Topps Tiles
Annual Report 2017

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 A c c o u n t s f o r t h e 5 2 w e e k p e r i o d e n d e d 3 0 S e p t e m b e r 2 0 1 7 Annual Report and Accounts for the 52 week period ended 30 September 2017 Stock Code: TPT 25632.02 13 December 2017 11:33 AM Proof 8 25632.02 13 December 2017 11:33 AM Proof 8 Welcome Topps Tiles is the UK’s leading tile specialist. Our core business is focused on the domestic tile market and, specifically, refurbishment of residential homes. We provide an industry leading range of tiles and associated accessories to this market. Our customer base includes both homeowners (predominantly retail customers) and tile fitters (trade customers) and our business is based on a broadly even split between the two customer types. Our colleagues are a key ingredient of our business model – our customers rely on our expert product knowledge and world-class customer service. We have also announced our desire to participate in the commercial tile market. We are at the very start of our journey to develop a meaningful presence in this significant part of the overall UK tile market. We have completed a small acquisition during the year and 2018 will be a year of learning and building this new strategically important business. OUR STRATEGY Our core business strategy of “Out-specialising the Specialists” remains very much at the heart of what we do. It is built on the foundation of ensuring we have Great People and provide them with an environment in which they can thrive and help us to sustain a Great Company. Our key areas of strategic focus are having the UK's Leading Range, providing our customers with an Inspirational Experience and being the Traders’ Champion. READ MORE Read Our Strategy on pages 12 to 16 OUR STORES Topps Tiles has over 372 stores across the UK with a broad geographic reach which means most customers require less than a 20 minute drive time to reach their local store. 17 2 55 READ MORE See our full store list on page 141 17 52 81 148 PICTURED Cover: KinectTM Stonewash Blue and Larvik IFC: IndustriaTM, engineered stone metal effect, wall mosaic 25632.02 13 December 2017 11:33 AM Proof 8 25632.02 13 December 2017 11:33 AM Proof 8 OVERVIEW CONTENTS BUSINESS MODEL We offer our customers outstanding value for money through exceptional customer service, an up-to-date market leading product range and unrivalled multi-channel convenience. READ MORE Pages 10 and 11 CONTENTS Highlights Chairman’s Statement Strategic Report Marketplace Business Model Our Strategy OUR STRATEGY The business has an overarching goal to achieve profitable sales growth. During the period we conducted our annual refresh of strategy and have now included a more explicit focus on the commercial tile market in our future growth plans. READ MORE Pages 12 to 16 KEY PERFORMANCE INDICATORS The Board monitors a number of financial and non-financial metrics and KPIs both for the Group and by individual store. READ MORE Page 26 INVESTOR WEBSITE We maintain an investors' website containing a wide range of information to investors www.toppstilesplc.com Leading Range Inspirational Experience Traders' Champion Great People, Great Company Strategy in Action Key Performance Indicators Financial Review Risks and Uncertainties Corporate Social Responsibility Our Governance Board of Directors Corporate Governance Statement Directors’ Report Directors’ Remuneration Report Our Financials Independent Auditor's Report Consolidated Statement of Financial Performance Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements Company Balance Sheet Notes to the Company Financial Statements Additional Information Five Year Record Notice of Annual General Meeting Explanatory Notes to the Notice of Annual General Meeting Summary of the principal features of the Topps Tiles 2018 Sharesave Scheme ("Sharesave Scheme") The Team Store Locations 2 4 8 10 12 13 14 15 16 18 26 27 33 37 44 46 50 54 74 80 80 81 82 83 84 112 113 118 119 124 127 129 141 1 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Highlights GROUP REVENUE (£m) -1.5% LIKE-FOR-LIKE REVENUE GROWTH YEAR-ON-YEAR1 (%) -2.9% GROSS MARGIN (%) -80bps 212.2 215.0 211.8 195.2 8.1 60.9 61.2 61.9 61.1 5.4 4.2 (2.9) ADJUSTED PROFIT BEFORE TAX2 (£m) -15.5% 22.0 20.4 18.6 17.1 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 PROFIT BEFORE TAX (£m) -15.0% 20.0 ADJUSTED EARNINGS PER SHARE3 (p) -13.9% BASIC EARNINGS PER SHARE (p) -13.3% 16.7 17.0 17.0 8.86 8.17 7.63 8.05 6.98 FINAL DIVIDEND (p) -8.0% 2.25 2.50 2.30 6.63 6.49 6.75 1.60 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 TOTAL DIVIDEND (p) -2.9% 3.00 2.25 CASH GENERATED FROM OPERATIONS (£m) -7.7m 29.9 3.50 3.40 24.9 24.2 22.2 NET DEBT4 (£m) +2.7m 30.5 28.4 27.5 24.8 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 2 25632.02 13 December 2017 11:33 AM Proof6 OVERVIEW HIGHLIGHTS FINANCIAL PERFORMANCE • Sales of £211.8 million (2016: £215.0 million). Like-for-like sales decline of 2.9% (2016: +4.2%) • Gross margin decreased to 61.1% (2016: 61.9%) reflecting pressure of weaker sterling which was partly offset by underlying sourcing gains and our focus on a differentiated product offer • Adjusted profit before tax2 of £18.6 million, a decrease of 15.5% • Final dividend of 2.30 pence per share (2016: 2.50 pence per share), making a total for the year of 3.40 pence per share (2016: 3.50 pence per share) • Net debt4 at period end increased to £27.5 million (2016: £24.8 million) STRATEGY UPDATE • Core business strategy of "Out-specialising the Specialists" remains key focus in the domestic tile market, where Topps Tiles is market leader • Growth strategy expanded into the commercial segment of the UK tile market (c. 45% of total UK tile market) • Parkside Ceramics, a small business which specialises in the supply of tiles into the commercial segment acquired during the period for £1.1 million • Parkside to form the basis of a new Commercial division – plans in place to invest c.£1 million in the year ahead into capabilities to drive longer term growth OPERATIONAL PERFORMANCE • Trade participation increased to 55% of total sales (2016: 52%) driven by growth of the trade loyalty programme and trend for "Do It For Me" • Digitisation of "Rewards +" trade loyalty programme, enhancing offer to trade customer base – 55,000 traders now registered and spending, a 35% increase • Sales continuing to benefit from new product development – 9.2% of tile revenues generated from ranges launched in the last 12 months (2016: 12.6%) • Active management of store portfolio – 26 new openings and five closures in the period, resulting in a net 21 new stores. Between five and 10 net new openings expected in current financial year. READ MORE Read the Financial Review on pages 27 to 32 CURRENT TRADING AND OUTLOOK • The Group is now trading from 372 stores (2016: 352 stores) • In the first eight weeks of the new financial period, Group revenues, stated on a like-for-like basis, increased by 3.2% (2016: decrease of 0.3%) Commenting on the results, Matthew Williams, Chief Executive said: "The business responded well to the more challenging trading conditions we experienced in 2017, maintaining tight control of costs to help offset the reduction in gross margin and continuing to make good progress with its strategic initiatives. “Trading in the first eight weeks of the new financial year has improved, with like-for-like sales increasing by 3.2%. While we are retaining our prudent view of market conditions for the year ahead, we are encouraged by this return to like-for-like sales growth. We are confident that the combination of the significant further potential in our strategy of 'Out-specialising the Specialists' with our accelerated plan to grow in the commercial tile market will underpin our future success.” NOTES 1. Like-for-like revenues are defined as sales from online and stores that have been trading for more than 52 weeks. 2. Adjusted profit before tax excludes several items that we have incurred during the period in order to give users of the accounts improved information around underlying performance trends. These are items which are either one-off in nature or can fluctuate significantly from year to year (such as some property related items). These are set out as follows: Adjusted pre-tax profit Vacant property costs Costs related to acquisition during the period Impairment of plant, property and equipment Gains or losses on disposal of freehold of long leasehold properties Stock write-off relating to wood category exit Restructuring costs including transitional costs relating to prior year business simplification initiatives Statutory pre-tax profit 2017 £m 2016 £m 18.6 22.0 (0.4) (0.2) (1.2) 0.2 nil (0.3) nil (0.8) nil (0.5) nil (0.4) 17.0 20.0 3. Adjusted for the post tax effect of the items highlighted above. 4. Net debt is defined as loan facilities drawn down less cash and cash equivalents. 25632.02 13 December 2017 11:33 AM Proof6 3 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Chairman’s Statement DARREN SHAPLAND | CHAIRMAN In this new financial year we are accelerating our plans to grow in the commercial tile market and are excited about the opportunity this presents. The Board remains confident that this focus on building on the Group’s strong existing position within the UK tile market will be the foundation of our future success." INTRODUCTION A warm welcome to the Topps Tiles 2017 Annual Report. This year has delivered some challenging trading conditions for the business but I am pleased to report that we have responded well and continued to deliver good progress under our “Out- specialising the Specialists” strategy. We have delivered a number of important new strategic initiatives which are detailed throughout the pages of this report and, having conducted our annual refresh of strategy, we have confirmed our ambition to grow in the commercial side of the UK tile market. PICTURED KinectTM, Stonewash Blue, ceramic, wall & floor tile 4 25632.02 13 December 2017 11:33 AM Proof6 Heading OneOVERVIEW CHAIRMAN’S STATEMENT TRADING AND FINANCIAL PERFORMANCE The market has been more challenging this year and, whilst I am satisfied with how the business has responded, we have ultimately seen some impact on our financial performance. This has comprised two main factors – weakened demand, which is linked predominantly to lower levels of consumer confidence, and lower gross margins resulting from the depreciation of sterling which has resulted in increased product sourcing costs. We have delivered sales for the year of £211.8 million (2016: £215.0 million) and an adjusted profit before tax of £18.6 million (2016: £22.0 million). CAPITAL STRUCTURE AND DIVIDEND We have previously stated our ambition to migrate to a dividend policy of two times cover and we have continued to progress towards that target this year with a further increase in the ratio of profits we remit to shareholders. We anticipate achieving our goal by the end of the next financial year and the Board considers that, once achieved, a dividend which is approximately two times covered by earnings should be sustainable. As a result, the Board is recommending a final dividend for the year of 2.30 pence per share (2016: 2.50 pence per share). This will bring the total dividend for the year to 3.40 pence per share (2016: 3.50 pence per share). As a consequence of this recommendation dividend cover for the year is 2.25x (2016: 2.50x). GOAL AND STRATEGY Our overarching business goal is to drive profitable sales growth. Within our core Topps Tiles business, we are focused on the domestic tile market where we are the clear market leader. Our strategy of “Out- specialising the Specialists” continues to serve us well in this market and remains key for driving long-term profitable growth. This year, we have been explicit about our plans to expand into the commercial tile market. We made a small acquisition during the year and are planning for further investments in the year ahead which will allow us to grow a much stronger position in this attractive market. More detail on the Company’s strategy and the effectiveness with which it is being delivered can be found on the following pages. THE BOARD AND CORPORATE GOVERNANCE The Board of Topps Tiles is focused on good governance and we have further improved our disciplines on several fronts over the year. We have seen some positive improvements within the Audit Committee agenda, where we have strengthened our internal controls and have further improved internal reporting to ensure good transparency for Board members. In line with last year I am pleased to confirm that all Non-Executive Directors are independent and the Board is compliant with the Corporate Governance code from this perspective. We have benefited from very good stability on the Board with all Directors having completed at least two years of service and the combined Board having 43 years of experience with the Group in total. We have continued to assess the performance of the Board and the committees, including my own performance as Chairman. These reviews concluded that, overall, the Board is operating effectively and there are some further minor improvements that we will implement in the year ahead. OUR PEOPLE As a customer service-based business, our people are at the heart of our organisation and this is a key aspect of Topps Tiles success. Our customer service metrics are excellent and we benefit from extensive training and development programmes and clear and open communication across the business. On behalf of the Board I would like to extend my sincere thanks to all colleagues for their hard work, commitment and dedication. THE FUTURE FOR TOPPS TILES In our core domestic market, Topps Tiles’ strategy of “Out-specialising the Specialists” remains very much at the heart of what we do and the management team will continue to evolve the key strands of this strategy to maximise the opportunities to drive performance. In this new financial year we are accelerating our plans to grow in the commercial tile market and are excited about the opportunity this presents. The Board remains confident that this focus on building on the Group’s strong existing position within the UK tile market will be the foundation of our future success. DARREN SHAPLAND | CHAIRMAN READ MORE Read Strategy in Action on pages 18 to 24 25632.02 13 December 2017 11:33 AM Proof6 5 STRATEGIC REPORTPAGE HEADING | PAGE HEADING Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Strategic Report 6 25632.02 13 December 2017 11:33 AM Proof6 Heading OneSTRATEGIC REPORT The content of this Strategic Report meets the content requirements of the Strategic Report as set out in s414a of the Companies Act 2006. This Strategic Report and Chairman's Statement 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. CONTENTS Marketplace Business Model Our Strategy Leading Range Inspirational Experience Traders' Champion Great People, Great Company Strategy in Action Key Performance Indicators Financial Review Risks and Uncertainties Corporate Social Responsibility PICTURED Regional ReflectionsTM Dwyran and Diamante Pastels Bone and Mist 25632.02 13 December 2017 11:33 AM Proof6 8 10 12 13 14 15 16 18 26 27 33 37 7 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Marketplace THE UK TILE MARKET AND PERFORMANCE OF THE BUSINESS Topps Tiles is the largest tile specialist in the UK. Our primary focus is the domestic market for the renovation, maintenance and improvement of UK homes. Due to the highly discretionary nature of our market, consumer confidence remains a key driver of our performance. During 2017 the average level of consumer confidence was -7.3, which compares with -1.3 in 2016. Whilst the index has been negative across the whole year, the second half saw a modest deterioration where the average level of consumer confidence was -8.8, compared with -5.8 over the first half (source: GFK). The consumer confidence index has remained negative since the EU referendum result in June 2016 and we will continue to monitor this measure closely. A further key driver of the customer decision to take on a home improvement project is buying a new home. Housing transactions are therefore a very useful indicator of likely future demand. During this financial year housing transactions declined by around 5% to 1.2m. In part, this decline is a reversal of the growth spike in March 2016 ahead of the changes in stamp duty that occurred in April 2016. On a two-year basis housing transactions are broadly flat (source: HMRC). We also consider UK house price data to be a useful indicator of the relative health of our market. House prices are both a good reflection of the housing market itself and also tend to reflect consumer confidence, as homeowners tend to feel more affluent in a rising market. During the year we saw an increase in house prices, with the average price of a house in the UK rising to £210,116, an increase of 2.0% on the previous year (source: Nationwide). READ MORE Read our KPIs on page 26 The annual Tile Industry Report published by MBD covers the whole of the UK tile market (domestic and commercial) and is based on manufacturer and supplier data. Growth of the entire market in 2016 was 7.8% on a value basis and 4.4% on a volume basis. MBD have estimated that volume growth in 2017 will be 4% and our view is that this growth will have been driven by the commercial side of the UK tile market (note – MBD do not provide a value forecast growth estimate). UK HOUSE PRICES AND CONSUMER CONFIDENCE Consumer confidence (3-month average) House price (nationwide) ) e g a r e v a h t n o m - 3 ( e c n e d i f n o c r e m u s n o C 20 10 0 -10 -20 -30 -40 2 1 0 2 t c O 3 1 0 2 n a J . 3 1 0 2 r p A 3 1 0 2 l u J 3 1 0 2 t c O 4 1 0 2 n a J 4 1 0 2 r p A 4 1 0 2 l u J 4 1 0 2 t c O 5 1 0 2 n a J 5 1 0 2 r p A i ) e d w n o i t a n ( s e c i r p e s u o h K U 220,000 200,000 180,000 160,000 140,000 120,000 100,000 7 1 0 2 t c O 6 1 0 2 t c O 7 1 0 2 n a J 7 1 0 2 r p A 7 1 0 2 l u J 5 1 0 2 t c O 6 1 0 2 n a J 6 1 0 2 r p A 6 1 0 2 l u J 5 1 0 2 l u J Source: Consumer confidence = GFK, UK house price = Nationwide 8 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 STRATEGIC REPORT MARKETPLACE UK 12-MONTH HOUSING TRANSACTIONS – HMRC ) s 0 0 0 ( s n o i t c a s n a r t g n i s u o h h t n o m - 2 1 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 2 1 0 2 t c O 3 1 0 2 n a J . 3 1 0 2 r p A 3 1 0 2 l u J 3 1 0 2 t c O 4 1 0 2 n a J 4 1 0 2 r p A 4 1 0 2 l u J 4 1 0 2 t c O 5 1 0 2 n a J 5 1 0 2 r p A 5 1 0 2 l u J 5 1 0 2 t c O 6 1 0 2 n a J 6 1 0 2 r p A 6 1 0 2 l u J 6 1 0 2 t c O 7 1 0 2 n a J 7 1 0 2 r p A 7 1 0 2 l u J 7 1 0 2 t c O PICTURED Source: Housing transactions = HMRC UK TILE MARKET – DOMESTIC VS COMMERCIAL UK tile market estimated at c. £700m @ RSP* Commercial c.45% (Principally catering for architects and designers) Domestic c.55% (Refurbishment of residential properties) 45% Commercial ial c r e m m o C *Source: MBD and Company estimates 18% Topps Tiles 17% DIY Sheds 16% Other specialists D o m e s t ic 4% Other Left page: Busca Bronze Flat, Spaces Carnelle Walnut Top left: GrosvenorTM ceramic wall and floor tile Top right: IndasTM Rust porcelain wall and floor tile Bottom left: BurbankTM Peppermint Geometric ceramic wall tile Bottom right: Minton Hollins Honeysuckle ceramic wall tile Bottom page left: Busca Silver Flat, Foundry Tarnish Box Bottom page right: Attingham Earth Lagoon and Macrame Flint 25632.02 13 December 2017 11:33 AM Proof6 9 STRATEGIC REPORTPAGE HEADING | PAGE HEADING Business Model Topps Tiles is the leading specialist retailer of tiles in the UK. We supply tiles and associated products to both a trade and retail customer base, primarily for the refurbishment of UK domestic housing. SOURCING We source our products directly from manufacturers all around the world and focus on long-term strategic relationships with our suppliers. Products are delivered to our 150,000 sq ft warehouse in Leicester and from there all stores receive two deliveries per week through our fleet of 28 commercial vehicles. In addition, each store operates as a mini warehouse, carrying sufficient stock to ensure that our customers' immediate demands can be fulfilled on a “cash and carry” basis. PRODUCT INNOVATION We inspire our customers with a market leading product range which is mostly available on an exclusive basis. We achieve both of these aspects by working collaboratively with our key suppliers to develop new ranges; with Topps Tiles providing the customer insight into emerging trends and the supplier providing the technical knowledge and capability. Technology is an important aspect of modern tile production with innovations such as digital printing and new glaze technologies allowing a much greater variety of patterns and finishes. Over recent years Topps Tiles has led many innovations in the market including the development of natural stone and wood effect tile ranges which continue to be a major trend in the UK. STORE FORMATS CONSUMER WEBSITE CHANNELS We aim to provide maximum convenience for our customers by offering a truly seamless journey across all of our channels to market. Stores remain our primary channel to market and driven by the almost unique nature of the tile market we estimate that almost all of our customers will utilise a store at some point during their purchase. We operate 372 stores across the UK with an average footprint of 5,000 sq ft. However, the flexibility in our model enables us to trade successfully from 1,000 sq ft up to 10,000 sq ft. This means we can be found in a variety of locations including high streets, retail parks, trade parks and on main arterial roads en route to larger shopping destinations. Our store portfolio operates predominantly on a leased basis with an average unexpired lease term of six years. CORE (3,500+ SQ FT) SMALL (2,000-3,500+ SQ FT) BOUTIQUE (< 2,000 SQ FT) 10 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 STRATEGIC REPORT BUSINESS MODEL Customers are also increasingly choosing to use our online presence to conduct initial research into their projects or to maximise convenience by using this as a payment channel. We estimate that around 70% of our customers will use our website at some stage in their journey with us. Additionally, 55% of our sales are to trade customers but they are rarely the end consumer – that is usually the homeowner. In some cases we may not have a direct relationship with the homeowner which is why our relationship with our trade customers is very important to us. These relationships are built on a basis of our specialist credentials; providing excellent technical knowledge and a range of specialist products which ensure we cater for all of our traders’ needs. PEOPLE At our heart we are a service-based business and as a result our people are one of our most important assets. We aim to provide our customers with inspiration and advice on their home improvement projects and to do this successfully we ensure that we have teams of people in our stores that can engage with our customers and truly inspire them. Technical knowledge and a strong service ethic are paramount and we invest significant amounts of time and money in our people every year. BRAND Topps Tiles is the UK’s leading tile specialist retailer and now has 85% prompted awareness with consumers who have recently purchased or who are about to purchase tiles. Topps Tiles’ focus is on driving consideration with the tile decision makers and building this results in increased sales from both home-improvers and traders. Our customers tell us they want inspirational service at all points of contact and quality “on-trend” products at a range of price levels they can buy conveniently. Topps Tiles has gained brand reappraisal and greater consideration by a wider customer base in recent years by being seen as more modern and design-led whilst retaining a strong perception of value for money. VALUE FOR CUSTOMERS We offer our customers outstanding value for money through exceptional customer service, an up-to-date market leading product range and unrivalled multi-channel convenience. Topps Tiles successfully combines the added value aspects of its offer with competitive pricing led by an “unbeatable tile value” range, market leading promotions and competitive trade pricing on items like adhesives and grouts. The Topps Tiles model continues to evolve and our strategy seeks to capitalise on the aspects where we consider we can maximise the potential to deliver our goal. PICTURED AntlerTM ceramic wall tile with DartreyTM Black porcelain wall and floor tile 11 25632.02 13 December 2017 11:33 AM Proof6 Our Strategy The business responded well to the more challenging trading conditions we experienced in 2017, maintaining tight control of costs to help offset the reduction in gross margin and continuing to make good progress with its strategic initiatives. We are confident that the combination of the significant further potential in our strategy of "Out-specialising the Specialists" with our accelerated plan to grow in the commercial tile market will underpin our future success." MATTHEW WILLIAMS | CHIEF EXECUTIVE OFFICER The business has an overarching goal to achieve profitable sales growth. During the period we conducted our annual refresh of strategy and have now included a more explicit focus on the commercial tile market in our future growth plans. COMMERCIAL The commercial tile market represents approximately 45% of the overall UK tile market and we have a small representation currently through our core business. We have identified that there are areas of the commercial market that are economically attractive and where we consider that some of our core strengths can be further leveraged, providing a potential source of profitable growth for the business. PROGRESS AND OUTLOOK We have identified several routes of entry into the commercial market and during the period we completed the acquisition of Parkside Ceramics Ltd for £1.1 million in cash. Parkside Ceramics is a small business which specialises in the supply of tiles into the commercial segment and also distributes to independent kitchen and bathroom retailers. We believe that Parkside gives us a solid platform from which to invest in and develop our presence in the commercial tile market. 2018 will be a year of learning and building this business. Parkside shows significant potential and we are keen to expand with investment in people, physical representation and capability, to establish a new Commercial division. In the year ahead we plan to invest in the region of £1 million into costs which will drive longer term growth. We will also focus further on the opportunities that emerge through our core brand and believe this offers further significant potential as we learn more about the commercial market. We remain open to further growth through acquisition and will continue to review such opportunities as they arise. PROFITABLE SALES GROWTH STRATEGIC PILLARS Leading Range Inspirational Experience Traders' Champion Great People, Great Company CORE BUSINESS Within the core Topps Tiles business our strategy of "Out-specialising the Specialists" continues to be very effective. This strategy is focused on the following four key areas: 1. 2. 3. Leading Range Inspirational Experience Traders’ Champion 4. Great People, Great Company 12 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT OUR STRATEGY Leading Range Offering the UK’s leading tile range is a key aspect of our competitive advantage as our customers value highly the breadth of choice and unique product offering we bring to the market. Our passion for product and specialist knowledge means we are able to work collaboratively with leading manufacturers from all over the world to design and create new tile ranges and finishing solutions based on emerging trends that our buyers are often the first to identify. These ranges are sourced on an exclusive basis wherever possible and we trademark them to protect our competitive advantage and intellectual property. PROGRESS AND OUTLOOK Our iterative cycle of new product introductions saw us launch 45 new ranges in the period, with 9.2% of our tiles sales coming from products launched in the last 12 months.87% of our tile range is exclusive to Topps Tiles in the UK. We will continue to invest in relationships around the world with the key influencers of tile design and manufacturing technology in order to foster the development of exciting new industry-leading exclusive ranges of tiles and associated products. Our increased focus on the commercial tile market will also create new opportunities – such as selling our existing ranges to commercial customers and establishing new manufacturer relationships. PICTURED AlbusTM porcelain wall and floor tile WHAT OUR CUSTOMERS ARE SAYING What a superbly refitted store this is now. The CHOICE of tiles and ranges on offer are amazing and covers literally every conceivable option. The guys are as friendly, knowledgeable and helpful as ever. We've been buying tiles from here on and off over about 20 years now but this is the best the store and service has ever been. TOP MARKS. It gets our highest recommend. AND . . . you can confidently over order on your tiles because you can return any surplus (complete boxes) for a refund. Can't say fairer than that. FIRST CLASS.” PATTERJAX | READING 25632.02 13 December 2017 11:33 AM Proof6 13 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Inspirational Experience WHAT OUR CUSTOMERS ARE SAYING From the moment we entered your showroom we were warmly greeted by staff who displayed a genuine concern for our requirements. After choosing, we placed our order and were phoned when they arrived. I over-ordered and it was no problem taking the surplus back and crediting my account. What an absolute pleasure to deal with such courteous and professional staff.” MIKE | CHEADLE PICTURED Customers in store using an iPad 14 25632.02 13 December 2017 11:33 AM Proof6 Inspiring our customers has always been key to our competitive advantage. This starts when customers come into contact with the Topps Tiles brand, often through our website, and moves through to the in-store experience and ultimately to our after sales service. Our website is a vital aspect of the customer journey, offering us the opportunity to showcase our industry-leading range, and helping customers to appreciate our multi-channel convenience and the location of their nearest store. Once in store we are able to inspire customers further with our world-class service. The majority of our customers shop infrequently for tiles which means that when they do they need lots of advice and expertise, which our store colleagues provide, often supported by our digital tools. PROGRESS AND OUTLOOK We strive to ensure that the digital experience is seamless when a customer transitions from online to in-store. Our tile visualiser is industry leading and a key source of inspiration for our customers, and is available in all stores via tablets and “Design Advice Areas”. Our customer service rating for the year was 80.2% (2016: 79.7%). We have continued to invest in our store estate and during the year we opened 26 new stores and closed five, resulting in a net increase of 21 and bringing the year end total to 372 (2016: 351). In the year ahead we will continue to grow our store estate in a highly targeted manner and expect to open between five and 10 net new stores. We also plan to deliver an all-store improvement programme over the next two years which will see us implement some key aspects of the latest store fit out into all existing stores. Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Traders' Champion Our trade customer base is an important part of our business, providing a vital link to those homeowners who prefer to transact through their fitter rather than with us direct. The trend in the UK away from “Do It Yourself” towards “Do It For Me” is making our trade customer base increasingly important. Sales through our trade channel account for 55% of total sales (2016: 52%). By embracing our trade customers and championing their needs we believe we are building a further source of competitive advantage. PROGRESS AND OUTLOOK We relaunched our trader loyalty programme at the start of the year and this has been very well received by scheme members. We have improved the system in several ways including digitisation, ease of use, the range of rewards available and interaction with store teams. We now have 55,000 traders registered, an increase of 35% year on year. We continue to focus on the needs of our traders from a customer offer perspective and have introduced several new products and services this year which have broadened our overall appeal and made us more convenient for our traders. STRATEGIC REPORT OUR STRATEGY PICTURED Shopping with store manager Roxanne WHAT OUR CUSTOMERS ARE SAYING From start to finish service was excellent, I took a sample home and was sent pictures and my own personal brochure which was a nice touch. Because of work commitments I couldn’t get in for a couple of weeks and I was phoned to make sure I received my pictures and asked if I required any further assistance. The level of service persuaded me to purchase from Topps as I was also looking elsewhere but felt more confidence with Topps' process.” GINA | WARRINGTON 25632.02 13 December 2017 11:33 AM Proof6 15 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Great People, Great Company Topps Tiles offers high levels of customer service and this means we are very focused on our colleagues who deliver this service, with their capability and engagement levels being absolutely key. We believe our people represent a major source of competitive advantage and through our great people we strive to continue to build a great company. PROGRESS AND OUTLOOK In January 2017 we launched a refreshed employer brand which was based on colleague interviews across the business and which aimed to identify the reasons why they loved working for Topps Tiles. This has been very successful in improving consideration amongst potential employees and we have seen a significant improvement in the quality of applications, resulting in a substantial reduction in both time to hire and the overall number of vacancies year on year. This year we also implemented a new Learning Management System, “the Hub”, which has resulted in a significant improvement in the learning and development opportunities that we offer to all colleagues. This system allows a modern approach to personal development, allowing the individual to take control of their own development in a way that is convenient for them. We have continued with our programmes of face-to-face learning and development and delivered around 1,500 days of training with a specific focus on trade and customer service. This year, we have launched a programme of simplification of business processes to either improve the customer experience or the colleague experience, but ideally both. This has delivered some significant results which we believe will improve colleague engagement and customer satisfaction, with the ultimate aims of reducing colleague turnover and helping us to increase sales. PICTURED Top: Store team at Bolton Top left: 2017 annual conference Top right: In-store Bottom: 2017 annual conference product area WHAT OUR CUSTOMERS ARE SAYING Both Ben and Carly have been exceptional in their attitude and constant friendly approach on our many visits to the Weymouth branch looking at bathroom tiles. Always helpful, patient and knowledgeable and despite coming back on numerous occasions we were always welcomed.“ JAN | WEYMOUTH 16 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT OUR STRATEGY 25632.02 13 December 2017 11:33 AM Proof6 17 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Strategy in Action Leading Range Inspired by a backdrop spotted at Maison & Objet design show in Paris, the Topps Tiles buying team saw the potential in developing a crosshatch-design tile range, featuring directional lines which would create different patterns dependent on how the tile was laid. After close collaboration over a number of months with a leading manufacturer, Kinect™ was launched in an initial three colourways. The innovation of having directional lines debossed into the tile enables customers to create their own geometric statement wall or floor, enhanced further by collaboration with a leading essentials manufacturer to develop the Colour Editions grout range. Colour Editions offers the three identical colours as Kinect™, enabling homeowners to create a truly seamless look in their homes where the grout is barely visible against the tile. One tile design, numerous laying patterns and a brave new angle on tiling, Kinect™ is exclusive to Topps Tiles and showcases the Company’s commitment to being market leaders in innovation and product range. WHAT OUR CUSTOMERS ARE SAYING I have recently purchased bathroom tiles from the York store after much deliberation over what style I wanted. David has been brilliant with advising what tiles would match the splash panels we have put up and was able to show me alternatives he thought would go well. I have been back and forth several times buying samples tiles and have always been greeted warmly by David. His product knowledge is fantastic and he was able to sort me out with everything I needed for my husband to put the tiles up. I didn't have a clue what I needed to buy, so really valued his advice." NICOLA | CLIFTON MOOR PICTURED Top right: ArtisauTM ceramic wall tile Bottom right: ThornburyTM ceramic wall and floor tile and AnyaTM Frost ceramic wall tile Right: KinectTM Powdered Rose ceramic wall and floor tile with Albus porcelain wall and floor tile 18 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT STRATEGY IN ACTION 25632.02 13 December 2017 11:33 AM Proof6 19 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Strategy in Action Inspirational Experience We also seek to inspire customers in our design advice areas in store. Almost 25% of the estate now features this dedicated consultation area, enabling homeowners to consider the whole look and feel of their project, from tiles to trims, underfloor heating to colour of grout. The estate has increased by a net 21 to 372 stores, and we continue to invest in the estate as well as improving all existing stores. From our industry-leading online visualiser to our in-store design advice areas, inspiring customers is at the heart of what we do. Our digital offering starts with our website, which has been made fully responsive this year both to increase useability and accessibility for customers using tablet or mobile devices. This has seen the number of orders placed online increase significantly. Our visualiser is also a key part of the customer journey, both as part of the in-store experience and for homeowners browsing online, enabling them to see their choice of tiles in a selection of rooms, along with their chosen colour schemes. WHAT OUR CUSTOMERS ARE SAYING I visited this store three times: there were changes of plans, changes of mind and lots of dithering on my part. On each occasion I was treated with patience (lots!) and understanding and received fantastic advice. I received excellent customer service all round but Sam deserves an extra special mention. I would recommend Sam and her colleagues at Neath to anyone who is thinking about buying tiles. I will definitely be going back when it's time to do the kitchen.” EVIE | NEATH PICTURED Top: Using the in-store visualiser Bottom right: Design consultation with a service specialist Bottom left: Making a purchase 20 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT STRATEGY IN ACTION 25632.02 13 December 2017 11:33 AM Proof6 21 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Strategy in Action Traders' Champion With more than half of Topps Tiles’ total sales coming through trade customers, each trader has the potential to be an important and influential brand advocate for our products and service. Our Rewards+ trade loyalty programme was launched at the start of the year as a fully-digital experience, enabling points to be added automatically to accounts and redeemed in exchange for additional discounts on purchases, or carefully selected products and gifts ranging from barbecues to games consoles. Loyal traders were given the option to allow our customers to find them via their own custom Trader Profile on the Topps Tiles consumer-facing website, enabling them to showcase images of their work and have customer reviews on view to thousands of potential clients. We also provide have a range of extended business services such as competitive discounts on van leases and insurance services for our traders, via partnerships with companies including Vanarama and Simply Business. We also offer in-store trade initiatives including launching the “free cuppa” and click and collect ordering facility, alongside evening trade roadshow events which feature product demonstrations, discounted products and competitions, and externally- held training courses in conjunction with major suppliers, to assist traders with their product knowledge and fixing expertise. Topps Tiles continues to work with and for its loyal trader base on initiatives and services which will fix its position as the traders’ champion. WHAT OUR CUSTOMERS ARE SAYING In my search for tiles I visited a number of different places and I honestly can’t recommend Topps Tiles and this store in particular enough. The staff went above and beyond to help us, in particular Quang, who had a genuine passion for helping us find our perfect tile. The store is accessible and easy to navigate unlike others I tried.“ CHAREH | BAYSWATER BOUTIQUE PICTURED One of Topps Tiles' regular trade roadshows, held in stores to engage with local traders. 22 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT STRATEGY IN ACTION 25632.02 13 December 2017 11:33 AM Proof6 23 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Strategy in Action Great People, Great Company From a family, feelgood atmosphere to pride in working for the UK’s leading tile specialist, there are many reasons why our colleagues love working for Topps Tiles. As a retailer we believe that our great people create our great company, leading to our excellent customer service from colleagues who are engaged, involved and care about their role within the business. Our new Employer Brand with dedicated jobs website showcases why colleagues love working for Topps Tiles, and as a business we also believe in their own personal development. Topps Tiles took the award for Most Engaged Workforce from The Hub creators Growth Engineering in 2017, as a result of the high levels of engagement for the learning management system. Although originally launched as a learning management system, The Hub is also becoming increasingly used as a social media-styled communication tool, featuring messages and blogs from the Chief Executive, praise from colleagues for achievement and information on new learning opportunities. WHAT OUR CUSTOMERS ARE SAYING Bought tiles from here a few times now. Every time I have visited the store all the staff have consistently been very friendly and helpful. All the staff here are pleasant, professional and a great asset to you!“ ANDY | LETCHWORTH PICTURED Main: Topps Tiles Distribution team in the Grove Park warehouse, Leicester Top right: In store Bottom right: 2017 annual conference 24 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT STRATEGY IN ACTION 25632.02 13 December 2017 11:33 AM Proof6 25 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Key Performance Indicators The Board monitors a number of financial and non-financial metrics and KPIs both 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 -2.9% 2016: +4.2% -1.5% 2016: +1.3% 61.1% 2016: 61.9% YoY: -80bps ADJUSTED PROFIT BEFORE TAX* NET DEBT £18.6m £27.5m INVENTORY DAYS 132 2016: £22.0m YoY: -15.5% 2016: £24.8m YoY: +£2.7m 2016: 115 YoY: +14.8% NON-FINANCIAL KPIS NET PROMOTER SCORE 68.6% CUSTOMER SERVICE SCORE 80.2% COLLEAGUE TURNOVER 35.0% 2016: 69.4% YoY: -80bps 2016: 79.7% YoY: +50bps 2016: 29.5% YoY: +550bps CARBON EMISSIONS PER STORE (TONNES PER ANNUM) NUMBER OF STORES AT YEAR END 34.3 2016: 38.3 YoY: -10.4% 372 2016: 351 YoY: +21 * As defined on page 3 NOTES • Net promoter score is calculated based on customer feedback to the question of how likely they are to recommend Topps Tiles to friends or colleagues. The scores are based on a numerical scale from 0-10 which allows customers to be split into promoters (9-10), passives (7-8) and detractors (0-6). The final score is based on the percentage of promoters minus the percentage of detractors. • Customer service score is calculated based on the results of our mystery shopper programme. This programme sees a panel of independent shoppers visit each of our stores every month and scores them across six service-led categories. Each category holds a varying weighting towards the overall score percentage. • Energy carbon emissions have been compiled in conjunction with our electricity supplier (Opus) and our gas supplier (Gazprom). This is based on the actual energy consumed multiplied by Environment Agency approved emissions factors. Vehicle emissions have been calculated by our in-house transport team based on mileage covered multiplied by manufacturer quoted emission statistics. The Board receives regular information on these and other metrics for the Group as a whole. This information is reviewed and updated as the Directors feel appropriate. 26 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT KEY PERFORMANCE INDICATORS | FINANCIAL REVIEW Financial Review ROB PARKER | CHIEF FINANCIAL OFFICER 2017 was a more challenging year for Topps Tiles with economic headwinds resulting in lower sales and gross margin." FINANCIAL OBJECTIVES In addition to the key strategic objectives highlighted in the Strategy section the business maintains a strict financial discipline, including: • Primary focus on increasing revenues and cash generation, maintaining cost disciplines and optimising gross margins; • Capital structure and net debt – the level of net debt has now been reduced to a point that the Board feels is an appropriate balance of an efficient capital structure and financial flexibility; and • Maximising earnings per share and shareholder returns, including bi-annual review of our dividend policy. The Board has previously communicated its intention to target a dividend policy of two times cover and we anticipate achieving this by the end of the next financial year. PICTURED LuxdustTM Diamond engineered stone wall and floor tile and SpeculoTM Mist glass wall tile 27 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Financial Review PROFIT AND LOSS ACCOUNT REVENUE Revenue for the period ended 30 September 2017 decreased by 1.5% to £211.8 million (2016: £215.0 million). Like-for-like store sales decreased by 2.9% in the period, which consisted of a 1.9% decrease in the first half of the financial period and a 3.9% decrease in the second half. The decrease in sales performance correlates with the reduction in consumer confidence highlighted above in the Marketplace section of this report. GROSS MARGIN Overall gross margin decreased to 61.1% compared with 61.9% in the previous financial period. Over the first half of the period the gross margin was 61.2%, and we delivered a gross margin of 61.0% in the second half of the period. Gross margin has been adversely affected during the year due to the continued weakness of sterling post the EU referendum, which has generated an impact of around 200bps. In addition to this, we have seen further pressure on margin of c.55bps from the continued shift in customer mix towards trade and the launch of our new Trade Reward+ loyalty programme. We have focused on negating these effects and were successful in offsetting around two-thirds of this pressure in the period. This has been achieved through a combination of improved product mix (including the benefit from exiting low margin real wood in the prior period), sourcing gains and our continued focus on a differentiated product offer. For the year ahead we anticipate delivering a gross margin gain of c.50bps, assuming stable sterling exchange rates. OPERATING EXPENSES Total operating costs reduced from £112.1 million to £111.5 million, a decrease of 0.5%. Costs as a percentage of sales were 52.6% compared to 52.1% in the previous period. When adjusting items (detailed below) are excluded, operating costs were £109.9 million (2016: £110.1 million), equivalent to 51.9% of sales (2016: 51.2% of sales). The movement in adjusted operating costs is explained by the following key items: • The average number of UK stores trading during the financial period was 361 (2016: 344), which generated an increase in costs of approximately £3.4 million • Inflation at an average of approximately 1.5% increased our cost base by around £1.6 million • Regulatory costs impacts, including the National Living Wage, accounted for £0.5 million of additional costs • Depreciation increased by £0.3 million due to continued higher levels of investment in the store estate • Employee profit share costs decreased by £5.1 million due to a lower level of financial performance compared to budget • Other savings across the business accounted for £0.9 million; these were primarily generated across the store estate from reduced hours • The remaining elements of the cost base were flat when compared to the prior year For the year ahead we expect the adjusted operating costs for the business to be between £116 million and £117 million. During the period we incurred several charges and gains which we have excluded from our adjusted operating costs as they are not representative of the underlying cost base of the business. These are: • The impairment of plant, property and equipment relating to closed or loss- making stores of £1.2 million (2016: £0.8 million) • Vacant property costs of £0.4 million (2016: £0.3 million) • Costs relating to the acquisition of the share capital of Parkside Ceramics of £0.2 million • A gain on the disposal of a long leasehold property of £0.2 million • In addition, in the prior year we also excluded £0.5 million for a stock write-off relating to the exit of the wood category, and business restructuring costs of £0.4 million. There were no such costs in the current year. 25632.02 13 December 2017 11:33 AM Proof6 REVENUE 195.2 177.8 212.2 215.0 £m 211.8 2013 2014 2015 2016 2017 GROSS MARGIN % 60.2 60.9 61.2 61.9 61.1 2013 2014 2015 2016 2017 28 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 STRATEGIC REPORT FINANCIAL REVIEW Net interest cover was 29.0 times (2016: 27.4 times) based on earnings before interest, tax, depreciation and the impairment of plant, property and equipment, excluding the impact of IAS 39 in finance charges. PROFIT BEFORE TAX Profit before tax was £17.0 million (2016: £20.0 million). The Group profit before tax margin was 8.0% (2016: 9.3%). Excluding the adjusting items detailed on page 3, profit before tax was £18.6 million (2016: £22.0 million). The Group adjusted profit before tax margin was 8.8% (2016: 10.2%). OPERATING PROFIT Operating profit for the period was £17.9 million (2016: £21.1 million), representing 8.4% of sales (2016: 9.8%). Excluding the adjusting items detailed above, operating profit was £19.5 million (2016: £23.1 million), representing 9.2% of sales (2016: 10.7%). OTHER GAINS AND LOSSES During the period we disposed of one long leasehold property and recognised a gain of £0.2 million. In the prior period we did not dispose of any property. FINANCING The net underlying interest charge for the year was £0.9 million (2016: £1.1 million). There has been a small reduction in the interest charge due to a reduced interest margin as a result of lower levels of gearing. ADJUSTED OPERATING EXPENDITURE BRIDGE 1.6 0.3 0.5 (5.1) TAX The effective rate of corporation tax for the period was 21.0% (2016: 22.3%). The Group tax rate is higher than the prevailing UK corporation tax rate due to non-deductible expenditure and depreciation on assets not qualifying for capital allowances. EARNINGS PER SHARE Basic earnings per share were 6.98 pence (2016: 8.05 pence). Diluted earnings per share were 6.86 pence (2016: 7.82 pence). Excluding the adjusting items detailed on page 3, adjusted earnings per share were 7.63 pence (2016: 8.86 pence). DIVIDEND AND DIVIDEND POLICY The Board has previously indicated that it intends to pursue a dividend cover policy and that it would target 2x as a sustainable level, with a period of reducing cover until that target is achieved. In line with this policy, the total dividend for the period has been based on cover of approximately 2.25x. m £ x e p O j d A 118.0 116.0 114.0 112.0 110.0 108.0 106.0 104.0 102.0 100.0 110.1 6 1 Y F 3.4 e c a p S w e N n o i t a fl n I n o i t i a c e r p e D t y r o a u g e R l (0.9) 109.9 READ MORE Read our Financial Statements on pages 80 to 83 e r a h S t fi o r P r e h O t 7 1 Y F PICTURED Left: BerkeleyTM Slate Blue with border and corner pieces, ceramic wall and floor tiles Right: BistroTM Black porcelain wall and floor tile 29 25632.02 13 December 2017 11:33 AM Proof6 Financial Review ADJUSTED PROFIT BEFORE TAX £m ADJUSTED EPS p TOTAL DIVIDEND 22.0 20.4 18.6 8.86 8.17 7.63 17.1 13.0 6.63 5.44 3.00 2.25 1.50 3.50 p 3.40 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 The Board is recommending to shareholders a final dividend of 2.30 pence per share (2016: 2.50 pence per share). This will cost £4.4 million (2016: £4.8 million). The shares will trade ex dividend on 21 December 2017 and, subject to approval at the Annual General Meeting, the dividend will be payable on 2 February 2018. This brings the total dividend for the year to 3.40 pence per share (2016: 3.50 pence per share), a decrease of 2.9%. BALANCE SHEET CAPITAL EXPENDITURE Capital expenditure on tangible fixed assets in the period amounted to £10.1 million (2016: £10.5 million), a decrease of 3.8%. Key investments are as follows: • New stores £4.9 million – 26 new openings (2016: £4.2 million) • Store refits £2.5 million (2016: £3.3 million) • All stores related strategic initiatives £0.3 million (2016: £1.7 million) • Freehold and leasehold investments £0.8 million (2016: £0.2 million) • Other expenditure of £1.6 million (2016: £1.1 million) The Board expects capital expenditure in the year ahead to reduce to approximately £8.0 million. The key driver of this will be a smaller number of store openings and a reduced number of store refits, which will in part be offset by the commencement of a two-year programme of all-store improvements (which is referred to above in the Strategic Review section of this report), and investments in our Leicester warehouse and office facilities to enable growth of the new commercial tile business. INTANGIBLE ASSETS During the period we acquired 100% of the equity of Parkside Ceramics Ltd for a net cash consideration of £1.1 million (including £0.2 million of cash retained in the business). This resulted in the recognition of goodwill of £0.9 million and separately identifiable intangible assets of £0.4 million. In addition to the cash consideration paid, there is a further earn out opportunity for management which has a maximum ceiling of £0.3 million, to be paid in 2018 subject to performance targets being met. At the period end the Group held nine freehold or long leasehold sites, including two warehouse and distribution facilities, with a total carrying value of £16.5 million (2016: nine freehold or long leasehold sites valued at £16.2 million). The carrying value is based on the historic purchase cost and capital expenditure less accumulated depreciation. INVENTORY Inventory at the period end was £29.5 million (2016: £25.7 million) representing 132 days turnover (2016: 115 days turnover). The increase in the absolute level of inventory is driven by the increase in the store base, increased cost of goods due to sterling weakness and also by increased stocks of key selling ranges. ACQUISITIONS AND DISPOSALS During the period we acquired one freehold property for a consideration of £0.8 million and disposed of one long leasehold property for a consideration of £0.3 million. In the prior year there were no acquisitions or disposals of any freehold property. This balance also includes the inventory for Parkside Ceramics of £0.5 million (2016: nil) which was acquired on 1 September 2017. Days cover has increased as a result of this and the lower level of absolute sales. 30 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 STRATEGIC REPORT FINANCIAL REVIEW CAPITAL STRUCTURE AND TREASURY Cash and cash equivalents at the period end were £7.5 million (2016: £10.2 million) with borrowings of £35.0 million (2016: £35.0 million). CURRENT TRADING AND MARKET CONDITIONS FOR THE YEAR AHEAD 2017 was a more challenging year for Topps Tiles with economic headwinds resulting in lower sales and gross margin. CAPITAL EXPENDITURE £m 12.0 11.2 10.5 10.1 The Group maintained good control of costs which helped to offset the reduction in gross margin, but ultimately we have recorded a reduction in profits and earnings per share. 5.5 Trading in the first eight weeks of the new financial year has improved, with like-for- like sales increasing by 3.2%. While we are retaining our prudent view of market conditions for the year ahead, we are encouraged by this return to like-for-like sales growth. We are confident that the combination of the significant further potential in our strategy of "Out-specialising the Specialists" with our accelerated plan to grow in the commercial tile market will underpin our future success. 2013 2014 2015 2016 2017 NET DEBT 36.6 £m 30.5 28.4 27.5 24.8 2013 2014 2015 2016 2017 This gives the Group a net debt position of £27.5 million (2016: £24.8 million). During the year the Group settled £2.9 million of tax and interest charges with HMRC which related to legacy tax enquiries, and purchased Parkside Ceramics Ltd for a consideration of £1.1 million. Both of these should be considered as one-off cash outflows. CASH FLOW Cash generated by operations was £22.2 million, compared to £29.9 million in the prior year period, a decrease of £7.7 million. This decrease was generated by a £4.1 million reduction in EBITDA and a £3.6 million reduction in working capital cash flow. The reduction in working capital cash flow was driven by a £2.5 million working capital cash outflow in the period compared to a £1.1 million working capital cash inflow in the prior period. In the year ahead we have plans in place to reduce working capital by up to £4 million through a combination of actions across inventory, creditors and debtors. PICTURED Top right: Cotton MillTM porcelain wall and floor tile 25632.02 13 December 2017 11:33 AM Proof6 31 CAUTIONARY STATEMENT This Strategic and Operational Review and Chairman's Statement have been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. These reports should not be relied on by any other party or for any other purpose. The Strategic and Operational Review and Chairman's Statement 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 Strategic and Operational Review, have complied with s414a 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. 32 ANNUAL GENERAL MEETING The Annual General Meeting for the period to 30 September 2017 will be held on 31 January 2018 at 10am at the Leicester Marriott Hotel. The Strategic Report was approved by the Board of Directors and signed on its behalf by: MATTHEW WILLIAMS | CHIEF EXECUTIVE OFFICER ROB PARKER | CHIEF FINANCIAL OFFICER 28 November 2017 DIRECTORS’ RESPONSIBILITY STATEMENT We confirm to the best of our knowledge: • 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 • the Strategic 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 and a fair, balanced and understandable view of the business. PICTURED Top left: GlaciemTM Black glass wall mosaic with HexmixTM Basalt wall and floor mosaic Top right: PenthouseTM Gris porcelain wall and floor tile 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT FINANCIAL REVIEW | RISKS AND UNCERTAINTIES Risks and Uncertainties The Board has assessed its process for reviewing strategic risk and uncertainties during the year. As a result of this we have developed a new framework, as follows: • An annual strategic risk workshop which is attended by the Audit Committee Chairman, Head of Internal Audit and key senior members of the management team including the Executive Committee • The production of a key risks register which is prepared based on a combination of likelihood and impact • A monthly summary in the Board pack which includes a summary of the key risks identified, combined with mitigants and agreed actions – with each risk refreshed at least quarterly GOING CONCERN When considering the going concern test the Board review several factors including a detailed review of risks and uncertainties, the Group’s forecast covenant and cash headroom against lending facilities and management’s current expectations. As a result of this review the Board believes 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. Therefore, the Board considers it appropriate to prepare the financial statements on the going concern basis. LONG-TERM VIABILITY In addition to the Going Concern statement the Directors have also assessed the prospects of the Group over a longer period. This assessment has been done over a period of three years for the following reasons: • this is the basis on which current strategic financial plans have been prepared; and • the business is largely dependent on UK consumer confidence and discretionary spending which is difficult to project beyond this period. The Directors’ assessment has been made with reference to the Group’s current position and prospects, the Group’s strategy, and principal risks facing the Company, as detailed in the Strategic Report. The Board considers the key risks to delivery of these financial plans to be a reduction in the level of sales growth and possibly a resultant weakening in gross margin. As a result a number of sales and gross margin based sensitivities have been prepared and reviewed by the Board. It should also be noted that the Group is operationally geared which means that there is a relatively high level of impact from any increases or decreases in levels of turnover. Topps Tiles' sustained decrease in levels of turnover would be managed by a reduction in operational expenditure, reductions in capital expenditure, tighter working capital controls and possible restriction of Company dividends. The conclusion of these sensitivities is that the Group has a good level of financial flexibility and is well positioned to withstand a number of risks occurring and/or a sustained reduction in levels of consumer spending. The Board has also considered the Group’s current banking facilities which include a non-amortising revolving credit facility that expires in June 2019. The Board considers that the facility will need to be reviewed in the 12-month period prior to expiry and that this is very likely to be completed on similar commercial terms to the current facility. Based on this review the Directors confirm that they have a reasonable expectation that the Group will continue to operate and meets its liabilities, as they fall due, for the next three years. 25632.02 13 December 2017 11:33 AM Proof6 33 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Risks and Uncertainties Risk Impact Mitigation Status Brexit – General Economic and Consumer Confidence The general economic climate and specifically consumer confidence are important to Topps Tiles and events that may affect these factors present a financial risk to the business. In the period post the UK voting to leave the European Union consumer confidence has been weaker and this has impacted our market. Consumers need to feel confident to invest money into their homes. In the event of a significant reduction in house prices, housing transactions or consumer confidence we would expect this to adversely impact on business performance. During the year we have seen a softening of these measures and, as expected, a subsequent softening in business performance. The full impact of the decision of the UK to leave the EU still remains unclear and this is likely to continue to create some uncertainty in the outlook over the short term. We believe that through a combination of a robust level of profitability and financial flexibility the business is able to withstand short-term trading pressures. This has been proven in recent years over the period of the financial crisis. During the year we have kept a tight control on costs and have increased focus on taking market share from competitors along with our proposed diversification into the commercial tile market. Longer term we consider that the UK housing market remains attractive and we believe there remains significant upside from a sustained economic recovery. Brexit – Foreign Exchange Rate Fluctuation A significant devaluation of sterling will result in increased costs of sourcing for the Group, and a subsequent reduction in profits. In the immediate period post the UK voting to leave the European Union there was a significant weakening in the value of sterling. Since that initial period of devaluation the value of sterling has remained broadly stable. Appropriate Business Strategy Our business strategy will not be successfully delivered. We source around 50% of our cost of goods from outside the UK which gives us an exposure to movements in foreign currency exchange rates. In the financial period the impact on profits of foreign exchange rates is around £4 million adverse when compared to the prior period. We have mitigated around half of the impact in the period through supplier negotiation or sourcing management with a number of lines being re- sourced resulting in increased gross margin for these products. Gross margins overall in FY17 have fallen as a result of the devaluation of sterling and we will continue to work on growing underlying gross margin in the year ahead by focusing on innovation, exclusivity and product mix. Without a clear Company goal and a well understood strategy to deliver, the risk is that the business loses focus and fails to deliver its objectives. Our refreshed strategy includes a specific intent to diversify into the commercial tile market which will include some risk around successful delivery of acquisitions (where relevant) and management distraction away from our core business. The strategy is reviewed annually, updated as required and approved by the Board. Bi-annual communication events and regular updates are provided to all colleagues on our progress towards our goals. We have clear plans for our recently acquired business, Parkside Ceramics, and as a result some structural changes have been made to ensure that our diversification into the commercial tile market does not detract from the core business strategy. Regulatory Cost Pressures The Government programme of above inflation pay rises known as the “National Living Wage” will increase employment costs at a faster rate than sales are rising. The Government has also introduced a new “Apprentice Levy” initiative which will incur an additional annual cost on the business. The impact of additional costs to the Group could take the form of reduced profits. The costs, based on indications from the Government, over and above underlying inflation are around £0.8 million per annum through to 2020. The Apprentice Levy annual cost will be around £0.2 million p.a. NEW The Group is focused on how to deliver the Government’s plans through to 2020 whilst maximising the benefit to colleagues and minimising the impact to shareholders. Thus far, we have preserved our high levels of performance related variable pay and resisted any temptations to reduce these payments in order to fund the National Living Wage costs. We will continue to review all options to offset increased regulatory costs elsewhere in our cost base but we remain committed to variable pay to drive performance. Regular checks are carried out on payroll runs to ensure compliance with the National Living Wage. Risk has increased Risk has decreased No change NEW New risk KEY: 34 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Risk Impact Mitigation Status STRATEGIC REPORT RISKS AND UNCERTAINTIES Threat from Competitors Competitors eroding our market share. A greater competitive threat could come from a new or existing competitor introducing a new point of differentiation to our market such as operational standards, range, service, use of technology, etc. Loss of market share leading to reduced sales and profitability. Attracting and Retaining Talent The failure to attract and/or retain key individuals could impact on the ability of the business to deliver its objectives. Reduced levels of customer service or lack of key individuals to deliver the business objectives would result in lower levels of sales and profits for the Group. The loss of technical knowledge in stores through high levels of colleague turnover could have a negative impact on our customer service levels. We constantly review our competitor set but at the same time we are clear on what differentiates Topps Tiles from its competitors. Our market leading product offer, inspirational experience and dedicated trade focus are the key elements of our business which, whilst imitated, have never effectively been replicated. For the next two years we will focus on a programme of all-store improvements which will further differentiate us from our competitors. We continue to invest in digital marketing and actively monitor social media platforms. We also work closely with tile manufacturers to ensure we are driving innovation in our market. NEW We are very focused on colleague engagement and colleague turnover is closely monitored. Pay and benefits are benchmarked to ensure we are rewarding our people in line with the market and reflective of their contribution to the business. During the year we have delivered two key initiatives in this area. We have developed (in conjunction with existing colleagues) a new employer branding and we have also launched a new learning and development platform, “the Hub”, which offers all colleagues training matched to their current roles and personal future development plans. In addition, we have a detailed succession plan for each key executive and non-compete clauses for senior colleagues. Store Portfolio Optimum property strategy for the UK market along with the risk of losing key performing stores which contribute a material amount of Group earnings. A larger store presence across the UK than is required to maximise the profitability of the Group. Loss of a multiple number of top performing stores or stores in the wrong areas could cause a material impact on the Company’s profitability. We have previously worked with third parties to assess the optimum footprint for the UK and will complete a similar task again in the year ahead. The outputs of this work will provide us with a refreshed target number of total stores. We also actively monitor the digital market to assess any impact this may have on our store estate going forwards. We conduct regular reviews of all stores’ profitability and for our most profitable units security of tenure is key. We review lease terms where appropriate and will pro-actively re-gear leases to ensure we always have at least several years of security. We also recognise that freehold is the ultimate mitigant and as part of our continuing review of key stores we consider this where appropriate. Our supply chain is diverse and due to our scale we can source products directly from manufacturers anywhere in the world. Re-sourcing ranges from one manufacturer to another is something to which we are accustomed. Loss of a Key Supplier The loss of a key supplier could impact on our ability to trade in some areas of our range. The loss of a key supplier would potentially lead to disruption in supply of key selling products leading to loss of sales and profits. We consider that the risk has increased as a result of the UK’s decision to leave the European Union. Subject to trade deals agreed both with existing EU nations and countries outside of the EU this could result in the business reviewing key supplier relationships and ultimately having to appoint some new suppliers. 25632.02 13 December 2017 11:33 AM Proof6 35 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Risks and Uncertainties Risk Financing The Group has a £50 million revolving credit facility in place which was refinanced in June 2014 and expires in June 2019. The loan facility contains financial covenants which are tested on a bi-annual basis. The key risks would be either not negotiating new facilities in advance of expiry or breaching a loan covenant which would have an adverse impact on the Group’s financing position. Cyber Security The business suffers a breach of its IT systems security leading to either a loss of capability or a loss of customer and/or commercial data. Major Reputational Damage The Topps Tiles brand is a very important part of our competitive advantage. Possible areas of impact could be due to a failure in our core processes around our products, our stores, our supply chain (including ethical sourcing) or our people. Impact Mitigation Status The most likely impact of not being able to renew the loan facility would be the requirement to raise additional funding from shareholders. The impact of breaching a loan covenant would likely be financial in terms of additional charges and fees. At its worst it would also mean the loan would be repayable which would be likely to result in an equity fundraising. Loan renewal discussions are conducted well in advance in order to allow sufficient time to cater for different scenarios and would include both existing and new banks to gauge interest. Our expectation for the year ahead is to have completed refinancing negotiations by year end, or be well advanced in our discussions. Loan covenants are measured monthly and reported to the Board. The Company planning model is updated several times a year and gives good forward visibility. Any potential issues would be dealt with well in advance by pro-active discussions with lenders. A temporary loss of systems would be likely to result in an operational impact which would adversely affect sales and ultimately profits. The Company uses modern systems and the latest network and security protocols to protect against attack or breaches of security. The loss of commercial or customer data would potentially result in reputational damage to the Company. A disaster recovery server provision is in place and the majority of our servers now operate on virtualised technology. This significantly reduces system recovery times from a possible 24 hours to a target of two hours. Whilst impacts from reputational damage could be wide ranging the most likely impact would be financial, resulting from damage to our brand and consequent loss of sales. Governance and internal controls are the key mitigants against reputational damage. The Company operates a wide range of processes and procedures designed to ensure that we are fully compliant with all legal requirements and operate industry and governance best practice across the entire business. We have developed during the year a critical incident response process which would be invoked in the event of a business crisis. Supply chain is of particular significance and we believe in long-term strategic relationships with our key suppliers. We have in place a sourcing policy which includes the relevant provisions from the Modern Slavery Act and are working with suppliers to ensure agreement with our terms of trade and compliance. GDPR General Data Protection Regulations come into force in May 2018. This requires extensive new requirements of companies to ensure that all personal data is protected. The consequences of non-compliance with new GDPR regulations are severe financial penalties. Fines can be up to €20 million or 4% of annual turnover for severe breaches. The Company has a good appreciation of GDPR and we already have a plan in place to ensure full compliance. NEW Personal data processes have been catalogued for the four key processing areas which are marketing/ CRM, online, HR and Stores. 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. 36 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility As a large company with a nationwide network of stores as the UK’s market leader, and an international supply chain, we take seriously the impact we have in the places where we do business and seek to develop excellent relationships with local communities. We continue to develop our Corporate Social Responsibility (CSR) policies to protect our environment, look after our people and be good neighbours, over and above our legal and social obligations to do so. The Company’s Board has been fully engaged in this process from its outset and in 2013 we appointed a Non-Executive Director, Andy King, to have specific responsibility for further developing policies in this area. We continue to seek new ways of achieving in this area, from supporting charities and taking part in community work, to offering a scheme to assist local community projects. We consistently aim to reduce our environmental impact and fully invest in our colleagues and their development. PICTURED Top: Opening of Topps Tiles Stourbridge Centre: Alan Titchmarsh and Marcellus Baz for ITV's Love Your Garden Bottom: Macmillan Coffee Morning sale in-store 25632.02 13 December 2017 11:33 AM Proof6 37 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Corporate Social Responsibility OUR COMMUNITY AND CHARITY WORK Our colleagues both at our main support office in Leicester and our 372 stores nationwide play a proactive and enthusiastic role in our charity and community projects. We hold a Company- wide ballot every five years to select a national charity to support. MACMILLAN CANCER SUPPORT Topps Tiles has supported Macmillan Cancer Support since 2015, a partnership that will stay in place until at least the end of 2019. Fundraising events have included a summer barbecue, bike rides, bake sales, coffee mornings and dress-up events, raising more than £58,000 in the past financial year (up from just over £20,000 in the previous year). We have also had a record year of fundraising for Macmillan via Pennies, the digital charity box, which offers customers in all our stores the opportunity to round up their purchase to the nearest pound, with the additional small change donated to Macmillan. In 2016-17, £123,604.39 was raised through Pennies, more than double the previous year’s donation of just under £55,000. LEICESTERSHIRE CARES We continue to work alongside Leicestershire Cares, a charity organisation local to our Leicester head office, offering staff time out to take part in a range of initiatives to support local good causes. Our association with Leicestershire Cares continues to support our focus on colleague engagement and provides additional development opportunities for our colleagues. The interest from our colleagues has been extremely positive, leading us into our third year of membership. Last year we achieved many successes including: • Five “team challenges” which involved a mix of teams across the business completing challenges, such as protecting the environment, by building tree frames at a public park to redeveloping an animal sanctuary • Our head office took part in the “Collect for Christmas” campaign, which involved donating new household supplies and toiletry packs to organisations that support the homeless. The campaign collected over £24,000 worth of donations in total. • Our property department won “Team of the Year” award presented by the CEO of Leicestershire Cares at their annual celebration event, for the outstanding work they completed for their team challenge. This saw colleagues and volunteers from its property team paint, make, build and tile areas of Redgate Animal Sanctuary in Markfield, leaving the charity with a more practical animal feeding area and kitchen • Our commercial team decorated the accommodation blocks at Topstones, a local campsite used by the Girl Guides These challenges give everyone at Topps Tiles Head Office the opportunity to give something back to the local community as part of their working day and their own personal development, and enables the Company to showcase its brand as a proactive part of the community in Leicestershire and Rutland. PICTURED Left: In-store fundraising for Macmillan Cancer Support Right: Painting Topstones for Leicestershire Cares 38 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 STRATEGIC REPORT CORPORATE SOCIAL RESPONSIBILITY TRANSPORT Last year our fleet covered more than 3.5m kilometres delivering stock to our stores. This was up by just under 260,000 kilometres travelled on the previous year due to the increased number of stores in the estate, but due to a newer, more efficient fleet, we used 74,000 fewer litres of fuel. All of the Topps Tiles vehicles now run with the latest, lowest emission engine technology and meet the tough Euro 6 standard. They are all equipped with forward-facing dashboard mounted cameras, which encourages safer driving and, in the event of an incident, helps us to understand the cause. In addition, our newest vehicles are equipped with built-in satellite navigation for responding to changing traffic conditions en route to stores, as well as a lane departure warning system to guard against accidents on multi-lane carriageways. We also use on-board technology from Microlise as standard, which allows remote access to driver and vehicle performance as well as satellite tracking. This system is being used to support good driving behaviour, which can lead to lower fuel use and lower vehicle emissions. In this past year, driver league tables have been introduced using the data from Microlise, which encourages and incentivises colleagues to monitor and maintain or improve their own standards of driving. We have also improved efficiency and reduced noise pollution by increasing our use of electric forklifts on our vehicles. These have proved successful during a trial period in making low-noise deliveries, where stores are situated closer to residential areas. This will be key to future plans to enable deliveries outside traditional trading hours, potentially enabling fleet reduction and further reduced fuel consumption. TILES4SMILES The Tiles4Smiles scheme offers community groups and charities the opportunity to request donations of tiles – either for premises renovations, improvements to their kitchen or bathroom areas, or for art projects. This year has seen a boxing club in Nottingham enjoy the creation of a garden space, as featured on ITV’s Love Your Garden with Alan Titchmarsh, a national charity for facially-disfigured people create a large butterfly showcasing positive messages for Changing Faces Day, a community centre in Tyneside enjoy a renovation of its bathroom facilities and a new kitchen facility for a Mencap café. YOUTH SPORT At Topps Tiles, we have always recognised the benefits that participation in sport can bring to the communities in which we trade. We are proud to be involved in helping children to get outdoors and become active through our youth sport sponsorship. Donating funds for football, rugby and hockey kits, children in 127 teams throughout the UK benefited from the scheme in 2017. PICTURED Top: Alan Sproston, one of Topps Tiles' longest-serving colleagues, with "his" named truck. Right: Changing faces charity event, Sheffield 25632.02 13 December 2017 11:33 AM Proof6 39 Corporate Social Responsibility *Our Responsible Sourcing Code of Conduct and Modern Day Slavery Statement can be found on our website at www.toppstiles.co.uk in the Investor section under Corporate Responsibility. ENVIRONMENT At the very least we expect that suppliers will comply with local environmental laws and legislation. Our suppliers will take into consideration the principles of sustainable development, in particular the optimum use of raw materials, water, the efficient use of energy and also minimising the amount of waste as a result of the supply chain and manufacturing process. PICTURED Members of the HR team at the 2017 annual conference SUPPLY CHAIN We source product from around the world to bring the latest trends, cutting edge designs and advanced technologies to ensure we remain the market leader in the UK. Our supply chain can be complex but we are committed to ensuring all our suppliers adhere to the highest standards of ethics, able to demonstrate safe working conditions, and are treating workers with dignity and respect. All our suppliers are required to comply with the Topps Tiles Responsible Sourcing code. This code has been designed to be ethical, auditable, achievable and is in place to both promote good working practices with our suppliers and provide an opportunity to share our values. The code represents the Company’s fundamental expectations of its supply partners in relation to responsible sourcing. Topps Tiles will not knowingly work with any supplier who does not comply and requires all suppliers to acknowledge this code and confirm their acceptance of its provisions. Compliance is underpinned by way of contractual obligation and audit process. Suppliers applying this code are expected to comply with national and other applicable laws. Where the provisions of such laws and the code of practice address the same subject, suppliers are to apply those provisions that afford the greater protection. As part of our auditing process, all of our suppliers this year have had to complete a Social and Ethical Self-assessment document to identify if there are any product or geographical risks. To address any possible concerns our buyers, buying agents and technical manager conduct regular surveillance visits and factory tours to ensure that our products are sourced ethically. As part of our due diligence, third party auditing will take place where any specific risks are identified. We encourage all our suppliers to be transparent in all their activities and work in collaboration with us in promoting best practice. In 2015, the Modern Day Slavery Act came in to force and Topps Tiles is committed to this act ensuring that no forms of modern day slavery enter the business and its supply chains. The Company will ensure transparency within the organisation and with its service providers and supplier of goods. 40 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017STRATEGIC REPORT CORPORATE SOCIAL RESPONSIBILITY WASTE Reducing the amount of waste sent to landfill continues to be a focus across the business. In our Distribution Centre, we continue to recover and in most cases, recycle, several streams of waste from our operations. These include cardboard, shrink-wrap, polythene, polypropylene banding, wooden packaging, scrap metal and repairable wooden pallets. In partnership with Green4Life and Lafarge we are now recycling our tile waste at a local quarry, where the tiles are crushed and converted into a composite of aggregate. During the year we invested in a new mill-sized cardboard baler to allow us to increase the revenue earned from this waste stream. We also invested in a new general waste compactor to reduce the volume of our non-recyclable waste and therefore the number of collections. Our Distribution Centre now also centrally recovers cementitious waste product (such as adhesive and grout) from all stores where it is sent on for specialised end-of-life processing. The Company has now joined the On-pack Recycling Label scheme which delivers a simple, consistent and UK-wide recycling message. As members of the scheme, all our suppliers will place these specific clear recycling symbols on all of our own brand products. This enables our customers to recycle more packaging correctly. It also enables local authorities to recycle more and in turn will minimise our environmental footprint. THE TILE ASSOCIATION This year we have begun working with The Tile Association (TTA), a Trade Association whose mission it is to promote professionalism and technical standards in the tiling industry across tiling contractors, fixers, distributors, retailers and manufacturers. The TTA is the leading body contributing to the formation of British Standards in Tiles and a member of Build UK. The UK Waste Electrical and Electronic Equipment (WEEE) Regulations were introduced in 2007 with the aim of reducing the amount of electrical and electronic equipment ending up in landfill. Our stores offer a like-for-like take back service, whereby customers can return their old product to any store, when purchasing a new one. These electrical products are then collated at our Distribution Centre and sent for recycling. We aim to work with the association on improving industry standards, training and offering support in encouraging best practise throughout the industry. In 2017 we were also honoured by TTA with the Excellence in Multiple Retailing award in recognition of excellent customer service, outstanding product offering and innovation within a store setting. PICTURED Members of the Topps Tiles Distribution team with comedian John Bishop at the 2017 Motor Transport Awards after winning Livery of the Year 25632.02 13 December 2017 11:33 AM Proof6 41 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Our Governance 42 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Heading OneOUR GOVERNANCE CONTENTS Board of Directors Corporate Governance Statement Directors’ Report Directors’ Remuneration Report 44 46 50 54 PICTURED HenleyTM Fog with border and corner pieces, ceramic wall and floor tiles with LongmoreTM Grey porcelain wall and floor tile 43 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Board of Directors DARREN SHAPLAND NON-EXECUTIVE CHAIRMAN MATTHEW WILLIAMS CHIEF EXECUTIVE OFFICER ROBERT PARKER CHIEF FINANCIAL OFFICER Darren has over 25 years of retail and public experience, having held senior financial and operational positions within the Burton Group, Arcadia and Kingfisher. Darren was Chief Financial Officer at J Sainsbury's plc between 2005 and 2010 before being appointed Group Development Director, a position he held between 2010 and 2011. He was also Non- Executive Chairman of Sainsbury's Bank from 2006 to 2013 and Chief Executive of Carpetright plc from 2012-2013. Matt joined the Company in 1998 as Property Director soon after its IPO. He spent the next six years expanding the Company’s store base, acquiring more than 200 new sites, which still make up a large part of the store portfolio today. Promoted to the role of Chief Operating Officer in 2004 and joining the PLC board in 2006, he was a key member of the team that established Topps as the leading specialist tile retailer in the UK. In 2007 he was promoted to Chief Executive Officer. Matt is also a non-executive director of The Original Factory Shop. 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, ultimately as Director of Finance for Boots Retail International. He is responsible for all aspects of finance, human resources, property, IT, and company legal matters. Darren is currently Non-Executive Director and Chairman of the Audit Committee at Ferguson plc. KEITH DOWN C D E NON-EXECUTIVE DIRECTOR CLAIRE TINEY B F D H NON-EXECUTIVE DIRECTOR ANDY KING G E H NON-EXECUTIVE DIRECTOR Keith is a chartered accountant and is currently the Chief Financial Officer of Dunelm Group Plc, and has held this post since December 2015. He was previously the Group Financial Director of the Go-Ahead Group plc and JD Wetherspoons plc. Keith joined the Board of Topps Tiles in February 2015. Andy has recently been appointed Chief Executive Officer of Evans Cycles. Previously he was Managing Director of Dobbies Garden Centres and prior to that Chief Executive of Notcutts Garden Centres. He has also held director roles at The Body Shop, Mothercare, W H Smith and Boots The Chemists. Andy joined the Board of Topps Tiles in January 2012. Claire joined the Board of Topps Tiles in November 2011. She is also a Non-Executive Director of Volution plc and Hollywood Bowl Group plc. Additionally she runs her own business as an HR Consultant, Executive Coach and facilitator, having spent 15 years as an Executive Director in a number of retail businesses including Mothercare and W H Smith. Most recently, she was HR Director at McArthurGlen. STUART DAVEY A COMPANY SECRETARY AND SECRETARY OF BOARD SUBCOMMITTEES Stuart qualified as a Solicitor in 1987. He joined Topps Tiles in 2005 having previously worked in private practice and in house with National Westminster Bank Plc. Stuart became Group Lawyer in 2010 and was appointed Company Secretary in September 2014. 44 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE BOARD OF DIRECTORS | EXECUTIVE TEAM OUR ADVISERS SECRETARY S. Davey REGISTERED NUMBER 3213782 REGISTERED OFFICE Thorpe Way, Grove Park Enderby, Leicestershire, LE19 1SU AUDITOR Deloitte LLP 2 Hardman Street, Manchester, M3 3HT BANKERS Barclays Bank Plc 3 Hardman Street, Spinningfields, Manchester, M3 3HF REGISTRARS Capita Asset Services Bourne House, 34 Beckenham Road, Beckenham, Kent, BR3 4TU SOLICITORS Osborne Clark LLP One London Wall, London, EC2Y 5EB FINANCIAL PR ADVISERS Citigate Dewe Rogerson 3 London Wall Buildings, London, EC2M 5SY BROKERS Peel Hunt LLP Moor House, 120 London Wall, London, EC2Y 5ET Liberum Capital Limited Ropemaker Place, 25 Ropemaker Street, London, EC2Y 9LY Executive Team MATTHEW WILLIAMS CHIEF EXECUTIVE OFFICER ROBERT PARKER CHIEF FINANCIAL OFFICER BRIAN LINNINGTON COMMERCIAL DIRECTOR RICHARD CARTER OPERATIONS DIRECTOR A chemistry graduate with an MBA, Brian Linnington has many years retail business experience, starting his career at Boots where his roles included Category General Manager Toiletries, International Country Manager for Holland and then Taiwan and finally Multichannel Director for Boots UK. Prior to joining Topps Tiles in December 2012 Brian was Product and Marketing Director at Vision Express for four years. Brian is responsible for all aspects of buying, marketing and online in Topps. Richard is an experienced retailer who has worked for both blue chip retailers as well as smaller, more entrepreneurial businesses. Richard has previously held senior operations roles with the Spirit Group (Punch Taverns), Virgin Retail, Dixons, Office World (Staples) and started his career with Asda on their retail operations graduate recruitment programme. Richard joined Topps in 2010 and has accountability for retail operations, supply chain and the trade customer division. A B C Secretary of the Audit, Nomination and Remuneration Committees Senior Independent Director Chairman of Audit Committee D Member of Nomination Committee E F G Member of Remuneration Committee Chairman of Remuneration Committee Chairman of Nomination and Governance Committee H Member of the Audit Committee 25632.02 13 December 2017 11:33 AM Proof6 45 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Corporate Governance Statement has also had the opportunity to review and influence this report and as such have concluded in line with the statement above. STATEMENT OF COMPLIANCE WITH THE CODE Throughout the period, the Company has applied the principles set out in the Code, including both the Main Principles and the supporting principles, by complying with the Code as reported above. Further explanations of how the Main Principles have been applied are set out below and in the Strategic Report, Directors’ Remuneration Report and Audit Committee Report. The Board conducts an annual evaluation of its own performance and that of the Audit, Remuneration and Nomination and Governance Committees and as a result minor adjustments will be made to the Board's timetable and tabling of business. In addition, each Board member completed a detailed evaluation of the Chairman’s performance, the result of which was positive in all respects. Matthew Williams, as Chief Executive Officer ("CEO"), does not sit on any of the Audit, Remuneration or Nomination and Governance Committees, although he may attend by invitation of the relevant Chairperson. There is a clear division of responsibilities between his role as CEO and that of Chairman. The Board currently comprises six members, of which four are considered independent. The Senior Independent Non-Executive Director is Claire Tiney, who also chairs the Remuneration Committee. Brief biographical details of all Directors are given on pages 44 and 45. The Board meets 12 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. During the period the Board reviewed the matters reserved for the Board and those delegated to Committees and are satisfied that such matters are appropriate. Board members are responsible for their own development but are provided access to the Company’s advisers and regularly attend external presentations and workshops on areas considered relevant and appropriate, including environmental, social and governance issues. In particular, all members of the Board have access to various technical seminars and professional updates on a range of relevant topics useful to enhancing the Board’s knowledge and understanding of corporate governance. Provision has also been made within the Board’s timetable for regular updates in relation to areas including the economy, the market and development in remuneration practice. 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. The Board also has regular contact with individual Heads of Departments by way of Board presentations in relation to specific departmental initiatives and areas of responsibility. 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. All Directors are subject to annual re-election. Directors are elected at the first AGM after appointment. All Non-Executive Directors have written letters of appointment. The Board considers that Darren Shapland, Claire Tiney, Andy King and Keith Down 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 reviews the independence of Non- Executive Directors on an ongoing basis. The Board operates three committees. These are the Nomination and Governance 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. 25632.02 13 December 2017 11:33 AM Proof6 DARREN SHAPLAND | CHAIRMAN The Board has reviewed the contents of the Annual Report and consider the document to be fair, balanced, and understandable and an accurate representation of the current position and performance of the Company, its business model and strategy." DEAR SHAREHOLDER The Company is committed to the principles of corporate governance contained in the 2016 UK Corporate Governance Code issued by the Financial Reporting Council (the “Code”) for which the Board is accountable. The Board has reviewed the contents of the Annual Report and consider the document to be fair, balanced, and understandable and an accurate representation of the current position and performance of the Company, its business model and strategy. The basis for this view is that all of the Directors of the Company are furnished with the requisite information to perform their duties and are provided access to key members of management as they require. The Board meet regularly and are given adequate time to probe, debate and challenge business performance as and when they consider it necessary to do so. The Board has received a report from the Audit Committee in relation to the financial results and as a result the Board has approved the final accounts for the period. Having gained a thorough understanding of the business each member 46 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE CORPORATE GOVERNANCE STATEMENT ATTENDANCE AT BOARD AND COMMITTEE MEETINGS The following table shows the number of Board and Committee meetings held during the 52 week period ended 30 September 2017 and the attendance record of the individual Directors. Directors who are not committee members are invited to attend meetings where the respective Chair considers it appropriate given the nature of the business being considered by the Committee. Board of Directors Audit Committee D. SHAPLAND M. WILLIAMS R. PARKER C. TINEY A. KING K. DOWN 12 12 12 12 12 12 12 12 12 12 11 12 3* 3 2* 3 3* 3 3 2 2 3 2 2 3 2 2 3 2 2 3 2 2 3 2 2 Remuneration Committee 2* 2 2* 2 1* 2 Nomination and Governance Committee 2 2 2* 2 0 2 Meetings attended Possible meetings *Attended by invitation of the Chairperson of the related committee. THE ROLE OF THE BOARD OF DIRECTORS The Board of Directors has overall responsibility for approving our Company strategy and the governance of the business. The primary goal of the Board is to ensure that the Company is being run in the best long-term interests of both the Company itself and all of its stakeholders. Stakeholders include employees, shareholders, suppliers and any other creditors of the business. SUB-COMMITTEE RESPONSIBILITIES AUDIT COMMITTEE • Financial reporting • External audit • Risk management and internal controls including internal audit • Whistleblowing fraud and anti- bribery NOMINATION AND GOVERNANCE COMMITTEE • Board structure • Board appointments • Board succession plans • Senior executive appointments REMUNERATION COMMITTEE • Chairman and Executive Director pay • Senior executive pay • Share incentive plans Read more on page 48 Read more on page 49 Read more on page 54 BOARD COMPOSITION BOARD TENURE GENDER DIVERSITY EXECUTIVE 33.3% NON-EXECUTIVE 66.6% 0–3 YEARS 33.3% 3–6 YEARS 33.3% ABOVE 6 YEARS 33.3% MALE 83.3% FEMALE 16.6% 25632.02 13 December 2017 11:33 AM Proof6 47 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Corporate Governance Statement STATEMENT ABOUT APPLYING THE PRINCIPLES OF THE CODE The Company has applied the principles of the Code as reported above. Further explanation of how the Code has been applied in connection with Directors’ remuneration is set out in the Remuneration Report. AUDIT COMMITTEE The Audit Committee consists of independent Non-Executive Directors. The Chairman is Keith Down and the other members are Claire Tiney and Andy King. The qualifications of the Audit Committee members are detailed on page 44 of our Annual Report. Its Chairman has relevant experience, being a qualified Chartered Accountant who is currently serving as the Chief Financial Officer of a listed company. The Chief Executive, Chief Financial Officer and the Chairman of the Board usually attend meetings by invitation. The Audit Committee considers the nature and scope of the audit process (both internal and external to ensure that the programme is aligned to key risks and where necessary any particular risk areas) and its effectiveness. It also monitors, reviews and approves the internal audit programme and receives reports from the internal audit team on a regular basis to review the effectiveness of its work. The Committee meets with the external auditor and considers the Annual and Interim Financial Statements before making its recommendations to the Board. The Committee reviews and monitors the external auditor’s independence and objectivity and the effectiveness of the audit process. In addition, the Committee is responsible for ensuring that the arrangements are in place to enable staff, in confidence, to raise any concerns about possible improprieties in matters of financial reporting or other matters. No issues have been identified during the period. The Committee is responsible for the robust assessment of the Company’s principal strategic risks which include those to its business model, future performance, solvency and liquidity and this process is performed by the Committee Chairman in conjunction with a number of senior operational managers. The Committee Chairman reviews the strategic risk schedule on a quarterly basis to ensure that any actions that have been identified are being progressed. It also reviews the Group’s system of internal control by reference to an Internal Controls Framework assessment and reports its findings twice a year to the Board. During the period the Committee has considered and recommended to the Board the adoption of the Topps Tiles Group Tax Strategy which has been published on the Company’s website. The Audit Committee Chairman in conjunction with the Company Secretary conducts an annual internal evaluation of the Committee's processes during the period. The conclusion was that the Committee's is broadly functioning well, in accordance with its Terms of Reference and corporate governance practice providing appropriate assurance to the Board. The Audit Committee provides advice to the Board on whether the Annual Report is fair, balanced and understandable and provides the necessary information shareholders require to assess the Company’s performance, business model and strategy. In doing so, the following risks have been addressed specifically: • Review of principal strategic risks – the Committee conducts an annual review of principal strategic risks and invites a cross section of Company management in order to ensure that the review includes a detailed understanding of the business. The review highlights the principal risks based on a combination of likelihood and impact and then also considers what appropriate mitigating effects should be implemented (highlights from this work are included in the Strategic Report). • Review of poor performing stores – as part of both the interim and full year end review process poor performing stores are considered and any related impairments and/or property provisions are provided for. Management will then follow up with detailed action plans to either improve store performance or seek an exit solution. Provisions are made to the extent that the poor performing store leases are considered to be onerous. Dilapidations are provided for across the entire store portfolio. The Audit Committee also reviews progress towards these plans at the following review. The Audit Committee also reviews and approves the discount rate calculations used to discount these provisions. • Review of inventory – ensuring that inventory is correctly valued is a key area of focus for the Audit Committee. The finance function performs ongoing detailed checks of supplier invoices by comparing to system prices and management conduct a regular review of any products being sold, or likely to be sold, below the original cost price. Inventory provisions are prepared in accordance with these reviews. • Loyalty Accounting – the Group operates a trade loyalty scheme which requires the deferral of sales at the time loyalty points are awarded and also tracking of the level of expiry of points (loyalty points expire after 6 months). As this is the first year of this new scheme the Committee has reviewed the level of points accrued and expiry levels to satisfy itself that risks around income recognition have been appropriately managed. • Going concern & long term viability statement – the Chief Financial Officer provides an assessment of the Company’s ability to continue to trade on both a 12-month look-forward test basis and also a longer term review – over three years. The conclusion of those reviews is included in the Strategic Report. Part of the role of the Audit Committee is to review the independence of the Company's auditor. Deloitte LLP has been the external auditor for the Group since September 2003. The current audit partner, Damian Sanders, first period of signing was the financial period ended 27 September 2014. In line with independence requirements, his last period as audit partner will be the financial period ended 29 September 2018. 48 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE CORPORATE GOVERNANCE STATEMENT As previously stated, the Company is committed to complying with Corporate Governance guidelines and currently complies with the Code. The Audit Committee assists the Board in discharging its responsibilities in this regard. The outcomes from the recent key risks and uncertainties review are detailed in the Strategic Report section of this report and the Board has also considered all significant aspects of internal control in conjunction with the review of the work of Internal Audit. 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 necessary. DARREN SHAPLAND CHAIRMAN OF THE BOARD 28 November 2017 Consideration is also given by the Committee to the work of Deloitte and their independence in deciding whether an audit tender is required. Currently it is satisfied by the work of Deloitte and their independence, and has consequently proposed their reappointment. The Committee has also considered the requirements of the EU statutory audit amending Directive (2014/56/EU) and Audit Regulation (No 537/2014) and has concluded that the Company is not required to rotate and tender for audit services until 2023. The Company has a policy for the provision of non-audit services which is published on the Company’s website. In accordance with the policy the external auditor has not provided non-audit services to the Company during the period. The audit fees for the statutory audit of the Company’s consolidated financial statements and audit related services for the period are £142,500 (2016: £127,500). NOMINATION AND GOVERNANCE COMMITTEE The Nomination and Governance Committee is chaired by Andy King. The other Committee members are Darren Shapland, Keith Down and Claire Tiney. 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. The Nomination and Governance Committee is also responsible for diversity and our policy is included in the Strategic Report. The Nomination and Governance Committee, in conjunction with the Chief Executive, reviews succession planning in relation to senior positions within the business and development plans for senior colleagues. All Committee Terms of Reference can be found within the Investors section of the Company’s website www.toppstiles.co.uk. 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. In addition, I write to major shareholders each year offering to meet with them to discuss the Company and specifically matters of governance. The Company also publishes financial information on its website www.toppstiles.co.uk. Further, the chairs of the Audit, Remuneration and Nomination and Governance Committees make themselves available at the AGM to answer any questions shareholders may have. MODERN DAY SLAVERY The Board is committed to ensuring that acts of modern day slavery and human trafficking do not enter the business and its supply chain and has complied with the Modern Slavery Act 2015 by making an appropriate statement which has been published on the Company’s website. The Board and senior management recognise the importance of this policy statement and its objectives. The Company has successfully introduced The Topps Tiles Code of Conduct for Suppliers, details of which accompany the Company’s Modern Slavery Statement on the Company’s website. MAINTENANCE OF A SOUND SYSTEM OF INTERNAL CONTROL The Board has established a continuous process for identifying, evaluating and managing the significant risks the Group faces and regularly reviews this process. 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. 25632.02 13 December 2017 11:33 AM Proof6 49 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Report The Directors of the Company, being the listed entity Topps Tiles Plc, (the "Directors" or the "Board") present their Annual Report on the affairs of the Group (meaning the Company and its subsidiary companies) together with the Financial Statements and Auditor’s Report, for the 52 week period ended 30 September 2017. The Corporate Governance Statement set out on pages 46 to 49 forms part of this report. PRINCIPAL ACTIVITY The principal activity of the Group comprises the retail distribution of ceramic and porcelain tiles, natural stone, and related products. STRATEGIC REVIEW The Company is required by the Companies Act 2006 to set out in this report a fair review of the business of the Group during the financial period ended 30 September 2017 and of the position of the Group at the end of that financial period. We are also required to set out a description of the principal risks and uncertainties facing the Group. The information that fulfils the requirements of the Strategic Review can be found within the Chairman’s Statement on page 4, the Strategic Report on pages 6 to 41, and the Corporate and Social Responsibility ("CSR") statement on pages 37 to 41, which are incorporated into this report by reference. The future prospects of the Group are highlighted in both the Chairman’s Statement and the Strategic Report. The Directors monitor a number of financial and non-financial key performance indicators (KPIs) for the Group and its stores. The most significant of these are detailed on page 26. The Company conducts an annual strategic risk discussion with the Audit Committee Chairman and senior managers from the business which includes a wide range of risks including commercial, continuity and environmental, social and governance risks. RESULTS AND DIVIDENDS The audited Financial Statements for the 52 week period ended 30 September 2017 are set out on pages 80 to 83. The Group’s profit for the period from continuing operations, after taxation, was £13,431,000 (2016: £15,531,000). During the interim period, a dividend of 1.1 pence per share was declared and paid (2016: interim dividend of 1.00 pence per share 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 2.3 pence per share, totalling £4,425,000 (2016: 2.50 pence per share, totalling £4,803,000). DIRECTORS The Directors, who served throughout the year and thereafter, were as follows: D. Shapland Non-Executive Chairman M. Williams Chief Executive Officer R. Parker Chief Financial Officer C. Tiney Senior Independent Non-Executive Director A. King Non-Executive Director K. Down Non-Executive Director In line with the 2016 UK Corporate Governance Code issued by the Financial Reporting Council all Directors are subject to annual re-election at the next Annual General Meeting. The internal regulation of the Company is set out in its Articles of Association which cover such matters as the rights of shareholders, the appointment or removal of Directors and the conduct of the Board and general meetings. Copies are available upon request and are displayed on the Group’s website. In accordance with the Articles of Association, Directors can be appointed or removed by the Board or shareholders in general meeting. Subject to company law and the Articles of Association, the Directors may exercise all the powers of the Company and may delegate authorities to committees. Details of the principal Board committees can be found in the CSR statement on page 37 to 41. The Company’s Articles of Association can be amended by a special resolution of the Company’s shareholders. All resolutions at the Annual General Meeting are passed on a show of hands, in line with our Articles of Association. The results of the votes polled in advance are also disclosed to members present and in the event that the polled votes did not support the resolution the Chairman would formally call for a poll, thereby ensuring that all members' interests are represented. The Company provides insurance against Directors’ and Officers’ liabilities to a maximum value of £15,000,000. The Directors’ interests in the shares of the Company are set out on page 68. Details of Directors’ share options are provided in the Directors’ Remuneration Report on pages 66 to 68. SHARE CAPITAL Details of the Company’s issued share capital, together with details of the movements in the Company’s issued share capital during the period, are shown in note 21 to the Financial Statements. The Company has one class of ordinary shares in issue, which carries 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 Association 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 counter parties 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 the 50 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REPORT 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 a Director 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. CARBON REPORTING As detailed in the CSR statement of this report on page 41 our primary energy consumption is electricity used across our store estate. In- store lighting is a major driver of overall consumption and we have been working on installing modern, energy efficient lighting for the last few years. We continue to experiment with new technology to establish its suitability for our business. Emissions per store are calculated on average stores across the year. 2017 CO2 (Tonnes) CO2 (Tonnes)/Store 2016 CO2 (Tonnes) CO2 (Tonnes)/Store 6,424 2,554 3,074 340 12,392 17.8 7.1 8.5 0.9 34.3 7,095 2,455 3,269 379 13,198 20.6 7.1 9.5 1.1 38.3 SUBSTANTIAL SHAREHOLDINGS In addition to the Directors’ shareholdings noted on page 68, as at 30 September 2017, the Company had been notified, in accordance with Chapter 5 of the Disclosure Guidance and Transparency Rules, of the following disclosable interests in its issued share capital. The period for which the carbon reporting information is set out above is the same as the period for which the Directors' Report has been prepared. Aberforth Partners LLP Clients of Woodford FMR plc Williams S K M Esq AXA Investment Managers SA BlackRock Investment Mgt (UK) Invesco Asset Management Schroder Investment Mgt Miton Group Standard Life Number 20,593,950 19,213,670 11,256,019 10,053,920 9,810,000 9,702,900 9,619,695 9,300,541 8,920,893 7,783,246 % held 10.6% 9.9% 5.8% 5.2% 5.1% 5.0% 5.0% 4.8% 4.7% 4.0% Electricity Gas and oil Commercial fleet Company cars Total Energy carbon emissions have been compiled in conjunction with our suppliers Opus and Gazprom and is based on the actual energy consumed multiplied by Environment Agency approved emissions factors. Vehicle emissions have been calculated by our in-house transport team based on mileage covered multiplied by manufacturer quoted emission statistics. CHARITABLE AND POLITICAL CONTRIBUTIONS The Group has a designated charitable partner, the Macmillan Trust. Across the Group's business, colleagues engage in numerous fundraising activities which are documented in the CSR statement of this report. During the period the Group made no monetary charitable donations (2016: £nil).The Group made no political contributions (2016: £nil). CORPORATE SOCIAL RESPONSIBILITY The Company has a long-standing Corporate Social Responsibility (CSR) agenda covering Community and Charity, and Environment and Our People. The full detail of our current CSR activities is detailed in this report on page 37. We take the impact of our business on our environment extremely seriously and have included a range of environmental metrics above with local laws and we pay particular attention to labour standards and factory conditions. In addition to the above shareholdings, between 30 September 2017 and 28 November 2017 we have not been notified of any changes in shareholdings. HUMAN RIGHTS All of our directly employed colleagues are based in the UK and covered by UK employment law, with which we are fully compliant. The Modern Slavery Act 2015 came into effect in 2015 and the Company has taken and continues to take steps to promote and improve our commitment to ensuring that slavery and human trafficking is not within our business and supply chain. The Company has in place The Topps Tiles Suppliers' Code of Conduct. Both are reinforced by commercial agreements that require our suppliers to be fully compliant with local laws and we pay particular attention to labour standards and factory conditions. No issues were raised during the year. Both the Suppliers' Code of Conduct and our Modern Slavery Statement can be found on the Company’s website www. toppstiles.co.uk in the Investors centre under Corporate Responsibility. 51 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Report DIVERSITY The Nominations and Governance Committee reviews the balance of skills, knowledge and experience on the Board regularly. Its policy with regard to gender is that we recognise the need for a greater level of diversity across all levels in our organisation; however, we do not endorse positive discrimination and encourage colleagues to appoint the very best possible candidate to the post. During the year we have seen an improvement in overall diversity but also recognise that within our senior manager population we are lacking diversity. Our workforce at the period end date comprises: Directors Senior managers Other employees Total employees % of total 2017 Male Female 5 11 1,506 1,522 76% 1 2 473 476 24% Total 6 13 1,979 1,998 Male 5 15 1,487 1,507 77% 2016 Female 1 1 438 440 23% Total 6 16 1,925 1,947 EQUAL OPPORTUNITIES At Topps Tiles we are committed to equal opportunities and ensure that we hire on potential, promote on talent and reward on success. We aim to promote equality of opportunity in employment regardless of age, gender, colour, ethnic or national origin, culture, religion or other philosophical belief, disability, marital or civil partnership status, political affiliation, sexual identity or sexual orientation. COLLEAGUES WITH DISABILITIES Applications for employment by disabled persons are always given full and fair consideration, bearing in mind the abilities of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the Company continues and that appropriate training is arranged. It is the policy of the Company that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. COLLEAGUE CONSULTATION The Group places considerable value on communication with and involvement of employees and has continued to keep all employees informed on matters affecting them and on the various factors affecting the performance of the Group. This is achieved through formal and informal meetings, electronic announcements and the Company magazine. Regular forums are held at local and national levels to ensure that employee representatives are consulted quarterly 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 15, 16, 17, 18 and 19 to the Financial Statements. The Group’s risk management policies and procedures are also discussed in the Strategic Report on pages 33 to 36. 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 13,027,913 (2016: 10,748,450). As described in note 29, employee share purchase plans are open to almost all employees and provide for a purchase price equal to the daily average market price over the three days preceding the start of the offer period, less 20%. The shares can be purchased during a two-week offer period, which during the period ended 30 September 2017 fell between 5 January 2017 and 20 January 2017; the offer price to employees was 0.70 pence. The shares that are the subject of the share option schemes are ordinary shares which carry the same rights as those set out under the "Share capital" section above. Details of Directors’ share options are provided in the Directors’ Remuneration Report on page 68. INFORMATION GIVEN TO THE AUDITOR 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 auditor is unaware; and • the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. 52 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. AUDITOR A resolution to reappoint Deloitte LLP as the Company’s auditor will be proposed at the forthcoming Annual General Meeting. DIRECTORS’ RESPONSIBILITIES STATEMENT The Directors are responsible for preparing the Annual Report, the 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 year. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation. They 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) including FRS 101 Reduced Disclosure Framework. 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 judgments and accounting 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 that the company will continue in business. OUR GOVERNANCE DIRECTORS’ REPORT In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: RESPONSIBILITY STATEMENT We confirm that to the best of our knowledge: • properly select and apply accounting • the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy; • 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 • the management report, which is incorporated into this Directors' Report, includes a fair review of the development and performance of the business, 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 that they face. By order of the Board ROB PARKER | DIRECTOR 28 November 2017 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 are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions. They must also disclose with reasonable accuracy, at any time, the financial position of the Company and enable themselves to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the 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. 25632.02 13 December 2017 11:33 AM Proof6 53 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report CLAIRE TINEY | CHAIRMAN OF THE REMUNERATION COMMITTEE We continue to monitor executive remuneration to take account of evolving market practice and remain committed to taking a responsible approach. Accordingly, the fundamental structure of the package remains largely unchanged." The long-term plan awards granted in December 2014 were based upon performance over the three financial years to October 2017. The awards required cumulative adjusted earnings per share (EPS) over the period to be at least 23.02p for 25% vesting, increasing to 24.83p for full vesting of the awards. Actual cumulative EPS was 24.51 reflecting sustained delivery over the three year performance period and which will result in 86.7% of the awards vesting in November 2017. REMUNERATION DECISIONS FOR 2017/18 During the period, the Committee reviewed the base salary levels for the Executive Directors and it was deemed appropriate to increase base pay in line with the 2% budgeted salary increase across the Group. We continue to monitor executive remuneration to take account of evolving market practice and remain committed to taking a responsible approach. Accordingly, the fundamental structure of the package remains largely unchanged. On behalf of the Board I would like to thank shareholders for their continued support and I look forward to meeting you at the Annual General Meeting on 31 January 2018. CLAIRE TINEY CHAIRMAN OF THE REMUNERATION COMMITTEE 28 November 2017 STATEMENT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE DEAR SHAREHOLDER On behalf of the Remuneration Committee I am pleased to present the Directors’ Report on Remuneration. This report is presented in two sections: the Annual Report on Remuneration and The Directors' Remuneration Policy. At the Annual General Meeting in January 2017, the Remuneration Policy was subject to a binding vote, and received strong support from shareholders with 94% of the votes cast being in favour. This policy is now in place for three years. A summary of the policy can be found on pages 55 to 63. The Annual Report on Remuneration provides details of the amounts earned in respect of the 52 week period ending 30 September 2017 and how the policy will be operated for the 52 week period commencing 1 October 2017. This is subject to an advisory vote at the next Annual General Meeting which takes place in January 2018. PERFORMANCE IN 2016/17 AND REMUNERATION OUTCOMES The year under review presented some challenging market conditions, which resulted in a step back in both revenue and profit numbers from the prior year. During this year the business continued to make strategic investments in line with the business plan and retains its market leading position in the domestic tile market. Reflecting the financial performance of the Group, the variable elements of pay of executives has been lower than last year. The annual bonus element was 9% of the maximum. No payment was made in respect of the financial targets which were linked to delivery of Adjusted PBT which was not achieved. The remainder of the bonus was linked to delivery of the strategic targets and performance against these was partially met as outlined on page 65. 54 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT DIRECTORS’ REMUNERATION POLICY This part of the report sets out the Company’s Directors’ Remuneration Policy which was subject to a binding shareholder vote at the Annual General Meeting in January 2017 and remains in force for a 3 year period from that date. EXECUTIVE DIRECTORS Purpose and link to strategy Operation Maximum opportunity Performance measures Component BASE SALARY Core element of fixed remuneration set at a market competitive level with the aim to attract and retain Executive Directors of the calibre required. Salaries are usually reviewed annually taking into account: • underlying Group performance; • role, experience and individual performance; • competitive salary levels and market forces; and • pay and conditions elsewhere in the Group. Not applicable. Not applicable. While there is no maximum salary, increases will normally be in line with the typical level of salary increase awarded (in percentage of salary terms) to other employees in the Group. Salary increases above this level may be awarded in certain circumstances, such as, but not limited to: • where an Executive Director has been promoted or has had a change in scope or responsibility; • an individual’s development or performance in role (e.g. to align a newly appointed Executive Director’s salary with the market over time); • where there has been a change in market practice; or • where there has been a change in the size and/or complexity of the business. Such increases may be implemented over such time period as the Committee deems appropriate. Whilst the Committee has not set an absolute maximum on the level of benefits Executive Directors may receive, the value of benefits is set at a level which the Committee considers to be appropriately positioned taking into account relevant market levels based on the nature and location of the role and individual circumstances. BENEFITS Fixed element of remuneration set at a market competitive level with the aim to attract and retain Executive Directors of the calibre required. Executive Directors receive benefits in line with market practice, and these include principally life insurance, income protection, private medical insurance, company car or car allowance and fuel allowance and, where relevant, relocation expenses. Other benefits may be provided based on individual circumstances. These may include other benefits which are introduced for the wider workforce on broadly similar terms. Any reasonable business related expenses (including the tax thereon) can be reimbursed. 25632.02 13 December 2017 11:33 AM Proof6 55 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report Maximum opportunity Performance measures Not applicable. Set at a level which the Committee considers to be appropriately positioned taking into account relevant market levels based on the nature and location of the role and individual circumstances. The contribution levels for the year 2015/16 were set at 12.5% of salary. Contributions of up to 20% of salary may be made to take account of a change in the scope of the role, increase in responsibility and/or a change in the size and/or complexity of the business. Participation limits are those set by the UK tax authorities from time to time. Not subject to performance measures in line with HMRC practice. EXECUTIVE DIRECTORS Component PENSIONS Purpose and link to strategy Operation Provides market competitive post- employment benefits (or cash equivalent) with the aim to attract and retain Executive Directors of the calibre required. Executive Directors are eligible to participate in the defined contribution pension scheme. In appropriate circumstances, such as where contributions exceed the annual or lifetime allowance, Executive Directors may be permitted to take a cash supplement instead of contributions to a pension plan. ALL EMPLOYEE SHARE SCHEMES To create alignment with the Group and promote a sense of ownership. Executive Directors are entitled to participate in a tax qualifying all employee SAYE scheme under which they may make monthly savings contributions over a period of three or five years linked to the grant of an option over the Company’s shares with an option price which can be at a discount of up to 20% to the market value of shares at grant. Executive Directors are also entitled to participate in an HMRC tax-qualifying Share Incentive Plan (“SIP”). 56 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT EXECUTIVE DIRECTORS Purpose and link to strategy Operation Maximum opportunity Performance measures Component ANNUAL BONUS Rewards performance against annual targets which support the strategic direction of the Group. Awards are based on annual performance against key financial targets and/or the delivery of personal/strategic objectives. Pay-out levels are determined by the Committee after the year end based on performance against those targets. The Committee has discretion to amend the pay-out should any formulaic output not reflect the Committee’s assessment of overall business performance. For up to two years following the payment of an annual bonus award, the Committee may require the repayment of some or all of the award if an act or omission or a failure to apply reasonable skill and judgement leads to a material loss to the Group or serious reputational damage to the Group or a material misstatement of the Group’s financial statements. Long-term incentive awards are granted under the LTIP, approved by shareholders on 23 January 2013. Under the LTIP, awards of nil cost share options or conditional shares may be made. Awards may be settled in cash at the election of the Committee. The vesting of awards will be subject to the achievement of specified performance conditions, over a period of at least three years. The maximum bonus opportunity for an Executive Director will not exceed 100% of salary. The normal maximum award is 100% of salary in respect of a financial year. Under the share plan rules the overall maximum opportunity that may be granted in respect of a financial year is 200% of salary. The normal maximum award limit will only be exceeded in exceptional circumstances involving the recruitment or retention of an Executive Director. The market value of the shares subject to an award is based on the three day average share price immediately after the Company’s Qtr 4 trading statement, unless the Committee determines otherwise. Targets are set annually reflecting the Company’s strategy and are aligned with key performance indicators. Up to 20% of the bonus may be based on strategic measures and/or individual performance. The balance will be assessed against key financial performance metrics of the business. Financial metrics There is no minimum payment at threshold performance and all of the maximum potential will be paid out for maximum performance, with scaled vesting in between. Non-financial or individual metrics Vesting of the strategic awards will apply based on the Committee’s assessment of the extent to which a strategic metric has been met. Relevant performance measures are set that reflect underlying business performance. Performance measures and their weighting where there is more than one measure are reviewed annually to maintain appropriateness and relevance. For achievement of threshold performance 25% of the maximum opportunity will vest. There will usually be straight line vesting between threshold and maximum performance. 25632.02 13 December 2017 11:33 AM Proof6 57 LONG TERM INCENTIVE PLAN (“LTIP”) To incentivise Executive Directors, and to deliver genuine performance- related pay, with a clear line of sight for Executives and direct alignment with shareholders’ interests. Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report EXECUTIVE DIRECTORS Component 2020 AWARDS Purpose and link to strategy Operation Maximum opportunity Performance measures The awards are subject to achieving revenue of £300m and adjusted profit before tax under pin of £38m in the financial period ending 3rd October 2020. A one-off share award to incentivise Executive Directors to achieve our ambitious 2020 growth strategy and to align them with the goals set for the rest of the management team. Up to 100% of salary. The number of shares will be based on a share price of 147.75 pence, being the share price when awards under the 2020 plan were granted to other members of the management team. The combined value of LTIP and 2020 awards granted in the same financial year will be subject to an overall limit of 200% of salary. The 2020 awards will be granted under the rules of the LTIP approved by shareholders on 23 January 2013. Awards of nil cost share options or conditional shares may be made. Awards may be settled in cash at the election of the Committee. The vesting of awards will be subject to the achievement of specified performance conditions based on the financial reporting period ending 3rd October 2020. The Executive Directors will be required to retain 50% of the shares vesting (net of tax) until the fifth anniversary of grant. SHAREHOLDING GUIDELINE The Executive Directors are subject to a shareholding requirement to build and maintain a shareholding in Topps Tiles equivalent to 200% of salary for the Chief Executive and 150% of salary for the Chief Financial Officer. LTIP AND 2020 AWARDS ADDITIONAL INFORMATION The Committee has the right to reduce, cancel or impose further conditions on unvested or unexercised awards if there has been a material misstatement of the Company’s financial results, a material failure of risk management by the Company or if there has been serious reputational damage to the Company as a result of the participant’s misconduct or otherwise. For up to two years following the payment of a long-term incentive award, the Committee may require the repayment of some or all of the award if an act or omission or a failure to apply reasonable skill and judgement leads to a material loss to the Group or serious reputational damage to the Group or a material misstatement of the Group’s financial statements. EXPLANATION OF PERFORMANCE MEASURES CHOSEN FOR THE INCENTIVE SCHEMES Performance measures are selected that are aligned with the performance of the Group and the interests of shareholders. Stretching performance targets are set each year for the annual bonus and long-term incentive awards. When setting these performance targets, the Committee will take into account a number of different reference points, which may include the Company’s business plans and strategy and the economic environment. Full vesting will only occur for what the Committee considers to be a stretching performance. The annual bonus can be assessed against financial and individual/strategic measures as determined by the Committee. The Committee considers that profit before tax is a key performance metric for the annual bonus and specific strategic objectives for each Director, which are aligned to delivering the overall business strategy, encourage behaviours which facilitate profitable growth and the future development of the business. Long-term performance measures are chosen by the Committee to provide a robust and transparent basis on which to measure the Company’s performance over the longer term and to provide alignment with the business strategy. They are selected to be aligned with the interests of shareholders and to drive business performance whilst not encouraging excessive risk-taking. The Committee retains the ability to adjust or set different performance measures for the annual bonus and share awards if events occur (such as a change in strategy, a material acquisition and/or a divestment of a Group business or a change in prevailing market conditions) which cause the Committee to determine that the measures are no longer appropriate and that amendment is required so that they achieve their original purpose. Awards and options may be adjusted in the event of a variation of share capital in accordance with the rules of the LTIP. 58 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT ILLUSTRATIONS OF APPLICATION OF REMUNERATION POLICY FOR 2017/18 M T M Williams R Parker ) 0 0 0 £ ’ ( n o i t a r e n u m e r £484k £1,288k 31% 31% £886k 23% 23% l t a o T 100% 54% 38% ) 0 0 0 £ ’ ( n o i t a r e n u m e r l t a o T £570k 23% 23% £314k £826k 31% 31% 100% 54% 38% Minimum performance Performance in line with expectations Maximum performance Minimum performance Performance in line with expectations Maximum performance ■ Base salary, benefits, pensions ■ Annual bonus ■ LTIP ■ Base salary, benefits, pensions ■ Annual bonus ■ LTIP In illustrating the potential reward, the following assumptions have been made: Fixed pay Annual bonus LTIP* MINIMUM PERFORMANCE PERFORMANCE IN LINE WITH EXPECTATIONS MAXIMUM PERFORMANCE Fixed elements of remuneration only – base salary (being the salary as at 1 October 2017), benefits as disclosed in the single figure table on page 63 for the year 2016/17 and pension of 12.5% of salary. No bonus. No LTIP vesting. 50% of salary awarded for achieving target performance. 100% of salary awarded for achieving maximum performance. 50% of maximum award vesting (equivalent to 50% of salary) for achieving target performance. 100% of maximum award vesting (equivalent to 100% of salary) for achieving maximum performance. * LTIP awards are included in the scenarios above at face value with no share price movement included. NON-EXECUTIVE DIRECTORS Purpose and link to strategy Sole element of Non-Executive Director remuneration, set at a level that reflects market conditions and is sufficient to attract individuals with appropriate knowledge and experience. Approach of the Company Fees are normally reviewed annually. Fees paid to Non-Executive Directors for their services are approved by the Board. Fees may include a basic fee and additional fees for further responsibilities (for example, chairmanship of Board committees or holding the office of senior independent director). Fees are based on the level of fees paid to Non-Executive Directors serving on the boards of similar-sized UK listed companies and the time commitment and contribution expected for the role. Typically, any fee increase will be in line with the wider workforce. Fee increases may be awarded above this level in certain circumstances such as (but not limited to): • where there has been a change in market practice; • where there has been a change in the size and complexity of the Company; or • where there has been an increase in the Non-Executive Director’s time commitment to the role. Overall fees paid to Non-Executive Directors will remain within the limits set by the Company’s Articles of Association. Non-Executive Directors cannot participate in any of the Company’s share options schemes and are not eligible to join the Company’s pension scheme. Non-Executive Directors may be eligible to receive benefits such as the use of secretarial support, travel costs (including any tax incurred thereon) or other benefits that may be appropriate. 59 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Directors’ Remuneration Report APPROACH TO RECRUITMENT REMUNERATION The policy aims to facilitate the appointment of individuals of sufficient calibre to lead the business and execute the strategy effectively for the benefit of shareholders. When appointing a new Executive Director, the Committee seeks to ensure that arrangements are in the best interests of the Company and not to pay more than is appropriate. The Committee will take into consideration a number of relevant factors, which may include the calibre of the individual, the candidate’s existing remuneration package, and the specific circumstances of the individual including the jurisdiction from which the candidate was recruited. When hiring a new Executive Director, the Committee will typically align the remuneration package with the above Policy for existing Directors. The Committee may include other elements of pay which it considers are appropriate, however, this discretion is capped and is subject to the principles and the limits referred to below. • Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may include agreement on future increases up to a market rate, in line with increased experience and/or responsibilities, subject to good performance, where it is considered appropriate. • Pension and benefits will be provided in line with the above Policy. • The Committee will not offer non-performance related incentive payments (for example a “guaranteed sign-on bonus”). • Others elements may be included in the following circumstances: — an interim appointment being made to fill an Executive Director role on a short-term basis; — if exceptional circumstances require that the Chairman or a Non-Executive Director takes on an executive function on a short-term basis; — if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term incentive award for that year as there would not be sufficient time to assess performance. Subject to the limit on variable remuneration set out below, the quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis; — if the Executive Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable relocation, travel and subsistence payments. Any such payments will be at the discretion of the Committee. • The Committee may also alter the performance measures, performance period and vesting period of the annual bonus or LTIP, subject to the rules of the LTIP, if the Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be clearly explained in the following Directors’ Remuneration Report. • The maximum level of variable remuneration which may be granted (excluding “buyout” awards as referred to below) is 300% of salary. Any share awards referred to in this section will be granted as far as possible under the Company’s existing share plans. If necessary, and subject to the limits referred to above, recruitment awards may be granted outside of these plans as permitted under section 9.4.2 (2) of the Listing Rules which allows for the grant of awards to facilitate, in unusual circumstances, the recruitment of an Executive Director. The Committee may make payments or awards in respect of hiring an employee to “buyout” remuneration arrangements forfeited on leaving a previous employer. In doing so the Committee will take account of relevant factors including any performance conditions attached to the forfeited arrangements and the time over which they would have vested. The Committee will generally seek to structure buyout awards or payments on a like-for-like basis to the remuneration arrangements forfeited. Any such payments or awards are limited to the expected value of the forfeited awards. Where considered appropriate, such special recruitment awards will be liable to forfeiture or “malus” and/or “clawback” on early departure. Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue according to the original terms. Fees payable to a newly-appointed Chairman or Non-Executive Director will be in line with the fee policy in place at the time of appointment. 60 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT SERVICE CONTRACTS It is the Company’s policy that Executive Directors are offered permanent contracts of employment with a twelve month notice period. Under an event of contract termination any severance payment would be subject to negotiation but would be with regard to length of service and prevailing notice period. Company policy also states that Non-Executive Directors should have contracts of services with an indefinite term providing for a maximum of six months’ notice. The role of Chairman is also Non-Executive, with an indefinite term contract and a maximum six months’ notice. PAYMENTS FOR LOSS OF OFFICE The principles on which the determination of payments for loss of office will be approached are set out below: PAYMENT IN LIEU OF NOTICE ANNUAL BONUS Policy The Company has discretion to make a payment in lieu of notice. Such a payment would be calculated by reference to basic salary and shall include compensation for any employer pension contributions for the unexpired period of notice. The payment may also include compensation for benefits for the period. This will be at the discretion of the Committee on an individual basis and the decision as to whether or not to award a bonus in full or in part will be dependent on a number of factors, including the circumstances of the individual’s departure and their contribution to the business during the bonus period in question. Any bonus amounts paid will typically be pro-rated for time in service during the bonus period and will, subject to performance, be paid at the usual time (although the Committee retains discretion to pay the bonus earlier in appropriate circumstances). LTIP The extent to which any unvested award will vest will be determined in accordance with the rules of the LTIP. Unvested awards will normally lapse on cessation of employment. However, if the participant leaves due to death, illness, injury, disability, sale of his employer or any other reason at the discretion of the Committee, the Committee shall determine whether the award will vest at cessation or at the normal vesting date. In either case, the extent of vesting will be determined by the Committee taking into account the extent to which the performance condition is satisfied and, unless the Committee determines otherwise, the period of time elapsed from the date of grant to the date of cessation relative to the performance period. Awards may then be exercised during such period as the Committee determines. Awards which have already vested at the date of cessation may be exercised for such period as the Committee determines. CHANGE OF CONTROL The extent to which unvested awards will vest will be determined in accordance with the rules of the LTIP. Awards under the LTIP will vest early on a takeover, merger or other relevant corporate event. The Committee will determine the level of vesting taking into account the extent to which the performance condition is satisfied and, unless the Committee determines otherwise, the period of time elapsed from the date of grant to the date of the relevant corporate event relative to the performance period. The Committee has discretion under the rules of the LTIP to vest awards on a different basis. MITIGATION The Committee’s practice is that if an Executive Director’s employment is terminated any compensation payment will be calculated in accordance with normal legal principles including the application of mitigation to the extent appropriate to the circumstances of the termination. ALL EMPLOYEE SHARE PLANS Payments may be made either in the event of a loss of office or a change of control under the all employee share plans, which are governed by the rules and the legislation relating to such tax qualifying plans. There is no discretionary treatment for leavers or on a change of control under these schemes. In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement and legal fees. 25632.02 13 December 2017 11:33 AM Proof6 61 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report Where a buyout award is made under section 9.4.2 (2) of the Listing Rules then the leaver provisions would be determined at the time of the award. The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a Director’s office or employment. Where the Committee retains discretion it will be used to provide flexibility in certain situations, taking into account the particular circumstances of the Director's departure and performance. There is no entitlement to any compensation in the event of a Non-Executive Director's appointment being terminated. EXISTING CONTRACTUAL ARRANGEMENTS The Committee retains discretion to make any remuneration payment or payment for loss of office outside the policy in this report: • where the terms of the payment were agreed before the policy came into effect; • where the terms of the payment were agreed at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration of the individual becoming a Director of the Company; and • to satisfy contractual commitments under legacy remuneration arrangements. For these purposes, “payments” includes the satisfaction of awards of variable remuneration and, in relation to an award over shares, the terms of the payment are agreed at the time the award is granted. POLICY FOR THE REMUNERATION OF EMPLOYEES MORE GENERALLY Remuneration arrangements are determined throughout the Group based on the same principle that reward should be achieved for delivery of the business strategy and should be sufficient to attract, retain and motivate high-calibre employees. When determining the remuneration arrangements for Executive Directors, the Committee takes into consideration, as a matter of course, the pay and conditions of employees throughout the Group. In particular, the Committee is kept informed on: • salary increase for the general employee population; • overall spend on annual bonus; and • participation levels in the annual bonus and share plans. Although no consultation with employees takes place in relation to determining the remuneration policy for Directors, the Group has various ways of engaging employees collectively, as teams and one-to-one which provide a forum for employees to express their views on the Company’s executive and wider employee reward policies. The Chair of the Remuneration Committee is available to meet with the employee consultation group if requested. STATEMENT OF CONSIDERATION OF SHAREHOLDER VIEWS The Committee is committed to an ongoing dialogue with shareholders and welcomes feedback on Directors’ remuneration. Prior to this Remuneration Policy being formally put to shareholders, the Committee engaged with major shareholders and institutional bodies setting out the proposals and rationale for the changes on variable pay arrangements for Executive Directors. 62 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT ANNUAL REPORT ON REMUNERATION SINGLE FIGURE TABLE (AUDITED INFORMATION) The tables below detail the total remuneration receivable by each Director for the 52 week period ended 30 September 2017 and the 52 week period ended 1 October 2016. 2016/17 EXECUTIVE DIRECTORS M T M Williams R Parker NON-EXECUTIVE DIRECTORS D Shapland A King K Down C Tiney 2015/16 EXECUTIVE DIRECTORS M T M Williams R Parker NON-EXECUTIVE DIRECTORS D Shapland A King K Down C Tiney Salary and fees £’000 Benefits £’000 Annual bonus £’000 LTIP £’000 Pension £’000 Total remuneration £’000 394 250 124 43 43 44 31 26 2 – – – Salary and fees £’000 Benefits £’000 387 246 122 42 42 43 31 26 7 1 – 1 35 23 – – – – Annual bonus £’000 260 165 – – – – 256 158 – – – – 49 27 – – – – 765 484 126 43 43 44 LTIP £’000 Pension £’000 Total remuneration £’000 339 203 – – – – 49 29 – – – – 1066 669 129 43 42 44 25632.02 13 December 2017 11:33 AM Proof6 63 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report The figures in the single figure tables above are derived from the following: SALARY AND FEES BENEFITS PENSION ANNUAL BONUS LTIP The amount of salary/fees received in the period. The taxable value of benefits received in the period. These are principally life insurance, income protection, private medical insurance, company car or car allowance, fuel allowance and the value of SAYE scheme options granted during the period. The value attributable to Sharesave scheme options is calculated on the following basis: Monthly contribution x 12 x 20% (being the discount applied to market value in determining the exercise price). In the case of the Non-Executive Directors taxable expenses are shown as being paid by way of benefits. The pension figure represents the cash value of Company pension contributions paid to the Executive Directors as part of the Company’s defined contribution scheme or as a cash supplement taken in lieu of contributions to the pension plan. Rob Parker has chosen to take a cash supplement. The annual bonus is the cash value of the bonus earned in respect of the period. A description of performance against the objectives which applied for the period is provided on page 65. The LTIP figure for the period 2016/17 represents the awards granted on12 December 2014. The awards were based on cumulative EPS performance over three financial years to 30 September 2017 and will vest at 86.7% on 28 November 2017. The estimated value of the vested shares is based on a share price of 82.17 pence being the market value of the Company’s shares for the last quarter of the 52 week period ended 30 September 2017. The LTIP figure stated for the period 2015/16 represents the value of awards granted under the Topps Tiles Plc 2013 Long Term Incentive Plan on the 17 December 2013. The awards were based on cumulative EPS performance over three financial years to 1 October 2016 and vested at 100% on 29 November 2016. The estimated value of the vested shares is based on a share price of 113 pence being the market value of the Company’s shares for the last quarter of the 52 week period ended 1 October 2016. INDIVIDUAL ELEMENTS OF REMUNERATION (AUDITED INFORMATION) BASE SALARY AND FEES Base salaries for individual Directors are reviewed annually by the Committee and are set with reference to the Remuneration Policy. During the period the following changes to base salary were made with effect from 1 October 2017: M T M Williams R Parker Base salary 1 October 2016 Base salary 1 October 2017 £394,147 £402,030 £250,604 £255,616 % increase 2% 2% The base salary increases for Matthew Williams and Rob Parker awarded in 2017 are in line with the range of salary increases across the Group. 64 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT The Non-Executive Directors’ fees are reviewed annually with any changes effective from 1 October. Details of the current fee policy for the Non-Executive Directors are set out in the table below. The fee increased in 2017 in line with the increase for the wider workforce. Chairman’s fee Non-Executive Directors’ Basic fee Additional fees Senior Independent Director/Chair of Remuneration Committee Chair of the Nominations and Governance Committee Chair of the Audit Committee Fees 1 October 2016 Fees 1 October 2017 £124,236 £126,720 £37,805 £38,561 £6,336 £5,280 £5,280 £6,462 £5,385 £5,385 % increase 2% 2% 2% 2% 2% TOTAL PENSION ENTITLEMENTS During the year the Company pension benefit represented 12.5% of salary for the Executive Directors (paid as cash in lieu in respect of Rob Parker) and is in line with the Remuneration Policy. ANNUAL BONUS For the 52 week period ended 30 September 2017, the maximum annual bonus opportunity was 100% of salary. To encourage behaviours which facilitate profitable growth and future development of business, up to 80% of salary could be earned based on adjusted PBT performance and up to 20% of salary could be earned for the achievement of individual objectives specifically delivering the strategic plan. The following table sets out the bonus pay-out to the Executive Directors for 2016/2017 and how this reflects performance for the period: Adjusted PBT1 Strategic objectives: Cost Control Average Transaction Value (“ATV”) Gross margin Customer Service Total bonus earned Weighting Threshold Stretch Executive Director bonus earned as a percentage of salary Actual performance 80% £20.7 million £25.3 million £18.6 million 5% 5% 5% 5% £113.5m >£70.66 61.8% 79.5% £112.5m >£72.26 62.2% 80.5% £110.0m £70.79 61.1% 80.2% 0% 5% 1% 0% 3% 9% 1. Adjusted PBT as defined in the Financial Review section of this report. ANNUAL BONUS FOR 2017/18 The maximum annual bonus opportunity for the 2017/18 financial year remains 100% of salary. Up to 20% of salary will continue to be focused upon achievement of individual objectives specifically delivering the strategic plan and 80% will be based on challenging adjusted PBT targets. The strategic objectives for 2017/18 are based on average transaction value, customer service, working capital and colleague engagement and other strategic targets. The Committee considers that the actual annual bonus targets are commercially sensitive and should therefore remain confidential to the Company at this stage. However, the Remuneration Committee will continue to disclose how the bonus pay-out delivered relates to performance against the targets on a retrospective basis. 25632.02 13 December 2017 11:33 AM Proof6 65 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report LONG-TERM INCENTIVES (AUDITED INFORMATION) AWARDS VESTING IN RESPECT OF THE FINANCIAL YEAR The LTIP awards granted in December 2014 were based on cumulative adjusted EPS targets over the three financial years to 30 September 2017. The performance targets for the awards were as follows: Cumulative Adjusted EPS for the period 2014/15 to 2016/17 Percentage of the award that will vest 23.02 pence 25% Greater than 23.02 pence but less than 24.83 pence Determined on a straight-line basis between 25% and 100% 24.83 pence 100% Adjusted EPS is defined as stated in the Company’s accounts for the relevant financial period excluding exceptional items. Cumulative EPS over the three year period was 24.51 pence. This resulted in 86.7% of the award vesting. Details of the awards vesting to the individual Directors are set out in the table below: M T M Williams R Parker Type of award Nil-cost option Nil-cost option Number of shares granted 359,159 221,833 % Vesting 86.7% 86.7% Number of shares vesting Value of shares on vesting* Vesting Date† 311,391 £255,870 28 November 2017 192,333 £158,040 28 November 2017 * Based on the average share price over the last quarter of the 52 week period to 30 September 2017 of 82.17 pence. † The awards can be exercised any time until 14 December 2024. AWARDS GRANTED DURING THE FINANCIAL YEAR (AUDITED INFORMATION) For the 52 week period ended 30 September 2017 the following awards were granted to Executive Directors on 16 December 2016: M T M Williams R Parker Type of award Nil-cost option Nil-cost option Percentage of salary Number of shares Face value at grant1 % of award vesting at threshold Performance period 100% 100% 389,589 394,147 247,706 250,604 25% 25% 3 years 3 years 1. Valued using a share price of 101.17 pence based on the average three-day share price ending on 7 October 2016. The awards will vest based on the following Cumulative Adjusted EPS targets: Cumulative Adjusted EPS for the period 2016/17 to 2018/19 Percentage of the award that will vest 29.84 pence 25% Greater than 29.84 pence but less than 32.29 pence Determined on a straight-line basis between 25% and 100% 32.29 pence 100% Adjusted EPS is defined as stated in the Company’s accounts for the relevant financial period excluding exceptional items and subject to such adjustments as the Board in its discretion determines are fair and reasonable. These targets equate to adjusted EPS growth of c.7% growth from the 2015/16 outturn for 25% vesting and c.11% for 100% vesting. Notwithstanding the Cumulative Adjusted EPS targets calculated above, the extent to which the awards will vest will be subject to the Committee's assessment of the quality of earnings over the performance period. The Committee may reduce the extent to which the award would otherwise vest if the Committee determines that the Cumulative Adjusted EPS achieved is not consistent with the achievement of commensurate underlying financial performance taking into account such factors as the Committee considers appropriate, including market share, margin performance, net debt, overall returns to shareholders and shareholder value creation. 66 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR GOVERNANCE DIRECTORS’ REMUNERATION REPORT 2020 AWARDS In accordance with approved Remuneration Policy on 20 March 2017, the Executive Directors were granted awards to align them with the 2020 Incentive Plan already rolled out to other members of the management team. The 2020 awards for the Executive Directors comprise a one-off award of shares worth up to 100% of salary with the number of shares calculated using a share price of 147.75p (being the share price used when the awards were granted to participants from Store Managers to the Leadership Team, below the Executive Committee). M T M Williams R Parker Percentage of salary Number of shares1 Face value at grant2 % of award vesting at threshold Performance period 100% 100% 262,824 254,282 167,107 161,676 100% 100% 3yrs 3yrs Type of award Nil-cost option Nil-cost option 1. The number of shares was cumulated using a share price of 147.75p (being the share price used when the awards were granted to participants from Store Managers to the Leadership Team, below Executive Committee). 2. The face value is shown using the actual share price at the date of grant of 96.8p. The awards were subject to the following conditions based on performance in the financial year 2019/2020 of £300 million together with an underpin of a minimum of £38m Adjusted PBT. Sales Adjusted profit before tax 2019/2020 £300m £38m Both the sales and PBT targets must be achieved for the awards to vest. If the targets are achieved the awards will vest at 100% but the Executive Directors will be required to retain 50% of the net of tax shares vesting under the award until January 2022 (the fifth anniversary of grant). LONG-TERM INCENTIVES FOR 2017/18 LTIP AWARDS No changes to the quantum or performance conditions are proposed. The maximum LTIP opportunity will remain at 100% of salary and the proportion of the award vesting for threshold performance remains at 25% of salary. The awards will vest based on the following Cumulative Adjusted EPS targets that equate to straight-line adjusted EPS growth of c.7% growth from the 2017/18 outturn for 25% vesting and c.11% for 100% vesting. The Remuneration Committee considers that both the threshold can stretch targets are challenging in the light of the growth environment and current business expectation. Cumulative Adjusted EPS for the period 2017/18 to 2019/20 Percentage of the award that will vest 23.52 pence 25% Greater than 23.52 pence but less than 25.37 pence Determined on a straight-line basis between 25% and 100% 25.37 pence 100% Adjusted EPS is defined as stated in the Company’s accounts for the relevant financial period excluding exceptional items and subject to such adjustments as the Board, in its discretion, determines are fair and reasonable. 25632.02 13 December 2017 11:33 AM Proof6 67 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report ALL EMPLOYEE SHARE PLANS The Executive Directors may participate in the Company’s all employee share plans, the Topps Tiles Plc SAYE Scheme (SAYE Scheme) and the Topps Tiles Plc Share Incentive Plan (SIP), on the same basis as other employees. The SAYE Scheme provides an opportunity to save a set monthly amount (currently up to £500) over three years towards the exercise of a discounted share option, which is granted at the start of the three years. The SIP provides an opportunity for employees to buy shares from their pre-tax remuneration up to the limit permitted by the relevant tax legislation (currently £1,800 per year). No matching shares are awarded. Options and awards under these plans are not subject to performance conditions. The following SAYE options were granted to the Executive Directors during the financial year ended 30 September 2017: M T M Williams R Parker Type of award1 Number of shares Face value at grant2 3yr Discounted share option 3yr Discounted share option 5,142 5,142 £4,281 £4,281 3. In accordance with the scheme rules, the options are granted with an exercise price set at a discount of up to 20% to the market value of a share when the invitations to acquire the option are issued. For the awards granted in 2016/17 the share price at the date of invitation was 87.00 pence and the exercise price is 70.00 pence per share. In accordance with the scheme rules, the exercise of the options is not subject to any performance condition. 4. The face value of the award is calculated by multiplying the number of shares under option by the market value of a share on the date of grant (being 83.25 pence for these options granted on 26 January 2017). STATEMENT OF DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS (AUDITED INFORMATION) In order to further align the Executive Directors’ long-term interests with those of shareholders and in accordance with the Remuneration Policy, the Committee introduced new shareholding guidelines, effective from the 2017 AGM, which required that Executive Directors build up a shareholding or two times salary for the CEO and 1.5 times salary for the CFO. The table below sets out the number of shares held or potentially held by Directors (including their connected persons where relevant) as at 30 September 2017: M T M Williams R Parker The interests of each Executive Director of the Company as at 30 September 2017 were as follows: Shareholding guidelines 200% 150% Current shareholding (as % of salary) 452% 182% Type Owned Exercised during the year Vested Unvested and subject to performance conditions Unvested and not subject to performance conditions Total as at 30 September 2017 Shares 1,720,749 n/a n/a n/a n/a 1,720,749 LTIP shares SAYE options n/a n/a Shares 377,893 LTIP shares SAYE options n/a n/a Shares Shares Shares Shares 80,000 n/a 15,480 n/a n/a 1,206,222 1,274,396 n/a 2,480,618 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 16,613 16,613 n/a 377,893 423,734 803,757 n/a 1,227,491 n/a n/a n/a n/a n/a n/a 21,337 21,337 n/a n/a n/a n/a n/a n/a n/a n/a 80,000 n/a 15,480 n/a Director Executive Directors M T M Williams R Parker Non-Executive Directors D Shapland K Down C Tiney A King Note. Directors' shareholdings include shares held by their closely associated persons where relevant. 68 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017GOVERNANCE DIRECTORS’ REMUNERATION REPORT There have been no changes in the Directors’ shareholdings between 30 September 2017 and the date of this report. PAYMENTS MADE TO FORMER DIRECTORS DURING THE PERIOD (AUDITED INFORMATION) There have been no payments to former Directors during the period. PAYMENTS FOR LOSS OF OFFICE MADE DURING THE PERIOD (AUDITED INFORMATION) No payments for loss of office were made in the period to any Director of the Company. PERFORMANCE GRAPH The graph below shows the TSR performance for the Company’s shares in comparison to the FTSE Small Cap Index for the eight years to 30 September 2017. For the purposes of the graph, TSR has been calculated as the percentage change during the eight-year period in the market price of the shares, assuming that dividends are reinvested. The graph shows the value, by the end of the 2016/2017 financial year, of £100 invested in the Group over the last eight financial years compared with £100 invested in the FTSE Small Cap Index which the Directors believe is the most appropriate comparative index. 300 250 200 150 100 50 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Topps Tiles FTSE Small Cap Index 25632.02 13 December 2017 11:33 AM Proof6 69 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Directors’ Remuneration Report HISTORICAL CHIEF EXECUTIVE REMUNERATION OUTCOMES The table below shows details of the total remuneration and annual bonus and LTIP vesting (as a percentage of the maximum opportunity) for the Chief Executive over the last eight financial years. 52 week period ended 30 September 2017 52 week period ended 2 October 2016 53-week period ended 3 October 2015 52 week period ended 27 September 2014 52 week period ended 28 September 2013 52 week period ended 29 September 2012 52 week period ended 1 October 2011 Total remuneration £’000 Annual bonus as a % of maximum opportunity LTIP as a % of maximum opportunity 765 1,180 2,0271 849 564 579 384 9% 67% 83% 99% 46.3% 35.2% 0% 86.7% 100% 100% n/a n/a n/a n/a 1. Restated to include the value of the January 2013 LTIP award which vested in January 2016 based on performance to 3 October 2015. CEO PAY INCREASE IN RELATION TO ALL EMPLOYEES The table below sets out in relation to salary, taxable benefits and annual bonus the percentage change in remuneration for Matthew Williams compared to the wider workforce. For these purposes, the wider workforce includes all employees. Percentage change Salary Taxable benefits Annual bonus CEO 1.8% 0% Wider workforce 2.4% 4.9% -86.5% -50.5% SPEND ON PAY The following table sets out the percentage change in dividends and the overall expenditure on pay (as a whole across the organisation): Dividends and share buybacks Overall expenditure on pay 52 week period ended 1 October 2017 53-week period ended 1 October 2016 3.4 pence per share 3.5 pence per share £50,548,000 £53,816,000 Percentage change - 2.9% - 6.1% CONSIDERATION BY THE DIRECTORS OF MATTERS RELATING TO DIRECTORS’ REMUNERATION The Committee is composed of the Company’s independent Non-Executive Directors, Claire Tiney (Chairman), Andy King and Keith Down. The Company Secretary attends the meetings as secretary to the Committee. The role of the Committee is to: • Determine the pay and benefits of the Executive Directors in accordance with the Remuneration Policy. • Determine the short and long-term incentives for Executive Directors in accordance with the Remuneration Policy. • To determine awards against incentive schemes. • To consult with major shareholders about changes to these incentive schemes. • To determine fees payable to the Non-Executive Chairman. • To review the Remuneration Report. • To monitor the level and structure of remuneration for senior management. 70 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017GOVERNANCE DIRECTORS’ REMUNERATION REPORT ADVISERS The Committee is assisted in its work by the Chief Executive Officer and Chief Financial Officer. The Chief Executive Officer is consulted on the remuneration of those who report directly to him and also of other senior executives. No Executive Director or employee is present or takes part in discussions in respect of matters relating directly to their own remuneration. New Bridge Street has been appointed as its independent adviser. New Bridge Street is a trading name of Aon Hewitt Limited. Adviser Details of appointment New Bridge Street Appointed by the Committee in March 2016 Fees paid by the Company for advice to the Committee and basis of charge Other services provided to the Company in the 52 week period ended 30 September 2017 £22,943.50 (excluding VAT) None Charged on a time/cost basis or fixed fee dependent on the nature of the project. New Bridge Street is a member of the Remuneration Consultants Group and adhere to its Code of Conduct. The Remuneration Committee is satisfied that the advice received from New Bridge Street during the year has been objective and independent. STATEMENT OF VOTING AT LAST AGM The following table sets out actual voting in respect of the resolution to approve the Directors’ Remuneration Report at the Company’s Annual General Meeting on 26 January 2017: Resolution Votes for % of vote Votes against % of vote Discretion % of vote Votes withheld Approve Remuneration Report 115,007,901 89.18% 13,933,302 10.80% 22,389 0.02% 1,272,181 The following table sets out the actual voting in respect of the resolution to approve the Directors' Remuneration Policy at the Company’s Annual General Meeting on 26 January 2017: Resolution Approve Directors' Remuneration Policy Votes for % of vote Votes against % of vote Discretion % of vote Votes withheld 117,880,410 94.81 6,434,637 5.18 6,889 0.01 5,913,837 APPROVAL This report was approved by the Board on 28 November 2017 and signed on its behalf by: CLAIRE TINEY | CHAIRMAN OF THE REMUNERATION COMMITTEE 28 November 2017 25632.02 13 December 2017 11:33 AM Proof6 71 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Our Financials 72 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS CONTENTS Independent Auditor's Report Consolidated Statement of Financial Performance Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements Company Balance Sheet Notes to the Company Financial Statements 74 80 80 81 82 83 84 112 113 PICTURED RegalTM Wave Shadow porcelain wall and floor tile 73 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Independent Auditor’s Report to the Members of Topps Tiles Plc REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS OPINION In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 September 2017 and of the Group’s profit for the 52 week period then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; • the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements of Topps Tiles Plc (the "parent Company") and its subsidiaries (the "Group") 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; • the Parent Company Balance Sheet; • the related notes 1 to 30 of the Consolidated Financial Statements; and • the related notes 1 to 7 of the Parent Company Financial Statements. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent Company. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. SUMMARY OF OUR AUDIT APPROACH Key audit matters The key audit matters that we identified in the current year were: • Inventory valuation; and • Property provisions. Within this report, any new key audit matters are identified with as the prior year are identified with . and any key audit matters which are the same Materiality The materiality that we used in the current year was £867,000 which is 5% of statutory pre-tax profit. Scoping Our full scope audit procedures covered 99.9% of revenue (2016: 100%), 100.2% of profit before tax, offset by losses on consolidation elsewhere in the Group (2016: 100%) and 97.7% of net assets (2016: 100%). During the 2016 financial year, the Group moved the majority of suppliers to net pricing agreements. Consequently, we did not identify supplier rebates to be a key audit matter for the current year audit. Significant changes in our approach 74 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS INDEPENDENT AUDITORS’ REPORT CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENT We have reviewed the Directors’ statement regarding the appropriateness of the going concern basis of accounting contained within note 2 to the financial statements and the Directors’ statement on the longer term viability of the Group contained within the Strategic Report on page 33. We are required to state whether we have anything material to add or draw attention to in relation to: • the disclosures on pages 33 to 36 that describe the principal risks and explain how they are being managed or mitigated; • the Directors’ confirmation on page 33 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; • the Directors’ statement in note 2 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group and the parent Company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements; • the Directors’ explanation on page 33 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions; or • whether the Directors’ statements relating to going concern and the prospects of the Company required in accordance with Listing Rule 9.8.6R(3) are materially inconsistent with our knowledge obtained in the audit. We confirm that we have nothing material to add or draw attention to in respect of these matters. We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 25632.02 13 December 2017 11:33 AM Proof6 75 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Independent Auditor’s Report to the Members of Topps Tiles Plc The significant changes in key audit matters identified are summarised on page 74 INVENTORY Key audit matter description There is significant management judgement involved in assessing the inventory provisions relating to the decisions of discontinued product lines and the requirement for provisions based on forecast consumer trends and sales. There are also judgements involved in determining the provisions required for inventory loss from stores based on the average value of inventory loss and time from most recent full inventory count. In addition judgement exists in relation to the type and percentage of overhead costs to be capitalised into inventory. Given the size of the inventory balance, with inventory of £29.5 million (2016: £25.7 million) and the judgements noted above, we identified this as a key audit matter. Inventory valuation policy is included with note 2 to the accounts and reviewed by the Audit Committee as disclosed on page 48. How the scope of our audit responded to the key audit matter We challenged management’s assumptions in relation to the future sales prices of discontinued lines, as well as the calculation methodology, involved in calculating the inventory provisions for obsolete and aged stock. We also performed analytical procedures over the overheads absorption method and tested a sample of overheads absorbed to determine whether the types of costs and value of overheads capitalised in inventory is appropriate. Substantive testing was performed on the accuracy and completeness of the information used in calculating the provisions, as well as in assessing the accuracy and level of overheads absorbed into inventory. Key observations Based on the work performed we have concluded that the inventory provisions related to obsolete and aged stock are appropriate and that the level of overheads absorbed in inventory is reasonable. PROPERTY PROVISIONS Key audit matter description The property provisions arise from the Group’s portfolio of 372 stores (2016: 351 stores). The appropriateness and completeness of onerous lease provisions (£1.7 million) and dilapidation provisions (£2.2 million) in relation to those stores is judgemental as they include an assessment of the likely future periods of which leasehold properties may be vacant and estimates of future costs of making good dilapidations. Due to the size of the Group’s property portfolio and the sensitivity of the assumptions, property provisions were considered to be an area for potential fraud and one which had the most significant impact on the audit; we therefore identified it as a key audit matter. Property provisions are included within the key sources of estimation uncertainty within note 2, and the balance sheet provisions are disclosed in note 20. How the scope of our audit responded to the key audit matter We assessed the appropriateness and completeness of onerous lease and dilapidations provisions by challenging management’s principal assumptions in identifying and providing for the Group’s at-risk properties, as well as the overall policy applied to the provisions. Our audit team included property specialists who assisted us in evaluating management’s estimates, for example, those relating to the length of time anticipated to exit onerous lease arrangements on vacant or loss-making stores as well as recalculating provisions required on a sample basis. We also challenged management’s assumptions in relation to the calculation of onerous leases at loss-making stores by reviewing management’s track record of returning such stores to profit and the period of time management assume will take to exit the property where relevant. Furthermore, we challenged management’s assumptions regarding the calculation of the dilapidations provision, including validating property information back to the original lease documentation and agreeing dilapidation charges historically incurred to third party sources. In performing this work, we utilised our specialists to assess whether the provisions are appropriately discounted. Key observations Based on the work performed we have concluded that the provisions held at year end in relation to onerous leases and dilapidations are reasonable. 76 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS INDEPENDENT AUDITORS’ REPORT OUR APPLICATION OF MATERIALITY We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Group materiality Basis for determining materiality Rationale for the benchmark applied £867,000 (2016: £1,000,000) 5.1% of pre-tax profit (2016: 5.0%) Pre-tax profit is a key performance measure of the business for users of the financial statements PBT £16,999k PBT Group materiality Group materiality  £867k Audit Committee  reporting threshold  £43k There are no account balances, classes of transactions or disclosures where a lower materiality threshold has been applied. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £43,000 (2016: £20,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. The increase in our reporting threshold is to align with market practice and was agreed with the Audit Committee. We also reported to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. AN OVERVIEW OF THE SCOPE OF OUR AUDIT Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and by assessing the risks of material misstatement at the Group level. Given the nature of the Group’s corporate structure, which contains one main external trading entity and all evidence relating to each subsidiary being compiled at the Group’s head office, we performed an audit covering all of the Group’s trading components, with the exception of Parkside Ceramics Limited, which was acquired on 31 August 2017, and the dormant components within the Group. At the Group level, we performed an audit on the acquisition accounting for Parkside Ceramics Limited to Group materiality. Our full scope audit procedures covered 99.9% of revenue (2016: 100%), 100.2% of pre-tax profit, offset by losses on consolidation elsewhere in the Group (2016: 100%), and 97.7% of net assets (2016: 100%). Our audit work was executed at levels of materiality applicable to each individual entity which were lower than Group materiality and ranged from £5,000 to £858,000 (2016: £5,000 to £900,000). At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit or audit of specified account balances. As part of the inventory count programme, alongside attendance at the Group’s main warehouse, members of the audit team attended 16 (2016: 16) of the Group’s stores as part of their consideration of the controls around revenue, inventory, inventory count procedures and physical asset verification. This programme of visits was designed so that the audit team visited different store locations compared to previous years depending upon risks identified in conjunction with the work performed by Internal Audit. 25632.02 13 December 2017 11:33 AM Proof6 77 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Independent Auditor’s Report to the Members of Topps Tiles Plc OTHER INFORMATION The Directors are responsible for the other information. The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. We have nothing to report in respect of these matters. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that: • Fair, balanced and understandable – the statement given by the Directors that they consider the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or • Audit Committee reporting – the section describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or • Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. RESPONSIBILITIES OF DIRECTORS As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. USE OF OUR REPORT 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 auditor’s 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. 78 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS INDEPENDENT AUDITORS’ REPORT REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS OPINIONS 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. In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Group and of the parent Company and their environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION ADEQUACY OF EXPLANATIONS RECEIVED AND ACCOUNTING RECORDS Under the Companies Act 2006 we are required to Report to you if, in our opinion: We have nothing to Report in respect of these matters. • we have not received all the information and explanations we require for our audit; or • 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 are not in agreement with the accounting records and returns. DIRECTORS’ REMUNERATION Under the Companies Act 2006 we are also required to Report if, in our opinion, certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to Report in respect of these matters. OTHER MATTERS AUDITOR TENURE Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 1 August 2003 to audit the financial statements for the period ending 27 September 2003 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 15 years, covering the periods ending 27 September 2003 to 30 September 2017. CONSISTENCY OF THE AUDIT REPORT WITH THE ADDITIONAL REPORT TO THE AUDIT COMMITTEE Our audit opinion is consistent with the additional Report to the Audit Committee we are required to provide in accordance with ISAs (UK). DAMIAN SANDERS, FCA (Senior statutory auditor) for and on behalf of Deloitte LLP Statutory Auditor Manchester, United Kingdom 28 November 2017 25632.02 13 December 2017 11:33 AM Proof6 79 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Consolidated Statement of Financial Performance FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 Group revenue – continuing operations Cost of sales Gross profit Employee profit sharing Distribution and selling costs Other operating expenses Administrative costs Sales and marketing costs Group operating profit Investment revenue Finance costs Profit before taxation Taxation Profit for the period attributable to equity holders of the Company Earnings per ordinary share from continuing operations – Basic – Diluted 52 weeks ended 30 September 2017 £’000 52 weeks ended 1 October 2016 £’000 Notes 3 211,848 214,994 (82,473) (81,825) 129,375 133,169 (4,972) (80,006) (7,724) (10,046) (77,113) (6,489) (14,254) (13,887) (4,530) 17,889 24 (914) 16,999 (3,568) 13,431 (4,561) 21,073 85 (1,176) 19,982 (4,451) 15,531 6.98p 6.86p 8.05p 7.82p 7 7 5 8 27 10 Consolidated Statement of Comprehensive Income FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 Profit for the period and total comprehensive income Total comprehensive income for the period attributable to equity holders of the Parent Company 52 weeks ended 30 September 2017 £’000 13,431 13,431 52 weeks ended 1 October 2016 £’000 15,531 15,531 80 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION Consolidated Statement of Financial Position AS AT 30 SEPTEMBER 2017 Non-current assets Goodwill Intangible assets Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Current tax liabilities Provisions Net current assets Non-current liabilities Bank loans Deferred tax liabilities Provisions Total liabilities Net assets Equity Share capital Share premium Own shares Merger reserve Share-based payment reserve Capital redemption reserve Retained losses Total equity Notes 2017 £’000 2016 £’000 11 12 13 15 16 17 20 18 20 20 21 22 23 24 25 26 27 1,096 429 54,342 55,867 29,502 6,502 7,501 43,505 99,372 245 – 51,619 51,864 25,667 6,708 10,228 42,603 94,467 (32,500) (33,108) (2,375) (1,170) (4,004) (1,448) (36,045) (38,560) 7,460 4,043 (34,923) (34,807) (1,071) (3,780) (709) (2,846) (75,819) (76,922) 23,553 17,545 6,548 2,487 (4,411) (399) 3,921 20,359 (4,952) 23,553 6,539 2,473 (4,411) (399) 4,280 20,359 (11,296) 17,545 The accompanying notes are an integral part of these financial statements. The financial statements of Topps Tiles Plc, registered number 3213782, on pages 81 to 84 were approved by the Board of Directors and authorised for issue on 28 November 2017. They were signed on its behalf by: MATTHEW WILLIAMS ROB PARKER DIRECTORS 25632.02 13 December 2017 11:33 AM Proof6 81 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Consolidated Statement of Changes in Equity FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 Share capital £’000 Share premium £’000 Own shares £’000 Merger reserve £’000 Share- based payment reserve £’000 Capital redemption reserve £’000 Retained earnings £’000 Total equity £’000 Balance at 3 October 2015 6,457 1,906 (630) (399) 2,820 20,359 (19,715) 10,798 Profit and total comprehensive income for the period Issue of share capital Dividends Own shares purchased in the period Own shares issued in the period Credit to equity for equity-settled share based payments Deferred tax on share-based payment transactions – 82 – – – – – – 567 – – – – – – – – (4,415) 634 – – – – – – – – – – (7) – – – 1,467 – – – – – – – – 15,531 15,531 – 642 (6,296) (6,296) – (4,415) (634) – 448 1,915 (630) (630) Balance at 1 October 2016 6,539 2,473 (4,411) (399) 4,280 20,359 (11,296) 17,545 Profit and total comprehensive income for the period Issue of share capital Dividends Own shares purchased in the period Own shares issued in the period Debit to equity for equity-settled share- based payments Deferred tax on share-based payment transactions – 9 – – – – – – 14 – – – – – – – – (8) 8 – – – – – – – – – – – – – – (359) – – – – – – – – 13,431 13,431 – 23 (6,924) (6,924) – (8) 3 (8) – (356) (158) (158) Balance at 30 September 2017 6,548 2,487 (4,411) (399) 3,921 20,359 (4,952) 23,553 82 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED CASH FLOW STATEMENT Consolidated Cash Flow Statement FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 Cash flow from operating activities Profit for the period Taxation Finance costs Investment revenue Group operating profit Adjustments for: Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Share option (credit)/charge Decrease in trade and other receivables (Increase)/decrease in inventories Increase/(decrease) 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 Acquisition of subsidiary, net of cash acquired Purchase of own shares Net cash used in investment activities Financing activities Dividends paid Proceeds from issue of share capital Drawdown of bank loans Repayment of bank loans Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 52 weeks ended 30 September 2017 £’000 52 weeks ended 1 October 2016 £’000 13,431 3,568 914 (24) 15,531 4,451 1,176 (85) 17,889 21,073 6,544 589 (359) 324 (3,587) 752 22,152 (1,985) (5,015) 15,152 5,832 152 1,701 1,334 1,740 (1,916) 29,916 (1,045) (4,648) 24,223 24 84 (10,160) (10,577) 303 (1,137) – – – (4,383) (10,970) (14,876) (6,924) (6,296) 15 5,000 (5,000) (6,909) (2,727) 10,228 7,501 613 – (10,000) (15,683) (6,336) 16,564 10,228 25632.02 13 December 2017 11:33 AM Proof6 83 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 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 45. The nature of the Group’s operations and its principal activity are set out in the Directors’ Report on page 50. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. ADOPTION OF NEW AND REVISED STANDARDS In the current period, there were no new or revised standards and interpretations adopted that have a material impact on the financial statements. STANDARDS NOT AFFECTING THE REPORTED RESULTS NOR THE FINANCIAL POSITION The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements that may impact the accounting for future transactions and arrangements. Amendments to IFRS 10, IFRS 12 and IAS 28 (Dec 2014) – Investment Entities: Applying the Consolidation Exception Amendments to IFRS 11 (May 2014) – Accounting for Acquisitions of Interests in Joint Operations Amendments to IAS 1 (Dec 2014) – Disclosure Initiative Amendments to IAS 16 and IAS 38 (May 2014) – Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IAS 16 and IAS 41 (Jun 2014) – Agriculture: Bearer Plants Amendments to IAS 27 (Aug 2014) – Equity Method in Separate Financial Statements Annual Improvements to IFRSs: 2012-2014 Cycle (Sept 2014) – Annual Improvements to IFRSs: 2012-2014 Cycle 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 (and in some cases had not yet been adopted by the EU): Amendments to IAS 7 (Jan 2016) – Disclosure Initiative Amendments to IAS 12 (Jan 2016) – Recognition of Deferred Tax Assets for Unrealised Losses Annual Improvements to IFRSs: 2014-16 Cycles (Dec 2016) – Annual Improvements to IFRSs: 2014-16 Cycle – IFRS 12 Amendments IFRS 9 – Financial Instruments IFRS 15 – Revenue from Contracts with Customers Clarifications to IFRS 15 (Apr 2016) – Clarifications to IFRS 15 Revenue from Contracts with Customers IFRIC 22 – Foreign Currency Transactions and Advance Consideration Amendments to IFRS 2 (Jun 2016) – Classification and Measurement of Share-based Payment Transactions Amendments to IFRS 4 (Sept 2016) – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts Amendments to IAS 40 (Dec 2016) – Transfers of Investment Property Annual Improvements to IFRSs: 2014-16 Cycle (Dec 2016) – Annual Improvements to IFRSs: 2014-16 Cycle – IFRS 1 and IAS 28 Amendments Amendments to IFRS 10 and IAS 28 (Sept 2014) – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture IFRIC 23 – Uncertainty over Income Tax Treatments Amendments to IFRS 9 (Oct 2017) – Prepayment Features with Negative Compensation Amendments to IAS 28 (Oct 2017) – Long-term Interests in Associates and Joint Ventures IFRS 17 – Insurance Contracts IFRS 9 – Management do not expect this to have a material impact but an exercise is ongoing to quantify the impact 84 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 1 GENERAL INFORMATION CONTINUED IFRS 15 – The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The Group does not expect the introduction of IFRS 15 to significantly affect the Group’s approach to recognition of revenue. The Group’s revenue streams are not considered particularly complex in nature and revenue will continue to be recognised once the risk and reward of ownership of goods sold by the Group is transferred to the customer. IFRS 16 – Operating Leases, will have a material impact on the Group, with all of its operating leases (note 28) being recognised on the balance sheet with a corresponding right to use the asset being recognised. Rental costs in the income statement will be replaced by interest and depreciation charges and will therefore impact the Group’s profit. It has been noted that the profile of the overall expense in the income statement will change as the interest expense will be more front-loaded compared to a straight-line operating lease rental. Following an initial impact assessment, management has concluded that the most significant items that are currently classified as operating leases that will be recognised in the financial statements in accordance with the new standard are the Group’s property leases. It is not currently practical to provide a reasonable financial estimate of the effect of the new standard until the full implementation of the project has been concluded. The Group will continue to monitor the practical interpretation of the new leasing standard within the retail sector prior to full implementation. The Directors anticipate that the adoption of the remaining standards and interpretations in future periods will have no material impact on the financial statements of the Group. 2 ACCOUNTING POLICIES The principal accounting policies adopted are set out below. 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 derivative financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. B) GOING CONCERN When considering the going concern test, the Board reviews several factors including a detailed review of the above risks and uncertainties, the Group’s forecast covenant and cash headroom against lending facilities, and management’s current expectations (see Strategic Report for further details). As a result of this review the Board believes 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. Therefore, the Board considers it appropriate to prepare the financial statements on the going concern basis. C) BUSINESS COMBINATIONS Acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-on date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquisition and the equity interest issued by the Group in exchange for control of the acquisition. Acquisition-related costs are recognised in the profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and • assets that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard. Contingent consideration is recognised at fair value at the date of acquisition. Subsequent changes in contingent consideration which has been classified as an asset or liability which does not result from a measurement period adjustment is accounted for in accordance with IAS 39 where the asset or liability is a financial instrument, and in accordance with IAS 37 in all other cases. D) 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 entity so as to obtain benefits from its activities. 25632.02 13 December 2017 11:33 AM Proof6 85 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 2 ACCOUNTING POLICIES CONTINUED 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. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. E) FINANCIAL PERIOD The accounting period ends on the Saturday which falls closest to 30 September, resulting in financial periods of either 52 or 53 weeks. Throughout the financial statements, Directors’ Report and Business Review, references to 2017 mean "at 30 September 2017" or the 52 weeks then ended; references to 2016 mean "at 1 October 2016" or the 52 weeks then ended. F) GOODWILL Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised but is reviewed for impairment at least annually. 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 will not be included in determining any subsequent profit or loss on disposal. G) 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. Revenue from the sale of goods is recognised on the collection or delivery of goods, when all the following conditions are satisfied: • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods, being the date goods are collected from store or received by the customers; • the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the entity; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. The level of sales returns is closely monitored by management and provided for when management considers them to be significant. Sales of goods that result in award credits for customers, under the Company’s Trader Loyalty Scheme, are accounted for as multiple element revenue transactions and the fair value of the consideration received or receivable is allocated between the goods supplied and the award credits granted. The consideration allocated to the award credits is measured by reference to their fair value being the amount for which the award credits should be sold separately. Such consideration is not recognised as revenue at the time of the initial sale transaction, but is deferred and recognised as revenue when the award credits are redeemed and the Company’s obligations have been fulfilled. 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. 86 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 2 ACCOUNTING POLICIES CONTINUED H) INTANGIBLE ASSETS ACQUIRED IN A BUSINESS COMBINATION Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at the fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at costs less accumulated impairment losses. Separately identifiable intangible assets are amortised over their useful economic lives. I) PROPERTY, PLANT & 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 50 years on a straight-line basis Fixtures and fittings over 10 years, except for the following: four years for computer equipment or five years for display stands, as appropriate Motor vehicles 25% per annum on a reducing balance basis Freehold land is not depreciated. 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. J) IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS At each period end, the Group reviews the carrying amounts of its tangible and intangible 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 post-tax cash flows are discounted to their present value using a post-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 revalued 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 revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. K) INVENTORIES Inventories are stated at the lower of cost and net realisable value and relate solely to finished goods for resale, net of supplier rebates. Cost comprises the 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. 25632.02 13 December 2017 11:33 AM Proof6 87 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 2 ACCOUNTING POLICIES CONTINUED L) 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 based on tax laws and rates that have been enacted at the balance sheet date. 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. M) FOREIGN CURRENCY The individual financial statements of each Group company are presented in pounds sterling (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentational currency for the consolidated financial statements. 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 transactions entered into to hedge certain foreign currency risks (see below under financial instruments/hedge accounting). N) LEASES Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease even where payments are not made on such a basis, except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed or a provision has been made for an onerous lease. 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. The Group provides for the unavoidable costs prior to lease termination or sub-lease relating to onerous leases. Dilapidation costs are provided for against all leasehold properties across the entire estate. 88 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 2 ACCOUNTING POLICIES CONTINUED O) INVESTMENTS Fixed asset investments are shown at cost less provision for impairment. P) 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 period. Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the statement of financial position. Q) FINANCE COSTS 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. R) FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. 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 is designated as at FVTPL. A financial asset is classified as held for trading if: • it has been acquired principally for the purpose of selling in the near future; or • it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short- term profit-taking; or • it is a derivative that is not designated and effective as a hedging instrument. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The 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. 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. EFFECTIVE INTEREST METHOD 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. IMPAIRMENT OF FINANCIAL ASSETS Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each statement of financial position 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. 25632.02 13 December 2017 11:33 AM Proof6 89 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 2 ACCOUNTING POLICIES CONTINUED 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 50 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. 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 INSTRUMENTS 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 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. 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. 90 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 2 ACCOUNTING POLICIES 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 to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign exchange forward contracts to manage its foreign currency risk. The Group does not hold or issue derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group’s policies, approved by the Board of Directors, on the use of financial derivatives. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each 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. S) 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 Sharesave 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. T) TRADE PAYABLES Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. U) OPERATING PROFIT Operating profit is stated after charging/(crediting) restructuring costs but before property disposals, investment income and finance costs. V) 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. W) SUPPLIER INCOME Amounts receivable from suppliers are initially held on the balance sheet within the cost of inventory and recognised within the income statement once the contractual terms of the supplier agreements are met and the corresponding inventory has been sold. Volume rebates and price discounts are recognised in the income statement as a reduction in cost of sales, in line with the recognition of the sale of a product. X) 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 Directors have concluded that there are no critical areas of accounting judgement in the application of the Group’s accounting policies in the current period. 25632.02 13 December 2017 11:33 AM Proof6 91 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 2 ACCOUNTING POLICIES 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: PROPERTY PROVISIONS Onerous lease provision – During the period the Group has continued to review the performance of its store portfolio, which has resulted in one further store being exited before its lease terms had expired (2016: seven stores). In respect of the leases in relation to stores exited before lease end dates in prior periods that are still vacant, the Group has provided for what it considers to be the unavoidable costs prior to lease termination or sub-lease. 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 historical trends. The ultimate costs to be incurred may vary from the estimates. Property provisions are discounted to a present value by applying a discount rate consistent with market conditions at the reporting date. Discount rates used and sensitivity of the discount rate is disclosed in note 20. 3 REVENUE An analysis of Group revenue is as follows: Revenue from the sale of goods Total revenue 52 weeks ended 30 September 2017 £’000 211,848 211,848 52 weeks ended 1 October 2016 £’000 214,994 214,994 Investment revenue represents bank interest receivable. There are no other gains recognised in respect of loans and receivables. The Group has one reportable segment in accordance with IFRS 8 – Operating Segments, which is the Topps Tiles stores and online business segment. The Group’s Board is considered the chief operating decision maker. The Board receives monthly financial information at this level and uses this information to monitor the performance of the Topps Tiles stores and online business segment, allocate resources and make operational decisions. Internal reporting focuses on the Group as a whole and does not identify any further individual segments. All revenue is derived from sales in the UK and is from one class of business. 4 ACQUISITION OF SUBSIDIARIES The Group acquired 100% of the issued share capital of Parkside Ceramics Limited on 31 August 2017. The acquisition of Parkside Ceramics Limited gives the Group greater coverage in the commercial tile market and allows the Group to utilise economies of scale to create additional value and create further synergies. The Group performed a purchase price allocation exercise on Parkside Ceramics Limited to restate assets and liabilities at their fair value. Intangible assets were recognised in relation to the Parkside Ceramics brand and customer relationships. The contingent consideration is estimated based on performance conditions in place for Parkside Ceramics Limited over the next 12 months. The Group incurred £169,000 of cost in relation to acquisition activity during the year. 92 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 20174 ACQUISITION OF SUBSIDIARIES CONTINUED The fair value of the net assets acquired and liabilities assumed at the acquisition date were: OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS Fair value of net assets required £’000 Property, plant and equipment Inventories Trade and other receivables Trade and other payables Other financial liabilities Corporation tax Deferred tax Cash and cash equivalents Brand valuation Customer relationships valuation Fair value of assets acquired Cash consideration Contingent consideration* Total consideration Goodwill * Contingent consideration is valued at fair value based on forecast attainment of performance conditions associated with the payment of the contingent consideration. The net cash outflow in the cash flow statement is as follows: Cash consideration Cash acquired Net cash outflow in the cash flow statement Since the date of control, the following amounts have been included within the Group’s financial statements for the period: Revenue Loss before tax 45 248 117 (347) (12) 11 (35) 128 229 200 584 1,265 170 1,435 851 £’000 1,265 (128) 1,137 £’000 124 38 Had the acquisition been included from the start of the period, £2,238,000 of revenue and £172,000 of loss before tax would have been included in the Group’s financial statements. There were no contingent liabilities acquired as a result of the above transaction. 25632.02 13 December 2017 11:33 AM Proof6 93 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 5 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 Disposal of property, plant and equipment loss Property related provisions charged Staff costs (see note 6) Operating lease rentals Write-down of inventories recognised as an expense Cost of inventories recognised as an expense During the year the business disposed of one freehold property (2016: no freehold property disposal). Analysis of the auditor’s remuneration is provided below: Fees payable to the Company’s auditor with respect to the Company’s annual accounts Fees payable to the Company’s auditor and their associates for other audit services to the Group: Audit of the Company’s subsidiaries pursuant to legislation Total audit fees Taxation compliance services Total non-audit fees Total fees payable to the Company’s auditor 52 weeks ended 30 September 2017 £’000 6,544 438 151 349 50,548 24,762 3,177 79,296 52 weeks ended 30 September 2017 £’000 46 97 143 – – 143 52 weeks ended 1 October 2016 £’000 5,832 152 – 719 53,816 23,830 3,971 78,612 52 weeks ended 1 October 2016 £’000 41 87 128 70 70 198 A description of the work of the Audit Committee is set out on page 48 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor. 94 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 6 STAFF COSTS The average monthly number of persons and their full-time equivalents employed by the Group in the UK during the accounting period (including Executive Directors) was: Selling Administration Their aggregate remuneration comprised: Wages and salaries (including LTIP, see note 29) Social security costs Other pension costs (see note 28b) 52 weeks ended 30 September 2017 Number employed 1,837 193 2,030 2017 £’000 52 weeks ended 1 October 2016 Number employed 1,778 199 1,977 2016 £’000 45,967 48,667 3,719 862 4,286 863 50,548 53,816 Details of Directors’ emoluments are disclosed on pages 63 to 71. The Group considers key management to be the Directors only. Employee profit sharing of £5.0 million (2016: £10.0 million) is included in the above and comprises sales commission and bonuses. 7 INVESTMENT REVENUE AND FINANCE COSTS Investment revenue Bank interest receivable and similar income Finance costs Interest on bank loans and overdrafts Other interest Interest on underpaid tax† 52 weeks ended 30 September 2017 £’000 52 weeks ended 1 October 2016 £’000 24 24 (868) (46) – (914) 85 85 (1,092) – (84) (1,176) † The Group has historically provided for tax on open HMRC enquires and a final payment of £2.9 million was made in October 2016 against these enquires. In the prior year a £84,000 interest payment against these open enquiries was included in finance costs. 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. There are no other gains or losses recognised in respect of financial liabilities measured at amortised cost. 25632.02 13 December 2017 11:33 AM Proof6 95 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 8 TAXATION Current tax – charge for the period Current tax – adjustment in respect of previous periods Deferred tax – charge for the period (note 20) Deferred tax – adjustment in respect of previous periods (note 20) 52 weeks ended 30 September 2017 £’000 3,504 (104) 125 43 52 weeks ended 1 October 2016 £’000 3,906 148 302 95 3,568 4,451 The charge for the period 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 19.5% (2016: 20.0%) Expenses that are not deductible in determining taxable profit Difference between IFRS 2 and corporation tax relief Reduction in UK corporation tax rate Tangible fixed assets which do not qualify for capital allowances Adjustment in respect of prior periods Tax expense for the period 52 weeks ended 30 September 2017 £’000 52 weeks ended 1 October 2016 £’000 16,999 3,315 19,982 3,997 57 67 8 182 (61) 58 137 (246) 261 244 3,568 4,451 In the period, the Group has recognised a corporation tax credit directly to equity of £3,254 (2016: £448,000) and a deferred tax debit to equity of £157,921 (2016: £630,000) in relation to the Group’s share option schemes. 9 DIVIDENDS Interim dividend for the period ended 30 September 2017 of £0.011 (2016: £0.010) per share Proposed final dividend for the period ended 30 September 2017 of £0.023 (2016: £0.025) per share 52 weeks ended 30 September 2017 £’000 2,116 4,425 52 weeks ended 1 October 2016 £’000 1,930 4,803 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. 96 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 10 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. Weighted average number of issued shares for basic earnings per share Weighted average impact of treasury shares for basic earnings per share Total weighted average number of shares for basic earnings per share Weighted average number of shares under option For diluted earnings per share 52 weeks ended 30 September 2017 52 weeks ended 1 October 2016 196,367,310 195,063,550 (4,038,495) (2,131,436) 192,328,815 192,932,114 3,487,211 5,769,647 195,816,026 198,701,761 The calculation of the basic and diluted earnings per share used the denominators as shown above for both basic and diluted earnings per share. 11 GOODWILL Cost and carrying amount at 3 October 2015 and 1 October 2016 Acquisition of Parkside Ceramics Limited (note 4) Cost and carrying amount at 30 September 2017 £’000 245 851 1,096 The balance of goodwill remaining is the carrying value that arose on the acquisition of Surface Coatings Limited in 1998 and Parkside Ceramics Limited in 2017. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. 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 pre-tax rate of 13.2% (2016: 14.2%). 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 years. The growth rate applied does not exceed the average long-term growth rate for the relevant markets. There are no reasonable changes that would result in the carrying value of goodwill being reduced to its recoverable amount. No impairment has been identified in the current period as a result of the annual test for impairment. 12 INTANGIBLE ASSETS Cost and carrying amount at 1 October 2016 Additions Cost and carrying amount at 30 September 2017 Brand £’000 – 229 229 Customer relationships £’000 – 200 200 Total £’000 – 429 429 The intangible assets additions occurred on the acquisition of Parkside Ceramics Limited on 31 August 2017. The brand is amortised over its estimated useful life of 10 years. Customer relationships are amortised over their estimated useful lives of three years. 25632.02 13 December 2017 11:33 AM Proof6 97 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 13 PROPERTY, PLANT AND EQUIPMENT Cost At 3 October 2015 Additions Disposals At 1 October 2016 Additions Disposals Reclassification of assets* Acquisition of subsidiary undertakings At 30 September 2017 Accumulated depreciation At 3 October 2015 Charge for the period Provision for impairment Eliminated on disposals At 1 October 2016 Charge for the period Provision for impairment Eliminated on disposals Reclassification of assets* At 30 September 2017 Carrying amount At 30 September 2017 At 1 October 2016 Land and buildings Freehold £’000 Short leasehold £’000 Fixtures and fittings £’000 Motor vehicles £’000 Total £’000 18,560 1,954 72,309 58 92,881 – – 93 – 18,560 2,047 801 (231) (142) – 88 – (686) – 10,411 (691) 82,029 9,225 (413) 779 31 18,988 1,449 91,651 2,046 289 – – 2,335 293 – (86) (6) 2,536 1,648 42,046 49 – – 1,697 53 – – (680) 1,070 5,482 152 (691) 46,989 6,188 438 (104) 671 54,182 5 – 10,509 (691) 63 102,699 – – 49 14 126 47 12 – – 59 10 – – 15 84 10,114 (644) – 45 112,214 45,787 5,832 152 (691) 51,080 6,544 438 (190) – 57,872 16,452 16,225 379 350 37,469 35,040 42 4 54,342 51,619 * During the period the Group undertook an asset reclassification exercise to reclassify some assets between asset categories. Freehold land and buildings includes £4,104,000 of freehold land (2016: £4,104,000) on which no depreciation has been charged in the current period. There is no material difference between the carrying and market values. Cumulative finance costs capitalised in the cost of tangible fixed assets amount to £nil (2016: £nil). Contractual commitments for the acquisition of property, plant and equipment are detailed in note 28. During the period, the Group has closed five stores in the UK. As the fixtures and fittings within these stores cannot be reused 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 of £268,000 (2016: £152,000) included within other operating expenses. 14 SUBSIDIARIES A list of all subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 3 to the Company only financial statements. 98 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 201715 TRADE AND OTHER RECEIVABLES Amounts falling due within one year: Amounts receivable for the sale of goods Allowance for doubtful debts Other debtors and prepayments – Rent and rates – Other OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 2017 £’000 493 (37) 4,192 1,854 6,502 2016 £’000 681 (33) 4,001 2,059 6,708 The Directors consider that the carrying amount of trade and other receivables at 30 September 2017 and 1 October 2016 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 30 September 2017 amounted to £0.5 million (2016: £0.6 million). These amounts mainly relate to sundry trade account generated sales. In relation to these sales, the average credit period taken is 49 days (2016: 54 days) and no interest is charged on the receivables. 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. Included in the Group’s trade receivable balance are debtors with a carrying amount of £70,000 (2016: £94,000) 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. Ageing of past due but not impaired receivables: Greater than 60 days 2017 £’000 70 2016 £’000 94 The allowance for doubtful debts was £37,000 by the end of the period (2016: £33,000). 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 £24,000 relating to individually impaired trade receivables (2016: £20,000) which are due from companies that have been placed into liquidation. The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value. 16 CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash held by the Group and short-term bank deposits (with associated right of set-off) net of bank overdrafts, 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 2017 £’000 5,232 919 1,350 7,501 2016 £’000 8,738 715 775 10,228 99 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 17 OTHER FINANCIAL LIABILITIES TRADE AND OTHER PAYABLES Amounts falling due within one year Trade payables Other payables Accruals and deferred income 2017 £’000 2016 £’000 18,330 3,641 10,529 32,500 16,598 3,740 12,770 33,108 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 53 days (2016: 49 days). No interest is charged on these payables. The Directors consider that the carrying amount of trade payables at 30 September 2017 and 1 October 2016 approximates to their fair value on the basis of discounted cash flow analysis. 18 BANK LOANS Bank loans (all sterling) The borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth year Less: total unamortised issue costs Issue costs to be amortised within 12 months Amount due for settlement after 12 months 2017 £’000 2016 £’000 34,807 34,691 2017 £’000 2016 £’000 – 35,000 – 35,000 (193) – – 35,000 35,000 (309) 34,807 34,691 116 116 34,923 34,807 The Directors consider that the carrying amount of the bank loan at 30 September 2017 and 1 October 2016 approximates to its fair value since the amounts relate to floating rate debt. The average interest rates paid on the loan were as follows: Loans 2017 % 1.78 2016 % 2.19 The Group borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The Group is part way through a five-year revolving credit facility of £50.0 million, expiring 31 May 2019. As at the financial period end, £35.0 million of this facility was drawn (2016: £35.0 million). The loan facility contains financial covenants which are tested on a bi-annual basis. The Group did not breach any covenants in the period. At 30 September 2017, the Group had available £15.0 million (2016: £15.0 million) of undrawn committed banking facilities. 100 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 19 FINANCIAL INSTRUMENTS CAPITAL RISK MANAGEMENT The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2016. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents disclosed in note 16 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained losses as disclosed in notes 21 to 27. The Group is not subject to any externally imposed capital requirements. 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 2R to the financial statements. CATEGORIES OF FINANCIAL INSTRUMENTS Financial assets Loans and receivables (including cash and cash equivalents) Fair value through profit and loss Financial liabilities Fair value through profit and loss Amortised cost Carrying value and fair value 2017 £’000 2016 £’000 7,957 10,876 – 342 124 – 53,377 51,404 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 RISK 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 forward foreign exchange contracts to hedge the exchange rate risk arising on the import of goods. 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 Assets Liabilities 2017 £’000 1,357 927 2016 £’000 781 725 2017 £’000 3,139 866 2016 £’000 3,032 1,215 25632.02 13 December 2017 11:33 AM Proof6 101 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 19 FINANCIAL INSTRUMENTS CONTINUED FOREIGN CURRENCY SENSITIVITY ANALYSIS The Group is mainly exposed to the currency of China and Brazil (US dollar currency) and to various European countries (euro) as a result of inventory purchases. The following table details the Group’s sensitivity to a 10% increase and decrease in sterling against the relevant foreign currencies. Ten per cent 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. 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 2017 £’000 162 6 (198) (7) 2016 £’000 205 45 (250) (55) 2015 £’000 197 44 (241) (54) 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 2017 £’000 10,142 2016 £’000 6,125 These arrangements are designed to address significant exchange exposures for the first half of 2018 and are renewed on a revolving basis as required. At 30 September 2017 the fair value of the Group’s currency derivatives is a loss of £124,417 within accruals (note 17) (2016: gain of £341,917 in prepayments (note 15)). These amounts are based on the market value of equivalent instruments at the balance sheet date. Losses of £466,064 are included in cost of sales (2016: £225,260 gain). INTEREST RATE RISK MANAGEMENT The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. Due to the reduced level of floating rate borrowings and the current low level of interest rates, management have not deemed it necessary to implement measures that would mitigate this risk. 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 analysis below has 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. 102 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 19 FINANCIAL INSTRUMENTS CONTINUED 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: (Loss) or profit The Group’s sensitivity to interest rates mainly relates to the revolving credit facility. 50 basis points increase in interest rates 50 basis points decrease in interest rates 2017 £’000 (181) 2016 £’000 (198) 2017 £’000 181 2016 £’000 198 CREDIT RISK MANAGEMENT Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Group. Management have considered the counterparty risk associated with the cash and derivative balances and do not consider there to be a material risk. The Group has a policy of only dealing with creditworthy counterparties. The Group’s exposure to its counterparties is reviewed periodically. Trade receivables are minimal, consisting of a number of insurance companies and sundry trade accounts; further information is provided in note 15. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral obtained. LIQUIDITY RISK MANAGEMENT Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. 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 1.73681% (2016: 1.77413%) 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. 2017 Non-interest bearing Variable interest rate instruments 2016 Non-interest bearing Variable interest rate instruments Less than 1 month £’000 21,971 58 Less than 1 month £’000 20,337 59 1–3 months £’000 – 114 1–3 months £’000 – 117 3 months to 1 year £’000 – 512 3 months to 1 year £’000 – 521 1–5 years £’000 – 35,454 1–5 years £’000 – 36,157 Total £’000 21,971 36,138 Total £’000 20,337 36,854 The Group is financed through a £50 million (2016: £50 million) revolving credit facility, of which £35 million (2016: £35 million) was utilised. At the balance sheet date the total unused amount of financing facilities was £15 million (2016: £15 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. 25632.02 13 December 2017 11:33 AM Proof6 103 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 19 FINANCIAL INSTRUMENTS 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. 2017 Foreign exchange forward contracts payments Foreign exchange forward contracts receipts 2016 Foreign exchange forward contracts payments Foreign exchange forward contracts receipts Less than 1 month £’000 (2,128) 2,141 Less than 1 month £’000 (1,179) 1,305 1–3 months £’000 (3,884) 3,837 1–3 months £’000 (2,435) 2,611 3 months to 1 year £’000 (4,130) 4,040 3 months to 1 year £’000 (2,511) 2,567 1–5 years £’000 – – 1–5 years £’000 – – 5+ years £’000 – – 5+ years £’000 – – Total £’000 (10,142) 10,018 Total £’000 (6,125) 6,483 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. The fair values are therefore categorised as Level 2 (2016: 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). 20 PROVISIONS Onerous lease provision Business simplification provision Dilapidations provision Current Non-current At 1 October 2016 Created in the year Utilisation of provision Release of provision in the period At 30 September 2017 104 2017 £’000 1,697 1,078 2,175 4,950 1,170 3,780 4,950 Business simplification provision £’000 Onerous lease provision £’000 Dilapidations provision £’000 1,181 1,309 1,804 387 (490) – 786 (398) – 604 (192) (41) 1,078 1,697 2,175 2016 £’000 1,309 1,181 1,804 4,294 1,448 2,846 4,294 Total £’000 4,294 1,777 (1,080) (41) 4,950 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 20 PROVISIONS CONTINUED The onerous lease provision relates to estimated future unavoidable lease costs in respect of closed, non-trading and loss-making stores. The provision is expected to be utilised over the following four financial periods. The dilapidations provision represents management’s best estimate of the Group’s liability under its property lease arrangements based on past experience and is expected to be utilised over the following six financial periods. The business simplification provision relates to the decision to exit the Topps Clearance format and relocation of the finance function to Leicester, resulting in redundancies and the subsequent closure of nine store locations and one support office. The discount rate used to calculate the present value of property provisions is 7%. A 10% reduction in discount rate would lead to an increase in property provisions of £75,000. 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 1,523 138 95 (263) – 1,493 (55) 43 – – As at 3 October 2015 Charge to income Charge in respect of previous periods Impact of rate change Credit to equity As at 1 October 2016 Charge/(credit) to income Charge in respect of previous periods Charge to equity Recognised on acquisition of subsidiary As at 30 September 2017 1,481 Share-based payments £’000 Exchange rate differences £’000 (1,353) (166) 22 (22) Rent free £’000 (511) 511 – 105 630 (784) 181 – 158 – (445) – – – – – – – – – – – – – – – – – – Stock provisions £’000 Intangible assets £’000 – – – – – – – – – – – – – – – – – – Total £’000 (319) 461 95 (158) 630 709 126 43 158 (38) (38) 73 73 35 1,071 A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. The deferred tax liability at 1 October 2016 has been calculated based on these rates. 21 CALLED-UP SHARE CAPITAL Issued and fully paid 196,437,298*(2016: 196,153,770*) Ordinary shares of 3.33p each (2016: 3.33p) Total 2017 £’000 6,548 6,548 2016 £’000 6,539 6,539 During the period the Group issued 254,998 (2016: 2,453,311) ordinary shares with a nominal value of £9,441 (2016: £81,712) under share option schemes for an aggregate cash consideration of £15,631 (2016: £612,500). * During the period £8,468 (2016: £4,415,000) of shares were purchased by Topps Tiles Employee Benefit Trust on behalf of the Group. 25632.02 13 December 2017 11:33 AM Proof6 105 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 22 SHARE PREMIUM At start of the period Premium on issue of new shares At end of period 23 OWN SHARES At start of the period Acquired in the period Disposed of on issue in the period At end of the period 2017 £’000 2,473 14 2,487 2017 £’000 (4,411) (8) 8 2016 £’000 1,906 567 2,473 2016 £’000 (630) (4,415) 634 (4,411) (4,411) A subsidiary of the Group holds 4,038,495 (2016: 4,038,495) shares with a nominal value of £4,410,840 acquired for an average price of £1.09 per share (2016: £4,410,863 acquired for an average price of £1.09 per share) and therefore these have been classed as own shares. 24 MERGER RESERVE At start and end of the period 2017 £’000 (399) 2016 £’000 (399) The merger reserve arose on pre-2006 acquisitions. The Directors do not consider this to be distributable as at 30 September 2017 (2016: same). 25 SHARE-BASED PAYMENT RESERVE At start of the period (Debit)/credit to equity for equity-settled share-based payments At end of the period 2017 £’000 4,280 (359) 3,921 2016 £’000 2,820 1,460 4,280 The share-based payment reserve has arisen on the fair valuation of save-as-you-earn schemes and long-term incentive plans. The Directors consider this to be distributable as at 30 September 2017 (2016: same). 26 CAPITAL REDEMPTION RESERVE At start and end of the period 2017 £’000 2016 £’000 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. The Directors do not consider this to be distributable as at 30 September 2017 (2016: same). 106 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 27 RETAINED LOSSES At 3 October 2015 Dividends (note 9) Deferred and current tax on Sharesave scheme taken directly to equity Own shares issued in the period Net profit for the period At 1 October 2016 Dividends (note 9) Deferred and current tax on Sharesave scheme taken directly to equity Own shares issued in the period Net profit for the period At 30 September 2017 28 FINANCIAL COMMITMENTS A) CAPITAL COMMITMENTS At the end of the period there were capital commitments contracted of £nil (2016: £45,000). £’000 (19,715) (6,296) (182) (634) 15,531 (11,296) (6,924) (155) (8) 13,431 (4,952) B) PENSION ARRANGEMENTS The Group operates a defined contribution pension scheme 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 £862,000 (2016: £863,000). At the period end, the Group holds outstanding contributions of £142,669 (2016: £136,619). C) LEASE COMMITMENTS Minimum future sub-lease payments expected to be received under non-cancellable sub-leases amount to £2,509,000 (2016: £3,715,000). 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 £24,762,316 (2016: £23,830,000) which includes property service charges of £852,000 (2016: £732,000). 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 2017 2016 Land and buildings £’000 22,793 76,434 49,189 148,416 Other £’000 1,319 2,093 194 3,606 Land and buildings £’000 22,601 71,957 51,083 145,641 Other £’000 1,037 1,363 168 2,568 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 10 years and rentals are fixed for an average of five years (2016: five). 25632.02 13 December 2017 11:33 AM Proof6 107 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 29 SHARE-BASED PAYMENTS The Group operates seven share option schemes in relation to Group employees. EMPLOYEE SHARE PURCHASE PLANS Employee share purchase plans are open to almost all employees and provide for a purchase price equal to the average market price over the three days prior to 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 thee or five year period. Movements in share-based payment plan options are summarised as follows: Outstanding at beginning of the period Issued during the period Expired during the period Exercised during the period Outstanding at end of the period Exercisable at end of the period 2017 2016 Weighted average exercise price £ 1.14 0.70 1.07 Number of share options 3,080,615 2,105,117 (1,623,808) Number of share options 2,969,105 2,098,318 (617,982) (28,530) 0.54 (1,368,826) 3,533,394 378,847 0.91 0.98 3,080,615 8,372 Weighted average exercise price £ 0.63 1.27 1.05 0.45 1.14 0.43 The inputs to the Black-Scholes Model for the employee three-year Employee Share Purchase Plans issued in the year are as follows: Three-year plan Weighted average share price Weighted average exercise price Expected volatility Expected life Risk-free rate of interest Dividend yield — pence — pence — % — years — % — % 83.25 70.00 29.22 3.00 0.41 4.20 Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years (2016: three and five years). The expected risk used in the model has been adjusted, based on management’s best estimate, for the effects of non- transferability, exercise restrictions and behavioural forces. 108 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 29 SHARE-BASED PAYMENTS CONTINUED LONG TERM INCENTIVE PLAN Long Term Incentive Plans have been granted to senior management and have a vesting period of three years. Vesting is subject to achievement of certain performance conditions. Movements in Long Term Incentive Plan options are summarised as follows: Outstanding at beginning of the period Issued during the period Expired during the period Exercised during the period Outstanding at end of the period Exercisable at end of the period 2017 2016 Weighted average exercise price £ – – – – – – Weighted average exercise price £ – – – – – – Number of share options 5,032,515 1,229,100 (113,041) (1,084,485) 5,064,089 988,989 Number of share options 5,064,089 1,752,568 (128,402) (254,998) 6,433,257 988,989 Under the plan a number of share options were granted to senior management. These options will vest in December 2018 subject to the achievement of certain performance criteria. The total number of share options granted was 13,196 (2016: 1,138,647) and the fair value of these options was £10,786 (2016: £1,674,835). 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 — % — % 88.00 nil 28.03 2.00 0.13 3.69 Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The expected risk used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces. During the financial period, the Group granted 17,931 share options under the existing share option scheme due to vest in December 2017. The fair value of these options was £15,027. 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 — % — % 87.00 nil 30.54 1.00 0.00 3.74 During the financial period, the Group granted 1,721,441 share options under the existing share option scheme due to vest in December 2019. The fair value of these options was £1,355,996. 25632.02 13 December 2017 11:33 AM Proof6 109 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 29 SHARE-BASED PAYMENTS CONTINUED 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 — % — % 88.00 nil 29.73 3.00 0.28 3.69 2020 LONG TERM INCENTIVE PLAN Under the plan a number of share options were granted to management level employees across the Group. These options will vest in December 2020 subject to the achievement of certain performance criteria. Movements in 2020 Long Term Incentive Plan options are summarised as follows: Outstanding at beginning of the period Issued during the period Expired during the period Exercised during the period Outstanding at end of the period Exercisable at end of the period 2017 2016 Weighted average exercise price £ – – – – – – Weighted average exercise price £ – – – – – – Number of share options – 2,698,244 (94,497) – 2,603,747 – Number of share options 2,603,747 955,217 (497,702) – 3,061,262 – During the financial period, the Group granted an additional 955,217 share options under the 2020 Long Term Incentive Plan share option scheme due to vest in December 2020. During the financial period, the Group granted an additional 134,000 share options under the 2020 Long Term Incentive Plan share option scheme due to vest in December 2020. The fair value of these options was £101,726. 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 — % — % 88.00 nil 34.18 4.00 0.45 3.69 Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three and five years (2016: five years). The expected risk used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces. During the financial period, the Group granted an additional 120,500 share options under the 2020 Long Term Incentive Plan share option scheme due to vest in December 2020. The fair value of these options was £85,715. 110 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 201729 SHARE-BASED PAYMENTS CONTINUED 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 — % — % OUR FINANCIALS NOTES TO THE FINANCIAL STATEMENTS 82.50 nil 28.68 3.5 0.26 4.36 During the financial period, the Group granted an additional 695,717 share options under the 2020 Long Term Incentive Plan share option scheme due to vest in December 2020. The fair value of these options was £588,695. 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 — % — % 96.75 nil 34.26 4.0 0.26 3.62 In total, the Group recognised a total revenue of £358,502 (2016: £1,827,021) relating to share-based payments. 30 RELATED PARTY TRANSACTIONS S.K.M. Williams is a related party by virtue of his 10.6% shareholding (20,593,950 ordinary shares) in the Group’s issued share capital (2016: 10.6% shareholding of 20,593,950 ordinary shares). At 1 October 2017, S.K.M. Williams was the landlord of two properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £114,000 (2016: three properties for £187,000) per annum. No amounts were outstanding with S.K.M. Williams at 30 September 2017 (2016: £nil). The lease agreements on all properties are operated on commercial arm’s length terms. Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note, in accordance with the exemption available under IAS 24. The remuneration of the Board of Directors, who are considered key management personnel of the Group, was £1.1 million (2016: £2.2 million) including share-based payments of £0.4 million (2016: £0.7 million). Further information about the remuneration of the individual Directors is provided in the Remuneration Report on pages 54 to 71. The Group’s defined contribution pension scheme is administered by Legal and General. During the year the Group made contributions of £862,000 (2016: £863,000) and at year end the Group has outstanding contributions of £142,669 (2016: £136,619). 25632.02 13 December 2017 11:33 AM Proof6 111 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Company Balance Sheet AS AT 30 SEPTEMBER 2017 Fixed assets Investments Current assets Debtors due within 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 Capital redemption reserve Other reserve Profit and loss account Equity shareholders’ funds 52 weeks ended 30 September 2017 £’000 52 weeks ended 1 October 2016 £’000 Notes 3 4 5 6,7 7 7 7 7 7 3,396 2,320 51,106 1,083 47,615 – (1,268) 50,921 54,317 6,548 2,487 4,455 20,359 6,200 14,268 54,317 (3,805) 43,810 46,130 6,539 2,473 4,814 20,359 6,200 5,745 46,130 The financial statements of Topps Tiles Plc, Companies House number 3213782, were approved by the Board of Directors on 28 November 2017 and signed on its behalf by: MATTHEW WILLIAMS ROB PARKER DIRECTORS 112 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017OUR FINANCIALS COMPANY BALANCE SHEET NOTES TO THE COMPANY FINANCIAL STATEMENTS Notes to the Company Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 1 BASIS OF ACCOUNTING The Company meets the definition of a qualifying entity under FRS 100 Application of Financial Reporting Requirements issued by the FRC. Accordingly, in the period ended 3 October 2015, the Company has changed its accounting framework from the previous UK GAAP to Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) issued by the Financial Reporting Council (FRC) and has, in doing so, applied the requirements of IFRS 1.6-33 and related appendices. These financial statements have therefore been prepared in accordance with FRS 101. As permitted by FRS 101, the Company has taken advantage of the following disclosure exemptions available under that Standard: i) The requirements of IFRS 7 Financial Instruments: Disclosures ii) The requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect of: a) Paragraph 79(a)(iv) of IAS 1 b) Paragraph 73(e) of IAS 16 Property, Plant and Equipment c) Paragraph 118(e) of IAS 38 Intangible Assets iii) The requirements of IAS 7 Statement of Cash Flows iv) The requirements of IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member v) The requirements of paragraphs 10(d), 10(f), and 134 to 136 of IAS 1 Presentation of Financial Statements vi) The requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Where relevant, equivalent disclosures have been given in the Group accounts of which the Company’s results are included. The financial statements have been prepared under the historical cost convention. Comparative data is for the period ended 1 October 2016. 2 PROFIT FOR THE PERIOD 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 profit for the financial period ended 30 September 2017 of £15,447,000 (2016: £6,666,000). The auditor’s remuneration for services to the Company was £46,000 for audit-related work (2016: £41,000 for audit-related work). Fees relating to non-audit work totalled £nil (2016: £nil); see note 5 to the Group financial statements for further details. The Company had no employees other than the Directors (2016: same), whose remuneration is detailed on page 63. 25632.02 13 December 2017 11:33 AM Proof6 113 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notes to the Company Financial Statements FOR THE 52 WEEKS ENDED 30 SEPTEMBER 2017 3 FIXED ASSET INVESTMENTS At 1 October 2016 Movement in share options granted to employees Acquisition of subsidiary At 30 September 2017 £’000 2,320 (359) 1,435 3,396 The Company has investments in the following subsidiaries which affected the profits or net assets of the Group: Subsidiary undertaking Topalpha Limited* Topalpha (Warehouse) Limited Topalpha (Stoke) Limited Tiles4less Limited* Topps Tiles (UK) Limited Topps Tiles Holdings Limited* Topps Tile Kingdom Limited Multi Tile Limited Topps Tiles Distribution Ltd Multi-Tile Distribution Limited % of issued shares held Principal activity 100% 100% 100% 100% 100% 100% 100% 100% Property management and investment Property management and investment and provision of warehousing services Property management and investment Intermediate holding company Retail and wholesale of ceramic tiles, wood flooring and related products Intermediate holding company Intermediate holding company Retail and wholesale of ceramic tiles, wood flooring and related products 100% Wholesale and distribution of ceramic tiles, wood flooring and related products 100% Intermediate holding company Topps Tiles I.P Company Limited 100% Ownership and management of Group intellectual property Topps Tiles Employee Benefit Trust* Parkside Ceramics Limited* * Held directly by Topps Tiles Plc 100% 100% The investments are represented by ordinary shares. Employee benefit trust Retail and wholesale of ceramic tiles, wood flooring and related products All undertakings are incorporated in Great Britain and are registered and operate in England and Wales. The registered address of all of the above entities (excluding Parkside Ceramics Limited) is Thorpe Way, Grove Park, Enderby, Leicestershire, LE19 1SU, United Kingdom. The registered address of Parkside Ceramics Limited is 51 Highmeres Road, Thurmaston, Leicester, LE4 9LZ. 4 DEBTORS Amounts falling due within one year: Amounts owed by subsidiary undertakings Other debtors Prepayments and accrued income 2017 £’000 2016 £’000 51,080 47,598 – 26 3 14 51,106 47,615 114 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 OUR FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS 5 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Bank loans and overdrafts Trade and other creditors Amounts owed to subsidiary undertakings Accruals and deferred income 6 CALLED-UP SHARE CAPITAL Issued and fully paid 196,437,298 (2016: 196,153,770) ordinary shares of 3.33p each (2016: 3.33p) 2017 £’000 – 106 65 1,097 1,268 2017 £’000 6,548 2016 £’000 857 12 72 2,864 3,805 2016 £’000 6,539 During the period 254,998 shares were purchased by Topps Tiles Employee Benefit Trust for £8,491 on behalf of the Group (2016: 4,139,000 shares – £4,415,000). During the period the Group issued and allotted 283,528 (2016: 2,453,311) ordinary shares with a nominal value of £9,441 (2016: £81,712) under share option schemes for an aggregate cash consideration of £15,631 (2016: £612,500). 7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Company Share capital £’000 Share premium £’000 Share- based payment reserve £’000 Capital redemption reserve £’000 Other reserves £’000 Profit and loss account £’000 Total £’000 Balance at 3 October 2015 6,457 1,906 3,354 20,359 6,200 5,375 43,651 Profit for the period Dividend paid to equity shareholders Issue of new shares Credit to equity for equity-settled share-based payments – – 82 – – – 567 – Balance at 1 October 2016 6,539 2,473 Profit for the period Dividends Issue of new shares Debit to equity for equity-settled share-based payments – – 9 – – – 14 – – – (7) 1,467 4,814 – – – (359) – – – – – – – – 6,666 6,666 (6,296) (6,296) – – 642 1,467 20,359 6,200 5,745 46,130 – – – – – – – – 15,447 15,447 (6,924) (6,924) – – 23 (359) Balance at 30 September 2017 6,548 2,487 4,455 20,359 6,200 14,268 54,317 At 30 September 2017, the Directors consider the other reserve of £6,200,000 to remain non-distributable. The Directors consider £nil (2016: £nil) of profit and loss account reserves to be not distributable at 30 September 2017. 25632.02 13 December 2017 11:33 AM Proof6 115 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Additional Information 116 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION CONTENTS Five Year Record Notice of Annual General Meeting Explanatory Notes to the Notice of Annual General Meeting Summary of the principal features of the Topps Tiles 2018 Sharesave Scheme ("Sharesave Scheme") The Team Store Locations 118 119 124 127 129 141 PICTURED MonogeoTM Shard and Link porcelain wall and floor tiles with HartleyTM White porcelain wall and floor tile 117 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Five Year Record UNAUDITED Company Group revenue Group operating profit Profit before taxation Shareholders’ funds (deficit) Basic earnings per share Dividend per share Dividend cover Average number of employees Share price (period end) 52 weeks ended 28 September 2013 £’000 52 weeks ended 27 September 2014 £’000 52 weeks ended 3 October 2015 £’000 52 weeks ended 1 October 2016 £’000 52 weeks ended 30 September 2017 £’000 177,849 195,237 212,221 214,994 211,848 13,845 10,601 (10,184) 4.76p 1.25p 3.81x 1,720 93.0p 18,186 16,691 843 6.49p 1.65p 3.93x 1,794 18,883 17,019 10,798 6.75p 2.34p 2.88x 1,915 21,073 19,982 17,545 8.05p 3.50p 2.30x 1,977 17,889 16,999 23,553 6.98p 3.40p 2.05x 2,030 105.0p 148.75p 112.25p 75.50p All figures quoted are inclusive of continued and discontinued operations. 118 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION FIVE YEAR RECORD NOTICE OF ANNUAL GENERAL MEETING Notice of Annual General Meeting This notice of meeting is important and requires your immediate attention. If you are in any doubt as to the contents of this document and/or the action you should take, you are recommended to seek personal financial advice from your bank manager, stockbroker, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000. If you have sold or otherwise transferred all of your shares in the Company, please pass this document and all accompanying documents to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected so that they can pass these documents to the person who now holds the shares. NOTICE IS HEREBY GIVEN that the Annual General Meeting (the “Annual General Meeting”, the “AGM” or the “meeting”) of Topps Tiles Plc (the “Company”) will be held at the Marriott Hotel, Smith Way, Grove Park, Enderby, Leicestershire LE19 1SW on 31 January 2018 at 10.00 a.m. for the following purposes: ORDINARY BUSINESS To consider and, if thought fit, pass the following resolutions 1 – 11 (inclusive) which will be proposed as Ordinary Resolutions: 1. To receive and adopt the Company’s Annual Report and Financial Statements for the financial period ended 30 September 2017 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 2.3 pence per ordinary share for the financial period ended 30 September 2017 payable on 2 February 2018 to shareholders who are on the register of members of the Company on 22 December 2017. 3. To approve the Directors’ Remuneration Report for the financial period ended 30 September 2017 as set out on pages 54 to 71 of the Company’s Annual Report and Financial Statements for that period (excluding the Directors’ Remuneration Policy set out on pages 55 to 62). 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 Darren Shapland as a Director of the Company. 7. To re-elect Claire Tiney as a Director of the Company. 8. To re-elect Andrew King as a Director of the Company. 9. To re-elect Keith Down as a Director of the Company. 10. To reappoint Deloitte LLP as the auditor of the Company to hold office from the conclusion of this Annual General Meeting until the conclusion of the next general meeting at which the Annual Report and Financial Statements are laid before the Company. 11. To authorise the Directors to determine the remuneration of the auditor. SPECIAL BUSINESS To consider and, if thought fit, to pass the resolutions set out below which, in the case of resolutions 12 and 16 will be proposed as Ordinary Resolutions and, in the case of resolutions 13, 14, 15 and 17, will be proposed as Special Resolutions: 12. THAT, in substitution for any equivalent authorities and powers granted to the Directors prior to the passing of this resolution, the Directors be and they are generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the “Act”): (a) to exercise all powers of the Company to allot shares in the Company, and grant rights to subscribe for or to convert any security into shares of the Company (such shares, and rights to subscribe for or to convert any security into shares of the Company being “relevant securities”) up to an aggregate nominal amount of £2,180,454 (such amount to be reduced by the nominal amount of any allotments or grants made under paragraph (b) below in excess of £2,180,454; and further: (b) to allot equity securities (as defined in section 560 of the Act) up to an aggregate nominal amount of £4,360,908 (such amount to be reduced by the nominal amount of any allotments or grants made under paragraph (a) above) in connection with an offer by way of rights issue: (i) in favour of holders of ordinary shares in the capital of the Company, where the equity securities respectively attributable to the interests of all such holders are proportionate (as nearly as practicable) to the respective number of ordinary shares in the capital of the Company held by them; and 25632.02 13 December 2017 11:33 AM Proof6 119 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notice of Annual General Meeting (ii) to holders of any other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with treasury shares, fractional entitlements or legal, regulatory or practical problems arising under the laws or requirements of any overseas territory or by virtue of shares being represented by depository receipts or the requirements of any regulatory body or stock exchange or any other matter whatsoever, provided that, unless previously revoked, varied or extended, this authority shall expire on the earlier of the date falling 15 months after the date of the passing of this resolution and the conclusion of the next Annual General Meeting of the Company, except that the Company may at any time before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such an offer or agreement as if this authority had not expired. 13. THAT, the Directors be and they are empowered to allot equity securities (as defined in section 560 of the Act) of the Company wholly for cash pursuant to the authority of the Directors under section 551 of the Act conferred by resolution 12 above (in accordance with section 570(1) of the Act) and/or by way of a sale of treasury shares (in accordance with section 573 of the Act), in each case as if section 561(1) of the Act did not apply to such allotment provided that the power conferred by this resolution shall be limited to: (a) the allotment of equity securities in connection with an offer of, or invitation to apply for, equity securities (but in the case of the authority granted under paragraph (b) of resolution 12, by way of a rights issue only): (i) in favour of holders of ordinary shares in the capital of the Company, where the equity securities respectively attributable to the interests of all such holders are proportionate (as nearly as practicable) to the respective number of ordinary shares in the capital of the Company held by them; and (ii) to holders of any other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with treasury shares, fractional entitlements or legal, regulatory or practical problems arising under the laws or requirements of any overseas territory or by virtue of shares being represented by depository receipts or the requirements of any regulatory body or stock exchange or any other matter whatsoever; and (b) the allotment, otherwise than pursuant to sub-paragraph (a) above, of equity securities up to an aggregate nominal value equal to £327,068; and unless previously revoked, varied or extended, this power shall expire on the earlier of the date falling 15 months after the date of the passing of this resolution and the conclusion of the next Annual General Meeting of the Company except that the Company may before the expiry of this power make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if this power had not expired. 14. THAT, in addition to the authorities and powers granted to the Directors pursuant to resolution 13, the Directors be and they are empowered to allot equity securities (as defined in section 560 of the Act) of the Company wholly for cash pursuant to the authority of the Directors under section 551 of the Act conferred by resolution 12 above (in accordance with section 570(1) of the Act) and/or by way of a sale of treasury shares (in accordance with section 573 of the Act), in each case as if section 561(1) of the Act did not apply to such allotment provided that the power conferred by this resolution shall be: (a) limited to the allotment of equity securities up to an aggregate nominal value equal to £327,068; and (b) used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Board of the Company determines to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice; and unless previously revoked, varied or extended, this power shall expire on the earlier of the date falling 15 months after the date of the passing of this resolution and the conclusion of the next Annual General Meeting of the Company except that the Company may before the expiry of this power make an offer or agreement which would or might require equity securities to be allotted or sold after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if this power had not expired. 120 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 ADDITIONAL INFORMATION NOTICE OF ANNUAL GENERAL MEETING 15. THAT, the Company be generally and unconditionally authorised for the purposes of section 701 of the Act to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 3.33p each in the capital of the Company (“Ordinary Shares”) provided that: (a) the maximum number of Ordinary Shares hereby authorised to be purchased is 19,643,729 (representing 10% 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 3.33p; (c) the maximum price, exclusive of any expenses, which may be paid for an Ordinary Share shall be an amount equal to 105% of the average of the middle market quotations for an Ordinary Share as 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; and this authority shall, unless previously renewed, revoked or varied, expire on the earlier of the date falling 15 months after the date of the passing of this resolution and the conclusion of the next Annual General Meeting, but the Company may enter into a contract for the purchase of Ordinary Shares before the expiry of this authority which would or might be completed (wholly or partly) after its expiry. 16. THAT: (a) the Topps Tiles 2018 Sharesave Scheme (the “Sharesave Scheme”) described in the circular of which the notice containing this resolution forms part and in the form produced at the meeting and initialled by the Chairman of the meeting for the purpose of identification, be and are hereby approved and adopted; and (b) the Directors of the Company be authorised to do all acts and things which they may consider appropriate to implement the Sharesave Scheme, including making any changes to the rules of the Sharesave Scheme necessary or desirable in order to ensure that the Directors can make a valid declaration to HM Revenue & Customs that the Sharesave Scheme satisfies the requirements of Schedule 3 to the Income Tax (Earning and Pensions) Act 2003 necessary as expedient for the purposes of implementing and giving effect to the same. 17. THAT, a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice. Dated: 20 December 2017 Registered Office: Thorpe Way Grove Park Enderby Leicestershire LE19 1SU Registered Number: 3213782 By order of the Board STUART DAVEY COMPANY SECRETARY 25632.02 13 December 2017 11:33 AM Proof6 121 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Notice of Annual General Meeting 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 close of business on 29 January 2018 or, in the event that the meeting is adjourned, close of business on such date being not more than two days prior to the date fixed for the adjourned meeting, shall be entitled to attend and 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 close of business on 29 January 2018 or, in the event that the meeting is adjourned, after two working days 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, Link Asset Services, 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 10.00 a.m. on 29 January 2018 (or, in the event that the meeting is adjourned, no later than two working days 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. 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 (the “Act”) to appoint a proxy does not apply to a person nominated to enjoy information rights under section 146 of the 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 6 December 2017, the Company’s issued share capital comprised 196,437,298 ordinary shares of 3.33p each. Each ordinary share carries the right to one vote at a general meeting of the Company. No ordinary shares were held in treasury but the Company’s employee benefit trust holds 3,468,517 ordinary shares to which it has waived its voting rights. Accordingly, the total number of voting rights in the Company as at the close of business on 6 December 2017 is 192,968,781. 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). 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. 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 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. 122 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 ADDITIONAL INFORMATION NOTICE OF ANNUAL GENERAL MEETING 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. 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 (as amended). 9. 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 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. 10. Link Asset Services maintain the Company’s share register. They also provide a telephone helpline service on 0871 664 0300 (calls cost 12p a minute plus network extras). Lines are open from 8.30 a.m. to 5.30 p.m., Monday to Friday. If you have any queries about voting or about your shareholding, please contact Link Asset Services. 11. Members have the right to ask questions at the meeting in accordance with section 319A of the Act. 12. It is possible that, pursuant to requests made by members of the Company under section 527 of the Act, the Company may be required to publish on a website a statement setting out any matter relating to: (a) the audit of the Company’s accounts (including the Auditor's Report and the conduct of the audit) that are to be laid before the meeting; or (b) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Act. The Company may not require the members requesting any such website publication to pay its expenses in complying with sections 527 or 528 of the Act. Where the Company is required to place a statement on a website under section 527 of the Act, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the meeting includes any statement that the Company has been required under section 527 of the Act to publish on a website. 13. 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 Act; (b) copies of the Directors’ service contracts and letters of appointment of the Non-Executive Directors; and (c) a copy of the Company’s Articles of Association. 14. Information regarding the meeting, including the information required by section 311A of the Act, is available from the Company’s website – www.toppstiles.co.uk. 25632.02 13 December 2017 11:33 AM Proof6 123 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017 Explanatory Notes to the Notice of Annual General Meeting THE ANNUAL GENERAL MEETING of the Company will be held at the Marriott Hotel, Smith Way, Grove Park, Enderby, Leicestershire, LE19 1SW on 31 January 2018 at 10.00 a.m. 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 the other resolutions: ORDINARY BUSINESS RESOLUTION 1 RECEIVING THE ACCOUNTS AND REPORTS All quoted companies are required by law to lay their annual accounts before a general meeting of the Company, together with the Directors’ reports and auditors’ report on the accounts. At the Annual General Meeting, the Directors will present these documents to the shareholders for the financial period ended 30 September 2017 (the “Annual Report and Financial Statements”). RESOLUTION 2 DECLARATION OF FINAL DIVIDEND A final dividend of 2.3 pence per Ordinary Share is recommended by the Directors for payment to shareholders on the register of members of the Company at 6.00 p.m. on 22 December 2017. Subject to approval by the Ordinary Shareholders at the Annual General Meeting, the dividend will be paid on 2 February 2018. An interim dividend of 1.10 pence was declared which means the total dividend level will 3.4 pence per Ordinary Share for the 52 weeks prior to 30 September 2017. RESOLUTION 3 DIRECTORS’ REMUNERATION REPORT All quoted companies are required by law to produce for each financial year a Directors’ remuneration report which sets out the Remuneration Committee’s policy in relation to Directors’ remuneration, together with the remuneration and benefits paid to Directors during the year. The Company is also required to put an ordinary resolution to shareholders approving the report at the meeting at which the Company’s report and accounts for that year are laid. Accordingly, resolution 3 seeks the approval of the Directors’ Remuneration Report which is set out on pages 54 to 71 of the Annual Report and Financial Statements (excluding the Directors’ Remuneration Policy). RESOLUTIONS 4 TO 9 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. Although not required by the Company’s Articles, the Directors will, in the interests of good corporate governance under the UK Corporate Governance Code, retire voluntarily and offer themselves for re-election. Brief biographical details about all the Directors appear on pages 44 and 45 of the Annual Report and Financial Statements. RESOLUTION 10 REAPPOINTMENT OF AUDITOR This resolution concerns the reappointment of Deloitte LLP as auditor until the conclusion of the next general meeting at which accounts are laid, that is, the next Annual General Meeting. RESOLUTION 11 AUDITOR'S REMUNERATION This resolution authorises the Directors to fix the auditor's remuneration. SPECIAL BUSINESS RESOLUTION 12 DIRECTORS’ POWER TO ALLOT SHARES This resolution complies with guidance issued by the Investment Association and will, if passed, authorise the Directors to allot: • relevant securities up to a maximum nominal amount of £2,180,454 which represents approximately one-third of the Company’s issued ordinary shares (excluding treasury shares) as at the date of this notice. This maximum is reduced by the nominal amount of any equity securities allotted under the authority set out in paragraph (b) of resolution 12 in excess of £2,180,454 ; and • in relation to a pre-emptive rights issue only, equity securities (as defined by section 560 of the Act) up to a maximum nominal amount of £4,360,908 which represents approximately two-thirds of the Company’s issued ordinary shares (excluding treasury shares) as at the date of this notice. This maximum is reduced by the nominal amount of any relevant securities allotted under the authority set out in paragraph (a) of resolution 12. Therefore, the maximum nominal amount of relevant securities (including equity securities) which may be allotted under this resolution is £4,360,908. As at the date of this notice, the Company does not have any treasury shares. 124 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION NOTICE OF ANNUAL GENERAL MEETING The Directors do not have any present intention of exercising the authorities conferred by this resolution but they consider it desirable that the specified amount of authorised but unissued share capital is available for issue so that they can more readily take advantage of possible opportunities. RESOLUTIONS 13 AND 14 DIRECTORS’ POWER TO ISSUE SHARES FOR CASH Resolution 13 authorises the Directors in certain circumstances to allot equity securities for cash other than in accordance with the statutory pre-emption rights (which require a company to offer all allotments for cash first to existing shareholders in proportion to their holdings). The relevant circumstances are where the allotment: • takes place in connection with a rights issue or other pre-emptive issue; • is limited to a maximum nominal amount of £327,068 representing approximately 5% of the nominal value of the issued ordinary share capital of the Company as at 6 December 2017 being the latest practicable date before publication of this notice. Resolution 14 authorises the Directors to allot further equity securities for cash in connection with acquisitions or other specified capital investments which are announced contemporaneously with the allotment, or which has taken place in the preceding six-month period and is disclosed in the announcement of the allotment. This authority, which is in addition to the authority granted to the Directors pursuant to resolution 13 and is being sought in accordance with the Pre-Emption Group’s Statement of Principles, is limited to a maximum nominal amount of £327,068 which represents approximately 5% of the nominal value of the issued ordinary share capital of the Company as at 6 December 2017 being the latest practicable date before publication of this notice. The Board confirms its intention to follow the provisions of the Pre-Emption Group’s Statement of Principles regarding cumulative usage of authorities within a rolling three-year period where the Principles provide that usage in excess of 7.5% of issued ordinary share capital of the Company (excluding treasury shares) should not take place without prior consultation with shareholders, except in connection with an acquisition or specified capital investment as referred to above. TREASURY SHARES The Company may hold any shares it buys back “in treasury” and then sell them at a later date for cash rather than simply cancelling them. Any such sales are required to be made on a pre-emptive, pro rata basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued ordinary shares on a non pre-emptive basis, resolutions 13 and 14 will also give Directors power to sell ordinary shares held in treasury on a non- pre-emptive basis, subject always to the limitations noted above. As at the date of this notice, the Company does not have any treasury shares. The Directors consider that the power proposed to be granted by resolutions 13 and 14 is necessary to retain flexibility, although they do not have any intention at the present time of exercising such power. Unless revoked, varied or extended, the authorities conferred by resolutions 13 and 14 will expire at the conclusion of the next annual general meeting of the Company or 15 months after the passing of the resolution, whichever is the earlier. RESOLUTION 15 AUTHORITY TO PURCHASE SHARES (MARKET PURCHASES) This resolution authorises the Board to make market purchases of up to 19,643,729 ordinary shares (representing approximately 10% of the Company’s issued ordinary shares as at 6 December 2017, being the latest practicable date before publication of this notice). Shares so purchased may be cancelled or held as treasury shares. The authority will expire at the end of the next annual general meeting of the Company or 15 months from the passing of the resolution, whichever is the earlier. The Directors intend to seek renewal of this authority at subsequent annual general meetings. The minimum price that can be paid for an ordinary share is 3.33p, being the nominal value of an ordinary share. The maximum price that can be paid is 5% over the average of the middle market prices for an ordinary share, derived from the Daily Official List of the London Stock Exchange, for the five business days immediately before the day on which the share is contracted to be purchased. The Directors intend to exercise this right only when, in light of the market conditions prevailing at the time and taking into account all relevant factors (for example, the effect on earnings per share), they believe that such purchases are in the best interests of the Company and shareholders generally. The overall position of the Company will be taken into account before deciding upon this course of action. The decision as to whether any such shares bought back will be cancelled or held in treasury will be made by the Directors on the same basis at the time of the purchase. As at 6 December 2017, being the latest practicable date before publication of this notice, there were outstanding awards under the Company’s various share option schemes in respect of 12,081,196 ordinary shares in the capital of the Company, representing 6.2% of the Company’s issued ordinary share capital. If the authority to purchase the Company’s ordinary shares were exercised in full, the number of outstanding options would represent 6.8% of the Company’s issued ordinary share capital following the repurchase of shares. 25632.02 13 December 2017 11:33 AM Proof6 125 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Explanatory Notes to the Notice of Annual General Meeting RESOLUTION 16 APPROVAL AND ADOPTION OF THE TOPPS TILES 2018 SHARESAVE SCHEME It is proposed that the Company adopt the Topps Tiles 2018 Sharesave Scheme (the “Sharesave Scheme”). The Sharesave Scheme replaces the Company’s existing sharesave scheme that will expire in the next few years (“Old Scheme”). No new options will be granted under the Old Scheme after the date of the Annual General Meeting, provided shareholder approval is obtained for the Sharesave Scheme. The principal terms of the Sharesave Scheme are set out in the Appendix to this document on pages 129 and 130. The rules of the Sharesave Scheme will be available for inspection during normal business hours on Monday to Friday (excluding bank holidays) at the Company’s registered office and at the offices of Osborne Clarke LLP at One London Wall, London, EC2Y 5EB from the date of this document until the close of the AGM and at the place of the AGM for at least 15 minutes before the AGM and during the AGM. RESOLUTION 17 NOTICE PERIOD FOR GENERAL MEETINGS The Companies (Shareholders’ Rights) Regulations 2009 require the Company to call general meetings (other than annual general meetings) on at least 21 clear days’ notice unless shareholders approve a shorter notice period of not less than 14 clear days. Such approval was granted at last year’s annual general meeting and this resolution therefore seeks to renew this approval. The approval will be effective until the Company’s next annual general meeting, at which it is intended a similar resolution will be proposed. The Directors’ intention is to only call general meetings on less than 21 days’ notice where such shorter notice period would be in the interests of shareholders as a whole. 126 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION NOTICE OF ANNUAL GENERAL MEETING Summary of the principal features of the Topps Tiles 2018 Sharesave Scheme (“Sharesave Scheme”) GENERAL The Sharesave Scheme is a savings related share option scheme designed to take advantage of the tax beneficial status of savings related share option schemes which comply with Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003 (“Schedule 3”). The Sharesave Scheme will be administered by the Board of Directors of the Company (the “Board”) or a duly authorised committee of the Board. ELIGIBILITY All UK employees and full-time Directors of the Company and participating companies within the Group are eligible to participate in the Sharesave Scheme. It is intended that invitations to apply for options over Shares in the Company (“Options”) under the Sharesave Scheme will be made to all eligible employees and full-time Directors who are employed by the Company and participating companies within the Group on the date invitations under the SAYE are issued. The Board will determine the basis upon which any invitations to apply for Options are made. SAVINGS CONTRACT To participate in the Sharesave Scheme, an eligible employee must enter in a save-as-you-earn contract (“Savings Contract”) with the savings body designated by the Board, agreeing to make monthly contributions of between £5 and £500 of a specified savings period of three or five years. The Board has discretion to determine which of the Savings Contracts will be available in respect of any invitation to apply for Options. A bonus determined by HM Revenue & Customs (“HMRC”) is payable after the expiration of the savings period. Applications to participate in the Sharesave Scheme may be scaled down by the Board if applications exceed the number of Shares available for the grant of Options. Such scaling down may include: • the exclusion of bonuses; • reducing monthly contributions above a certain level pro rata: • reducing monthly contributions for each eligible employee pro rata; or • treating elections for five-year Savings Contracts as elections for three-year Savings Contracts. OPTION PRICE The Option price for each ordinary share in respect of which an Option is granted shall not be less than the greater of: • 80% of the average middle-market quotation as derived from the London Stock Exchange Daily Official List for the dealing day prior to the date of grant; and • the nominal value of the Shares. ISSUE OF INVITATIONS Invitations to apply for Options may only be issued within the period of 42 days following the approval of the Sharesave Scheme by the Company’s shareholders, the announcement of the Company’s results for any period, from any day on which changes to the legislation or regulations affecting save-as-you-earn schemes under Schedule 3 are announced, effected or made or any day on which the Board determines that exceptional circumstances exist. If, during such period, the Company is restricted from issuing invitations, invitations may be made immediately following such restrictions ceasing to apply. GRANT OF OPTIONS The number of Shares over which Options may be granted must, as nearly as possible, be equal to, but not in excess of that number of Shares which may be purchased out of the repayment proceeds (including any interest or bonus payable) of the relevant Savings Contract at the Option price. Options under the Sharesave Scheme may only be granted within the period of 30 days following the date on which the Option price is determined. TERMS OF OPTIONS Options may be granted over newly issued Shares, treasury Shares or Shares purchased in the market. Options are not transferable (other than on death). No payment will be required from participants for the grant of any Options. 25632.02 13 December 2017 11:33 AM Proof6 127 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Summary of the principal features of the Topps Tiles 2018 Sharesave Scheme (“Sharesave Scheme”) LIMITS ON THE ISSUE OF SHARES The number of Shares which may be issued or issuable pursuant to rights granted in any 10-year period under the Sharesave Scheme and under any other employees’ share plan adopted by the Company may not exceed 10% of the issued ordinary share capital of the Company from time to time. Treasury Shares will be treated as newly issued for the purpose of these limits until such time as guidelines published by institutional investor representative bodies determine otherwise. The above limits may be varied by the Board to take into account any variation in the Company’s share capital from time to time. EXERCISE OF OPTIONS Options will only normally be exercisable for a period of six months commencing on the third or fifth anniversary (as the case may be) of the starting date of the related Savings Contract and, if not exercised by the end of that period, the Option will lapse. Earlier exercise may however be permitted in specified circumstances including: • termination of employment as a result of death, injury, disability, redundancy, retirement or the sale of the subsidiary or business for which the participant works; and • in the event of a takeover or liquidation of the Company. CORPORATE EVENTS In the event of a takeover, reconstruction or winding up of the Company, Options may be exercised within six months of the change of control. Alternatively, Options may be exchanged for new equivalent Options over shares in the acquiring company where appropriate. RIGHTS ATTACHING TO SHARES All Shares issued or transferred under the Sharesave Scheme will rank pari passu with all other Shares of the Company for the time being in issue (save as regards any rights attaching to such Shares by reference to a record date prior to the date of issue or transfer to the participant). ADJUSTMENTS In the event of any rights of capitalisation issue, sub-division, consolidation, reduction or other variation of the ordinary share capital, the Board may make such adjustments as it considers appropriate to the number of Shares subject to Options and/or the price payable on the exercise of options. AMENDMENTS AND TERMINATION The Board may amend the Sharesave Scheme at any time, provided that prior approval of the Company’s shareholders in a general meeting will be required for amendments to the advantage of employees relating to eligibility, limits, the basis for determining a participant’s entitlement to, and the terms of, the Shares comprised in an award and the impact of any variation of capital. However, any minor amendment to benefit administration, or any amendment to take account of legislative changes, or to obtain or maintain favourable tax, exchange control or regulatory treatment in any jurisdiction, may be made by the Board without shareholder approval. No further awards may be made under the Sharesave Scheme on or after the tenth anniversary of the approval by shareholders of the Sharesave Scheme but the rights of existing participants will not be affected by any termination. PENSION BENEFITS Benefits under the Sharesave Scheme are non-pensionable. 128 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Summary of the principal features of the Topps Tiles The Team 2018 Sharesave Scheme (“Sharesave Scheme”) ADDITIONAL INFORMATION NOTICE OF ANNUAL GENERAL MEETING THE TEAM A Aaron Turner Aaron Lonie Aaron Barber Abby Tween Abdul Rouf Abigail Cole Adam Nuttall Adam Ward Adam Crowe Adam Shearsmith Adam Clarke Adam Chapman Adam Godfrey Adam Cato Adam Gilkes Adam Groves Adam Gaymer Adam Thomson Adam Hunt Adam Devine Adam Rodriguez Adam Cox Adam Cherryman Adam Jolly Adel Tazi Adel Benyoucef Adele McMahon Adrian Kimber Afrim Mensah Akash Bisht Akinyemi Orekoya Akshey Vadgama Alan Saunders Alan Smalley Alan Wrighting Alan Sinclair Alan Sproston Alan Haji Alan Clague Aleksandar Tsvetanov Aleksandrs Gulenkovs Alessandro Margrove-Gomes Alex Whitmore Alex Abram Alex Moore Alex Bell Alex Bennet Alexander Onions Alexander Armstrong Alexander Findley Alexander Torres Alexander Williams Alexander Bradley Alexander Walton Alexander Ford Alexander Gaffney Alexander Marks Alexander Miles Alexandra Tuckley Alexandru Cimpanu Alfie Lawes-Smith Ali Rizvi Alicija Romanovska Alisha Millward Alison Hunt Allan Harper Allan Busby Allysha Byrne Alnavaz Nuralah Amanda Hullett Amanda Green Amanda Brogan Amanda Plumb Amanda Lyon Amardeep Sanghera Amarpreet Bhaker Amy Smith Amy Wirtz Amy Biggs Amy Buttle Ananthan Sivanesan Andre Osei Andrea Moon Andrei Radu Andrew Clay Andrew Collins Andrew Warne Andrew Davis Andrew Young Andrew Middleton Andrew Cox Andrew Waterfield Andrew Hanson Andrew Riley Andrew Playfoot Andrew Woods Andrew Winterburn Andrew Shaw Andrew King Andrew Sharkey Andrew Scorgie Andrew Wathan Andrew Taylor Andrew Baldock Andrew Sansum Andrew Wilkinson Andrew Brand Andrew Gilmour Andrew Haynes Andrew Woodier Andrew Bond Andrew Oliver Aneil Easow Aneta Kleczek Angela Capp Angela Toseland Angela George Angelika Zapert Anna Moulding Anna Holds Annalise Jackson Anna-Marie Tough Annelise Sjursen Annie Dickson Annmarie Malone Anthony Linsell Anthony Molyneux Anthony Christopher Anthony Gibby Anthony Davies Anthony Gilbert Anthony Dedman Anthony Daly Anthony Docherty Anthony Havvas Anthony Tarr Anthony Dolan Anthony Connor Anthony Hollick Anthony Lyth Anthony Dunsmore Antoni Maiello Antonia Hughes Antony Belham Anub Varghese Anwar Marshall Aron Hoff Arthur Van Aswegen Aruna Mistry Ashley Cutler Ashley Martin Ashley Hegarty Ashley Mansfield Ashley Murray Ashley Kiffin Ashley Somerville Ashley Hookway Asteraya Engdayehu Astone Davids Atul Patel Audrius Kolojanskas Augustine Chinenye Augustus Hagan Aurimas Lenkauskas B Barbara Connor Barbara Smith Barri Barnes Barry Jones Barry Theobald 25632.02 13 December 2017 11:33 AM Proof6 129 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017The Team Barry Beaver Barry Hanlon Barry Stratford Bartosz Pawelczyk Beatrice Welmer Ben Holloway Ben Bright Ben Armitage Ben Howard Ben Richmond Ben Barraclough Ben Berrisford Benjamin Rich Benjamin Rowe Benjamin Goodey Benjamin Moughan Benjamin Wood Benjamin Slater Benjamin Edwards Benjamin Hale Benjamin Hannon Berek K-Caeser Bethany Richardson Bethany Green Beverley Orton Beverley Begley Bianca Gradinaru Bianca Cockburn Billie Stringer Billy Taylor Billy Stout Blair Ross Bolaji Adeyanju Bonita Flinthill Bradley Favre Bradley Ball Brandon Abels Brendan Flynn Brendan McCallum Brett Goulden Brett O’Harrow Brett Hookway Brian Cariello Brian Cox Brian Cook Brian Linnington Brian Morris Bruce Fielding Bruce Garrod Bruno Bernasconi Bryan Taylor Byron Tree C Cade Somerville Caitlin Pipes Calbert Hall Callum Beedles 130 Callum Scott Callum Phillips Callum Evans Callum Jones Callum Ford Calum Hamilton Campbell Marr Cara Harrison Carl Whatley Carl Cumberbatch Carl Fraser Carl Courtney Carl Hermitt Carl Willshee Carl Sheldon Carl Bird Carla Creary Carley Brown Carlo Nastro Carlos Chowdhury Carlos Alford Maestre Carlyn McKechnie Carol Beattie Caroline May Caroline Bailey Caroline Vernon-Sutton Caroline Bray Carolyn Paull Carolynn Remington-Hobbs Catherine Britton Catherine Doulton Catriona Green Chamyse Morley Chanel Sanganoo Chantal Searle Charjuan Knight Charlene Walpole Charlene Smith Charles Taylor Charles Robbins Charles Roussard Charles Snell Charles Rollins Charles Wafula Charles Hallgalley Charles Davis-Alexis Charlie Green Charlie Dee Charlotte Lammin Charlotte Fitzgerald Charlotte Kenny Chelsea Cragg Chelsea Battle Chelsey Blow Cherie Ahmet Cheryl Vearncombe Chetna Shah Chloe Singleton Chloe Jackson Chloe Boyce Choudre Grobler Chris Foster Chris Darley Chris Mcquade Christain McCarthy Christelle Armstrong Christian Banham Christian Olaru Christine Hendry Christine Thistlethwaite Christine Taylor Christine Berry Christopher Cooper Christopher Turley Christopher Heyes Christopher Collins Christopher Harbutt Christopher Howe Christopher Curtis Christopher Williamson Christopher Bailey Christopher Sansby Christopher Nottle Christopher Holland Christopher Nicholls Christopher Beeson Christopher Cooper Christopher Potter Christopher Bowden Christopher Leach Christopher Butler Christopher Wells Christopher Simpson Christopher Perry Christopher D’Arts Christopher Edwards Christopher France Christopher Moore Christopher Maguire Christopher Bodicoat Christopher Miskelly Christopher Bentley Christopher Harrison Christopher Samuel Christopher Johnson Christopher Birch Christopher Senior Cieran Armstrong Clair Jeffries Claire Chaffe Claire Rayton Claire Tiney Claire Harris Claire Lees 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION THE TEAM Clare Barden Clare Shepherd Clare Cohring Clare Sharpe Clare Kash Cliff Mackay Clifford Tomlinson Clive Lehman Clive Harlow Colin Markham Colin Hoban Colin Rymer Colin Taylor Colin Skinner Colin Harvey Colin Griffiths Colin Hayward Colin Clarke Connor Saunders Connor Flynn Conrad Harrup Conrad Cassidy Constantin Pavelescu Cora Morrison Cory Handford Cosimo Lanzafame Cosmin Zaharia Craig Reed Craig Dolling Craig Murphy Craig Connor Craig Johnson Craig Jones Craig Matthews Cristian Ionescu Cristina Cole Czeslaw Majorek D Daisy-May Utley Damian Merritt Damiano Seresini Damiean Godfrey Damien Mole Dan Bevan Dane Pearson-Mcgloin Daniel Musguin Daniel Fallows Daniel Jones Daniel Little Daniel Wren Daniel McLean Daniel Cox Daniel Thornley Daniel Brain Daniel Saltmarsh Daniel Sheppard-Brown Daniel Willows Daniel Neary Daniel Wright Daniel Chambers Daniel Milner Daniel Poile Daniel Jones Daniel Caruana Daniel Lawrie Daniel Jenkins Daniel Ashby Daniel Grunwell Daniel Colk Daniel Priest Daniel Edge Daniel Hawkins Daniel Gelly Daniel Calderwood Daniel Cheyne Daniel Thompson Daniel Pratt Daniel Reynolds Daniel Fairless Daniel Cross Danielle Noyes Danielle Omara Danielle Kirby Dannielle Carlton Danny Burgess Danny Ostler Danny McInnes Danny Wilson Darius Bright Darius Moses Darran Wood Darren Square Darren Harper Darren Morgan Darren Doughty Darren Mitchell Darren Wagg Darren Chester Darren Mencarini Darren Sherwood Darren Shapland Darren Jones Darren Horne Darren Smith Darren Dance Darren Young Darren Phillips Darron Kerr Darron Soos Darryl Ferry Dave Elliott Dave Plant David Thomasson David Carpenter David Hirst David Henderson David Oliver David Macartney David Stott David Harper David Steel David Kettlewell David Wilson David Murray David Smith David Matthews David Hatton David Hill David Jobling David Townsley David Augustus David Meers David Prime David Yallop David Webb David Lane David Whitelaw David Sheehy David Kershaw David Hope David Shewan David Miller David Knight David Coupland David Thompson David Palmer David Clare David Hussey David Webb David Rendall David Beasley David Simms David Fletcher David Longman David Sinclair David Medlam David Hamer David Blackhurst David Clark David Callaghan David Needham David Green David Cressey David Fisher David Furness David Hillier-Reynolds David Diaper David Houston David Jackson David Tulett Dawn Gale Curtis 25632.02 13 December 2017 11:33 AM Proof6 131 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017The Team Dayne Ashard Dean Marshall Dean Woolley Dean Titchen Dean Newell Dean Partridge Dean Kay Dean Walker Deane Rhone Deanna Mcmahon Deborah Fitzpatrick Debra Bandghiree Declan Baker Decland Speede Deena Mistry Deesha Bhatt Denis O’Brien Denise Chalmers Dennis Jovellanos Dennis Rawding Denzil Johns Derek Sim Derek Amoo Dermott Reilly Devias Gudka Devindren Govender Dewi Evans Dilawar Ali Dilip Parmar Dipal Parikh Dominic Reilly Dominic Hall Dominic D’Souza Dominic Gray Dominic Godwin Donald Magullian Donald Benson Donald Morrissey Donna Douglas Donna Murphy Donna Mumford Donovan Robinson Dorothy Stewart Douglas Nicol Douglas Bingham Douglas Gracia Duncan Mayman Dwain Mensah Dylan Roberts Dylan Bradley E Eamonn Clancy Edgar Calderon Ramirez Edwin James Eirini Messaritaki Elionardo Silva Eliza Sobocinska 132 Elizabeth Lee Elizabeth Sutton Ellen Hilton Ellie Howcroft Elliot Gibbons Elliott Brown Elliott Davis Elliott Sully Elsie Bird Emile Puica Emily Lenton Emily Mansell Emily Madge Emily Tuttlebury Emily Sneller Emma Childs Emma Dudley Emma Spellacey-Perry Emma Hilton Emma Jordan Emma Stearman Emma Gotch Emma Anderson Emmanuel Melford-Rowe Emmanuel Adeniyi Emran Mannan Eric Asuming Ermiyas Girma Erwan Vauconsant Esme Sparrow Ezra Deans F Fadel Wane Faisle Sharif Faizar Ali Fayzur Rahman Felicity Fletcher Felipe West Fiona Oakes Fitz Martin Fouche Lubbe Frances Aylward Francesca Wright Frank Hibbert Frank Smith Fred Therme G Gabriel Iacob Gabriela Olszowska Gabriella Carvalho Gail Knight Gareth Davies Gareth Fogden Garry Hardy Garry Crichton Gary Ashdown Gary Marshall Gary Bloomfield Gary Gear Gary Curtis Gary Woolmore Gary Gledhill Gary Roberts Gary Nash Gary Gledhill Gary Davies Gary Gee Gary Purves Gary Heath Gary Mayo Gavin Bennett Gavin Collins Gavin Magwood Gavin Winter Gavin Coulthread Geeta Makwana Gemma Stephens Gemma Farnan Gemma Wademan Gemma McKinley Genya Hutchins Geoffrey Greenwood Geoffrey Thomas Geordie Stock George Birkley George Astill George Allen George Hopper George Buckley George Wetherden George Henri Diakileke Georgia Clayton Georgia Miles Georgina McFarlane Geraint Thorne Gillian Grace Glendale Canoville Glenn Elgy Glenn Smith Gloria Kusi Gokhan Karadogan Gordon Shennan Graeme Morris Graham Jones Graham Vance Graham Cooper Graham Livingstone Graham Foster Graham Hitchin Graham Hancock Graham Gasson Graham Mansfield Grant Harris Graziana Motta 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Greg Johnstone Gregory McHugh Gregory Smith Gregory Jeffs Grenville Davies Gurinder Chana H Hannah Pritchard Hanz Nelson Haroon Cockar Haroon Younus Harriet Goodacre Harry Biggs Harry Kay Harry Foster Hasmita Parmar Hayden Mason Hayley Lomas Hazel Millington Heather Findler Helen Hughes Helen Gosling Helen Walker Helen Washington Henry Povey Himesh Hirani Hitashji Odedra Holly Baxter Holly Dawson Holly Vincent Hossen Naudeer I Iain Arnott Ian Marshall Ian Bloomfield Ian Sykes Ian Noon Ian Paterson Ian Marshall Ian Aikman Ian McNeish Ian Tivendale Ian Hughes Ian Snook Ian Croton Ian Gilliver Ibrahim Ali Ilars Skabeikis Inzamam Akram Iqra Iqbal Ivan Paitoo J Jaasir Wazir Jacek Zebrowski Jacek Skubisz Jack O’Neill Jack Maddison ADDITIONAL INFORMATION THE TEAM Jack Whitehead Jack Coker Jack Walker Jack Finlay Jack Relfe Jack Haynes Jack Millman Jack Allardyce Jack Flannigan Jack Thompson Jack Ellis Jack Sell Jack Malcolm Jack Cashin Jack Bennett Jacob Allan Jacob Benneyworth Jacqueline Desborough-Morehead Jacqueline Farnan Jacqueline Goss Jacqueline Bolger Jacqueline Dadge Jade Girgensons Jade Berry Jahtal Nisa Roberts-Joseph Jailuene Witterick Peake Jake Woods Jake Shopland Jake Boult James Patston James Robertson James Cameron James Tuvey James Morgan James Pilfold James Biesty James Heard James Rolfe James Fox James Taylor James Clifford James Saunders James Worden James Walker James Hollis James Snuggs James Carpenter James Pannett James Brophy James Beaumont James MacCallum James Hawker James Howard James Beasley James Cheung James Fox James White James Smith Jamie Wenborn Jamie Sia Jamie Evans Jamie Rose Jamie Mears Jamie Ormrod Jamie Kelly Jamie Broadhurst Jamie Kane Jamie Wilson Jamie Kirk Jamie Lee McCann Jamye Walker Jan Reddi Janaka Alahapperuma Jane Sinclair Janet Riley Janet Lee Janine James Jarreth Hawkins Jasbir Singh Jason Pratt Jason Knox Jason Rose Jason Darcy Jason Ealden Jason Coupland Jason Gallagher Jason Barker Jason Wilcox Jason Durham Jason Thompson Jason Akiens Jaspreet Sandhu Javeed Parkar Jay Strawford Jay Billings Jayaprakash Paragjee Jayne Warlow Jayne Young Jazmine Barwe Jeannette Hastie Jed O’Neill Jedrzej Politowski Jeff Arscott Jeffrey Armstrong Jelena Koseleva Jemma Copp Jennie Kane Jennifer Seabrook Jennifer Wall Jennifer Thompson Jennifer Gregory Jenny Inkson Jeremy Napthine Jerry Opata 25632.02 13 December 2017 11:33 AM Proof6 133 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017The Team Jessica McCarthy Jessica Rowlands Jessica Thiari Jessica Gurski Joanna Kowalska Joanne Elton Joanne Cox Joanne Harris Jodie Jones Joe Smith Joe Mathews Joe Rudd Joe Raynsford Joel Barker Joel Fothergill Jogendra Kalicharan John Smith John Thompson John Moat John Harris John Page John Cook John Fawkes John Shaw John Hughes John McLaren John Gardner John Bourke John Hickey John Taylor John Ellis John Hesp John Harrison John Murphy John Field John Conley John Scerri John Hennessy John Monks John McDermott John Coogan Johnathan McCallum Jon Thatcher Jon Reynolds Jon Davis Jon Cottrell Jonathan Hargreaves Jonathan Hall Jonathan Williams Jonathan Woodroff Jonathan Morgan Jonathan Wallace Jonathan Coombs Jonathan Boxall Jonathan Stone Jonathan Stearman Jonathan Roberts 134 Jonathan East Jonathan Impey Jonathan Kirk Jonathon Turner Jon-Paul Hughes Jordan Macdonald Jordan Lindsay Jordan Stephens Jordan Vinluan Jordan Bannister Jordan Huston Jordan Wheatley Josef Kinski Joseph Cox Joseph Gregorace Joseph Sweeney Joseph Daly Joseph Whittaker Joseph Lewis Joseph Heath Joseph Haynes Joseph Morton Joseph Reed Josephina Lane Joshua Rapley Joshua Batterham Joshua Wright Joshua Lambert Joshua Elliott Joshua Paton-Rolls Joshua Jackson Joshua Stenhouse Joshua Brown Joshua Higgs Joshua Darby Joshua Hubbard Joshua Hughes Joshua Dunford Joshua Hastings Joshua Mangos Joshua McCarthy Joshua Sanders Josie Colehan Judith Duncan Juginder Gill Julia Kerr Julian Myles Julie Cox Julie Fewings Julie Brachtvogel Julie Mitchell Julie Bird Jullah Jabbi Juris Kalnins Justin Evans Justin Korankye-Addai Justin Marlow Justin Coyle Justine Bowman Juttinder Digpal Jyoti Kaur K Kaitlin Varnam Kajetan Marcinek Kamaljit Atkar Kamaljit Thandi Kamil Janas Kamil Green Kamlesh Shah Kamran Sarfraz Karen Dodds Karen Leimetter Karis Hall Karl Stephens Karl Verry Karl Turner-Talmage Karl Aran Karl Lippiatt Karl White Karl English Karl Mullaney Karleigh Stokes Kashan Riley Kastriot Kelani Katarzyna Roberts Kate O’Connor Kate Flitton Katherine Jackson Katherine Blitz Kathryn Baird Kathryn Pell Kathryn Finch Kathryn Van-Kleef Katie Brindley-Hughes Katie Lunn Katy Todd Kaylah Sutherland Kayleigh Clemson Kayleigh Barnes Kayley Coldham Kazi Miah Keiron Ball Keith Rudkin Keith Ambrose Keith Fitzpatrick Keith Down Keith Alexander Kelly Savile Kelly Weyman Kelly Dalby Kelly-Anne O’Connor Kenneth Owen Kenneth Westley Kenneth Ostler 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION THE TEAM Kerri Atkinson Kerry Hurst Kerry Ann Crofts Kerry-Ann Smith Kevan Richardson Kevin Baker Kevin Thorne Kevin Bowtle Kevin Fox Kevin Hailes Kevin Nicol Kevin Rowe Kevin Hodson Kevin Hartley Kevin Hardy Kevin Atherton Kevin Smith Kevin Redmond Kevin Bingham Kevin Hastings Khai Shaw Khan Khan Kiaran Wingham Kie Mitchell Kiera Jago Kieran Barnes-Warden Kieran Gardiner Kieran Corben Kieran Hudson Kieran Thomas Kieran Hansard Kieran Fleet Kieron Clarke Kim Liddle Kim Moriarty Kim Mendonca Kirandeep Kaur Kirk Irvine Kirsten Cummings Kirsten Wilby Kirstie Leonard Kirstie Mcdowell Kirsty Davies Kirsty Rice Kirsty Graham Kirti Patel Kranthi Billakanti Kristian Catterall Kristian Prosser Kristopher Brough-Rutland Krystle Milan Krzysztof Burdajewicz Kuldeep Singh Kuljit Aujla Kunal Pandya Kye Harman Kyle Hardie Kyle Welford Kyle Batley Kyle Manns-Kennedy Kyle Crichton Kyle Markland Kyle Crubaugh L Lance Cale Laura James Laura Racey Laura Henry Laura Horton Laura Sansom Laura Webb Laura Madigan Laura Cox Laura Lloyd Laura Wilson Lauren Holmes Lauren Bartram Lauren Duddridge Lauren Richmond Laurence Jones Laurence Pendrill Layla Pring Leah Humphries Leanne Palmer Leanne Curry Leanne Clarke Lee Dover Lee Jacovou Lee Galloway Lee Baxter Lee James Lee Hutchinson Lee Read Lee Clarke Lee McConnell Lee Dering Lee West Lee Gibson Lee Carlos Lee Cash Lee Kent Lee Cornford Lee Wilkinson Lee Eagling Lee Gleeson Lee Armstrong Lee Harris Lee Trim Lee Gladman Lee Emery Lee Worrad Leendert Van Den Berg-Slowey Leighton Davies Leon Pryce Leon Das Leona Parker Leonora Moses Lesley Watson Lesley Willcox Lewis Walter Lewis Adkins Lewis Collins Lewis Williams Lewis Crossley Lewis Allan Lewis Elkin Lewis Buckley Lewis Hill Lewis Gale Leyton Bellamy Leza McDonald Liam Hunt Liam Piper Liam Bantin Liam Hogan Liam Ball Liam Ellis Liam Jiggins Liam Childs Lianne Harrison Libby Field Lili Harris Linda Shaw Linda Herbert Lindsay Bond Lindsey Flint Lisa Holmes Lisa Algar Lisa Cullen Lisa Noel Lisa Callan Lisa Johnson Lloyd Jackson Lois Short Lola Halligan Lorraine Burton Lorraine Martin Louarna Bullock Loucas Louca Louise Jeffery Louise Roots Louise Grainger Lucy Mcgennity-Bane Lukaszl Pirga Luke McNally Luke Kerr Luke Potiphar-Trigwell Luke Livermore Luke Day Luke Saunders Luke Woodward 25632.02 13 December 2017 11:33 AM Proof6 135 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017The Team Luke Barefield Luke Carson Luke Statters Luke Watson Lyndsey Kell Lynn Dignan Lynne Meldrum Lynne Reynolds Lynsey Smart M Maciej Rabczewski Maciej Krzyzaniak Mahbub Kabir Mahesh Wara Mahomad Zubair Saiyed Malcolm Ferguson-Thomas Mandy Aidney Mansoor Ali Marc Law Marcin Kupczyk Marcos Loureda Marcus Wolthers Marek Kloda Margaret Lawrie Maria Thompson Maria Drozdova Mark Lever Mark Gasson Mark Hunter Mark Wright Mark Waldock Mark Maciver Mark Frisby Mark Palmer Mark Vaughan Mark Brown Mark Johnston Mark Bianchi Mark Tennant Mark Coe Mark Stephens Mark Fuller Mark Winder Mark Burgess Mark Pancott Mark Allman Mark Keymer Mark Braithwaite Mark Winger Mark Tilley Mark Holland Mark Whitaker Mark Ridley Mark Davies Mark Wordley Mark Woodyatt Mark Penfold 136 Mark Brown Mark Percival Mark Owen Mark Rogers Mark Sloan Mark Elliott Mark West Mark Williams Marta Seabra Martha Karczewska Martin Smyth Martin Winterburn Martin Derricott Martin Wys Martin Osborne Martin Williams Martin Williams Martin Pickard Martin Turner Martina Way Martyn Spring Martyn Somerville Martyn Costen Martyn Lovell Mary Syme Mathanaan Yogananthan Mathew Tapp Mathew Lampard Mathew Clifton Mathew Buckett Matt Attwood Matthew Williams Matthew Foster Matthew Wright Matthew Foulger Matthew Robinson Matthew Moore Matthew Fisher Matthew Hawley Matthew Wesson Matthew Woodhouse Matthew Dunne Matthew Whitlock Matthew Stevenson Matthew Nash Matthew Martin Matthew Jones Matthew Ingram Matthew Williams Matthew Lindsay Matthew Stewart Matthew Cooper Matthew Johnson Matthew Ellis Matthew Clarke Matthew Haynes Matthew Penn Matthew Illing Matthew Martindale Matthew Miller Matthew Mc Manus Matthew Swain Matthew Rowson Matthew Barcas Matthew Holland Matthew Holland Mattia Tosi Maureen Mcgrattan Max Evans Megan Broadway Megan Lyons Mehmet Asdoyuran Melanie Gray Melanie Toole Melanie Abbott Melanie Hart Melissa Wadman Melton Thompson Melvyn Chamberlain Mervyn Thorne Mhairi Wade Mica Gray Michael Boughton Michael Finn Michael Earls Michael Hall Michael Foley Michael Fannon Michael Haggett Michael Lovelock Michael Hopper Michael Darroch Michael Lay Michael Weeks Michael Buckley Michael Huskisson Michael Litster Michael Van Sittert Michael Dinter Michael Upton Michael Moss Michael Quinn Michael Edwards Michael McGarry Michael Congdon Michael McNally Michael Goodfield Michael Dinnage Michael Chapman Michael Sear Michael Raeburn Michael Smillie Michael Gee Michael Angelides 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION THE TEAM Michael Evans Michael Bramble Michael Ohare Michael Pearson Michael Swanston Michael Howes Michael Rosewall Michael Wright Michael Way Michaela Thomas Michele Trickett Michelle Hill Risley Michelle Le Monnier Michelle Moore Michelle Coote Mick Wells Mihaela Duta Mike Booth Miles Burden Millie Gregory Millie Jones Mkhonto Gumede Mohamed Patel Mohamed Mufallal Mohamed Weheliye Mohammad Mukhtar Mohammed Amin Mohammed Jamil Mohammed Jimale Mohammed Khalid Mohammed Hoque Mohammed Ali Mohammed Ibad Khan Mohummed Numaan Zaffer Molly Throup Morva Leslie Mr Topps (Retired) Mubashir Uddin Murdo Martin Musaver Hussain Myles Byfield N Naomi McKenzie Narinder Chatha Nasir Hussain Natalie McCuaig-Finlay Natalie Paine Natalie Ratsavong Natasha McLeod Nathan Coulthard Nathan Austin Nathan Winterton Nathan Wilson Nathan Cavanagh Nathan Petts Nathan George Nathan Watson Nauris Vinkelis Nayim Ahmed Neely Stuart Neha Shah Neil Homan Neil Williams Neil Southgate Neil Topping Neil Wardlaw Neil Jones Neil Brownley Neil Ammon Neil Roessner Neil Muckle Neil Jeremy Neil Forbes Nicholas Withers Nicholas Lodge Nicholas Gadd Nicholas Houghton Nicholas Stone Nicholas Lawrence Nicholas Kent Nicholas Culley Nicholas Taylor Nicholas King Nicholas Hargreaves Nicholaus Buchanan Nick Wardman Nick Meese Nick Walch Nicky Glenister Nicol Rennick Nicola McWatt Nicola Howlett Nicola Eden Nicole Andrews Nigel Fleming Nigel Slaughter Nikolay Georgiev Nile Anning Nina Bolam Nishit Shah Noor Abed Norman Schwab Numan Usman Nuno Pinto Da Costa O Oliver Farebrother Olyvia Offley Omid Ibrahimi Onder Madencioglu Oscar Cork Oskar Wedlake Hatton Osman Sendur Owen Tudor Owen Hitch Oz Masaya P Paige Makepeace Paige Morgan Pankaj Bhardwaj Paolo Segagni Paresh Nagar Patrick Howlett Paul Irving Paul Burkett Paul Kelly Paul Miller Paul Mills Paul Clark Paul Galvin Paul Noyes Paul Starkey Paul Chapman Paul Davey Paul Cartledge Paul Dalby Paul Whittington Paul Burrow Paul Baxter Paul Nicholls Paul Cowen Paul Tregaskis Paul West Paul Elliott Paul Whitworth Paul Lester Paul Logue Paul Semple Paul Third Paul Lee Paul Wilson Paul Haythorne Paul Wixen Paul Cox Paul Cheetham Paul Jenkinson-Finn Paul Gee Paul Miller Paul Thomas Paul Morgan Paul Ace Paul Tovey Paul Hubbard Pauline Harrison Pauline Garrow Pawel Warych Pawel Pudelko Penny Davis Perran Kelly Perry Taylor Peter Simmonds Peter Hogg Peter Anderson Peter Charters 25632.02 13 December 2017 11:33 AM Proof6 137 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017The Team Peter Young Peter Turtle Peter Callan Peter Hanley Peter Wiles Peter Goulding Peter Sincock Peter Crimp Peter Vallely Peter Knights Peter Lees Peter West Peter Cash Peter Clements Petronela Enasoaie Phil Weaver Philip McCarney Philip Cranston Philip Gallop Philip Kelly Philip Dunn Philip Okai Philip Underhill Philip Speed Philip Stocks Philippa Smith Philippa Warner-Haskell Philippa Hill Phillip Walters Phillip Turner Phillipa Hewitt Phillips Adam Phoebe Webb Poonam Patel Portia Boehmer Preline Martha Przemyslaw Drabinski Q Quang Pham R Rabinder Gill Rachel Fellows Rachel Johnson Radoslaw Doktorski Rae Williams Rain Richmond Raj Surani Rajan Toora Rajesh Thanki Rajiv Vadgama Rajneet Sahota Ramune Mikenaite Ratip Hassan Ravendra Bishun Rebeca Wallis Rebecca Oblein Rebecca Mills 138 Rebecca Butler Rebecca Moore Rebecca Kelly Rebecca Robson Rebecca Love Rebecca Carne Reece Morgan Reece Brown Reece Watson Reece Datson Reece Brewin Reece Townsend Regan Alexander Rhiannon Holland Rhys Hedges Rhys Grant Richard Clark Richard Bickers Richard Davies Richard Carter Richard Oldale Richard Small Richard Geare Richard Bourne Richard Palfrey Richard Bleach Richard Mann Richard Diamond Richard Oates Richard Senior Richard Keane Richard Prescott Richard Greenwood Richie Stephen Rickie Byrne Ricky Freeman-Roach Riley Hayward Rob Grassham Robbie Perry Robel Ghebrewold Robert Adams Robert Howker Robert Chawner Robert Parker Robert Myers Robert Moss Robert Keohone Robert Collins Robert George Robert Clarke Robert Kweli Robert Beard Robert Knight Robert Clark Robert Allman Robert Ballantyne Robert Jones Robert Black Robert Pomfret Robert Wyatt Robert Mitchell Robert Buckley Robert Mould Robert Hardie Robert Prince Robert Spencer Robert Hill Roberta De Benedictis Robin Perrin Robin Stagg Robin Williams Robin Tull Rocky Bryan Rodrigo Bermeo-Rojas Rodyvik Chineah Roger Gridley Roger Lazenby Rohit Modashia Roisin Smith Romal Williams Romans Petuhovs Ron Woolgar Ronnie-Leigh Pews Rory Reeves Rory Warwick Ross Ashbrook Ross Langford Ross Kerr Ross Dyson Ross Matthews Roxanne Evans Rozeena Baseth Russell Cox Russell Sell Ryah Webster Ryan Randall Ryan Apark Ryan Coleman Ryan Ruffle Ryan French Ryan Izard Ryan Dunn Ryan Buston Ryan Farquhar Ryan Howard Ryan White Ryan Gallagher S Sabina Redlin Sadie Gage Sahibjit Samra Salek Ahmed Sally Finn Sam Davis 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017ADDITIONAL INFORMATION THE TEAM Sam Attfield Sam Thomas Sam Heard Sam Cummings-Turner Samantha Leavis Samantha Makrygiannis Samantha Simons Samantha Gray Samantha Evans Samantha Peters Samantha Royle Samantha Davies Samantha Stewart Samantha Turnbull Sameer Jamdar Samuel Heath Samuel Kirk Samuel Robinson Samuel White Samuel Yoganathan Samuel Wordsworth Samuel Egerton Samuel Knowles Sandie Ferguson Sandra Ramsay Sanjeev Pal Sara Lloyd Sarah Kite Sarah Mclure Sarah Dobson Da Silva Sarah Darby Sarah Bacon Sarah Cassam Sarah Jordan Sarah Burnard Sarah Buchan Sarah Rose Sarah Cunningham Satvinder Sandhu Savio Coutinho Scott Ahmad Scott Bond Scott Birdseye Scott Summers Scott Thirlaway Scott Johnston Scott Vickers Scott Ottaway Scott Cameron Scott McCartney Sean Cahill Sean Dare Sean Gee Sean McLean Sean Taylor Sean Brandist Sean Collins Sebastian Whelan-Medlam Sebastian Bridge Selim Miftari Shafeek Mohamed Shah Hussain Shahid Mahmood Shamara Mckenzie-Rochester Shana Esworthy Shane Malone Shane Till Shane Bryan Shane Lindsay Shane Mason Shanice Mckenzie Rochester Shannon Oliver Shannon Calf Sharif Islam Sharon Buckley Sharon Papantoniou-Barrett Shaun Mayes Shaun Harwood Shaun Gordon Shaun Bryan Shaun Pawsey Shaun Owens Shaun Sargeant Sheena Smith Sheikh Saidy Shelley Rutter Shelley Carey Shelley Burton Shrina Shah Shylo Brookes Sian Austen Sian Hart Silvi Atanasova Silvonne McLean Simon Green Simon Brookfield Simon Witham Simon Roberts Simon Chappell Simon Pitt Simon Morgan Simon Grimmett Simon Leslie Simon Lewis Simon Lasham Simon Beare Simon Coombs Simon Marks Simon Neal Simon Webb Simon Bodell Simon Farley Simon Jackson Simon Chapman Simon Pretty Simon Felix Simon Judge Simona Barticel Simone Hunter Sinan Demir Sinead Fisher Siobhan Ashman Siobhan King Sion Ellis Sophie Doggart Sophie Avery Sophie Swann Sophie-Anne Farnworth Stefan Clark-Carter Stefan Haworth Stefano Tedeschi Stephanie Nevett Stephanie Hogben Stephanie Thompson Stephanie Dinnis Stephanie Kilner Roberts Stephen Gaylor Stephen Marshall Stephen Bloomfield Stephen Smith Stephen Seymour Stephen Freeman Stephen Adams Stephen Machin Stephen West Stephen Corkett Stephen Welsby Stephen Kelly Stephen Foote Stephen Lopes Stephen Hall Stephen Carr Stephen Anthony Stephen Collins Stephen Maidment Stephen Sanders Stephen Amos Stephen Boyd Stephen Clayton Stephen Edmonds Stephen Nicol Stephen Harrington Stephen Brown Stephen Avent Stephen Riley Stephen Stubbs Stephen Johnson Stephen Edwards Steve Boardman Steven Whitehead Steven Macarthur 25632.02 13 December 2017 11:33 AM Proof6 139 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017The Team Steven Wood Steven Presley Steven Kernot Steven Richards Steven Howells Steven Dooley Steven Dyer Steven Higgins Steven Ives Steven Kane Steven Gillham Steven Souter Steven Barrowcliffe Steven Stevens Steven Langley Steven West Stuart Rees Stuart Ross Stuart Whitby Stuart Munton Stuart Corlett Stuart Davey Stuart Williams Stuart Barrett Stuart Harris Stuart Fletcher Stuart Langford Stuart Smith Stuart Furlonger Stuart Tannock Stuart Clarke Stuart Perkins Summer Ellison Susan Bill Susan Black Susan Law Susan Shields Susanna Horwood Syed Ali Syedmustakim Ali T Tahmid Islam Talia Blackwell Tammie Spencer Tammie O’Lone Tara Smith Tarik Bensadik Tasha Woodward Tauseef Usman Taylor Smith Terence Dooley Terry Salisbury Terry Smith Terry Butler 140 Terry Prince Thomas Moran Thomas Ryan Thomas Evans Thomas Cunningham Thomas Wade Thomas Murray Thomas Swain Thomas Otley Thomas Parkes Thomas Seaden Thomas Ross Thomas Utting Thomas Whitlock Thomas Miller Thomas Wade Thomas Gercs Thomas Quinn Thomas Johnson Thomas Caldicott Thomas Ashmore Thomas Davies Tiago Ferreira Tiffany Lambert Tim Chatfield Tim Richards Tim Hodges Timea Szabo Timothy Boardman Timothy Tatlock Timothy Tuff Timothy Bentley Timothy Stanhope Timothy Hartwick Timothy Duggan Toby Collins Todd Routledge Tom Newman Tom Wilson Tomasz Kula Tomasz Podstawka Toni Gormley Tony Dumbleton Tracey Waterman Tracy Wearmouth Tracy Fitzpatrick Tracy Clewes Trevor Thomas Trevor Hinde Troy Miller Troy Fearon Tyler King Tyrell Beckham Tyrone Horne U Udo Jungbecker Umut Ortac Useni Feno Uwais Ghumra V Valentin Ivan Valerie Smith Vanita Bland Vaughan Batchelor Veronica Evett Veronica Zudaire Vicky Hall Victor Anim Victoria Moore Victoria Carrington Victoria Marshall Vi-Dung Luong Viktor Maslov Vilius Meilus Vincent Gallagher Vinod Joshi Viorica Grapa W Waqar Raja Warren Bester Warren Pettersen Wayne Randall Wesley Appadoo Will Carter William Bailey William Barreda William Wylie William Lewinton William Short William Wyatt William Buxton William Foxley Wyn Dunn-Davies Y Yohannes Getachew Youcef Sadiki Youssef Djeraoui Yvonne Burgess Yvonne Hardingham Z Zahid Hossain Zaibaa Hussein Zara Caldwell Zoe Atkinson Zoe Payne Zoe Turner Zoe Lees Walters Zoe Gilbert Zydrunas Slazikas 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Store Locations LONDON Acton Balham Boutique Barking Battersea Bayswater Boutique Beckenham Topps Beckton Blackheath Boutique Bow Brentford Brixton Bromley Common Catford Bromley Rd Charlton Cheam Chelsea Boutique Chesham Chingford Clapham Boutique Colindale Croydon Croydon Purley Dartford Denham Dorking Dulwich Boutique East Sheen Eltham Enfield Feltham Forest Hill Fulham Boutique Golders Green Hampstead Heath Boutique Harrow Hayes Topps Hemel Hempstead Highgate Hounslow Ilford Ilford Seven Kings Islington Boutique Kingston Leyton Mile End Muswell Hill Boutique New Southgate North Finchley Old Kent Road Orpington Orpington Clay Park Royal Topps Penge Raynes Park Redhill Romford Ruislip Sevenoaks Seven Sisters Shoreditch South Bermondsey Southall St Albans St Johns Wood Boutique Staples Corner Topps Streatham Surbiton Sydenham Tooting Twickenham Uxbridge Vauxhall Waltham Cross Walton on Thames Boutique Wandsworth Wembley West Drayton Willesden Wimbledon Wimbledon Boutique Wood Green MIDLANDS Barnsley Binley Boston Burton upon Trent Cannock Chesterfield Congleton Crewe Derby Derby Osmaston Doncaster Doncaster Sprotbrough Erdington Fenton Grantham Great Barr Grimsby Grove Park Kettering Baron Kidderminster Kings Heath Kings Norton Leicester Lichfield Lincoln Outer Circle Lincoln St Marks Long Eaton Loughborough Mansfield Nantwich Newark Newcastle-under-Lyme Northwich Nottingham Poulton Nuneaton Redditch Rotherham Sheffield Hillsborough Sheffield Meadowhall Sheldon Shrewsbury Solihull Spalding Stoke Stourbridge Stratford upon Avon Tamworth Telford West Bromwich Wolverhampton Worksop NORTH Aintree Alnwick Anfield Barrow Beverley Birkenhead Blackburn Blackpool Bolton Bradford Bury Carlisle Cheadle Cheetham Hill Chester Chorley Cleveleys Darlington Durham Dragonville Failsworth Gateshead Halifax Harrogate Huddersfield Hull Hyde Knutsford Boutique Leeds Macclesfield Morecambe Northallerton Oldham Ormskirk Pontefract Preston Sale Salford Scarborough Scunthorpe Shipley Skegness Snipe (Audenshaw) Southport ADDITIONAL INFORMATION THE TEAM STORE LOCATIONS St Helens Stockport Stockton Sunderland Tyneside Wakefield Ings Road Warrington Widnes Wigan Wilmslow Boutique Workington York Clifton Moor SCOTLAND AND NORTHERN IRELAND Aberdeen Bridge of Don Aberdeen Wellington Ayr Belfast Boucher Road Belfast Newtownabbey Dundee Edinburgh Elgin Fort Kinnaird Glasgow Govan Topps Greenock Hillington Inverness Kirkcaldy Perth Shawfield Sighthill Wishaw SOUTH Abingdon Amersham Ashford Aylesbury Banbury Barnstaple Basildon Basingstoke Bath Bedford Elms Bexhill Bicester Bishops Stortford Bodmin Bognor Regis Borehamwood Bounds Green Bournemouth Bracknell Braintree Brentwood Bridgewater Brighton Bristol 25632.02 13 December 2017 11:33 AM Proof6 141 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017Wellingborough Welwyn Garden City Weston Super Mare Weymouth Winchester Windsor Wisbech Witney Woking Wokingham Worcester Yeovil WALES Bangor Barry Bridgend Cardiff Cardiff Newport Road Carmarthen Cross Hands Flint Haverfordwest Llanelli Merthyr Tydfil Neath Newport Rhyl Swansea Cwmdu Swansea Llan Samlett Wrexham Store Locations Loughton Lowestoft Luton Maidstone Maidstone Langley Market Harborough Martlesham Millbrook (Southampton) Milton Keynes Moreton in Marsh Newbury Newhaven Newton Abbot Northampton Northampton Brackmills Norwich Norwich Hall Road Norwich Heigham Oxford Oxford Botley Penzance Peterborough (Rex Centre) Peterborough Boongate Plymouth Poole Portsmouth Rayleigh Reading Reading Rose Kiln Lane Ringwood Rugby Rustington Salisbury Saltash Sittingbourne Slough Southend St Neots Stamford Stevenage Strood Stroud Sudbury Sutton Swindon Swindon Stratton Taunton Thetford Thurrock Tonbridge Torquay Truro Tunbridge Wells Uckfield Waterlooville Watford Imperial Broadstairs Buckingham Bury St Edmunds Byfleet Camberley Cambridge Canterbury Chelmsford Chelmsford Springfield Cheltenham Chichester Chippenham Christchurch Cirencester Clacton on Sea Clevedon Colchester Crayford Cribbs Causeway Cromer Dorchester Dover East Molesey Eastbourne Erith Evesham Exeter Trusham Rd Exmouth Fareham Topps Farnborough Farnham Folkestone Frome Gatwick Glastonbury Gloucester Gravesend Grays Great Yarmouth Guildford Hailsham Harlow Havant Hedgend Hengrove Hereford High Wycombe Horsham Huntingdon Ipswich Isle of Wight Isleworth Kings Lynn Launceston Letchworth Lewes 142 25632.02 13 December 2017 11:33 AM Proof6 Topps Tiles Plc Annual Report and Accounts for the 52 week period ended 30 September 2017PICTURED EltonTM porcelain wall and floor tile, Microline White ceramic wall tile 25632.02 13 December 2017 11:33 AM Proof 8 25632.02 13 December 2017 11:33 AM Proof 8 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 A c c o u n t s f o r t h e 5 2 w e e k p e r i o d e n d e d 3 0 S e p t e m b e r 2 0 1 7 Topps Tiles Plc Thorpe Way, Grove Park Enderby, Leicestershire LE19 1SU www.toppstiles.co.uk 25632.02 13 December 2017 11:33 AM Proof 8 25632.02 13 December 2017 11:33 AM Proof 8 

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