does not currently undertake formal appraisal of its own performance and that of its committees. The Company complies with all other provisions of the code. The Board of Directors comprises seven members, of whom three are independent Non-Executive Directors and three are Executive Directors, led by the Company’s Non-Executive Chairman, Mr. Barry Bester. The Senior Independent Non-Executive Director is the Rt. Hon. Michael Jack, who also chairs the Audit Committee. Brief biographical details of all Directors are given on pages 20 and 21. The Board meets at least 12 times a year. Certain defined issues are reserved for the Board including approval of financial statements and circulars, annual budgets, strategy, Directors’ appointments, service agreements and remuneration, internal control and risk management, corporate governance, key external and internal appointments and pensions and employee incentives. In advance of Board Meetings Directors are supplied with up-to-date information about trading performance the Group’s overall financial position and its achievement against prior year, budgets and forecasts. Where required, a Director may seek independent professional advice at the expense of the Company. All Directors have access to the Company Secretary and they may also address specific issues to the Senior Independent Non-Executive Director. In accordance with the Articles of Association, all Directors are subject to re-election every third year. Directors are elected at the first AGM after appointment, therefore, Alan White will be subject to election at the forthcoming Annual General Meeting. The Board regards Mr. White to be independent and considers his broad retail experience and position as a CEO of a Plc business to be of great benefit to the Group. All Non-Executive Directors have written letters of appointment. These letters of appointment stipulate three-year renewable terms of office. In line with the Code all Non-Executive Directors who have served for nine years or more will be subject to annual re-election. As such, the Rt. Hon. Michael Jack will be subject to re-election at the forthcoming Annual General Meeting. Although his length of service exceeds nine years the Board regards him to be independent and considers his broad based commercial experience and extensive business specific knowledge to be extremely beneficial. Mr. Victor Watson will not seek re-election at the forthcoming Annual General Meeting and will retire from the Board effective from the date of the Annual General Meeting. The Board considers that Messrs. Alan White and the Rt. Hon. Michael Jack are independent for the purposes of the Code. The terms and conditions for the appointment of Non-Executive Directors are available for inspection on request. The Board will review the independence of Non-Executive Directors on an ongoing basis. The Board also operates three committees. These are the Nomination Committee, the Remuneration Committee and the Audit Committee. All of these committees meet regularly and have formal written terms of reference which are available for inspection on request. Attendance at Board/Committee meetings The following table shows the number of Board and Committee meetings held during the 52 week period ended 27 September 2008 and the attendance record of the individual Directors. Number of meetings B.F.J. Bester M. Williams N.D. Ounstead R. Parker W.A. McIntosh (Resigned 31 March 2008) V.H. Watson J.M. Jack A. White (appointed 1 April 2008) Board of Directors Audit Remuneration Committee Committee Nomination Committee 10 9 10 9 10 1 10 10 4 2 2 2 2 2 1 2 2 1 2 2 n/a n/a n/a 1 2 2 1 2 2 n/a n/a n/a 1 2 2 1 28 Topps Tiles Plc Annual Report & Financial Statements 2008 Corporate governance statement (continued) Statement about applying the Principles of Good Governance The Company has applied the Principles of Good Governance set out in section 1 of the Combined Code by complying with the Code of Best Practice as reported above. Further explanation of how the Principles have been applied in connection with Directors’ remuneration is set out in the Remuneration Report. Audit Committee The Audit Committee consists of Non-Executive Directors. The Chairman is the Rt. Hon. Michael Jack, the other members are Victor Watson and Alan White, who has served on the Committee since his appointment on 1 April 2008. The Audit Committee considers the nature and scope of the audit process (both internal and external) and its effectiveness. The Committee reviews and approves the internal audit programme, meets with the external auditors and considers the Annual and Interim financial statements before submission to the Board. The Committee reviews the arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The Committee also reviews the Group’s system of internal control and reports its findings twice yearly to the Board. The Committee meets with the external auditors, the rest of the Board attend at the invitation of Audit Committee Chairman. As stated above, part of the role of the Audit Committee is to review the independence of the Company’s auditors. The Company’s external auditors, Deloitte & Touche LLP have provided non-audit services to the Company in the form of tax advice. The Audit Committee is aware that providing audit and non-audit advice could give rise to a potential conflict of interest. The Audit Committee has concluded that the auditors, Deloitte & Touche LLP, are independent. Nomination Committee The Nomination Committee is chaired by Victor Watson. The other members are Alan White and the Rt. Hon. Michael Jack. The formal terms of reference for this Committee require it to make recommendations to the Board for appointments of Directors and other senior executive staff. Appointments to the Board are made on merit, against objective criteria, taking into account the skills and experience required. Where appropriate, external search consultants are enlisted. Dialogue with institutional shareholders The Directors seek to build on a mutual understanding of objectives between the Company and its institutional shareholders by making annual presentations and communicating regularly throughout the year. The Company also posts financial information on its website www.toppstiles.co.uk. Maintenance of a sound system of internal control The Board has applied Principle C.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been put in place from the start of the period to the date of the approval of this report and which is in accordance with the revised guidance on internal control published in October 2005 (The Turnbull Guidance). The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. In compliance with Provision C.2.1 of the Combined Code, the Board continuously reviews the effectiveness of the Group’s system of internal control. The Board’s monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Board has also performed a specific assessment for the purposes of this Annual Report. This assessment considers all significant aspects of internal control arising during the period covered by the report including the work of internal audit. The Audit Committee assists the Board in discharging its review responsibilities. During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate. Topps Tiles Plc Annual Report & Financial Statements 2008 29 Remuneration Report Introduction This report has been prepared in accordance with Schedule 7A to the Companies Act 1985. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to the Directors’ remuneration in the Combined Code. As required by the Act, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements will be approved. The Act requires the auditors to the Company’s members on certain parts of the Directors’ Remuneration Report and to state whether their opinion on those parts of the report have been properly prepared in accordance with the Companies Act 1985. The report has therefore been divided into separate sections for the audited and unaudited information. Unaudited information Remuneration Committee The Company has established a Remuneration Committee, which is constituted in accordance with the recommendations of the Combined Code. The members of the committee are the Rt. Hon. Michael Jack, Victor Watson and Alan White who are all independent Non-Executive Directors. The Committee is chaired by the Rt. Hon. Michael Jack. None of the Committee has any personal financial interest (other than as shareholders), conflicts of interests arising from cross- directorships or day-to-day involvement in running the business. The Committee makes recommendations to the Board. No Director plays a part in any discussion about his own remuneration. Remuneration policy Executive remuneration packages are prudently designed to attract, motivate and retain Directors of the high calibre needed to maintain the Group’s position as a market leader and to reward them for enhancing value to shareholders. The performance measurement of the Executive Directors and key members of senior management and the determination of their annual remuneration package are undertaken by the Committee. The remuneration of the Non-Executive Directors is determined by the Board within limits set out in the Articles of Association. There are three main elements of the remuneration package for Executive Directors: (cid:129) basic annual salary (including Directors’ fees) and benefits; (cid:129) annual bonus payments; and (cid:129) pension arrangements. Basic salary An Executive Director’s basic salary is reviewed and determined by the Committee prior to the beginning of each year and when an individual changes position or responsibility. In deciding appropriate levels, the Committee considers the Group as a whole and relies on objective research which gives up-to-date information on a comparator group of companies. Basic salaries were reviewed in September 2008 with no increases taking effect this year. Executive Director’s contracts of service, which include details of remuneration, will be available for inspection at the Annual General Meeting. In addition to basic salary, the Executive Directors receive certain benefits-in-kind, principally a car and private medical insurance. Annual bonus payments A discretionary annual cash bonus scheme represents the short term incentive element of the overall remuneration package for Mr. Williams, Mr. Parker and Mr. Ounstead. The Remuneration Committee establishes the objectives that must be met in the financial period if a cash bonus is to be paid. The maximum bonus achievable in the period was 100% of basic salary based on Group performance against budgeted operating profit. For the period ending 27 September 2008 there will be no bonus paid. The annual bonus scheme for the period to September 2009 is also up to a max of 100% of basic salary based upon the achievement of budgeted Group operating profit. Pension arrangements Mr. Bester, Mr. Ounstead and Mr. Parker received contributions into their own personal pension schemes as disclosed in the table on page 31. 30 Topps Tiles Plc Annual Report & Financial Statements 2008 Remuneration Report (continued) Directors’ contracts Executive Directors It is the Company’s policy that Executive Directors are offered permanent contracts of employment providing for a maximum of six months’ notice. Non-Executive Directors All Non-Executive Directors have specific terms of engagement and their remuneration is determined by the Board within the limits set by the Articles of Association and based on independent surveys of fees paid to Non-Executive Directors of similar companies. The basic fee paid to each Non-Executive Director in the period was £33,000. It is the Company’s policy that Non-Executive Directors should have contracts with an indefinite term providing for a maximum of six months notice. Non-Executive Directors cannot participate in any of the Company’s share option schemes and are not eligible to join the Company’s pension scheme. The details of the Non-Executive Directors’ contracts are summarised in the table below: Name of Director B.F.J Bester J.M. Jack V.H. Watson (*retires 13 January 2009) A. White Date of contract or letter of appointment Unexpired term Notice period 27 May 1997 26 January 1999 27 May 1997 1 April 2008 n/a n/a n/a n/a 6 months 6 months 6 months 6 months Performance graph The following graph shows the Company’s performance, measured by total shareholder return (“TSR”), compared with the performance of the FTSE 250 Index also measured by TSR. The index chosen for the comparison demonstrates the Group’s TSR in comparison to the average for FTSE 250 companies. Total Shareholder Return Charting % 275 250 225 200 175 150 125 100 75 50 25 0 –25 –50 –75 2004 2005 2006 2007 2008 Topps Tiles Plc FTSE 250 This index has changed from prior year (was previously FTSE MID 250) but the comparative remains consistent and presents a similar picture. The FTSE 250 index is considered a relevant comparator as the business has formed a part of this index for the majority of the time period presented. Audited information Aggregate Directors’ remuneration The total amounts for Directors’ remuneration were as follows: Emoluments Money purchase pension contributions 2008 £’000 1,055 30 1,085 2007 £’000 1,876 26 1,902 Topps Tiles Plc Annual Report & Financial Statements 2008 31 Directors’ emoluments Name of Director M.T.M. Williams N.D. Ounstead R. Parker A. Liggett (Retired 27 April 2007) Non-Executive Directors B.F.J. Bester W.A. McIntosh (Resigned 31 March 2008) V.H. Watson J.M. Jack A. White (Appointed 1 April 2008) Fees £’000 – – – – – 13 – – 17 30 Basic salary £’000 339 253 199 – 104 – 32 33 – Vehicle allowance £’000 – 24 16 – – – – – – Benefits- Money purchase pension in-kind contributions £’000 £’000 20 2 2 – 1 – – – – – 14 9 – 7 – – – – Bonus £’000 – – – – – – – – – 2008 £’000 359 293 226 – 112 13 32 33 17 2007 £’000 519 643 161 180 324 25 25 25 – 960 40 25 30 0 1,085 1,902 Directors’ share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors. Share options held by the Directors relate to 2008 Save As You Earn scheme. No options have been exercised in the period. Name of Director Scheme 30 Sept 2007 N. Ounstead Save As You Earn Feb 2008 R. Parker Save As You Earn Feb 2008 M. Williams Save As You Earn Feb 2008 – – – Acquired 7,328 27 Sept 2008 7,328 Exercise price £1.31 12,824 12,824 £1.31 12,824 12,824 £1.31 Date from which exercisable 1 Feb 2011 1 Feb 2013 1 Feb 2013 Expiry date 1 Aug 2011 1 Aug 2013 1 Aug 2013 The market price of the ordinary shares at 27 September 2008 was 58.25p and the range during the year was 211.25p to 39.50p. Directors interests The Directors had the following interest in the shares of the Company (all interests relate solely to ordinary shares). B.F.J. Bester M. Williams N.D. Ounstead V.H. Watson R. Parker J.M. Jack A. White 2008 Ordinary shares of 3.33p each 2007 Ordinary shares of 3.33p each 16,406,200 450,205 427,750 132,000 30,000 20,250 15,000 13,906,200 380,205 370,125 132,000 10,000 15,250 – Approval This report was approved by the Board of Directors on 24 November 2008 and signed on its behalf by: Rt. Hon. J.M. Jack Chairman of Remuneration Committee 32 Topps Tiles Plc Annual Report & Financial Statements 2008 Independent auditors’ report – consolidated financial statements To the members of Topps Tiles Plc We have audited the group financial statements of Topps Tiles Plc for the 52 weeks ended 27 September 2008 which comprise the consolidated income statement, the consolidated statement of recognised income and expense, the consolidated balance sheet, the consolidated cash flow statement, and the related notes 1 to 30. These group financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. We have reported separately on the parent company financial statements of Topps Tiles Plc for the 52 weeks ended 27 September 2008. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report, the Remuneration Report and the group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the group financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the group financial statements give a true and fair view, whether the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation and whether the part of the Remuneration Report described as having been audited has been properly prepared in accordance with the Companies Act 1985. We also report to you whether, in our opinion, the information given in the Directors’ Report is consistent with the group financial statements. The information given in the Directors’ Report includes that specific information presented in the Business Review that is cross referred from the Business Review section of the Directors’ Report. In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We review whether the Corporate governance statement reflects the company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited group financial statements. The other information comprises only the Directors’ Report, the Chairman’s statement, the Chief Executive’s statement, the unaudited part of the Remuneration Report, the Business Review and the Corporate governance statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the group financial statements. Our responsibilities do not extend to any further information outside the Annual Report. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements and the part of the Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements and the part of the Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements and the part of the Remuneration Report to be audited. Topps Tiles Plc Annual Report & Financial Statements 2008 33 Opinion In our opinion: (cid:129) the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 27 September 2008 and of its profit for the 52 week period then ended; (cid:129) the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; (cid:129) the part of the Remuneration Report described as having been audited has been properly prepared in accordance with the Companies Act 1985; and (cid:129) the information given in the Directors’ Report is consistent with the group financial statements. Separate opinion in relation to IFRSs As explained in note 2 to the group financial statements, the group in addition to complying with its legal obligation to comply with IFRSs as adopted by the European Union, has also complied with the IFRSs as issued by the International Accounting Standards Board. In our opinion the group financial statements give a true and fair view, in accordance with IFRSs, of the state of the group’s affairs as at 27 September 2008 and of its profit for the 52 week period then ended. Deloitte & Touche LLP Chartered Accountants and Registered Auditors Manchester, United Kingdom 24 November 2008 34 Topps Tiles Plc Annual Report & Financial Statements 2008 Consolidated income statement For the 52 weeks ended 27 September 2008 Group revenue Cost of sales Gross profit Operating expenses employee profit sharing distribution costs other operating expenses administration expenses sales and marketing Group operating profit before impairment of goodwill Impairment of goodwill Group profit from operations Other gains Investment revenue Finance costs Profit before taxation Taxation Notes 3&4 2008 £’000 2007 £’000 208,084 (79,537) 207,898 (77,344) 128,547 130,554 (6,514) (66,142) (7,024) (8,082) (6,165) 35,805 (1,185) 34,620 877 992 (8,766) (7,943) (61,504) (5,093) (7,027) (4,645) 44,342 – 44,342 270 1,012 (7,791) 27,723 (11,370) 37,833 (12,093) 12 4 7 8 8 5 9 Profit after taxation for the period attributable to equity holders of the parent Company 16,353 25,740 Earnings per ordinary share – basic – diluted All of the above results relate to continuing operations. Consolidated statement of recognised income and expense For the 52 weeks ended 27 September 2008 Exchange differences on retranslation of overseas operation Tax effect of share options exercised Deferred tax on share options taken directly to equity Profit for the period Total recognised income and expense for the period attributable to equity holders of the parent Company 11 20 9.56p 9.55p 15.09p 15.02p 2008 £’000 248 – (305) 16,353 2007 £’000 – 195 (157) 25,740 16,296 25,778 Consolidated balance sheet As at 27 September 2008 Non-current assets Goodwill Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Derivative financial instruments Bank loans Current tax liabilities Net current assets Non-current liabilities Bank loans Deferred tax liabilities Total liabilities Net liabilities Equity Share capital Share premium Merger reserve Share-based payment reserve Capital redemption reserve Foreign exchange reserve Retained earnings Total deficit Topps Tiles Plc Annual Report & Financial Statements 2008 35 Notes 2008 £’000 2007 £’000 12 13 15 16 17 19 18 245 40,386 40,631 30,496 7,909 13,977 52,382 93,013 1,430 41,851 43,281 31,067 7,002 15,781 53,850 97,131 (29,961) (2,110) (7,250) (8,878) (31,016) (481) (4,907) (8,752) (48,199) (45,156) 4,183 8,694 18 20 (97,963) (1,964) (105,737) (1,062) (148,126) (151,955) (55,113) (54,824) 21 22 23 24 25 26 27 5,703 1,001 240 322 20,359 248 (82,986) 5,686 681 240 222 20,359 – (82,012) (55,113) (54,824) The accompanying notes are an integral part of these financial statements. The financial statements on pages 34 to 57 were approved by the Board of Directors on 24 November 2008 and signed on its behalf by: M. Williams Director R. Parker Director 36 Topps Tiles Plc Annual Report & Financial Statements 2008 Consolidated cash flow statement For the 52 weeks ended 27 September 2008 Cash flow from operating activities Group profit from operations Adjustments for: Depreciation of property, plant and equipment Impairment of goodwill Share option charge Loss on sale of fixed assets Increase in receivables Decrease/(increase) in inventories (Decrease)/increase in payables Cash generated by operations Interest paid Payment of loan arrangement fee Taxation paid Net cash from operating activities Cash flows from investing activities Acquisition of joint venture Interest received Purchase of property, plant and equipment Proceeds on sale of property, plant and equipment Net cash used in investment activities Cash flows from financing activities Proceeds from issue of share capital Repayment of loans Dividends paid Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes Cash and cash equivalents at end of period 2008 £’000 2007 £’000 34,620 44,342 4,792 1,185 100 513 (833) 877 (2,557) 38,697 (6,154) (530) (10,650) 4,424 – 56 772 (1,144) (2,624) 4,000 49,826 (7,805) – (10,980) 21,363 31,041 – 960 (6,622) 4,004 (1,658) 337 (5,000) (17,014) (21,677) (1,972) 15,781 168 (1,286) 1,012 (9,674) 1,166 (8,782) 158 (5,000) (18,169) (23,011) (752) 16,533 – 13,977 15,781 Topps Tiles Plc Annual Report & Financial Statements 2008 37 Notes to the financial statements For the 52 week period ending 27 September 2008 1 General information Topps Tiles Plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on page 22. The nature of the Group’s operations and its principal activity is set out in the Directors’ Report on page 24. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 2j. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective: Standards and interpretations in issue but not yet effective IFRS 8 IAS 23 IFRS 3 IAS 27 IFRS 2 IFRIC 12 IFRIC 13 IFRIC 14 IFRIC 15 IFRIC 16 Operating Segments Amendment “Borrowing Costs” Revised “Business Combinations” Amendment “Consolidated and Separate Financial Statements” Amendment to “Share-Based Payment” Service Concession Arrangements Customer Loyalty Programmes IAS 19 – The Limit on a Deferred Benefit Asset, Minimum Funding Requirements and their Interaction Agreements for the Construction of Real Estate Hedges of a Net Investment in a Foreign Operation The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group. Adoption of new and revised standards In the current year, the Group has adopted IFRS 7 Financial instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007 and the related amendment to IAS 1: Presentation of Financial Statements. The impact of the adoption of IFRS 7 and changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group’s financial instruments and management of capital. (See notes 2o, 15, 17 and 19). 2 Accounting policies a) Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRS’s adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies adopted are set out below. b) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the Saturday nearest to the 30 September each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. All intra-group transactions, balances, income and expenses are eliminated on consolidation. c) Financial period The accounting period ends on the Saturday which falls closest to 30 September, resulting in financial periods of either 52 or 53 weeks. Throughout the financial statements, Directors’ Report and financial review, references to 2008 mean at 27 September 2008 or the 52 weeks then ended; references to 2007 mean at 29 September 2007 or the 52 weeks then ended. d) Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal Groups) that are classified as held for sale in accordance with IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. 38 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 2 Accounting policies (continued) e) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill of £15,080,000 written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. f) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Sales of goods are recognised when title has passed. Sales returns are provided for based on past experience and deducted from income. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. g) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets, less estimated residual value, over their estimated useful lives, on the following bases: Freehold buildings 2% per annum on cost on a straight-line basis Short leasehold land and buildings over the period of the lease, up to 25 years on a straight-line basis Fixtures and fittings Motor vehicles Freehold land is not depreciated. over 10 years or at 25% per annum on reducing balance basis as appropriate 25% per annum on reducing balance Residual value is calculated on prices prevailing at the date of acquisition. h) Inventories Inventories are stated at the lower of cost and net realisable value and relate solely to finished goods for resale. Cost comprises purchase price of materials and an attributable proportion of distribution overheads based on normal levels of activity and is valued at standard cost. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and costs to be incurred – marketing, selling and distribution. Provision is made for those items of inventory where the net realisable value is estimated to be lower than cost. i) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Topps Tiles Plc Annual Report & Financial Statements 2008 39 2 Accounting policies (continued) i) Taxation (continued) Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, and interests in jointly controlled entities, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. j) Foreign currency Transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of transactions. At each period end, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operation are translated at exchange rates prevailing at period end dates. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the dates of transactions are used. Exchange differences arising are classified as equity and transferred to the Group’s translation reserve. Such differences are recognised as income or expense in the period in which the operation is disposed of. k) Leases Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term. l) Investments Fixed asset investments are shown at cost less provision for impairment. m) Retirement benefit costs For defined contribution schemes, the amount charged to the income statement in respect of pension costs is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet. n) Finance costs Finance costs which are directly attributable to the construction of tangible fixed assets are capitalised as part of the cost of those assets. The commencement of capitalisation begins when both finance costs and expenditures for the asset are being incurred and activities that are necessary to get the asset ready for use are in progress. Capitalisation ceases when substantially all the activities that are necessary to get the asset ready for use are complete. All other finance costs of debt are recognised in the income statement over the term of the debt at a constant rate on the carrying amount o) Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are classified into the following specified categories: financial assets “at fair value through profit or loss” (FVTPL, “held-to-maturity” investments, “available-for-sale” (AFS) financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at FVTPL Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL. The Group has no designated FVTPL financial assets. 40 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 2 Accounting policies (continued) o) Financial instruments (continued) A financial asset is classified as held for trading if: • it has been acquired principally for the purpose of selling in the near future or • it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or • it is a derivative that is not designated and effective as a hedging instrument. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in note 2t. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 94 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash within three months and are subject to an insignificant risk of changes in value. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities, Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. The Group does not have any designated FVTPL liabilities. A financial liability is classified as held for trading if: • it has been incurred principally for the purpose of disposal in the near future; or • it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit taking; or • it is a derivative that is not designated and effective as a hedging instrument. Topps Tiles Plc Annual Report & Financial Statements 2008 41 2 Accounting policies (continued) o) Financial instruments (continued) Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in note 2t. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. Derivative financial instruments The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign exchange forward contracts and interest rate swap contracts to manage these exposures. The Group does not hold or issue derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, on the use of financial derivatives. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss. p) Share-based payments The Group has applied the requirements of IFRS 2 Share-Based Payments. In accordance with the transitional provisions, IFRS 2 will be applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 October 2005. The Group issues equity settled share-based payments to certain employees. Equity settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the share-based payment is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of the Black Scholes model. The Group provides employees with the ability to purchase the Group’s ordinary shares at 80% of the current market value through the operation of its share save scheme. The Group records an expense, based on its estimate of the 20% discount related to shares expected to vest on a straight-line basis over the vesting period. q) Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. r) Profit from operations Profit from operations is stated after charging restructuring costs but before property disposals, investment income and finance costs. s) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. 42 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 2 Accounting policies (continued) t) Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, which are described above, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in financial statements. Management consider the detailed criteria for the recognition of revenue from the sale of goods set out in IAS 18 Revenue and, in particular, whether the Group has transferred to the buyer the significant risks and rewards of ownership of the goods and only recognise revenue where this is the case. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and to discount by a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the balance sheet date is £0.2 million. During the period the Group has incurred an impairment charge of £1.2 million. (Details of the impairment charge calculation are provided in note 12.) Fair value of derivatives and other financial instruments As described above the Directors use their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an active market. Valuation techniques commonly used by market practitioners are applied, such as discounted cash flows and assumptions regarding market volatility. Tax The Directors are aware of the material impact that corporation tax has on the Group accounts and therefore they ensure that the Group continues to provide at a sufficient level for both current and deferred tax liabilities. 3 Revenue An analysis for the 52 week period of revenue is as follows: Non-trade customers Trade customers Revenue from the sale of goods Interest received on interest rate swaps Interest receivable Total revenue 2008 £’000 184,107 23,977 2007 £’000 182,830 25,068 208,084 207,898 347 645 165 847 209,076 208,910 Interest receivable represents gains on loans and receivables. There are no other gains recognised in respect of loans and receivables. Topps Tiles Plc Annual Report & Financial Statements 2008 43 4 Business segments The Group is currently organised into three retail operating divisions; Topps Tiles (Topps) and Tile Clearing House (TCH), both based in the UK, and Topps Floorstore (Holland). These divisions are the basis on which the Group reports its primary segment information. Segmental revenue and profit before taxation by business activity were as follows: Revenue Operating profit before central costs Head office/distribution centre costs Group profit from operations Other gains Finance costs less investment revenue Profit before taxation Other information Capital additions Goodwill impairment Depreciation Balance sheet Segment assets Unallocated corporate assets Consolidated total assets Segment liabilities Unallocated corporate liabilities Consolidated total liabilities Revenue Operating profit before central costs Head office/distribution centre costs Group profit from operations Other gains Finance costs less investment revenue Profit before taxation Topps £’000 175,312 34,353 TCH £’000 23,977 3,112 Segmental information for the 52 weeks to 27 September 2008 Topps Floorstore £’000 Consolidated £’000 8,795 208,084 (758) 36,707 (2,087) 34,620 877 (7,774) 27,723 Topps £’000 4,260 – 2,922 75,283 – 75,283 (16,897) – (16,897) Topps Floorstore £’000 Head office/ distribution centre £’000 Consolidated £’000 401 – 353 4,644 – 4,644 1,310 1,185 1,077 – 4,252 4,252 6,622 1,185 4,792 88,761 4,252 93,013 (3,749) – – (122,195) (25,931) (122,195) (3,749) (122,195) (148,126) TCH £’000 651 – 440 8,833 – 8,833 (5,285) – (5,285) Topps £’000 175,380 40,448 TCH £’000 25,068 5,273 Segmental information for the 52 weeks to 29 September 2007 Topps Floorstore £’000 Consolidated £’000 7,450 207,898 314 46,035 (1,693) 44,342 270 (6,779) 37,833 44 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 4 Business segments (continued) Other information Capital additions Depreciation Balance sheet Segment assets Unallocated corporate assets Consolidated total assets Segment liabilities Unallocated corporate liabilities Consolidated total liabilities Topps £’000 4,733 2,683 72,626 – 72,626 (17,272) – (17,272) TCH £’000 1,087 451 10,063 – 10,063 (1,578) – (1,578) Topps Floorstore £’000 881 271 5,044 – 5,044 (3,712) – Head office/ distribution centre £’000 2,973 1,019 – 9,398 9,398 Consolidated £’000 9,674 4,424 87,733 9,398 97,131 – (129,393) (22,562) (129,393) (3,712) (129,393) (151,955) 5 Profit before taxation Profit before taxation for the period has been arrived at after charging/(crediting): Depreciation of property, plant and equipment Staff costs (see note 6) Impairment of goodwill Operating lease rentals Cost of inventories recognised as expense Net foreign exchange gains Analysis of auditors’ remuneration is provided below: Audit services: statutory audit of the Company’s annual accounts audit of Company’s subsidiaries pursuant to legislation Total audit fees Tax services: compliance services advisory services Total non-audit fees 2008 £’000 4,792 42,574 1,185 19,861 77,735 (32) 2007 £’000 4,424 40,156 – 16,725 75,331 (270) 2008 £’000 32 105 137 59 2 61 198 2007 £’000 15 110 125 57 73 130 255 A description of the work of the Audit Committee is set out on page 28 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors. Topps Tiles Plc Annual Report & Financial Statements 2008 45 6 Staff costs The average monthly number of employees (including Executive Directors) was: Selling Administration Their aggregate remuneration comprised: Wages and salaries (including LTIP) Social security costs Other pension costs (see note 28b) 2008 Number employed 1,553 190 1,743 2008 £’000 38,713 3,666 195 42,574 2007 Number employed 1,541 181 1,722 2007 £’000 36,524 3,397 235 40,156 Details of Directors’ emoluments are disclosed on page 31. Employee profit sharing of £6.5 million (2007: £7.9 million) is included in the above and comprises sales commission and bonuses. 7 Other gains and losses Other gains and losses in 2008 relates to the sale of four freehold properties and in 2007 to the sale of a long leasehold property. 8 Investment revenue and finance costs Bank interest receivable and similar income Finance costs Interest on bank loans and overdrafts Fair value loss on interest rate swaps Interest costs capitalised Finance costs 2008 £’000 992 (7,302) (1,464) – (8,766) 2007 £’000 1,012 (7,325) (480) 14 (7,791) No finance costs are appropriate to be capitalised in the period. In the prior period finance costs in respect of development sites were capitalised based on a capitalisation rate of 5.1% last year, which was the weighted average of rates applicable to the Group’s general borrowings outstanding during the period. Interest on bank loans and overdrafts represent gains and losses on financial liabilities measured at amortised cost. There are no other gains or losses recognised in respect of financial liabilities measured at amortised cost. Total losses from the movement in fair value on held for trading on assets and liabilities (derivative instruments) were £1,464,000 (2007: £480,000). Included within bank interest and similar income is £347,000 (2007: £165,000) being interest received on interest rate swaps. 9 Tax Current tax – charge for the year Current tax – adjustment in respect of previous periods Deferred tax – charge/(credit) for year (note 20) Deferred tax – adjustment in respect of previous periods (note 20) 2008 £’000 9,711 1,209 434 16 11,370 2007 £’000 11,975 446 (334) 6 12,093 Corporation tax in the UK is calculated at 29% (2007: 30%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. 46 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 9 Tax (continued) The charge for the year can be reconciled to the profit per the income statement as follows: Profit before taxation Tax at the UK corporation tax rate of 29% (2007: 30%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of IBA release Tax effect of change in tax rate Tax effect of profit in excess of chargeable gains on sale of freehold property Tax effect of different tax rates on overseas earnings Tax effect of tangible fixed assets which do not qualify for capital allowances Tax effect of adjustment in respect of prior periods Tax expense for the period 10 Dividends Amounts recognised as distributions to equity holders in the period: Final dividend paid for the 52 weeks ended 29 September 2007 of 6.95p (2006: 6.90p) per ordinary share Interim dividend paid for the 26 weeks ended 29 March 2008 of 3.00p (2007: 3.75p) Under provision in respect of the prior period final dividend Proposed final dividend for the 52 weeks ended 27 September 2008 of 0.00p (2007: 6.95p) per share 2008 £’000 27,723 8,040 604 1,129 – (36) 29 379 1,225 11,370 2007 £’000 37,833 11,350 90 – (119) (6) – 326 452 12,093 2008 £’000 2007 £’000 11,860 5,117 45 17,022 11,767 6,396 6 18,169 – 11,860 11 Earnings per share The calculation of earnings per share is based on the earnings for the financial period attributable to equity shareholders and the weighted average number of ordinary shares as follows: Weighted average number of shares For basic earnings per share Weighted average number of shares under option For diluted earnings per share 12 Goodwill Cost at 1 October 2006 Acquisition of joint venture Cost and carrying value at 30 September 2007 Impairment of goodwill in the period Cost and carrying value at 27 September 2008 2008 Number of shares 2007 Number of shares 171,008,982 170,536,121 823,079 175,931 171,184,913 171,359,200 £’000 551 879 1,430 (1,185) 245 The balance of goodwill remaining is the carrying value that arose on the acquisition of Surface Coatings Ltd in 1998. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. Topps Tiles Plc Annual Report & Financial Statements 2008 47 12 Goodwill (continued) The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates based on the Group’s weighted average cost of capital. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Discounted cash flows are calculated using a post tax rate of 5.8% (2007: 7.5%). The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years based on an estimated growth rate of 2%. This rate does not exceed the average long term growth rate for the relevant markets. As a result of the annual test of impairment of goodwill, the Directors have decided that an impairment of the goodwill relating to the Dutch operation is prudent at this stage. The review of the business valuation has taken into account the operating loss in the period of £758,000 and local managements internal budgets and expectations for the next five years. As a result of this, it is considered that a business valuation can support the carrying value of the current tangible fixed assets, but not the goodwill that arose on acquisition. Therefore the Group has impaired the full carrying value of goodwill relating to the acquisition of Topps Holding BV. 13 Property, plant and equipment Land and buildings Cost At 1 October 2006 Additions Acquisition of joint venture Disposals At 30 September 2007 Foreign exchange movement Additions Disposals At 27 September 2008 Accumulated depreciation and impairment At 1 October 2006 Acquisition of joint venture Charge for the period Eliminated on disposals At 30 September 2007 Foreign exchange movement Charge for the period Eliminated on disposals At 27 September 2008 Carrying amount At 27 September 2008 At 29 September 2007 Freehold £’000 16,482 2,040 – – 18,522 142 1,231 (3,247) Short leasehold £’000 2,397 115 – (746) 1,766 16 60 – Fixtures and fittings £’000 32,882 7,288 1,879 (2,390) 39,659 373 5,311 (1,740) 16,648 1,842 43,603 588 – 268 – 856 9 281 (124) 902 – 130 (28) 1,004 10 131 – 13,482 649 3,954 (1,591) 16,494 169 4,307 (1,233) Motor vehicles £’000 111 221 156 (146) 342 3 20 (22) 343 43 30 72 (61) 84 1 73 (12) Total £’000 51,872 9,664 2,035 (3,282) 60,289 534 6,622 (5,009) 62,436 15,015 679 4,424 (1,680) 18,438 189 4,792 (1,369) 1,022 1,145 19,737 146 22,050 15,626 17,666 697 762 23,866 23,165 197 258 40,386 41,851 Freehold land and buildings include £4,104,000 of land (2007: £4,104,000) on which no depreciation has been charged in the current period. Cumulative finance costs capitalised included in the cost of tangible fixed assets amount to £nil (2007: £422,000) see note 8 for further details. The Group has no contractual commitments for the acquisition of property, plant and equipment (2007: £nil). 48 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 14 Subsidiaries A list of the significant subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 3 to the Company’s separate financial statements. 15 Trade and other receivables Amounts falling due within one year: Amounts receivable for the sale of goods Other debtors and prepayments – Rent and rates – Derivative financial instruments – Other 2008 £’000 493 4,693 165 2,558 7,909 2007 £’000 357 4,277 – 2,368 7,002 The Directors consider that the carrying amount of trade and other receivables at 27 September 2008 and 29 September 2007 approximates to their fair value on the basis of discounted cash flow analysis. Credit risk The Group’s principal financial assets are bank balances and cash and trade receivables. The Group considers that it has no significant concentration of credit risk. The majority of sales in the business are cash based sales in the stores. Total trade receivables (net of allowances) held by the Group at 27 September 2008 amounted to £0.5 million (2007: £0.4 million). These amounts mainly relate to insurance generated sales and sundry trade accounts. In relation to these sales, the average credit period taken is 94 days and no interest is charged on the receivables. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience. Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed periodically. Of the trade receivables balance at the end of the year, £137,000 (2007: £46,000) is due from Independent Inspections, the Group’s largest customer. There are no other customers who represent more than 5% of the total balance of trade receivables. Included in the Group’s trade receivable balance are debtors with a carrying amount of £228,000 (2007: £92,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 200 days (2007: 340 days), however this ageing is distorted by one account of £6,000 (2007: two accounts totalling £6,300) which is overdue by 1,092 days (2007: 834 days). Ageing of past due but not impaired receivables 60–120 days 2008 £’000 228 2007 £’000 92 The allowance for doubtful debts was £5,000 at the beginning and end of the period (2007: £5,000). Given the minimal receivable balance, the Directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. The allowance for doubtful debts includes no individually impaired trade receivables (2007: £nil) which have been placed under liquidation. 16 Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short-term bank deposits (with associated right of set off) with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. A breakdown of significant bank and cash balances by currency is as follows: Sterling US dollar Euro Total cash and cash equivalents 2008 £’000 13,906 316 (245) 13,977 2007 £’000 18,386 (462) (2,143) 15,781 Topps Tiles Plc Annual Report & Financial Statements 2008 49 17 Other financial liabilities Trade and other payables Amounts falling due within one year Trade payables Other payables Accruals and deferred income 2008 £’000 2007 £’000 15,373 7,339 7,249 29,961 19,702 4,743 6,571 31,016 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 48 days (2007: 65 days). No interest is charged on these payables. The Directors consider that the carrying amount of trade payables at 27 September 2008 and 29 September 2007 approximates to their fair value on the basis of discounted cash flow analysis. 18 Bank loans Bank loans (all sterling) The borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth year Less: total unamortised issue costs Less: amount due for settlement within 12 months (shown under current liabilities) Issue costs to be amortised within 12 months 2008 £’000 2007 £’000 105,213 110,644 7,500 7,500 91,000 106,000 (787) 105,213 (7,500) 250 5,000 5,000 101,000 111,000 (356) 110,644 (5,000) 93 Amount due for settlement after 12 months 97,963 105,737 The weighted average interest rates paid were as follows: Loans 2008 % 2007 % 6.4658 6.1286 The Group borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The Group has one principal bank loan of £116 million taken out on 1 August 2006. During the period the banking facilities were renegotiated with a relaxation of both covenants associated with the debt. Repayments commenced on 28 July 2007 and will continue for an extended period until 28 January 2012. There was a one-off arrangement fee of £0.5 million which is being amortised over the remaining period of the facility. The loan is secured by upstream guarantees provided by certain subsidiaries. The LIBOR margin shall be adjusted between 1.5% and 2.75% dependent on the Group’s level of compliance with a net debt to EBITDA covenant. At 27 September 2008, the Group had available £5 million (2007: £5 million) of undrawn committed banking facilities. 50 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 19 Financial instruments Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents disclosed in note 16 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 21 to 27. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. Categories of financial instruments Financial assets Held for trading Loans and receivables (including cash and cash equivalents) Financial liabilities Held for trading Amortised cost Carrying value and fair value 2007 £’000 2008 £’000 165 21,721 – 22,783 2,110 135,174 481 141,660 The Group considers itself to be exposed to risks on financial instruments, including market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk. The Group seeks to minimise the effects of these risks by using derivative financial instruments to hedge these risk exposures economically. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Market risks The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including: • forward foreign exchange contracts to hedge the exchange rate risk arising on the import of goods from South America and China; and • interest rate swaps and collars to mitigate the risk of movements in interest rates. Topps Tiles Plc Annual Report & Financial Statements 2008 51 19 Financial instruments (continued) Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: Euro US dollar 2008 £’000 1,471 317 Assets 2007 £’000 552 – 2008 £’000 5,278 323 Liabilities 2007 £’000 4,889 1,091 Foreign currency sensitivity analysis The Group is mainly exposed to the currency of the Netherlands (Euro currency) and the currency of China and Brazil (US dollar currency) and stock purchases from various European countries (Euro). The following table details the Group’s sensitivity to a 10% increase and decrease in the Sterling against the relevant foreign currencies. 10% represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit and other equity where Sterling strengthens 10% against the relevant currency. For a 10% weakening of Sterling against the relevant currency, there would be an equal and opposite impact on the profit and other equity and the balances below would be negative. Profit or loss movement on a 10% strengthening in Sterling against the Euro Profit or loss movement on a 10% strengthening in Sterling against the US dollar 2008 £’000 479 1 2007 £’000 642 213 Currency derivatives The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group uses foreign currency forward contracts in the management of its exchange rate exposures. The contracts are denominated in US dollars and Euros. At the balance sheet date, the total notional amount of outstanding forward foreign exchange contracts that the Group has committed to are as below: Forward foreign exchange contracts 2008 £’000 400 2007 £’000 7,800 These arrangements are designed to address significant exchange exposures for the first half of 2008 and are renewed on a revolving basis as required. At 27 September 2008 the fair value of the Group’s currency derivatives is a £62,000 liability (2007: a liability of £251,000). These amounts are based on market value of equivalent instruments at the balance sheet date. Gains of £189,000 are included in operating profit in the year (2007: losses of £251,000). Interest rate risk management The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, by the use of interest rate swap contracts and collars. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. 52 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 19 Financial instruments (continued) Interest rate sensitivity analysis The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at balance sheet date was outstanding for the whole year. A 50 basis points increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates. If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit would be impacted as follows: Profit or (loss) 50 basis points increase in interest rates 2007 £’000 2008 £’000 50 basis points decrease in interest rates 2007 £’000 2008 £’000 (558) 689 (3,208) (1,808) The Group’s sensitivity to interest rates has decreased during the current period mainly due to the reduction in variable rate debt instruments and the increase in interest rate swaps. Interest rate swaps The Group uses interest rate swaps to manage its exposure to interest rate movements on its bank borrowings. The Group’s interest rate swaps comprise: • five year interest rate cap with a notional value of £20 million with interest capped at 6%; • five year interest rate swap with a notional value of £20 million paying interest at a fixed rate of 5.63%; • ten year cancellable collar with a notional value of £60 million with a cap of 5.6% and a floor of 4.49%, the interest rate within this range is LIBOR less 0.4%. Where LIBOR falls below the floor the interest rate resets to a fixed level of 5.55%. The fair value liability of the swaps entered into at 27 September 2008 is estimated at £1,945,000 (2007: £481,000). Amounts of £1,464,000 have been charged to finance costs in the year (2007: £481,000). Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Management have considered the counterparty risk associated with the cash and derivative balances and do not consider there to be a material risk. The Group has a policy of only dealing with creditworthy counterparties. The Group’s exposure to its counterparties is reviewed periodically. Trade receivables are minimal consisting of a number of insurance companies and sundry trade accounts, further information is provided in note 15. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 18 is a description of additional undrawn facilities that the Group has at its disposal to reduce liquidity risk further. Topps Tiles Plc Annual Report & Financial Statements 2008 53 19 Financial instruments (continued) Liquidity and interest risk tables The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows (and on the assumption that the variable interest rate remains constant at the latest fixing level of 7.4536%) of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. 2008 Non-interest bearing Variable interest rate instruments 2007 Non-interest bearing Variable interest rate instruments Less than 1 month £’000 29,961 – Less than 1 month £’000 31,016 – 1–3 months £’000 – 3,190 1–3 months £’000 – 1,900 3 months to 1 year £’000 – 12,553 3 months to 1 year £’000 – 10,242 1–5 years £’000 – 114,863 1–5 years £’000 – 129,412 5+ years £’000 – – 5+ years £’000 – – Total £’000 29,961 130,606 Total £’000 31,016 141,554 The Group has access to financing facilities, of which the total unused amount is £5 million at the balance sheet date (2007: £5 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. The Group expects to continue to reduce its debt to equity ratio, which is currently 1.92. The following table details the Group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/(outflows) on the derivative instrument that settle on a net basis and the undiscounted gross inflows and (outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest and foreign currency rates as illustrated by the yield curves existing at the reporting date. 2008 Interest rate swaps payments Foreign exchange forward contracts payments Interest rate swaps receipts Foreign exchange forward contracts receipts 2007 Interest rate swaps payments Foreign exchange forward contracts payments Interest rate swaps receipts Foreign exchange forward contracts receipts Less than 1 month £’000 1–3 months £’000 3 months to 1 year £’000 1-5 years £’000 5+ years £’000 (679) (2,462) – – 58 – 1–3 months £’000 – (1,200) 171 – (400) 18 338 Less than 1 month £’000 – (600) 29 594 – – – 3 months to 1 year £’000 – (5,400) 144 – – – 1–5 years £’000 (3,141) (600) 22 590 1,157 5,208 – – – 5+ years £’000 – – – – Total £’000 (3,141) (400) 77 338 Total £’000 (3,141) (7,800) 366 7,549 54 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 19 Financial instruments (continued) Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts. • Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. • Interest rate collars are measured using applicable yield curves derived from quoted interest rates and market volatilities. 20 Deferred tax The following are the major deferred tax liabilities/(assets) recognised by the Group and movements thereon during the current and prior reporting period. Accelerated tax depreciation £’000 Tax losses £’000 Share-based payments £’000 Exchange rate differences £’000 Interest rate hedging £’000 At 2 October 2006 Charged/(credit) to income Share options exercised in the period Credit to equity At 30 September 2007 Charge/(credit) to income Share options exercised in the period Charge to equity 2,088 (143) – – 1,945 1,109 – – – – – – (215) – – At 27 September 2008 3,054 (215) (696) (18) 195 (38) (557) (28) 147 305 (133) (17) (53) – – (70) 74 – – 4 21 Called-up share capital Rent free £’000 (142) 21 – – (121) (80) – – Total £’000 1,233 (328) 195 (38) 1,062 450 147 305 – (135) – – (135) (410) – – (545) (201) 1,964 Authorised 240,000,000 (2007: 240,000,000) ordinary shares of 3.33p each (2007: 3.33p) Authorised 37,000,000 (2007: 37,000,000) redeemable B shares of £0.54 each Authorised 124,890,948 (2007: 124,890,948) irredeemable C shares of £0.001 each Issued and fully-paid 171,092,506 (2007: 170,579,936) ordinary shares of 3.33p each (2007: 3.33p) Total 2008 £’000 8,000 19,980 125 28,105 5,703 5,703 2007 £’000 8,000 19,980 125 28,105 5,686 5,686 During the period the Group allotted 512,570 (2007: 272,096) ordinary shares with a nominal value of £17,000 (2007: £8,000) under share option schemes for an aggregate cash consideration of £337,000 (2007: £158,000). Topps Tiles Plc Annual Report & Financial Statements 2008 55 2008 £’000 681 320 1,001 2008 £’000 240 – 240 2007 £’000 531 150 681 2007 £’000 (399) 639 240 22 Share premium Balance at start of period Premium on issue of new shares Balance at end of period 23 Merger reserve Balance at start of period Premium on issue of new shares Balance at end of period 250,000 ordinary shares with a market value of £647,500 were issued in 2007 as consideration for the acquisition of Topps Tiles Holdings BV leading to an increase in the merger reserve of £639,000. 24 Share-based payment reserve At start of period Share option charge At end of period 25 Capital redemption reserve At start of period Cancellation of shares At end of period 26 Foreign exchange reserve At start of period Exchange differences on consolidation of overseas operations At end of period 27 Retained earnings At 1 October 2006 Dividends paid Deferred tax on sharesave scheme taken directly to equity Tax effect of share options exercised Net profit for period At 30 September 2007 Dividends paid Deferred tax on sharesave scheme taken directly to equity Net profit for the period At 27 September 2008 2008 £’000 222 100 322 2008 £’000 20,359 – 20,359 2008 £’000 – 248 248 2007 £’000 166 56 222 2007 £’000 20,254 105 20,359 2007 £’000 – – – £’000 (89,621) (18,169) (157) 195 25,740 (82,012) (17,022) (305) 16,353 (82,986) 56 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the financial statements (continued) For the 52 week period ending 27 September 2008 28 Financial commitments a) Capital commitments At the end of the period there were no capital commitments contracted (2007: £nil). b) Pension arrangements The Group operates separate defined contribution pension schemes for employees. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to the funds and amounted to £195,000 (2007: £235,000). c) Lease commitments The Group has entered into non cancellable operating leases in respect of motor vehicles, equipment and land and buildings. Minimum lease payments under operating leases recognised an expense for the period were £19,861,000 which includes property service charges of £593,000 (2007: £16,725,000 including property service charges of £470,000). At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: – within one year – within two to five years – after five years Land and buildings £’000 17,953 60,203 66,116 144,272 2008 Other £’000 1,021 1,519 104 2,644 Land and buildings £’000 16,642 56,421 64,131 137,194 2007 Other £’000 858 1,435 168 2,461 Operating lease payments primarily represent rentals payable by the Group for certain of its office and store properties. Leases are negotiated for an average term of 15 years and rentals are fixed for an average of five years (2007: same). 29 Share-based payments The Group operates two share option schemes in relation to Group employees. Equity settled share option scheme Options are exercisable at the middle market closing price for the working day prior to the date of grant and are exercisable three years from the date of grant if the employee is still employed by the Group at that date. Details of the share options outstanding during the period are as follows: Date of grant 26 January 2001 12 February 2002 Option price (p) 0.54p 0.54p Movements in share options are summarised as follows: Exercisable Number of options outstanding 2007 period 2008 7 years 7 years 108,520 40,779 345,345 47,445 149,299 392,790 Outstanding at beginning of period Exercised during the period Expired during the period Outstanding at end of period Exercisable at end of period 2008 Weighted average exercise price £ 0.54 0.54 – 0.54 0.54 Number of share options 392,790 (243,491) – 149,299 149,299 Number of share options £ 422,135 (28,345) (1,000) 392,790 392,790 2007 Weighted average exercise price £ 0.54 0.54 0.54 0.54 0.54 The weighted average share price at the date of exercise for options exercised in the period was 133.88p (2007: 259.10p). The options outstanding at 27 September 2008 had a weighted averaged exercise price of 54p (2007: 54p) and a weighted average remaining contractual life of three years (2007: four years). Topps Tiles Plc Annual Report & Financial Statements 2008 57 29 Share-based payments (continued) Other share-based payment plans The employee share purchase plans are open to almost all employees and provide for a purchase price equal to the daily average market price on the date of grant, less 20%. The shares can be purchased during a two-week period each year. The shares so purchased are generally placed in the employee share savings plan for a three or five-year period. Movements in share-based payment plan options are summarised as follows: Outstanding at beginning of period Issued during the period Expired during the period Exercised during the period Outstanding at end of period Exercisable at end of period Number of share options 913,701 376,805 (303,792) (269,079) 717,635 717,635 2008 Weighted average exercise price 129p 131p 129p 76p 135p 135p Number of share options 1,009,538 198,211 (72,768) (221,280) 913,701 913,701 The Group recognised a total expenses of £100,000 (2007: £56,000) relating to share-based payments. The inputs to the Black-Scholes Model are as follows: – pence Weighted average share price Weighted average exercise price – pence Expected volatility Expected life Risk – free rate of interest Dividend yield – % – years – % – % 2008 140.0 112.0 88.2 3 or 5 4.5 4.6 2007 Weighted average exercise price 96p 217p 96p 60p 129p 129p 2007 144.8 115.8 27.8 3 or 5 4.3 4.4 Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected risk used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces. 30 Related parties S.K.M. Williams has the non-statutory role of President, advising on property matters and is a related party by virtue of his 10.4% shareholding (17,718,950 ordinary shares) in the Group’s issued share capital. At 27 September 2008 S.K.M. Williams was the landlord of two properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £66,000 (2007: £66,000) per annum. No amounts were outstanding at 27 September 2008 (2007: £nil). The lease agreements on both properties are operated on commercial arm’s-length terms. His salary for the year in his role as President was £40,000 (2007: £96,000). Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The remuneration of the Board of Directors, who are considered key management personnel of the Group was £1.1 million (2007: £1.9 million). Further information about the remuneration of the individual directors is provided in the Remuneration Report on pages 29 to 31. 58 Topps Tiles Plc Annual Report & Financial Statements 2008 Independent auditors’ report – company financial statements To the members of Topps Tiles Plc We have audited the parent company financial statements of Topps Tiles Plc for the period ended 27 September 2008 which comprise the Balance sheet and the related notes 1 to 7. These parent company financial statements have been prepared under the accounting policies set out therein. We have reported separately on the group financial statements of Topps Tiles Plc for the period ended 27 September 2008 and on the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the parent company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the parent company financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the Directors’ Report is consistent with the parent company financial statements. The information given in the Directors’ Report includes that specific information presented in the Business Review that is cross referred from the Business Review section of the Directors’ Report. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read the other information contained in the Annual Report and consider whether it is consistent with the audited parent company financial statements. The other information comprises only the Directors’ Report, the Chairman’s statement, the Chief Executive’s statement and the Business Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any further information outside the Annual Report. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent company financial statements. Opinion In our opinion: (cid:129) the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 27 September 2008; (cid:129) the parent company financial statements have been properly prepared in accordance with the Companies Act 1985; and (cid:129) the information given in the Directors’ Report is consistent with the parent company financial statements. Deloitte & Touche LLP Chartered Accountants and Registered Auditors Manchester, United Kingdom 24 November 2008 Company balance sheet As at 27 September 2008 Fixed assets Investments Current assets Debtors within one year Debtors after one year Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets Net assets Capital and reserves Called-up share capital Share premium Share-based payment reserve Merger reserve Capital redemption reserve Other reserve Profit and loss account Equity shareholders’ funds Topps Tiles Plc Annual Report & Financial Statements 2008 59 Notes 3 4 4 5 6 7 7 7 7 7 7 2008 £’000 4,497 4,497 2007 £’000 4,397 4,397 26 221,200 18,243 – 221,740 25,101 239,469 (2,286) 246,841 (1,023) 237,183 245,818 241,680 250,215 5,703 1,001 322 639 20,359 6,200 207,456 5,686 681 222 639 20,359 6,200 216,428 241,680 250,215 The financial statements were approved by the Board of Directors on 24 November 2008 and signed on its behalf by: M. Williams Director R. Parker Director 60 Topps Tiles Plc Annual Report & Financial Statements 2008 Notes to the Company financial statements For the 52 week period ending 27 September 2008 1 Basis of accounting The separate financial statements of the Company are presented as required by the Companies Act 1985. They have been prepared under the historical cost convention and in accordance with United Kingdom Accounting Standards and law. The principal accounting policies are summarised below. They have all been applied consistently throughout the year and the preceding year. The Company issues equity settled share-based payments to certain employees. Equity settled share-based payments are measured at fair value at the date of grant. In previous periods, the fair value determined at the grant date of the share-based payment has been expensed on a straight-line basis over the vesting period, based on the Company’s estimate of shares that will eventually vest. In the current period, the Company has adopted the guidance principles of IFRIC 11 (A parent grants rights to its equity instruments to employees of its subsidiaries) with the charge being added to the cost of investment in those subsidiaries whose employees receive the benefit of the share options. Fixed asset investments are shown at cost less provision for impairment. The Company has taken advantage of the exemption in FRS 8 from disclosing transactions with other members of the Group and the exemption in FRS 29 for making disclosures relating to financial instruments. 2 Profit for the year As permitted by section 230 of the Companies Act 1985 the Company has elected not to present its own profit and loss account for the year. Topps Tiles Plc reported a retained loss for the financial year ended 27 September 2008 of £8,972,000 (2007: profit of £1,358,000). The auditor’s remuneration for services to the Company was £32,000 for audit related work (2007: £15,000 for audit related work). No fees were payable in either year in relation to non-audit work. The Company had no other employees other than the Directors (2007: same), their remuneration is detailed on page 31. 3 Fixed asset investments At 30 September 2007 Share options granted to employees of subsidiary companies At 27 September 2008 Shares £’000 4,397 100 4,497 Total £’000 4,397 – 4,397 The Company has investments in the following subsidiaries which principally affected the profits or net assets of the Group. To avoid a statement of excessive length, details of investments which are not significant have been omitted. Subsidiary undertaking Topalpha Limited* Multi Tile Limited Topps Tiles Holdings Topps Tiles (UK) Limited Topps Tiles Distribution Ltd Topps Tiles Holdings BV* Percentage of issued shares held Principal activity 100% Property management and investment 100% Retail and wholesale of ceramic tiles, wood flooring and related products 100% Intermediate holding company 100% Retail and wholesale of ceramic tiles, wood flooring and related products 100% Wholesale and distribution of ceramic tiles, wood flooring and related products 100% Retail and wholesale of ceramic tiles, wood flooring and related products *held directly by Topps Tiles Plc. The investments are represented by ordinary shares. All undertakings are incorporated in Great Britain and are registered and operate in England and Wales except for Topps Tiles (Holland) BV and Topps Tiles Holdings BV which are registered and incorporated in the Netherlands. Topps Tiles Plc Annual Report & Financial Statements 2008 61 4 Debtors Amounts falling due within one year: Prepayments and accrued income Amounts falling due after one year: Amounts owed by subsidiary undertaking 5 Creditors: Amounts falling due within one year Trade and other creditors Amounts owed to Group companies Accruals and deferred income 6 Called up share capital Authorised 240,000,000 (2007: 240,00,000) ordinary shares of 3.33p each (2007: 3.33p) Authorised 37,000,000 (2007: 37,000,000) redeemable B shares of £0.54 each Authorised 124,890,948 (2007: 124,890,948) irredeemable C shares of £0.001 each Issued and fully-paid 171,092,506 (2007: 170,579,936) ordinary shares of 3.33p each (2007: 3.33p) Total 2008 £’000 26 2007 £’000 – 221,200 221,740 2008 £’000 8 1,863 415 2,286 2008 £’000 8,000 19,980 125 28,105 5,703 5,703 2007 £’000 17 673 333 1,023 2007 £’000 8,000 19,980 125 28,105 5,686 5,686 During the period the Group allotted 512,570 (2007: 272,096) ordinary shares with a nominal value of £17,000 (2007: £8,000) under share option schemes for an aggregate cash consideration of £337,000 (2007: £158,000). 7 Reserves Company At 30 September 2007 Premium on issue of new shares Share-based payment reserve movement Profit for the period Dividend paid to equity shareholders At 27 September 2008 Share premium £’000 681 320 – – – 1,001 Share-based payment reserve £’000 222 – 100 – – 322 Merger reserve £’000 639 – – – – 639 Capital redemption reserve £’000 20,359 – – – – 20,359 Other reserves £’000 6,200 – – – – 6,200 Profit and loss account £’000 216,428 – – 8,050 (17,022) 207,456 At 27 September 2008, the Directors consider the other reserve of £6,200,000 to remain non-distributable. The Directors consider £203,106,000 of the profit and loss account reserves not to be distributable at 27 September 2008 due to them arising on an unrealised gain on the disposal of subsidiary companies. 62 Topps Tiles Plc Annual Report & Financial Statements 2008 Five year record Unaudited Group revenue Group profit from operations Profit before taxation Shareholders’ funds/(deficit) Basic earnings per share1 Dividend per share1 Dividend cover Average number of employees Share price (period end)1 1 adjusted for share sub-division of 5:1 in May 2004. 53 weeks ended 2 October 2004 (UK GAAP) £’000 157,612 32,548 33,794 47,062 11.30p 8.00p 1.41 1,327 178.9p 52 weeks ended 1 October 2005 £’000 173,326 36,822 39,191 52,230 13.33p 9.50p 1.41 1,513 172.0p 52 weeks ended 30 September 2006 £’000 52 weeks ended 29 September 2007 £’000 52 weeks ended 27 September 2008 £’000 180,180 38,869 39,064 (63,600) 12.80p 10.40p 1.41 1,582 259.0p 207,898 44,342 37,833 (54,824) 15.09p 10.70p 1.41 1,722 196.8p 208,084 34,620 27,723 (55,113) 9.56p 3.00p 3.19 1,743 58.25p Topps Tiles Plc Annual Report & Financial Statements 2008 63 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Annual General Meeting of Topps Tiles Plc (the “Company”) will be held at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU on Tuesday 13 January 2009 at 10.30am for the following purposes: Ordinary business 1 To receive and adopt the Company’s Annual Report and Financial Statements for the financial period ended 27 September 2008 together with the last Directors’ Report, the last Directors’ Remuneration Report and the Auditors’ Report on those accounts and the auditable part of the Directors’ Remuneration Report. 2 To re-elect Alan White (who has been appointed since the last AGM) as a Director of the Company. 3 To re-elect Matthew Williams as a Director of the Company. 4 To re-elect Nicholas Ounstead as a Director of the Company. 5 To re-elect The Rt. Hon. Michael Jack as a Director of the Company. 6 To re-appoint Deloitte & Touche LLP as Auditors to hold office from the conclusion of the meeting to the conclusion of the next meeting at which the Annual Report and Financial Statements are laid before the Company at a remuneration to be determined by the Directors. 7 To approve the Directors’ Remuneration Report for the financial period ended 27 September 2008 as set out in the Annual Report and Financial Statements for that period. Special business To consider and, if thought fit, to pass the resolutions set out below which, in the case of Resolution 8 will be proposed as an Ordinary Resolution and, in the case of Resolutions 9 to 12 will be proposed as Special Resolutions. 8 THAT the Directors of the Company be and they are generally and unconditionally authorised for the purposes of and pursuant to section 80(1) of the Companies Act 1985 (the “Act”) to exercise all the powers of the Company to allot relevant securities (as defined in section 80(2) of the Act) up to an aggregate nominal amount of £1,889,510 (in substitution for/to any existing authorities under the Act) to such persons at such times and upon such terms and conditions as they may determine (subject always to the articles of association of the Company) provided that this authority shall (unless previously revoked, varied or extended by the Company in general meeting) expire at the conclusion of the next Annual General Meeting or 15 months from the date of the passing of this resolution, if earlier save that the Company may, before such expiry, make an offer, agreement or arrangement which would or might require relevant securities to be allotted after the expiry of such period and the Directors may then allot relevant securities pursuant to any such offer, agreement or arrangement as if the authority or power conferred hereby had not expired. 9 THAT subject to and conditional on the passing of Resolution 9 set out above, the Directors of the Company be and they are authorised and empowered, pursuant to section 95 of the Act, to allot equity securities (as defined in section 94 of the Act) for cash pursuant to the general authority and power conferred by Resolution 9 above (as varied from time to time by the Company in general meeting) as if section 89(1) of the Act did not apply to any such allotment provided that this authority and power shall unless renewed, varied or revoked, expire at the conclusion of the next Annual General Meeting of the Company or 15 months from the date of the passing of this resolution, if earlier and provided further that this authority and power shall be limited to: (a) the allotment of equity securities pursuant to a rights issue or similar offer to Ordinary Shareholders where the equity securities respectively attributable to the interests of all Ordinary Shareholders are proportionate or as nearly as practical (and taking into account any prohibitions against or difficulties concerning the making of an offer of allotment to shareholders whose registered address or place of residence is overseas and subject to such exclusions as the Directors of the Company may deem necessary or expedient to deal with fractional entitlement or record dates) to the respective numbers of Ordinary Shares held by them; and (b) the allotment (otherwise than pursuant to paragraph (a) above) of equity securities up to an aggregate nominal amount of the greater of £283,429 or 5% of the issued share capital of the Company. 10 THAT the Company be generally and unconditionally authorised for the purposes of section 166 of the Act to make market Purchases (within the meaning of section 163(3) of the Act) of Ordinary Shares of 31⁄3p each in the capital of the Company (“Ordinary Shares”) provided that: (a) the maximum number of Ordinary Shares hereby authorised to be purchased is 25,338,618 (representing 14.9% of the Company’s issued Ordinary Share capital); (b) the minimum price, exclusive of any expenses, which may be paid for an Ordinary Share is 31⁄3p; (c) the maximum price, exclusive of any expenses, which may be paid for an Ordinary Share is an amount equal to 105% of the average of the middle market quotations for an Ordinary Share derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the date on which such Ordinary Share is Contracted to be purchased; (d) unless previously renewed, varied or revoked, the authority conferred shall expire at the close of the next Annual General Meeting of the Company or 12 months from the date of this resolution, if earlier; and 64 Topps Tiles Plc Annual Report & Financial Statements 2008 Notice of Annual General Meeting (continued) (e) the Company may make a contract for the purchase of Ordinary Shares under this authority before the expiry of this authority which would or might require to be executed wholly or partly after the expiry of such authority, and may make purchases of Ordinary Shares in pursuance of such a contract as if such authority had not expired. 11 THAT the draft Articles of Association signed by the Chairman for identification be adopted as the Articles of Association in substitution for and to the exclusion of all the existing Articles of Association. 12 THAT: (a) the Topps Tiles Plc 2008 Sharesave Scheme (“the Sharesave Scheme”), in the form produced at the meeting and initialled by the Chairman of the meeting for the purpose of identification, be approved and adopted (subject to any amendments required by HM Revenue & Customs in order to obtain approval of the Sharesave Scheme under the Income Tax (Earnings and Pensions) Act 2003); and (b) the Directors of the Company be authorised to do all acts and things which they may consider necessary or expedient for the purposes of implementing and giving effect to the same. [Notes] 1 This notice has been sent to all Ordinary Shareholders who are entitled to attend or be represented at the meeting. As at the close of business on the date of this notice, the Company’s issued share capital comprised 171,092,506 ordinary shares of 3.33 pence each. Each Ordinary Share carries the right to one vote at a general meeting of the Company. 2 Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. Members may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. 3 A proxy need not be a shareholder of the Company but must attend the meeting to represent you. A Form of Proxy is enclosed and instructions for use are shown on the form. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. The fact that shareholders may have completed forms of proxy will not prevent them from attending and voting in person should they afterwards decide to do so. Details of how to appoint the Chairman of the meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. If you wish your proxy to speak on your behalf at the meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. 4 To be valid, a Form of Proxy and any power or authority under which it is signed, must be lodged with the Company’s Registrars, Capita Registrars, Proxy Department, PO Box 25, Beckenham, Kent BR3 4BR, no later than 48 hours before the time appointed for the holding of the Annual General Meeting. 5 You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. 6 A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. 7 In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the first named being the most senior). 8 CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the Annual General Meeting and any adjournment(s) thereof by utilising the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s agent (ID:RA10) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. Topps Tiles Plc Annual Report & Financial Statements 2008 65 CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 9 In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate representative to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (ii) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives (www.icsa.org.uk) for further details of this procedure. The guidance includes a sample form of appointment letter if the chairman is being appointed as described in (i) above. 10 The following documents are available for inspection by members at the registered office of the Company (except Bank Holidays) during the normal business hours and at the place of the meeting not less than 15 minutes prior to and during the meeting: (a) the register of Directors’ interests required to be kept under section 809 of the Companies Act 2006; (b) copies of the Directors’ service contracts; and (c) the proposed Articles of Association of the Company. R. Parker Company Secretary 24 November 2008 Registered office: Thorpe Way Grove Park Enderby Leicestershire LE19 1SU Registered No: 3213782 66 Topps Tiles Plc Annual Report & Financial Statements 2008 Explanatory notes to the Notice of Annual General Meeting THE ANNUAL GENERAL MEETING of the Company will be held at the Company’s premises at Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU on Tuesday 13 January 2009 at 10.30am. Five of the resolutions are to be taken at this year’s Annual General Meeting as special business. By way of explanation of these and certain other resolutions: Ordinary business Resolutions 2, 3, 4 and 5 Re-election of Directors M. Williams and N. Ounstead are the Directors retiring by rotation this year and they offer themselves for re-election and A. White offers himself for re-election as a new appointment to the Board. All members of the Board of Directors submit themselves for re-election at least every three years with the exception of The Rt. Hon. J.M. Jack who has served for at least nine years and therefore retires and offers himself for re-election annually. Brief biographical details about the Directors standing for re-election appear on pages 20 and 21 of the Annual Report and Financial Statements. Special business Resolutions 8 and 9 Appointment of authority to issue shares and the disapplication of statutory rights of pre-emption Resolution 8: The right of the Directors to allot further shares in the capital of the Company requires in most cases the prior authorisation of the shareholders in general meeting under section 80 of the Companies Act 1985 (“the Act”), Resolution 9 will be put to members as special business to authorise the Directors to allot Ordinary Shares with a nominal value of £1,889,510 out of the Company’s unissued share capital representing approximately 33.3% of the Company’s current issued share capital (excluding shares held in treasury). The Company currently holds nil Ordinary Shares in treasury. The Directors have no current intention of exercising the authority to allot further shares. The authority shall expire immediately following the Annual General Meeting next following the resolution or, if earlier, 15 months following the resolution being passed. Resolution 9: This proposed resolution seeks to obtain power under section 95 of the Act to enable the Directors to allot, for cash, shares with an aggregate nominal value of £283,429 equal to approximately 5% of the Company’s current issued share capital without being required first to offer such securities to existing shareholders. The Company will thereby be given greater flexibility when considering future opportunities but the interests of existing shareholders will be protected as, except in the case of a rights issue or the allotment of shares under the Company’s share option schemes, the Directors have no present intention to allot any part of the unissued share capital of the Company or, without the prior approval of the Company in general meeting, to make any issue which would effectively alter the control of the Company or the nature of its business. This authority will expire immediately following the Annual General Meeting next following the resolution or, if earlier, 15 months following the resolution being passed. Resolution 10 Authority to purchase Ordinary Shares At the Annual General Meeting, Ordinary Shareholders are being invited under Resolution 10 to grant authority to the Company to make market purchases of its Ordinary Shares. It is proposed such authority shall expire on the conclusion of the Annual General Meeting to be held in 2009 or 12 months from the date of this resolution, if earlier. This authority will be limited to the purchase of not more than 14.9% of the Ordinary Shares currently in issue. This represents the maximum amount of Ordinary Share capital in issue which is permitted before tender or partial offer to all shareholders is require to be made to perform any share buy-back. The maximum price payable under this authority will be 105% of the average of the middle market quotations of an Ordinary Share for the five business days before the relevant purchase and the minimum price will be [31⁄3p] per Ordinary Share. In considering whether or not to purchase Ordinary Shares under the market purchase authority, the Directors will take into account cash resources, the effect on gearing and other investment opportunities before exercising the authority. In addition, the Company will only exercise the authority to make such a purchase in the market when the Directors consider it is in the best interests of the shareholders generally to do so and it should result in an increase in Earnings per Ordinary Share. As at 24 November 2008, there were options to subscribe for 878,584 equity shares outstanding under various schemes representing approximately 0.51% of the current issued share capital of the Company. If the authority sought by Resolution 10 was exercised in full, the number of outstanding options would represent approximately 0.87% of the issued share capital following the repurchase of shares. Topps Tiles Plc Annual Report & Financial Statements 2008 67 Resolution 11 Amendment to Articles of Association It is proposed that the Company adopts amended articles of association which take account of further changes brought about as at the date of this meeting as a result of the continued implementation of the Companies Act 2006 (the “2006 Act”). The proposed new Articles of Association reflect further provisions of the 2006 Act which have been implemented since the date of the last AGM. It is expected that further amendments may be required at the next AGM to deal with the final changes brought about later in 2009 by the implementation of the remainder of the 2006 Act. The new set of articles of association contains certain key differences from the current Articles of Association of the Company. The key changes are set out below: Articles 124A and 124B - Conflicts of Interest The 2006 Act sets out directors’ general duties, which largely codify the existing law, but with some changes. Under the 2006 Act a director must now avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the Company’s interests. The requirement is very broad and could apply, for example, if a Director becomes a Director of another company or a trustee of another organisation. The 2006 Act allows Directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the articles of association contain a provision to this effect. The 2006 Act also allows the articles of association to contain other provisions for dealing with Directors’ conflicts of interest to avoid a breach of duty. These New Articles give the Directors authority to approve such situations and to include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position. There are safeguards that will apply when Directors decide whether to authorise a conflict or potential conflict. First, only Directors who have no interest in the matter being considered will be able to take the relevant decision, and secondly, in taking the decision the Directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success. The Directors will be able to impose limits or conditions when giving authorisation if they think this is appropriate. It is also proposed that the New Articles should contain provisions relating to confidential information, attendance at board meetings and availability of board papers to protect a Director being in breach of duty if a conflict of interest or potential conflict of interest arises. These provisions will only apply where the position giving rise to the potential conflict has previously been authorised by the Directors. It is the Board's intention to report annually on the Company’s procedures for ensuring that the Board’s powers of authorisation of conflicts are operated effectively and that the procedures have been followed. The proposed new Articles of Association are available to view at the Company’s website – www.toppstiles.co.uk. Resolution 12 Adoption of Sharesave Scheme It is proposed that the Company adopts the Topps Tiles Plc 2008 Sharesave Scheme (“Sharesave Scheme”). The proposed scheme is in substantially the same form as the last scheme previously adopted by the Company (and which lapsed earlier this year) except that it has been updated to accommodate changes in legislation. The principal features of the Sharesave Scheme are outlined below: General The Sharesave Scheme is intended to be a Save-As-You-Earn share option scheme approved by the HM Revenue & Customs in accordance with Schedule 3 to ITEPA 2003. The UK Sharesave Scheme shall be administered by the Board or a duly authorised committee thereof. Eligibility All UK tax resident Executive Directors and employees of the Company and participating companies within the Group with at least five years service must be entitled to participate. The Board may also permit Executive Directors and employees with a shorter period of service to participate in the Sharesave Scheme. Invitations to apply for options under the Sharesave Scheme will be made to all eligible Executive Directors and employees who have completed three months service with the Company (or one or more of its subsidiaries) at the date invitations under the Sharesave Scheme are made. Thereafter, the Board will determine the basis upon which any future invitations to apply for options will be made. 68 Topps Tiles Plc Annual Report & Financial Statements 2008 Explanatory notes to the Notice of Annual General Meeting (continued) The Savings Contract To participate in the UK Sharesave Scheme, an eligible employee must enter into a Save-As-You-Earn contract (the “Savings Contract”) with an appropriate savings carrier approved by the Company, thereby agreeing to make monthly contributions of between £5 and £250 for a specified period of three, five or seven years. The Board has discretion to determine which of the Savings Contracts will be available in respect of any invitation to apply for options. Scaling Down Applications to participate in the Sharesave Scheme may be scaled down by the Board in accordance with procedures laid down in the rules of the Sharesave Scheme, if applications exceed such number that represents 3% of the ordinary share capital of the Company in issue immediately prior to that date or 5% thereof when that date falls within the period of 48 months commencing on the first day on which options are granted under the Sharesave Scheme. Option price Options granted to acquire shares under the Sharesave Scheme will have an option price determined by the Board, which will be not less than the higher of: (a) 80% of the middle market quotation for such shares as derived from the Official List for the period of three dealing days immediately preceding the date on which invitations to apply for options are issued to employees; and (b) where shares are to be subscribed, their nominal value. Grant of options The number of shares which may be allocated under the Sharesave Scheme on any day shall not, when added to the aggregate number of shares which have been allocated in the previous three years under the Sharesave Scheme and under any other employees’ share scheme adopted by the Company or any subsidiary, exceed such number that represents 3% of the ordinary share capital of the Company in issue immediately prior to that date or 5% thereof when that date falls within the period of 48 months commencing on the first day on which options are granted under the Sharesave Scheme. Options may be granted within the six weeks following the date on which the Sharesave Scheme is adopted by the Company or approved by HMRC. Thereafter, options may normally only be granted in the six weeks following the announcement by the Company of its results for any period, or following a change in the legislation relating to Sharesave Schemes or where there are circumstances considered by the Committee to be exceptional. No options may be granted later than ten years after the approval of the Sharesave Scheme by shareholders. No payment will be required for the grant of an option. Options will not be taken into account in determining a participant’s pension rights under a final salary pension scheme, or the employer’s contributions to a defined contributions scheme. Options are not transferable (other than on death in which case they may be exercised by a participant’s personal representatives). Limits on the issue of shares In any ten-year period not more than 10% of the issued ordinary share capital of the Company from time to time may be issued or issuable pursuant to rights acquired under the Sharesave Scheme and any other employees’ share scheme adopted by the Company. For the purposes of this limit, options or other rights to acquire shares which lapse or have been released do not count. However, new shares subscribed by the trustees of an employee benefit trust to satisfy rights granted under any employees’ share scheme adopted by the Company do count towards this limit. Exercise of options Options will only normally be exercisable for a period of six months commencing on the date on which a bonus is payable under the Savings Contract and, if not exercised by the end of that period, the option will lapse. Earlier exercise may, however, be permitted in specified circumstances, including termination of employment as a result of injury, disability, redundancy, retirement or the sale of the subsidiary or business for which the participant works. In such cases, options may be exercised within six months of cessation of employment but only to the extent of his total savings plus any interest accrued to the date of exercise. In the event of death of an option holder, the personal representative of the deceased may normally exercise within one year of the date of death. Early exercise may also be permitted where a participant reaches pensionable age but remains in employment. In such a case, options may be exercised within six months of reaching that age if he continues after that date to hold the office or employment by virtue of which he is eligible to participate in the Sharesave Scheme. Options may be satisfied by the issue of new shares or by the transfer of existing shares, from an employee benefit trust established by the Company, from treasury or otherwise. Topps Tiles Plc Annual Report & Financial Statements 2008 69 Rights attaching to shares All shares allotted or transferred under the Sharesave Scheme will rank pari passu with all other common stock of the Company for the time being in issue (save as regards any rights attaching to such shares by reference to a record date prior to the date of allotment or transfer) and the Company will apply for any new shares issued under the Sharesave Scheme to be admitted to the Official List and to trading on the London Stock Exchange. Takeover of the Company In the event of a takeover, reconstruction or winding up of the Company, options may be exercised within six months of the change of control. Alternatively, options may be exchanged for new equivalent options over shares in the acquiring company where appropriate. Variation of capital In the event of any rights or capitalisation issue, subdivision, consolidation, reduction or other variation of share capital, the Board may make (subject to receiving prior approval of the HMRC) such adjustments as they consider appropriate to the number of shares subject to options and/or the price payable on the exercise of options. Alterations to the Sharesave Scheme The Directors may make certain alterations and additions to the Sharesave Scheme but any such changes made after HM Revenue & Customs has approved the scheme shall not take effect until such changes have been approved by HM Revenue & Customs. Permitted alterations or additions include minor ones that benefit the administration of the Sharesave Scheme or ones that are necessary to obtain HM Revenue & Customs approval under any relevant legislation or are necessary to obtain favourable taxation exchange control or regulatory treatment for the Company or associated companies. All other changes must be sanctioned by the Company by ordinary resolution of the members in general meeting. Additionally, no amendment can be made which would adversely affect the rights of participants without their consent (as if they were a separate class of shareholder). Termination The Sharesave Scheme may be terminated at any time by resolution of the Board or of the Company in general meeting and shall in any event terminate on the tenth anniversary of the date on which the Sharesave Scheme is adopted by the Company in general meeting. Termination will not affect the outstanding rights of participants. 70 Topps Tiles Plc Annual Report & Financial Statements 2008 The Team A Aadam Nozeer Aamir Jamil Aaran Spence Aaron Meszaros Aaron Nelson Aaron Venus Abul Khashad Ad van Hirsel Adam Boshir Adam Campion Adam Davies Adam Ford Adam Gale Adam Haseldine Adam Ireland Adam Levett Adam Nuttall Adam Towner Adam Ward Adam Whittaker Adam Wolniewicz Adil Rajah Adrian Clarke Adrian Earley Adrian Rimmington Aidan Ward Aileen Crossley Ajay Bhakri Akiyemi Orekoya Akommil Ali Akushu Mulenga Alan Cooper Alan Cordery Alan Law Alan Mcdonald Alan Monk Alan Parker Alan Rogers Alan Russell Alan Saunders Alan Sinclair Alan Smalley Alan Sproston Alan Wrighting Aldwin Ridderstap Alex Paterson Alexander Onions Alexandria Murphy Ali Afzal Ali Faheem Ali Rizvi Ali Sadique Alice Ashton Alicia Mcgill Alison Hunt Alistair Payne Alister Mackay Allan Chigariro Allan Duffy Allan Harper Allan Hughes Alvin Chinyanga Alvin Lapao Amanda Green Amanda Hullett Amin Ladhu Amy Cartey Andre Van Zyl Andrew Baillie Andrew Barker Andrew Barrett Andrew Baxter Andrew Belson Andrew Bowden Andrew Brookfield Andrew Burns Andrew Chapman Andrew Clay Andrew Collins Andrew Cox Andrew Curr Andrew Curtis Andrew Davis Andrew Davis Andrew Duffey Andrew Green Andrew Hainge Andrew Hall Andrew Hanson Andrew Harrison Andrew Hastings Andrew Heads Andrew Hill Andrew Jones Andrew Keattch Andrew Leigh Andrew Mcguire Andrew Middleton Andrew Page Andrew Parnell Andrew Phillips Andrew Robertson Andrew Rudgley Andrew Salkeld Andrew Scorgie Andrew Scott Andrew Warne Andrew Warwick Andrew Waterfield Andrew Wathan Andrew Whiteley Andrew Winterburn Andrew Wood Andrew Woodhouse Andrew Woods Andrew Young Andrew Young Andy Playfoot Angela Capp Angela Tremelling Ann Mathias Anna Timney Annmarie Malone Ansar Ahmed Anthony Bradford Anthony Butts Anthony Christopher Anthony Cox Anthony Davies Anthony Gibby Anthony Gilbert Anthony Hamilton Anthony Holt Anthony Humphrey Anthony Linsell Anthony Marshall Anthony Molyneux Anthony Oleru Anthony Townsend Antony Alveranga Antony Belham Antony Rea Anub Varghese Arif Chaudhary Arjan van den Berg Arjan Zuidhof Arnold Harrison Arreon Turner Arron Eldridge Arron Sorrell Ashish Modi Ashleigh Mackinnon Ashley Cutler Ashley George Ashley Kent Ashley Mcdonnell Ashley Scott Ashley Wale Astone Davids Autumn Wharmby B Barclay Pope Barrie Palmer Barry Bester Barry Blackmore Barry Edwards Barry Hodges Barry Stevens Barry Taylor Barry Veasey Barry Webber Beckie Clarke Ben Armitage Ben Bright Ben Brink Ben Brooker Ben Davis Ben Holloway Ben Lee Ben Williams Ben Woollins Benjamin Morais Benjamin Rich Bernadette Peasland Bernard Cope Bernard Fallon Bertil Boyles Beth Boulton Bharat Patel Bhaskar Patani Bilal Mukhtar Bill Wylie Billy Decaille Billy Stevens Bob Barlow Brad Potts Bradley Maple Bradley Wheeler Brandon Abels Brant Wells Brendan Flynn Brent Phebey Brett Case Brett Goulden Brian Aitken Brian Burke Brian Cariello Brian Crews Brian Davies Brian Dicks Brian Fisher Brian Flatters Brian King Brian Kirwin Brian Mcgowan Brigita Rekasiute Bronwyn Stevenson Bruce Fielding Bruce Smith Bruno Alves Bryan Hartley C Cade Somerville Calbert Hall Callum Burns Campbell Marr Carl Beveridge Carl Collins Carl Cook Carl Courtney Carl Cumberbatch Carl Dyke Carl Edlundh-Rose Carl Higgins Carl Markham Carl Paternoster Carl Roberts Carl Whatley Carlo Pillay Carlos Chowdhury Carly Hayes Carol Lakin Carol Livingstone Carolina Buendia Caroline Bennett Caroline Head Caroline May Catherine Platt Chan Gokani Charles Ross Charles Taylor Charlotte Heaton Charlotte Mcquaid Cheryl Vearncombe Chessdeep Singh Chetna Shah Chioma Onyeakazi Choudre Grobler Chris Bland Chris Cartey Chris Curtis Chris Davies Chris Gough Chris Heyes Chris Howe Chris Lambert Chris Lyle Chris Markham Chris Mcmillan Chris Moyes Christer Leth Christian Banham Christian Nicandro Christian Pearson Christian Stokes Christina Langridge Christine Hendry Christoper Mcwatt Christopher Bloy Christopher Bowles Christopher Bray Christopher Burgess Christopher Collins Christopher Collins Christopher Cooper Christopher Fleming Christopher Harbutt Christopher Holland Christopher Holt Christopher Hughes Christopher Hunter Christopher Iley Christopher Jones Christopher Lamb Christopher Moorhouse Christopher Nottle Christopher Stobbs Christopher Sturdy Christopher Turley Cian Mills Claire Barksby Claire Chaffe Claire Rayton Clare Barden Clare Hogg Colin Cooke Colin Griffiths Colin Hoban Colin Joy Colin Markham Colin Rymer Colin Skinner Colin Taylor Conrad Harrup Cora Morrison Corrina Bowers Corrine Clark Craig Conway Craig Cooper Craig Deveson Craig Dickson Craig Dolling Craig Featherbe Craig Fern Craig Gardener Craig Hill Craig Johnson Craig Lewis Craig Muldoon Craig Murphy Craig Nammontri Craig Nicholson Craig Ollard Craig Reed Craig Robertson Craig Solkhon Craig Tetlow Cyriel Struijk D Daan Rubens Dale Hoy Dale Mccormack Dale Stone Dale Weatherly Damian Boyle Topps Tiles Plc Annual Report & Financial Statements 2008 71 Damon Short Dan Hall Dan Matthews Daniel Ayles Daniel Bath Daniel Branson Daniel Britt Daniel Burton Daniel Chant Daniel Fallows Daniel Fulcher Daniel Grant Daniel Gray Daniel Hughes Daniel Ingham Daniel Jones Daniel Jones Daniel Lewis Daniel Little Daniel Mclean Daniel Merrett Daniel Musguin Daniel Robinson Daniel Smith Daniel Stiven Daniel Sycamore Daniel Thornley Daniel Van Aswegen Daniel Wren Danielle Taylor Danielle ten Hoven Danielle Whittaker Dannielle Fry Danny Costen Danny Williams Darone Dubois- Gayere Darran Wood Darrell Nelson Darren Banks Darren Beatty Darren Bebbington Darren Connor Darren Crick Darren Doughty Darren Dutton Darren Ferguson Darren Fletcher Darren Goode Darren Harper Darren Irving Darren Mitchell Darren Morgan Darren Rawlings Darren Square Darren Swaffield Darren Walker Darron Kerr Dave Jobling Dave Marsh Dave Taylor David Atherton David Augustus David Binns David Blades David Bolingbroke David Burnikell David Carpenter David Clutterham David Coster David Critchlow David Dorney David Evans David Fisher David Fitzpatrick David Gibson David Grenfell David Hamilton David Harper David Hatton David Hayers David Henderson David Hill David Hirst David Hook David Hulse David Jaye David Kershaw David Kettlewell David Macartney David Mallyon David Martin David Martin David Matthews David Meers David Murray David Nadin David Noble David Oliver David Parr David Price David Prime David Quarshie David Savage David Smith David Smyth David Steel David Stott David Sutcliffe David Thomasson David Townsley David Vepers David Whitelaw David Williams David Wilson Dawn Beeston Dawn Gale Dean Bull Dean Carter Dean Everitt Dean Johnson Dean Macmillan Dean Mallabone Dean Marshall Dean Miller Dean Samuel Dean Stokes Dean Titchen Dean Woolley Debbie Demes Deborah White Debra Harding Denis O’Brien Denise Fishwick Denise Pierce Dennis Bîdeker Dennis Cragen Dennis de Jong Dennis Jepson Denzil Johns Derek Fegen Derek Lambourn Derek Sim Derek Smith Derrick Hart Devin Blewitt Devindren Govender Diane Finlayson Diane Shatford-Butcher Dilawar Ali Dilip Parmar Dinesh Amin Dishon Meade Divyesh Javiya Dominic Reilly Donna Boulton Donna Whall Douglas Hartness Duncan Foy E Eamonn Clancy Edmund Smith Edward Derbyshire Edward Gardiner Edward Moore Edward Murphy Elaine Francois Elizabeth Morrissey Elizabeth Selfridge Elton Borg Emdadur Rahman Emily Lenton Emma Brookes Emma Hatton Emma Kenney Emma Whatson Emran Mannan Eric Mcloughlin Eric Stork Eric Watson Erik Rubens Ermiyas Girma Esther ten Hoven F Fabian Koopen Faisal Ashraf Farid Haddad Felipe Da Rocha West Finbarr Mcquaid Fiona Cadd Fiona Finnigan Fiona Grant Fiona Mckeracher Fitz Martin Fleur Salter Fran Hearne Frances Aylward Francesca Ballerini Francesca Wright Francis Tully Frank Hibbert Fred Whitehouse G G Style Gareth Carnegie Gareth Davies Gareth Hammond Gareth Huntley Gareth Ward Garry Case Garry Hardy Garry Padgett Gary Ashdown Gary Asher Gary Bloomfield Gary Clarkson Gary Curtis Gary Gardner Gary Gear Gary Hudgell Gary Marshall Gary Parris-Munn Gary Wilcox Gary Woolmore Gary Yuen Gavin Bartram Gavin Bennett Gavin Collins Gavin Curwen Gavin Meek Gavin Mitchell Gediminas Merkys Gemma Stephens Geoffrey Wilson George Lathan George Mallyon George Peck George Skinner George Tuplin George Wilson Geraint Thorne Gerald Mclean Gerard Mallon Gethin Jordan Gianfranco Zanolini Gillian Grace Glen Holloway Glendale Canoville Glenn Claridge Glenn Goddard Glenn Rivers Glyn Nunn Glyn Rogers Gîkhan Tarim Gordon Davies Graeme Milner Graham Bain Graham Bosdet Graham Brophy Graham Davidson Graham Davies Graham Jones Graham Lawrence Graham Livingstone Graham Smith Graham Vance Graham Williams Grant Avory Grant Woolway Gregory Barwick Gregory Carolina Gurdeep Panesar Gursharn Ladhar Guy Barrow Guy Ferguson H Haim Cohen Hannah Shepherd Harjit Dhaliwal Harrison Davis Harry Biggs Harry Grey Harry Mills Harry Vreeswijk Harshani Mahalekamge Harveer Singh Basra Hayley Bover Hayley Reader Hayley Thorpe Hazel Millington Helen Bosworth Helen Goldfarb Helen Gosling Herman Kreikamp Holly Unwin Hugh Selley I Ian Aikman Ian Bloomfield Ian Hobson Ian Hughes Ian Jones Ian Marshall Ian Marshall Ian Mcalinden Ian Mcinteer Ian Mcloughlin Ian Noon Ian Paterson Ian Stevens Ian Sykes Ian Winterburn Ibrahim Cisse Ilan Daniel Imran Ashraf Inderjeet Jutlay Irene Dickinson Ishmael Amos Ivo Zwanenburg Iwan Jones Izabela Krzyszkowska J Jack Carslake Jack O’Neill Jack Whitehead Jacob Gonzales Jacqueline Byrne Jagir Reehal Jailuene Peake Jajwinder Harar Jake Missen Jake Print Jake Shopland James Aspey James Baird James Barrie James Beresford James Biesty James Bott James Butler 72 Topps Tiles Plc Annual Report & Financial Statements 2008 The Team (continued) James Cameron James Clifford James Collins James Copestick James Eastham James Edge James Fell James Heard James Hollingshead James Judkins James Koroma James Mcardle James Metcalf James Morgan James Patston James Pearson James Pilfold James Reece James Robertson James Rolfe James Smith James Stark James Stevens James Taylor James Thorning James Vander Plank Jamie Axten Jamie Bannon Jamie Barratt Jamie Evans Jamie Keeling Jamie Parkes Jamie Sia Jamie Wall Jamie Wenborn Jammel BenBrikAit Jan Reddi Jan Sloterwijk Janet Riley Janice Millett Jaroslaw Wanat Jason Bradford Jason Clarke Jason D’Arcy Jason Ealden Jason Field Jason Harris Jason Meadows Jason Perry Jason Pratt Jason Reeve Jason Thomas Jason Tyler Jasvinder Bagh Jayandrie Chetty Jayaprakash Paragjee Jaymal Arjan Jayne Sewell Jeannette Hastie Jed Sanderson Jeffrey Armstrong Jeffrey Nelson Jennifer Donlan Jenny Seabrook Jeremy Byrne Jeremy Harris Jeremy Nicholls Jermaine Taylor Jeroen Brockhuis Jeroen Ligtelijn Jeroen van Loveren Jeroen Verheul Jessica Mackenzie Jessica Thiari Jill Cox Jill Savage Jim Tuvey Joan Hicks Joanna Barnes-Warden Joanna Martin Joanne Bennett Joanne Elton Joanne Lee Jodie Baigrie Jodie Hickman Joe Cole Joe Cox Joe Dewey Joe Gregorace Joe Smith Johann Manz John Bourke John Chinn John Cook John Duffy John Ellis John Fawkes John Forden John Foster John Fredericks John Gardner John Harris John Hickey John Hughes John Johnston John Jones John Keouski John Lamb John Mason John Mcelhatton John Moat John Nelson John Nicholson John Page John Paine John Reynoulds John Shaw John Smith John Smith John Stephenson John Strong John Summers John Tait John Thompson John Vaughan John Wade John Williams John Wright Jon Parmenter Jon Pringle Jonathan Bainbridge- Coombs Jonathan Benn Jonathan Hargreaves Jonathan Morgan Jonathan Smith Jonathan Wade Jonathan Wallace Jonathan Williams Jonathan Woodroff Jonathon Hall Jonathon Perkins Jonathon Sheerin Jones Adzrah Jonothan Bean Jon-Paul Hughes Jos Kantelberg Jos Verlaat Josef Kinski Joseph Obidiah Josephine Hilldrup Josh Dempster Josh Wyatt Joshua Groener Joshua Stilwell Juginder Gill Julian Flake Julie Brachtvogel Julie Cox Julie Fewings Julie Jordan Juliet Wilford Justin Bradley Justin Pugh K Kamlesh Shah Kane Thayer Kara Robinson Karen Brook Karen Forber Karen Sutcliffe Karina-Jade Tubb Karl Batterham Karl Bezemer Karl Gaskin Karl Jackson Karl Jones Karl Stephens Kashan Lennon Kashif Munir Kate Hopkins Katherine Rudkin Kathryn Robinson Katrina Crawford Kawaljit Gulati Kees van Wijk Keith Ambrose Keith Carr Keith Earl Keith Fitzpatrick Keith Hughes Keith Johnson Keith Pugh Keith Rudkin Keith Storrier Keith Truesdale Kelly Bell Kelly Ellison Kelly Illsley Kelly Savile Kelly-Anne O’Connor Kenneth Owen Kenneth Pettengale Kenneth Williams Kenny Keir Kerri Atkinson Kerri Reed Kerry Hume Kerry Saunders Kevan Richardson Kevin Baker Kevin Bowtle Kevin Burchell Kevin Fox Kevin Haigh Kevin Hailes Kevin Hartley Kevin Hastings Kevin Jeans Kevin Jones Kevin Nicol Kevin Peacock Kevin Rowe Kevin Sherwood Kevin Thorne Kevin Tully Kevin Tuohy Kieran Barnes-Warden Kieron Clarke Kieron Ile Kim Groves Kim Liddle Kimberley Baker Kimberly Cooper Kirsten Mortlock Kirsti Altass Kirsty Allen Kirsty Bover Kirsty Deeprose Kishore Naker Klaas Dijkstra Kranthi Kondaveeti Kris Maple Kristina Kane Kuldeep Singh Kunal Pandya L Laith Al-Rawi Lance Cale Laura Davidson Laura Edwards Laura Gunter Laura Johnson Laura Kershaw Lauren Kemp Laurence Loxam Laurie Jones Leah Norris Leanne Foweather Leanne West Lee Arrowsmith Lee Battrick Lee Baxter Lee Ciasullo Lee Clarke Lee Dover Lee Downing Lee Durrant Lee Fisher Lee Futcher ‘Smith Lee Galloway Lee Gornall Lee Hartness Lee Jacovou Lee James Lee Maxey Lee Mayfield Lee Read Lee Shillibeer Lee Stephenson Lee Taylor Lee Weatherill Lee West Lee Whiteley Lee Wilkinson Leena Joory Lefter Bregu Leigh Holden Leigh Hyam Leigh Taylor Leigh Williams Leighton Williams Leon Kerr Leon O’Neill Leonard Finch Léonie van der Valk Lesley Wilson Leslie Maher Lester Marshall Levi Simpson Lewis Axford Lewis Edwards Lewis Haighton Lewis Timson Lewis Walter Liam Allan Liam Curran Liam Fields Liam Hunt Liam Lawler Liam Tanner Liam Walls Lianne Harrison-Allcock Lindsay Perkins Lisa Algar Lisa Holmes Lisa Smith Loretta Daley Lorna Hislop Loucas Louca Louis Green Louis Johnson Louis Raadman Louise Stevens Louise Sutton Luke Cobham Luke Francis Luke Halford Luke Harrison Luke Jacobs Luke Jones Luke Stephens Luuc Zuur Lyndsey Wheeler Lynette Grimes Lynn Pearson Topps Tiles Plc Annual Report & Financial Statements 2008 73 M Mabs Alam Majid Rehman Malcolm Ferguson-Thomas Malik Ahmad Mandy Aidney Mansoor Ali Marc Breeze Marc Middleton Marc Stevens Marcin Sakowicz Marco Knip Marcus Birch Margaret Lawrie Margaret Potter Mario van der Valk Mark Aveling Mark Ayres Mark Bell Mark Bianchi Mark Bober Mark Bradbury Mark Bridges Mark Brown Mark Brownsey-Joyce Mark Coe Mark Collyer Mark Dennis Mark Discombe Mark Frisby Mark Fuller Mark Gasson Mark Geary Mark Hadfield Mark Hilton Mark Hughes Mark Hunter Mark Johnson Mark Johnson Mark Johnston Mark Lafreniere Mark Lever Mark Maciver Mark Palmer Mark Reilly Mark Stone Mark Strong Mark Tennant Mark Thompson Mark Vaughan Mark Waldock Mark Winder Mark Wright Marlon Barnes Marlon Bright Martijn Geerlings Martijn Klarenbeek Martin Baker Martin Derricott Martin Horton Martin Kennell Martin Moore Martin Morris Martin Mudde Martin Siggers Martin Sloan Martin Smyth Martin Watt Martin Winterburn Martin Wys Martyn Gardner Martyn Gilbert Martyn Spring Mary Smith Masaya Rose Mathew Johnson Mathew Whittet Matt Hammersley Matt Hay Matt Loader Matthew Attwood Matthew Clamp Matthew Coward Matthew Dunne Matthew Elton Matthew Fisher Matthew Foster Matthew Foulger Matthew Hawley Matthew Hill Matthew King Matthew King Matthew Lloyd Matthew Lucas Matthew Moore Matthew Pickering Matthew Prentice Matthew Rayner Matthew Robinson Matthew Sigley Matthew Stewart Matthew Welsby Matthew Wesson Matthew Williams Matthew Woodhouse Matthew Wright Max Fryer Mehmet Asdoyuran Mel Thomas Melanie Gray Melissa Stevens Melton Thompson Melvin Conjamalay Melvyn Chamberlain Merlin Hassoldt Michael Asumadu Michael Blackman Michael Blinkhorne Michael Boughton Michael Bowden Michael Buckley Michael Cameron Michael Campbell Michael Clark Michael Cosgrove Michael Darroch Michael Earls Michael Fannon Michael Finn Michael Foley Michael Georgiou Michael Haggett Michael Hall Michael Harvey Michael Henshaw Michael Hopper Michael Jack Michael Jenks Michael Knowles Michael Litster Michael Lovelock Michael Lovelock Michael Queen Michael Simcoe Michael Slater Michael Townsend Michael Van Sittert Michele Poxon Michelle Hill Michelle Kempson Michelle Lawson Michelle Mannion Michelle Ward Michelle Wright Mike Birkbeck Mike Butler Mike Ingham Mike King Mike Potter Mike Skinner Milly van der Linden Mita Limbachia Mo Islam Mohamed Abdi Mohamed Akhtar Mohamed Patel Mohammad Tayyab-Ul-Habib Mohammed Amin Mohammed Jamil Mohammed Jimale Mohammed Parvaz Monique Boerma Mubashir Uddin Muhammad Nawaz Murdo Martin Murray Hunt N Narinder Chatha Natasha Bouwhof Nathan Austin Nathan Coulthard Nathan Heape Nathan Rodger Nathan Wolowicz Navesh Naidoo Neal Baker Neil Brownley Neil Charles Neil Crozier Neil Davies Neil Dyas Mckenna Neil Goodbourn Neil Hendy Neil Homan Neil Hughes Neil Hyne Neil Jones Neil Southgate Neil Topping Neil Wardlaw Neil Williams Neill Wiltshire Nelson Minj Nicholas Billyeald Nicholas Donkin Nicholas Gadd Nicholas Kershaw Nicholas Lawrence Nicholas Lewis Nicholas Ounstead Nicholas Payne Nicholas Walch Nicholas Withers Nicholaus Buchanan Nick Gussow Nick Hielckert Nick Lodge Nick Wardman Nicola Gately Nicolas Wassell Nigel Fleming Nigel Hickman Nigel Houston Nigel Martin-Brooks Nigel Parry Nigel Scott Nikola Robinson-Rex Nikola Sutton Niroshan Araliyakankanamge Numan Usman O Osemar Masaya P Pamela Cuffin Pasquale Santaniello Patrick Burke Patrick Colman Patrick Mcgee Patrique Janssen Paul Baxter Paul Beckett Paul Burkett Paul Burrow Paul Burton Paul Carleton Paul Carr Paul Carter Paul Cartledge Paul Chapman Paul Clark Paul Collett Paul Colyer Paul Cull Paul Dalby Paul Davey Paul Davies Paul Fitzsimmons Paul Galvin Paul Hendrey Paul Hill Paul Holmes Paul Horne Paul Hutchinson Paul Irving Paul Jardine Paul Kelly Paul Lathrope Paul Laverty Paul Mackin Paul Miller Paul Mills Paul Noyes Paul Okrzeja Paul Renyard Paul Rockett Paul Ruddle Paul Sartain Paul Sharkey Paul Shek Paul Silvester Paul Sluiter Paul Smith Paul Smith Paul Smith Paul Smitheringale Paul Starkey Paul Swift Paul Tennant Paul van der Zee Paul Whittington Paul Wiltshaw Paula Budsworth Pauline Harrison Pawel Warych Peter Anderson Peter Charters Peter Davey Peter Davidson Peter Gallagher Peter Hogg Peter Hughes Peter Jones Peter Lea Peter Lettis Peter Lynn Peter Mcgowan Peter Mcintyre Peter Nicholson Peter Simmonds Peter Tassenaar Peter Walmsley Peter Watts Peter Woods Phil Kelly Phil Rogers Phil Shelton Philip Cranston Philip Dunn Philip English Philip Gallop Philip Lewis Philip Mccarney Philip Threlfall Philip Trevis Phillip Corlet Phillip Goodeve Phillip Hillier Phillip Hunt Phillip Walters Phillipa Hewitt Pim van Zuidam Piotr Bienkowski 74 Topps Tiles Plc Annual Report & Financial Statements 2008 The Team (continued) Prakash Mistry Premyslaw Swisloki Q Quadeer Ahmed R Rachel Donaghey Rachel Dykes Rachel Jack Rachid Bouras Rachit Vadgama Raj Surani Raja Sohall Rajan Mehta Rajiv Vadgama Ravendra Bishun Ray Jeakins Ray Leathen Rebecca Derricott Rebecca Ellis Rebecca Harris Rebecca Heather Rebecca Oblein Rebecca Stokes Reepal Patel Reg Anderton Remel Morgan René deWit René Ossendrijver Rhys Hedges Rhys Kelland Ricardo Malcolm Rich Hoyle Richard Amoah Richard Banton Richard Bickers Richard Booth Richard Brookfield Richard Carter Richard Chiverton Richard Clark Richard Davies Richard Desmond Richard Edwards Richard Fellows Richard Forrester Richard Harris Richard Homan Richard Hopkin Richard Hutcheson Richard Knight Richard Lee Richard Lewington Richard Norman Richard Oates Richard Oldale Richard Slack Richard Small Richard Sumner Richard Young Rickey Singleton Riki Spadone Rob Chawner Rob Ferris Rob Owen Robel Ghebrewold Robert Adams Robert Adkins Robert Avery Robert Baylis Robert Bellamy Robert Bosman Robert Brewin Robert Bumstead Robert Cairns Robert Clarke Robert Clarke Robert Curd Robert Donnelly Robert England Robert Exley Robert Ford Robert George Robert Gilbert Robert Gladwin Robert Howker Robert Jay Robert King Robert Knight Robert Lamb Robert Lynch Robert Moss Robert Myers Robert Parker Robert Power Robert Prince Robert Reynolds Robert Scheggetman Roberto Xavier Robin Beil Robin Parry Rodney Meyer Roger Bailey Roger Gridley Romaldo Rodrigues Roman Kojhuharov Ronald Evers Ronald van Veenen Ronnie Francis Ronnie Webster Ross Ashbrook Ross Darrah Ross Godfrey Ross Mcnair Ross Philpot Roxanne Evans Roxanne Martin-Gault Roy Peasland Roy Redgate Russell Adgey Russell Maltby Russell Mogg Russell Potlin Russell Shafer Russell Thornton Ruud Sterling Ryan Apark Ryan Curd Ryan Haddon Ryan Jones Ryan Randall Ryan Sinclair S Saad Maqsood Sachin Radia Sadrul Amin Sagren Naidoo Sajid Ahmad Sajid Aibani Saladdin Beqqada Sally Hallsworth Salman Bawani Sam Bellis Sam Nortey Sam Orton Sam Ripley Samantha Barrett Samantha Mussett Samantha Sayer Sameer Jamdar Samson Okolosi Samuel Carey Samuel Major Sander Faber Sandra Myles Sandra Ramsay Sanjeepan Balasubramaiam Sara Bremner Sarah Bacon Sarah Churcher Sarah Dobson Sarah Drake Sarah Earthey Sarah Kite Sarah Shirley Sarah Skinner Scott Ahmad Scott Ambrose Scott Currie Scott Dye Scott Hatton Scott Laughland Scott Meadows Scott Taylor Scott Williams Scott Winchester Sean Cahill Sean Collins Sean Dare Sean Feeney Sean Green Sean Kerry Sean Mcvey Sean Scard Sean Weatherby Selena Simpson Shane Baker Shane Bryan Shane Daley Shane Malone Shane Till Shanil Ranchod Shannon Woods Sharon Beckett Sharon Henderson Shaun Bryan Shaun Douglas Shaun Hutchins Shaun Mayes Shaun Scott Shawanna Hafiz Sheila Myrie Sheila Robertson Shelley Rutter Shilpa Champaneri Shirley Moore Shohale Ali Sian Griffiths Silvonne Mclean Simon Brookfield Simon Brookfield Simon Casey Simon Chappell Simon Collishaw Simon Cripps Simon Duggins Simon Dunsford Simon Eldridge Steve Gaylor Steve Smith Steve Smith Steve Thompson Steve Wood Steven Atkinson Steven Boyle Steven Buxton Steven Christie Steven Edge Steven Godwin Steven Hooper Steven Jenkins Steven Jones Steven Jones Steven Kernot Steven Macarthur Steven Mackie Steven Pressley Steven Richards Steven Saunders Steven Walker Steven Whitehead Stewart Creaser Stuart Baigent Stuart Bartlett Stuart Booker Stuart Clarke Stuart Cooper Stuart Corlett Stuart Davey Stuart Dixon Stuart Graham Stuart Hitch Stuart Munton Stuart Pemberton Stuart Rees Stuart Roscoe Stuart Ross Stuart Taylor Stuart Whitby Stuart Williams Stuart Williams Sue Bill Sue Foulds Sumade De Silva Suresh Bhudia Suresh Mistry Surmukh Jandu Susan Attwell Susan Groombridge Susan Henshall Susan Hulme Simon Frew Simon Green Simon Jones Simon Lacey Simon Lasham Simon Leslie Simon Loach Simon Lovett Simon Morgan Simon Neal Simon Partridge Simon Pitt Simon Roberts Simon Tuckley Simon Whittaker Simon Witham Simone Turner Siobhan Waters Sjoerd Cobussen Soile Carpenter Sonia Cummings Sophie Walker Stacey Shirley Stephanie Ailwood Stephanie Nevett Stephanie Shrubb Stephen Adams Stephen Ainsworth Stephen Benson Stephen Bloomfield Stephen Cliff Stephen Collins Stephen Corkett Stephen Crane Stephen Creasey Stephen Dutton Stephen France Stephen Getty Stephen Green Stephen Lewis Stephen Machin Stephen Marshall Stephen Pike Stephen Porter Stephen Rafot Stephen Ruddick Stephen Seymour Stephen Smisson Stephen Spurgeon Stephen Starkie Stephen Unsworth Stephen Waltham Stephen Welsby Stephen West Stephen Williams Steve Freeman Topps Tiles Plc Annual Report & Financial Statements 2008 75 William Lewinton William Mcphee William Ryves Willliam Barreda Willy Silupya Wim Strik Wim van Staden Y Yusuf Ali Yusuf Mursal Yvonne Archer Yvonne Burgess Z Zaccai Newman Zahid Sharif Butt Zainab Idris Zoe Atkinson Zoe Derry Zoe Maeer Zoe Mills T Taimur Malik Talat Khan Tami Robinson Tanya Sharpe Terance Langford Terence Dooley Terrence Forbes Terry Bridger Terry Howard Terry Hutchinson Terry Timmins Terry Webb Theresa Scrase Thomas Clutterbuck Thomas Cunningham Thomas Fry Thomas Newman Thomas Otley Thomas Pearson Thomas Pressley Thomas Ryan Thomas Stampfer Thomas Steel Thomas Stone Thomas Swain Thomas Thornton Thomas Wade Tim Ives Tim Tatlock Timothy Bentley Timothy Boardman Timothy Kilminster Timothy Lowe Timothy Olsen Timothy Stanhope Timothy Tuff Toby Collins Toby Hutton Todd Routledge Tom Evans Tom Lewis Tom Mcdowell Tom Scott Tom Siddell Tom Wood Tony Dedman Tony Martin Tony Nunn Tony Simoes Tony Watson Tracy Ryan Tracy Wickenden Trevor Barden Trevor Thomas Tristian Waghorn Tyler Atheis Tyrone Alexander Tyrone Madden U Umar Ullah Upali Herath Upendra Dudhaiyia Urmila Bhudia Vedran Beader Victor Watson Victoria Harding Victoria Mann Vilius Meilus Vincent Barber Vinod Joshi Vinsen Velvindron Visvanathapillai Mahendrakumar Vivienne Johns W Wadzanai Musa Warnakulasuriya Fernando Warren Bester Warren Daly Warren Gunnis Warren Russell Warren Wise Wayne Farini Wayne Gillan Wayne Jannotti Wayne Oliver Wayne Quaintance Wayne Randall Wayne Smith Wayne Wheeler Wendy Altimas Wendy Bruce Wesley Harrop Wesley Neukermans Wesley West Will Bailey William Brownsell William Cruickshank William Gunshon 76 Topps Tiles Plc Annual Report & Financial Statements 2008 Store Locations Topps Tiles Central Region Abingdon Aylesbury Banbury Bedford Binley Bishop’s Stortford (cid:2) Boston Burton Bury St Edmunds Cambridge Cannock Clacton-on-Sea Colchester Coventry Cromer Derby Derby 2 Erdington Evesham (cid:2) Grantham Great Yarmouth Grove Park Hedgend (cid:2) Hemel Hempstead (cid:2) Hereford Huntingdon Ipswich Kettering Kidderminster Kings Heath King’s Lynn Leicester Long Eaton Lowestoft (cid:2) Lincoln Luton Mansfield Martlesham Milton Keynes Newcastle-U-Lyme Newark Northampton Norwich Nottingham Oxford Oxford 2 (cid:2) Peterborough Redditch Rugby (cid:2) Sheldon Shrewsbury Solihull Spalding Stafford Stamford Stoke on Trent St Albans (cid:2) St Neots Stratford-upon-Avon Tamworth Telford Thetford Wellingborough West Bromwich Wisbech Wolverhampton Worcester Worksop London and Thames South Ashford Basildon Battersea Beckton Bexhill Bognor Regis Braintree Brentford (cid:2) Brentwood Brighton Brixton Broadstairs Byfleet Camberley Camden (cid:2) Canterbury Catford Charlton Cheam Chelmsford Chelmsford 2 (cid:2) Chichester Chesham Chingford Colindale Crayford Croydon Dagenham Eastbourne Edmonton Eltham Enfield Erith Fareham (cid:2) Farnborough Farnham Feltham Folkestone Forest Hill (cid:2) Fulham Gatwick Grays Gunnersbury Guildford Harlow Harrow (cid:2) Highgate Horsham Ilford Isle of Wight Lewes Letchworth Maidstone Mile End (cid:2) Mitcham New Cross Gate (cid:2) New Southgate Newbury Newhaven Old Kent Road Orpington Penge Portsmouth Raynes Park Rayleigh Reading Richmond Romford Ruislip (cid:2) Tile Clearing House London and Thames South Barking Basildon Beckenham Charlton Croydon Dartford Eastbourne Harlow Hayes Ilford (cid:2) New Southgate Orpington Park Royal (cid:2) Staples Corner (cid:2) Southampton Southend Swindon North West Blackpool (cid:2) Bolton Cheadle Crewe Crosby Maghull Oldham Preston Stockport Warrington Wigan North Bradford Dewsbury (cid:2) Doncaster Hull Lincoln Central Region Cheltenham Fenton Great Barr Kettering Kidderminster Merry Hill Northampton Norwich Nottingham Nuneaton Oldbury (cid:2) Peterborough Shrewsbury Stoke-on-Trent Wolverhampton TOTAL 342 STORES (cid:2) New store 2007/08 Sittingbourne Slough Southall Southampton Southend Stamford Hill Sudbury Swindon Tonbridge Tunbridge Wells Twickenham Uckfield Uxbridge Vauxhall Waltham Cross Wandsworth Watford Welwyn Garden City Wembley West Wickham North West Aintree Birkenhead Blackburn Blackpool Bolton Cheadle Cheetham Hill (cid:2) Chester Chorley Cleveleys Congleton Crewe Failsworth Flint Holyhead Hyde (cid:2) Leek Liverpool Macclesfield Morecambe Nantwich Northwich Oldham Ormskirk Preston Scotland Aberdeen Edinburgh Govan Rutherglen South West Bournemouth Exeter Plymouth Salisbury Swansea Rhyl Sale Salford Snipe (Audenshaw) St Helens Stockport Warrington Widnes Wigan Wrexham North Barnsley Barrow-in-Furness Birstall Bradford (cid:2) Carlisle Cheetham Hill Chesterfield Darlington Doncaster Durham Dumfries Grimsby Harrogate Huddersfield Hyde Leeds Hull Meadowhall Penrith Pontefract Rotherham Scarborough Sheffield Stockton Sunderland Tyneside Wakefield York Scotland Aberdeen Dumfries (cid:2) Dundee Edinburgh Falkirk Glasgow Greenock Hillington Inverness Perth Shawfield Sighthill Wishaw South West Barnstaple Barry Basingstoke Bodmin Bridgend Bridgewater Bristol Cardiff Cardiff 2 Cheltenham Christchurch Clevedon Cribbs Causeway Cross Hands Exeter Exmouth Frome Gloucester Haverford West (cid:2) Hengrove Launceston Merthyr Tydfil Neath Plymouth Poole Salisbury St Albans Swansea Taunton Tiverton (cid:2) Torquay Weston-Super-Mare Winchester Yeovil Holland Stores Almere Amersfoort Amsterdam Amsterdam 2 Beuningen Capelle (cid:2) Den Bosch Deventer Duivern Eindhoven Enschede Groningen Heerhugowaard Helmond (cid:2) Klaprozenweg Rotterdam Sliedrecht (cid:2) Tiel Utrecht Veenendaal Waalwjk Zwolle Store Locations Topps Tiles – Store numbers Stores at the beginning of the period New stores opened Sub-total Closures (including brand swaps) Total 246 21 267 –4 263 Tile Clearing House – Store numbers Stores at the beginning of the period New stores opened Sub-total Closures (including brand swaps) Total 55 6 61 –4 57 Holland – Store numbers Stores at the beginning of the period New stores opened Sub-total Closures (including brand swaps) Total 20 2 22 – 22 Scotland Holland 22 stores operating in Holland 32 stores operating in North region North North West London Central Region South West London & Thames South 105 stores operating in London and Thames South 320 stores operating across the UK 17 stores operating in Scotland 47 stores operating in North West region 81 stores operating in Central region 40 stores operating in South West region Designed and produced by Radley Yeldar www.ry.com Topps Tiles Plc Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU T 0116 282 8000 F 0116 282 8115 www.toppstiles.co.uk 

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