Topps Tiles Annual Report 2018

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 2 9 t S e p e m b e r 2 0 1 8 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018 Topps Tiles AR2018.indd 3 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:42:37 Welcome . . . . . . to the 2018 Annual Report and Accounts. This has been an important year of strategic progress for the Topps Tiles Group, in which our expansion into commercial has seen us double our addressable market while remaining firmly within our tile specialism, where our buying scale and expertise gives us a significant competitive advantage. Read more information on Business Model 2018 on pages 10 to 11 PICTURED Front cover: Parkside: The Brass, Dubai – design by Harrison © 2018 Rogier van Zeventer Top: Monogeo Back cover: Ruzzini Inside back cover: Parkside: St George West London Collection, Royal Exchange Kingston INVESTOR WEBSITE We maintain an investors' website containing a wide range of information to investors toppstilesplc.com Topps Tiles AR2018.indd 4 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:42:43 notes-heading-level-one notes-heading-level-two notes-heading-level-three notes-heading-level-four notes-strapline notes-text-body • notes-list-bullet • notes-list-bespoke − notes-list-dash d) notes-list-alpha 5. notes-list-number vi) notes-list-roman Inspiring customers through our love of tiles Table plain text Background Border Border Heading Default Heading Default Heading Default 1 1 1 2 2 2 3 3 3 OUR STORES OUR STRATEGY Topps Tiles has 368 retail 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. Proﬁtable Sales Growth RETAIL OUTSPECIALISING THE SPECIALISTS COMMERCIAL DISRUPT AND CONSTRUCT LEADING RANGE GREAT PEOPLE, GREAT COMPANY 17 2 55 49 16 77 152 Our overarching goal for the Group is to drive profitable sales growth through our retail and commercial businesses. This goal is supported by our “leading range” initiative which encapsulates our leading specialism in tiles and our “Great People, Great Company” initiative which includes all of our Group support functions and our industry leading levels of customer service. The Board is confident that this is the right overall strategy for the Group. Read more information on Strategy on pages 12 to 17 Read more information on Marketplace on pages 08 to 09 01 CONTENTS 2018 Highlights Chairman’s Statement STRATEGIC REPORT Marketplace Business Model 2018 Our Strategy Leading Range Great People, Great Company Retail Commercial Key Performance Indicators Financial Review Risks and Uncertainties Corporate Social Responsibility OUR GOVERNANCE Board of Directors Executive Team 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 Company Statement of Changes in Equity 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 The Team Store Locations 02 04 08 10 12 13 14 15 16 18 19 24 30 42 43 44 50 54 72 80 80 81 82 83 84 114 115 116 124 125 130 133 145 Topps Tiles AR2018.indd 1 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:42:59 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201802 2018 Highlights Delivering a robust performance Statutory Measures Adjusted Measures GROUP REVENUE (£m) YoY: +2.4% 9 . 6 1 2 0 . 5 1 2 2 . 2 1 2 8 . 1 1 2 GROSS MARGIN (%) YoY: nil 2 . 1 6 9 . 1 6 1 . 1 6 1 . 1 6 15 16 17 18 15 16 17 18 ADJUSTED GROUP REVENUE1 £214.8m 2017: £211.7m YoY: +1.5% ADJUSTED GROSS MARGIN2 61.3% 2017: 61.1% YoY: +20bps Read more information in the Financial Review on pages 19 to 23 FREE CASH FLOW5 £17.9m 2017: £4.2m YoY: £13.7m FINAL DIVIDEND (p) YoY: nil TOTAL DIVIDEND (p) YoY: nil LIKE-FOR-LIKE REVENUE GROWTH YEAR-ON-YEAR3 (%) YoY: n/a ADJUSTED PROFIT BEFORE TAX6 (£m) YoY: (14.0)% 0 5 . 2 5 2 . 2 0 3 . 2 0 3 . 2 0 5 . 3 0 4 . 3 0 4 . 3 0 0 . 3 4 . 5 2 . 4 0 . 2 2 4 . 0 2 6 . 8 1 0 . 6 1 0 . 0 ) 9 . 2 ( 15 16 17 18 15 16 17 18 15 16 17 18 15 16 17 18 PROFIT BEFORE TAX (£m) YoY: (25.3)% 0 . 0 2 0 . 7 1 0 . 7 1 7 . 2 1 BASIC EARNINGS PER SHARE (p) YoY: (28.4)% 5 0 . 8 8 9 . 6 5 7 . 6 0 0 . 5 ADJUSTED EARNINGS PER SHARE4 (p) YoY: (13.0)% NET DEBT7 (£m) YoY: (£11.3m) 6 8 . 8 7 1 . 8 3 6 . 47 6 . 6 4 . 8 2 5 . 7 2 8 . 4 2 2 . 6 1 15 16 17 18 15 16 17 18 15 16 17 18 15 16 17 18 Adjusting items are detailed in the notes opposite and in the adjusted measures section of the financial review. These include trading losses from the Parkside business while we go through an initial two-year phase of investing in growth plus other items which are either one off in nature or can fluctuate significantly from year to year (such as some property-related items). Topps Tiles AR2018.indd 2 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:00 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Read more information in the Financial Review on pages 19 to 23 03 FINANCIAL SUMMARY STRATEGIC & OPERATIONAL SUMMARY • Strong free cash flow of £17.9 million (2017: £4.2 million) Group due to improved operational cash flow, and more targeted investments; • Net debt reduced by £11.3 million year-on-year to £16.2 million with a £35.0 million loan facility now in place to June 2021; • Final dividend maintained at 2.3 pence per share (2017: 2.3 pence per share), making a total for the year of 3.4 pence per share (2017: 3.4 pence per share); • Like-for-like sales were flat for the year; • The Group has continued to deliver industry-leading adjusted gross margins of 61.3% (2017: 61.1%) primarily as a result of sourcing gains; • Adjusted profit before tax of £16.0 million (2017: £18.6 million), the profit reduction being due to additional costs as a result of new stores and inflationary pressures; • The Parkside commercial business generated £2.1 million of sales and, as expected, a £1.1 million trading loss; • Statutory profit before tax of £12.7 million (2017: £17.0 million), reflecting a £2.6 million fall in adjusted pre tax profit, £1.1 million investment in growth of the Parkside commercial business and a net increase in property-based provisions. NOTES 1. Adjusted revenues are defined as total Group revenues excluding Parkside. 2. Adjusted gross margin is defined as Group gross margin excluding Parkside. 3. Like-for-like sales revenues are defined as sales from online and stores that have been trading for more than 52 weeks. In 2018 sales in like-for-like stores were £208.9 million (2017: £208.9 million), with an average of 354 stores included in the weekly calculation. 4. Adjusted earnings per share is adjusted for the items highlighted above plus the impacts of corporation tax. 5. Free cash flow is defined as net cash from operating activities less net cash used in investing activities. 6. Adjusted profit before tax excludes several items which are either one off in nature or 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 and movement in onerous lease provision Gains on disposal of freehold or long leasehold properties Historic adjustment to refunds provision Parkside trading loss Statutory pre-tax profit 2018 £m 2017 £m 16.0 18.6 (0.2) (0.4) nil (0.2) (2.2) (1.2) 0.7 0.2 (0.5) nil (1.1) nil 12.7 17.0 7. Net debt is defined as bank loans, before amortised issue costs (note 18) and less cash and cash equivalents. • The UK’s leading tile specialist with a core purpose to inspire customers through our love of tiles; • Competitive advantage as a result of specialist focus, buying scale and expertise across both retail and commercial businesses: − 25 new ranges launched and further 10 ranges relaunched over the year; − 90% of range is own brand or exclusive to the Group in the UK; • Further investment in Group Learning and Development to enhance colleague capability and engagement; • Focus on programme of simplifying business processes to improve colleague and customer experience. Retail • Strategy of “Out-specialising the Specialists” remains our key focus in the retail tile market, where consumer behaviour is changing; • Digital experience continues to grow in importance as part of our multi-channel offering; • Almost all of our customers come to store and experience the world class specialist service provided by colleagues in our 368 retail stores; • We can also refer customers to a professional fitter and now have more than 85,000 active members (2017: 55,000) on our Trade Rewards+ loyalty programme; • While a nationwide store presence remains critical we continue to review the efficiency of our portfolio and have a high degree of flexibility (average unexpired lease term of 3.4 years excluding strategically important stores) to respond to changing consumer needs over time. Commercial • Entry into commercial market through the Parkside acquisition has approximately doubled the size of the Group’s addressable UK market whilst maintaining our specialism in tiles; • Development of commercial infrastructure on track - good progress being made with recruitment of talented sales teams with over 275 years of combined experience and establishing central capability; • Commercial customer response to Group’s tile specialism has been very positive; • Commercial showrooms opened in Chelsea and Leicester during the year, with a plan to open two more in the year ahead; • Strategy is to disrupt the commercial tile market and construct a new market leader over the medium term. Current Trading and Outlook • In the first eight weeks of the new financial period, Group revenues, stated on a like-for-like basis, decreased by 1.9% (2017: increase of 3.2%) Topps Tiles AR2018.indd 3 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:01 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201804 Chairman’s Statement Our overarching goal for the Group is to drive profitable sales growth Trading and Financial Performance The market has continued to be challenging this year and, whilst we have ultimately seen some impact on our financial performance I am pleased with how the business has responded. The challenging market has been driven primarily by weakened consumer demand which is linked predominantly to lower levels of consumer confidence. This has resulted in a modest level of sales growth but this was not sufficient to offset the external pressures on our cost base over the period (which are detailed in the financial section of this report). Our adjusted profit before tax was £16.0 million (2017: £18.6 million), with statutory profit before tax of £12.7 million (2017: £17.0 million). Dividend Our dividend cover has been reducing over the last three years with a broad target of achieving two times cover such that approximately 50% of our annual post tax adjusted earnings are remitted back to shareholders. We have achieved this in the current financial year and now intend to continue at this level of dividend cover moving forwards. As a result, the Board is recommending a final dividend for the year of 2.3 pence per share (2017: 2.3 pence per share). This will bring the total dividend for the year to 3.4 pence per share (2017: 3.4 pence per share). As a consequence, dividend cover for the year on an adjusted earnings per share basis is 1.955 (2017: 2.255). The Board and Corporate Governance The Board of Topps is focused on good governance and we have further improved our disciplines on several fronts over the year. We have continued to make further progress on our control environment and evaluating risks and opportunities to the business. In particular, we have spent more time on forward-looking items such as the commercial market, changes to the property market, opportunities in our digital proposition and the possible implications of Brexit. In line with last year I am pleased to confirm that all Non-Executive Directors are independent and the Board is fully compliant with the Corporate Governance code. We have benefited from very good stability on the Board with all Directors having completed at least three years of service and the combined Board having nearly 50 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. DARREN SHAPLAND | CHAIRMAN Introduction A very warm welcome to the Topps Tiles 2018 Annual Report. This year has again delivered some challenging trading conditions but I am pleased to report that we have responded well and continued to make good progress with both our Retail and Commercial strategies whilst also strengthening the financial position of the business. Purpose, Goal and Strategy The core purpose for the Group is to inspire customers through our love of tiles. This purpose also helps to give the Group great strategic clarity in that any opportunities we pursue should seek to leverage our core specialism. Our overarching goal for the Group is to drive profitable sales growth. Within our retail business, Topps Tiles, we are focused on the UK retail tile market where our strategy of “Out-specialising the Specialists” continues to serve us well and remains key for driving long-term profitable growth. At the end of the prior year we expanded into the UK commercial tile market through our acquisition of Parkside and this year has been one of both developing a deeper understanding of the commercial market and also investing for longer term growth. This exciting expansion approximately doubles the size of our addressable market in the UK whilst maintaining the Group’s core specialism within tiles and staying true to our core purpose. Topps Tiles AR2018.indd 4 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:02 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201805 PICTURED 1: Parkside: Nando’s, Stevenage – design by Harrison 2: Mora Herringbone Oak Mosaic Cameo 3: Abrasio Steel and Basalt 2 3 © 2018 Rocco Photography 1 This year has again delivered some challenging trading conditions but I am pleased to report that we have responded well and continued to make good progress with both our Retail and Commercial strategies whilst also strengthening the financial position of the business. Our People As a customer service-based business, our people are at the heart of our organisation and this is a key aspect of the Group’s success. We provide a major focus on our training and development programmes for all colleagues 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 the retail UK tile market, Topps Tiles’ retail 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. Our expansion into the UK commercial tile market provides an excellent opportunity to leverage the Group specialism in tiles and represents an important source of future growth for the Group. The Board is confident that this focus on UK expansion, whilst maintaining our core specialism, is the right strategy for the Group. DARREN SHAPLAND | CHAIRMAN Topps Tiles AR2018.indd 5 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:08 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018 1 Topps Tiles AR2018.indd 6 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:15 Strategic Report CONTENTS Marketplace Business Model 2018 Our Strategy Leading Range Great People, Great Company Retail Commercial Key Performance Indicators Financial Review Risks and Uncertainties Corporate Social Responsibility 08 10 12 13 14 15 16 18 19 24 30 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. 2 3 4 5 © 2018 Rocco Photography PICTURED 1: Astrea Fern Green and Mora Walnut 2: Apini and Speculo Lagoon 3: Parkside: Nando’s, Craigavon – design by Harrison 4: Elura Beige and Matrix Fern Green 5: Parkside: Radisson Blu, Stansted – design by Trevillion Interiors Topps Tiles AR2018.indd 7 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:24 08 Strategic Report: Marketplace The UK tile market has an approximate value of £700 million at retail selling prices. The market splits into two broad sectors – retail, accounting for around 55% of the market and commercial, accounting for the remaining 45%. 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 have remained broadly flat at around 1.2 million (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 home owners 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 £214,922, an increase of 2.0% on the previous year (Source: Nationwide). Read more information on Retail on page 15 Commercial Tile Market The UK commercial tile market is quite fragmented with only a very small number of scale competitors. The smaller competitors tend to specialise in certain areas of the market – examples being casual dining, automotive, leisure, offices or high end residential. Customers in this market can be categorised into two general groups - those that require specialist advice and design input and those that require more commoditised products, generally in large quantities but also at low prices. The focus for our business is on commercial customers in the former category, where we can leverage our tile specialism and design credentials. Read more information on Commercial on page 16 The UK Tile Market and Performance of the Business The UK tile market has an approximate value of £700 million at retail selling prices. The market splits into two broad sectors – retail, accounting for around 55% of the market and commercial, accounting for the remaining 45%. The retail market includes the renovation, maintenance and improvement of residential properties and the commercial market includes commercial building projects in their many and varied forms, as well as new build residential property. The annual tile industry report published by MBD covers the whole of the UK tile market (retail & commercial) and is based on manufacturer and supplier data. Growth of the entire market in 2017 was 1.3% on a value basis and -1.9% on a volume basis. MBD has estimated that volume growth in 2018 will be 1.1% and our view is that this growth will have been driven by the commercial side of the UK tile market, in particular new build residential housing (note – MBD does not provide a value forecast growth estimate). The Board recognises that Brexit could have a number of implications for the Group – these would include disruption to the flow of imported goods resulting in supply issues, a reduction in consumer confidence resulting in lower sales and a reduced labour pool resulting in staffing issues. Our response to these concerns is detailed in the risks section of the Annual Report but will primarily focus on increasing stock levels of our key selling lines ahead of March 2019. Retail Tile Market Due to the discretionary nature of retail market spending, consumer confidence remains a key driver of its performance. During 2018 the average level of consumer confidence was -9.3, which compares to -7.3 in 2017. Whilst the index was negative across the year, there was a modest improvement from -10.2 in the first half to -8.5 in the second 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, in particular as we progress through the UK’s planned exit from the EU during 2019. Topps Tiles AR2018.indd 8 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:24 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201809 UK HOUSE PRICES AND CONSUMER CONFIDENCE UK 12-MONTH HOUSING TRANSACTIONS – HMRC Consumer conﬁdence House price (Nationwide) 20 10 0 -10 -20 -30 -40 ) e g a r e v a t h n o m - 3 ( e c n e d ﬁ n o c r e m o t s u C 240,000 220,000 200,000 180,000 160,000 140,000 i ) e d w n o i t a N ( s e c i r p e s u o h K U ) 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 3 1 t c O 4 1 n a J 4 1 r p A 4 1 l u J 4 1 t c O 5 1 n a J 5 1 r p A 5 1 l u J 5 1 t c O 6 1 n a J 6 1 r p A 6 1 l u J 6 1 t c O 7 1 n a J 7 1 r p A 7 1 l u J 7 1 t c O 8 1 n a J 8 1 r p A 8 1 l u J 8 1 t c O 3 1 t c O 4 1 n a J 4 1 r p A 4 1 l u J 4 1 t c O 5 1 n a J 5 1 r p A 5 1 l u J 5 1 t c O 6 1 n a J 6 1 r p A 6 1 l u J 6 1 t c O 7 1 n a J 7 1 r p A 7 1 l u J 7 1 t c O 8 1 n a J 8 1 r p A 8 1 l u J 8 1 t c O Source: Consumer conﬁdence = GFK, UK house price = Nationwide Source: Housing transactions = HMRC UK CONSTRUCTION COMMERCIAL OUTPUT* 1 m £ t t u p u O y h n o M t l 9,000 8,500 8,000 7,500 7,000 6,500 5 1 r p A 5 1 n u J 5 1 g u A 5 1 t c O 5 1 c e D 6 1 b e F 6 1 r p A 6 1 n u J 6 1 g u A 6 1 t c O 6 1 c e D 7 1 b e F 7 1 r p A 7 1 n u J 7 1 g u A 7 1 t c O 7 1 c e D 8 1 b e F 8 1 r p A 8 1 n u J 8 1 g u A 8 1 t c O * UK construction output is based on ONS data for new private housing, other new work private, other new work public sector & non housing repair & mtce UK TILE MARKET – RETAIL VS COMMERCIAL UK Tile Market estimated at c. £700m @ RSP Commercial Retail c20 smaller specialists including Parkside Porcelanosa 1 CTD Solus Domus 2 3 5 4 Source: MBD and Company estimates Commercial c.45% 1 Commercial 45% Retail c.55% 2 Topps Tiles 18% 3 DIY Sheds 17% 4 Other specialists 16% 5 Other 4% 2 PICTURED 1. Parkside: Chelsea Showroom 2. Mora Walnut and Catania Green Topps Tiles AR2018.indd 9 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:28 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT 10 Strategic Report: Business Model 2018 We are a specialist in the field of tiles, with a competitive advantage in sourcing differentiated products from around the world which we can access on an exclusive basis. Topps Tiles is the leading specialist supplier of tiles in the UK market. Historically the business has focused on the retail tile market for the supply of tiles into the refurbishment of residential housing, which it has served through the retail channel. Over the last year the business has diversified and expanded into the commercial tile market. The commercial market includes tiles supplied for both new build and refurbishment of commercial premises across all sectors such as education, leisure, transport, retail and office buildings, plus new build residential housing. This expansion for the Group does not, however, change the fundamentals of our business model. We are a specialist in the field of tiles, with a competitive advantage in sourcing differentiated products from around the world which we can access on an exclusive basis. Supply Chain We source our products directly from manufacturers on a global basis, with a focus on building long-term strategic relationships with our manufacturing partners. Owning as much of the post- manufacture supply chain as possible is a key aspect of our business model and an important source of competitive advantage. Our buying scale and customer reach allow us to develop product ranges with leading tile manufacturers that are genuinely innovative and to source them on an exclusive basis. Our investment in our supply chain also includes our 150,000 sq ft warehouse in Leicester and a fleet of 28 commercial vehicles. This gives us an unrivalled control over our inventory and delivery capability. Topps Tiles and Parkside websites Product Innovation We inspire all of our customers with a market-leading product range, 90% of which is exclusive to us. 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 style trends and the manufacturer providing the technical knowledge and production 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. We have made full use of these new technologies in recent years to further enhance the breadth and quality of our market-leading tile range. 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 high quality advice on their tiling projects and to do this successfully we need highly engaged specialist teams in-store and in our direct sales force 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 training our people every year. Channels We operate multiple channels to market to provide all our customers with access to our market-leading product range and service in the most convenient format for them. For our retail business, stores remain our primary channel to market and almost all of our customers will visit a store at some point during their purchase. We operate in excess of 365 stores across the UK with an average footprint of 5,000 sq ft; however, the inherent flexibility in our operating model enables us to trade successfully from 1,000 sq ft up to 10,000 sq ft. This flexibility means Topps Tiles stores can be found in a wide variety of locations including high streets, retail parks, trade parks and on main arterial roads on routes to larger shopping destinations. Our store portfolio operates predominantly on a leased basis with an average unexpired lease term of just under five years. Retail customers also very often choose 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 purchase journey with us. Trade customers – independent tile fitters contracted by customers to complete their domestic tiling projects – are a vital sales channel for our retail business. Our trade customers now account for 56% of our retail sales. In some cases we may not have a direct relationship Topps Tiles AR2018.indd 10 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:30 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201811 1 2 3 with the homeowner which is why our relationship with our trade customers is very important to us. These relationships are built on the basis of our specialist credentials; our ability to provide excellent technical knowledge; and a range of specialist products which ensures we cater for all of our traders’ needs. In the commercial market we serve the customer through our team of high-quality sales people. These colleagues will often have historic relationships with architects and designers based on high levels of mutual trust, established over a sustained period through successful delivery of projects together. Brand The tile market has very few recognised product brands and in the absence of these pointers for customers, the business brand becomes very important. In retail, Topps Tiles is the UK’s leading specialist tile retailer with 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 maker and building this metric successfully 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. In Commercial, we are building the Parkside brand, which, over time, we believe could ultimately become the market leader. Value for Customers We deliver value to our customers by combining differentiated products with excellence in customer service. This is combined with competitive pricing to ensure that all of our customers receive great value. The Topps Tiles Group 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 1: Syren (all colours) and Dartrey Black 2: Amberley 3: Galaxy Granite and Diamante Pastel Mist Topps Tiles AR2018.indd 11 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:35 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT12 Strategic Report: Our Strategy The business has an overarching goal to profitably grow sales. In 2017 we identified an opportunity to expand into the commercial tile market and as a result of this new focus, 2018 has been a year of transition for the Group. We have made great progress with both developing our understanding of the commercial market, growing our Parkside business and also continued to strengthen our Topps Tiles retail business. Both divisions are supported by our Group “Leading Range” initiative and by other Group functions through our “Great People, Great Company” strategy. MATTHEW WILLIAMS | CHIEF EXECUTIVE OFFICER Profitable Sales Growth RETAIL OUTSPECIALISING THE SPECIALISTS COMMERCIAL DISRUPT AND CONSTRUCT LEADING RANGE GREAT PEOPLE, GREAT COMPANY Topps Tiles AR2018.indd 12 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:38 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201813 LEADING RANGE The Group’s core purpose is to inspire customers through our love of tiles and this objective is reflected in our “Leading Range” initiative. Our specialism in tiles is our key source of competitive advantage. We are experts in the ranging, sourcing and procurement of tiles on a global basis and we work with carefully selected partners around the world to develop and produce differentiated products that are innovative, high quality and exclusive. We robustly protect the intellectual property and design assets we create through partner exclusivity and design registration and, if necessary, legal enforcement. Ultimately, it is this Group specialism that we leverage through our business divisions into the retail and commercial markets. Progress and Outlook Our pace and iterative cycle of product introduction continues to set us apart from our competitors. In the period we launched over 35 tile ranges, 80% of which were developed in-house. We have also more than doubled our portfolio of high impact branded exclusive accessories to meet the needs of our trade customers. Several resourcing initiatives have been completed, optimising cost, quality and lead times that will provide material gross profit improvements in 2019. Ninety per cent of the products we sell are now either own brand or exclusive and are sourced directly by our team of expert tile and accessory buyers from more than 20 countries around the world. 1 We have a relentless focus on product differentiation and it is our mission to lead on product design, quality and innovation. We are committed to investing in unique partner relationships with key influencers of tile design and technology that are increasingly upstream in the product development cycle. This enables us to utilise our deep manufacturer collaborations to maximum effect and this sets us apart from our competitors. What our customers are saying “ I shopped around A LOT for wood effect tiles and out of all the retailers I could find I kept coming back to the Mora Oak tiles. Now they’ve been laid in my kitchen I am so pleased I chose them – everyone thinks they are real wood. Also need to mention that Topps Tiles service in my local store was fantastic they are all so knowledgeable, helpful and very efficient. Honestly can’t rate them and their product highly enough.” GRACE PICTURED 1: Catania Violet 2: Stadia Storm and Andira Smokey Brown 2 Topps Tiles AR2018.indd 13 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:42 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT14 Strategic Report: Our Strategy GREAT PEOPLE, GREAT COMPANY This element of our strategy encompasses all of our Group support functions, including finance, property, logistics, HR, IT and legal. The Group’s success is underpinned by industry-leading levels of customer service and this applies equally to both our Retail and Commercial businesses. This means that 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 October 2018, our annual survey recorded our best all colleague engagement score from the last four years which we consider to be a real endorsement of the success of our people strategy. Of particular note was the highest score we have received in terms of colleague wellbeing which has also been a key area of focus over the last 18 months. In the prior period we launched a new online Learning Management System, “theHub”. This continues to be a very popular method of learning for colleagues and we have prioritised investment and resource into developing materials for theHub and less into face-to- face training in order to drive efficiencies in this area. When we recruit at a store management level 60% of these roles are filled internally which presents an excellent opportunity for internal progression and also allows us to retain strong technical skill sets. We continue to invest in a programme of simplifying business processes to either improve the customer experience or the colleague experience, but ideally both. This is delivering significant results which we believe are helping to improve colleague engagement and customer satisfaction. What our customers are saying “ Love these tiles. We used the same dark grout and matching tile trim as in the catalogue and they look stunning. Have had loads of compliments on them. Really pleased. Nick and all the other staff at the Halifax store were a great help, from choosing the tiles to loading them in our car for us.” JULIE | HALIFAX Topps Tiles AR2018.indd 14 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:44 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201815 RETAIL OUT-SPECIALISING THE SPECIALISTS Our retail strategy for the retail market of “Out-specialising the Specialists” continues to be very effective. This strategy is focused on providing both our retail and trade customers a truly inspirational experience – both online and in store. Progress and Outlook Our digital platforms continue to go from strength to strength. Our website is industry-leading and was ranked in the top 25 for retail websites in the UK (source: Internet Retailing). The majority of our customers will utilise our website as the first step of their shopping journey with us – often as part of the research phase. We have continued to grow our understanding of the relationship between web and store visits and as a result we have continued to increase our investment into digital marketing, resulting in a sustained increase in online traffic. Our visualiser continues to be a major source of inspiration for customers and a key tool for colleagues to use in stores. Our colleagues offer our customers a world-class experience within store. We are continuing the roll-out of our all-store improvement programme which includes new initiatives such as a design advice area. This provides a space in store for colleagues to interact with customers in a more consultative way, really understanding their needs and providing bespoke design solutions. The majority of our customers shop infrequently for tiles which means that when they do they need lots of advice and expertise. Our customer satisfaction scores are very important to us and in the year ahead we will launch a new “voice of the customer” feedback program that will enable us to listen to our retail and trade customers’ feedback in real time, allowing us to learn and adapt to their needs. The size of our store portfolio is also a key source of competitive advantage as this makes us very convenient for the majority of the UK population. At the period end we had 368 stores (2017: 372 stores) and we expect to see continued movement in the portfolio through active portfolio management based on openings, closures and relocations. The optimum size of the portfolio for the UK will continue to be reviewed based on changing customer needs over time. Critically, the average unexpired lease term to the next break opportunity is 4.1 years (2017: 4.3 years) and if we remove stores which are strategically important (where we have proactively taken longer terms to secure our tenure) the average unexpired lease term to break falls to 3.4 years (2017: 3.8 years) – the flexibility this provides is a key strength of the business. Our trade customer base represents more than half of our sales. This provides a vital link to those homeowners who prefer to transact through their fitter rather than with us direct. In the UK there is a sustained trend away from “Do It Yourself” towards “Do It For Me” which means that this channel is increasingly important for us, is an area of the business we focus on very hard and is one which we believe provides us with a further source of competitive advantage. Sales through our trade channel account for 56% of total sales (2017: 55%). Our trade loyalty scheme leads our market place – with 85,000 traders registered and earning points (2017: 55,000). During the year we have refined this scheme to make it more relevant across our entire trade base, which has been very positively received, with double the number of traders now collecting points. What our customers are saying “ I wanted to create a wooden floor effect in part of my conservatory and ordered a sample of this tile as I liked the look and colour. I was delighted when I saw how robust it was and how good the effect looked. I ordered the tiles and have now laid them. They look fabulous and have enhanced the area significantly. Highly recommended.” HEIDI | HAMPSHIRE PICTURED Batik Beige Topps Tiles AR2018.indd 15 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:46 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT16 Strategic Report: Our Strategy COMMERCIAL Disrupt and Construct What our customers are saying “ I would just like to personally thank yourself and the team for helping me out with the recent material I required. Please extend my regards to the Parkside office who were extremely helpful. Your combined assistance has put Parkside in great stead for our next hotel upcoming at Gatwick.” CHRIS | LONDON 1 2 © 2018 Mark Cocksedge As described in the market section of this report, the commercial tile market represents approximately 45% of the overall UK tile market. Historically, the Group had a very small representation in this part of the market through commercial sales made in its retail stores, but in 2017 we identified commercial as an opportunity for expansion and profitable growth and acquired the Parkside business. Progress and Outlook 2018 has been a year of consolidation, learning and investment for Parkside. We have streamlined the business down from a mixed retail, distribution and commercial operation into a purely commercial player. We have been developing our strategic insight into this new market and have been pleased by how well the Group’s entry into commercial has been received by clients, with our access to exclusive and differentiated ranges seen as a particular strength. Our strategy of “disrupt and construct” means that we plan to disrupt the existing competitive landscape and, over time, construct a new market leader. Our size and scale as a Group is central to this plan – giving us the resources to recruit a talented sales team and invest in market-leading pricing. During the period we expanded the commercial sales team and improved the infrastructure to give a base for future growth. Our current team of sales people has a combined 275 years of experience in the commercial tile market. The commercial market works on lead times that can often extend to 12–24 months and building a pipeline of project leads is a vital first step. During 2018 we have been busy establishing our presence and growing our potential order book. As expected, trading losses for the period have been £1.1 million and we envisage this continuing into the following financial year at a similar level as we invest in future growth. These losses have been treated as a longer term investment and as such have been excluded from the adjusted financial position of the Group for this year; they will also be excluded next year. We remain open to further growth through acquisition and will continue to review such opportunities as they arise. PICTURED 1. Parkside: Clerkenwell Design Week 2. Parkside: Informal meeting space in Leicester Showroom Topps Tiles AR2018.indd 16 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:51 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201817 PICTURED Berkeley Essence Sky, Spaces Hamble Nimbus and Black Split Face Topps Tiles AR2018.indd 17 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:58 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT18 Strategic Report: Key Performance Indicators The Board monitors a number of financial and non-financial metrics and KPIs both for the Group and by individual store. This information is reviewed and updated as the Directors feel appropriate. Specific measures include: Financial KPIs ADJUSTED GROUP REVENUE GROWTH YEAR-ON-YEAR* ▲ LIKE-FOR-LIKE SALES GROWTH YEAR-ON-YEAR* ▲ ADJUSTED GROSS MARGIN* ▲ 1.5% 2017: (1.5)% 0.0% 2017: (2.9)% 61.3% 2017: 61.1% YoY: +20bps ADJUSTED PROFIT BEFORE TAX* ▼ ADJUSTED EARNINGS PER SHARE* ▼ NET DEBT* ▼ £16.0m 2017: £18.6m YoY: (14.0)% 6.64p 2017: 7.63p YoY: (13.0)% £16.2m 2017: £27.5m YoY: £11.3m INVENTORY DAYS 130 2017: 132 Non-financial KPIs ▼ 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 to 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 lead categories, each category holds a varying weighting towards the overall score percentage. • Energy carbon emissions have been compiled in conjunction with our electricity and gas suppliers. 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. YoY: (2) NET PROMOTER SCORE % ▼ CUSTOMER SERVICE SCORE ▲ COLLEAGUE TURNOVER ▲ 66.8% 80.6% 37.2% 2017: 68.6% YoY: (1.8)% 2017: 80.2% YoY: +0.4% 2017: 35.0% YoY: +2.2% CARBON EMISSIONS PER STORE (TONNES PER ANNUM) ▼ NUMBER OF RETAIL STORES AT YEAR END ▼ 31.1 2017: 34.3 YoY: (9.3)% 368 2017: 372 YoY: (4) * As defined on page 3. Topps Tiles AR2018.indd 18 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:43:59 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Strategic Report: Financial Review 19 ROB PARKER | CHIEF FINANCIAL OFFICER 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 Board is focused on having a strong balance sheet that can also provide the business with financial flexibility; the business remains strongly cash generative and the Board expects net debt to continue to fall; and • Maximising earnings per share and shareholder returns, including biannual review of our dividend policy. The Board has previously communicated its intention to target a dividend policy of approximately two times cover which we have achieved during this financial period and plan to maintain moving forwards. Against a challenging market backdrop, the Group delivered a robust trading performance for the year with flat like-for-like sales and market-leading gross margins in retail, and the foundations laid for significant sales growth in commercial in the year ahead. Adjusted Measures The Group’s management uses adjusted performance measures, to plan for, control and assess the performance of the Group. Adjusted Group Revenue and Gross Margin differ from statutory by the exclusion of the Parkside business to allow the Group to understand Topps Tiles’ retail performance on a more comparative basis. Adjusted profit before tax differs from the statutory profit before tax as it excludes the effect of one-off or fluctuating items, allowing the Group to understand results across years in a more consistent manner. For the current year the following items have been excluded: • Losses relating to the Parkside business of £1.1 million (2017: £nil million) – recognising that 2018 and 2019 will be two years of investment in longer term growth; • Losses related to movement in property-related provisions (including onerous lease movements and provision against fixed assets in loss-making stores) of £2.2 million (2017: £1.2 million); • Gain from disposal of four freehold properties of £0.7 million (2017: £0.2 million); • Losses from a one-off increase to the accrual for refunds following a review of provisions in advance of IFRS 15 implementation of £0.5 million (2017: £nil); • Vacant property costs of £0.2 million (2017: £0.4 million) for buildings closed as part of Parkside reorganisation and the historic closure of Tile Clearing House business; and • In the prior year the Group also excluded costs relating to the acquisition of Parkside of £0.2 million. Topps Tiles AR2018.indd 19 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:00 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT20 Strategic Report: Financial Review Profit and Loss Account Revenue Total revenue for the period ended 29 September 2018 increased by 2.4% to £216.9 million (2017: £211.8 million). Adjusted revenue increased by 1.5% to £214.8 million (2017: £211.7 million). Like-for-like store sales were flat when compared to the prior year, which consisted of a 0.6% increase in the first half of the financial period and a 0.6% decrease in the second half. We believe that the sales performance represents an outperformance of our market and is an endorsement of our strategy. Gross Margin Total gross margin held flat at 61.1%, with the addition of Parkside providing a 20 bps dilution in overall margin. Adjusted gross margin increased to 61.3% compared with 61.1% in the previous financial period. Over the first half of the period adjusted gross margin was 60.5%, and we delivered a gross margin of 62.1% in the second half of the period. Gross margin has benefited from sourcing gains and new ranges with improved margins. For the year ahead we anticipate delivering a small gross margin improvement which will be derived from similar activities to this year, assuming broadly stable sterling exchange rates. Operating Expenses Total operating costs increased from £111.5 million to £118.7 million, an increase of 6.5%. Costs as a percentage of sales were 54.7% compared to 52.6% in the prior period. When adjusting items (detailed on page 3) are excluded, operating costs were £114.6 million (2017: £109.9 million), an increase of 4.3%. Adjusted costs as a percentage of adjusted sales were 53.4% compared to 51.9% in the previous period. ADJUSTED GROUP REVENUE1 £214.8m 2017: £211.7m YoY: +1.5% ADJUSTED GROSS MARGIN2 61.3% 2017: 61.1% YoY: +20bps GROUP REVENUE £m YoY: +2.4% GROSS MARGIN % YoY: nil 0 . 5 1 2 2 . 2 1 2 8 . 1 1 2 9 . 6 1 2 2 . 5 9 1 2 . 1 6 9 . 1 6 1 . 1 6 1 . 1 6 9 . 0 6 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 372 (2017: 361), which generated an increase in costs of approximately £2.6 million; • Inflation at an average of approximately 1.7% increased our cost base by around £1.8 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 higher levels of investment in the store estate over recent years; • Employee profit share costs increased by £1.3 million, with the prior year seeing a reversal of a number of long-term incentive charges due to previous lower level of financial performance compared to plan; and • Other savings across the business accounted for £1.8 million; these were primarily generated from store labour following a series of simplification initiatives. For the year ahead we expect the adjusted operating costs for the business to be between £116 million and £117 million. Other Gains and Losses During the period we disposed of four properties and recognised a gain of £0.7 million. During the year we purchased the freehold on a previously leased office building and have recognised a loss of £0.4 million. This purchase has allowed the group to exit an onerous lease, the freehold has been reported as an investment property, the purchase price of £2.9 million has been written down to £1.2 million (see note 13b on page 101), which results in a £0.4 million loss after transferring previously held onerous lease provision. In the prior period we disposed of one long leasehold property and recognised a gain of £0.2 million. Financing The interest charge for the year was £1.0 million (2017: £0.9 million). There has been a small increase in the interest charge due to the write-down of the remaining loan arrangement fee from 2014 which occurred as a result of commencing a new loan facility. Net interest cover was 23.0 times (2017: 29.0 times) based on adjusted profit before interest and tax, depreciation and amortisation of £7.1 million (2017: £6.5 million) and adjusting items of £3.3 million (2017: £2.0 million). 14 15 16 17 18 14 15 16 17 18 NOTES 1. Adjusted revenues are defined as total Group revenues excluding Parkside. 2. Adjusted gross margin is defined as Group gross margin excluding Parkside. Topps Tiles AR2018.indd 20 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:01 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201821 1 2 3 4 5 PICTURED 1: Staunton Graphite and Putty Mosaic 2: Variato Blonde 3: Lampas Cloud and Abrasio Steel 4: Busca Bronze Flat and Abrasio Basalt 5: Bistro Black Topps Tiles AR2018.indd 21 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:11 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT22 Strategic Report: Financial Review Profit Before Tax Profit Before Tax (PBT) was £12.7 million (2017: £17.0 million). The Group PBT margin was 5.9% (2017: 8.0%). Excluding the adjusting items detailed on page 3, PBT was £16.0 million (2017: £18.6 million). The Group adjusted PBT margin was 7.4% (2017: 8.8%). Tax The effective rate of Corporation Tax for the period was 23.9% (2017: 21.0%). 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 5.00 pence (2017: 6.98 pence). Diluted earnings per share were 4.93 pence (2017: 6.86 pence). Excluding the adjusting items detailed on page 3, adjusted earnings per share were 6.64 pence (2017: 7.63 pence). Dividend and Dividend Policy The Board has previously indicated that it intended to pursue a dividend cover policy and that it would target approximately two times as a sustainable level. This has been achieved in the period with a cover of 1.955 the Adjusted Earnings Per Share. The Board is recommending to shareholders a final dividend of 2.3 pence per share (2017: 2.3 pence per share). This will cost £4.4 million (2017: £4.4 million). The shares will trade ex-dividend on 20 December 2018 and, subject to approval at the Annual General Meeting, the dividend will be payable on 4 February 2019. This will maintain the total dividend for the year at 3.4 pence per share (2017: 3.4 pence per share). Moving forwards, the policy for the interim dividend will be to pay one third of the prior full year dividend. PICTURED Botella Indian Peacock ADJUSTED PROFIT BEFORE TAX* £m YoY: (14.0)% ADJUSTED EPS* p YoY: (13.0)% TOTAL DIVIDEND p YoY: nil 0 . 2 2 4 . 0 2 1 . 7 1 6 . 8 1 0 . 6 1 3 6 . 6 6 8 . 8 7 1 . 8 3 6 . 7 4 6 . 6 0 5 . 3 0 4 . 3 0 4 . 3 0 0 . 3 5 2 . 2 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 * As defined on page 3 26286 12 December 2018 9:59 AM Proof 8 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201823 Balance Sheet Capital Expenditure Capital expenditure on tangible fixed assets and investment properties in the period amounted to £7.9 million (2017: £10.2 million), a decrease of 22.5%. Key investments are as follows: • New stores £1.5 million — nine new openings (2017: £4.9 million); Inventory Inventory at the period end was £30.2 million (2017: £29.5 million) representing 130 days turnover (2017: 132 days turnover). The increase in the absolute level of inventory is driven by extended levels of overseas sourcing and a longer supply chain as a result, the majority of which is offset by increased creditor terms. Days cover has reduced as we have consolidated in the Parkside commercial business which typically holds less stock; days cover in the retail business has been maintained year on year. • All store improvement programme £1.8 million (2017: Capital Structure and Treasury £0.3 million); • Freehold and leasehold investments £0.2 million (2017: £0.8 million); Cash and cash equivalents at the period end were £13.8 million (2017: £7.5 million) with borrowings of £30.0 million (2017: £35.0 million). • Investment Property purchase £2.9 million (2017: £nil); • Other expenditure of £1.5 million (2017: £1.7 million); and This gives the Group a net debt position of £16.2 million (2017: £27.5 million). • In the prior period we also spent £2.5 million on store refits. Cash Flow The Board expects capital expenditure in the year ahead to be between £6 million and £7 million. This is based on a continuation of current levels of activity and does not include any strategic acquisitions that the Group may consider as part of its growth plans in the commercial tile market. At the period end the Group held six freehold or long leasehold sites, including two warehouse and distribution facilities and an office building, with a total carrying value of £14.2 million (2017: nine freehold or long leasehold sites valued at £16.5 million). The carrying value is based on the historic purchase cost and capital expenditure less accumulated depreciation and, in the case of the investment property, a fair value adjustment. Acquisitions and Disposals During the period we acquired one freehold property for a consideration of £2.9 million (see above and see note 13b on page 101) and disposed of four freehold properties for a consideration of £3.9 million. In the prior year we acquired one freehold for a consideration of £0.8 million and disposed of one long leasehold property for a consideration of £0.3 million. Intangible Assets and Goodwill During the year, and within the hindsight period, we noted additional provisions required of £0.4 million relating to the acquisition balance sheet of Parkside, increasing the previously recognised value of goodwill of the Parkside business to £1.2 million (2017: £0.8 million). In addition to Parkside we hold goodwill relating to historic acquisitions of £0.2 million (2017: £0.2 million). Intangible assets, relating to the Parkside business, were amortised by £0.1 million to a new holding value of £0.3 million (2017: £0.4 million). Operational cash flow was £21.9 million, compared to £15.2 million in the prior year period, an increase of £6.7 million. The improvement in operational cash flow was due to improved working capital flows, reduced tax and interest (due to one-off payments in FY17), which were partially offset by lower profits. Free cash flow was £17.9 million (2017: £4.2 million), an increase of £13.7 million year on year. This increase was driven by the improved operational cash flow highlighted above plus reduced capital expenditure and the changes in freehold and investment properties. Current Trading and Market Conditions for the Year Ahead In the first eight weeks of the new financial year, the challenging trading conditions seen in the prior financial year are still in evidence and like-for-like sales in this initial period decreased by 1.9% against a strong prior year comparator. Whilst being watchful of market conditions in the year ahead, we remain confident that our expansion into the commercial tile market, coupled with the continued strength of our market-leading retail operations, gives us a solid platform for future growth. FREE CASH FLOW £m YoY: +326% NET DEBT £m YoY: (£11.3m) 9 . 7 1 5 . 0 3 4 . 8 2 5 . 7 2 8 . 4 2 2 . 6 1 4 . 9 3 . 9 5 . 6 2 . 4 * As defined on page 3 14 15 16 17 18 14 15 16 17 18 26286 12 December 2018 9:59 AM Proof 8 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT24 PICTURED Cini White and Black Honed Slate Topps Tiles AR2018.indd 24 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:19 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201825 Strategic Report: 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; and • A quarterly update in the Board pack which includes a summary of the key risks identified, combined with mitigants and agreed actions Impact Risk 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. The full impact of the decision of the UK to leave the EU remains unclear and this is likely to continue to create some uncertainty in the outlook over the short term. Brexit – Foreign Exchange Rate Fluctuation A significant devaluation of sterling will result in increased costs of sourcing for the Group, and subsequent reduction in profits. 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. Every 1 cent change in Euro and US$ (combined) has a £0.22 million impact on cost of goods over a full year of purchases, (excluding the impact of Topps Tiles’ policy of hedging forward for six months). Brexit – Supply Chain Disruption In the event of a “Hard Brexit” there is a possibility that we could see disruption at ports which would slow the importation of goods into the UK and this could adversely affect our business. We source around 50% of our cost of goods from outside the UK. Any material slow down in our supply chain could materially impact our stock availability and hence our sales performance. Status  Mitigation 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 again kept a tight control on costs and have increased focus on taking market share from competitors along with our 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. We are proactive in managing this risk and we have proven historically that we are able to mitigate material amounts of the impact of adverse foreign exchange rates through activities such as supplier negotiation or sourcing management with a number of lines being re-sourced.  The key mitigation is to ensure we have sufficient stock to provide stability through a period of disruption. Over the first half of our new financial year we plan to increase stockholding of our key selling lines in order to provide customers with greater continuity through any period of disruption. N Topps Tiles AR2018.indd 25 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:19 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT26 Strategic Report: Risks and Uncertainties Risk Impact Mitigation Appropriate Business Strategy Our business strategy will not be successfully delivered. The expansion of the Group into the commercial tile market has increased strategic risk slightly. 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 diversification 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. Biannual communication events and regular updates are provided to all colleagues on our progress towards our goals. Status  Loss of market share leading to reduced sales and profitability. 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. 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 regularly review our competitor set but at the same time we are clear on our primary source of competitive advantage and how we strengthen this over time – namely our specialist focus and leading range.  During the financial year approximately 150 stores have been subject to a programme of improvements which will further differentiate us from our competitors. This programme will continue into the new financial year. 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. 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.  We have a detailed succession plan for each key executive and non-compete clauses for senior colleagues. Topps Tiles AR2018.indd 26 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:19 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201827 Status  Risk Impact Mitigation 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. During the year analysis was completed by a third party with regards to the optimum store network for the UK and new store locational opportunities. We will continue to review customer trends to ensure our estate remains optimised to best serve their needs. 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 on high value stores to ensure we always have at least several years of security. Loss of a Key Supplier The loss of a key supplier could impact on our ability to trade in some areas of or range. We consider that the risk has probably reduced when compared to the prior year due to the diverse nature of our supply chain and successful resourcing of product we have done in recent years. Financing The Group has a £35 million revolving credit facility in place which was refinanced in July 2018 and expires in July 2021 (with an opportunity to extend at the end of the first and second years for a further year, so a potential full term of five years ending July 2023). The loan facility contains financial covenants which are tested on a biannual 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. The loss of a key supplier could lead to disruption in supply of key selling products leading to loss of sales and profits. Our supply chain is diverse and due to our scale we can source products directly from manufacturers anywhere in the world. Resourcing ranges from one manufacturer to another is something to which we are accustomed.  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.  Having completed refinancing negotiations in 2018, we have seen the financing risk level fall, aided by strong cash inflow in the financial year just completed. 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 proactive discussions with lenders. Topps Tiles AR2018.indd 27 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:19 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT28 Strategic Report: Risks and Uncertainties Risk Impact Mitigation 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. 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. Status  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. 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. A disaster recovery server provision is in place and the majority of our servers now operate on virtualised technology. The Company has partnered with the National Computer Centre (NCC) as cyber security specialists to ensure the appropriate technology and controls are in place to protect data assets. Customer data sources are catalogued and the Company has undertaken a process of data minimisation to remove unnecessary instances of high value customer data.  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. Topps Tiles AR2018.indd 28 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:19 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201829 Status N Risk Impact Mitigation A reduction in available qualified tilers could have a negative impact on sales across the tile retail market. Fitter availability The housebuilders association are predicting a significant shortfall in available tilers by 2021. This may be further influenced by the uncertainty of EU economic migrants and the shortfall in people training in tiles. We have developed the trader champion programme to both retain our existing trader base and to encourage new traders to shop with Topps Tiles. The programme focuses on: • Offering the best loyalty programme in the sector • Added value trader services • Better pricing • Trader referral scheme known as TNP • Supplier-supported trader training • Trader profiles online via the Topps store micro site Key:    Risk has increased Risk has decreased No change N New risk 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. Topps Tiles AR2018.indd 29 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:19 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT30 Strategic Report: Corporate Social Responsibility Our Community and Charity Work Colleagues across the Topps Tiles Group are both proactive and enthusiastic supporters of our charity partnerships. At a national level we are at the start of the final year of a five- year partnership with Macmillan Cancer Support, which has been widely embraced by colleagues in our nationwide network of stores, our Leicester support office and our commercial arm Parkside. During 2019 we will hold a company vote to either continue our existing charity partnership or select a new charity with which to partner. Our support office has also agreed to continue our relationship with Leicestershire Cares, which seeks to work with local businesses to support charity initiatives. Macmillan Cancer Support Since the 2015 start of Topps Tiles’ partnership with Macmillan Cancer Support, the Company has raised in excess of £530,000 – beating the company five-year target of £500,000 a year early. Around two thirds of this has come via the Pennies digital charity box scheme, where customers in stores can donate small change to Macmillan by rounding up their purchase to the nearest pound (the average donation is 38p). Our Chief Executive Officer Matthew Williams also sits on the Pennies advisory board. The total raised through Pennies in 2018 was nearly £200,000, up nearly 60% on the previous year’s donations, with the one millionth donation made in August 2018. Colleagues have also taken part in a variety of traditional fundraising events including bake sales, a summer barbecue, Christmas raffle and dress-up events, raising almost £56,000 in the past financial year. This included three cycling events: the marketing team cycled the equivalent miles from our most northern to most southerly store – Inverness to Penzance – in one day at a local gym. Members of our property team took on a charity ride around the picturesque Rutland Water, while the inaugural “Tour de Topps” saw 11 colleagues cycle together from our Enderby store to our Skegness store – 100 miles – in fewer than eight hours. PICTURED Colleagues from Topps Tiles and Parkside setting off on their 100- mile cycle ride from the Enderby store to the Skegness store. Topps Tiles AR2018.indd 30 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:20 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201831 1 3 2 4 5 PICTURED 1: Colleagues at Topps Tiles Bishops Stortford fundraising for the World’s Biggest Coffee Morning. 2: The marketing department cycling the equivalent miles from Inverness to Penzance. 3: Julie Cox from the finance team at a fundraising car boot sale. 4: Store fundraising on “go green for Macmillan” day. 5: The winning entry in the Winter Tile challenge completed by stores to raise funds for Macmillan. Topps Tiles AR2018.indd 31 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:24 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT32 Strategic Report: Corporate Social Responsibility Leicestershire Cares We continue to work alongside Leicestershire Cares, a charity organisation local to our Leicester support office, offering staff time out to take part in a range of initiatives to support local good causes. Last year we achieved many successes including: • A Christmas party for disadvantaged and homeless people, providing a festive buffet, gifts and fun quiz as well as a visit from former X Factor finalist Anton Stephans; • Support office colleagues collected more than 250 Easter eggs for children at hostels for families who were either homeless or escaping domestic abuse; • Area and regional managers from Regions 1 and 3 cleared and renovated an overgrown garden area at a centre which supports young adults and their families; • Fourteen finance colleagues undertook an environmental challenge at Bradgate Park, protecting new saplings from local deer by removing, repairing and building wooden tree frames; • Six logistics colleagues took on weeding and harvesting crops with Saffron Acres Allotments, which works with community groups, including to build life skills; and • Eight colleagues from the IT team cleared out communal gardens and laid a gravel area at a sheltered housing scheme. These challenges give everyone at Topps Tiles the opportunity to give something back to the local community as part of their working day and their own personal development, and enable the Company to showcase its brand as a proactive part of the community in Leicestershire and Rutland. 1 2 3 PICTURED 1: Guests from Leicestershire Cares at a festive lunch. 2: More than 250 Easter Eggs collected and donated to Leicestershire Cares by support office colleagues. 3: X Factor finalist Anton Stephans entertained guests at the charity festive lunch. Topps Tiles AR2018.indd 32 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:27 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201833 1 2 3 PICTURED 1: Area and regional managers undertaking a garden renovation project in Leicestershire. 2: Members of the IT team clearing communal gardens at a sheltered housing project. 3: Some of the logistics team at an environmental team challenge, including weeding and harvesting crops. Topps Tiles AR2018.indd 33 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:32 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT34 Strategic Report: Corporate Social Responsibility 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. In the past financial year more than 18,000 tiles at a retail value of almost £55,000 have been donated to nearly 40 community and charity projects. These have included an ongoing scheme to renovate the historic Byrne Avenue baths in Birkenhead, the redecoration of a Watford café to provide work experience for people with learning disabilities, tile-based artworks at several schools and various projects to improve home facilities for children with life-changing conditions. We have also donated tiles to projects highlighted by television programmes, taking part in two Love Your Garden shows, hosted by Alan Titchmarsh, and three episodes of Nick Knowles’ DIY SOS for families and projects based in Arundel, Hull and Torquay. 2 3 PICTURED 1: Pilgrims Way School 50th year celebrations. 2 and 3: Kingsley Hall Community Centre memorial mosaic. 1 Topps Tiles AR2018.indd 34 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:33 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 20181 3 4 35 2 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 become more active through our youth sport sponsorship. We donated funds to 176 teams throughout the UK during 2018. The majority of teams were football teams (89%), followed by rugby (10%) and the remainder netball and hockey. PICTURED 1 to 3: Tresco School, Penzance. 4 and 5: Pilgrims Way School. 6: Mosaic bench in progress for the Chessington Community Sensory Garden for SEN Pupils. 7: Arfon Celts Netball Club, sponsored by Topps Tiles. 5 6 7 Topps Tiles AR2018.indd 35 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:37 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT36 Strategic Report: Corporate Social Responsibility Transport This year has seen a focus on improvements within the transport facility in both people and fleet. We have completed a full change programme in two areas of our fleet, resulting in the upgrade of 23 MAN tractor units and five MAN rigid body vehicles to newer, more modern engines, which should bring in further fuel efficiencies in future years. All trucks have now been fitted with 360-degree cameras which will not only help ensure the integrity of our drivers in the unfortunate event of an accident, but also gives us greater transparency and accuracy in monitoring our safety standards. We continue to use Microlise on-board fleet technology to drive higher standards throughout the driver team, with an aim to produce better fuel consumption and minimise our accident rate. Our Warehouse to Wheels programme has also seen a successful year, with three warehouse colleagues undertaking training for and obtaining their HGV licences, becoming full-time drivers for the business. This is fast becoming an important source of trained drivers in what is an increasingly competitive market. Supply Chain We source products across the globe to bring the latest trends, cutting edge designs and advanced technologies to the UK to retain our position as market leader. As a trusted retailer our customers expect our products to be ethically sourced and therefore we look beyond our internal operation and ask for complete transparency across our supply base. 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 Responsible Sourcing code. This code has been designed to be ethical, auditable, achievable and is in place to promote good working practices with our suppliers. 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 as a minimum to comply with national and other applicable laws. PICTURED Topps Tiles marking Remembrance Day on its fleet. 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, we are rolling out a third-party auditing programme across our supply base over the next 18 months with specific emphasis on factories where any specific risks have been identified. In 2015, the Modern Day Slavery Act came into 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. Our Responsible Sourcing Code of Conduct and Modern Day Slavery Statement can be found on our website at toppstilesplc.com under Corporate Responsibility. Topps Tiles AR2018.indd 36 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:38 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201837 Carbon emissions per store have reduced from 34.3 to 31.1 tonnes per annum (-9.3%), compiled in conjunction with our electricity and gas suppliers and our in-house transport team. 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 Tile Association For the past two years we have been 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. Our commercial managing director Brian Linnington also sits on the board of directors of the TTA. We aim to work with the association on improving industry standards, training and offering support in encouraging best practises throughout the industry. In 2018 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 Berkeley Essence Sky, Diamante Blue and Mora Oak Mosaic Environment 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. Not content with just recycling more in our distribution centre, we are now also collecting waste from some 368 stores and sorting into different waste categories. This year has seen the introduction of our third mill-sized cardboard baler, capable of compacting one tonne bales to allow us to increase the revenue earned from this waste stream. Fifty-eight tonnes of cardboard is currently being recycled through our operation. We are also recycling 61 tonnes of polythene, 15 tonnes of nylon strapping and 12 tonnes of paper. Our Distribution Centres 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. We collect broken tiles from our entire estate and in partnership with Green4life and Lafarge we are now recycling 82% of our tile waste at a local quarry, where the tiles are crushed and converted into a composite of aggregate. This is a market-leading initiative based on our principle of reducing waste to landfill. At our Leicester support office we have set up recycling points and adopted a “no bin policy” at desks which has saved c.25,000 polythene bags per annum. The Company is a member of 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 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. At the very least we expect our 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. All new, relocated and refitted stores are installed with LED lighting and we are currently undertaking a project to investigate and trial the case for roll installation of LEDs to all remaining stores. We also monitor our water chargers closely in order to be able to identify, investigate and manage any leaks. Topps Tiles AR2018.indd 37 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:41 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT38 Strategic Report Non-Financial Information Statement Companies within the scope of s414CB must include a non- financial information statement in their strategic report. This requirement should be met through a title and a series of cross- references, so as to maintain the coherence of the strategic report, rather than replicating information located elsewhere in the strategic report within this statement. Group plc has complied with the requirements of s414CB of the Companies Act 2006 by including certain non-financial information within the Strategic Report. This can be found as follows: • Group plc’s business model is on page 10. • Information regarding the following matters, including policies, the due diligence process implemented in pursuance of the policies and outcomes of those policies, can be found on the following pages: − Environmental matters on page 37; − Employees on page 14; − Social matters on page 30; − Respect for human rights on page 36; and − Anti-corruption and anti-bribery matters on pages 30 to 35. • Where principal risks have been identified in relation to any of the matters listed above, these can be found on pages 24 to 29, including a description of the business relationships, products and services which are likely to cause adverse impacts in those areas of risk, and a description of how the principal risks are managed. • All key performance indicators of the Group, including those non-financial indicators, are on page 18. • The Business Performance section on pages 19 to 23 includes, where appropriate, references to, and additional explanations of, amounts included in the entity’s annual accounts. Going Concern When considering the going concern assertion 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 the 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 of the Group’s prospects has been made with reference to the Group’s current position, which has been strengthened by the refinance of loan facilities concluded in the period and the principal risks facing the Group, as detailed in the Strategic Report. In assessing the viability of the Group, the Board considers that the key risks to the delivery of its financial plans relate to Brexit-driven reduction in consumer confidence and major reputational damage from cyber security attacks, both of which would be expected to lead to a reduction in sales. In addition, there are key risks such as currency fluctuations and supply chain disruption driven by the uncertainty related to Brexit which could lead to a weakening in the Group’s gross margin. As a result, the Board has reviewed a number of sensitivities based on a reduction in sales and gross margin over the viability period of three years. 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. A 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 the sustained reduction in levels of consumer spending and rising margin costs through the next three years. The Board has also considered the Group’s current banking facilities which include a non-amortising revolving credit facility that expires in June 2021(with the opportunity to extend by a further year in June 2019 and June 2020). Based on this review the Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, for the next three years. Topps Tiles AR2018.indd 38 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:41 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201839 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. Directors’ Responsibility Statement We confirm that, 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. Annual General Meeting The Annual General Meeting for the period to 29 September 2018 will be held on 30 January 2019 at 10.00 a.m. at the Marriott Hotel, Smith Way, Grove Park, Enderby, Leicestershire, LE19 1SW. 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 27 November 2018 PICTURED Mora Walnut Mosaic Topps Tiles AR2018.indd 39 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:44 OUR GOVERNANCEOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018STRATEGIC REPORT1 Topps Tiles AR2018.indd 40 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:49 Our Governance CONTENTS Board of Directors Executive Team Corporate Governance Statement Directors’ Report Directors’ Remuneration Report 42 43 44 50 54 2 3 4 5 © 2018 Rocco Photography PICTURED 1. Astrea White and Regal Reflections Cottesmore Bathroom Cameo 2. Parkside: Leicester showroom 3. Parkside: Nando’s, Sheffield – design by Harrison 4. Hartley White and Minton Hollins Country Rustic White 5. Oparo Onyx and White Arabesque Topps Tiles AR2018.indd 41 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:44:57 42 Board of Directors DARREN SHAPLAND | D NON-EXECUTIVE CHAIRMAN MATTHEW WILLIAMS | CHIEF EXECUTIVE OFFICER ROB PARKER | CHIEF FINANCIAL OFFICER Darren joined the Board in March 2015 and has over 30 years of retail and consumer experience, having held senior financial and operational positions within the Burton Group, Arcadia and Kingfisher. Darren was Chief Financial Officer at J Sainsbury 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 Officer of Carpetright plc from 2012 to 2013. Darren is currently Non-Executive Director and Chairman of the Audit Committee at Ferguson plc. Matt joined Topps Tiles 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 Board in 2006, he was a key member of the team that established Topps Tiles 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 and sits on the Pennies Retail Hospitality Advisory Board. Rob joined the Board 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 accountable for all aspects of finance, human resources, logistics, property, IT, and company legal matters. KEITH DOWN | C D E NON-EXECUTIVE DIRECTOR CLAIRE TINEY | B D F H NON-EXECUTIVE DIRECTOR ANDY KING | E G H NON-EXECUTIVE DIRECTOR Keith joined the Board in February 2015. Keith is a chartered accountant and is currently the Group Finance Director of Selfridges Group, having held this post since July 2018. He was previously the Chief Financial Officer of Dunelm Group plc, Go-Ahead Group plc and JD Wetherspoons plc. Claire joined the Board 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. Andy joined the Board in January 2012. Formerly Chief Executive Officer of Evans Cycles, prior to that Managing Director of Dobbies Garden Centres and prior to that Chief Executive of Notcutts Garden Centres. Andy has also held director roles at The Body Shop, Mothercare, W H Smith and Boots The Chemists. Secretary of the Audit, Nomination and Governance A and Remuneration Committees D Member of Nomination and Governance Committee B Senior Independent Director C Chairman of Audit Committee E Member of Remuneration Committee F Chairman of Remuneration Committee G Chairman of Nomination and Governance Committee H Member of Audit Committee Topps Tiles AR2018.indd 42 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:02 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Executive Team 43 MATTHEW WILLIAMS* | CHIEF EXECUTIVE OFFICER ROB PARKER* | CHIEF FINANCIAL OFFICER TIM TATLOCK | BUYING DIRECTOR * Matthew Williams and Rob Parker also serve on the Board of Directors Tim is responsible for all our product assets and leads Creative, Sourcing, Technical and Inventory. He has over 20 years of tile industry experience and prior to joining Topps Tiles held senior leadership positions with UK tile distributors and multinational tile manufacturers and has an exceptional track record for leading product development and sales strategies that significantly improve results. His expert knowledge, innovative approach to product and global sourcing experience have seen him ascend though the Topps organisation since first joining as Buyer in 2005. Tim was appointed as Group Buying Director in April 2018. BRIAN LINNINGTON | MANAGING DIRECTOR OF COMMERCIAL RICHARD CARTER | MANAGING DIRECTOR OF RETAIL A chemistry graduate and MBA, Brian has many years of 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, before being appointed Product and Marketing Director at Vision Express. Brian joined Topps Tiles in 2012 to take responsibility for buying, marketing and online, before being appointed Managing Director of Commercial in April 2018. Richard is an experienced retailer who has worked for both blue chip retailers and 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 Tiles in 2010 to take responsibility for retail operations, supply chain and the trade customer division, before being appointed Managing Director of Retail in April 2018. The Company Topps Tiles plc Registration Number 3213782 Registered Office Thorpe Way, Grove Park Enderby, Leicestershire LE19 1SU Secretary Alistair Hodder London Stock Exchange Symbol TPT The Group Comprises Topps Tiles plc and all subsidiary companies. Our Advisers Auditor Deloitte LLP 2 Hardman Street Manchester, M3 3HT Bankers Barclays Bank PLC 3 Hardman Street, Spinningfields Manchester, M3 3HF Registrars Link 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 ALISTAIR HODDER | A COMPANY SECRETARY AND SECRETARY OF BOARD OF COMMITTEES Alistair joined Topps Tiles as Head of Legal & Company Secretary in June 2018. A solicitor, with in-house and in private practice experience, formerly Head of Legal at NHBC. Topps Tiles AR2018.indd 43 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:08 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE 44 Corporate Governance Statement The Board has reviewed the contents of this Annual Report and considers it fair, balanced, understandable and an accurate representation of the Company’s current position, performance, business model and strategy. DARREN SHAPLAND | CHAIRMAN Dear Shareholder The Company is committed to complying with the principles of corporate governance contained in the UK Corporate Governance Code issued by the Financial Reporting Council (the “Code”) for which the Board is accountable. The 2016 edition of the Code is applicable to the period covered by this Annual Report (the “Period”). The Board is mindful of the new UK Corporate Governance Code, which was published earlier this year, and has started to consider the implications of the new Code for the Company. The Board has reviewed the contents of this Annual Report and considers it fair, balanced, understandable and an accurate representation of the Company’s current position, performance, business model and strategy. The basis for this view is that the Directors are furnished with the requisite information to perform their duties and have access to members of management, as they require. The Board meets regularly and is given adequate time to probe, debate and challenge business performance as and when it considers it necessary to do so. The Board has received a report from the Audit Committee in relation to the financial results and based on that, has approved the final accounts for the period. Having gained a thorough understanding of the business, each member of the Board 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 2016 UK Corporate Governance Code Throughout the period, the Company has complied with the principles set out in the 2016 Code, including both the Main Principles and the supporting principles, as reported. More on 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 internal 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, an annual internal evaluation of the Chairman’s performance was carried out. 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 the CEO and that of the Chairman. The Board currently comprises six members, of which four are considered independent, in line with the 2016 Code. The Senior Independent Non-Executive Director is Claire Tiney, who also chairs the Remuneration Committee. Brief biographical details of all Directors are given on page 42. The Board meets twelve times a year. Certain defined matters are reserved for the Board including: • investor relations; • approval of Financial Statements and circulars; • approval of operating and capital expenditure budgets; • approval of the strategy and business plan; • approval of corporate transactions and changes to capital structure, core activities or listing status; • key polices including Ethical Trading, Anti-Bribery and Health and Safety; • directors’ appointments; • corporate governance; • key external and internal appointments; and • pensions and employee incentives. Topps Tiles AR2018.indd 44 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:10 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201845 During the Period, the Board reviewed the matters reserved for the Board and those delegated to Committees and is satisfied that they 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. 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 address 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 2016 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. 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. The Board operates three committees. These are the Nomination and Governance Committee, the Remuneration Committee and the Audit Committee. All committees meet regularly and have formal written terms of reference, which are available for inspection on request. Attendance at Board and Committee meetings The following table shows the number of Board and Committee meetings held during the Period 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 Remuneration Committee Nomination and Governance Committee D. Shapland M. Williams R. Parker 12 12 12 12 12 12 * * 2 2 * * * * * * C. Tiney 12 12 3 3 2 3 3 2 A. King K. Down 12 12 11 12 † 3 3 2 3 3 2 3 2 2 3 3 † 2 Meetings attended Possible meetings * May attend by invitation of the Chair of the committee. † Unable to attend one meeting due to an unavoidable prior commitment. The Role of the Board of Directors The Board of Directors has overall responsibility for determining the Company’s purpose, values and strategy and for ensuring high standards of governance. The primary aim of the Board is to promote the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society. Stakeholders include employees, shareholders, suppliers, customers and creditors of the business. Topps Tiles AR2018.indd 45 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:10 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE46 Corporate Governance Statement Board Committee Areas of Responsibility AUDIT COMMITTEE NOMINATION AND GOVERNANCE COMMITTEE REMUNERATION COMMITTEE • Financial reporting • Board structure • Chairman and Executive Director’s • Narrative reporting (fair, balanced • Board evaluation and understandable) • Internal controls and risk management systems • Compliance, whistleblowing and • Board, committee and senior executive appointments • Board committee and senior executive succession plans remuneration • Senior management remuneration • Share incentive plans • Employee benefits structures fraud • Internal audit • External audit Read more below Read more on page 47 Read more on page 54 BOARD COMPOSITION EXECUTIVE 33.3% BOARD TENURE 0–3 YEARS 0 3–6 YEARS 2 GENDER DIVERSITY MALE 83.3% NON-EXECUTIVE 66.6% 6 YEARS+ 4 FEMALE 16.6% Applying the Principles of the 2016 Code The Company has applied the principles of the 2016 Code as reported above. How the 2016 Code has been applied in connection with Directors’ remuneration is set out in the Remuneration Report. Audit Committee The Audit Committee comprises independent Non-Executive Directors, Keith Down (Chairman), Claire Tiney and Andy King. Their qualifications are detailed on page 42. The Chairman has relevant experience, being a qualified Chartered Accountant, a former Chief Financial Officer of a listed company and a serving Chief Financial Officer of a non-listed company. The Chief Executive Officer, Chief Financial Officer and the Chairman of the Board may 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. The Committee is responsible for ensuring that 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. This process is performed by the Committee in conjunction with a number of senior operational managers. The Committee 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 quarterly to the Board. During the Period, the Committee has considered and updated the Topps Tiles Group Tax Strategy, which is published on the Company’s website. Topps Tiles AR2018.indd 46 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:11 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018 47 The Audit Committee also reviews the independence of the Company’s external auditor, Deloitte LLP. Deloitte has been the external auditor for the Group since September 2003. Audit partner Damian Sanders’ first period of signing was the financial period ended 27 September 2014. In line with independence requirements, the financial period ended 29 September 2018 will be his last period as Senior Statutory Auditor. Given the requirement for a new audit partner, and with the aim of appointing a locally based partner, the Company conducted a competitive audit tender process. PricewaterhouseCoopers LLP were selected and a resolution will be proposed at the Annual General Meeting to appoint PricewaterhouseCoopers LLP as the Auditor from the conclusion of the meeting. 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, with the exception of the performance of an interim review. The audit fee for the statutory audit of the Company’s consolidated financial statements and audit related services for the Period is £160,000 (2017: £142,500). Nomination and Governance Committee The Nomination and Governance Committee comprises independent Non-Executive Directors Andy King (Chairman), Darren Shapland, Keith Down and Claire Tiney. The Committee is responsible for making recommendations to the Board for appointments of Directors and other senior management and for diversity, on which our policy is included in the Strategic Report. The Committee, in conjunction with the Chief Executive, has reviewed succession planning in relation to senior management within the Company and development plans for senior management development and diversity. 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 is 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’s management to present 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 considers what appropriate mitigating effects should be implemented. Read more information in the Strategic Report on pages 08 to 39 • 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. 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. Provisions are made to the extent that the poor performing store leases are considered onerous. • Dilapidations are provided for across the entire store portfolio. Management provides an estimate of the required provision based on an assessment of the expected exit period for the current portfolio and average dilapidation cost incurred historically. The Audit committee reviews the inputs in the provision at each reporting period and approves the inputs and provision included within the Annual Report. • 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 conducts 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. The Audit Committee reviews the output of these reviews and approves the provisions included in the Annual Report. • 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 a 3-year look-forward basis. The conclusion of those reviews is included in the Strategic Report. Topps Tiles AR2018.indd 47 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:11 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE 48 Corporate Governance Statement Remuneration Committee See pages 54 to 69 All Committee Terms of Reference can be found within the Investors section of the Company’s website Toppstilesplc.com. Dialogue with Institutional Shareholders The Directors build on a mutual understanding of objectives between the Company and its institutional shareholders, with annual presentations and regular communications over the year. In addition, I write to major shareholders each year and meet with many of them to discuss the Company and its governance. Financial information is published on the Company’s website Toppstilesplc.com. The chairs of the Audit, Remuneration and Nomination and Governance Committees make themselves available at the AGM to answer shareholders’ questions. Modern Slavery The Board is committed to ensuring that acts of modern day slavery and human trafficking do not occur in relation to the Company, or its supply chain. To meet this commitment, the Company introduced The Topps Tiles Code of Conduct for Suppliers, which is explained in our Modern Slavery Statement on the Company’s website. This is 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. 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. This 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. As previously stated, the Company is committed to complying with Corporate Governance guidelines and currently complies with the 2016 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 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 27 November 2018 Topps Tiles AR2018.indd 48 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:11 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201849 PICTURED Tile of the Year for 2019 Lampas Peacock (wall) with Stadia Storm (floor) Topps Tiles AR2018.indd 49 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:15 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE50 Directors’ Report The Directors of Topps Tiles plc (the “Directors” or the “Board”) present their Annual Report on the affairs of the Group (comprising Topps Tiles plc and its subsidiary companies) together with the Financial Statements and Auditor’s Report, for the 52-week period ended 29 September 2018. The Corporate Governance Statement set out on pages 44 to 48 forms part of this report. Principal Activity The principal activity of the Group is 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 29 September 2018 and of the position of the Group at the end of that financial period. The Company is also required to set out a description of the principal risks and uncertainties facing the Group. The information is in the Chairman’s Statement on page 04, the Strategic Report on pages 08 to 39, and the Corporate and Social Responsibility (“CSR”) statement on pages 30 to 37, which form part of the Directors’ Report. 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 18. The Company conducts an annual strategic risk discussion with the Chairman of the Audit Committee and senior managers, which includes a wide range of risks including commercial, continuity, environmental, social and governance risks. Results and Dividends The audited Financial Statements for the 52-week period ended 29 September 2018 are set out on pages 80 to 121. The Group’s profit for the period from continuing operations, after taxation, was £9,659,000 (2017: £13,431,000). During the interim period, a dividend of 1.1 pence per share was declared and paid (2017: interim dividend of 1.1 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 £4,447,000 (2017: 2.3 pence per share, totalling £4,425,000). 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, 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 board and general meetings. Copies are available upon request and are displayed on the Company’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 Corporate Governance Statement on pages 44 to 48. The Articles of Association can be amended by a special resolution of the Company’s shareholders. Voting on resolutions at the Annual General Meeting is by show of hands for members present taken together with proxy votes, in line with the Company’s Articles of Association. The results of the proxy votes cast in advance are disclosed to the members present. In the event that the 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 66. Details of Directors’ share options are provided in the Directors’ Remuneration Report on pages 54 to 69. Topps Tiles AR2018.indd 50 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:16 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201851 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. The Company imposes no 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 company law. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid. Change of Control – Significant Agreements The Group is party to significant agreements, including commercial contracts, financial and property agreements and employees’ share plans, which contain certain termination and other rights for the counterparties in the event of a change of control of the Company. Should any counterparties choose to exercise their rights under such agreements on a change of control, these arrangements may have to be renegotiated or replacement suppliers, or premises, be found. None of these is considered significant in terms of the 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 that 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 Corporate Social Responsibility statement of this report on page 37, our primary energy consumption is electricity used across our store estate. Energy for in-store lighting is a significant source of carbon emissions. We continue to invest in new technology, including low energy lighting, to minimise carbon emissions. Electricity Gas and oil Commercial fleet Company cars Total 2018 2017 CO2 (Tonnes) CO2 (Tonnes)/Store CO2 (Tonnes) CO2 (Tonnes)/Store 5,486 2,520 3,204 348 11,558 14.8 6.8 8.6 0.9 31.1 6,424 2,554 3,074 340 12,392 17.8 7.1 8.5 0.9 34.3 The above carbon emissions data covers the Period of this Annual Report. It has been compiled from data from our energy suppliers (based on the energy consumed multiplied by Environment Agency approved emissions factors) and for vehicle emissions, from our in- house transport team (based on mileage covered multiplied by manufacturer’s published emissions data). Charitable and Political Contributions The Group has designated charitable partners, the Macmillan Trust and Leicestershire Cares. 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 and no political contributions. Substantial Shareholdings In addition to the Directors’ shareholdings noted on page 66, as at 29 September 2018, 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. Number % held Williams S K M Esq Aberforth Partners LLP AXA Investment Managers SA BlackRock Investment Mgt (UK) Clients of Woodford Invesco Asset Management FMR plc Schroder Investment Mgt Miton Group Standard Life 20,593,950 19,367,054 19,213,670 11,256,019 9,810,000 9,790,934 9,702,900 9,300,541 8,920,893 7,783,246 10.5 10.0 9.9 5.8 5.1 5.1 5.0 4.8 4.7 4.0 In addition to the above shareholdings, between 29 September 2018 and 27 November 2018 we have not been notified of any changes in shareholdings. Topps Tiles AR2018.indd 51 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:16 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE52 Directors’ Report Corporate Social Responsibility The Company has a long-standing Corporate Social Responsibility (CSR) agenda covering Community, Charity, the Environment and Our People. Details of our current CSR activities are on pages 30 to 39. We take the impact of our business on our environment extremely seriously and have included a range of environmental metrics above and we pay particular attention to labour standards and factory conditions. Human Rights All directly employed colleagues are based in the UK and covered by UK employment law. The Modern Slavery Act 2015 came into effect in 2015 and the Board is committed to ensuring that acts of modern day slavery and human trafficking do not occur in relation to the Company, or its supply chain. For more on this see page 36. Diversity The Nomination and Governance Committee reviews the balance of skills, knowledge and experience on the Board regularly. The Board recognises the importance and benefits of diversity across all levels in our organisation. We appoint on merit, against objective criteria and with due regard for the benefits of diversity. During the year, we have seen a small improvement in overall gender diversity but also recognise that our senior manager population currently lacks diversity. Our workforce at the period end date comprises: Directors Senior managers Other employees Total employees % of total Male 5 11 1,479 1,495 75% 2018 Female 1 2 489 492 25% Total 6 13 1,968 1,987 Male 5 11 1,506 1,522 76% 2017 Female 1 2 473 476 24% Total 6 13 1,979 1,998 Equal Opportunities The Board is committed to promoting equal opportunities and ensuring that we hire on potential, promote on talent and reward on success. We aim to promote equality of opportunity in employment and welcome applications from people of all backgrounds, regardless of age, disability, gender reassignment, marriage or civil partnership status, pregnancy, maternity, race, religion or belief and sex. Colleague Consultation The Board values the views of employees and recognises the importance of keeping employees informed of matters affecting them and the Group. This is achieved through formal and informal meetings, electronic announcements, the Company magazine and ‘TEAM Talk’, a company-wide forum for colleagues to discuss matters that affect them and the Company. Regular forums are held at local and national levels to ensure that employee representatives are consulted quarterly on matters affecting them. Financial Risk Management, Objectives and Policies The Group is exposed to interest rate risk, currency risk and credit risk. Information regarding our approach to managing these risks is contained in note 19 to the Financial Statements. The Group’s approach to risk management is explained in the Strategic Report on pages 24 to 29. 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 14,506,987 (2017: 13,027,913). As described in note 29, employee share purchase plans are open to almost all employees and provide for employees to purchase Ordinary Shares at a purchase price equal to the daily average market price over the three days preceding the start of the offer period, less 20%. The offer period fell between 5 January 2018 and 20 January 2018 and the offer price to employees was 0.70 pence. Details of Directors’ share options are provided in the Directors’ Remuneration Report on page 66. Topps Tiles AR2018.indd 52 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:16 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201853 Information Given to the Auditor Each of the Directors at the date of approval of this Annual Report confirms that: In preparing the Group financial statements, International Accounting Standard 1 requires that Directors: • properly select and apply accounting policies; • so far as they are aware, there is no relevant audit information • present information, including accounting policies, in a of which the Company’s auditor is unaware; and • they have 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. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Auditor A resolution to appoint PricewaterhouseCoopers LLP as the Company’s auditor will be proposed at the forthcoming Annual General Meeting. This follows the planned retirement of the Deloitte audit partner and an audit tender process to select new auditors for the Group. 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 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 • assess 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. Responsibility Statement We confirm that to the best of our knowledge: • • • 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 • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. ROB PARKER | DIRECTOR 27 November 2018 Topps Tiles AR2018.indd 53 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:16 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE54 Directors’ Remuneration Report The objective of the Remuneration Committee is to ensure that the Executive Directors are fairly and appropriately rewarded for their contribution towards the delivery of the business strategy and the company’s financial results. In doing so we also aim to make the various elements of the remuneration package, transparent, easy to communicate and simple to operate. CLAIRE TINEY | CHAIRMAN OF THE REMUNERATION COMMITTEE Statement from the Chairman of the Remuneration Committee Dear Shareholder On behalf of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report for the 52 weeks ended 29 September 2018. This report has been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the UKLA Listing Rules and the UK Corporate Governance Code. The report is divided into three parts: 1. The annual statement by the Chair of the Remuneration Committee. 2. A summary of the Directors’ remuneration policy, which was subject to a binding vote at the AGM in January 2017 and will apply for three years from the date of approval. A summary of the policy can be found on pages 55 to 62. 3. The annual report on remuneration which sets out payments made to the Directors and details the link between Company performance and remuneration for the 52 weeks ended 29 September 2018. The annual report on remuneration is subject to an advisory shareholder vote at the 2019 AGM. Performance in 2018/19 and Remuneration Outcomes The year under review presented some challenging market conditions; despite this, the business continued to make strategic investments in line with the business plan and retains its market leading position in the retail tile market. Additionally, the development of the commercial business has progressed at pace since the acquisition of Parkside in September 2017. Reflecting the financial performance of the Group, the annual bonus payment was 14% of the maximum. This was based on achieving stage one of the financial targets which were linked to delivery of Adjusted PBT of £16 million. The remainder of the bonus was linked to delivery of the strategic targets and performance against these was partially met as outlined on page 64. The long-term plan awards granted in December 2015 were based upon performance over the three financial years to September 2018. The awards required cumulative adjusted earnings per share (EPS) over the period to be at least 27.29p for 25% vesting, increasing to 29.42p for full vesting of the awards. Actual cumulative EPS was 23.13p; therefore, no payments will be made in respect of the LTIP. Topps Tiles AR2018.indd 54 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:17 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201855 Remuneration Decisions for 2018/19 During the period, the Committee reviewed the base salary levels for the Executive Directors. It was decided to leave the salary level for the CEO and Non-Executive Directors unchanged, but to award an increase of £10,000 to the CFO to reflect expanded responsibilities, effective from 1 October 2018. 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. New UK Corporate Governance Code The Committee is mindful of the new UK Corporate Governance Code, which was published earlier this year, and is considering the implications of the new Code for the Company’s Remuneration Report for the next year. Annual General Meeting 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 30 January 2019. In the meantime, I am always happy to hear from the Company’s shareholders. You can contact me via the Company Secretary if you have any questions on this report or more generally in relation to the Company’s remuneration. CLAIRE TINEY | CHAIRMAN OF THE REMUNERATION COMMITTEE 27 November 2018 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 Component Base salary Purpose and link to strategy Core element of fixed remuneration set at a market competitive level with the aim to attract and retain Executive Directors of the calibre required. Operation Maximum opportunity Performance measures 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. 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. Topps Tiles AR2018.indd 55 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:18 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE56 Directors’ Remuneration Report Executive Directors Component Benefits Purpose and link to strategy Fixed element of remuneration set at a market competitive level with the aim to attract and retain Executive Directors of the calibre required. Operation Maximum opportunity Performance measures Not applicable. While 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. 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. 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. 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. Pensions 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”). Topps Tiles AR2018.indd 56 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:18 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201857 Executive Directors Purpose and link to strategy Component Annual bonus Rewards performance against annual targets which support the strategic direction of the Group. 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. Operation Maximum opportunity Performance measures 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. Topps Tiles AR2018.indd 57 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:18 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE58 Directors’ Remuneration Report 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 adjusted 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 while 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. Illustrations of Application of Remuneration Policy for 2018/19 M T M WILLIAMS £1,287k R PARKER £885k % 3 2 % 3 2 % 4 5 £483k % 0 0 1 % 1 3 % 1 3 % 8 3 ) 0 0 0 £ ’ ( n o i t a r e n u m e r l t a o T £591k % 3 2 % 3 2 % 4 5 £326k % 0 0 1 ) 0 0 0 £ ’ ( n o i t a r e n u m e r l t a o T £857k % 1 3 % 1 3 % 8 3 Minimum performance Performance in line with expectations Maximum performance Maximum performance Perormance in-line with expectations Minimum performance Base salary, beneﬁts and pensions Base salary, beneﬁts and pensions Annual bonus LTIP Annual bonus LTIP Topps Tiles AR2018.indd 58 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:19 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018 59 In illustrating the potential reward, the following assumptions have been made: Minimum performance Performance in line with expectations Maximum performance Fixed pay Annual bonus LTIP* Fixed elements of remuneration only – base salary (being the salary as at 1 October 2018), benefits as disclosed in the single figure table on page 63 for the year 2017/18 and pension of 12.5% of salary. No bonus. 50% of salary awarded for achieving target performance. 100% of salary awarded for achieving maximum performance. No LTIP vesting. 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 Approach of the Company 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. 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 option 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. Topps Tiles AR2018.indd 59 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:19 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE60 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 “buy out” 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. 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. Topps Tiles AR2018.indd 60 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:19 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201861 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 prorated 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. Mitigation All employee share plans 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. 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. 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. 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. Topps Tiles AR2018.indd 61 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:19 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE62 Directors’ Remuneration Report 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. 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 29 September 2018 and the 52 week period ended 30 September 2017. 2017/18 Executive Directors M T M Williams R Parker Non-Executive Directors D Shapland A King K Down C Tiney 2016/17 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 £’000 402 256 126 44 44 45 31 27 3 1 – 1 56 36 – – – – – – – – – – 49 28 – – – – 538 347 129 45 44 46 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 – – – 35 23 – – – – 256 158 – – – – 49 27 – – – – 765 484 126 43 43 44 Topps Tiles AR2018.indd 62 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:19 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201863 The figures in the single figure tables above are derived from the following: Salary and fees Benefits Pension 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 5 12 5 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 (paid as cash in lieu in respect of Rob Parker). Annual bonus 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 64. LTIP The LTIP figure for the period 2017/18 represents the awards granted on 16 December 2015. The awards were based on cumulative EPS performance over three financial years to 29 September 2018 and will not vest. The LTIP figure stated for the period 2016/17 represents the value of awards granted under the Topps Tiles plc 2013 Long Term Incentive Plan on the 12 December 2014. The awards were based on cumulative EPS performance over three financial years to 30 September 2017 and vested at 86.7% on 28 November 2016. 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 1 October 2017. 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 2018: M T M Williams R Parker Base salary 1 October 2017 £402,030 £255,616 Base salary 1 October 2018 £402,030 £265,616 % increase 0% 4% The base salary increase for Matthew Williams awarded in 2018 was in line with the range of salary increases across the Group; and the base salary increase for Rob Parker was in line with expanded responsibilities. 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. No change to the fee policy is currently anticipated for 2018/19. Chairman’s fee Non-Executive Directors’ Basic fee Additional fees Senior Independent Director/Chair of Remuneration Committee Chair of the Nomination and Governance Committee Chair of the Audit Committee Fees 1 October 2017 £126,720 £38,561 Fees 1 October 2018 £126,720 £38,561 £6,462 £5,385 £5,385 £6,462 £5,385 £5,385 % increase 0% 0% 0% 0% 0% Topps Tiles AR2018.indd 63 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:19 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE64 Directors’ Remuneration Report 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 29 September 2018, 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 2017/2018 and how this reflects performance for the period: Adjusted PBT1 Strategic objectives2: Improving Average Transaction Value Improving Customer Service Reducing Working Capital Improving Colleague Engagement Other strategic initiatives3 Total bonus earned Weighting Threshold Stretch Executive Director bonus earned as a percentage of salary Actual performance 80% £16.0 million £21.0 million £16.0 million 4% 4% 4% 4% 4% £70.80 69.1% >£1m +2pts n/a £72.30 70.6% >£4m +8pts n/a £70.86 66.8% £2.5m 21.6pts 3% 1% 0% 2% 4% 4% 14% 1. Adjusted PBT as defined in the Financial Review section of this report. 2. Adjusted PBT of £16.0 million or higher for 2017/18 must be achieved for any bonus to be payable under the strategic objectives. This requirement was achieved. 3. The other strategic initiatives related to delivery of a trade credit solution (achieved), refitting at least 115 stores as part of the “All Store Improvement Programme” of store improvements (achieved), completing our “faster systems” programme (achieved), and generating theoretical store hours savings of at least 3,000 hours as part of our simplification initiative (achieved). Each initiative accounted for 1% of the overall bonus. The bonuses were paid in cash in November 2018. Annual Bonus for 2018/19 The maximum annual bonus opportunity for the 2018/19 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 2018/19 are based on improvements in customer service, a shared buying initiative, working capital reductions, delivery of a simplification programme and a range of people based measures including the delivery of a new HR and payroll system. 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 Committee will continue to disclose how the bonus pay-out delivered relates to performance against the targets on a retrospective basis. Long-Term Incentives (Audited Information) Awards Vesting in Respect of the Financial Year The LTIP awards granted in December 2015 were based on cumulative adjusted EPS targets over the three financial years to 29 September 2018. The performance targets for the awards were as follows: Cumulative Adjusted EPS for the period 2015/16 to 2017/18 Percentage of the award that will vest 27.29 pence Greater than 27.29 pence but less than 29.42 pence 29.42 pence 25% Determined on a straight-line basis between 25% and 100% 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 23.13p pence. This resulted in 0% of the award vesting. Topps Tiles AR2018.indd 64 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:20 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201865 Awards Granted During the Financial Year (Audited Information) For the 52 week period ended 29 September 2018 the following awards were granted to Executive Directors on 14 December 2017: M T M Williams R Parker Type of award Nil-cost option Nil-cost option Percentage of salary 100% 100% Number of shares 556,443 353,794 Face value at grant1 402,030 255,616 % of award vesting at threshold Performance period 25% 25% 3 years 3 years 1. Valued using a share price of 72.25 pence based on the average three-day share price ending on 6 October 2017. The awards will vest based on the following Cumulative Adjusted EPS targets: Cumulative Adjusted EPS for the period 2017/18 to 2019/20 Percentage of the award that will vest 23.52 pence Greater than 23.52 pence but less than 25.37 pence 25.37 pence 25% Determined on a straight-line basis between 25% and 100% 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 2016/17 out-turn 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. Long-Term Incentives for 2018/19 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 2018/19 out-turn for 25% vesting and c.11% for 100% vesting. The Remuneration Committee considers that both the threshold and stretch targets are challenging in the light of the growth environment and current business expectation. Cumulative Adjusted EPS for the period 2018/19 to 2020/21 Percentage of the award that will vest 22.04 pence Greater than 22.04 pence but less than 23.76 pence 23.76 pence 25% Determined on a straight-line basis between 25% and 100% 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. 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. Topps Tiles AR2018.indd 65 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:20 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE66 Directors’ Remuneration Report The following SAYE options were granted to the Executive Directors during the financial year ended 29 September 2018: M T M Williams R Parker Type of award1 Number of shares Face value at grant2 3yr Discounted share option 3yr Discounted share option 5,625 5,625 5,063 5,063 1. 2. 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 2017/18 the share price at the date of invitation was 90 pence and the exercise price is 64 pence per share. In accordance with the scheme rules, the exercise of the options is not subject to any performance condition. 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 90 pence for these options granted on 29 January 2018). 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 29 September 2018: M T M Williams R Parker The interests of each Executive Director of the Company as at 29 September 2018 were as follows: Current shareholding (as % of salary) 448 227 Shareholding guidelines 200% 150% Director Executive Directors M T M Williams R Parker Non-Executive Directors D Shapland K Down C Tiney A King Type Owned Shares LTIP shares SAYE options 2,023,231 n/a Shares LTIP shares SAYE options 417,893 n/a n/a Shares Shares Shares Shares 80,000 n/a 15,480 n/a Exercised during the year Unvested and subject to performance conditions Unvested and not subject to performance conditions Total as at 29 September 2018 Vested 1,517,613 n/a 1,471,680 n/a 18,325 2,023,231 2,989,293 18,325 n/a 616,063 n/a n/a 935,714 n/a n/a n/a 23,049 417,893 1,551,777 23,049 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 80,000 n/a 15,480 n/a 0 n/a n/a 0 n/a n/a n/a n/a n/a Note: Directors’ shareholdings include shares held by their closely associated persons where relevant. There have been no changes in the Directors’ shareholdings between 29 September 2018 and the date of this report; except as follows: • R Parker, purchase of 35,000 shares on 3 October 2018 • M Williams, 483 shares through SAYE Topps Tiles AR2018.indd 66 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:20 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201867 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 nine years to 29 September 2018. For the purposes of the graph, TSR has been calculated as the percentage change during the nine-year period in the market price of the shares, assuming that dividends are reinvested. The graph shows the value, by the end of the 2017/2018 financial year, of £100 invested in the Group over the last nine 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 2010 2011 2012 2013 2014 2015 2016 2017 2018 Topps Tiles FTSE Small Cap Index Topps Tiles AR2018.indd 67 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:20 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE68 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 nine financial years. 52 week period ended 29 September 2018 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 52 week period ended 1 October 2010 Total remuneration £’000 Annual bonus as a % of maximum opportunity LTIP as a % of maximum opportunity 538 765 1,180 2,027 849 564 579 384 515 14% 9% 67% 83% 99% 46.3% 35.2% 0% 40% 0% 86.7% 100% 100% n/a n/a n/a n/a n/a 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 0% 0% 60% Wider workforce 1.5% 6.8% 20% Executive Director’s remuneration from non-executive roles Matthew Williams is a non-executive director of The Original Factory Shop. Remuneration of approximately £35,000 was retained during the period ending 29 September 2018. 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 29 September 2018 52 week period ended 1 October 2017 3.4 pence per share £54,909,000 3.4 pence per share £50,548,000 Percentage change 0% 8.6% Topps Tiles AR2018.indd 68 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:21 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201869 Consideration by the Directors of Matters Relating to Directors’ Remuneration The Committee is composed of the Company’s independent Non-Executive Directors, Claire Tiney (Chair), Andy King and Keith Down. The Company Secretary attends the meetings as secretary to the Committee. The role of the Committee is to: • Set and keep under review the remuneration policy for the Executive Directors and Chairman; • Determine the remuneration of the Executive Directors and Chairman, including short-term and long-term incentives, in line with the Remuneration Policy; • Recommend and monitor the level and structure of remuneration for senior management; • Approve the design of and determine targets for performance-related pay schemes and approve the payments made under them; • Review the design of all share incentive plans and for those in place and determine what awards will be made; and • Oversee any major changes in employee benefits structures throughout the company or group. 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 management. 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 29 September 2018 £18,153 (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 adheres 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 31 January 2018: Resolution Votes for % of vote Votes against % of vote Discretion % of vote Votes withheld Approve Remuneration Report 127,523,612 96.58% 4,507,286 3.41% 8,099 0.01% 1,254,655 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 27 November 2018 and signed on its behalf by: CLAIRE TINEY | CHAIRMAN OF THE REMUNERATION COMMITTEE 27 November 2018 Topps Tiles AR2018.indd 69 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:21 STRATEGIC REPORTOUR FINANCIALSADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR GOVERNANCE1 Topps Tiles AR2018.indd 70 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:27 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 Company Statement of Changes in Equity Notes to the Company Financial Statements 72 80 80 81 82 83 84 114 115 116 2 © 2018 Rogier van Zeventer 3 4 5 PICTURED 1. Syren Nordic Blue and Arabescato 2. Parkside: The Brass, Dubai – design by Harrison 3. Parkside: Clerkenwell 4. Standard Travertine and Parkway 5. Matrix Rainforest Green, Penteli and Hexmix Carrara Topps Tiles AR2018.indd 71 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:35 72 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 of Topps Tiles plc (the “parent company”) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 29 September 2018 and of the Group’s profit for the 52 weeks 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 which comprise: • • • • • • • the Consolidated Statement of Financial Performance; the Consolidated Statement of Comprehensive Income; the Consolidated Statement of Financial Position; the Consolidated and Parent Company Statements of Changes in Equity; the Consolidated Cash Flow Statement; the Parent Company Balance Sheet; and 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 Financial Reporting Council’s (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; • Onerous leases and store impairment; and • Dilapidation provisions Materiality Scoping Within this report, any new key audit matters are identified with same as the prior period identified with . and any key audit matters which are the The materiality that we used for the Group financial statements was £700,000 which was determined on the basis of 5% of profit before tax adjusted for the loss in relation to Parkside. Our full scope audit procedures covered 99.0% of revenue, 108.2% of profit before tax, offset by losses on consolidation elsewhere in the Group and 102.6% of net assets, offset by net liabilities elsewhere in the Group. Significant changes in our approach In the prior period we determined our materiality as 5% of statutory profit before tax. In the current period we have adjusted this benchmark for the loss in relation to Parkside given it is in year 1 of a start-up phase. In the current year we have separated within this report key audit matters in relation to onerous leases and store impairment and dilapidations provisions, which were previously shown under the heading “property provisions”. Topps Tiles AR2018.indd 72 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:35 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201873 Conclusions relating to going concern, principal risks and viability statement Going concern We have reviewed the directors’ statement in note 2B 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’s and company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements. We are required to state whether we have anything material to add or draw attention to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in the audit. We confirm that we have nothing material to report, add or draw attention to in respect of these matters. Principal risks and viability statement Based solely on reading the directors’ statements and considering whether they were consistent with the knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors’ assessment of the Group’s and the company’s ability to continue as a going concern, we are required to state whether we have anything material to add or draw attention to in relation to: We confirm that we have nothing material to report, add or draw attention to in respect of these matters. • • • the disclosures on pages 25 to 29 that describe the principal risks and explain how they are being managed or mitigated; the directors’ confirmation on page 29 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; or the directors’ explanation on page 38 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. We are also required to report whether the directors’ statement relating to the prospects of the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. 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. In the current year we have separated within this report key audit matters in relation to onerous leases and store impairment and dilapidations provisions, which were previously shown under the heading “property provisions” as such these key audit matters are considered consistent with the prior period. Topps Tiles AR2018.indd 73 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:35 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS74 Independent Auditor’s Report to the Members of Topps Tiles Plc Report on the audit of the financial statements Inventory valuation 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 retail 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 £30.2 million (2017: £29.5 million) and the judgements noted above, we identified this as a key audit matter. How the scope of our audit responded to the key audit matter Inventory valuation policy is included with note 2 to the accounts and reviewed by the Audit Committee as disclosed on page 47. 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 have also reviewed historical levels of write-offs and compared this to provision levels at period end. 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. 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. Key observations Onerous leases and store impairment Key audit matter description The onerous leases and potential store impairment relate to the Group’s retail store portfolio. The appropriateness and completeness of onerous lease provisions of £1.8m (2017: £1.7m) and the potential impairment of the fixed assets in relation to those stores is judgemental as they include an assessment of the likely future profitability of the retail stores, and an assessment of the impact of the current economic retail environment. There is also judgement in the assessment of the periods for which leasehold properties may be vacant. Due to the size of the Group’s property portfolio and the sensitivity of the assumptions, onerous leases and store impairment were considered one area for potential fraud and one which had the most significant impact on the audit; we therefore identified it as a key audit matter. How the scope of our audit responded to the key audit matter Onerous leases and retail store impairment are included within the key sources of estimation uncertainty within note 2, the balance sheet provisions are disclosed in note 20, and reviewed by the Audit Committee on page 47. We assessed the appropriateness and completeness of onerous lease provisions by challenging management’s principal assumptions in identifying and providing for the onerous lease and related fixed assets of the Group’s at-risk stores, 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 recalculating provisions required on a sample basis. We also challenged management’s assumptions in relation to the calculation of onerous leases at loss-making retail 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. Based on the work performed we have concluded that the provisions held at year end and accelerated depreciation charged in relation to onerous leases and retail store impairment are reasonable. Key observations Topps Tiles AR2018.indd 74 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:36 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201875 Dilapidations Key audit matter description The dilapidations provisions arise from the Group’s portfolio of 368 retail stores (2017: 371 retail stores). The appropriateness of dilapidation provisions of £2.7 million (2017:£2.2 million) in relation to those retail 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, dilapidations provisions were considered to be another area for potential fraud and one which had the most significant impact on the audit; we therefore identified it as a key audit matter. How the scope of our audit responded to the key audit matter Dilapidations provisions are included within the key sources of estimation uncertainty within note 2, the balance sheet provisions are disclosed in note 20 and reviewed by the Audit Committee on page 47. We assessed the appropriateness and completeness of dilapidations provisions by challenging management’s principal assumptions in identifying and providing for the Group’s properties, as well as the overall policy applied to the provision. 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 source. We also independently recalculated the potential provision based on recent dilapidation charges incurred based on square footage of the property portfolio. Based on the work performed we have concluded that the provisions held at year end in relation to dilapidations are reasonable. Key observations 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 financial statements Parent company financial statements Materiality Basis for determining materiality £700,000 (2017: £867,000) 5% of adjusted pre-tax profit. Pre-tax profit has been adjusted to exclude the loss made by the Parkside subsidiary as disclosed on page 19. £690,000 (2017: £858,000) Parent company materiality equates to 1.3% of net assets, which is capped at 99% of Group materiality. Rationale for the benchmark applied Pre-tax profit is a key performance measure of the business for users of the financial statements. The Parkside loss has been excluded given it is in the first year of start-up trading, and will be excluded from the Directors’ adjusted profit before tax measure in the current period and next period. As a holding company, net assets is the key performance measure of the business for users of the financial statements. Topps Tiles AR2018.indd 75 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:36 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS 76 Independent Auditor’s Report to the Members of Topps Tiles Plc Report on the audit of the financial statements Our application of materiality PBT £12,688k PBT Group materiality Group materiality £700k Component materiality range up to £690k Audit Committee reporting threshold £35k We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £35,000 (2017: £43,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report 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. We performed a full scope audit over the Group’s principal trading entity, treating it as a single component. We also performed full scope audits over other subsidiaries that conduct intra-group trading activities and performed specified audit procedures over Parkside Ceramics Limited, which was acquired on 31 August 2017. All work was carried out by the group audit team. Our full scope audit procedures covered 99.0% of revenue (2017: 99.9%), 108.2% of pre-tax profit, offset by losses on consolidation elsewhere in the Group (2017: 100.2%) and 102.6% of net assets offset by net liabilities elsewhere in the Group (2017: 97.7%). Our audit work was executed at levels of materiality applicable to each individual entity which were lower than Group materiality and went up to £690,000 (2017: up to £858,000). 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 17 (2017: 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. Topps Tiles AR2018.indd 76 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:36 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201877 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 position and 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. Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Topps Tiles AR2018.indd 77 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:36 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS78 Independent Auditor’s Report to the Members of Topps Tiles Plc Report on the audit of the financial statements Extent to which the audit was considered capable of detecting irregularities, including fraud We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. Identifying and assessing potential risks related to irregularities • In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: • enquiring of management , internal audit, and the audit committee, including obtaining and reviewing supporting documentation, concerning the Group’s policies and procedures relating to: − identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non- compliance; − detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; − the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations; • discussing among the engagement team and involving relevant internal specialists, including tax, IT and industry specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: onerous lease provisions and store impairment, dilapidations provisions, and the potential for management override of controls; and • obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and The National Minimum Wage (Amendment) Regulations 2018. Audit response to risks identified As a result of performing the above, we identified onerous leases and store impairment and dilapidations as key audit matters. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. In addition to the above, our procedures to respond to risks identified included the following: • reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations discussed above; • enquiring of management, the audit committee and external legal counsel concerning actual and potential litigation and claims; • performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; • • reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC; and in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. 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. Topps Tiles AR2018.indd 78 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:37 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201879 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 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. We have nothing to report in respect of these matters. 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 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 16 years, covering the periods ending 27 September 2003 to 29 September 2018. 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). 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. DAMIAN SANDERS BA FCA | SENIOR STATUTORY AUDITOR For and on behalf of Deloitte LLP Statutory Auditor Manchester, UK 27 November 2018 Topps Tiles AR2018.indd 79 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:37 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS80 Consolidated Statement of Financial Performance For the 52 weeks ended 29 September 2018 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 Consolidated Statement of Comprehensive Income For the 52 weeks ended 29 September 2018 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 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 216,887 (84,464) 132,423 (6,268) (82,572) (9,480) (15,575) (4,793) 13,735 25 (1,072) 12,688 (3,029) 9,659 211,848 (82,473) 129,375 (4,972) (80,006) (7,724) (14,254) (4,530) 17,889 24 (914) 16,999 (3,568) 13,431 5.00p 4.93p 6.98p 6.86p Notes 3 7 7 5 8 27 10 52 weeks ended 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 9,659 9,659 13,431 13,431 Topps Tiles AR2018.indd 80 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:37 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Consolidated Statement of Financial Position As at 29 September 2018 81 Non-current assets Goodwill Intangible assets Property, plant and equipment Investment properties 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 Accumulated losses Total equity Restated (see note 4) 2017 £’000 1,461 429 54,342 – 56,232 29,502 6,502 7,501 43,505 99,737 (32,500) (2,375) (1,535) (36,410) 7,095 (34,923) (1,071) (3,780) (76,184) 23,553 6,548 2,487 (4,411) (399) 3,921 20,359 (4,952) 23,553 2018 £’000 1,461 339 47,953 1,233 50,986 30,154 8,712 13,842 52,708 103,694 (38,648) (2,923) (1,197) (42,768) 9,940 (29,851) (1,017) (3,395) (77,031) 26,663 6,548 2,490 (3,750) (399) 3,945 20,359 (2,530) 26,663 Notes 11 12 13a 13b 15 16 17 20 18 20 20 21 22 23 24 25 26 27 The accompanying notes are an integral part of these financial statements. The financial statements of Topps Tiles Plc, registered number 3213782, on pages 80 to 83 were approved by the Board of Directors and authorised for issue on 27 November 2018. They were signed on its behalf by: MATTHEW WILLIAMS | DIRECTOR ROB PARKER | DIRECTOR Topps Tiles AR2018.indd 81 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:37 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS82 Consolidated Statement of Changes in Equity For the 52 weeks ended 29 September 2018 Balance at 2 October 2016 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 Balance at 30 September 2017 Profit and total comprehensive income for the period Issue of share capital Dividends Own shares issued in the period Credit to equity for equity-settled share-based payments Deferred tax on share-based payment transactions Balance at 29 September 2018 Share capital £’000 Share premium £’000 Own shares £’000 Merger reserve £’000 Share- based payment reserve £’000 Capital redemption reserve £’000 Accumu- lated losses £’000 Total equity £’000 6,539 2,473 (4,411) (399) 4,280 20,359 (11,296) 17,545 – 9 – – – – – 14 – – – – – – – (8) 8 – – – – – – – – –- – – – (359) – – – –- – – 13,431 – (6,924) – (8) 13,431 23 (6,924) (8) – 3 (356) – 6,548 – 2,487 – (4,411) – (399) – 3,921 – 20,359 (158) (4,952) (158) 23,553 – – – – – – 3 – – – – – – 661 – – – – – – – – – – 24 – – – – – 9,659 – (6,566) (661) 9,659 3 (6,566) – 12 36 – 6,548 – 2,490 – (3,750) – (399) –- 3,945 – 20,359 (21) (2,529) (21) 26,663 Topps Tiles AR2018.indd 82 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:38 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Consolidated Cash Flow Statement For the 52 weeks ended 29 September 2018 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 Amortisation of intangible assets (Gain)/loss on disposal of property, plant and equipment Impairment of property, plant and equipment Decrease in fair value of investment properties Share option charge/(credit) (Increase)/decrease in trade and other receivables Increase in inventories Increase in payables Cash generated by operations Interest paid Taxation paid Net cash from operating activities Investing activities Interest received Purchase of property, plant and equipment Purchase of investment property Proceeds on disposal of property, plant and equipment Acquisition of subsidiary, net of cash acquired 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 increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 83 52 weeks ended 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 9,659 3,029 1,072 (25) 13,735 6,983 90 (421) 958 1,651 24 (2,241) (652) 5,419 25,546 (1,109) (2,543) 21,894 25 (5,052) (2,884) 3,921 – (3,990) (6,566) 3 – (5,000) (11,563) 6,341 7,501 13,842 13,431 3,568 914 (24) 17,889 6,544 – 151 438 – (359) 324 (3,587) 752 22,152 (1,985) (5,015) 15,152 24 (10,160) – 303 (1,137) (10,970) (6,924) 15 5,000 (5,000) (6,909) (2,727) 10,228 7,501 Topps Tiles AR2018.indd 83 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:38 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS84 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 1 General Information Topps Tiles Plc is a public company, limited by shares, 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 IAS 7 Statement of Cash Flows: Disclosure Initiative Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses Amendments to IFRS 12 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12 (Annual Improvements to IFRSs: 2014–16 Cycles) 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): 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 IFRS 16 Leases 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 Annual Improvements to IFRSs: 2015–17 Cycle (Dec 2017) – Annual Improvements to IFRSs: 2015–17 Cycle – IFRS 3, IFRS 11, IAS 12 and IAS 23 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 Amendments to IAS 19 Plan Amendment, Curtailment or Settlement Amendments to IFRS 3 – Clarification of definition of a business Amendments to IAS 1 – Amendments regarding the definition of material Amendments to IAS 8 – Amendments regarding the definition of material Topps Tiles AR2018.indd 84 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:38 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201885 1 General Information continued IFRS 9 “Financial Instruments” was issued in July 2014 to replace IAS 39 “Financial Instruments: Recognition and Measurement” and has been endorsed by the EU. The standard is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the Group in the period ended 28 September 2019. The standard is applicable to financial assets and financial liabilities, and covers the classification, measurement, impairment and de-recognition of financial assets and financial liabilities. The standard also revises the requirements for when hedge accounting can be applied and introduces a new impairment model for financial assets. The Group has reviewed its financial assets and liabilities and does not expect the new guidance to affect their classification and measurement. In addition, the Group does not account for derivatives under hedge accounting and therefore, the IFRS 9 requirements for hedge accounting are not applicable. IFRS 9 introduces an expected credit loss model when calculating impairment losses on its trade and other receivables. This will result in greater judgement due to the need to factor in forward looking information when estimating the appropriate amount of provisions. In applying IFRS 9 the Group must consider the probability of a default occurring over the life of its trade receivables on initial recognition of those assets. The Group has completed an assessment of the impact of IFRS 9 and it is expected that adoption will not have a material impact on the Consolidated Statement of Financial Performance or Consolidated Statement of Financial Position. IFRS 15 “Revenue from Contracts with Customers” was issued in May 2014 and subsequent amendments, “Clarifications to IFRS 15” were issued in April 2016; both have been endorsed by the EU. IFRS 15, as amended, is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the Group in the period ended 28 September 2019. The standard establishes a principles-based approach for revenue recognition and is based on the concept of recognising revenue for performance obligations only when they are satisfied and the control of goods or services is transferred. In doing so, the standard applies a five-step approach to the timing of revenue recognition and applies to all contracts with customers, except those in the scope of other standards. The Group has completed its assessment of the impact of IFRS 15 and based on the nature of the Group’s revenue streams with the recognition of revenue at the point of sale and the absence of significant judgement required in determining the timing of transfer of control, the adoption of IFRS 15 will not have a material impact on the timing or nature of the Group’s revenue recognition. Under IFRS 15, the Group should recognise revenue net of estimated returns, whereby it recognises revenue for the sold products, reduced for estimated returns (with a corresponding refund liability) and an asset initially measured at the carrying amount of the inventory less costs of recovery (with a corresponding adjustment to cost of sales). Estimates are already made of anticipated returns, however the adoption of IFRS 15 will mean this amount is split into the amount relating to the sale of the returns and the associated cost of the goods being returned. The impact of this will not impact the Group’s profit or net assets. IFRS 16 “Leases” was issued in January 2016 to replace IAS 17 “Leases” and has been endorsed by the EU. The standard is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Group in the period ending 3 October 2020. All of the Group’s operating leases, apart from those leases captured under the low value and short-term lease exemptions (note 28), will be recognised on the Statement of Financial Position, which will give rise to the recognition of an asset representing the right to use the leased item and an obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. The total expense recognised in the Consolidated Statement of Financial Performance over the life of the lease will be unaffected by the new standard. However, IFRS 16 will result in the timing of lease expense recognition being accelerated for leases which would be currently accounted for as operating leases. Rental costs, currently included in distribution and selling costs in the Consolidated Statement of Financial Performance, will be replaced by interest and depreciation charges and therefore, IFRS 16 will impact the Group’s profit each period. From the work performed to date it is anticipated that implementation of the new standard will have a significant impact on the reported assets and liabilities of the Group. In addition, the implementation of the standard will impact the Consolidated Statement of Financial Performance and classification of cash flows. Management have 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. Material judgements are required in identifying and accounting for leases. The most significant judgement areas are expected to be around the determination of the lease term and discount rate. The lease term includes extension periods where it is reasonably certain that a lease extension option will be exercised or that a lease termination option will not be exercised. The discount rate should best represent the rate implicit in the lease or the incremental borrowing rate in order to determine the present value of future lease commitments. The Group is continuing to assess the impact of the accounting changes on its existing lease portfolio of approximately 370 property leases and other contracts and cannot yet reasonably quantify the impact. Topps Tiles AR2018.indd 85 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:38 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS86 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 1 General Information continued Work performed to date includes consideration of the transition approaches available under the accounting standard and collection of relevant data from different areas of the business. The Group has invested in a new property management system to prepare for the adoption of the new standard. The Group intends to apply the modified retrospective approach on transition and will not restate the comparative information. Under this transition route, any difference between asset and liability is recognised in opening retained earnings at the transition date. The lease liability is calculated using a discount rate at the date of transition, rather than at the lease commencement date. Given the complexities of IFRS 16 and the material sensitivity to key assumptions, such as discount rates, it is not yet practicable to fully quantify the effect of IFRS 16 on the financial statements of the Group. 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 and investment property. 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 assertion, 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. Further details of the assumptions, sensitivities and procedures performed are given in the Strategic Report. 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. 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. Topps Tiles AR2018.indd 86 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:38 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201887 2 Accounting Policies continued 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 2018 mean “at 29 September 2018” or the 52 weeks then ended; references to 2017 mean “at 30 September 2017” 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 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 management’s best estimate is provided for. 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. 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). Topps Tiles AR2018.indd 87 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:38 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS88 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 2 Accounting Policies continued Subsequent to initial recognition, intangible assets acquired in a business combination are reported at costs less accumulated amortisation. Separately identifiable intangible assets are amortised over their useful economic lives which are disclosed in note 12. I) Property, Plant and Equipment Property, plant and equipment is 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 Short leasehold land and buildings over the period of the lease, up to 50 years on a straight-line basis Fixtures and fittings 2% per annum on cost on a straight-line basis over ten years, except for the following: four years for computer equipment or five years for display stands, as appropriate 25% per annum on a reducing balance basis Motor vehicles 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 average 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. 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. Topps Tiles AR2018.indd 88 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:39 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201889 2 Accounting Policies continued 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, 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). 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. O) Retirement Benefit Costs For defined contribution schemes, the amount charged to the statement of financial performance in respect of pension costs is the contributions payable in the 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. P) 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. Topps Tiles AR2018.indd 89 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:39 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS90 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 2 Accounting Policies continued Q) 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. 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, 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. Topps Tiles AR2018.indd 90 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:39 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201891 2 Accounting Policies continued 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. 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. 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. R) Share-based Payments The Group has applied the requirements of IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 October 2005. The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the share-based payment is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of the Black–Scholes model. Topps Tiles AR2018.indd 91 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:39 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS92 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 2 Accounting Policies continued 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. S) Trade Payables Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method. T) Operating Profit Operating profit is stated after charging/(crediting) restructuring costs but before investment income and finance costs. U) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. V) 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. W) Investment Properties Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the period in which they arise, including the corresponding tax effect. Investment properties are not depreciated. The Group obtains independent valuations for its investment properties, and at the end of the reporting period, the fair value of each property is updated, taking into account the most recent independent valuation. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the Directors consider information for properties of a different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences. Investment properties are derecognised either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit or loss in the period of de-recognition. Transfers are made to (or from) investment property only when there is a change in use. For a transfer from investment property to owner- occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. The Group has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements. 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. Topps Tiles AR2018.indd 92 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:39 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201893 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: Onerous Lease Provision and Loss-making Stores/Store Impairment During the period, the Group has continued to review the performance of its store portfolio, which has resulted in six further stores being exited before its lease terms had expired (2017: one store). 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, and have considered whether the net book value of the assets in relation to those stores are impaired. The key estimates involved relate to the forecast future cash flows of the stores identified as potentially loss-making. These estimates are based upon available information and knowledge of the property market and retail market. Given the commercial sensitivity in relation to potentially loss-making stores a sensitivity of this estimation has not been provided. However, it is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the related tangible fixed assets (note 13a) or the onerous lease provision (note 20). Dilapidations Provision The Group has estimated its likely dilapidation charges for its store portfolio and provided accordingly. The key estimate involves an assessment of 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. A decrease or increase in the average expected exit period of three years would have a material impact on the provision. 3 Revenue An analysis of Group revenue is as follows: Revenue from the sale of goods Total revenue 52 weeks ended 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 216,887 216,887 211,848 211,848 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 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. In line with IFRS 3, the Group made hindsight adjustments of £365,000 in the current period, in relation to onerous lease and dilapidation provisions (see note 20), with a corresponding increase in the value of goodwill (see note 11). The contingent consideration was estimated based on performance conditions in place for Parkside Ceramics Limited over the 12 months post acquisition. During the year, Parkside Ceramics Limited did not meet the performance conditions and therefore, the contingent consideration was not paid. The release of this contingent consideration is included within administrative expenses and the Parkside loss within adjusted items. The amount is shown within the movements in payables within the reconciliation of operating profit to cash generated from operations within the cash flow statement. The Group incurred £169,000 of costs in relation to acquisition activity during the year of acquisition. Topps Tiles AR2018.indd 93 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:39 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS94 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 4 Acquisition of Subsidiaries continued The fair value of the net assets acquired and liabilities assumed at the acquisition date were: 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 Provisions Fair value of assets acquired Cash consideration Contingent consideration* Total consideration Goodwill Restated Fair value of net assets required £’000 45 248 117 (347) (12) 11 (35) 128 229 200 (365) 219 1,265 170 1,435 1,216 * Contingent consideration was valued at fair value based on forecast attainment of performance conditions associated with the payment of the contingent consideration. The above table has been restated to reflect the IFRS 3 hindsight adjustments. The net cash outflow in the cash flow statement in the year of acquisition was 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 prior period: Revenue Loss before tax £’000 1,265 (128) 1,137 £’000 124 38 Had the acquisition been included from the start of the prior period, £2,238,000 of revenue and £172,000 of loss before tax would have been included in the Group’s financial statements in the prior period. There were no contingent liabilities acquired as a result of the above transaction. Topps Tiles AR2018.indd 94 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:39 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201895 52 weeks ended 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 6,983 958 (421) 1,651 (723) 54,909 25,489 3,031 81,433 6,544 438 151 – 349 50,548 24,762 3,177 79,296 52 weeks ended 29 September 2018 £’000 Restated 52 weeks ended 30 September 2017 £’000 40 90 130 30 30 160 46 67 113 30 30 143 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 (Gain)/loss on disposal of property, plant and equipment Decrease in fair value of investment properties recognised as an expense Property-related provisions (credited)/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 four freehold properties (2017: one 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 Audit-related assurance services Total non-audit fees Total fees payable to the Company’s auditor Audit-related assurance services relate to the fee payable for the interim review performed. The 2017 fee split has been restated to reflect the correct allocation of fee for the interim review performed. The total fees payable to the Company’s auditor has not changed. 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. Topps Tiles AR2018.indd 95 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:40 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS96 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 6 Staff Costs The average monthly number of persons employed by the Group in the UK during the accounting period (including Executive Directors) was: Selling Administration 52 weeks ended 29 September 2018 Number employed Restated 52 weeks ended 30 September 2017 Number employed 1,900 214 2,114 1,837 201 2,038 The 2017 average monthly number of persons employed by the Group has been restated to reflect the correct comparative position. The average monthly number of persons (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 29 September 2018 Number employed 52 weeks ended 30 September 2017 Number employed 1,792 208 2,000 2018 £’000 49,782 4,209 918 54,909 1,734 195 1,929 2017 £’000 45,967 3,719 862 50,548 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 £6.3 million (2017: £5.0 million) is included in the above and comprises sales commission and bonuses. 7 Investment Revenue and Finance Costs Investment revenue Bank interest receivable Finance costs Interest on bank loans and overdrafts Other interest 52 weeks ended 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 25 25 (1,028) (44) (1,072) 24 24 (868) (46) (914) No finance costs have been 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. Topps Tiles AR2018.indd 96 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:40 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 20188 Taxation Current tax – charge for the period Current tax – adjustment in respect of previous periods Deferred tax – (credit)/charge for the period (note 20) Deferred tax – adjustment in respect of previous periods (note 20) 97 52 weeks ended 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 3,115 (11) (94) 19 3,029 3,504 (104) 125 43 3,568 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 19.0% (2017: 19.5%) Expenses that are not deductible in determining taxable profit Chargeable gains Difference between IFRS 2 and corporation tax relief Reduction in UK corporation tax rate Non-taxable income relating to goodwill revaluation Tangible fixed assets which do not qualify for capital allowances Adjustment in respect of prior periods Tax expense for the period 52 weeks ended 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 12,688 2,411 55 77 48 21 (22) 431 8 3,029 16,999 3,315 57 – 67 8 – 182 (61) 3,568 In the period, the Group has recognised a corporation tax credit directly to equity of £11,899 (2017: £3,254) and a deferred tax debit to equity of £21,184 (2017: £157,921) in relation to the Group’s share option schemes. 9 Dividends Amounts recognised as distributions to equity holders in the period: Final dividend for the period ended 30 September 2017 of £0.023 (2016: £0.023) per share Interim dividend for the period ended 29 September 2018 of £0.011 (2017: £0.011) per share Proposed final dividend for the period ended 29 September 2018 of £0.023 (2017: £0.023) per share 52 weeks ended 29 September 2018 £’000 4,439 2,127 6,566 4,447 52 weeks ended 30 September 2017 £’000 4,808 2,116 6,924 4,425 The proposed final dividend for the period ended 29 September 2018 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Topps Tiles AR2018.indd 97 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:40 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS98 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 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 29 September 2018 52 weeks ended 30 September 2017 196,439,403 196,367,310 (4,038,495) 193,147,087 192,328,815 3,487,211 195,893,384 195,816,026 (3,292,316) 2,746,297 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 At 2 October 2016 Acquisition of Parkside Ceramics Limited (note 4) IFRS 3 hindsight adjustment (note 4) At 30 September 2017 (restated) At 29 September 2018 Accumulated impairment losses At 2 October 2016 Impairment losses in the period At 30 September 2017 Impairment losses in the period At 29 September 2018 Carrying amount At 29 September 2018 At 30 September 2017 (restated) Restated £’000 245 851 365 1,461 1,461 – – – – – 1,461 1,461 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 balance relates to two (2017: two) Cash Generating Units (CGUs). Goodwill of £245,000 (Surface Coatings Limited) relates to one CGU, with the balance of £1,216,000 (Parkside Ceramics Limited) relating to another CGU. In line with IFRS 3, the Group made hindsight adjustments of £365,000 in the current period, in relation to onerous lease and dilapidation provisions, with a corresponding increase in the value of goodwill, and as such prior year goodwill has been restated. 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 14.3% (2017: 13.2%). 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. Topps Tiles AR2018.indd 98 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:40 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201899 Brand £’000 Customer relationships £’000 – 229 229 – 229 – – – 23 23 206 229 – 200 200 – 200 – – – 67 67 133 200 Total £’000 – 429 429 – 429 – – – 90 90 339 429 12 Intangible Assets Cost At 2 October 2016 Additions At 30 September 2017 Additions At 29 September 2018 Accumulated amortisation and impairment At 2 October 2016 Amortisation charge for the period At 30 September 2017 Amortisation charge for the period At 29 September 2018 Carrying amount At 29 September 2018 At 30 September 2017 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, and customer relationships are amortised over their estimated useful lives of three years. Amortisation is included within administrative costs within the Consolidated Statement of Financial Performance. Topps Tiles AR2018.indd 99 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:40 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS100 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 13a Property, Plant and Equipment Land and buildings Cost At 2 October 2016 Additions Disposals Reclassification of assets* Acquisition of subsidiary undertakings At 30 September 2017 Additions Disposals At 29 September 2018 Accumulated depreciation At 2 October 2016 Charge for the period Provision for impairment Eliminated on disposals Reclassification of assets* At 30 September 2017 Charge for the period Provision for impairment Eliminated on disposals At 29 September 2018 Carrying amount At 29 September 2018 At 30 September 2017 Short leasehold £’000 Fixtures and fittings £’000 Motor vehicles £’000 Freehold £’000 18,560 801 (231) (142) – 18,988 – (3,481) 15,507 2,335 293 – (86) (6) 2,536 267 – (251) 2,552 2,047 88 –- (686) – 1,449 160 (5) 1,604 1,697 53 – – (680) 1,070 62 – (2) 1,130 82,029 9,225 (413) 779 31 91,651 4,892 (1,416) 95,127 46,989 6,188 438 (104) 671 54,182 6,644 958 (1,165) 60,619 12,955 16,452 474 379 34,508 37,469 Total £’000 102,699 10,114 (644) – 45 112,214 5,052 (4,953) 112,313 51,080 6,544 438 (190) – 57,872 6,983 958 (1,453) 64,360 47,953 54,342 63 – – 49 14 126 – (51) 75 59 10 – – 15 84 10 – (35) 59 16 42 * During the prior 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 (2017: £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 (2017: £nil). Contractual commitments for the acquisition of property, plant and equipment are detailed in note 28. During the period, the Group has continued to review the performance of its store portfolio and as the fixtures and fittings within these stores cannot be reused in other locations, the Group has provided for the net book value of the assets in relation to the 11 stores (2017: six) that are impaired. The carrying value of these assets has been fully provided for in the period, with the associated impairment of £958,000 (2017: £438,000) included within other operating expenses. Topps Tiles AR2018.indd 100 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:41 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201813b Investment Properties At fair value At 2 October 2016 Additions At 30 September 2017 Additions Fair value adjustment At 29 September 2018 101 £’000 – – – 2,884 (1,651) 1,233 Investment properties relate to one freehold office building that is not occupied by the Group. The property was purchased to allow the Group to exit an onerous lease. The investment property is carried at fair value, and a fair value loss of £1,651,000 (2017: £nil) was recognised in the Consolidated Statement of Financial Performance in the period. Since acquisition, the investment property has remained vacant, and as such there are no other amounts recognised in the Consolidated Statement of Financial Performance in relation to rental income or other direct operating expenses. The Group has no restrictions on the realisability of its investment properties and no contractual obligations to purchase, construct or develop investment properties or for repairs, maintenance and enhancements. The Group obtains independent valuations for its investment properties, and at the end of the reporting period, the fair value of each property is updated, taking into account the most recent independent valuation. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the Directors consider information for properties of a different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences. 14 Subsidiaries A list of all subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 4 to the Company financial statements on page 101. 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 2018 £’000 899 (24) 4,530 3,307 8,712 2017 £’000 493 (37) 4,192 1,854 6,502 The Directors consider that the carrying amount of trade and other receivables at 29 September 2018 and 30 September 2017 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 29 September 2018 amounted to £0.9 million (2017: £0.5 million). These amounts mainly relate to sundry trade account generated sales. In relation to these sales, the average credit period taken is 48 days (2017: 49 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 £nil (2017: £70,000) 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. Topps Tiles AR2018.indd 101 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:41 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS102 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 15 Trade and Other Receivables continued Ageing of past due but not impaired receivables: Greater than 60 days 2018 £’000 – 2017 £’000 70 The allowance for doubtful debts was £24,000 by the end of the period (2017: £37,000). 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 £10,000 relating to individually impaired trade receivables (2017: £24,000) 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 17 Other Financial Liabilities Trade and Other Payables Amounts falling due within one year Trade payables Other payables Accruals Deferred income 2018 £’000 11,349 1,819 674 13,842 2017 £’000 5,232 919 1,350 7,501 2018 £’000 2017 £’000 20,791 4,172 12,449 1,236 38,648 18,330 3,641 9,636 893 32,500 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 59 days (2017: 53 days). No interest is charged on these payables. The Directors consider that the carrying amount of trade payables at 29 September 2018 and 30 September 2017 approximates to their fair value on the basis of discounted cash flow analysis. Topps Tiles AR2018.indd 102 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:41 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018103 2018 £’000 2017 £’000 29,766 34,807 2018 £’000 2017 £’000 – – 30,000 30,000 (234) 29,766 85 29,851 – 35,000 – 35,000 (193) 34,807 116 34,923 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 The Directors consider that the carrying amount of the bank loan at 29 September 2018 and 30 September 2017 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 The Group borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The following is a reconciliation of changes in financial liabilities to movement in cash from financing activities: As at 2 October 2016 Drawdown of bank loan Repayment of bank loan Amortisation of issue costs As at 30 September 2017 Repayment of bank loan Issue costs incurred in the year Amortisation of issue costs As at 29 September 2018 2018 % 2.27 2017 % 1.78 Long term borrowings £’000 Unamortised issue costs £’000 35,000 5,000 (5,000) – 35,000 (5,000) – – 30,000 (309) – – 116 (193) – (255) 214 (234) During the year the Group renewed its revolving credit facility for £35.0 million expiring in 29 June 2021. The Group also negotiated an Accordion Option for £15.0 million. As at the financial period end, £30.0 million of this was drawn (2017: £35.0 million). The loan facility contains financial covenants which are tested on a biannual basis. The Group did not breach any covenants in the period. At 29 September 2018, the Group had available £5.0 million (2017: £15.0 million) of undrawn committed banking facilities. Topps Tiles AR2018.indd 103 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:41 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS104 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 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 2017. 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 accumulated 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 2Q 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 2018 £’000 14,717 168 – 50,642 2017 £’000 7,957 – 124 53,377 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 2018 £’000 686 1,822 2017 £’000 1,357 927 2018 £’000 3,891 1,453 2017 £’000 3,139 866 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, based on historic volatility. 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. Topps Tiles AR2018.indd 104 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:41 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018 105 19 Financial Instruments continued 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 2018 £’000 291 34 (356) (41) 2017 £’000 162 6 (198) (7) 2016 £’000 205 45 (250) (55) 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 2018 £’000 2017 £’000 10,582 10,142 These arrangements are designed to address significant exchange exposures for the first half of 2019 and are renewed on a revolving basis as required. At 29 September 2018, the fair value of the Group’s currency derivatives is a gain of £167,699 within other debtors and prepayments (note 15) (2017: loss of £124,417 within accruals (note 17)). These amounts are based on the market value of equivalent instruments at the balance sheet date. Gains of £291,845 are included in cost of sales (2017: £466,064 loss). 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. 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 50 basis points increase in interest rates 50 basis points decrease in interest rates 2018 £’000 (164) 2017 £’000 (181) 2018 £’000 164 2017 £’000 181 The Group’s sensitivity to interest rates mainly relates to the revolving credit facility. 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 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. Topps Tiles AR2018.indd 105 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:41 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS106 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 19 Financial Instruments continued 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 2.266031% (2017: 1.73681%) 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. 2018 Non-interest bearing Variable interest rate instruments 2017 Non-interest bearing Variable interest rate instruments Less than 1 month £’000 24,963 74 Less than 1 month £’000 21,971 58 1–3 months £’000 – 151 1–3 months £’000 – 114 3 months to 1 year £’000 – 30,377 3 months to 1 year £’000 – 512 1–5 years £’000 – – 1–5 years £’000 – 35,454 Total £’000 24,963 30,602 Total £’000 21,971 36,138 The Group is financed through a £35 million (2017: £50 million) revolving credit facility, of which £30 million (2017: £35 million) was utilised. At the balance sheet date the total unused amount of financing facilities was £5 million (2017: £15 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. 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. 2018 Foreign exchange forward contracts payments Foreign exchange forward contracts receipts 2017 Foreign exchange forward contracts payments Foreign exchange forward contracts receipts Less than 1 month £’000 (1,885) 1,969 Less than 1 month £’000 (2,128) 2,141 1–3 months £’000 (3,945) 4,016 1–3 months £’000 (3,884) 3,837 3 months to 1 year £’000 (4,753) 4,764 3 months to 1 year £’000 (4,130) 4,040 1–5 years £’000 – – 1–5 years £’000 – – 5+ years £’000 – – 5+ years £’000 – – Total £’000 (10,582) 10,749 Total £’000 (10,142) 10,018 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 (2017: 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). Topps Tiles AR2018.indd 106 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:42 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018107 Restated 2017 £’000 1,812 1,078 2,425 5,315 1,535 3,780 5,315 Total £’000 5,315 1,671 (714) (1,680) 4,592 2018 £’000 1,777 128 2,687 4,592 1,197 3,395 4,592 Business simplification provision £’000 Onerous lease provision £’000 Dilapidations provision £’000 1,078 9 (279) (680) 128 1,812 1,367 (402) (1,000) 1,777 2,425 295 (33) – 2,687 20 Provisions Onerous lease provision Business simplification provision Dilapidations provision Current Non-current At 1 October 2017 (restated) Created in the year Utilisation of provision Release of provision in the period At 29 September 2018 In line with IFRS 3, the Group made hindsight adjustments of £365,000 in the current period, in relation to onerous lease provision (£115,000) and dilapidation provisions (£250,000), with a corresponding increase in the value of goodwill, and as such prior year provisions numbers have been restated. 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 lease term of the various properties. 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 lease term of the various properties. 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 provision is expected to be utilised over the lease term of the remaining property. The discount rate used to calculate the present value of property provisions is 5% (2017: 7%). A 10% reduction in discount rate would lead to an increase in property provisions of £60,000 (2017: £75,000). The movements in the business simplification provision and onerous lease provision are shown within “Impairment of property, plant and equipment and movement in onerous lease provision” in the Highlights section of these financial statements. The following are the deferred tax liabilities/(assets) recognised by the Group and movements thereon during the current and prior reporting period: As at 2 October 2016 (Credit)/charge to income Charge in respect of previous periods Charge to equity Recognised on acquisition of subsidiary As at 30 September 2017 (Credit)/charge to income Charge in respect of previous periods Charge to equity As at 29 September 2018 Accelerated tax depreciation £’000 Share-based payments £’000 Stock provisions £’000 Intangible assets £’000 1,493 (55) 43 – – 1,481 (242) 19 – 1,258 (784) 181 – 158 – (445) 155 – 21 (269) – – – – (38) (38) – – – (38) – – – – 73 73 (7) – – 66 Total £’000 709 126 43 158 35 1,071 (94) 19 21 1,017 Topps Tiles AR2018.indd 107 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:42 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS108 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 20 Provisions continued 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 29 September 2018 has been calculated based on these rates. 21 Called-Up Share Capital Issued and fully paid ordinary shares of 3.33p (2017: 3.33p) At the start of the period Issued in the period At the end of the period 2018 Shares 2017 Shares 196,437,298 196,153,770 283,528 196,440,971 196,437,298 3,673 2018 £’000 6,548 – 6,548 2017 £’000 6,539 9 6,548 During the period the Group issued 3,673 (2017: 283,528) ordinary shares with a nominal value of £122 (2017: £9,441) under share option schemes for an aggregate cash consideration of £3,560 (2017: £15,631). During the period £nil (2017: £8,468) of shares were purchased by Topps Tiles Employee Benefit Trust on behalf of the Group. 22 Share Premium At start of the period Premium on issue of new shares At end of the 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 2018 £’000 2,487 3 2,490 2018 £’000 (4,411) – 661 (3,750) 2017 £’000 2,473 14 2,487 2017 £’000 (4,411) (8) 8 (4,411) A subsidiary of the Group holds 3,090,030 (2017: 4,038,495) shares with a nominal value of £3,749,570 acquired for an average price of £1.21 per share (2017: £4,410,840 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 2018 £’000 (399) 2017 £’000 (399) The merger reserve arose on pre-2006 acquisitions. The Directors do not consider this to be distributable as at 29 September 2018 (2017: same). Topps Tiles AR2018.indd 108 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:42 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018109 25 Share-based Payment Reserve At start of the period Credit/(debit) to equity for equity-settled share-based payments At end of the period 2018 £’000 3,921 24 3,945 2017 £’000 4,280 (359) 3,921 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 29 September 2018 (2017: same). 26 Capital Redemption Reserve At start and end of the period 2018 £’000 2017 £’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 29 September 2018 (2017: same). 27 Accumulated Losses At 2 October 2016 Dividends 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 Dividends Deferred and current tax on Sharesave scheme taken directly to equity Own shares issued in the period Net profit for the period At 29 September 2018 £’000 (11,296) (6,924) (155) (8) 13,431 (4,952) (6,566) (9) (661) 9,659 (2,529) Topps Tiles AR2018.indd 109 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:42 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS110 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 28 Financial Commitments A) Capital Commitments At the end of the period there were capital commitments contracted of £nil (2017: £nil). 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 £918,000 (2017: £862,000). At the period end, the Group holds outstanding contributions of £143,485 (2017: £142,669). C) Lease Commitments The Group has entered into non-cancellable operating leases in respect of motor vehicles, equipment and land and buildings. Minimum lease payments under operating leases recognised as an expense for the period were £25,489,488 (2017: £24,762,316) which includes property service charges of £911,000 (2017: £852,000). 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 2018 2017 Land and buildings £’000 23,116 75,500 44,756 143,372 Other £’000 1,572 2,775 15 4,362 Land and buildings £’000 22,793 76,434 49,189 148,416 Other £’000 1,319 2,093 194 3,606 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 ten years (2017: ten) and rentals are fixed for an average of five years (2017: five). Minimum future sub-lease payments expected to be received under non-cancellable sub-leases amount to £2,187,000 (2017: £2,509,000). Topps Tiles AR2018.indd 110 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:43 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018111 29 Share-based Payments The Group operates six (2017: 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 three 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 2018 2017 Weighted average exercise price Number of £ share options 0.91 3,080,615 0.64 2,105,117 1.16 (1,623,808) 0.98 (28,530) 0.78 3,533,394 0.92 378,847 Weighted average exercise price £ 1.14 0.70 1.07 0.54 0.91 0.98 Number of share options 3,533,394 2,130,588 (1,784,001) (3,673) 3,876,308 353,507 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 — % — % 90.00 64.00 31.10 3.00 0.81 3.78 Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years (2017: 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. 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 2018 2017 Weighted average exercise price £ – – – – – – Number of share options 6,433,257 3,099,142 (610,085) (948,465) 7,973,849 2,526,034 Weighted average exercise price £ – – – – – – Number of share options 5,064,089 1,752,568 (128,402) (254,998) 6,433,257 2,228,385 During the financial period, the Group granted 36,762 share options under the existing share option scheme due to vest in December 2018. The Group granted 11,659 of these shares in December 2017 with a fair value of £8,902. Topps Tiles AR2018.indd 111 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:43 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS112 Notes to the Financial Statements For the 52 weeks ended 29 September 2018 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 — % — % The Group granted 25,103 share options in July 2018 with a fair value of £16,858. 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 — % — % 79.95 nil 34.62 1.00 0.36 4.51 68.50 nil 33.74 0.4 0.52 4.96 During the financial period, the Group granted 181,141 share options under the existing share option scheme due to vest in December 2019. 34,055 of these shares were granted in December 2017 with a fair value of £24,814. 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 — % — % The Group granted 147,086 share options in July 2018 with a fair value of £93,995. 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 — % — % 79.75 nil 32.22 2.00 0.43 4.51 68.50 nil 33.71 1.40 0.62 4.96 During the financial period, the Group granted 2,881,329 share options under the existing share option scheme due to vest in December 2020. The Group granted 224,839 of these shares in June 2018 with a fair value of £136,053. 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 — % — % 68.50 nil 32.27 2.50 0.72 4.96 Topps Tiles AR2018.indd 112 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:43 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 201829 Share-based Payments continued The Group granted 2,656,402 share options in December 2017 with a fair value of £1,850,167. 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 — % — % 113 79.75 nil 30.19 3.00 0.52 4.51 Expected volatility for the additional share options was determined by calculating the historical volatility of the Group’s share price over the previous one, two and three years (2017: 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. 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 2018 2017 Weighted average exercise price £ – – – – – – Number of share options 3,061,262 (404,432) – 2,656,830 – Weighted average exercise price £ – – – – – – Number of share options 2,603,747 955,217 (497,702) – 3,061,262 – In total, the Group recognised a total expense of £23,531 (2017: £358,502 revenue) relating to share-based payments. 30 Related Party Transactions S.K.M. Williams is a related party by virtue of his 10.5% shareholding (20,593,950 ordinary shares) in the Group’s issued share capital (2017: 10.5% shareholding of 20,593,950 ordinary shares). At 29 September 2018, S.K.M. Williams was the landlord of two properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £119,000 (2017: two properties for £114,000) per annum. No amounts were outstanding with S.K.M. Williams at 29 September 2018 (2017: £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 (2017: £1.5 million) including share-based payments of £nil (2017: £0.4 million). Further information about the remuneration of the individual Directors is provided in the Remuneration Report on pages 54 to 69. The Group’s defined contribution pension scheme is administered by Legal and General. During the year the Group made contributions of £918,000 (2017: £862,000) and at year end the Group has outstanding contributions of £143,485 (2017: £142,669). Topps Tiles AR2018.indd 113 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:43 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS114 Company Balance Sheet As at 29 September 2018 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 29 September 2018 £’000 52 weeks ended 30 September 2017 £’000 Notes 4 5 6 7 3,420 3,396 75,954 – 51,106 1,083 (15,804) 60,150 63,570 6,548 2,490 4,479 20,359 6,200 23,494 63,570 (1,268) 50,921 54,317 6,548 2,487 4,455 20,359 6,200 14,268 54,317 The Company made a profit after tax for the financial period ended 29 September 2018 of £15,792,000 (2017: £15,447,000). The financial statements of Topps Tiles Plc, Companies House number 3213782, were approved by the Board of Directors on 27 November 2018 and signed on its behalf by: MATTHEW WILLIAMS | DIRECTOR ROB PARKER | DIRECTOR Topps Tiles AR2018.indd 114 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Company Statement of Changes in Equity For the 52 weeks ended 29 September 2018 115 Company Balance at 2 October 2016 Profit for the period Dividend paid to equity shareholders Issue of new shares Debit to equity for equity-settled share-based payments Balance at 30 September 2017 Profit for the period Dividend paid to equity shareholders Issue of new shares Credit to equity for equity-settled share-based payments Balance at 29 September 2018 Share capital £’000 6,539 – – 9 – – 14 – 6,548 – 2,487 – – – – – 3 – Share premium £’000 2,473 – Share-based payment reserve £’000 4,814 – Capital redemption reserve £’000 20,359 – Other reserves £’000 6,200 – Profit and loss account £’000 5,745 15,447 Total £’000 46,130 15,447 – – (359) 4,455 – – – 24 – – – – – – (6,924) – (6,924) 23 – (359) 20,359 – 6,200 – 14,268 15,792 54,317 15,792 – – – – – – (6,566) – (6,566) 3 – 24 6,548 2,490 4,479 20,359 6,200 23,494 63,570 At 29 September 2018, the Directors consider the other reserve of £6,200,000 to remain non-distributable. The Directors consider £nil (2017: £nil) of profit and loss account reserves to be not distributable at 29 September 2018. Topps Tiles AR2018.indd 115 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS116 Notes to the Company Financial Statements For the 52 weeks ended 29 September 2018 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 30 September 2017. 2 Accounting Policies The principal accounting policies adopted are set out below. A) Going Concern When considering the going concern assertion, the Board reviews several factors including a detailed review of the above risks and uncertainties, and management’s current expectations. Further details of the assumptions, sensitivities and procedures performed are given in the Strategic Report. As a result of this review, the Board believes that the Company 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. B) 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 2018 mean “at 29 September 2018” or the 52 weeks then ended; references to 2017 mean “at 30 September 2017” or the 52 weeks then ended. Topps Tiles AR2018.indd 116 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018117 2 Accounting Policies continued C) 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 Company’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, except where the Company 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 Company intends to settle its current tax assets and liabilities on a net basis. D) Foreign Currency The financial statements are presented in pounds sterling (its functional currency). For the purpose of the financial statements, the results and financial position are expressed in pounds sterling, which is the functional currency of the Company, and the presentational currency for the 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. Topps Tiles AR2018.indd 117 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS118 Notes to the Company Financial Statements For the 52 weeks ended 29 September 2018 2 Accounting Policies continued E) Investments Fixed asset investments are shown at cost less provision for impairment. F) Financial Instruments Financial assets and financial liabilities are recognised in the Company’s statement of financial position when the Company 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. Loans and 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. 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. 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. Topps Tiles AR2018.indd 118 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018119 2 Accounting Policies continued 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 Company 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 Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company 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 Company after deducting all of its liabilities. Equity instruments issued by the Company 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 Company 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. Derecognition of Financial Liabilities The Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. Topps Tiles AR2018.indd 119 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS120 Notes to the Company Financial Statements For the 52 weeks ended 29 September 2018 2 Accounting Policies continued G) Critical Accounting Judgements and Key Sources of Estimation Uncertainty In the application of the Company’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 or key sources of estimation uncertainty in the application of the Company’s accounting policies in the current period. 3 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 29 September 2018 of £15,792,000 (2017: £15,447,000). The auditor’s remuneration for services to the Company was £46,000 for audit-related work (2017: £46,000 for audit-related work). Fees relating to non-audit work totalled £nil (2017: £nil); see note 5 to the Group financial statements for further details. The Company had no employees other than the Directors (2017: same), whose remuneration is detailed on page 63. 4 Fixed Asset Investments Cost and carrying amount at 1 October 2017 Movement in share options granted to employees Cost and carrying amount at 29 September 2018 £’000 3,396 24 3,420 The following were subsidiaries that the Company has investments in, both as at 29 September 2018 and 30 September 2017: 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 Topps Tiles I.P Company Limited Topps Tiles Employee Benefit Trust* Parkside Ceramics Limited* * Held directly by Topps Tiles Plc. % of issued shares held Principal activity Property management and investment 100% Property management and investment and provision of warehousing services 100% Property management and investment 100% Intermediate holding company 100% Retail and wholesale of ceramic tiles, wood flooring and related products 100% Intermediate holding company 100% Intermediate holding company 100% 100% Retail and wholesale of ceramic tiles, wood flooring and related products 100% Wholesale and distribution of ceramic tiles, wood flooring and related products Intermediate holding company 100% Ownership and management of Group intellectual property 100% 100% Employee benefit trust Retail and wholesale of ceramic tiles, wood flooring and related products 100% The investments are represented by ordinary shares. 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. Topps Tiles AR2018.indd 120 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 20185 Debtors Amounts falling due within one year: Amounts owed by subsidiary undertakings Prepayments and accrued income 6 Creditors: Amounts falling due within one year Bank loans and overdrafts Trade and other creditors Amounts owed to subsidiary undertakings Accruals and deferred income 7 Called-up share capital 121 2018 £’000 2017 £’000 75,677 277 75,954 2018 £’000 14,706 – 64 1,034 15,804 2018 £’000 51,080 26 51,106 2017 £’000 – 106 65 1,097 1,268 2017 £’000 Issued and fully paid 196,440,971 (2017: 196,437,298) ordinary shares of 3.33p each (2017: 3.33p) 6,548 6,548 During the period nil shares were purchased by Topps Tiles Employee Benefit Trust on behalf of the Group (2017: 254,998 shares – £8,491). During the period the Group issued and allotted 3,673 (2017: 283,528) ordinary shares with a nominal value of £122 (2017: £9,441) under share option schemes for an aggregate cash consideration of £3,560 (2017: £15,631). Topps Tiles AR2018.indd 121 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:44 STRATEGIC REPORTOUR GOVERNANCEADDITIONAL INFORMATIONTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018OUR FINANCIALS1 Topps Tiles AR2018.indd 122 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:50 2 Additional Information CONTENTS Five Year Record Notice of Annual General Meeting Explanatory Notes to the Notice of Annual General Meeting The Team Store Locations 124 125 128 133 145 3 4 5 PICTURED 1. Flat White and Abrasio Basalt 2. Parkside, Chelsea 3. Lampas Peacock 4. Simply Whites Geometric Decor and Inara Concrete 5. Diamante Blue Topps Tiles AR2018.indd 123 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:59 124 Five Year Record Unaudited Group revenue Group operating profit Profit before taxation Shareholders’ funds Basic earnings per share Dividend per share Dividend cover Average number of employees Share price (period end) 52 weeks ended 27 September 2014 £’000 195,237 18,186 16,691 843 6.49p 1.65p 3.935 1,794 105.0p 53 weeks ended 3 October 2015 £’000 212,221 18,883 17,019 10,798 6.75p 2.34p 2.885 1,915 148.75p 52 weeks ended 1 October 2016 £’000 52 weeks ended 30 September 2017 £’000 52 weeks ended 29 September 2018 £’000 214,994 21,073 19,982 17,545 8.05p 3.50p 2.305 1,977 112.25p 211,848 17,889 16,999 23,553 6.98p 3.40p 2.055 2,030 75.50p 216,887 13,735 12,688 26,663 5.00p 3.40p 1.475 2,114 62.90p All figures quoted are inclusive of continued and discontinued operations. Topps Tiles AR2018.indd 124 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:59 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Notice of Annual General Meeting 125 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 30 January 2019 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 the Company’s Annual Report and Financial Statements for the financial period ended 29 September 2018 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 29 September 2018 payable on Monday 4 February 2019 to shareholders who are on the register of members of the Company on 21 December 2018. 3. To approve the Directors’ Remuneration Report for the financial period ended 29 September 2018 as set out on pages 54 to 69 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 appoint PricewaterhouseCoopers 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 resolution 12 will be proposed as an Ordinary Resolution and, in the case of resolutions 13, 14, 15 and 16, 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 £2,160,851 (such amount to be reduced by the nominal amount of any allotments or grants made under paragraph (b) below in excess of £2,160,851; and further: b. to allot equity securities (as defined in section 560 of the Act) up to an aggregate nominal amount of £4,321,701 (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 ii. to holders of any other equity securities as required by the rights of those securities or as the Directors otherwise consider necessary, Topps Tiles AR2018.indd 125 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:59 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION126 Notice of Annual General Meeting 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, 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 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 £324,128; 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 substitution for any equivalent authorities and powers granted to the Directors prior to the passing of this resolution, 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 £324,128; 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. Topps Tiles AR2018.indd 126 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:59 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018127 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 19,644,097 (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 general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice. Dated: 19 December 2018 Registered Office: Thorpe Way Grove Park Enderby Leicestershire LE19 1SU Registered Number: 3213782 By order of the Board ALISTAIR HODDER Company Secretary Topps Tiles AR2018.indd 127 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:45:59 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION128 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 28 January 2019 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 28 January 2019 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. If you propose to attend the AGM in person, please detach and bring with you the attendance slip attached to the Form of Proxy. You will be asked to show this at the entrance and not having it available could delay your admission. Shareholders and participants may also be required to provide proof of identity. 3. 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 28 January 2019 (or, in the event that the meeting is adjourned, no later than two working days before the time of any adjourned meeting). 4. 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. 5. 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. 6. As an alternative to completing the hard copy proxy form, a shareholder may appoint a proxy or proxies electronically by logging onto www.signalshares.com. Full details of the procedures are given on that website. For an electronic proxy appointment to be valid, the appointment must be received by Link Asset Services no later than 10.00 a.m. on 28 January 2019 (or, if the meeting is adjourned, no later than 48 hours before the time of any adjourned meeting). Any electronic communication sent by a shareholder to the Company or Link Asset Services which is found to contain a virus will not be accepted by the Company but every effort will be made by the Company to inform the shareholder of the rejected communication. 7. If you submit your proxy form via the internet it should reach the registrar by 10.00 a.m. on 28 January 2019. Should you complete your proxy form electronically and then post a hard copy, the form that arrives last will be counted to the exclusion of instructions received earlier, whether electronic or posted. Please refer to the terms and conditions of the service on the website. 8. The notes to the proxy form include instructions on how to appoint a proxy by using the CREST proxy appointment service. 9. You may not use any electronic address provided either in this Notice of AGM or in any related documents (including the proxy form) to communicate with the Company for any purposes other than those expressly stated. 10. As at the close of business on 5 December 2018, the Company’s issued share capital comprised 196,440,971 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 1,518,694 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 5 December 2018 is 194,922,277. 11. 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. 12. 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). 13. 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 Topps Tiles AR2018.indd 128 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:00 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018129 the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuers’ agent (ID RA10) by the latest time for receipt of proxy appointments specified in this notice. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the registrars are able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. • CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. • 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). 14. 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. 15. A member that is a company or other organisation not having a physical presence cannot attend in person but can appoint someone to represent it. This can be done in one of two ways: either by the appointment of a proxy (described in notes 2 to 8 above); or by a corporate representative. Members considering the appointment of a corporate representative should check their own legal position, the Company’s Articles of Association and the relevant provision of the Companies Act 2006. 16. 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. 17. Members have the right to ask questions at the meeting in accordance with section 319A of the Act. 18. 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. 19. 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. 20. Information regarding the meeting, including the information required by section 311A of the Act, is available from the Company’s website – toppstilesplc.com. Topps Tiles AR2018.indd 129 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:00 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION130 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 30 January 2019 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 29 September 2018 (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 21 December 2018. Subject to approval by the Ordinary Shareholders at the Annual General Meeting, the dividend will be paid on 4 February 2019. An interim dividend of 1.1 pence was declared which means the total dividend level will be 3.4 pence per Ordinary Share for the 52 weeks prior to 29 September 2018. 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 69 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 at every annual general meeting one-third of the Directors for the time being shall retire and submit themselves for re-election. 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 42 and 43 of the Annual Report and Financial Statements. Resolution 10 Appointment of Auditor This resolution concerns the appointment of PricewaterhouseCoopers LLP (to succeed 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. Topps Tiles AR2018.indd 130 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:00 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018131 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 £2,160,851 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 2,160,851; 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 £4,321,701 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 £4,321,701. As at the date of this notice, the Company does not have any treasury shares. 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 £324,128 representing approximately 5% of the nominal value of the issued ordinary share capital of the Company as at 5 December 2018, 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 £324,128 which represents approximately 5% of the nominal value of the issued ordinary share capital of the Company as at 5 December 2018, 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. Topps Tiles AR2018.indd 131 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:00 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION132 Explanatory Notes to the Notice of Annual General Meeting 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 19,644,097 ordinary shares (representing approximately 10% of the Company’s issued ordinary shares as at 5 December 2018, 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 5 December 2018, 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 14,506,987 ordinary shares in the capital of the Company, representing 7.4% 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 8.2% of the Company’s issued ordinary share capital following the repurchase of shares. Resolution 16 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. Topps Tiles AR2018.indd 132 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:00 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018133 The Team A Aaron Barber Aaron Clarkson Aaron Lonie Aaron Turner Abby Tween Abigail Cole Abigail Harris Abigail Routley Abigayle Shipley Adam Chapman Adam Cherryman Adam Clarke Adam Crowe Adam Devine Adam Din Adam Ettienne Adam Gaymer Adam Gilkes Adam Godfrey Adam Groves Adam Hogg Adam Hunt Adam Jolly Adam Nuttall Adam Payne Adam Phillips Adam Rous Adam Shearsmith Adam Simpson Adam Ward Adam Woollam Addam Marsh Adel Benyoucef Adel Tazi Adele McMahon Adrian Gower Afrim Mensah Aidan Monahan Akash Bisht Akinyemi Orekoya Akshey Vadgama Alan Clague Alan Haji Alan Lamb Alan Saunders Alan Sinclair Alan Smalley Alan Sproston Aleksandrs Gulenkovs Alex Bell Alex Bennet Alex Fleet Alex Jones Alex Moore Alex Spencer Alex Whitmore Alexander Bennett Alexander Drew Alexander Findley Alexander Ford Alexander Gaffney Alexander Hall Alexander Marks Alexander Miles Alexander Walton Alexander Williams Alexandra Tuckley Alfie Hogan Ali Rizvi Alice Cairns Alice Mullen Alicia George Alicija Romanovska-Stefanovic Alisha Millward Alison Hunt Alison Mazzei-Foster Alistair Hodder Allan Busby Allan Harper Allysha Byrne Alnavaz Nuralah Amanda Brogan Amanda Green Amanda Hullett Amanda Lyon Amanda Plumb Amanda Samuel Amardeep Sanghera Amelia Foster Amin Ali Amy Buttle Amy Mitchell Amy Partridge Amy Smith Amy Swanson Amy Wirtz Ananthan Sivanesan Andre Osei Andrea Moon Andrew Baldock Andrew Bond Andrew Collins Andrew Costen Andrew Cox Andrew Davis Andrew Gilmour Andrew Habbick Andrew Hawker Andrew Haynes Andrew Holbourne Andrew King Andrew Lerwill Andrew Loudon Andrew Middleton Andrew Oliver Andrew Riley Andrew Roseby Andrew Ross Andrew Sansum Andrew Scorgie Andrew Sharkey Andrew Shaw Andrew Taylor Andrew Tibbetts Andrew Warne Andrew Waterfield Andrew Wathan Andrew Wilkinson Andrew Woodier Andrew Young Andrius Matusevicius Aneta Kleczek Angela Capp Angela George Anna Hibberd Anna Martin Anna-Marie Putt Anna-Marie Wells Annie Dickson Annmarie Malone Anthony Christopher Anthony Connor Anthony Daly Anthony Davies Anthony Dedman Anthony Dolan Anthony Dunsmore Anthony Gibby Anthony Gilbert Anthony Hollick Anthony Lyth Anthony Molyneux Anthony Saunders Anthony Tarr Anthony Taylor Anthony White Antony Belham Antony Miles Anub Varghese Anwar Marshall Arjun Bisht Aron Hoff Arthur Ebbs Aruna Mistry Ashley Cutler Ashley Hegarty Ashley Humphreys Ashley Kiffin Ashley Murray Ashley Rivett Ashley Somerville Asteraya Engdayehu Topps Tiles AR2018.indd 133 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:00 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION134 The Team Astone Davids Atul Patel Audrius Kolojanskas Augustine Chinenye Augustus Hagan Aurimas Lenkauskas Azim Ahmed B Barbara Connor Barbara Smith Barend Fourie Barri Barnes Barry Beaver Barry Hanlon Barry Jones Barry Stratford Barry Theobald Bartosz Pawelczyk Ben Bain Ben Barraclough Ben Bright Ben Holloway Ben Howard Ben Richmond Benjamin Gillings Benjamin Goodey Benjamin Hale Benjamin Matthews Benjamin Rich Benjamin Wood Berek K-Caeser Bethany Brame Bethany Richardson Beverley Begley Beverley Head Beverley Orton Bianca Gradinaru Bill Vincent Billie Stringer Billy Stout Billy Taylor Bolaji Adeyanju Bonita Flinthill Bradley Favre Bradley Gomes Bradley Riches Bradley Webster Brandon Abels Brendan Farrell Brendan Flynn Brett Goulden Brett Hookway Brett O’Harrow Brian Cook Brian Edwards Brian Linnington Brian Morris Bruce Fielding Bruce Garrod Bruno Bernasconi Bryan Taylor Bryony Benson Byron Tree C Cain Walsh Caitlin Pipes Callum Evans Callum Phillips Callum Shield Calum Nevitt Calvin Christopher Campbell Marr Carl Ainsworth Carl Courtney Carl Cumberbatch Carl Fraser Carl Hermitt Carl Whatley Carl Willshee Carley Brown Carlos Alford Maestre Carlos Chowdhury Carol Beattie Carol Hawkes Carole Hawken Caroline Bailey Caroline Bray Caroline Macro Caroline May Caroline Vernon-Sutton Carolynn Remington-Hobbs Carrie Peckston Catherine Britton Catherine Doulton Catriona Bennell-Cook Catriona Green Chanel Sanganoo Chantal Searle Chantelle Lord Charjuan Knight Charlene Smith Charlene Walpole Charles Branson Charles Davis-Alexis Charles Robbins Charles Rollins Charles Snell Charles Taylor Charley Leat Charlie Truscott Charlotte Fitzgerald Charlotte Lammin Chelsea Battle Chelsea Cragg Chelsey Robson Cherie Ahmet Cheryl Vearncombe Cheyanne Brown Chloe Andrews Chloe Jackson Chloe Kemp Chloe Singleton Chris Darley Chris Foster Chris Mcquade Christelle Armstrong Christian Banham Christine Berry Christine Hickling Christine Taylor Christine Thistlethwaite Christopher Bailey Christopher Beeson Christopher Bentley Christopher Bowden Christopher Butler Christopher Carey Christopher Collins Christopher Cooper Christopher Curtis Christopher D’Arts Christopher Edwards Christopher Goodacre Christopher Harbutt Christopher Harrison Christopher Heyes Christopher Holland Christopher Howe Christopher Johnson Christopher Leach Christopher Markham Christopher Miskelly Christopher Moore Christopher Nicholls Christopher Nottle Christopher Potter Christopher Robertshaw Christopher Samuel Christopher Sansby Christopher Senior Christopher Simpson Christopher Turley Christopher Wells Cieran Armstrong Clair Jeffries Claire Chaffe Claire Harris Claire Herridge Claire Lees Claire Ralphs Claire Stanley Claire Steele Topps Tiles AR2018.indd 134 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:00 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018135 Claire Tiney Clare Barden Clare Long Clare Miles Clare Shepherd Clifford Tomlinson Clive Harlow Clive Lehmann Colin Clarke Colin Griffiths Colin Harvey Colin Markham Colin Petch Colin Rymer Colin Skinner Colin Taylor Connell Smyth Conner Ockenden Connor Armstrong Conrad Cassidy Conrad Harrup Constantin Pavelescu Cora Morrison Cory Handford Cosmin Zaharia Craig Dolling Craig Johnson Craig Jones Craig Matthews Craig Murphy Craig Reed Cristian Olaru Cristina Cole Curtis Lee Curtis McCabe Czeslaw Majorek D Damian Mentel Damian Merritt Damiano Seresini Damiean Godfrey Dan Bevan Danial Holloway Daniel Angel Daniel Baker Daniel Brain Daniel Calderwood Daniel Chambers Daniel Cheyne Daniel Colk Daniel Cox Daniel Cross Daniel Danks Daniel Fairless Daniel Fallows Daniel Fordham Daniel Geoghegan Daniel Gillett Daniel Hawkins Daniel Hubble Daniel Jenkins Daniel Jibb Daniel Jones Daniel Lawrie Daniel Little Daniel McLean Daniel Milner Daniel Moyse Daniel Musguin Daniel O’Callaghan Daniel Poile Daniel Pratt Daniel Reynolds Daniel Saltmarsh Daniel Sheppard-Brown Daniel Thornley Daniel Watts Daniel Whitehead Daniel Willows Daniel Wright Daniella Winstone Danielle Kirby Danielle Noyes Danielle O’Mara Dannielle Carlton Dannique Prince Danny McInnes Danny Ostler Danny Wilson Darius Bright Darnelle Riley Darran Wood Darren Allcock Darren Barker Darren Black Darren Doughty Darren Harper Darren Jones Darren Mencarini Darren Mitchell Darren Morgan Darren Rose Darren Shapland Darren Square Darren Wagg Darren Young Darroll Watts Darron Kerr Darron Soos Darryl Ferry Dave Elliott David Augustus David Beasley David Bowler David Carpenter David Clare David Clark David Coupland David Cressey David Fisher David Fletcher David Green David Hamer David Hatton David Henderson David Hicks David Hill David Hillier-Reynolds David Hirst David Hope David Houston David Hussey David Jackson David Jobling David Kershaw David Kettlewell David Knight David Lane David Macartney David Matthews David Medlam David Meers David Miller David Murray David Oliver David Rendall David Sheehy David Shewan David Simms David Sinclair David Stott David Thomas David Thomasson David Thompson David Townsley David Webb David Wilson David Yallop Davina Vitles Dawn Gale Curtis Dean Kay Dean Marshall Dean Newell Dean Titchen Dean Woolley Deane Rhone Deborah Fitzpatrick Debra Bandghiree Declan Baker Decland Speede Deena Mistry Deesha Bhatt Deividas Jonkaitis Topps Tiles AR2018.indd 135 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:01 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION136 The Team Deividas Korsakas Denis O’Brien Denise Chalmers Dennis Jovellanos Denzil Johns Derek Sim Dermott Reilly Deryn Shipley Devias Gudka Devindren Govender Dilawar Ali Dipak Chauhan Dipal Parikh Dmitrijs Nahodkins Dolton Gordon Dominic D’Souza Dominic Gray Dominic Hall Dominic Reilly Dominick Mccann Donald Magullian Donna Douglas Donna Murphy Donovan Robinson Douglas Bingham Douglas Gracia Douglas Nicol Dwain Mensah Dylan Bradley Dylan Roberts E Eamonn Clancy Elaina Waterhouse Elaine Peacock Elizabeth Lee Elizabeth Sutton Ellen Colchester Elliot Musk-Cooper Elliott Brown Elliott Davis Elliott Sully Elsie Bird Emely Bjorkman-loney Emily Connelly Emily Gardiner Emily Hunter Emily Lenton Emily Mansell Emily Sneller Emily Tuttlebury Emma Anderson Emma Bray Emma Dudley Emma Gotch Emma Hilton Emma Jordan Emma Macfarlane Emma Spellacey-Perry Emmanuel Melford-Rowe Emran Mannan Enam Ali Eren Ucman Erikas Mazeikis Ermiyas Girma Erwan Vauconsant Esme Sparrow Euhuan Lumsden Ezra Deans F Faizar Ali Fardowsa Mohamed Fatima Pereira Faye Henderson Fayzur Rahman Felipe West Fiona Oakes Fitz Martin Fouche Lubbe Frances Aylward Francesca Wright Frank Hibbert Frank Smith Fraser Lockley Fred Therme G Gabriel Iacob Gabriela Olszowska Gabriella Carvalho Gail Kitson Gail Knight Gareth Camplin Gareth Davies Gareth Fogden Garry Crichton Garry Hardy Gary Bloomfield Gary Curtis Gary Davies Gary Fellows Gary Gear Gary Gee Gary Gledhill Gary Heath Gary Marshall Gary Mayo Gary Nash Gary Roberts Gary Tipler Gary West Gary Woolmore Gavin Bennett Gavin Collins Gavin Magwood Gavin Winter Geeta Makwana Gemma Davies Gemma Farnan Gemma Kirk Gemma Stephens Gemma Wademan Genya Hutchins Geoffrey Greenwood Geoffrey Thomas Geordie Stock George Allen George Astill George Birkley George Dewis George Hopper Georgia Miles Geraint Griffiths Geraint Thorne German Ramirez Marin Gillian Grace Glendale Canoville Glenn Cottrell Glenn Elgy Glenn Smith Gokhan Karadogan Gordon Shennan Graham Cooper Graham Foster Graham Hancock Graham Hitchin Graham Jones Graham Livingstone Graham Mansfield Graham Vance Gregory Jeffs Gregory McHugh Gregory Smith Grenville Davies Gurinder Chana H Halima Awad Hannah Kings Hannah Lee Hannah Pritchard Hannah Sayers Hannah White Hanz Nelson Haroon Younus Harriet Goodacre Harry Biggs Harry Kay Hayden Inman Hayden Mason Hayley Hopwood Hazel Millington Helen Gosling Topps Tiles AR2018.indd 136 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:01 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018137 Helen Hughes Helen Walker Helen Washington Henry Povey Hitesh Chanana Holly Bishop Holly Dawson Holly Vincent I Iain Arnott Ian Aikman Ian Bloomfield Ian Croton Ian Fraser Ian Hughes Ian Marshall Ian Mattacola Ian McNeish Ian Noon Ian Paterson Ian Smithson Ian Sykes Ian Tivendale Ibrahim Ali Iftekhar Parvez Igors Koselevs Ilars Skabeikis Inzamam Akram Ismail Spence Ivan Paitoo J Jaasir Wazir Jacek Skubisz Jacek Zebrowski Jack Allardyce Jack Bennett Jack Bogg Jack Coker Jack Ellis Jack Finlay Jack Flannigan Jack Hill-Jones Jack Jorden Jack Maddison Jack Millman Jack Ockenden Jack O’Neill Jack Relfe Jack Swain Jack Thompson Jack Wheeler Jacob Allan Jacob Powell Jacob Stuart Jacqueline Dadge Jacqueline Desborough-Morehead Jacqueline Farnan Jade Girgensons Jagraj Dhother Jahtal Nisa Roberts-Joseph Jailuene Witterick Peake Jake Carter Jake Shopland Jake Woods Jamal Khanum-Muhammad Jamarion King James Beasley James Beaumont James Biesty James Brophy James Cameron James Carpenter James Cheung James Clifford James Comber James Fox James Hawker James Heard James Henshaw James Hollis James Howard James Kew James Lobb James MacCallum James McGuigan James Morgan James O’Driscoll James Pannett James Patston James Pilfold James Robertson James Rolfe James Saunders James Snuggs James Taylor James Tuvey James Walker James White James Williams James Worden Jamie Broadhurst Jamie Calow Jamie Evans Jamie Kelly Jamie Mears Jamie Ormrod Jamie Rose Jamie Sia Jamie Wenborn Jamie Wilson Jamie Lee McCann Jamye Walker Jan Reddi Janaka Alahapperuma Janet Lee Jarmila Weller Jasbir Singh Jasmine Dogertz Jason Barker Jason Bloxham Jason Coupland Jason Darcy Jason Ealden Jason Knox Jason Pratt Jason Rose Jaspreet Sandhu Jasvinder Rehal Javeed Parkar Jawan Pantin Jay Billings Jay Franklin Jay Gale Jay King Jay Strawford Jayaprakash Paragjee Jayne Young Jeannette Hastie Jedrzej Politowski Jeffrey Armstrong Jennie Kane Jennifer Gregory Jennifer Seabrook Jennifer Thompson Jennifer Wall Jenny Inkson Jeremy Long Jeremy Napthine Jessica Gurski Jessica Ling Jessica McCarthy Jessica Rowlands Jessica Thiari Joanne Cox Joanne Elton Joanne White Jodie Jones Joe Dwyer Joe Mathews Joe Raynsford Joe Smith Joel Barker Joel Bray Joel Fothergill Jogendra Kalicharan John Bourke John Bryant John Conley John Cook John Crawshaw John Ellis John Fawkes Topps Tiles AR2018.indd 137 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:01 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION138 The Team John Field John Gardner John Harris John Harrison John Hesp John Hughes John McLaren John Moat John Murphy John Page John Scatchard John Shaw John Smith John Thompson Johnathan McCallum Jon Cottrell Jon Davis Jon Reynolds Jon Thatcher Jonathan Boxall Jonathan Coombs Jonathan East Jonathan Hall Jonathan Hargreaves Jonathan Impey Jonathan Kirk Jonathan Morgan Jonathan Stearman Jonathan Stone Jonathan Wallace Jonathan Williams Jonathan Woodroff Jonathon Turner Jon-Paul Hughes Jordan Abraham Jordan Bannister Jordan Edghill Jordan Fox Jordan Huston Jordan Lindsay Jordan Lowes Jordan Macdonald Jordan Scarbrow Jordan Stephens Jordan Vinluan Josef Kinski Joseph Cox Joseph Daly Joseph De Matos Joseph Gregorace Joseph Haynes Joseph Heath Joseph Lewis Joseph Morton Joseph Walsh Joseph Whittaker Josephina Lane Josh Wood Joshua Anderson Joshua Bradley Joshua Brown Joshua Burgess Joshua Darby Joshua Dunford Joshua Elliott Joshua Hastings Joshua Higgs Joshua Hubbard Joshua Hughes Joshua Lambert Joshua Paton-Rolls Joshua Rapley Joshua Stenhouse Joshua Wright Josiah Everitt Josie Colehan Jude McGuigan Judith Duncan Juginder Gill Julia Kerr Julian Myles Julie Bird Julie Brachtvogel Julie Cox Julie Fewings Julie Mitchell Jullah Jabbi Juris Kalnins Justin Coyle Justin Marlow Justin Morgan Justinas Pelakauskas Justine Bowman Juttinder Digpal Jyoti Kaur K Kacper Dadel Kajetan Marcinek Kamaljit Atkar Kamaljit Thandi Kamil Janas Kamlesh Shah Karen Dodds Karis Hall Karl Aran Karl English Karl Lippiatt Karl Mullaney Karl Reeves Karl Stephens Karl Turner-Talmage Karl White Kashan Riley Kashif Zaman Kastriot Kelani Katarzyna Roberts Kate Burden Kate Flitton Katherine Blitz Katherine Jackson Kathryn Finch Kathryn Pell Kathryn Van-Kleef Katie Brindley-Hughes Katie Johnson Katie Lunn Katy Todd Kayla Thomas Kayleigh Barnes Kayleigh Clemson Kayley Coldham Kazi Miah Keaton Bayliss Keely Powell Keiran Williams Keith Alexander Keith Ambrose Keith Bearman Keith Down Keith Fitzpatrick Keith Murphy Keith Rudkin Kelly Dalby Kelly Goodacre Kelly Savile Kelly Weyman Kelly-Anne O’Connor Kelvin Sam Junior Lansdowne Kenneth Ostler Kenneth Owen Kenneth Westley Kerri Atkinson Kerrie Burcham Kerry Hurst Kerry-Ann Smith Kevan Richardson Kevin Atherton Kevin Baker Kevin Bingham Kevin Bowtle Kevin Da Silva Kevin Fox Kevin Frampton Kevin Gunn Kevin Hailes Kevin Hardy Kevin Hartley Kevin Nicol Kevin Rowe Kevin Smart Kevin Smith Kevin Thorne Keziah Bryant Topps Tiles AR2018.indd 138 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:01 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018139 Khai Shaw Khan Khan Khawar Mahmood Kiaran Wingham Kie Mitchell Kieran Barnes-Warden Kieran Corben Kieran Fleet Kieran Gardiner Kieran Hansard Kieran Hudson Kieran Reeves Kieron Clarke Kim Liddle Kim Moriarty Kirandeep Kaur Kirk Irvine Kirk Taylor Kirsten Cummings Kirstie Leonard Kirstie Mcdowell Kirsty De-Rose Kirsty Graham Kirsty Jones Kirsty Rice Kirti Patel Kranthi Billakanti Krishna Patel Kristal Dickinson Kristian Catterall Kristian Prosser Kristopher Allatson Krystle Milan Krzysztof Burdajewicz Kurt Folkes Kurt Hamilton Kye Harman Kyle Batley Kyle Crichton Kyle Hardie Kyle Manns-Kennedy Kyle Markland Kyle Welford L Lance Cale Laura Henry Laura Horton Laura James Laura Madigan Laura Racey Laura Sansom Laura Wilson Lauren Holmes Lauren Munro Lauren Richmond Lauren Stanhope Laurence Jones Laurence Pendrill Layla Pring Leah Humphries Leah Westwood Leanne Clarke Leanne Curry Leanne Palmer Lee Armstrong Lee Butcher Lee Carlos Lee Clarke Lee Cornford Lee Dering Lee Eagling Lee Gadney Lee Galloway Lee Gibson Lee Gladman Lee Gleeson Lee Harris Lee Hutchinson Lee Jacovou Lee James Lee Kent Lee McDonnell Lee Read Lee Wilkinson Lee Windram Lee Worrad Leendert Van Den Berg-Slowey Leighton Davies Leon Das Leon Dyer Leon Pryce Leona Parker Lesley Willcox Lewis Adkins Lewis Allan Lewis Buckley Lewis Crossley Lewis Elkin Lewis Hill Lewis Kennedy Lewis Rockett Lewis Walter Lewis Williams Leyton Bellamy Liam Bantin Liam Childs Liam Corbett Liam Ellis Liam Flynn Liam Harris Liam Hogan Liam Hounsell Liam Hunt Liam Jiggins Liam Piper Lianne Harrison Libby Field Lindsay Bond Lindsey Flint Lisa Algar Lisa Callan Lisa Cullen Lisa France Lisa Holmes Lisa Johnson Lisa-Marie Slater Lloyd Jackson Lois Short Lola Halligan Loucas Louca Louise Bunting Louise Groves Louise Henbest Louise Jeffery Louise Marsden Louise McComiskey Louise Reddell Lucy Harper-Thompson Lucy Jenner Lucy McGennity-Bane Lucy Swain Lukaszi Pirga Luke Barefield Luke Carson Luke Day Luke Kerr Luke Livermore Luke McNally Luke O’Connor Luke Potiphar-Trigwell Luke Saunders Luke Watson Luke Woodward Luke Wright Lyndsey Kell Lynne Foster Lynne Meldrum Lynsey Smart M Madeline Pipes Maeghan Taylor Mahdi Hafezpol Mahesh Wara Mahomad Zubair Saiyed Mandy Aidney Marc Law Marcin Kupczyk Marek Kloda Margaret Lawrie Maria Drozdova Maria Thompson Maria Williams Topps Tiles AR2018.indd 139 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:02 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION140 The Team Marie Hayward Mariya Hanif Mark Alexa Mark Allman Mark Bianchi Mark Braithwaite Mark Brown Mark Burgess Mark Coe Mark Davies Mark Frisby Mark Fuller Mark Gasson Mark Heath Mark Hewitt Mark Hunter Mark Keymer Mark Lever Mark Maciver Mark Matthews Mark Owen Mark Palmer Mark Pancott Mark Penfold Mark Percival Mark Richardson Mark Ridley Mark Rogers Mark Sloan Mark Stephens Mark Tennant Mark Tilley Mark Vaughan Mark Waldock Mark West Mark Whitaker Mark Williams Mark Winder Mark Woodyatt Mark Wordley Mark Wright Marley Wingrove Martha Karczewska Martin Brown Martin Oliver Martin Osborne Martin Pickard Martin Turner Martin Williams Martin Winterburn Martina Way Martyn Somerville Martyn Spring Mateusz Kosior Mathew Buckett Mathew Lampard Mathew Mitchell Mathew Tapp Matt Attwood Matt Garwood Matthew Barcas Matthew Bartholomew Matthew Bennett Matthew Birchall Matthew Clarke Matthew Dunne Matthew Ellis Matthew Fisher Matthew Foster-Smith Matthew Foulger Matthew Gearing Matthew Hawley Matthew Haynes Matthew Illing Matthew Ingram Matthew Jones Matthew Lindsay Matthew Martin Matthew McManus Matthew Miller Matthew Moore Matthew Nash Matthew Robinson Matthew Rowson Matthew Sinclair Matthew Stevenson Matthew Way Matthew Wesson Matthew Whitlock Matthew Williams Matthew Woodhouse Matthew Wright Mattia Galassi Mattia Tosi Max Evans Megan Broadway Megan Lyons Megan May Megan Wiley Mehmet Asdoyuran Melanie Abbott Melanie Rogers Melanie Toole Melissa Wadman Melton Thompson Melvin Metzger Melvyn Chamberlain Mervyn Thorne Mhairi Wade Mica Gray Michael Boughton Michael Buckley Michael Darroch Michael Dinter Michael Earls Michael Edwards Michael Evans Michael Fannon Michael Finn Michael Foley Michael Gee Michael Goodfield Michael Hall Michael Hopper Michael Humphrey Michael Kessler Michael Lay Michael Litster Michael Lovelock Michael McGarry Michael Moss Michael Ohare Michael Quinn Michael Rosewall Michael Sear Michael Swanston Michael Upton Michael Van Sittert Michael Way Michael Wright Michaela Thomas Michele Trickett Michelle Astman Michelle Coote Michelle le Monnier Michelle Lisle Michelle Moore Mick Wells Mihaela Duta Mike Booth Miles Burden Miles Turner Millie Gregory Minai Kanabar Miroslaw Hebda Mkhonto Gumede Mo Alhamwi Mohamed Patel Mohamed Weheliye Mohammad Mukhtar Mohammed Ali Mohammed Amin Mohammed Hoque Mohammed Jamil Mohammed Jimale Mohammed Khalid Mohammed Ibad Khan Molly Throup Mr Topps (retired) Mubashir Uddin Murdo Martin Topps Tiles AR2018.indd 140 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:02 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018141 Murrin Kennedy Murshed Ali Myles Byfield N Nancy Jacques Naomi McKenzie Narinder Chatha Nasir Hussain Natalie McCuaig-Finlay Natalie Paine Natalie Ratsavong Natasha McLeod Nathan Austin Nathan Bulleyment Nathan Coulthard Nathan George Nathan Goodhew Nathan Harry Nathan Winterton Nauris Vinkelis Navdeep Reehal Nayim Ahmed Neely Stuart Neha Shah Neil Anderson Neil Brownley Neil Cato Neil Homan Neil Jeremy Neil Jones Neil Muckle Neil Southgate Neil Topping Neil Wardlaw Neil Williams Nichola Humble Nicholas Culley Nicholas Gadd Nicholas Hargreaves Nicholas Kent Nicholas King Nicholas Lawrence Nicholas Lodge Nicholas Peedell Nicholas Stone Nicholas Taylor Nicholaus Buchanan Nick Meese Nick Walch Nick Wardman Nickola Young Nicky Glenister Nicola Brownley Nicola Fletcher Nicola Hellett Nicola Howlett Nicola McWatt Nicole Andrews Nicole Colvin Nicole Hutchison Nigel Fleming Nigel Slaughter Nikolay Georgiev Nishit Shah Noeleen Ryan Noor Abed Norman Schwab Numan Usman Nuno Pinto Da Costa O Oliver Wallis Olivia Dettmer Olyvia Offley Onder Madencioglu Oscar Cork Otis Kiananua Ovidijus Dirzys Owais Kaleem Owen Tudor Oz Masaya P Paige Makepeace Paige Morgan Pankaj Bhardwaj Paolo Segagni Paresh Nagar Parminder Garcha Patrick Howlett Patrick Stoner Paul Ace Paul Baxter Paul Brooks Paul Burkett Paul Burrow Paul Cartledge Paul Chapman Paul Cheetham Paul Clark Paul Cowen Paul Cox Paul Dalby Paul Fisk Paul Galvin Paul Gee Paul Godefroy Paul Gooch Paul Haythorne Paul Hubbard Paul Irving Paul Jenkinson-Finn Paul Kelling Paul Kelly Paul Keymer Paul Lee Paul Lester Paul Logue Paul Miller Paul Mills Paul Nicholls Paul Noyes Paul Semple Paul Smith Paul Starkey Paul Sumner Paul Third Paul Thomas Paul Tregaskis Paul West Paul Whittington Paul Whitworth Paul Wilson Paul Winter Pauline Garrow Pauline Harrison Pauline Whitaker Paulo Jorge Freitas Marques Pawel Pudelko Pawel Warych Penny Davis Perran Kelly Peter Ambrose Peter Callan Peter Carr Peter Charles Peter Charters Peter Clements Peter Eagles Peter Goulding Peter Hanley Peter Hunt Peter Ijere Peter Jackson Peter Knights Peter Lees Peter Little Peter Sincock Peter Turtle Peter West Peter Wiles Peter Young Phil Weaver Philip Botting Philip Cranston Philip Dunn Philip Gallop Philip James Philip Speed Philip Stocks Philip Underhill Philippa Hill Topps Tiles AR2018.indd 141 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:02 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION142 The Team Phillip Walters Phillipa Hewitt Phoebe Webb Polly McMahon Poonam Patel Poppy Branch-Tarry Poppy Turner Portia Boehmer Preline Martha Przemyslaw Drabinski Q Quang Pham R Rabinder Gill Rachel Fellows Radoslaw Doktorski Rain Paterson Raj Surani Rajan Toora Rajesh Thanki Rajiv Vadgama Rajneet Sahota Rajnish Gaur Ratip Hassan Ravi Kalyan Rebeca Wallis Rebecca Ball Rebecca Carne Rebecca Cole Rebecca Godfrey Rebecca Hackett Rebecca Love Rebecca Mills Rebecca Moore Rebecca Oblein Rebecca Robson Reece Brewin Reece Brown Reece Moss-Matthews Reece Thorpe Rhiannon Holland Rhys Hedges Ricardo Paine Richard Bickers Richard Bleach Richard Bourne Richard Carter Richard Clark Richard Davies Richard France Richard Geare Richard Greenwood Richard Keane Richard Mann Richard Oates Richard Oldale Richard Palfrey Richard Prescott Richard Senior Richard Small Richie Stephen Rickie Byrne Ricky Freeman-Roach Riley Hayward Rob Grassham Robbie Perry Robel Ghebrewold Robert Adams Robert Ballantyne Robert Beard Robert Black Robert Brown Robert Buckley Robert Chawner Robert Collins Robert Dennis Robert Dunn Robert George Robert Hardie Robert Howker Robert Keohone Robert Knight Robert Kweli Robert Mitchell Robert Moss Robert Myers Robert Parker Robert Prince Robert Spencer Robert Tsui Robert Twiner Robert Wyatt Roberta De Benedictis Robin Perrin Robin Stagg Robin Williams Rocky Bryan Rodrigo Bermeo-Rojas Rodrigo Branco Rodyvik Chineah Roger Gridley Roger Lazenby Roisin Smith Romal Williams Romans Petuhovs Romualdas Maciulevicius Ron Woolgar Ronnie-Leigh Pews Rory Reeves Rory Warwick Ross Ashbrook Ross Farrell Ross Langford Ross Matthews Ross McGhee Roxanne Daly Roxanne Evans Russell Cox Russell Sell Ryah Webster Ryan Apark Ryan Buston Ryan Coleman Ryan Dunn Ryan Farquhar Ryan French Ryan Harris Ryan Hicks Ryan Izard Ryan Randall Ryan Rowles Ryan White Ryhan Weekes Rytis Martinkenas S Sahibjit Samra Sam Attfield Sam Davis Samantha Davies Samantha Gray Samantha Leavis Samantha Makrygiannis Samantha Peters Samantha Stewart Sameer Jamdar Samir Maifi Samuel Egerton Samuel Gibson Samuel Hughes Samuel Kirk Samuel Knowles Samuel Murley Samuel Taylor Samuel Wheatley Samuel White Sandra Ramsay Sanjeev Pal Sara Lloyd Sarah Burnard Sarah Cassam Sarah Cunningham Sarah Darby Sarah Dobson Da Silva Sarah Holey Sarah Jordan Sarah Kite Sarah Mclure Sarah Phipps Sarah Rose Sarah Sullivan Topps Tiles AR2018.indd 142 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:02 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018143 Sasha Kataria Satvinder Sandhu Savio Coutinho Saxon Owen Sayed Kazmi Scott Ahmad Scott Birdseye Scott Bond Scott Cameron Scott Carter Scott Hopwood Scott Johnston Scott Mccartney Scott Ottaway Scott Thirlaway Scott Vickers Sean Brandist Sean Cahill Sean Dare Sean Gee Sean Hull Sean McClafferty Sean McLean Sean Speckman Sean Taylor Seku Brobbey Senervirathna Erandika Shafeek Mohamed Shahid Mahmood Shamara Mckenzie-Rochester Shana Esworthy Shane Bryan Shane Lindsay Shane Malone Shane Mason Shane Till Shannon Calf Shannon Dewdney Shannon Oliver Sharif Islam Shariq Modak Sharon Buckley Sharon Odum Sharon Papantoniou-Barrett Shaun Bryan Shaun Dodson Shaun Gordon Shaun Harwood Shaun Marshall Shaun Owens Shaun Pawsey Shaun Sargeant Sheena Smith Shelley Burton Shelley Carey Shelley Francis Shelley Rutter Sheralyn Tidball Shrina Shah Shylo Brookes Sian Austen Sian Hart Sian Horrigan Silvi Atanasova Silvonne McLean Simon Beare Simon Bodell Simon Brookfield Simon Chapman Simon Chappell Simon Farley Simon Felix Simon Green Simon Grimmett Simon Jackson Simon Lasham Simon Leslie Simon Lewis Simon Marks Simon Morgan Simon Neal Simon Pitt Simon Roberts Simon Webb Simon Witham Sinan Demir Sinead Fisher Siobhan Ashman Siobhan King Sion Ellis Slavka Georgieva Sophie Bishop Sophie Doggart Sophie Fallon Sophie Swann Sophie-Anne Farnworth Stacey Webb Staney Prabhakumar Stefan Clark-Carter Stefan Haworth Stefano Tedeschi Stefany Wiso Stephanie Bannister Stephanie Dinnis Stephanie Hogben Stephanie Kilner Roberts Stephanie Nevett Stephanie Shaw Stephanie Taylor Stephanie Thompson Stephen Adams Stephen Amos Stephen Anthony Stephen Boyd Stephen Brand Stephen Carr Stephen Clayton Stephen Collins Stephen Corkett Stephen Edmonds Stephen Edwards Stephen Foote Stephen Freeman Stephen Gaylor Stephen Hall Stephen Harrington Stephen Johnson Stephen Kelly Stephen Lacey Stephen Lopes Stephen Machin Stephen Maidment Stephen Marshall Stephen Nicol Stephen Riley Stephen Sanders Stephen Seymour Stephen Smith Stephen Stubbs Stephen Watson Steven Barrowcliffe Steven Birch Steven Brown Steven Dooley Steven Dyer Steven Gillham Steven Higgins Steven Howells Steven Ives Steven Karkari Steven Kernot Steven Murray Steven Presley Steven Souter Steven West Steven Whitehead Steven Wood Stuart Barrett Stuart Clarke Stuart Corlett Stuart Fletcher Stuart Harris Stuart Haywood Stuart Munton Stuart Rees Stuart Ross Stuart Smith Stuart Stevenson Stuart Tannock Stuart Whitby Stuart Williams Topps Tiles AR2018.indd 143 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:02 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATIONZ Zachary Sutton Zainab Idris Zoe Atkinson Zoe Cardoo Zoe Gilbert Zoe Lees Walters Zoe Payne Zoe Stevens Zoe-Louise Speller 144 The Team Sukhdev Bains Summer Ellison Sunil Patel Susan Law Susan Shields Susanna Horwood T Tabitha Shipton Tahmid Islam Talia Blackwell Tammie O’Lone Tammie Spencer Tanya Roberts Tara Smith Tarik Bensadik Tauseef Usman Taylor Smith Terence Dooley Terry Manto Terry Prince Terry Salisbury Thomas Ashmore Thomas Caldicott Thomas Cunningham Thomas Darlaston Thomas Evans Thomas Johnson Thomas Langston Thomas Lee Thomas Mcgeown Thomas Miller Thomas Moran Thomas Murray Thomas Otley Thomas Quinn Thomas Reilly Thomas Ross Thomas Ryan Thomas Swain Thomas Utting Thomas Wade Thomas Wilkinson Tiffany Lambert Tim Chatfield Tim Hodges Tim Richards Timea Szabo Timothy Bentley Timothy Boardman Timothy Morgan Timothy Stanhope Timothy Tatlock Timothy Tuff Tiyana Duberry Toby Vennard Todd Routledge Tom Newman Tom Wilson Toni Gormley Toni Skutela Tony Dumbleton Tracey Waterman Tracy Clewes Tracy Wearmouth Troy Fearon Troy Miller Tully Lennon Tyler King Tyler Lindsay Tyler Nossent Tyler Osborne Tyler Spridgeon Tyrone Horne U Udo Jungbecker Umut Ortac Uwais Ghumra V Valentin Ivan Vania Catanho Vaughan Batchelor Veronica Evett Veronica Zudaire Vicky Hall Victoria Atkinson Victoria Carrington Victoria Pearn Vi-Dung Luong Vilius Meilus Vinod Joshi Viorica Grapa Vishal Handa W Waqar Raja Warren Bester Warren Pettersen Wayne Randall Wesley Appadoo William Bailey William Barreda William Buxton William Foxley William Short WIlliam Stephens William Wylie Wyn Dunn-Davies Y Yaser Yakobi Yohannes Getachew Yousouf Cadinouche Youssef Djeraoui Yvonne Burgess Yvonne Hardingham Topps Tiles AR2018.indd 144 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:03 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018145 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 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 Kings Cross Leyton Muswell Hill Boutique New Southgate North Finchley Old Kent Road Orpington 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 Wood Green Midlands Barnsley Binley Boston Burton upon Trent Cannock Chesterfield Congleton 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 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 Leeds Sheepscar Macclesfield Morecambe Northallerton Oldham Ormskirk Pontefract Preston Sale Salford Scarborough Scunthorpe Shipley Skegness Snipe (Audenshaw) Southport St Helens Stockport Stockton Sunderland Tyneside Wakefield Ings Road Warrington Widnes Wigan Workington York Clifton Moor Scotland and Northern Ireland Aberdeen Bridge of Don Aberdeen Wellington Ayr Belfast Boucher Road Belfast Newtownabbey Dundee Edinburgh Fort Kinnaird Glasgow Govan Topps Greenock Hillington Inverness Irvine Kirkcaldy Perth Shawfield Sighthill Wishaw South Abingdon Andover Amersham Ashford Aylesbury Banbury Barnstaple Basildon Basingstoke Bath Bedford Elms Bexhill Bicester Bishops Stortford Bodmin Bognor Regis Borehamwood Bounds Green Bournemouth Bracknell Braintree Topps Tiles AR2018.indd 145 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:03 STRATEGIC REPORTOUR GOVERNANCEOUR FINANCIALSTOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018ADDITIONAL INFORMATION146 Store Locations Brentwood Bridgwater Brighton Bristol Broadstairs Buckingham Burgess Hill 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 Egham Erith Evesham Exeter Trusham Rd Exmouth Fareham Topps Farnborough Farnham Folkestone Frome Gatwick Glastonbury Gloucester Gravesend Grays Great Yarmouth Guildford Hailsham Harlow Harlow Ascent Park Havant Hedgend Hengrove Hereford High Wycombe Horsham Huntingdon Ipswich Isle of Wight Isleworth Kings Lynn Launceston Letchworth Lewes 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 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 Haverfordwest Llanelli Merthyr Tydfil Neath Newport Rhyl Swansea Cwmdu Swansea Llansamlet Wrexham Parkside Showrooms Chelsea Leicester Topps Tiles AR2018.indd 146 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:46:03 TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018Topps Tiles AR2018.indd 6 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:42:52 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 2 9 t S e p e m b e r 2 0 1 8 TOPPS TILES PLC Thorpe Way, Grove Park Enderby, Leicestershire LE19 1SU www.toppstiles.co.uk TOPPS TILES PLC ANNUAL REPORT AND ACCOUNTS FOR THE 52 WEEK PERIOD ENDED 29 SEPTEMBER 2018 Topps Tiles AR2018.indd 1 26286 7 December 2018 4:41 PM Proof 8 07/12/2018 16:42:29

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