Topps Tiles
Annual Report 2010

Plain-text annual report

T o p p s T i l e s P l c A n n u a l R e p o r t a n d F i n a n c a i l t t S a e m e n t s 2 0 1 0 great PriceS. great choice. great SerVice. Topps Tiles Plc Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU T 0116 282 8000 F 0116 282 8115 www.toppstiles.co.uk Topps Tiles Plc Annual Report and Financial Statements 2010 Introduction “This has been a robust performance from the business during a tough trading period, which demonstrates the effectiveness of our strategy and the strength and resilience of our business model. Through the prudent management of costs and careful control of our business, we have significantly reduced our net debt position during the period and continued to build on our market leading position”. Matthew Williams Chief Executive Officer Inside this year’s report 4 8 12 GreaT choIce. GreaT PrIces. GreaT servIce. review of the business 1 The year in brief 2 Our strategy 3 Chairman’s statement 5 Chief Executive’s statement 9 Business review 17 Corporate Social Responsibility Governance 20 Directors 21 Directors and advisors 22 Directors’ report 25 Corporate governance statement 27 Remuneration report Financial statements additional information 30 Independent auditors’ report – consolidated financial statements 67 Five year record 68 Notice of Annual General Meeting 71 Explanatory notes to the Notice of Annual General Meeting 73 Appendix – Principal features of the share incentive plan 75 The team 80 Store locations 31 Consolidated statement of financial performance 31 Consolidated statement of comprehensive income 32 Consolidated statement of financial position 33 Consolidated statement of changes in equity 34 Consolidated cash flow statement 35 Notes to the consolidated financial statements 63 Independent auditors’ report – Company financial statements 64 Company balance sheet 65 Notes to the Company financial statements h April 2010 sees the proud launch of our successful new website. Plc Annual Report and Financial Statements 2010 store locations scotland 15 stores operated by the Group in Scotland 63 stores operated by the Group in North region 50 stores operated by the Group in Midlands region 15 stores operated by the Group in Wales 113 stores operated by the Group in South region North London Midlands Wales south 56 stores operated by the Group in London Topps Tiles – store numbers Tile clearing house – store numbers Stores at the beginning of the period New stores opened Sub-total Stores at the beginning of the period 265 17 New stores opened 282 Sub-total Closures (including brand swaps) –7 Closures (including brand swaps) Total 275 Total 44 – 44 –7 37 Designed and produced by radley Yeldar www.ry.com Plc Annual Report and Financial Statements 2010 The year in brief Financial Performance 1 £182.4m Group revenue +1.7% Group like-for-like revenue 58.7% Group gross margin (2009: £178.8m*) (2009: –13.1%*) (2009: 59.2%*) £19.9m Operating profit £21.1m Adjusted operating profit** £16.3m Adjusted profit before tax*** (2009: £21.3m*) (2009: £22.8m*) (2009: £17.5m*) £12.4m Profit before tax 5.37p Basic earnings per share (2009: £9.9m*) (2009: 1.00p see note 13) 6.18p Adjusted basic earnings per share for continuing operations**** (2009: 7.34p see note 13) 1p Dividend per share £49.1m Net debt (2009: Nil) (2009: £71.2m) Please note this report has been prepared for the 53 weeks ended 2 October 2010 and the comparative period has been prepared for the 52 weeks ended 26 September 2009. With the exception of the Group like-for-like revenue measure which is comparable, the reported figures are presented on this basis and are not entirely comparable. The impact of the additional week is to increase revenue by £3.6 million and operating profit by £0.4 million. Current trading and outlook The Group is now trading from 312 stores (2009: 309 stores in the UK) In the first seven weeks of the new financial period, Group revenues increased by 2.9% and increased by 3.2% on a like-for-like basis * Comparative numbers are presented after restating the statement of financial performance to reflect the Dutch business as a discontinued operation, further information is provided in note 11 ** 2010 adjusted operating profit is adjusted for exceptional items being the impairment of plant, property and equipment of £0.8 million (2009: £1.0 million*) and other restructuring and one-off costs of £0.4 million (2009: £0.5 million*) *** 2010 adjusted profit before tax is adjusted for the effect of exceptional items above plus: – £2.8 million (non cash) charge relating to the interest rate derivatives the Group has in place (per IAS 39) (2009: £5.8 million) – Property disposal gain of £0.1 million (2009: loss of £0.3 million) **** Adjusted for the post tax effect of non-recurring items highlighted above i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Our strategy 2 The Topps’ strategy is focused on delivering outstanding value to our customers to ensure they always “return and recommend”. This has enabled us to retain our competitive advantage built upon the strong foundations of customer service, store locations, store layout, and product range. CUSTOMER SERVICE STORE LOCATIONS Customer service remains our number one priority and it is our policy to be honest, helpful and knowledgeable but never pushy. We operate an online e-learning centre which all staff are enrolled to and new courses are issued regularly to ensure our staff have the best product knowledge in the industry. To ensure our customer service always meets these high standards all of our stores are mystery shopped every month and customer response cards indicate that 97.6% of our customers rate our service “good to excellent”. STORE LAYOUT Our stores are clearly identified with bright, eye- catching exterior signage bearing the Topps Tiles or Tile Clearing House branding. Our average store size is around 6,250 square feet and is merchandised in a mini warehouse style, including separate areas of the store for wood flooring and natural stone. Stores are designed to be customer friendly with point of sale which aims to give informative product details and clear pricing. We make our store locations as easy for customers to get to as possible. We operate from highly visible locations on or close to busy roads and always with parking facilities. We have over 300 locations across the UK which ensures that the vast majority of customers will have a store near to them. PRODUCT RANGE As a specialist we are able to offer a huge range of products with many of them in stock and available to take away. Many of our key lines are imported directly from factories all over the world which ensures that we can offer the very latest tastes and trends to our customers, often on an exclusive basis. 3 Plc Annual Report and Financial Statements 2010 Chairman’s statement The management team has maintained a keen focus on delivering profits whilst prudently managing costs, continuing to invest in infrastructure and pursuing targeted growth of the store estate. The business is performing in line with management’s expectations and current trading figures also offer cause for confidence. £16.3m Adjusted profit before tax*** 1p Dividend per share (2009: £17.5m*) (2009: Nil) In our Interim Management Report we noted that the retail environment had continued to be challenging, particularly for those retailers dependent on discretionary spend. I am encouraged to be able to report that we have seen a return to like-for-like growth across the financial period as a whole. Our performance for the period has demonstrated the resilience of our business model and the prudence of management’s decisions regarding the pursuit of growth, expansion of the store estate and marketing of the business. We have continued to manage the business prudently, focusing on cost control, and we remain firmly cash generative with a secure balance sheet and increasing strength in our trading levels. We are confident that we are well positioned to benefit when market conditions materially improve and consumer confidence returns more strongly. Financial Results Total Group revenue for the 53 week period has increased to £182.4 million (2009: £178.8 million* for the 52 week period) with like-for-like revenue for the period showing an increase of 1.7% on last year. Operating profit for the period was £19.9 million (2009: £21.3 million*) giving a profit before tax of £12.4 million (2009: £9.9 million*). Basic earnings per share were 5.37p (2009: 1.00p see note 13). During the period we have incurred £1.2 million (2009: £1.5 million*) of exceptional charges relating to the closure and relocation of stores in the UK. On an adjusted basis, we have generated an operating profit** of £21.1 million (2009: £22.8 million*) and a profit before tax*** of £16.3 million (2009: £17.5 million*). Adjusted basic earnings per share for continuing operations**** were 6.18p (2009: 7.34p see note 13). Dividend The Board has given careful consideration to the resumption of dividend payments. Trading has improved and we are encouraged that we have seen a good level of stability, from which we feel we can plan and move forward. We have also commenced early negotiations with our existing lenders to extend our current banking facilities and, based on those discussions, the Board is now confident that new committed facilities will be in place over the coming months. As a result of progress on these two key issues, the Board feels that the resumption of dividend payments at this time is appropriate. The Board is recommending to shareholders a final dividend of 1p per share, £1.9 million in total. Subject to approval by shareholders at the Annual General Meeting, this will be payable on 31 January 2011 to all shareholders on the register as at 31 December 2010. People The Company’s staff remain fundamental to the success of the business through their delivery of outstanding customer service. This service ethic sets Topps Tiles apart from its competitors and underpins the robust business model that has proved so valuable in enabling the Group to withstand the economic downturn. I would like to extend the Board’s thanks and gratitude once again to everyone in the Group for their continuing efforts and hard work. Outlook The management team has maintained a keen focus on delivering profits whilst prudently managing costs, continuing to invest in infrastructure and pursuing targeted growth of the store estate. The business is performing in line with management’s expectations and current trading figures also offer cause for confidence. We are, however, conscious of the demands on our consumers and that the recently announced Government spending reductions may have an impact on the macro economy as we look forward. We remain confident that our business is both well positioned to benefit from further improvements in consumer confidence and is also well protected against further economic pressures. Barry Bester Chairman * ** *** **** As explained on page 1 i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 4 GREAT CHOICE. At Topps Tiles we have an unrivalled collection of products with the latest designs sourced from around the world. Our massive range of tiles and wood flooring offers great choice, from the period beauty of natural stone and real wood to the versatility of mosaics and the contemporary feel of glass, we’ve got ‘the look’ to suit every style. Plc Annual Report and Financial Statements 2010 Chief Executive’s statement £182.4m Group revenue £21.1m Adjusted operating profit** (2009: £178.8m*) (2009: £22.8m*) 5 We are encouraged by current trading despite the challenging economic outlook and subdued levels of consumer confidence. We are confident that the business will benefit from our growth strategy and our continued focus on delivering outstanding value to our customers. Topps Tiles Holland We reported in the Interim Management Report that during the period the Board had taken the decision to withdraw support and funding for its loss-making Dutch subsidiary, as announced on 18 December 2009. As a consequence of the notification of the withdrawal of support, the local management team took the decision to cease trading and appoint an administrator. This series of actions, and subsequent removal of the Dutch business from the Group’s consolidated financial statements, has resulted in a £1.5 million one-off non cash gain. This gain reflects the final accounting entries relating to the Dutch subsidiary and includes the write down and releases of the remaining balance sheet items, principally creditors, onerous lease provisions, stock and overdraft balances. This has been presented in the consolidated income statement under “discontinued operations”, together with the losses from the comparative periods. We have opened a net 10 new stores and now have a total of 275 Topps outlets. This includes eight new openings and five stores we have rebranded from Tile Clearing House (TCH). We have closed seven stores in the period, four of which have been relocated to improved sites. Our e-commerce business continues to make good progress, now offering the vast majority of our instore offer and, in addition, some internet only products. Customers are able to research projects, browse the ranges and make decisions about projects before final purchase, which can then be completed either online or in-store depending upon customers’ preference. This part of the business now represents approximately 1% of our turnover and we anticipate another year of strong growth. We will continue to invest in this important source of growth and expect to see it play an increasingly important role in our overall customer offer. Tile Clearing House (TCH) TCH remains focused on trade customers and jobbing builders, operating a “cash and carry” type format. During the period we have refitted and rebranded five stores to the Topps format and closed a further two, a net reduction of seven stores to 37 outlets. Results from rebranded stores demonstrate that a higher level of turnover is now being generated, which we believe is due to stronger branding and an enhanced customer offer available from the Topps format. $ For more information, please visit: www.toppstiles.co.uk Topps Tiles continues to be the market leader in its sector with a strong and resilient business model. The economic environment has continued to be challenging for retailers and to mitigate the possible impact on our performance we have maintained our focus on delivering outstanding customer service and providing excellent value high quality products. This focus has ensured that we have delivered a robust set of financial results against what remains a challenging economic backdrop. When combined with the continued prudent management of costs and material reduction in net debt, I feel the business is financially well positioned and we can progress our plans for growth. UK store development and expansion Over the last three years our store expansion strategy was realigned to take account of the changes in the economic environment. In the last 12 months we have again returned to store growth and have opened 12 new stores and closed or relocated nine stores, resulting in a net increase of three stores. The Group is now trading from a total of 312 outlets throughout the UK and in the coming year we have plans in place to increase the size of the business by at least 10 new stores. In order to facilitate our plans for store expansion and to enable us to integrate our supply chain further, we have commenced construction of a second warehousing facility at our Leicestershire headquarters, at an expected cost of £3 million. This will form a key part of our logistics strategy over the coming years and we anticipate it will be fully operational by April 2011. * ** As explained on page 1 i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Chief Executive’s statement continued 6 +1.7% Group like-for-like revenue (2009: –13.1%*) h Our online development includes entry into the mobile devices arena... our brochure and store locator is now available as an Iphone App. h Back on TV – with national weather sponsorship, we cleverly merge some of our most stunning photography with all weather scenes. Marketing, advertising and sponsorship For the majority of the financial period we have maintained a more cautious approach to marketing spend and activity levels remain at an historically low level. The marketing we have engaged in has been focused on tactical store based activity rather than external media campaigns. However, during the second half of the period we secured a competitive television weather sponsorship campaign with ITV in London, which was then rolled-out on Granada TV, followed by a national campaign which is running currently. We will continue to focus on tight cost control of our marketing activities but will also continue to review where great value opportunities exist that allow us to focus on promoting our brand. Our commitment to our local communities through sponsorship and charitable activity remains strong. We aim to make positive contributions to those communities served by our stores, working closely with them to promote our priority of being a “good neighbour”. We currently sponsor over 310 youth football teams nationwide, providing the teams with new kits and equipment. Our work for the charity, Help for Heroes, which we have been supporting since 2008, has gone from strength to strength and we have already helped to raise over £120,000. We also work with the British Association of Modern Mosaic (“BAMM”), sponsoring two national competitions and supporting the promotion of mosaic art in schools and community groups countrywide. Alongside this work with the BAMM, Topps Tiles participated in one of London’s biggest ever public art events, the Elephant Parade 2010, in support of the charity, Elephant Family. We sponsored a life-sized model baby elephant named Phoolan, which was decorated entirely in mosaic tiles, and was installed outside the Natural History Museum, highlighting the plight of endangered Asian elephants. Staff development and customer service We have always said that our staff are fundamental to fulfilling our key objective of delivering excellent customer service. We believe it is imperative to assist the professional development of our staff to deliver this service, and we continue to be rigorous in the recruitment and retention of high calibre employees who are committed to upholding this customer service ethic and contributing to the ongoing success of the business. We encourage staff to learn as they work and have recently completed some significant maintenance and upgrade work to our sophisticated in- store e-learning training system. These improvements have facilitated the recent introduction of vocational qualifications to our customer facing staff, which not only acknowledges their existing skills, but also signposts their future development needs as well as having a key role in succession planning. A successful pilot scheme has led to a national roll-out of a Certificate in Retail – Level 2, accredited by City & Guilds. Plans are already underway for a Level 3 award as well as a Young Apprenticeship Programme. * As explained on page 1 Plc Annual Report and Financial Statements 2010 h In July we launched the new Prestige Stone range, our finest quality natural stone collection. All our staff are incentivised with competitive benefit packages and performance based rewards, and we encourage internal promotion. We anticipate that staffing levels will increase as we start to expand the store base and further develop new areas of growth. Our customer satisfaction levels remain consistently high, with 97.6% of customers recently surveyed expressing levels of satisfaction as “good to excellent” (2009: 98.8%). These levels of satisfaction are driven by the performance of our friendly and knowledgeable staff combined with a product and value service unmatched by our competitors: all of our stores carry a wide range and supply of stock; we offer a loan-a- tile service; a tile cutting service and a buy-back service allowing customers to “sell back” undamaged tiles within 45 days of purchase. We also supply a free “How to” DVD and have a comprehensive selection of helpful “Topps Tips” on our website. In addition, each of our stores has links with accredited traders who can provide customers with a Topps’ approved installation service. 7 97.6% Customer satisfaction rating (2009: 98.8%) Corporate responsibility Current trading and outlook The management team at Topps Tiles is committed to a corporate responsibility policy that ensures the Group’s business is conducted according to socially responsible, environmentally friendly and ethical policies. We are very proud of the work that we have been involved in and have endeavoured to work responsibly with all of our stakeholders for a number of years. The areas we have given most focus to are: • Community and Charity In the first seven weeks of the new financial period, Group revenues increased by 2.9% and increased by 3.2% on a like-for-like basis. We are encouraged by current trading despite the challenging economic outlook and subdued levels of consumer confidence. We are confident that the business will benefit from our growth strategy and our continued focus on delivering outstanding value to our customers. Matthew Williams Chief Executive Officer • Environment • Our People Our policy is published on our website at www.toppstiles.co.uk and more detail can be found in this report. Topps Tiles is pleased to be a constituent member of the FTSE4Good UK Index. The market Topps has seen its position as the UK’s leading tile retailer further strengthen as market share has grown to 25% (2009: 23%) (source: MBD). Market conditions remain tough but despite this we have managed to outperform the market and grow share due to our unwavering focus on offering our customers outstanding value. Tile consumption in the UK continues to be low in comparison to the rest of Europe (roughly one-third compared to Northern Europe, source MBD), and long-term growth projections, based on increases in housing stock and consumer usage of tiles, remain attractive. There is the potential for over 400 Topps Tiles stores in the UK. i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n 8 GREAT PRICES. At Topps Tiles we not only offer the biggest choice of tiles and wood flooring, we are committed to offering our customers the best tiles at the best prices. Plus our customers can shop with confidence with our Lowest Price Guarantee. So whether our customers are tiling the smallest of rooms or the whole house we have quality products to suit every budget. Plc Annual Report and Financial Statements 2010 Business review 25% Group share of the UK tile market (2009: 23%) 9 The Board is encouraged by the performance during the period which has demonstrated the effectiveness of our strategy and the strength of our business model. We have continued to deliver operating profit, reduce net debt and generate cash. The Board believes that the business is well placed to take advantage of a contraction in the competition and a return of consumer confidence. Cautionary statement This Business Review has been prepared solely to provide additional information to shareholders to assess the Group’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. The Directors, in preparing this Business Review, have complied with section 417 of the Companies Act 2006. This Business Review has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to Topps Tiles Plc and to its subsidiary undertakings when viewed as a whole. Nature, objectives and strategies of the business Topps Tiles is a specialist tile and wood flooring retailer with 312 outlets across the UK, and is the country’s largest retailer of its kind with a 25% market share. The Group operates two retail brands, Topps Tiles and Tile Clearing House. Topps is the UK’s leading branded tile retailer with 275 stores offering wall and floor tiles, natural stone, laminate, solid wood flooring and a comprehensive range of associated products such as under-floor heating, adhesives and grouts. Tile Clearing House comprises a further 37 stores nationwide focusing on a mini warehouse type format and a “when it’s gone it’s gone” style customer offer. The Group strategy is focused upon delivering outstanding value and service to our customers. The key elements to the success of this strategy are the professionalism of our staff, store locations, store layout, product choice and availability. Key operational objectives: • Deliver outstanding value for money and service to ensure customers always “return and recommend” • Maintain our market leading position • Manage the store estate prudently, opening new stores where opportunities arise that complement the existing estate • Constant evolution of in-store customer offer to maintain our competitive advantage • Continued development of the e-commerce offering to maintain leading edge customer service • 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 Key financial objectives • Primary focus on increasing revenues and cash generation, maintaining tight cost control and continued reduction in net debt • Maximising earnings per share and shareholder returns, including bi-annual review of our dividend policy • Ongoing supplier tendering and benchmarking of non-stock suppliers • Managing the Group’s exposure to fluctuations in foreign exchange rates • Maintaining a capital structure which enables an appropriate balance of financial flexibility and capital efficiency Progress against these objectives is discussed throughout this report and, where appropriate measures are utilised, these are included in the Key Performance Indicators section. i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Business review continued 312 Number of stores trading across the Group (2009: 309*) 10 h Our newly relocated Stratford store, looking smart and ready for business. believes that the business is well placed to take advantage of a contraction in the competition and a return of consumer confidence. Over the financial period we have maintained our focus on cost control and have only seen increases in costs where we have decided that additional investment was appropriate or business performance has driven higher rewards for staff. Key areas of additional expenditure have been marketing and employee profit share. Further detail of expenditure is provided within the Financial Review. 53 weeks to 2 October 2010 52 weeks to 26 September 2009 1.7% 2.0% 58.7% £16.3m £49.1m 121 25% 97.6% 312 –13.1%* –10.3%* 59.2%* £17.5m* £71.2m 128 23% 98.8% 309* Operational review The Group’s focus remains on effective and efficient trading to minimise the impact of the continuing challenging economic cycle. Our primary objectives continue to be centred on optimising returns from the existing estate, careful management of our cost base and improving our financial flexibility. The Board is encouraged by the performance during the period which has demonstrated the effectiveness of our strategy and the strength of our business model. We have continued to deliver operating profit, reduce net debt and generate cash. The Board 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 % Adjusted PBT*** Net debt Stock days Non-financial KPIs Market Share % Customer satisfaction % Number of stores h Our new Metro glass range works brilliantly in a Retro style kitchen. * *** As explained on page 1 * Comparative numbers have been restated to exclude the impact of the Dutch business, which is now a discontinued operation. Plc Annual Report and Financial Statements 2010 11 x Our range of glass spashbacks, available in 20 colours, creates the kitchen ‘wow’ factor. h We continue to offer a great selection of solid, engineered and laminate flooring. h We’re ‘bang on trend’ with our new vintage style crackle glaze tiles available in a range of colours. Risks and uncertainties The Board conducts a continuing review of key risks and uncertainties. The Board’s primary focus when reviewing these risks and uncertainties over the last 12 months has included: • The continuing challenges of the UK economy and the anticipated business impact • Balancing the Group’s plans for UK growth against the uncertain economic outlook • Ensuring that the Group’s capital structure remains appropriate and that future funding requirements are accessible UK economy The Board is encouraged by the recent financial performance of the Group. The Board monitors the sales per store on a 52 week rolling average basis and this metric has grown at a small but consistent rate since September 2009, equivalent to an annualised growth rate of 1.7%. The UK economy continues to face a number of challenges but based on performance over the financial period the Board is cautiously optimistic that Group revenues will remain stable over the coming year. Balancing the Group’s plans for growth against the uncertain economic outlook During the financial period the Board has monitored both the Company’s performance and the macro economy closely and considered that a return to investing in key areas of growth for the business was appropriate. This has resulted in an overall increase in the number of stores, following a reduction in overall stores number in the financial period to September 2009. The Board anticipates that this growth will continue and are targeting an increase of approximately 10 new stores over the next 12 months; this target remains significantly below the historic levels of openings reflecting the Board’s cautious approach. The Board have also decided that investment in other key areas is now appropriate, the biggest of which will be a new warehousing facility at the Group’s existing site in Leicester at a cost of approximately £3 million. Appropriate capital structure The Group has in place loan facilities of £91.0 million repayable at a rate of £7.5 million per annum. The facility terminates in January 2012 with a final repayment of £83.5 million. The loan facility contains financial covenants which are tested on a bi-annual basis. Based on current trading and the Board’s current expectations for the next 12 months the Board expects that the Group will be able to continue to operate within its current financial covenants. The Board has a policy of having at least 12 months of committed facilities available. As a consequence the Board has commenced early discussions with its existing lenders and is confident that new committed facilities will be in place over the coming months. Other key risks In addition to the above, the Board considers other key risks including its relationship with key suppliers, the potential threat of new competitors, the risk of failure of key information technology systems, possible impacts on costs of sourcing due to weakness of Sterling in comparison to the Euro and US dollar currencies, loss of key personnel and the development of substitute products. The Board’s response to these risks is articulated throughout this report and includes: • Continuing improvement in our existing retail operations, including regular review of our product offer and customer service to ensure that we are maximising the opportunity to deliver sales • Careful management of costs across all areas of the business with increases in expenditure only in areas that the Board decides are appropriate in order to either drive short-term gains or generate longer term strategic benefits • Tight management of cash and continued reduction in net debt to improve financial flexibility • Continuing review of the Group’s sourcing strategy to enable us to deliver greater value for money whilst maintaining returns and minimise the risk of over reliance on any individual supplier The Directors will continue to monitor all of the key risks and uncertainties and the Board will take appropriate actions to mitigate these risks and their potential outcomes. $ For more information, please visit: www.toppstiles.co.uk i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 12 GREAT SERVICE. At Topps Tiles we are proud of our reputation for providing excellent customer service, this ethos has been present from the start and runs throughout the core of our business. Nothing is too much trouble for our knowledgeable well trained staff, we help our customers every step of the way, from inspirational ideas for their homes to selecting the right products to produce an excellent quality finish – we even organize the fitting. Plc Annual Report and Financial Statements 2010 Business review continued 58.7% Group gross margin (2009: 59.2%*) 13 h We’re enhancing our kitchen ranges with a range of delicately patterned tiles perfect for creating the popular shabby-chic look. Gross margin Overall gross margin was 58.7% compared with 59.2%* in the previous financial period. At the interim stage of this period gross margin was 58.8%, and we have recorded a gross margin of 58.7% in the second half of the period, demonstrating an encouraging level of stability. The environment we operate in continues to be a highly competitive one and we are able to utilise our scale to ensure that we can offer customers outstanding value and also generate increasing levels of returns. Previous financial periods have seen significant reductions in margins due to a weakening of Sterling and subsequent increased cost of sourcing. Whilst this pressure remains we have seen a greater level of stability in sterling exchange rates and this has helped in our forward planning on both purchases and pricing. We will continue to invest margin in a controlled way to drive transactions where we consider it appropriate to do so. Operating expenses Total operating costs have increased from £84.5 million* to £87.3 million, an increase of 3.3%. Costs as a percentage of sales were 47.8% compared to 47.3%* last year. When adjusting for exceptional items, detailed at the end of this section, operating costs were £86.1 million (2009: £83.1 million*), equivalent to 47.2% of sales (2009: 46.5% of sales*). The movement in adjusted operating costs is explained by the following key items: • The additional week we have accounted for in this financial period equates to approximately £1.6 million of additional costs • The average number of UK stores trading during the financial period was 310 (2009: 316), which would imply a 1.9% reduction in store costs, generating approximately £1.3 million of savings • We have made additional investments in marketing, increasing spend by approximately £1.0 million • Business performance has generated increased rewards for staff and our employee profit share costs have risen by £1.6 million. This includes the payment of a senior management bonus equating to £0.75 million (2009: £nil) • The remaining elements of the cost base are broadly flat when compared to the prior year. During the period we have incurred several charges which we have categorised as exceptional due to their nature. These charges primarily relate to impairments of plant, property and equipment of £0.8 million (2009: £1.0 million*) and other restructuring and one-off costs of £0.4 million (2009: £0.5 million*). Operating profit Operating profit for the period was £19.9 million (2009: £21.3 million*). Operating profit as a percentage of sales was 10.9% (2009: 11.9%*). When adjusted for the exceptional items detailed on page 1 and above, operating profit was £21.1 million (2009: £22.8 million*). Going concern Based on a detailed review of the risks and uncertainties on page 11, management’s latest revised forecasts, a range of sensitised scenarios and the current banking facilities, the Board has a reasonable expectation that the Group will continue to meet all of its financial commitments as they fall due and will be able to continue as a going concern. The Board, therefore, considers it appropriate to prepare the financial statements on the going concern basis. Financial review Profit and loss account Please note this report has been prepared for the 53 weeks ended 2 October 2010 and the comparative period has been prepared for the 52 weeks ended 26 September 2009. With the exception of the Group like-for-like revenue measure which is comparable, the reported figures are presented on this basis and are not entirely comparable. The impact of the additional week is to increase revenue by £3.6 million and operating profit by £0.4 million. * As explained on page 1 i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Business review continued 14 v With 20 different colours our massive range of glass tiles is designed to complement any kitchen style. £49.1m Net debt (2009: £71.2m) h Our Prestige Limestone offers affordable luxury and is available in a number of sizes, including mosaic. Fund raising During the period the Company completed a successful accelerated bookbuild placing on 24 November 2009, raising gross proceeds of approximately £15.4 million. The placing was undertaken to help provide the Company with both additional financial flexibility in the event of a further downturn in consumer confidence and spending and also additional resources to support the Company’s growth strategy as opportunities arise in the market. Profit before tax Reported profit before tax is £12.4 million (2009: £9.9 million*). Group profit before tax margin was 6.8% (2009: 5.5%*). When adjusted for the exceptional and non-cash items detailed on page 1 the profit before tax is £16.3 million (2009: £17.5 million*). Tax The effective rate of Corporation Tax in respect of continuing operations was 31.5% (2009: 32.2%*). Taking into account discontinued operations the overall effective rate of Corporation Tax was 25.6% (2009: 64.9%). The underlying UK tax rate was 31.5% (2009: 32.2%). The effective rate of tax on discontinued operations has been reduced by the recognition in the current period of the benefit of losses incurred by the Dutch trading subsidiary in prior periods. Earnings per Share Basic earnings per share were 5.37 pence (2009: 1.00p see note 13). Diluted earnings per share were 5.26 pence (2009: 0.99p see note 13). Dividend and dividend policy The Board has given careful consideration to the resumption of dividend payments. Trading has improved and we are encouraged that we have seen a good level of stability, from which we feel we can plan and move forward. We have also commenced early negotiations with our existing lenders to extend our current banking facilities and, based on those discussions, the Board is now confident that new committed facilities will be in place over the coming months. As a result of progress on these two key issues the Board feels that the resumption of dividend payments at this time is appropriate. The Board is recommending to shareholders a final dividend of 1p per share. Subject to approval by shareholders at the Annual General Meeting, this will be payable on 31 January 2011 to all shareholders on the register as at 31 December 2010. Other gains and losses Other gains and losses include the impact of property disposals. During the period we purchased at auction the freehold on one of our trading stores at a cost of £0.9 million. The property has now subsequently been sold for £1.0 million, with a profit on disposal of £0.1 million. Financing The net cash interest charge for the year was £4.8 million (2009: £5.3 million), excluding the impact of revaluations of derivatives instruments. Whilst the interest charge has fallen compared to the prior year we have only seen limited benefit from the very low interest rates that prevail in the market. This is due to a series of interest rate derivatives we have in place which negate the majority of any impact from interest rate movements. 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 £2.8 million (2009: £5.8 million). Due to the nature of the underlying financial instruments, 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 5.1 times (2009: 5.0 times) based on earnings before interest, tax and depreciation, excluding the impact of IAS 39 in finance charges. * As explained on page 1 Plc Annual Report and Financial Statements 2010 128 Stock at period end as days turnover (2009: 121) U Our new Amsterdam range offers timeless, classic tile design with a modern, contemporary twist. U Split Face mosaics are the latest trend in textured feature walls. Made from pieces of natural stone bonded together, they produce a stunning tactile form. 15 This gives the Group a net debt position of £49.1 million compared to £71.2 million as at 26 September 2009. Cash flow Cash generated by operations was £19.8 million, compared to £33.4 million last period. The additional week in the current financial period accounts for approximately £8.0 million of adverse working capital movement due to key payments to suppliers, staff and landlords having been made. An equivalent favourable impact was included in the 2009 cash flow, resulting in underlying cash generation being broadly stable. Annual General Meeting The Annual General Meeting for the period to 2 October 2010 will be held on 11 January 2011 at 10.30am at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU. Matt Williams Rob Parker Chief Executive Officer Finance Director 29 November 2010 Balance sheet Capital expenditure Capital expenditure in the period amounted to £4.9 million (2009: £2.1 million), an increase of 133%, reflecting the very low level we were at in 2009, the acquisition of a freehold store and the commencement of some cautious steps towards expansion in the current financial period. Capital expenditure includes the cost of eight new openings, five rebrands, four relocations and a small number of refits at a cost of £3.0 million. In addition to this we purchased the freehold on an existing store at a cost of £0.9 million (and subsequently disposed of via a sale and leaseback arrangement). Other capital expenditure amounted to £1.0 million and reflects the ongoing renewal of the estate. At the period end the Group held six freehold or long leasehold sites including two warehouse and distribution facilities with a total net book value of £13.4 million (2009: £13.5 million). Stock Stock at the period end was £24.9 million (2009: £27.4 million) representing 121 days’ turnover (2009: 128 days’ turnover). We have continued our focus on improving working capital efficiencies and as a result have realised savings across both stores and warehouse. Capital structure and treasury Cash and cash equivalents at the period end were £41.9 million (2009: £27.3 million) with repayable borrowings at £91.0 million (2009: £98.5 million). $ For more information, please visit: www.toppstiles.co.uk i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n 16 Plc Annual Report and Financial Statements 2010 GREAT PEOPLE. Our employees are central to everything we do at Topps Tiles and their wellbeing and engagement is a key focus for us. We aim to engage, reward and communicate with our people and are committed to providing equality of opportunity, training and development. Plc Annual Report and Financial Statements 2010 Corporate Social Responsibility 17 “Topps Tiles have been the most wonderful supporters of H4H since 2008 with all their 300+ stores motivated to do their bit for “the blokes” – the men and women of the Armed Forces – and we’re delighted to be working with them. Their staff have embraced the idea of “doing their bit” and they have raised a great deal of money in dozens of different and imaginative ways”. Bryn Parry, Help for Heroes founder Operational review Community and Charity Corporate Social Responsibility (“CSR”) is integral to all modern businesses and Topps Tiles is no exception. Taking responsibility for our impact on society is important to us as a business and we have been developing our CSR agenda since 2004. Over the past six years we have evolved and enhanced our programme to ensure we are an active member of our community, environmentally conscious and ensure our employees feel supported, developed and engaged. We are proud of our achievements in this area and focus our attentions across three primary areas • Community and Charity • Environment • Our People The Group is a constituent member of the FTSE4 Good Index of socially responsible UK quoted companies. The FTSE4 Good 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 continuing compliance. An important part of being a “good neighbour” for Topps Tiles is ensuring we are active in the communities local to our stores and places where we work. We have a strong Corporate Social Responsibility ethic at Topps and this is reflected in the work we do within our community and charity programmes. In its sixth year, our CSR programme has grown and been enhanced over the years providing the framework and impetus for stores to support local activities that are a “perfect fit” for our Company, values and culture. Topps in the Community Mosaic art is fast becoming a growing craft across the UK and Topps is proud to lead the way in promoting and supporting mosaic as both a public art and an educational craft skill for children and adults. Our mosaic programme is broken down into two key areas: • The first supports the educational needs of adults and children in our local community. We provide Topps Tiles Community Vouchers for mosaic materials to community artists and neighbourhood craft groups and provide expertise and materials to schools, educational workshops and further education centres. The support of these groups assists in individuals and groups developing their self- esteem, self-ability, educational needs, empowerment, inclusion and communication skills. k Sponsored by us... meet Phoolan, our unique lifesize baby elephant completely decorated in mosaics from our own range. • Secondly we sponsor two major competitions designed to showcase the work of novice mosaic artists. Mega Mosaic Makers, is a primary school competition organised by The British Association for Modern Mosaic and our own landmark competition for adults learning mosaic in community workshops and further education centres, the Topps Tiles Award for Achievements in Mosaics. The Elephant Parade 2010 was billed as London’s biggest public art event and Topps Tiles teamed up with artists and conservationists to flood London with 275 life-size baby elephants during May, June and July 2010. Focusing on the plight of endangered Asian elephants, (who might cease to exist in the wild by 2050), elephants were installed at key sites from Buckingham Palace through to the Olympic Stadium grounds. Topps Tiles were the proud sponsors of one of these “babies”, a female elephant named Phoolan. i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Corporate Social Responsibility continued 18 300+ The number of football teams we sponsor in the UK Charity During 2008 we adopted “Help for Heroes” as our Group charity and have taken their cause to our hearts in a big way. Founded in 2007, the charity funds specialist rehabilitation projects for members of the armed forces wounded in front line conflicts including Afghanistan. Undoubtedly, one of Britain’s most high- profile charities, Help for Heroes enjoys very strong support from the British public, as it does from the workforce at Topps Tiles. The last year has seen a phenomenal fundraising drive by our employees with individuals arranging events in their local communities (fun runs, football tournaments) through to a companywide skydive with the Red Devils in May 2010. With over £120,000 already raised for Help for Heroes, Topps are looking forward to continuing with the successful partnership in 2011. Youth football Topps is one of the biggest supporters of youth football in the UK and the free kit our stores donate to junior teams is arguably the most famous strip in the grassroots game! Whenever we open a new store we make a point of selecting a local team to support with kit and equipment. This has proved a simple and effective way of reaching out to the community and it’s a huge morale booster for local teams and families to secure a ‘big name’ sponsor like Topps Tiles. We currently support over 300 teams and are very proud of this association, culminating in major annual tournaments when teams across the country come together at The Walker’s Stadium to take their place on the hallowed turf of Leicester City FC. Environment There are three primary areas where our business potentially impacts the environment: 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. In liaison with the Carbon Trust, Topps commenced a pilot scheme for the replacement of old inefficient lighting installations with new efficient lighting systems at eleven of our sites. This work was carried out over the summer months and will result in: • An improved environment for our customers and staff, • Cost savings from lower electricity consumption and maintenance costs, and • A reduction in our carbon footprint. We are monitoring these sites and hope to undertake similar lighting replacements at other stores across the country. Waste Waste management is an important area for our business and we recycle as much as possible. With the ongoing need for us to actively manage our store waste in partnership with Biffa our stores now use Dry Mixed Recycling (DMR) meaning that cardboard, paper, newspapers, plastic films and bottles and steel and aluminium cans can all be put into one bin. As well as controlling our costs, we are reducing our carbon footprint by diverting waste away from landfill and reducing the environmental impact of our waste. 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 Topps continues to invest in fuel efficient Euro 5 low emissions fleet and have manufacturers telematic systems fitted as standard on these vehicles. This all allows monitoring of driving techniques and is followed by safe and efficient driving courses. New fleet is also fitted with engine idle shut down systems and two pedal semi-automatic gearboxes to ensure the vehicle is as fuel efficient as possible. Deliveries to stores continue to be consolidated on to own fleet with an active programme in place around lowering stem mileage and reducing emissions through more compact journeys. The trailer fleet continues to be as light as possible and the latest generation is fitted with a rear steer axle allowing less tyre wear and putting less strain on public roads and areas. Ongoing daily route planning initiatives look for the optimum solution to get our product to stores. Plc Annual Report and Financial Statements 2010 1,641 Number of people employed by the Group (2009:1,611) Supply chain We source our goods for resale including tiles, natural stone, wooden flooring and adhesives from around the world. 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 stipulate 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 People The wellbeing of our 1,600 plus employees, the quality of their working environment and their engagement with us as a business remains a key focus for Topps Tiles. We aim to reward individuals fairly and are committed to providing equality of opportunity, training and development as well as a safe workplace. Employee wellbeing • We provide an employee helpline service for all employees to have a channel for expressing concerns and seeking advice. In the coming year we plan to launch a new employee assistance helpline and store manager health plan. • Our in-house Health and Safety team maintain regular dialogue with staff and carry out periodic inspections and assessments to ensure risks are minimised or removed in our stores, warehouse and offices. • To promote effective communication and employee involvement we also operate a Health & Safety Committee which meets on a regular basis and is chaired by a main Board Director. Communication and engagement Communication with our employees is vital and we have initiatives in place to ensure regular and effective dialogue with staff. We have introduced a three year communication and engagement plan to support the business plan for the future. • We have a number of existing communication channels including an in house magazine and a weekly stores-bulletin. We also have an intranet which we expect to play an increasingly important part in our communication plans as we move forward. As part of our communication commitment we have seen the first annual management road show in October that took over 400 of our senior managers through our heritage, and plans for the future and followed up with an all employee communication to ensure all employees understand and are part of our plans. • In the coming year we will launch an employee representative forum (“TEAM Talk”) and conduct an employee engagement survey. These initiatives will help to create a framework for employees to participate in a two way engagement process with those that will drive decision making within the Company. 19 h Our 2010 Winner of the ‘Topps Tiles Award for Achievement in Mosaic’ art. • We are developing our internal employee brand in a drive to attract and retain the talent needed to support our growth plans. We actively encourage our staff to apply for internal vacancies and promotions. • Rewarding our employees for all their hard work is part of the Topps ethos and every employee has the opportunity to enhance their basic pay through additional performance related incentives. This year has also seen us review and enhance our complete reward programme to ensure we are competitive and recognise all our employees for their hard work and loyalty. In April 2008 the Group retained its Investors in People award for a further three years. Our full policy can be found on our website at www.toppstiles.co.uk in the investor section under corporate responsibility. i R e v e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n $ For more information, please visit: www.toppstiles.co.uk Plc Annual Report and Financial Statements 2010 Directors Non-Executive Directors Barry Bester Non-Executive Chairman (aged 53) Barry was a founder shareholder and Director of Topps Tiles in 1984. His principal responsibilities are Group Strategy. Executive Directors 20 Rt. Hon Michael Jack Privy Councillor Senior Non-Executive Director (aged 64) Chairman of Audit Committee Chairman of Nomination Committee Member of Remuneration Committee In business Michael’s management experience came from P&G, Marks & Spencer’s and a part of Northern Foods. His career as an MP concluded in 2010 after 23 years during which he served as a Minister in four Departments including the Treasury, as Financial Secretary. Additionally he chaired the EFRA Select Committee. Now he chairs the recently formed Office of Tax Simplification. He joined Topps Tiles Board in 1999. Alan White Non-Executive Director (aged 55) Member of Audit Committee Member of Nomination Committee Chairman of the 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. Matthew Williams Chief Executive Officer (aged 36) Nicholas Ounstead Marketing Director (aged 50) Robert Parker Finance Director (aged 38) Matt joined the Company in 1998 after completing his Chartered Surveyors exams and took up the role of Property Director. In 2004 he was promoted to Chief Operating Officer and on 1 April 2006 joined the Plc Board. In 2007 he was promoted to Chief Executive Officer. Health & Safety Committee Chairman Company Secretary Nicholas joined Topps Tiles in April 1997. Prior to this he was Marketing Director at Bellegrove Ceramics Plc which is a major supplier to DIY chains and independent retailers. In September 2001 he was appointed Chief Operating Officer and promoted to Chief Executive Officer from 2002 to 2007. Nicholas is also Chairman of the Health and Safety Committee. Secretary of Audit Committee 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. Plc Annual Report and Financial Statements 2010 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 Marketing Director R. Parker acma Finance Director A. White fca Non-Executive Director The Rt. Hon. J.M. Jack, Privy Counsellor Non-Executive Director Secretary R. Parker acma Registered number 3213782 Registered office Thorpe Way Grove Park Enderby Leicestershire LE19 1SU Solicitors TLT Solicitors 1 Redcliff Street Bristol BS99 7JZ Sinclair Abson Smith Lawyers 19 Market Place Stockport SK1 1HA Beachcroft LLP 3 Hardman Street Manchester M3 3HF Auditors Deloitte LLP Manchester Bankers HSBC Bank Plc 56 Queen Street Cardiff CF10 2PX Brokers KBC Peel Hunt Ltd 111 Old Broad Street London EC2N 1PH Registrars Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0GA 21 R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Directors’ Report 22 The Directors present their annual report on the affairs of the Group, together with the Financial Statements and Auditors’ Report, for the 53 week period ended 2 October 2010. The Corporate Governance Statement set out on pages 25 to 26 forms part of this report. 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, being the listed entity Topps Tiles Plc, 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 2 October 2010 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 page 3, the CEO’s statement on page 5, the Business Review on pages 9 to 15 and the Corporate and Social Responsibility statement on pages 17 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 10. Results and dividends The audited Financial Statements for the 53 week period ended 2 October 2010 are set out on pages 31 to 67. The Group’s profit for the period from continuing operations, after taxation, was £8,472,000 (2009: £6,699,000*). No interim dividend was paid in the period (2009: no interim dividend was paid). Following careful consideration, and for the reasons given in the Chairman’s statement of this report, the Board is recommending the payment of a final dividend of 1p per share, totalling £1,882,023 (2009: no final dividend). Directors The Directors of the Company who served throughout the year, and thereafter, were as follows: Non-Executive Chairman B.F.J. Bester M.T.M. Williams Chief Executive Officer R. Parker N.D. Ounstead Marketing Director J.M. Jack A. White Finance Director Senior Independent Non-Executive Director Non-Executive Director In line with the updated Combined Code on Corporate Governance all Directors will be subject to annual re-election from the next Annual General Meeting. The Company provides insurance against Directors and Officers liabilities to a maximum value of £5,000,000. The Directors’ interests in the shares of the Company are set out on page 29. Details of Directors’ share options are provided in the Directors’ Remuneration Report on page 29. Share capital Details of the Company’s authorised and issued share capital, together with details of the movements in the Company’s issued share capital during the period, are shown in note 23 to the financial statements. The Company has one class of ordinary shares in issue, which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Associated and prevailing legislation. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. Change of Control – Significant Agreements The Group is party to significant agreements, including commercial contracts, financial and property agreements and employees share plans, which contain certain termination and other rights for the counterparties upon a change of control of the Company. Should the counterparties choose to exercise their rights under the agreements on a change of control such arrangements would need to be renegotiated. None of these are considered to be significant in terms of this likely impact on the business of the Group as a whole. There are no agreements between any Group company and any of its employees or any Director of the Company which provides for compensation to be paid to the employee or Director for termination of employment or for loss of office as a consequence of a takeover of the Company, other than provisions that would apply on any termination of employment. * As explained on page 1 Plc Annual Report and Financial Statements 2010 23 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 41 days purchases (2009: 46 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. Charitable and political contributions During the period the Group made charitable donations of £10,000 (2009: £nil) to Help for Heroes. The Group made no political contributions (2009: £nil). Substantial shareholdings In addition to the Directors’ shareholdings noted on page 29, on 4 November 2010 the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the following interests in 3% or more of its issued share capital. Williams S.K.M. Esq Aberforth AXA Framlington Investment Management Scottish Widows Investment Partnership Blackrock Allianz Global Investors UBS Global Asset Management Number 19,903,950 18,617,247 15,299,831 11,894,594 9,351,078 8,950,000 5,732,369 % held 10.6% 9.9% 8.1% 6.3% 5.0% 4.8% 3.0% 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 risks is detailed in notes 17, 18, 19, 20 and 21. The Group’s risk management policies and procedures are also discussed in the Business Review on pages 9 to 15. 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 number of options held by employees, including Directors, is 5,571,746 (2009: 6,107,702). As described in note 31, 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. During the period ended 2 October 2010 the Board decided not to implement an employee sharesave scheme due to the high level of participation arising in the period ended 26 September 2009 when the average price was 21.8p. Details of Directors’ share options are provided in the Directors’ Remuneration Report on page 29. Information given to auditors Each of the Directors at the date of approval of this annual report confirms that: • So far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and • The Director has taken all the steps that he ought to have taken as a Director in order to make himself 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 418 of the Companies Act 2006. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Directors’ Report continued 24 Auditors A resolution to re appoint Deloitte LLP as the Company’s auditor will be proposed at the forthcoming Annual General Meeting. 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. Under that law the Directors are required to prepare the Group Financial Statements in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRSs”) and Article 4 of the IAS Regulation. In preparing the Group Financial Statements, International Accounting Standard 1 requires that the Directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • 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; and • make an assessment of the Company’s ability to continue as a going concern. 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). Under Company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the parent Company Financial Statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and • prepare the Financial Statements on the going concern basis unless it is inappropriate to presume the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and 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 corporate and financial information included on 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) the Financial Statements, prepared in accordance with the relevant financial reporting framework, 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 2) the management report, 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 29 November 2010 Plc Annual Report and Financial Statements 2010 Corporate Governance Statement 25 The Company is committed to the principles of corporate governance contained in the Combined Code of Corporate Governance that was issued in June 2010 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 B.6.1, as the Board does not currently undertake formal appraisal of its own performance and that of its committees on the basis that it considers an informal rolling programme of review appropriate. The Company complies with all other provisions of the Code. The Board of Directors comprises six members, of whom two 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 and Nomination Committee. Brief biographical details of all Directors are given on page 20. The Board meets at least ten times a year. Certain defined issues are reserved for the Board including approval of Financial Statements and circulars, annual budgets, strategy, Directors’ appointments, 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 at least every third year. 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. In addition, in line with the updated Code, the Board has resolved that all Directors will be subject to annual re-election from the next Annual General Meeting. Directors are elected at the first AGM after appointment. All Non-Executive Directors have written letters of appointment. The Board acknowledges the Code’s position with respect to the potential loss of independence for any Non-Executive Director who has served for nine years or more. Although the Rt. Hon. Michael Jack has exceeded this term the Board regards him to be independent and considers his broad based commercial experience and extensive business specific knowledge to be extremely beneficial. The Board considers that the Rt. Hon. Michael Jack and Alan White 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 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 53 week period ended 2 October 2010 and the attendance record of the individual Directors. Number of meetings B.F.J. Bester M.T.M. Williams N.D. Ounstead R. Parker J.M. Jack A. White Board of Directors Audit Committee Remuneration Committee Nomination Committee 11 11 11 11 11 10 10 2 2 2 2 2 2 2 4 4 N/A N/A N/A 4 4 2 2 N/A N/A N/A 2 2 R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Corporate Governance Statement continued 26 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 member is 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 a year to the Board. The Committee meets with the external auditors, the rest of the Board attend at the invitation of the 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 LLP (“Deloitte”), 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, are independent. Deloitte has been auditor for the Group since September 2003. The current audit partner’s first period as signing partner was the period ended September 2006 and the audit partner rotation plan has been discussed with the Committee. The Audit Committee considers the work of Deloitte and their independence in deciding whether an audit tender is required and, at this current point in time, is satisfied by the work of Deloitte and their independence, and so has proposed their re-appointment. Nomination Committee The Nomination Committee is chaired by The Rt. Hon. Michael Jack. The other member is Alan White. Barry Bester joins at the invitation of the Nomination Committee Chairman. 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. Plc Annual Report and Financial Statements 2010 Remuneration Report 27 Introduction This report has been prepared in accordance with Schedule 8 of the Accounting Regulations under the Companies Act 2006. 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 report to the Company’s members on certain parts of the Directors’ Remuneration Report and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Accounting Regulations. 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 (“the Committee”), which is constituted in accordance with the recommendations of the Combined Code. The members of the Committee are the Rt. Hon. Michael Jack, and Alan White, who are both independent Non-Executive Directors. Barry Bester joins by invitation from the Remuneration Committee Chairman. The Committee is chaired by Alan White and has met four times during the financial period to discuss the remuneration of the senior management team and the implementation of the Deferred bonus long-term incentive plan. None of the Committee has any personal financial interest (other than as shareholders), conflicts of interest arising from cross-directorships or day-to-day involvement in running the business. The Committee makes recommendations to the Board on the individual remuneration packages of each Executive Director. 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 four main elements of the remuneration package for Executive Directors: • basic annual salary and benefits; • annual cash based bonus payments; • deferred share-based long-term incentives; and • pension arrangements. Basic salary An Executive Director’s basic salary is reviewed and determined by the Committee prior to the beginning of each financial period and when an individual changes position or responsibility. In deciding appropriate levels, the Committee considers the Group as a whole, including levels of increases appropriate to other employees in the Group, and relies on objective research which gives up-to-date information on a comparator Group of companies. Basic salaries were reviewed in June 2010 and were increased by 2%, effective from that date, in consideration of general inflation. Executive Directors’ contracts of service, which include details of remuneration, will be available for inspection at the Annual General Meeting. Executive Directors’ pay and the employment conditions of the Group are taken into account when determining the Directors’ remuneration for the financial period. 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 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 125% of basic salary based on Group performance against budgeted EBITDA. For the period ending 2 October 2010 it was determined by the Remuneration Committee that a bonus be paid equivalent to 50% of basic salary for Mr. Williams, Mr. Parker and Mr. Ounstead. A proportion of the annual bonus will be deferred under the deferred bonus long-term incentive plan. Deferred bonus long-term incentive plan At the AGM in January 2010 a new deferred bonus long-term incentive plan was approved by shareholders. Under this long-term incentive plan 25% of the annual bonus (net of tax) is deferred in the form of shares for a two-year period, with a matching share award (on a gross basis) that vests at the end of two years subject to the achievement of performance conditions relating to continuing employment within the business and EBITDA earnings growth measured over the two-year period. Details of this award can be found on pages 29 and 62. The bonus structure will remain the same for the coming financial period. Pension arrangements Mr. Bester, Mr. Ounstead and Mr. Parker received contributions into their own personal pension schemes as disclosed in the table on page 29. Directors’ contracts Executive Directors It is the Company’s policy that Executive Directors are offered permanent contracts of employment. During the financial period the period of notice has been extended from a maximum of six months to a range of six to twelve months. Under an event of contract termination any severance payment would be subject to negotiation but would be with regard to length of service and the prevailing notice period. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Remuneration Report continued 28 Non-Executive Directors 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 £34,000 (2009: £34,000). The Senior Independent Non-Executive Director received an additional fee of £2,836 during the period (2009: £1,905). 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 role of Chairman is also non-executive, with an indefinite term contract and a maximum six months notice. Total remuneration for the period was £115,000 (2009: £114,000) including a contribution to the Company pension scheme of £6,000 (2009: £6,000). The Chairman also participates in the 2009 Save As You Earn 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 A. White Date of contract or letter of appointment Unexpired term 27 May 1997 26 January 1999 1 April 2008 N/A N/A N/A Notice period 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. 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. Total Shareholder Return Charting % 100% 80% 60% 40% 20% 0% –20% –40% –60% –80% –100% Oct-05 Topps Tiles Plc FTSE 250 Audited information Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Aggregate Directors’ remuneration The total amounts for Directors’ remuneration were as follows: Emoluments Money purchase pension contributions Share-based payments 2010 £’000 1,298 26 92 1,416 2009 £’000 934 24 2 960 Plc Annual Report and Financial Statements 2010 Directors’ emoluments Name of Director M.T.M. Williams N.D. Ounstead R. Parker Non-Executive Directors B.F.J. Bester V.H. Watson (Resigned 13 January 2009) J.M. Jack A. White Fees £’000 Basic salary £’000 Vehicle allowance £’000 Benefits in kind £’000 Money purchase pension contributions £’000 Share- based Payments £’000 358 187 205 107 – 37 – 24 19 19 – – – – 1 2 1 2 – – – – 8 12 6 – – – 44 23 25 – – – – – – – – – – 34 34 29 Bonus £’000 2010 £’000 132 69 101 559 308 363 2009 £’000 375 164 227 – – – – 115 114 – 37 34 10 36 34 894 62 6 26 92 302 1,416 960 Directors’ share options Share options held by the Directors relate to 2009 Save As You Earn scheme, which was eligible to all employees. No options have been exercised in the period. Name of Director Scheme B. Bester N. Ounstead R. Parker M. Williams Save As You Earn April 2009 Save As You Earn April 2009 Save As You Earn April 2009 Save As You Earn April 2009 26 Sept 2009 26,836 26,836 44,727 26,836 Acquired – – – – 2 Oct 2010 26,836 26,836 44,727 26,836 Exercise price Date from which exercisable Expiry date £0.165 £0.165 £0.165 £0.165 1 Apr 2012 1 Oct 2012 1 Oct 2012 1 Apr 2012 1 Oct 2014 1 Apr 2014 1 Oct 2012 1 Apr 2012 The market price of the ordinary shares at 1 October 2010 was 60.0p and the range during the year was 46.25p to 96.0p. Share-based payments and deferred entitlements Under the terms of the deferred bonus long term incentive plan and based on the Remuneration Committee’s assessment of performance of the business during the financial period, the Executive Directors will be awarded a share-based payment together with a matching award of shares at the end of a two-year period subject to the achievement of performance conditions relating to EBITDA earnings growth and continuing employment within the Group. The charge detailed under share-based payments in the Directors’ emoluments relates to the initial award, the matching award will be charged to the income statement over the next two years, subject to successful achievement of the performance criteria detailed. The share-based payment (net of tax) will be awarded in shares at the average price over the financial period of 69.0p. 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.T.M. Williams N.D. Ounstead R. Parker J.M. Jack A. White 2010 Number of ordinary shares of 3.33p each 2009 Number of ordinary shares of 3.33p each 22,929,954 600,000 477,750 72,500 44,250 41,499 22,076,200 439,205 537,750 30,000 40,250 15,000 Mr Bester held 12.2% of shares in the Company at 2 October 2010 (2009: 12.9%). Approval This report was approved by the Board of Directors on 29 November 2010 and signed on its behalf by: Alan White Chairman of Remuneration Committee R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Independent auditors’ report 30 We have audited the group financial statements of Topps Tiles Plc for the 53 week period ended 2 October 2010 which comprise the consolidated statement of financial performance, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes 1 to 33. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with chapter 3 of part 16 of the Companies Act 2006. 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 As explained more fully in the Directors’ Responsibilities statement, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the group financial statements: • give a true and fair view of the state of the group’s affairs as at 2 October 2010 and of its profit for the 53 week period then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. Separate opinion in relation to IFRSs as issued by the IASB As explained in note 2 to the group financial statements, the group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB). In our opinion the group financial statements comply with IFRSs as issued by the IASB. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the directors’ Report for the financial year for which the financial statements are prepared is consistent with the group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement contained within the Business Review in relation to going concern; and • the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Other matter We have reported separately on the parent company financial statements of Topps Tiles Plc for the period ended 2 October 2010 and on the information in the directors’ Remuneration Report that is described as having been audited. Sharon Fraser (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors Manchester, United Kingdom 29 November 2010 Plc Annual Report and Financial Statements 2010 Consolidated statement of financial performance For the 53 weeks ended 2 October 2010 Group revenue – continuing operations Cost of sales Gross profit Employee profit sharing Distribution costs Other operating expenses Administrative costs Sales and marketing costs Group operating profit before exceptional items Impairment of plant, property and equipment Restructuring and other one-off costs Group operating profit Other gains and losses Investment revenue Finance costs Fair value loss on interest rate derivatives Profit before taxation Taxation Profit for the period from continuing operations Discontinued operations Profit/(loss) for the period from discontinued operations Profit for the period attributable to equity holders of the Company Earnings per ordinary share (restated) From continuing operations – basic – diluted From continuing and discontinued operations – basic – diluted Consolidated statement of comprehensive income For the 53 weeks ended 2 October 2010 Exchange differences on retranslation of foreign operation Profit for the period Total comprehensive income for the period attributable to equity holders of the parent Company Notes 3 & 4 5 5 4 8 9 9 9 6 10 11 29 13 31 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 182,406 (75,254) 107,152 (6,902) (64,492) (5,452) (7,044) (3,385) 21,093 (815) (401) 19,877 100 453 (5,275) (2,780) 12,375 (3,903) 8,472 1,502 9,974 178,796 (72,929) 105,867 (5,258) (65,405) (4,827) (6,688) (2,348) 22,837 (1,027) (469) 21,341 (349) 329 (5,607) (5,833) 9,881 (3,182) 6,699 (4,977) 1,722 4.56p 4.46p 5.37p 5.26p 3.90p 3.86p 1.00p 0.99p Notes 28 53 weeks ended 2 October 2010 £’000 – 9,974 52 weeks ended 26 September 2009 £’000 88 1,722 9,974 1,810 * The figures for the 52 weeks to 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Consolidated statement of financial position 32 As at 2 October 2010 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 Provisions for liabilities and charges Total liabilities Net liabilities Equity Share capital Share premium Merger reserve Share-based payment reserve Capital redemption reserve Foreign exchange reserve Retained earnings Notes 2010 £’000 2009 £’000 14 15 17 18 19 21 20 20 22 22 23 24 25 26 27 28 29 245 31,639 31,884 24,874 7,594 41,879 74,347 106,231 (25,588) (10,557) (7,250) (6,181) 245 32,584 32,829 27,426 4,105 27,270 58,801 91,630 (30,669) (7,826) (7,250) (5,527) (49,576) (51,272) 24,771 7,529 (83,466) (422) (1,297) (90,712) (1,877) (1,051) (134,761) (144,912) (28,530) (53,282) 6,273 1,001 (399) 367 20,359 – (56,131) 5,703 1,001 240 240 20,359 336 (81,161) Total deficit attributable to equity holders of the parent (28,530) (53,282) The accompanying notes are an integral part of these financial statements. The financial statements of Topps Tiles Plc, Companies House number 3213782, on pages 31 to 62 were approved by the Board of Directors and authorised for issue on 29 November 2010. They were signed on its behalf by: M.T.M. Williams Director R. Parker Director Plc Annual Report and Financial Statements 2010 Consolidated statement of changes in equity 33 For the 53 weeks ended 2 October 2010 Equity attributable to equity holders of the parent Share capital £’000 Share premium £’000 Merger reserve £’000 Share-based payment reserve £’000 Capital redemption reserve £’000 Foreign exchange reserve £’000 Retained earnings £’000 Total equity £’000 Balance at 28 September 2008 5,703 1,001 240 322 20,359 248 (82,986) (55,113) Profit for the period Exchange differences on translation of foreign operations Total comprehensive income for the period Credit to equity for equity-settled share-based payments Deferred tax on share-based payment transactions – – – – – – – – – – – – – – – – – – (82) – – – – – – – 1,722 1,722 88 – 88 88 1,722 1,810 – – – (82) 103 103 Balance at 26 September 2009 5,703 1,001 240 240 20,359 336 (81,161) (53,282) Profit and total comprehensive income for the period Shares issued in respect of placing and open offer Transfer to retained earnings Credit to equity for equity-settled share-based payments Deferred tax on share-based payment transactions Release of reserve on disposal of subsidiary – – 570 14,296 – (14,296) – – – – – – – – – – – (639) – – – 127 – – – – – – – – – – – – – 9,974 9,974 – 14,866 14,296 – – 127 121 121 (336) 639 (336) Balance at 2 October 2010 6,273 1,001 (399) 367 20,359 – (56,131) (28,530) R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Consolidated cash flow statement For the 53 weeks ended 2 October 2010 Cash flow from operating activities Profit for the period (Profit)/loss for the period from discontinued operations Taxation Fair value on interest rate derivatives Finance costs Investment revenue Other gains and losses Group operating profit Adjustments for: Depreciation of property, plant and equipment Impairment of property, plant and equipment Restructuring and other one-off costs Share option charge/(credit) (Increase)/decrease in trade and other receivables Decrease in inventories (Decrease)/increase in payables Cash generated by operations Interest paid Taxation paid Net cash from operating activities Investing activities Interest received Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Net cash (used in)/from investment activities Financing activities Proceeds from issue of share capital Repayment of bank loans Net cash from/(used in) financing activities Net increase 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 34 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 9,974 (1,502) 3,903 2,780 5,275 (453) (100) 1,722 4,977 3,182 5,833 5,607 (329) 349 19,877 21,341 4,040 815 401 127 (3,351) 1,853 (3,991) 19,771 (5,308) (4,112) 10,351 107 (4,292) 949 (3,236) 14,874 (7,500) 7,374 14,489 27,270 120 41,879 4,317 1,027 469 (82) 3,260 919 2,141 33,392 (5,901) (6,514) 20,977 303 (2,096) 1,972 179 – (7,500) (7,500) 13,656 13,977 (363) 27,270 * Comparative numbers are presented after restating the cash flow statement to reflect the Dutch business as a discontinued operation. Further information is provided in note 11. Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements 35 For the 53 week period ended 2 October 2010 1 General information Topps Tiles Plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 21. The nature of the Group’s operations and its principal activity is set out in the Directors’ Report on page 22. 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 2l. Adoption of new and revised standards In the current period, the following new and revised standards and interpretations have been adopted and have affected the amounts reported in the financial statements. Amendments to IFRS 7: Financial Instrument disclosures. The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current period in accordance with the transitional reliefs offered in these amendments. IFRS 8 Operating Segments IFRS 8 is a disclosure standard that has resulted in a re-designation of the Group’s reportable segments (see note 4). IAS 1 (Revised 2007) Presentation of Financial Statements This standard relates to the presentation of financial statements and has introduced a number of changes in the format and content of the financial statements. Specifically, this revised standard requires an entity to present a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements i.e. to provide a second comparative for the statement of financial position, when the entity applies an accounting policy retrospectively or makes a retrospective restatement, or when the entity reclassifies items in the financial statements. However, the Directors consider that because the adoption of IFRS 8 has no effect on the statement of financial position, no presentation of a third statement of financial position is required. 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: IFRS 3 (revised 2008) Business Combinations IAS 24 (revised 2009) Related Party Disclosures IAS 27 (revised 2008) Consolidated and Separate Financial Statements IFRIC 17 Distribution of Non-cash Assets to Owners Improvements to IFRSs (2009) 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. 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 IFRSs 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. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. Based on a detailed review of the risks and uncertainties (see page 11 of the Business Review), management’s latest revised forecasts, a range of sensitised scenarios and the current banking facilities the Board has, at the time of approving the financial statements, a reasonable expectation that the Group will continue to meet all of its financial commitments as they fall due and will be able to continue as a going concern. The Board, therefore, considers it appropriate to prepare the financial statements on the going concern basis. 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). 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 disposed of during the period are included in the consolidated statement of financial performance from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 36 For the 53 week period ended 2 October 2010 2 Accounting policies (continued) c) Financial period Throughout the financial statements, Directors’ Report and Business Review, references to 2010 mean at 2 October 2010 or the 53 weeks then ended; references to 2009 mean at 26 September 2009 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. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. 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 statement of financial performance 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. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 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 recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. 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 on initial recognition. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established (provided that it is probable that the economic benefit will flow to the Group and the amount of income can be measured reliably). g) Exceptional items The Group has identified certain items as exceptional where they relate to one-off costs incurred in the period that they do not expect to be repeated on an annual basis. The principles applied in identifying exceptional costs are applied consistently each period. Plc Annual Report and Financial Statements 2010 37 2 Accounting policies (continued) h) 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 a reducing balance basis as appropriate 25% per annum on a reducing balance basis Residual value is calculated on prices prevailing at the date of acquisition. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of financial performance. i) Impairment of tangible and intangible assets excluding goodwill At each period end, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. j) 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 represents the estimated selling price, less costs to be incurred in marketing, selling and distribution. Provision is made for those items of inventory where the net realisable value is estimated to be lower than cost. The net replacement value of inventories is not considered materially different from that stated in the consolidated statement of financial position. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 38 For the 53 week period ended 2 October 2010 2 Accounting policies (continued) k) 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 period. Taxable profit differs from net profit as reported in the statement of financial performance because it excludes items of income or expense that are taxable or deductible in other periods 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. 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 statement of financial performance, 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. l) 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 statement of financial performance for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the statement of financial performance for the period. Exchange differences are recognised in profit or loss in the period in which they arise except for: • exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; • exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial instruments/ hedge accounting); and • exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment. 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 recognised in other comprehensive income and accumulated in equity, in the Group’s foreign exchange reserve. Such differences are recognised as income or expense in the period in which the operation is disposed of. Plc Annual Report and Financial Statements 2010 39 2 Accounting policies (continued) m) Leases Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. n) Investments Fixed asset investments are shown at cost less provision for impairment. o) Retirement benefit costs For defined contribution schemes, the amount charged to the statement of financial performance 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. p) 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 statement of financial performance over the term of the debt at a constant rate on the carrying amount. q) 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. 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. Fair value is determined in the manner described in note 2v. 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. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments other than those financial assets and liabilities classified as at FVTPL. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 40 For the 53 week period ended 2 October 2010 2 Accounting policies (continued) q) Financial instruments (continued) 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 39 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. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. Fair value is determined in the manner described in note 2v. 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, to the net carrying amount on initial recognition. Plc Annual Report and Financial Statements 2010 41 2 Accounting policies (continued) q) Financial instruments (continued) 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 re-measured to their fair value at each period end 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. r) Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been 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 (excluding the effect of non market-based vesting conditions) 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. s) Trade payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. t) Operating profit Operating profit is stated after charging restructuring costs but before property disposals, investment income and finance costs. u) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of 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. v) 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 critical judgement, 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 has the most significant effect on the amounts recognised in financial statements is 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. The Group only recognises revenue where this is the case. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 42 For the 53 week period ended 2 October 2010 2 Accounting policies (continued) v) Critical accounting judgements and key sources of estimation uncertainty (continued) Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the period end date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, 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 Group 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 (2009: £0.2 million). Impairment of property, plant and equipment During the period, the Group has closed 9 stores in the UK, including some before their lease end dates. As the fixtures and fittings within these stores cannot be re-used in other locations within the Group, the carrying value of these assets has been fully provided for in the period. Onerous lease provisions During the period the Group has continued to review the performance of its store portfolio, which has resulted in two further stores being exited before their lease term has expired (2009: 8 stores). In respect of these leases, and those in relation to stores exited before lease end dates in the prior period that are still vacant, the Group has provided for what it considers to be the unavoidable costs prior to lease termination or sublease. The Group has further reviewed any trading loss making stores and provided for those leases considered to be onerous. These estimates are based upon available information and knowledge of the property market. The ultimate costs to be incurred in this regard may vary from the estimates. Dilapidations provision The Group has estimated its likely dilapidation charges for its store portfolio and provided accordingly. This estimate involves an assessment of average costs per store and the expected exit period for the current portfolio, and is based on management’s best estimate, taking into account knowledge of the property market and historic trends. The ultimate costs to be incurred may vary from the estimates. 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 of Group revenue is as follows: Topps Tiles Tile Clearing House Revenue from the sale of goods Interest received on interest rate swaps Interest receivable Total revenue 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 165,068 17,338 158,643 20,153 182,406 178,796 – 457 79 155 182,863 179,030 Interest receivable represents gains on loans and receivables. There are no other gains recognised in respect of loans and receivables. * The figures for the 52 weeks to 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009. Plc Annual Report and Financial Statements 2010 43 4 Business segments The Group has adopted IFRS 8 Operating Segments with effect from 27 September 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. These segments comprise (a) Topps Tiles retail operations in the UK; (b) TCH retail operations in the UK; and (c) the Topps Floorstore operation in Holland, which was disposed of on 22 December 2009. Segment result represents the profit/(loss) earned by each segment without allocation of the central administration costs including Directors’ salaries, other gains and losses, investment income, finance costs, fair value loss on interest rate derivatives and income tax expense. Revenues from major products and services and information about major customers Information regarding the above is required by IFRS 8 (paragraphs 32 and 34) but is not given in these notes to the financial statements because of the nature of the Group’s business. The Group’s principal activity, being a ‘specialist tile and woodflooring retailer’, is reported in the segments shown below and due to its wide product offering the disclosure of revenues from major products is not appropriate. As the Group’s revenue is derived from sales to the general public, it has no reliance on any individual major customer. Geographical segments The Group’s reporting format is by business segment. Although the Group operated in two geographic segments, the UK and Holland during the period, neither the revenue from sales to external customers nor the value of net assets within Holland represented more than 10% of Group totals. Amounts reported for the comparative periods have been re-presented to conform to the requirements of IFRS 8. No inter-segment sales were made during the periods presented. The following is an analysis of the Group’s revenue and results by reportable segment: 53 weeks ended 2 October 2010 Revenue Segment result Central administration costs Operating profit Other gains and losses Investment revenues Finance costs Fair value loss on interest rate derivatives Profit before tax Tax Profit for the period from discontinued operations Profit after tax and discontinued operations Topps £’000 TCH £’000 Topps Floorstore £’000 Discontinued operations £’000 Consolidated £’000 165,068 20,276 17,338 964 1,014 1,022 (1,014) (1,022) 182,406 21,240 (1,363) 19,877 100 453 (5,275) (2,780) 12,375 (3,903) 8,472 1,502 9,974 R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 44 For the 53 week period ended 2 October 2010 4 Business segments (continued) Other information Capital additions Depreciation Impairment losses recognised Balance sheet Segment assets Unallocated corporate assets Consolidated total assets Segment liabilities Unallocated corporate liabilities Topps £’000 2,986 2,704 374 113,223 – 113,223 (20,824) – TCH £’000 836 952 441 8,268 – 8,268 (5,707) – Consolidated total liabilities (20,824) (5,707) Topps Floorstore £’000 Head office/ distribution centre £’000 Discontinued operations £’000 Consolidated £’000 – 3 48 – – – – – – 1,031 384 – – (3) (48) 4,853 4,040 815 – (15,260) (15,260) – (108,230) (108,230) 121,491 (15,260) 106,231 (26,531) (108,230) (134,761) Unallocated corporate assets include the Group’s overdraft, which in the statement of financial position is presented net within cash and cash equivalents due to a legal right of off-set between Group entities. Unallocated corporate liabilities comprise bank loans, derivatives, corporation and deferred tax liabilities and sundry head office creditors. Topps £’000 158,643 20,207 TCH £’000 20,153 1,625 Topps Floorstore £’000 7,265 (4,977) Discontinued operations £’000 Consolidated £’000 (7,265) 4,977 178,796 21,832 Restated* 52 weeks ended 26 September 2009 Revenue Segment result Central administration costs Operating profit Other gains and losses Investment revenues Finance costs Fair value loss on interest rate derivatives Profit before tax Tax Loss for the period from discontinued operations Profit after tax and discontinued operations Other information (491) 21,341 (349) 329 (5,607) (5,833) 9,881 (3,182) 6,699 (4,977) 1,722 Topps Floorstore £’000 Head office/ distribution centre £’000 Discontinued operations £’000 Consolidated £’000 658 759 208 – (324) (2,025) 2,096 4,317 1,027 Capital additions Depreciation* Impairment losses recognised* Balance sheet Segment assets Unallocated corporate assets Consolidated total assets Segment liabilities Unallocated corporate liabilities Consolidated total liabilities Topps £’000 1,068 2,869 209 96,718 – 96,718 (17,690) – (17,690) TCH £’000 370 689 610 7,109 – 7,109 (3,059) – (3,059) – 324 2,025 926 – 926 – (13,123) (13,123) (2,800) – – (121,363) (2,800) (121,363) 103,827 (13,123) 90,704 (20,749) (121,363) (142,112) * The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009. Plc Annual Report and Financial Statements 2010 5 Exceptional items During 2010, 9 stores in the UK (2009: 15) were closed resulting in a write-off of property, plant and equipment totalling £815,000. The Group also reviewed its potential exposure to future lease commitments pertaining to closed stores resulting in a charge of £401,000. 45 Impairment of property, plant and equipment Restructuring and other one-off costs 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 815 401 1,216 1,027 469 1,496 * The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009. 6 Profit before taxation Profit before taxation for the period has been arrived at after charging/(crediting): Depreciation of property, plant and equipment Impairment of property, plant and equipment Restructuring and other one-off costs Staff costs (see note 7) Operating lease rentals Write down of inventories recognised as an expense Cost of inventories recognised as expense Net foreign exchange loss/(gain) 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 4,040 815 401 40,152 20,861 2,493 73,936 17 4,317 1,027 469 40,242 20,730 3,539 76,080 (25) * The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009. Analysis of auditors’ remuneration is provided below: Fees payable to the Company’s auditors with respect to the Company’s annual accounts Fees payable to the Company’s auditors and their associates for other audit services to the Group: Audit of the Company’s subsidiaries pursuant to legislation Total audit fees Tax services: compliance services advisory services Corporate finance services – business advice Other services Total non audit fees 53 weeks ended 2 October 2010 £’000 52 weeks ended 26 September 2009 £’000 40 105 145 47 21 – – 68 213 44 110 154 57 5 175 47 284 438 A description of the work of the Audit Committee is set out on page 26 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 46 For the 53 week period ended 2 October 2010 7 Staff costs The average monthly number of persons and their full time equivalents employed by the Group and Company in the UK during the accounting period (including executive Directors) was: Selling Administration Their aggregate remuneration comprised: Wages and salaries (including LTIP, see note 31) Social security costs Other pension costs (see note 30b) 53 weeks ended 2 October 2010 Number employed 52 weeks ended 26 September 2009 Number employed 1,441 174 1,615 2010 £’000 36,541 3,430 181 40,152 1,463 162 1,625 2009 £’000 36,570 3,486 186 40,242 Details of Directors’ emoluments are disclosed on page 29. Employee profit sharing of £6.9 million (2009: £5.3 million) is included in the above and comprises sales commission and bonuses. 8 Other gains/(losses) Other gains in 2010 relate to the sale of one freehold property and in 2009 the other losses relate to the sale of two freehold properties. 9 Investment revenue, finance costs and fair value loss on interest rate derivatives Investment revenue Bank interest receivable and similar income Fair value (loss)/gain on forward currency contracts Finance costs Interest on bank loans and overdrafts 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 457 (4) 453 234 95 329 (5,275) (5,607) No finance costs are appropriate to be capitalised in the period, or the prior period. Interest on bank loans and overdrafts represents gains and losses on financial liabilities measured at amortised cost, including interest charges levied, together with interest paid on the interest rate derivatives of £2,678,000 (2009: £1,016,000). There are no other gains or losses recognised in respect of financial liabilities measured at amortised cost. Net losses from the movement in fair value on held for trading assets and liabilities (derivative instruments) were £2,784,000 (2009: £5,738,000), which include fair value losses on interest rate swaps of £2,780,000 (2009: £5,833,000) and fair value losses on forward currency contracts of £4,000 (2009: £95,000 gain). Included within bank interest receivable and similar income is interest receivable on interest rate derivatives of £nil (2009: £79,000). * The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009. Plc Annual Report and Financial Statements 2010 10 Taxation Continuing operations: Current tax – charge for the year Current tax – adjustment in respect of previous periods Deferred tax – effect of reduction in UK corporation tax rate Deferred tax – credit for year (note 22) Deferred tax – adjustment in respect of previous periods (note 22) 47 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 5,276 (39) (31) (1,246) (57) 3,903 3,441 (275) – 102 (86) 3,182 Corporation tax in the UK is calculated at 28% (2009: 28%) of the estimated assessable profit for the period. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the statement of financial performance as follows: Continuing operations: Profit before taxation Tax at the UK corporation tax rate of 28% (2009: 28%) Tax effect of expenses that are not deductible in determining taxable profit Tax effect of chargeable gain (lower than)/in excess of profit on sale of freehold property 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 Discontinued operations: Current tax – adjustment in respect of previous periods 53 weeks ended 2 October 2010 £’000 12,375 3,465 173 (28) 389 (96) 3,903 Restated* 52 weeks ended 26 September 2009 £’000 9,881 2,767 276 98 402 (361) 3,182 53 weeks ended 2 October 2010 £’000 Restated* 52 weeks ended 26 September 2009 £’000 (480) (480) – – * The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 48 For the 53 week period ended 2 October 2010 11 Discontinued operations On 18 December 2009, the Group announced that it was withdrawing funding to the Dutch operation, which resulted in Topps Retail BV being placed into administration on 22 December 2009. The transaction was completed on 22 December 2009, on which date control of Topps Retail BV passed to the administrator and is therefore accounted as a disposal in the consolidated financial statements. The results of the discontinued operations, which have been included in the consolidated statement of financial performance, were as follows: Revenue Expenses Loss before tax Attributable tax expense Profit on disposal of discontinued operations Attributable tax expense Net profit/(loss) attributable to discontinued operations (attributable to owners of the Company) Period ended 22 December 2009 £’000 52 weeks ended 26 September 2009 £’000 1,014 (1,329) 7,265 (12,242) (315) – (315) 1,337 1,022 480 1,502 (4,977) – (4,977) – (4,977) – (4,977) During the year Topps Retail BV received £204,000 (2009: received £208,000) from the Group’s net operating cash flows, paid £nil (2009: £175,000) in respect of investing activities and paid £nil (2009: £nil) in respect of financing activities. A profit of £1,337,000 arose on the disposal of Topps Retail BV, being the proceeds of disposal (£nil) net of the carrying amount of the subsidiary’s assets and liabilities. Further detail is provided in the table on the following page. The effect of discontinued operations on segment results is disclosed in note 4. The net liabilities of Topps Retail BV at the date of disposal and for the comparative period are detailed below: Property, plant and equipment Inventories Trade receivables Sundry payables Current tax receivables Trade payables Onerous lease provision Foreign exchange reserve Bank overdraft Total consideration Gain on disposal 22 December 2009 £’000 26 September 2009 £’000 92 699 136 (517) 27 (1,104) (436) (336) (112) (1,551) 44 596 26 (293) 7 (773) (340) (288) (316) (1,337) – 1,337 Plc Annual Report and Financial Statements 2010 49 12 Dividends There was no final dividend paid in respect of the 52 week period ended 26 September 2009 (2008: £nil), or interim dividend for the 27 weeks ended 3 April 2010 (2009: £nil). Proposed final dividend for the 53 week period ended 2 October 2010 of £0.01 (2009: £nil) per share 2010 £’000 1,882 2009 £’000 – The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 13 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. The number of shares in issue for the prior period has been adjusted retrospectively for the bonus element of the placing and open offer completed in November 2009. Basic and diluted earnings per share have accordingly been restated for the 52 week period ended 26 September 2009 as follows: Weighted average number of shares For basic earnings per share Weighted average number of shares under option For diluted earnings per share 2010 Number of shares Restated 2009 Number of Shares 185,643,741 4,123,000 171,836,222 1,936,826 189,766,741 173,773,048 The calculation of the basic and diluted earnings per share used the same denominators as shown above for both basic and diluted earnings per share. The adjusted earnings figure is based on the following data: From continuing and discontinuing operations Profit after tax for the period Post tax effect of: Impairment of property, plant and equipment Interest rate derivative charge Property disposal (gain)/ loss Restructuring and other one-off costs Adjusted profit after tax for the period From continuing operations Profit after tax for the period Post tax effect of: Impairment of property, plant and equipment Interest rate derivative charge Property disposal (gain)/ loss Restructuring and other one-off costs Adjusted profit after tax for the period From discontinued operations Basic Diluted 53 weeks ended 2 October 2010 £’000 52 weeks ended 26 September 2009 £’000 9,974 1,722 863 2,001 (100) (977) 3,052 4,199 349 2,005 11,761 11,327 2010 £’000 8,472 815 2,001 (100) 289 2009 £’000 6,699 1,027 4,199 349 339 11,477 12,613 2010 0.81p 0.79p 2009 – 2.90p – 2.86p R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued For the 53 week period ended 2 October 2010 14 Goodwill Cost and carrying amount at 27 September 2008, 26 September 2009 and 2 October 2010 50 £’000 245 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. Goodwill is allocated to the TCH segment. 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 6.0% (2009: 5.8%). 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% (2009: 2%). This rate does not exceed the average long-term growth rate for the relevant markets. The accounting judgements and sources of estimation uncertainty involved in assessing any impairment loss are referred to in note 2 of these Notes to the financial statements. As a result of the annual test of impairment of goodwill, no impairment has been identified for the current period. Plc Annual Report and Financial Statements 2010 15 Property, plant and equipment Cost At 28 September 2008 Foreign exchange movement Additions Disposals At 26 September 2009 Additions Disposals At 2 October 2010 Accumulated depreciation and impairment At 28 September 2008 Foreign exchange movement Charge for the period Provision for impairment Eliminated on disposals At 26 September 2009 Charge for the period Provision for impairment Eliminated on disposals At 2 October 2010 Carrying amount At 2 October 2010 At 26 September 2009 Land and buildings Freehold £’000 Short leasehold £’000 16,648 – 618 (2,412) 14,854 1,002 (850) 1,842 – – – 1,842 – – Fixtures and fittings £’000 43,603 – 1,438 (1,322) 43,719 3,832 – Motor vehicles £’000 343 21 40 (198) 206 19 (202) 51 Total £’000 62,436 21 2,096 (3,932) 60,621 4,853 (1,052) 15,006 1,842 47,551 23 64,422 1,022 – 246 208 (98) 1,378 213 – – 1,145 – 125 – – 1,270 113 66 – 19,737 – 4,227 2,844 (1,523) 25,285 3,702 749 – 146 13 43 – (98) 104 15 – (112) 22,050 13 4,641 3,052 (1,719) 28,037 4,043 815 (112) 1,591 1,449 29,736 7 32,783 13,415 13,476 393 572 17,815 18,434 16 102 31,639 32,584 Freehold land and buildings include £4,104,000 of land (2009: £4,104,000) on which no depreciation has been charged in the current period. Cumulative finance costs capitalised in the cost of tangible fixed assets amount to £nil (2009: £nil). The Group has no contractual commitments for the acquisition of property, plant and equipment (2009: £nil). During the period, the Group has closed 9 stores in the UK, including some before their lease end dates. As the fixtures and fittings within these stores cannot be re-used in other locations within the Group, the carrying value of these assets has been fully provided for in the period, with the associated impairment charge included within other operating expenses. 16 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. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 52 For the 53 week period ended 2 October 2010 17 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 2010 £’000 2009 £’000 420 655 5,503 – 1,671 7,594 1,438 49 1,963 4,105 The Directors consider that the carrying amount of trade and other receivables at 2 October 2010 and 26 September 2009 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 2 October 2010 amounted to £0.4 million (2009: £0.7 million). These amounts mainly relate to insurance generated sales, Tesco Clubcard Scheme, sundry trade accounts and contracts division generated sales. In relation to these sales, the average credit period taken is 39 days (2009: 65 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, £100,000 (2009: £112,000) is due from Independent Inspections and £104,000 (2009: £nil) is due from Tesco Plc, the Group’s two largest customers. Included in the Group’s trade receivable balance are debtors with a carrying amount of £110,000 (2009: £64,000) 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 124 days (2009: 134 days), however this ageing is distorted by one account of £19,000 (2009: £21,000) which is overdue by 202 days (2009: 154 days). Ageing of past due but not impaired receivables: 60–120 days 121–202 days 2010 £’000 91 19 2009 £’000 64 – The allowance for doubtful debts has been increased to £103,000 by the end of the period (2009: £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 £103,000 relating to individually impaired trade receivables (2009: £2,000) which have been placed under liquidation. 18 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 2010 £’000 41,109 331 439 41,879 2009 £’000 24,196 2,901 173 27,270 Plc Annual Report and Financial Statements 2010 19 Other financial liabilities Trade and other payables Amounts falling due within one year Trade payables Other payables Accruals and deferred income 53 2010 £’000 2009 £’000 12,489 3,406 9,693 25,588 14,577 8,493 7,599 30,669 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 41 days (2009: 46 days). No interest is charged on these payables. The Directors consider that the carrying amount of trade payables at 2 October 2010 and 26 September 2009 approximates to their fair value on the basis of discounted cash flow analysis. 20 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 Amount due for settlement after 12 months 2010 £’000 2009 £’000 90,716 97,962 7,500 7,500 76,000 91,000 (284) 90,716 (7,500) 250 83,466 7,500 7,500 83,500 98,500 (538) 97,962 (7,500) 250 90,712 The Directors consider that the carrying amount of the bank loan at 2 October 2010 and 26 September 2009 approximates to its fair value since the amounts relate to floating rate debt. The average weighted interest rates paid on the loan were as follows: Loans 2010 % 2009 % 2.6747 3.9011 The Group borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. Whilst the interest charge on the loan has fallen compared to the prior period, the Group has seen limited benefit due to the interest rate derivatives which negate the majority of any impact on the interest rate movement. The Group has one principal bank loan taken out on 1 August 2006, with a balance of £91 million outstanding at the period end. During the period ended 27 September 2008 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 an arrangement fee of £0.5 million associated with the original loan agreement, which is being amortised over the original period of the facility. An additional fee of £0.5 million was incurred in a prior period on renegotiation of the loan. This fee 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 2 October 2010, the Group had available £5 million (2009: £5 million) of undrawn committed banking facilities. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 54 For the 53 week period ended 2 October 2010 21 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 20, cash and cash equivalents disclosed in note 18 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 23 to 29. 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 2q 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 2010 £’000 2009 £’000 – 49,473 49 31,326 10,557 116,304 7,826 128,631 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 mitigate 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. 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 2010 £’000 439 331 Assets 2009 £’000 3,064 2,923 2010 £’000 1,129 329 Liabilities 2009 £’000 4,546 344 Plc Annual Report and Financial Statements 2010 55 21 Financial instruments (continued) Foreign currency sensitivity analysis The Group is mainly exposed to the currency of China and Brazil (US dollar currency) and from various European countries (Euro) as a result of stock purchases. The following table details the Group’s sensitivity to a 10% increase and decrease in 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. 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 Profit or Loss movement on a 10% weakening in Sterling against the Euro Profit or Loss movement on a 10% weakening in Sterling against the US dollar 2010 £’000 63 – (77) – 2009 £’000 135 (234) (165) 287 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 amounts of outstanding forward foreign exchange contracts that the Group has committed to are as below: Forward foreign exchange contracts 2010 £’000 4,356 2009 £’000 512 These arrangements are designed to address significant exchange exposures for the first half of 2011 and are renewed on a revolving basis as required. At 2 October 2010 the fair value of the Group’s currency derivatives is a £22,000 asset (2009: an asset of £30,000). These amounts are based on market value of equivalent instruments at the balance sheet date. Losses of £4,000 are included in operating profit in the year (2009: gains of £95,000). 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. 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 the 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 50 basis points decrease in interest rates 2010 £’000 1,443 2009 £’000 2010 £’000 2009 £’000 1,248 (1,385) (1,219) The Group’s sensitivity to interest rates mainly relates to the interest rate derivatives. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 56 For the 53 week period ended 2 October 2010 21 Financial instruments (continued) Interest rate derivatives The Group uses interest rate derivatives to manage its exposure to interest rate movements on its bank borrowings. The Group’s interest rate derivatives comprise; • 5 year interest rate cap with a notional value of £20 million with interest capped at 6% • 5 year interest rate swap with a notional value of £20 million paying interest at a fixed rate of 5.63% • 10 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 2 October 2010 is estimated at £10,557,000 (2009: £7,777,000). Amounts of £2,780,000 have been charged to the statement of financial performance in the period (2009: £5,833,000). 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 has 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 17. 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 20 is a description of additional undrawn facilities that the Group has at its disposal to reduce liquidity risk further. 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 2.74665% (2009: 2.59450%)) 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. 2010 Non-interest bearing Variable interest rate instruments 2009 Non-interest bearing Variable interest rate instruments Less than 1 month £’000 25,588 630 Less than 1 month £’000 30,669 – 1–3 months £’000 3 months to 1 year £’000 – 418 1–3 months £’000 – 722 – 9,290 3 months to 1 year £’000 – 9,564 1–5 Years £’000 – 84,266 1–5 Years £’000 – 94,204 5+ Years £’000 – – Total £’000 25,588 94,604 5+ Years £’000 Total £’000 – – 30,669 104,490 The Group has access to financing facilities, of which the total unused amount is £5 million at the balance sheet date (2009: £5 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. Plc Annual Report and Financial Statements 2010 57 21 Financial instruments (continued) Liquidity and interest risk tables (continued) 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 instruments 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. 2010 Interest rate swaps payments Foreign exchange forward contracts payments Foreign exchange forward contracts receipts 2009 Interest rate swaps payments Foreign exchange forward contracts payments 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 Total £’000 – – – (603) (1,572) (6,606) (2,331) (11,112) (1,933) (2,423) 1,928 2,450 – – – – (4,356) 4,378 Less than 1 month £’000 1–3 months £’000 3 months to 1 year £’000 1–5 Years £’000 5+ Years £’000 Total £’000 – (702) (1,926) (4,776) (2,331) (9,735) (512) 548 – – – – – – – – (512) 548 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. The fair values are therefore categorised as Level 2, based on the degree to which the fair value is observable. Level 2 fair value measurements are those derived from inputs other than unadjusted quoted prices in active markets (Level 1 categorisation) that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued For the 53 week period ended 2 October 2010 22 Provisions for liabilities and charges Less than one year: At 28 September 2008 Additional provision in the period At 26 September 2009 Additional provision in the period Utilisation: continuing Utilisation: discontinued Release of provision in the period At 2 October 2010 Greater than one year: At 28 September 2008 and 26 September 2009 Additional provision in the period At 2 October 2010 Total provisions at 2 October 2010 Onerous lease provision £000 Dilapidations provision £000 58 Total £000 – 1,051 1,051 490 (35) (96) (396) – 178 178 372 (20) – (56) 474 1,014 – – – – 283 283 474 1,297 – 873 873 118 (15) (96) (340) 540 – 283 283 823 The onerous lease provision relates to estimated future unavoidable lease costs in respect of closed and non-trading stores. The provision is expected to be utilised over the following two financial periods. The dilapidations provision represents management’s best estimate of the Group’s liability under its property lease arrangements based on past experience. The following are the 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 Rent free £’000 At 28 September 2008 (Credit)/charge to income Credit to Equity At 27 September 2009 (Credit)/charge to income Impact of rate change Credit to equity At 2 October 2010 3,054 (633) – 2,421 (86) (138) – 2,197 (215) 215 – – – – – – (133) 23 (103) (213) (64) 2 (121) (396) 4 5 – 9 (1) – – 8 (545) 282 – (263) (1,174) 106 – (1,331) (201) 124 – (77) 22 (1) – (56) Total £’000 1,964 16 (103) 1,877 (1,303) (31) (121) 422 The Finance Bill 2010 received Royal ascent on 27 July 2010 and included a reduction in the main rate of corporation tax for the financial year beginning 1 April 2011 from 28% to 27%. The Government has also indicated that it intends to enact future reductions in the main corporation tax rate of 1% each year, down to 24% by 1 April 2014. The future 1% main corporation tax rate reductions are expected to have a similar impact on our financial statements as above, however the actual impact will be dependent on our deferred tax position at that time. Plc Annual Report and Financial Statements 2010 23 Called-up share capital Authorised 240,000,000 (2009: 240,000,000) ordinary shares of 3.33p each (2009: 3.33p) Authorised 37,000,000 (2009: 37,000,000) redeemable B shares of £0.54 each Authorised 124,890,948 (2009: 124,890,948) irredeemable C shares of £0.001 each Issued and fully-paid 188,202,323 (2009: 171,093,021) ordinary shares of 3.33p each (2009: 3.33p) Total 59 2009 £’000 8,000 19,980 125 28,105 5,703 5,703 2010 £’000 8,000 19,980 125 28,105 6,273 6,273 The Group issued 17,109,302 shares as part of a placing and open offer on 27 November 2009. The issue increased the number of shares from 171,093,021 to 188,202,323. Under the arrangements of the placing, the Company issued shares in exchange for shares in Tail Finance Jersey Limited. No share premium is ultimately recorded in the Company’s financial statements through the operation of the merger relief provisions of the Companies Act 2006. The subsequent redemption of these shares gave rise to distributable profits of £14.3 million which have been transferred to retained earnings. During the period the Group issued no (2009: 515) ordinary shares with a nominal value of £nil (2009: £17) under share option schemes for an aggregate cash consideration of £nil (2009: £330). 24 Share premium At start of period Shares issued in respect of placing and open offer Transfer to retained earnings At end of period 25 Merger reserve At start of period Release of reserve on disposal of subsidiary At end of period 26 Share-based payment reserve At start of period Charge/(credit) to equity for equity-settled share-based payments At end of period 27 Capital redemption reserve 2010 £’000 1,001 14,296 (14,296) 1,001 2010 £’000 240 (639) (399) 2010 £’000 240 127 367 2010 £’000 2009 £’000 1,001 – – 1,001 2009 £’000 240 – 240 2009 £’000 322 (82) 240 2009 £’000 At start and end of period 20,359 20,359 The capital redemption reserve arose on the cancellation of treasury shares and as a result of a share reorganisation in 2006. 28 Foreign exchange reserve At start of period Exchange differences on consolidation of overseas operations Release of reserve on disposal of subsidiary At end of period 2010 £’000 336 – (336) – 2009 £’000 248 88 – 336 R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued For the 53 week period ended 2 October 2010 29 Retained earnings At 28 September 2008 Deferred tax on sharesave scheme taken directly to equity Net profit for the period At 27 September 2009 Release from Merger reserve on disposal of subsidiary Transfer from the share premium account Deferred tax on sharesave scheme taken directly to equity Net profit for the period At 2 October 2010 60 £’000 (82,986) 103 1,722 (81,161) 639 14,296 121 9,974 (56,131) The transfer from the share premium account arose from the firm placing and open offer in November 2009. Within these arrangements, the Company issued shares in exchange for ordinary shares and redeemable preference shares in Tail Finance Jersey Limited. No share premium is ultimately recorded in the Company financial statements through the operation of the merger relief provisions of the Companies Act 2006. The realised gain is taken after the deduction of transaction costs of £0.5 million, principally as a result of commissions and professional charges. The subsequent redemption of these shares gave rise to distributable profits of £14.3 million which have been transferred to retained earnings. 30 Financial commitments a) Capital commitments At the end of the period there were no capital commitments contracted (2009: £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 £181,000 (2009: £186,000). 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 as an expense for the period were £20,861,000 which includes property service charges of £649,000 (2009: £20,730,000 including property service charges of £542,000). 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 1 year – within 2–5 years – after 5 years Land and buildings £’000 17,908 58,796 63,027 139,731 2010 Other £’000 1,014 1,922 80 3,016 Land and buildings £’000 17,124 57,497 60,396 135,017 2009 Other £’000 881 1,478 193 2,552 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 5 years (2009: same). Plc Annual Report and Financial Statements 2010 31 Share-based payments The Group operates three 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: 61 26 January 2001 12 February 2002 Movements in share options are summarised as follows: Outstanding at beginning of period Expired during the period Outstanding at end of period Exercisable at end of period Option price Exercisable period 2010 2009 No. of options outstanding 54p 54p 7 Years 7 Years 78,020 40,779 81,520 40,779 118,799 122,299 2010 number of share options 122,299 (3,500) 118,799 118,799 2010 weighted average exercise price £ 0.54 0.54 0.54 0.54 2009 number of share options 149,299 (27,000) 122,299 122,299 2009 weighted average exercise price £ 0.54 0.54 0.54 0.54 The options outstanding at 2 October 2010 had a weighted averaged exercise price of 54p (2009: 54p) and a weighted average remaining contractual life of one year (2009: two years). Other share-based payment plans 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 financial period. 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 2010 number of share options 5,974,783 – – (521,836) 5,452,947 5,452,947 2010 weighted average exercise price 19p – – 19p 19p 19p 2009 number of share options 717,635 5,963,943 (706,795) – 5,974,783 5,974,783 The inputs to the Black-Scholes Model for the above two schemes are as follows: Weighted average share price – pence Weighted average exercise price – pence Expected volatility Expected life – % – years Risk – free rate of interest Dividend Yield – % – % 2010 22.6 18.1 32.4 3 or 5 0.8 5.04 2009 weighted average exercise price 135p 17p 135p – 19p 19p 2009 24.3 19.4 114.6 3 or 5 2.9 4.7 Expected volatility was determined by calculating the historical volatility of the Group’s share price over the 2009/10 financial period (2009: 2008/09 financial period). 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. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the consolidated financial statements continued 62 For the 53 week period ended 2 October 2010 31 Share-based payments (continued) Deferred bonus long-term incentive plan At the AGM in January 2010 a new deferred bonus long-term incentive plan (LTIP) was approved by shareholders. Under this long term incentive plan a proportion of the annual bonus is deferred in the form of shares for a two year period with a matching share award that vests at the end of two years subject to the achievement of performance conditions. 25% of the annual bonus has been deferred into shares, on a net basis, for a two year period, with a further match on a gross basis which vests two years later subject to the achievement of performance conditions relating to continued employment in the business and EBITDA earnings growth measured over the two year period. For the period ending 2 October 2010 it was determined that a bonus be paid equivalent to 50% of basic salary for Executive Directors and the members of the Senior Management Team. 25% of the annual bonus will be deferred under the deferred bonus long term incentive plan. The total number of shares due to be awarded is 129,489, the fair value of these deferred shares as at 2 October 2010 was £79,000. The total number of matching shares that are expected to be awarded, subject to fulfilment of the performance conditions is 242,144. The inputs to the Black-Scholes Model are as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk – free rate of interest Dividend Yield – pence – pence – % – years – % – % 2010 60.0 – 81.6 2 0.8 0 2009 – – – – – – Expected volatility was determined by calculating the historical volatility of the Group’s share price over the 2008/09 and 2009/10 financial periods (2009: 2008/09 financial period). 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. In total, the Group recognised a total expense of £127,000 (2009: £82,000 income) relating to share-based payments. 32 Related party transactions S.K.M. Williams has the non-statutory role of President, advising on property matters and is a related party by virtue of his 10.6% shareholding (19,903,950 ordinary shares) in the Group’s issued share capital (2009: 11.4% shareholding of 19,503,950 ordinary shares). At 2 October 2010 S.K.M. Williams was the landlord of three properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £134,000 (2009: £84,000) per annum. No amounts were outstanding at 2 October 2010 (2009: £nil). The lease agreements on both properties are operated on commercial arms length terms. His salary for the year in his role as President was £41,000 (2009: £40,000). 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 £1.4 million (2009: £1.0 million). Further information about the remuneration of the individual Directors is provided in the Remuneration Report on pages 27 to 29. 33 Events after the balance sheet date On 19 October 2010 the Group issued a letter of intent to Herbert Baggley Construction Limited detailing its intention to enter into a formal contract for the construction of a new warehouse facility at Grove Park. The cost of construction is estimated to be £3 million. Plc Annual Report and Financial Statements 2010 Independent auditors’ report to the members of Topps Tiles Plc 63 We have audited the parent company financial statements of Topps Tiles Plc for the period ended 2 October 2010 which comprise the Company balance sheet and the related notes 1 to 7. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 As explained more fully in the Directors’ Responsibility statement, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the parent company financial statements: • give a true and fair view of the state of the parent company’s affairs as at 2 October 2010; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Directors’ Report for the financial period for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the group financial statements of Topps Tiles Plc for the period ended 2 October 2010. Sharon Fraser (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors Manchester, United Kingdom 29 November 2010 R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Company balance sheet as at 2 October 2010 Fixed assets Investments Current assets Debtors due within one year Debtors due 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 64 2009 £’000 2,763 2,763 2010 £’000 2,801 2,801 630 221,200 29,139 250,969 (1,390) 1,710 221,200 12,655 235,565 (1,161) 249,579 234,404 252,380 237,167 6,273 1,001 323 – 20,359 6,200 218,224 5,703 1,001 240 639 20,359 6,200 203,025 252,380 237,167 Notes 3 4 4 5 6 7 7 7 7 7 7 The financial statements of Topps Tiles Plc, Companies House number 3213782, were approved by the Board of Directors on 29 November 2010 and signed on its behalf by: M.T.M. Williams Director R. Parker Director Plc Annual Report and Financial Statements 2010 Notes to the Company financial statements 65 1 Basis of accounting The separate financial statements of the Company are presented as required by the Companies Act 2006. They have been prepared under the historical cost convention and in accordance with United Kingdom Accounting Standards and law. Based on a detailed review of the risks and uncertainties (see page 11 of the Business Review), management’s latest revised forecasts, a range of sensitised scenarios and the current banking facilities the Board has at the time of approving the financial statements, a reasonable expectation that the Group will continue to meet all of its financial commitments as they fall due and will be able to continue as a going concern. The Board, therefore, considers it appropriate to prepare the financial statements on the going concern basis. 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. The credit subtracted from the cost of investment in those subsidiaries whose employees receive the benefit of the share options is £38,000 (2009: charge of £82,000). In respect of the deferred long-term bonus incentive plan, the share-based payment charge within the Company is £45,000 in respect of the deferred share award. 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 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the period. Topps Tiles Plc reported a retained profit for the financial period ended 2 October 2010 of £264,000 (2009: £4,432,000 loss). The auditors’ remuneration for services to the Company was £40,000 for audit related work (2009: £44,000 for audit related work). Fees relating to non-audit work totalled £nil (2009: £222,000), see note 6 to the Group financial statements for further details. The Company had no other employees other than the Directors (2009: same), whose remuneration is detailed on page 29. 3 Fixed asset investments At 27 September 2009 Movement in share options granted to employees At 2 October 2010 Shares £’000 2,763 38 2,801 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 % of issued shares held Principal activity Topalpha Limited* Multi Tile Limited Topps Tiles Holdings Topps Tiles (UK) Limited Topps Tiles Distribution Ltd 100% 100% 100% 100% 100% Topps Tiles Holdings BV* 100% *held directly by Topps Tiles Plc. Property management and investment. Retail and wholesale of ceramic tiles, wood flooring and related products. Intermediate holding company. Retail and wholesale of ceramic tiles, wood flooring and related products. Wholesale and distribution of ceramic tiles, wood flooring and related products. Retail and wholesale of ceramic tiles, wood flooring and related products. 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 Holdings BV, which is registered and incorporated in the Netherlands. A subsidiary of Topps Tiles Holdings BV, Topps Tiles Retail BV, was placed into administration during the period. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l S t a t e m e n t s t O h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notes to the Company financial statements continued 4 Debtors Amounts falling due within one year: Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income Amounts falling due after one year: Amounts owed by subsidiary undertaking 66 2009 £’000 1,677 – 33 1,710 2010 £’000 – 12 618 630 221,200 221,200 In respect of the deferred bonus share award, a deferred tax asset has not been recognised as it is probable that there will be insufficient suitable profits arising when the shares are awarded, against which to relieve the deduction. 5 Creditors: Amounts falling due within one year Trade and other creditors Amounts owed to subsidiary undertakings Accruals and deferred income 6 Called up Share Capital Authorised 240,000,000 (2009: 240,000,000) ordinary shares of 3.33p each (2009: 3.33p) Authorised 37,000,000 (2009: 37,000,000) redeemable B shares of £0.54 each Authorised 124,890,948 (2009: 124,890,948) irredeemable C shares of £0.001 each 2010 £’000 12 253 1,125 1,390 2010 £’000 8,000 19,980 125 28,105 2009 £’000 61 240 860 1,161 2009 £’000 8,000 19,980 125 28,105 Issued and fully-paid 188,202,323 (2009: 171,093,021) ordinary shares of 3.33p each (2009: 3.33p) 6,273 5,703 During the period the Group allotted no (2009: 515) ordinary shares with a nominal value of £nil (2009: £17) under share option schemes for an aggregate cash consideration of £nil (2009: £330). The Group issued 17,109,302 shares as part of a placing and open offer (2009: nil). The issue increased the number of shares from 171,093,021 to 188,202,323. 7 Reserves Company At 27 September 2009 Profit for the period Shares issued in respect of placing and open offer Transfer to retained earnings Credit to equity for equity-settled share based payments Release of reserve on disposal of subsidiary Share capital £’000 5,703 – Share premium £’000 1,001 – 570 – 14,296 (14,296) – – – – Share- based payment reserve £’000 240 – Merger reserve £’000 Capital redemption reserve £’000 Other reserves £’000 Profit and loss account £’000 Total £’000 639 – 20,359 – 6,200 203,025 237,167 264 264 – – – 83 – – – – (639) – – – – – – – – – 14,296 14,866 – – 639 83 – At 2 October 2010 6,273 1,001 323 – 20,359 6,200 218,224 252,380 At 2 October 2010, the Directors consider the other reserve of £6,200,000 to remain non distributable. The Directors consider £203,106,000 of profit and loss account reserves not to be distributable at 2 October 2010. This arose on an unrealised gain on the intragroup disposal of subsidiary companies. Plc Plc Annual Report and Financial Statements 2010 Annual Report and Financial Statements 2010 Five year record Unaudited Group revenue Group operating profit Profit before taxation Shareholders’ deficit Basic earnings per share Dividend per share Dividend cover Average number of employees Share price (period end) 52 weeks ended 30 September 2006 £’000 52 weeks ended 29 September 2007 £’000 52 weeks ended 27 September 2008 £’000 52 weeks ended 26 September 2009 £’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 186,061 16,425 4,904 (53,282) 1.00p – – 1,625 94.41p 67 53 weeks ended 2 October 2010 £’000 183,420 20,899 13,397 (28,530) 5.37p – – 1,615 60.0p All figures quoted are inclusive of continued and discontinued operations. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s O t h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notice of Annual General Meeting 68 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 11 January 2011 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 2 October 2010 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 declare a final dividend of 1p per Ordinary Share on the Ordinary Shares for the period. 3. To re-elect Barry Bester as a Director of the Company. 4. To re-elect Matthew Williams as a Director of the Company. 5. To re-elect Robert Parker as a Director of the Company. 6. To re-elect Nicholas Ounstead as a Director of the Company. 7. To re-elect The Rt. Hon. Michael Jack as a Director of the Company. 8. To re-elect Alan White as a Director of the Company. 9. To re-appoint Deloitte 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. 10. To approve the Directors’ Remuneration Report for the financial period ended 2 October 2010 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 Resolutions 11 and 15 will be proposed as Ordinary Resolutions and, in the case of Resolutions 12 to 14 will be proposed as Special Resolutions. 11. THAT, the Directors of the Company be generally and unconditionally authorised for the purposes of and pursuant to section 551 of the Companies Act 2006 (the “2006 Act”) to allot Relevant Securities (as defined in the explanatory notes to this resolution) up to an aggregate nominal amount of £2,086,957 provided that this authority shall, unless renewed, varied or revoked by the Company, expire 15 months from the passing of this resolution or, if earlier, on the date of the next Annual General Meeting of the Company save that the Company may, before such expiry, make offers or agreements which would or might require Relevant Securities to be allotted and the Directors may allot Relevant Securities in pursuance of such offer or agreement notwithstanding that the authority conferred by this resolution has expired. 12. THAT, subject to the passing of Resolution 11 above, the Directors of the Company be given the general power to allot equity securities (as defined by section 560 of the 2006 Act) for cash, either pursuant to the authority conferred by Resolution 11 or by way of a sale of treasury shares, as if section 561(1) of the 2006 Act did not apply to any such allotment, provided that this 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 £313,357 or 5% of the issued share capital of the Company. The power granted by this resolution will expire 15 months from the passing of this resolution or, if earlier, the conclusion of the Company’s next annual general meeting (unless renewed, varied or revoked by the Company prior to or on such date) save that the Company may, before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement notwithstanding that the power conferred by this resolution has expired. 13. THAT, the Company be generally and unconditionally authorised for the purposes of section 701 of the 2006 Act to make market purchases (within the meaning of section 693(4) of the 2006 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 28,042,146 (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 Plc Annual Report and Financial Statements 2010 69 (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. 14. THAT, a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice. 15. THAT: (a) the rules of the Topps Tiles Plc Share Incentive Plan (“the SIP”), the principal features of which are summarised in the Explanatory notes to the Notice of Annual General Meeting (a draft of which is produced to the meeting and initialled by the Chairman for the purposes of identification), be and are approved and adopted and the Directors of the Company be and are authorised to make such amendments to the SIP as may be necessary to obtain formal approval from HMRC of the SIP and to do all things necessary or expedient to carry the SIP into effect; and (b) the Directors be and are authorised to adopt equivalent plans for the employees of the Company and its subsidiaries in overseas jurisdictions, subject to such modifications as the Directors shall consider appropriate to take into account local tax, exchange control, securities law and other regulatory requirements, provided that the shares made available under such equivalent plans are treated as counting towards the limits on participation in the SIP. (Notes) 1. The right to vote at the meeting is determined by reference to the register of members. Only those members registered in the register of members of the Company as at 6:00pm on 9 January 2011 (being 48 hours before the time for holding the meeting) or, in the event that the meeting is adjourned, in the register of members 48 hours before the time of any adjourned meeting, shall be entitled to attend or vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries in the register of members after 6:00pm on 9 January 2011 or, in the event that the meeting is adjourned, after 48 hours before the time of any adjourned meeting, shall be disregarded in determining the rights of any person to attend or vote at the meeting. 2. A member is entitled to appoint one or more persons as proxies to exercise all or any of his rights to attend, speak and vote at the meeting. A proxy need not be a member of the Company. A form of proxy is enclosed and notes for completion can be found on the form and should be read carefully before it is completed. To be valid, the form of proxy must be completed, signed and sent to the offices of the Company’s registrars, Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU together with the power of attorney or other authority (if any) under which it is signed or a notarially certified or office copy of the same, so as to arrive no later than 10:30am on 9 January 2011 (or, in the event that the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). 3. A member may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him or her. To appoint more than one proxy, you will need to complete a separate proxy form in relation to each appointment. You may photocopy the enclosed proxy form, indicating clearly on each proxy form the name of the proxy you wish to appoint and the number of shares in relation to which the proxy is appointed. All forms must be signed and should be returned together in the same envelope. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. The right of a member under section 324 of the Companies Act 2006 (“2006 Act”) to appoint a proxy does not apply to a person nominated to enjoy information rights under section 146 of the 2006 Act. 4. The appointment of a proxy will not preclude a member from attending and voting in person at the meeting if he or she so wishes. 5. As at the close of business on the date of this notice, the Company’s issued share capital comprised 188,202,323 Ordinary Shares of 31∕³p each. Each ordinary share carries the right to one vote at a general meeting of the Company. 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 to vote on each resolution or withhold their vote. 7. In the case of joint holders, where more than one 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). R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s O t h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Notice of Annual General Meeting continued 70 8. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using 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. 9. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited (formerly CRESTCo’s) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuers’ agent (ID RA10) by the latest time for receipt of proxy appointments specified in this notice. 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 registrars are 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. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland Limited 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. 10. 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. 11. Where a copy of this notice is being received by a person who has been nominated to enjoy information rights under section 146 of the 2006 Act (“nominee”): (a) the nominee may have a right under an agreement between the nominee and the member by whom he was appointed, to be appointed, or to have someone else appointed, as a proxy for the meeting; or (b) if the nominee does not have any such right or does not wish to exercise such right, the nominee may have a right under any such agreement to give instructions to the member as to the exercise of voting rights. 12. Capita Registrars maintain the Company’s share register. They also provide a telephone helpline service on 0871 664 0300 (calls cost 10p a minute plus network extras. Lines are open from 8:30am to 5:30pm, Monday to Friday). If you have any queries about voting or about your shareholding, please contact Capita Registrars. 13. Members have the right to ask questions at the meeting in accordance with section 319A of the 2006 Act. 14. 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 2006 Act; and (b) copies of the Directors’ service contracts; and (c) the proposed rules of the SIP to be approved pursuant to Resolution 15. 15. Information regarding the AGM, including the informants required by section 311A of the 2006 Act, is available from the Company’s website – www.toppstiles.co.uk. R. Parker Company Secretary 29 November 2010 Registered Office: Thorpe Way Grove Park Registered No: 3213782 Enderby Leicestershire LE19 1SU Plc Annual Report and Financial Statements 2010 Explanatory notes to the Notice of Annual General Meeting 71 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 11 January 2011 at 10.30am. Four 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 Resolution 2 Declaration of Final Dividend A final dividend of 1p per Ordinary Share is recommended by the Directors for payment to shareholders on the register of members of the Company at the close of business on 31 December 2010. Subject to approval by the Ordinary Shareholders at the Annual General Meeting, the dividend will be paid on 31 January 2011. No interim dividend was declared which means the total dividend level will be 1p per Ordinary Share for the 52 weeks prior to 2 October 2010. Resolutions 3 to 8 Re-election of Directors The Company’s articles of association require that 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. Nicholas Ounstead and Matthew Williams are the Directors retiring by rotation this year and they offer themselves for re-election. Although not required by the Company’s articles, each of the remaining Directors will, in the interests of good corporate governance, retire voluntarily and offer himself for re-election. Brief biographical details about all the Directors appear on page 20 of the Annual Report and Financial Statements. Special business Resolution 11 Appointment of authority to issue shares 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 551 of the Companies Act 2006 (“the 2006 Act”). Resolution 11 will be put to members as special business to authorise the Directors to allot Ordinary Shares with a nominal value of £2,086,957 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 contained in Resolution 11 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. Relevant Securities means: • • Shares in the Company other than shares allotted pursuant to an employee share scheme (as defined by section 1166 of the 2006 Act); a right to subscribe for shares in the Company where the grant of the right itself constituted a Relevant Security; or a right to convert securities into shares in the Company where the grant of the right itself constituted a Relevant Security. Any right to subscribe for or to convert any security into shares in the Company other than rights to subscribe for or convert any security into shares allotted pursuant to an employee share scheme (as defined by section 1166 of the 2006 Act). References to the allotment of Relevant Securities in the resolution include the grant of such rights. Resolution 12 Disapplication of statutory rights of pre-emption This proposed resolution seeks to obtain power under section 571 of the 2006 Act to enable the Directors to allot, for cash, shares with an aggregate nominal value of £313,357 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 exercise its authority under this resolution 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. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s O t h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Explanatory notes to the Notice of Annual General Meeting continued 72 Resolution 13 Authority to purchase Ordinary shares At the Annual General Meeting, Ordinary Shareholders are being invited under Resolution 13 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 2012 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 required 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 30 November 2010, there were options to subscribe for 3,571,746 equity shares outstanding under various schemes representing approximately 2.96% of the current issued share capital of the Company. If the authority sought by Resolution 13 was exercised in full, the number of outstanding options would represent approximately 3.48% of the issued share capital following the repurchase of shares. Resolution 14 Notice period for general meetings This resolution is required to reflect the implementation in August 2009 of the Shareholder Rights Directive. The regulation implementing this Directive increased the notice period for general meetings of the Company to 21 days. Previously the Company was able to call general meetings (other than an AGM) on 14 clear days’ notice and would like to preserve this ability going forward. In order to be able to do so shareholders must approve the calling of meetings on 14 days’ notice. Resolution 14 seeks such approval. The approval will be effective until the Company’s next Annual General Meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Directive before it can call a general meeting on 14 days’ notice. Resolution 15 Share Incentive Plan Resolution 15 proposes that the Topps Tiles Plc Share Incentive plan (the “SIP”) be adopted. A copy of the draft rules and trust deed is available for inspection at the Company’s registered office. The Resolution also asks shareholders to authorise the Directors to make such amendments to the draft SIP documentation as may be necessary to obtain formal approval of the SIP from HMRC. This summary outlines the main features of the SIP. A more detailed summary of the principal features of the SIP is set out in the Appendix to the Notice of Annual General Meeting. The SIP is a flexible share incentive plan which has been drafted to meet HM Revenue & Customs (“HMRC”) approval requirements, thus enabling all eligible UK employees of the Company to acquire shares in a tax efficient manner. By participating in the SIP, employees are entitled to invest in “Partnership Shares”, which would be purchased or subscribed for on their behalf by the trustee of a UK resident trust using contributions from their gross salary (i.e. before the deduction of income tax and National Insurance contributions). The Company may also award “Matching Shares” in a prescribed ratio in relation to each Partnership Share acquired. Under the SIP, the Company may award “Free Shares” to participants that may be made subject to the achievement of performance conditions. All shares acquired under the SIP are held within the trust. The maximum tax advantages are available after five years, when shares may be withdrawn without any liability to income tax or National Insurance contributions. It is proposed that only Partnership Shares would be offered at the initial launch of the SIP and that shares to satisfy those awards would be purchased in the market by the trustee of the SIP trust. The SIP may be extended to overseas employees of the Company and its subsidiaries subject to such modifications as the Directors shall consider appropriate to take into account local tax, exchange control, securities law and other regulatory requirements. Plc Annual Report and Financial Statements 2010 Appendix – Principal features of the Share Incentive Plan 73 The principal features of the Topps Tiles Plc Share Incentive Plan (the “SIP”) are outlined below. Purpose The purpose of the SIP is to provide UK resident employees of the Company and its subsidiaries with an opportunity to acquire ordinary shares (“Shares”) in the Company on a tax-efficient basis. The SIP is intended to be a Share Incentive Plan approved by HM Revenue and Customs (“HMRC”) in accordance with Schedule 2 to ITEPA 2003 (“Schedule 2”). Administration The SIP shall be administered by the Remuneration Committee of the Company (“Committee”) with the assistance of a professional SIP administrator appointed by the Board. The SIP will be operated through a UK resident trust (the “Trust”). The Trust will subscribe for or purchase in the market the Shares that are awarded to employees under the SIP. Eligibility All UK resident employees of the Company and its participating subsidiaries must be offered the opportunity to participate in the SIP on the same terms. The Committee can require employees to have completed a minimum qualifying period of employment before they can participate, but that period must not exceed eighteen months before the first award is made, where the Company does not operate an accumulation period (see below). If the Company does decide to operate an accumulation period, the qualifying period of employment must not exceed six months before the accumulation period starts. Other employees may be permitted to participate at the Committee’s discretion. It is intended that the first invitations to apply for awards under the SIP will be made to all eligible executive Directors and employees who have completed 13 weeks’ service with the Company at the date invitations to participate are issued. Thereafter, the Committee will determine the basis upon which any future invitations will be issued. Shares to be acquired Under the SIP, employees may be invited to invest in “Partnership Shares” and may be awarded “Matching” and/or “Free Shares” in a potentially tax-efficient manner. The Company may offer different combinations of awards as it considers best suits its business requirements from time to time. The SIP provides for employees to acquire Partnership Shares by way of deduction from their gross salary up to a maximum of £1,500 per tax year or, if lower, 10% of their salary. The Committee may specify a lower limit in relation to awards from time to time. The amounts must be invested in the SIP on behalf of the participants within 30 days of their deduction from salary, or alternatively accumulated over a period of not more than 12 months (“accumulation period”), and then invested. The Committee can award up to two free Matching Shares for each Partnership Share acquired (equivalent to a maximum of £3,000 per annum). In addition, the Committee can give up to £3,000 worth of Free Shares per annum per employee and can use Free Shares to reward employees for reaching team or divisional performance targets, provided such targets are established in accordance with the SIP legislation. It is intended that, initially, employees will be invited to acquire Partnership Shares only, with no accumulation period. Holding Periods Partnership Shares are not subject to any holding period and employees can withdraw their Partnership Shares from the SIP at any time. Matching and Free Shares may be subject to a holding period of between three and five years during which time they must be held within the SIP unless the participant ceases employment, whereupon they must be removed (see below). Forfeiture Matching Shares and Free Shares may be subject to forfeiture in the event that a Participant ceases employment within a specified forfeiture period not exceeding three years, (other than as a result of redundancy, injury, ill-health, or reaching retirement age), in which case no forfeiture may apply. Matching Shares can also be awarded on the basis that they are forfeited if the corresponding Partnership Shares to which they relate are withdrawn within the forfeiture period. Cessation of employment Employees are required to take all their Shares out of the SIP when they leave employment with the Company or a Group company. Limits on the issue of Shares In any 10 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 SIP and any other employees’ share scheme adopted by the Company. For the purposes of this limit, rights to acquire shares which lapse or have been released and awards satisfied by the purchase of shares in the market are ignored. However, 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. R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s O t h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Appendix – Principal features of the Share Incentive Plan continued 74 Amendment provisions The Directors reserve the right up to the forthcoming Annual General Meeting to make such amendments and additions to the SIP as they consider appropriate and, following the Annual General Meeting, which may be necessary to obtain approval from HMRC, provided they do not conflict in any material respect with this summary of the rules. Thereafter, the Committee may alter the provisions of the SIP in any respect (subject to the approval of HMRC as regards key features of the SIP) provided that the prior approval of shareholders in general meeting is obtained for alterations or additions to the advantage of participants to provisions relating to eligibility, the number of securities subject to the SIP, the basis for determining a participant’s entitlement to Shares, and any adjustment thereof in the event of a variation in the Company’s share capital. The requirement to obtain the prior approval of shareholders will not, however, apply in relation to any alteration or addition which is minor in nature and made to benefit the administration of the SIP, to comply with the provisions of any existing or proposed legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for the Company, any of its subsidiaries or for participants. Non-transferability of awards Awards of Shares under the SIP are not transferable except on death, when shares may be transferred to the deceased employee’s personal representatives. Benefits not pensionable Awards under the SIP will not be taken into account in determining a participant’s pension rights. Share rights Shares issued and allotted under the SIP will rank equally with all other Ordinary Shares of the Company for the time being in issue and the Company will apply for admission of any new Shares issued under the SIP to the London Stock Exchange or any other relevant exchange on which the Shares are listed. Dividends The SIP Rules provide that any dividends paid on Partnership, Matching or Free Shares may either be paid to the participants or reinvested in the purchase of additional Shares (known as “Dividend Shares”) to be held in the SIP for a holding period of three years. Dividend Shares may not be subject to forfeiture. It is not intended at present to offer participants the opportunity to reinvest dividends in the SIP. Voting rights The trustees of the Trust will not exercise the voting rights attributable to the Shares held in the trust except in accordance with the participants’ instructions. Change of control, reorganisations etc In the event of a general offer being made to the shareholders or a rights or capitalisation issue, participants will be able to direct the trustees of the Trust how to act on their behalf. Term of the SIP The SIP will terminate on the tenth anniversary of its adoption or such earlier date as the Company, in its sole discretion, shall determine, but any termination shall not affect the existing rights of any participant. Funding Each participating Group Company may be required to fund the trustee of the Trust to subscribe for, and/or buy Shares (Free Shares and/or Matching Shares). Overseas Employees At the discretion of the Committee, the Scheme may be extended to overseas employees of the Company and its subsidiaries subject to such modifications as the Directors shall consider appropriate to take into account local tax, exchange control, securities law and other regulatory requirements, subject to SIP limits. Plc Annual Report and Financial Statements 2010 The team A Aamir Jamil Aaran Spence Aaron Charles Stenning Aaron Foster Aaron Turner Abul Khashad Adam Boshir Adam Campion Adam Clarke Adam Close Adam Cook Adam Crowe Adam Edwards Adam Fenteman Adam Folwell Adam Ford Adam Gale Adam Green Adam Ireland Adam King Adam Laidlaw Adam Molloy Adam Nuttall Adam Palmer Adam Parris-Munn Adam Peter Ward Adam Rodriguez Adam Whittaker Adam Wolniewicz Adil Rajah Adrian Earley Adrian John Rimmington Adrian Kimber Aidan Ward Aileen Crossley Ajay Arya Ajay Bhakri Akiyemi Orekoya Aklakud Duha Akommil Ali Akushu Mulenga Alan Collins Alan Cooper Alan Harwood Parker Alan Hughes Alan John Rutherford Alan Jones Alan Law Alan Mcdonald Alan Monk Alan Murray Alan Norman Smalley Alan Saunders Alan Sinclair Alan Sproston Alan Wrighting Alex Whitmore Alexander Onions Alexander Penn Alexandria Murphy Ali Faheem Ali Rizvi Alicia Victoria Mcgill Alison Finn Alison Hunt Alison Walkinshaw Alistair Robert Payne Allan Chigariro Allan Coomber Allan Mckissock Harper Alvin Chinyanga Alvin Lapao Amanda Jane Green Amanda Jane Hullett Amber Penn Amit Bhargava Andrea Horton Andrew Baillie Andrew Belson Andrew Bowden Andrew Brookfield Andrew Chapman Andrew Charles Curr Andrew Clayton Andrew Colin Woods Andrew Collins Andrew Cox Andrew Curtis Andrew Davis Andrew Davis Andrew Dawson Andrew George Clay Andrew Green Andrew Groucutt Andrew Hamilton Andrew Hanson Andrew Harrison Andrew Hill Andrew James Wood Andrew Keattch Andrew Leigh Andrew Mark Wild Andrew Middleton Andrew Page Andrew Parnell Andrew Paul Hastings Andrew Peter Waterfield Andrew Phillips Andrew Riley Andrew Salkeld Andrew Scorgie Andrew Scott Andrew Taylor Andrew Warne Andrew Wathan Andrew Winterburn Andrew Woodhouse Andrew Young Andy Playfoot Andy Shaw Angela Capp Angela Faulkner Angela Tremelling Ann Mathias Anna Kucharska Anna Timney Annmarie Malone Ansar Ahmed Anthony Alveranga Anthony Ashton Anthony Ayres Anthony Bradford Anthony Christopher Anthony Cox Anthony Daly Anthony Davies Anthony Eatock Anthony Francis Molyneux Anthony Gibby Anthony Gilbert Anthony Gregory Anthony James Marshall Anthony Linsell Anthony Richard Aldred Anthony Townsend Anthony Whiter Anthony Wood Antony Belham Anub Kuriakose Varghese Anurag Thapliyal Anwar Marshall Arnold Harrison Aron Hoff Ashleigh Mackinnon Ashley Cutler Ashley Kent Ashley Mcdonnell Ashley Siddons Asim Ali Astone Davids B Barbara Connor Barclay Pope Barrie Kevin Palmer Barry Bester Barry Blackmore Barry Edwards Barry Hodges Barry Jones Barry Melvin Webber Barry Taylor Barry Veasey Ben Armitage Ben Baker Ben Bright Ben Brooker Ben Davis Ben Garcka Ben Holloway Ben Sawyer Ben Woollins Benjamin Morais Benjamin Rich Bernadette Peasland Bernard Fallon Bertil Boyles Beth Boulton Bilal Mukhtar Bill Wylie Billy Decaille Billy Hutchins Bjorn Bjergfelt Bob Barlow Bradley Ball Brandon Christian Abels Brant Wells Brendan Joseph Flynn Brett Case Brett Goulden Brian Burke Brian Cariello Brian Cox Brian Crews Brian Edward Dicks Brian Fisher Brian Flatters Brian King Brian Kirwin Brian Mcguire Brigette Hale Bruce Fielding Bruce Jeffery Bruno Alves Bruno Bernasconi C Cade Somerville Calbert George Hall Campbell Gray Marr Carl Cook Carl Courtney Carl Cumberbatch Carl Edlundh-Rose Carl Fraser Carl Hermitt Carl Liam Collins Carl Paternoster Carl Roberts Carl Trevor Dyke Carl Whatley Carlos Alberto B Morais Carlos Chowdhury Carol Lakin Carol Livingstone Caroline Ann Bennett Caroline Sarah May Caroline Wilson Catherine Day Catherine Eliza Platt Chan Gokani Chantelle Morgan Charlene Walpole Charles Ross Charles Taylor Charlie Battram Charlotte Armstrong Cheryl Vearncombe Chetna Shah Chioma Onyeakazi Choudre Derrick Grobler Chris Bland Chris Cartey Chris Curtis Chris Heyes Chris Howe Chris Jensen Chris Markham Chris Mcmillan Christer Leth Christian Banham Christian Nicandro Christian Stokes Christina Langridge Christine Hendry Christine Thistlethwaite Christopher Bloy Christopher Bowles Christopher Burgess Christopher Collins Christopher Collins Christopher Cooper Christopher David Fleming Christopher Harbutt Christopher Holland Christopher Holt Christopher Jon Bray Christopher Jones Christopher Lamb Christopher Moorhouse Christopher Neil Foster Christopher Nottle Christopher Santos Christopher Searle Christopher Stear Christopher Stobbs Christopher Turley Christopher Walley Christopher Williamson Chudry Usman Ghani Ciaran Alainia Claire Barksby Claire Chaffe Claire Rayton Clare Barden Colin Gadd Colin Griffiths Colin Harvey Colin Hoban Colin Joy Colin Markham Colin Micheal Rymer Colin Skinner Colin Taylor Conrad Harrup Cora Ann Morrison Corrina Bowers Craig Bradshaw Craig Conway Craig Dickson Craig Dolling Craig Gardener Craig Hill Craig Leslie Deveson Craig Lewis Craig Muldoon Craig Murphy Craig Nammontri Craig Nicholson Craig Ollard Craig Reed Craig Robertson Craig Solkhon Craig Tetlow D Dale Hoy Dale Jonathan Stone Dale Lee Mccormack Damian Sheppard Damon Durrant Damon Short Dan Matthews Daniel Bath Daniel Brain Daniel Brian Musguin Daniel Chant Daniel Childs Daniel Clayton Daniel Cox Daniel Fulcher Daniel Hall Daniel Hill Daniel Ingham Daniel James Little Daniel John Branson Daniel Jones Daniel Keeble 75 R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s O t h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 The team continued Daniel Lee Daniel Loft Daniel Mclean Daniel Merrett Daniel Peter Fallows Daniel Robinson Daniel Spencer Daniel Stiven Daniel Thompson Daniel Thornley Daniel Van Aswegen Daniel Williams Daniel Woodford Daniel Wren Daniel Zanettacci Danielle Lynn Whittaker Dannielle Fry Darone Dubois-Gayere Darran Wood Darren Bebbington Darren Connor Darren Doughty Darren Fletcher Darren Harper Darren Hyman Darren Irving Darren Mitchell Darren Neil Morgan Darren Rawlings Darren Rutledge Darren Square Darren Wagg Darren Walker Darron Kerr Dave Jobling Dave Marsh Dave Taylor David Laurence Matthews David Atherton David Augustus David Benjamin David Binns David Burnikell David Christoph Hayers David Critchlow David Dorney David Fisher David George Parr David Godbold David Grenfell David Hope David James Fitzpatrick David Jared Evans David John Bolingbroke David John Carpenter David John Harper David John Hatton David John Hirst David John Steel David Kershaw David Kettlewell David Lane David Livingston Hill David Martin David Martin David Matthews David Michael Blades David Murray David Nadin David Neil Oliver David Nicholas Savage David Patrick Meers David Peter Macartney David Prime David Roper David Rowlands David Sheehy David Smith David Stott David Sutcliffe David Thomas Henderson David Thomasson David Townsley David Webb David Whitelaw David Williams David Wilson David Yallop Dawn Allan Dawn Gale Curtis Dawn Stares Dean Bull Dean Carl Marshall Dean Johnson Dean Kelly Dean Lewis Dean Macmillan Dean Miller Dean Stokes Dean Titchen Dean Tricker Dean Woolley Debbie Demes Debbie Woolmore Deborah White Denis O’brien Denise Fishwick Dennis Cragen Dennis Jepson Dennis Lammas Denzil Richard Johns Derek Alan Sim Derek Lambourn Derek Smith Derek Wooller Desmond Agyei Devindren Govender Dewi Williams Diane Shatford-Butcher Dilawar Ali Dilip Parmar Dinesh Amin Dipal Parikh Dishon Meade Divyesh Javiya Dominic Coates Dominic Hall Dominic Reilly Donald Magullian Donna Louise Boulton Donna Whall Douglas Hartness Duane Glover Duncan Foy Dylan Roberts E Eamonn Clancy Edmund Church Edward Derbyshire Edward Murphy Elizabeth Morrissey Elizabeth Selfridge Emily Dyer Emily Margaret Lenton Emma Bailey Emma Fortes Emma Hatton Emma Louise Kenney Emma Whatson Emmanuel Liwao Emran Mannan Eric Asuming Ermiyas Girma F Farid Haddad Farooq Younis Felipe Da Rocha West Finbarr Mcquaid Fiona Finnigan Fiona Grant Fiona Mckeracher Fitz Martin Frances Aylward Francesca Wright Frank Hibbert Fuad Haibatan G G Style Gabriel Vanrel Gareth Carnegie Gareth Davies Gareth Hammond Gareth Pye Gareth Robert Griffiths Gareth Roberts Gareth Ward Garry Case Garry Hardy Garry Padgett Gary Appel Gary Ashdown Gary Asher Gary Bloomfield Gary Gear Gary George Parris-Munn Gary Marsden Gary Marshall Gary Purves Gary Read Gary Ronald Curtis Gary Staines Gary Wilcox Gary Woolmore Gavin Baker Gavin Collins Gavin David Bennett Gavin Jepson Gavin Magwood Gavin Meek Gavin Mitchell Gediminas Merkys Gemma Mcbirnie Gemma Stephens George Charles Peck George Latham George Martin Tuplin George Martinesz George Richard Wilson George Skinner Georgina Catling Georgina Salt Geraint Thorne Gerard Patrick Mallon Gethin Jordan Gianfranco Zanolini Gillian Grace Girish Shah Glen James Holloway Glendale Canoville Glenn Claridge Glenn Rivers Glyn Jones Glyn Rogers Gordon Davies Goutam Saha Graham Brophy Graham Davidson Graham Ford Graham Jones Graham Livingstone Graham Vance Grant Woolway Greg Wingate Gregory John Barwick Gregory Salt Gurdeep Panesar Gursharan Bains Gursharn Singh Ladhar Guy Ferguson H Haim Cohen Hamid Deen Hannah Lakey Hannah Shepherd Harjit Dhaliwal Haroon Cockar Harpreet Hansra Harpreet Singh Harry Biggs Hayley Bover Hazel Millington Helen Gosling Helen March Henna Khalil Henry Reinoso Hitesh Patel Hugh Selley I Iain Arnott Ian Aikman Ian Andrew Mcalinden Ian Bird Ian Jones Ian Keith Bloomfield Ian Marshall Ian Marshall Ian Mcloughlin Ian Mcneish Ian Michael Sykes Ian Noon Ian Paterson Ian Tivendale Ian Winterburn 76 Ibrahim Cisse Imran Ashraf Irene Dickinson Isaac Halstead Iwan Jones Izabela Krzyszkowska J Jabbar Shah Jack Cairns Jack Campany Jack Carslake Jack Cassidy Jack O’neill Jack Whitehead Jacob Gonzales Jacqueline Ann Byrne Jailuene Peake Jair Sharp Jajwinder Harar Jake Brown Jake Haudiquet Jake Missen Jake Shopland Jake Woods James Bayley James Biesty James Butler James Cameron James Clifford James Eastham James Fox James Heard James Hollingshead James John Patston James Judkins James Mcardle James Metcalf James Morgan James Murphy James Netting James Pearson James Pilfold James Rathbone James Robertson James Rolfe James Stark James Stevens James Taylor James Thorning James Vanderplank James Whitehead James Woor James Young Jamie Alan Keeling Jamie Axten Jamie Bannon Jamie De Paepe Jamie Durnan Jamie Evans Jamie Sia Jamie Thain Jamie Wenborn Jan Vardis Reddi Janet Riley Janice Millett Jared Rapsey Jarreth Hawkins Jason Buckley Jason Clare Plc Annual Report and Financial Statements 2010 Jason Clyde Meadows Jason D’arcy Jason Ealden Jason Field Jason Harper Jason Jermaine Nettleford Jason Knox Jason Morley Jason Perry Jason Pratt Jason Rose Jason Thomas Jayandrie Chetty Jayaprakash Paragjee Jayde Bailey Jaymal Arjan Jeannette Hastie Jefferson Rey Jeffrey David Armstrong Jeffrey Utley Jemma Wyatt Jennifer Donlan Jennifer Wall Jenny Inkson Jenny Seabrook Jeremy Paul Harris Jessica Mackenzie Jessica Thiari Jignesh Nayee Jill Cox Jim Tuvey Joan Hicks Joanne Bennett Joanne Rachel Elton Jodie Baigrie Joe Cox Joe Gregorace Joe Riddell Joe Smith Joesph Lawton John Agnew John Anthony Tait John Aspey John Bourke John Chinn John Cook John Crowter John Duffy John Fawkes John Foster John Gardner John Gary Smith John Hartley John Hickey John Hughes John Marc Forden John Mark Ellis John Marris John Moat John Neil Keouski John Nelson John Page John Paine John Paul Harris John Richard Wright John Shaw John Smith John Stephenson John Taylor John Thompson John Williams John-Paul Jones Jon Pringle Jon Thatcher Jonathan Bainbridge-Coombs Jonathan David Benn Jonathan Francois Jonathan Hargreaves Jonathan Morgan Jonathan Morton Jonathan Smith Jonathan Wade Jonathan Wallace Jonathan Williams Jonathan Woodroff Jonathon A. M. Sheerin Jonathon Thomas Hall Jon-Paul Hughes Jon-Paul Russell Jordan Farenden Josef Kinski Josephine Barba Hilldrup Josh Batterham Josh Dempster Joshua Luke Groener Joshua Rapley Juginder Gill Julie Ann Cox Julie Anne Fewings Julie Brachtvogel Julie Jordan Juliet Wilford Justin Bradley K Kalpit B Patel Kamlesh Shah Karen Brook Karen Sutcliffe Karina-Jade Tubb Karl Atkins Karl Batterham Karl Dean Verry Karl Kristian Johansson Karl Stephens Kashan Lennon Kashif Munir Kate Cook Kate Rudkin Kathryn Robinson Katie Jayne Brindley Katie Slater Katie Turner Katy Davis Kawaljit Singh Gulati Keir Beeson Keith Ambrose Keith Earl Keith Fitzpatrick Keith Hughes Keith Ian Rudkin Keith Johnson Keith Storrier Kelly Bell Kelly Savile Kelly-Anne O Connor Kenneth W.J.P. Owen Kenneth William Pettengale Kenneth Williams Kerri Atkinson Kerry Hume Kerry Saunders Ketan Patel Kevan Ray Richardson Kevin Brian Baker Kevin Burchell Kevin David Hastings Kevin Fox Kevin Hailes Kevin Hardy Kevin Hartley Kevin Hodson Kevin Jeans Kevin Jones Kevin Naylor Kevin Nicol Kevin Paul Bowtle Kevin Rowe Kevin Sherwood Kevin Thorne Kevin Tully Keyur Pathak Kieran Barnes-Warden Kieron Clarke Kim Liddle Kirsten Mortlock Kirsti Altass Kranthi Rakesh Kondaveeti Kris Bailey Krishan Ladwa Kristian Catterall Kristina Kane Kuldeep Singh Kunal Pandya L Laith Al-Rawi Lance Cale Laura Edwards Laura Elizabeth Johnson Laura Kirk Laura Sansom Lauretta Clarke Laurie Jones Lawrence Mezza Leah Norris Leanne Michelle Palmer Lee Arrowsmith Lee Baxter Lee Clarke Lee Dering Lee Dover Lee Downing Lee Durrant Lee Etheridge Lee Galloway Lee Gornall Lee Hartness Lee Hutchinson Lee Jacovou Lee James Lee Johnstone Lee Marshall Lee Mayfield Lee Mcconnell Lee Morris Lee Raymond Fisher Lee Read Lee Stephenson Lee Taylor Lee Thomas Shillibeer Lee West Leena Ramsaha Lefter Bregu Leigh Dominic Holden Leigh Hyam Leigh Taylor Leo O’doherty Leon Anthony Salt Leon O’neill Leon Strange Leonard Finch Lesley Watson Lesley Wilson Leslie Shemmeld Lester Marshall Lewis Axford Lewis Edwards Lewis Franklin Lewis Saunders Lewis Smith Lewis Walter Liam Allen Liam Fields Liam Godfrey Liam Gulliver Liam Hodgkins Liam Hunt Liam Piper Lianne Harrison-Allcock Linda Purvis Lisa Algar Lisa Holmes Lloyd Perry Lorna Hislop Loucas Louca Louis Johnson Louise Sprigg Louise Wilson Luke Kennedy Luke Kerr Luke Mcnally Luke Potiphar Lynette Grimes Lynn Pearson M Malcolm Ferguson-Thomas Malcolm Temple Malik Ejaz Ahmad Malik Khaliq Mandy Aidney Mansoor Ali Marc Breeze Marc Stevens Marc Whiting Marcel Moore Marcin Sakowicz Margaret Dawn Lawrie Marie Buckingham Mark Alan Burgess Mark Allman Mark Anthony Vaughan Mark Atkinson Mark Aveling Mark Bianchi Mark Bradbury Mark Brown Mark Brownsey-Joyce Mark Coe 77 Mark Discombe Mark Dowling Mark Frisby Mark Fuller Mark Geary Mark Glen Mark Hunter Mark Johnson Mark Johnston Mark Lee Gasson Mark Lever Mark Maciver Mark Palmer Mark Stone Mark Tennant Mark Thompson Mark Van Johnson Mark Waldock Mark Walters Mark Winder Mark Wright Marlon Barnes Martin Braddick Martin Derricott Martin Evans Martin Kennell Martin Morris Martin Osborne Martin Siggers Martin Sloan Martin Smyth Martin Timothy Williams Martin Watt Martin Williams Martin Winterburn Martin Wys Martyn Gilbert Martyn Spring Mary Smith Mary Syme Mathew Clayton Matt Hammersley Matt Hay Matthew Attwood Matthew Britton Matthew Charleston Matthew Chase Matthew Clamp Matthew Clayton Matthew Coward Matthew Dunne Matthew Fisher Matthew Hill Matthew James Foster Matthew James Robinson Matthew James Wright Matthew John Foulger Matthew King Matthew Lee Sigley Matthew Marston-Chesher Matthew Mcphee Matthew Melia Matthew Moore Matthew Pickering Matthew Stephen Hawley Matthew Stewart Matthew Stuckey Matthew Wesson Matthew Whitlock Matthew Williams R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s O t h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 The team continued Matthew Woodhouse Mehmet Asdoyuran Melanie Gray Melton Thompson Melvyn Chamberlain Mervin Dunaway Metimiku Yohannes Michael Antony Finn Michael Asumadu Michael Blinkhorne Michael Booth Michael Boughton Michael Bowden Michael Braithwaite Michael Buckley Michael Campbell Michael Colin Earls Michael Collins Michael Cosgrove Michael Darroch Michael Fannon Michael Foley Michael George Litster Michael Haggett Michael Hall Michael Harvey Michael Henshaw Michael Huskisson Michael Jack Michael James Hopper Michael Jenks Michael John Harvey Michael Lay Michael Lovelock Michael Queen Michael Simcoe Michael Slater Michael Stewart Michael Van Sittert Michael Weeks Michele Louise Poxon Michelle Chadwick Michelle Hill Michelle Kempson Michelle Lawson Mike Butler Mike Ingham Mike King Mike Potter Mohamed Akeel Akhtar Mohamed Salim Patel Mohammed Amin Mohammed Jimale Mohammed Nawaz Mohammed Parvaz Mohammed Shah Jamil Mubashir Uddin Muhammad Fazil Khan Muhammad Mehmood Muhammad Mirza Murdo Martin N Naomi Ellis Narinder Chatha Natasha Stringer Nathan Austin Nathan Bentley-Hicks Nathan Coulthard Nathan Edwards Nathan Harry Nathan Heape Nathan Sobers Nathan Winterton Nathan Wolowicz Navesh Naidoo Neil Ammon Neil Andrew Jones Neil Brownley Neil Charles Neil Christopher Hendy Neil Christopher Southgate Neil David Homan Neil Donkin Neil Hughes Neil Ketnor Neil Philip Wardlaw Neil Thakore Neil Topping Neil Williams Neill Wiltshire Nelson Minj Nicholas Billyeald Nicholas Gadd Nicholas Harper Nicholas Kershaw Nicholas Lawrence Nicholas Lewis Nicholas Ounstead Nicholas Payne Nicholas Turvey Nicholas Walch Nicholas Withers Nicholaus Buchanan Nick Bedford Nick Donnelly Nick Gussow Nick Lodge Nick Wardman Nicky Glenister Nicky Saville Nicola Mcwatt Nicolas Dicchi Nicole Andrews Nigel Fleming Nigel Hickman Nigel Morris Nigel Parry Nigel Turner Nikola Sutton Nilesh Kerai Noah Lawrie Numan Razaq Numan Usman O Oliver Clancy Osemar Masaya P Paige Makepeace Pamela Cuffin Patrick Burke Patrick Chambers Patrick Coleman Patrick Mcgee Paul Aaron Renyard Paul Aird Paul Andrew Irving Paul Baxter Paul Burkett Paul Carter Paul Cartledge Paul Chapman Paul Charles Kelly Paul Clark Paul Collett Paul Cull Paul Dalby Paul Davey Paul Davies Paul Fitzsimmons Paul Galvin Paul Greenslade Paul Holmes Paul James Burrow Paul James Cowen Paul James Smitheringale Paul John Starkey Paul Lathrope Paul Laverty Paul McCabe Paul Mckenna Paul Michael Mills Paul Miller Paul Nicholls Paul Noyes Paul Rockett Paul Ruddle Paul Silvester Paul Smith Paul Symonds Paul Tallan Paul Tennant Paul Whittington Paul Wiltshaw Paula Elizabeth Budsworth Pauline Harrison Pawel Warych Penny Vanderplank Peter Anderson Peter Brooks Peter Charters Peter Davey Peter Higgins Peter Hogg Peter Hughes Peter Jones Peter Lea Peter Lettis Peter Mcintyre Peter Meredith Peter Nicholson Peter Norwood Peter Paul Jenkins Peter Simmonds Peter Walmsley Peter Woods Peter Young Petr Stepan Phil Kelly Philip Alex Cranston Philip Anthony Mccarney Philip Chrysandrea Philip David Lewis Philip Deakin Philip Devine Philip Dunn Philip English Philip Gallop Philip James Hibbert Philip Trevis Phillip Ell Phillip Goodeve Phillip John Hunt Phillip Walters Phillipa Hewitt Phonphan Butkhorn Prakash Mistry Premyslaw Swisloki Q Quadeer Ahmed R Rachel Willcock Raj Surani Rajan Mehta Rajiv Vadgama Ravendra Bishun Ray Jeakins Raymond Johnson Raymond Thompson Rebecca Geer Rebecca Heather Rebecca Karen Smith Rebecca Oblein Reg Anderton Rhys Hedges Rhys Kelland Ricardo Malcolm Richard Banton Richard Brookfield Richard Carter Richard Carter Richard Chiverton Richard Clark Richard Cooke Richard Edwards Richard Fellows Richard Harris Richard Hopkin Richard John Davies Richard Matthew Lee Richard Oates Richard Oldale Richard Paul Bickers Richard Paul Homan Richard Slack Richard Sumner Rickey Singleton Riki Spadone Rob Chawner Rob Owen Robel Ghebrewold Robert Michael Bellamy Robert Adkins Robert Avery Robert Bindon Robert Brewin Robert Cairns Robert Clarke Robert Clarke Robert Courtney Robert David Adams Robert Fernandes Robert George Robert Gilbert 78 Robert Howes Robert James Howker Robert John Exley Robert Keohone Robert King Robert Knight Robert Kweli Robert Lamb Robert Lynch Robert Moss Robert Myers Robert Parker Robert Philpott Robert Power Robert Prince Robert Sly Robert Swift Robin Dixon-Fyle Robin Moore Robin Stagg Rodney Meyer Roger Bailey Roger Gridley Romaldo Rodrigues Roman Kojhuharov Ron Woolgar Ronnie Webster Rory Milne Ross Ashbrook Ross Copley Ross Hunt Ross Langford Ross Mcnair Ross Philpot Roxanne Evans Roxanne Martin Roy Leslie Peasland Roy Redgate Russ Davis Russell Adgey Russell Ball Russell Potlin Russell Shafer Russell Thornton Ryan Apark Ryan Curd Ryan Gomersall Ryan Jones Ryan Jones Ryan Mason Ryan Randall Ryan Sinclair S Saad Bin Maqsood Sachin Radia Sagren Naidoo Sajid Aibani Saleh Idris Salman Bawani Sam Francis Sam Kofi Nortey Sam Orton Sam Ripley Samantha Ann Hunter Samantha Barrett Samantha Louise Sayer Samantha Mussett Samantha Sumbler Samantha Suthard Plc Annual Report and Financial Statements 2010 Sameer Jamdar Sampson Coomber Samson Okolosi Samuel Awoliyi Samuel Ben Carey Samuel Major Samuel Prewer Sandip Sahota Sandra Ramsay Sanjay Patel Sanjeepan Balasubramaiam Santosh Gauniyal Saqib Ishfaq Sarah Bacon Sarah Cassam Sarah Dobson Sarah Drake Sarah Kite Sarah Marshall Sarah Ramm Sarah Shirley Sarah Victoria Newcomb Scott Ahmad Scott Ambrose Scott Birdseye Scott Bond Scott Booth Scott Campbell Scott Currie Scott Hatton Scott James Meadows Scott Williams Scott Winchester Sean Austin Sean Cahill Sean Daniel Green Sean Dare Sean Gee Sean Weatherby Sergio Antunes Shahid Mahmood Shana Doherty Shane Brian W Horsted Shane Bryan Shane Daley Shane England Shane Harvey Shane Malone Shane Till Shannon Emily Woods Sharon Beckett Sharon Buckley Shaun Bryan Shaun Hutchins Shaun Malcolm Douglas Shaun Mayes Shaun Pawsey Shaun Scott Sheila Myrie Sheila Robertson Shelley Rutter Shezad Parkar Shirley Moore Shoaib Shakoor Shohale Ali Sian Griffiths Silvonne Mclean Simon Arthur Brookfield Simon Cripps Simon Crossland Simon Dunsford Simon Frew Simon Gareth Jones Simon Green Simon Grimmett Simon Gundry Simon James Chappell Simon James Neal Simon Lacey Simon Lasham Simon Lee Brookfield Simon Leslie Simon Lewis Simon Loach Simon Palmer Simon Partridge Simon Paul Witham Simon Pitt Simon Roberts Simon Stuart Morgan Simone Turner Sinitta Maan Siobhan Waters Stacy Sturdy Steffan Burns Stephanie Ailwood Stephanie Anne Nevett Stephen Adams Stephen Barry Marshall Stephen Benson Stephen Bloomfield Stephen Collins Stephen Corkett Stephen Crane Stephen Creasey Stephen Foote Stephen France Stephen Freeman Stephen Getty Stephen Green Stephen Kelly Stephen Machin Stephen Michael Lewis Stephen Seymour Stephen Spurgeon Stephen Starkie Stephen Welsby Stephen West Steve Bristow Steve Clayton Steve Gaylor Steve Mccormick Steve Smith Steve Smith Steve Smith Steve Wood Steven Buxton Steven Christie Steven Christop Walker Steven Clifford Godwin Steven Dooley Steven Dyson Steven Hooper Steven Howells Steven James Mackie Steven Jenkins Steven Kernot Steven Macarthur Steven O’hara Steven Paul Richards Tom Watkins Tom Wood Tony Dedman Tony Nunn Tony Watson Tracey Ann Hansard Tracy Karen Ryan Tracy Wickenden Trevor Hutchings Trevor Thomas Troy Wyse Tyler Atheis Tyrell Beckham Tyrone Godson-Charles U Upendra Dudhaiyia Urmila Bhudia V Varun Sharma Vilius Meilus Vince Barber Vinesh Goswami Vinod Joshi Vinsen Velvindron W Walkey Hilaire Warren Bester Warren Daly Wayne Michael Farini Wayne Quaintance Wayne Randall Wayne Wheeler Wendy Bruce Wesley Harrop Wesley Neukermans Will Bailey William A Gunshon William Barreda William Brownsell William Cruickshank William Lewinton William Mason William Ralls William Ryves Willy Wishard Silupya Y Yusuf Bassaf Yusuf Hasan Ahmed Mursal Yvonne Archer Yvonne Burgess Yvonne Simpson Z Zaccai Newman Zainab Mahmoud Idris Zeeshan Naveed Zoe Atkinson Zoe Derry Zoe Leadbeatter Zoe Mills Steven Pressley Steven Whitehead Stewart Ian Creaser Stuart Baigent Stuart Barrett Stuart Bartlett Stuart Booker Stuart Clarke Stuart Comer Stuart Corlett Stuart Davey Stuart David Pemberton Stuart Dixon Stuart Gorry Stuart Hall Stuart John Whitby Stuart Munton Stuart Rees Stuart Roscoe Stuart Ross Stuart Williams Stuart Williams Sue Bill Suresh Mistry Surmukh Jandu Susan Black Susan Jeanette Attwell Susan Margaret Hulme Susan Mary Henshall Suzanne Owen T Tami Robinson Tanya Paterson Tanya Sharpe Tara Smith Teodoro Zapanta Terab Ali Terance Langford Terence Dowling Terence J Dooley Terry Brown Terry Howard Terry Hutchinson Terry Salisbury Theresa Scrase Thomas Boulton Thomas Charles Newman Thomas Clutterbuck Thomas Crawford Thomas Cunningham Thomas Gerard Wade Thomas Marriott Thomas Otley Thomas Ryan Thomas Swain Thomas William Fry Tim Bird Tim Ives Tim Tatlock Timothy Bentley Timothy Gerard Boardman Timothy Stanhope Timothy Tuff Toby Collins Toby Hutton Todd Routledge Tom Evans Tom Lewis Tom Mcdowell 79 R e v i e w o f t h e b u s i n e s s G o v e r n a n c e F i n a n c i a l t t S a e m e n t s O t h e r i n f o r m a t i o n Plc Annual Report and Financial Statements 2010 Store locations Topps Tiles 80 Midlands Birmingham – Erdington Birmingham – Solihull Birmingham – Sheldon Boston Burton upon Trent Cannock Chesterfield Coventry Coventry – Binley Derby Derby – Omaston Evesham Grantham Hereford Kidderminster Kings Heath Leicester Leicester – Grove Park Lincoln Long Eaton Mansfield Newark Newcastle under Lyme Nottingham Redditch Rugby Shrewsbury Spalding Stamford Stoke on Trent Stratford upon Avon• Tamworth Telford West Bromwich Wolverhampton Worcester Worksop London Battersea Beckton Beckenham• Borehamwood Brentford Brixton Camden Catford Catford – Bromley Rd• Charlton Cheam Chingford Colindale Croydon Dagenham East Sheen• Edmonton Enfield Feltham Forest Hill Fulham Gunnersbury Harrow Highgate Ilford Mile End Mitcham New Cross Gate New Southgate Old Kent Road Penge Raynes Park Romford Ruislip Southall Stamford Hill Staples Corner• Stevenage Streatham• Strood• Twickenham Uxbridge Vauxhall Waltham Cross Wandsworth Watford Wembley West Wickham Wimbledon• South Abingdon Ashford Aylesbury Banbury Barnstaple Basildon Basingstoke Bedford Bexhill Bishops Stortford Bognor Regis Bodmin Braintree Brentwood Bridgwater Brighton Bristol – Clevedon Bristol – Bedminster Bristol – Cribbs Causeway Broadstairs Buckingham Bury St Edmunds Byfleet Camberley Cambridge Canterbury Chichester Chippenham Chelmsford Cheltenham Chesham Christchurch Clacton Colchester Crayford Cromer Eastbourne Erith Exeter Exmouth Fareham Farnborough Farnham Folkestone Frome Gatwick Gloucester Grays Great Yarmouth Guildford Harlow Hemel Hempstead Hengrove Horsham Huntingdon Ipswich Ipswich – Martlesham Isle Of Wight Kettering Kings Lynn Launceston Letchworth Lewes Lowestoft Luton Maidstone Milton Keynes Newbury Newhaven Northampton Norwich Orpington Oxford Oxford – Watlington Peterborough Plymouth Poole Portsmouth Rayleigh Reading Salisbury Sittingbourne Slough Southend On Sea Southampton – Hedgend Southampton Millbrook St Albans St Neots Sudbury Swindon Taunton Thetford Tiverton Tonbridge Torquay Tunbridge Wells Uckfield Wellingborough Welwyn Garden City Weston Super Mare Winchester Windsor• Wisbech Truro• Yeovil Wales Bangor• Barry Bridgend Cardiff Cardiff – South Glamorgan Cross Hands Flint Haverfordwest Holyhead Merthyr Tydfil Neath Rhyl Swansea Wrexham North Aintree Anfield Barnsley Barrow In Furness Birkenhead Birstall Blackburn Blackpool Bolton• Bradford• Carlisle Cheadle Chelmsford Chester Chorley Cleveleys Congleton Crewe Darlington Doncaster Durham Grimsby Harrogate Huddersfield Hull Leeds Leek Macclesfield Manchester – Audenshaw Manchester – Green Quarter Manchester – Failsworth Manchester – Hyde Manchester – Salford Manchester – Sale Manchester – Stockport Manchester – Openshaw• Morecambe Nantwich Northwich Oldham• Ormskirk Penrith Pontefract Preston Rotherham Scarborough Stockton St Helens Sunderland Tyneside Wakefield Warrington Widnes Wigan• York Scotland Aberdeen Dumfries Dundee Edinburgh – Kinnaird• Edinburgh – Sighthill Edinburgh – Leith Falkirk Glasgow Glasgow – Govan Glasgow – Greenock Glasgow – Hillington Glasgow – Shawfield Inverness Wishaw Tile Clearing House Midlands Cheltenham Birmingham – Great Barr Kettering Kidderminster Northampton Norwich Nottingham Nuneaton Peterborough Shrewsbury Stoke-on-Trent Stoke-on-Trent – Fenton Wolverhampton London Barking Charlton Dartford Hayes Orpington Park Royal Southgate South Bournemouth Eastbourne Exeter Harlow Ilford Plymouth Swindon Wales Swansea North Blackpool Cheadle Doncaster Liverpool – Maghull Hull Lincoln Stockport Wigan Scotland Aberdeen Total 312 stores • New store 2009/10 Introduction “This has been a robust performance from the business during a tough trading period, which demonstrates the effectiveness of our strategy and the strength and resilience of our business model. Through the prudent management of costs and careful control of our business, we have significantly reduced our net debt position during the period and continued to build on our market leading position”. Matthew Williams Chief Executive Officer Inside this year’s report 4 8 12 GreaT choIce. GreaT PrIces. GreaT servIce. review of the business 1 The year in brief 2 Our strategy 3 Chairman’s statement 5 Chief Executive’s statement 9 Business review 17 Corporate Social Responsibility Governance 20 Directors 21 Directors and advisors 22 Directors’ report 25 Corporate governance statement 27 Remuneration report Financial statements additional information 30 Independent auditors’ report – consolidated financial statements 67 Five year record 68 Notice of Annual General Meeting 71 Explanatory notes to the Notice of Annual General Meeting 73 Appendix – Principal features of the share incentive plan 75 The team 80 Store locations 31 Consolidated statement of financial performance 31 Consolidated statement of comprehensive income 32 Consolidated statement of financial position 33 Consolidated statement of changes in equity 34 Consolidated cash flow statement 35 Notes to the consolidated financial statements 63 Independent auditors’ report – Company financial statements 64 Company balance sheet 65 Notes to the Company financial statements h April 2010 sees the proud launch of our successful new website. Plc Annual Report and Financial Statements 2010 store locations scotland 15 stores operated by the Group in Scotland 63 stores operated by the Group in North region 50 stores operated by the Group in Midlands region 15 stores operated by the Group in Wales 113 stores operated by the Group in South region North London Midlands Wales south 56 stores operated by the Group in London Topps Tiles – store numbers Tile clearing house – store numbers Stores at the beginning of the period New stores opened Sub-total Stores at the beginning of the period 265 17 New stores opened 282 Sub-total Closures (including brand swaps) –7 Closures (including brand swaps) Total 275 Total 44 – 44 –7 37 Designed and produced by radley Yeldar www.ry.com T o p p s T i l e s P l c A n n u a l R e p o r t a n d F i n a n c a i l t t S a e m e n t s 2 0 1 0 great PriceS. great choice. great SerVice. Topps Tiles Plc Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU T 0116 282 8000 F 0116 282 8115 www.toppstiles.co.uk Topps Tiles Plc Annual Report and Financial Statements 2010 

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