Annual Financial Report

RNS Number : 0115X
Topps Tiles PLC
30 November 2010
 



Topps Tiles Plc

Annual Financial Report

 

 

Topps Tiles Plc ("Topps", "Topps Tiles" or "the Group"), the UK's largest tile and wood flooring specialist with 312 stores, announces its annual financial results for the 53 weeks ended 2 October 2010.

 

Financial Performance

 

·      Total Group revenue increased 2.0% to £182.4 million (2009: £178.8* million)

·      Like-for-like revenue increased 1.7% (2009: declined 13.1%*)

·      Group gross margin 58.7% (2009: 59.2%*)

·      Operating profit of £19.9 million (2009: £21.3 million*)

·      Adjusted operating profit of £21.1 million (2009: £22.8 million*) **

·      Profit before tax of £12.4 million (2009: £9.9 million*)

·      Adjusted profit before tax of £16.3 million (2009: £17.5 million*) ***

·      Basic earnings per share of 5.37 pence (2009: 1.00 pence, see note 13)

·      Adjusted basic earnings per share for continuing operations of 6.18 pence (2009: 7.34 pence, see note 13) ****

·      A final dividend of 1 pence per share (2009: no final dividend)

·      Net debt reduced by £22.1 million to £49.1 million (2009: £71.2 million)

 

* Comparative numbers are presented after restating the statement of financial performance to reflect the Dutch business as a discontinued operation, further information is provided in note 11.

** 2010 adjusted operating profit is adjusted for exceptional items being the impairment of plant, property and equipment of £0.8 million (2009: £1.0 million*) and other restructuring and one-off costs of £0.4 million (2009: £0.5 million*)

*** 2010 adjusted profit before tax is adjusted for the effect of exceptional items above plus:

-     £2.8 million (non cash) charge relating to the interest rate derivatives the Group has in place (per IAS39) (2009: £5.8 million)

-     Property disposal gain of £0.1 million (2009: loss of £0.3 million)

**** Adjusted for the post tax effect of non-recurring items highlighted above

 

Please note this report has been prepared for the 53 weeks ended 2 October 2010 and the comparative period has been prepared for the 52 weeks ended 26 September 2009.  With the exception of the Group like-for-like revenue measure which is comparable, the reported figures are presented on this basis and are not entirely comparable.  The impact of the additional week is to increase revenue by £3.6 million and operating profit by £0.4 million.

 

Current Trading and Outlook

 

·      The Group is now trading from 312 stores (2009: 309 stores in the UK)

·      In the first 7 weeks of the new financial period, Group revenues increased by 2.9% and increased by 3.2% on a like-for-like basis.

 

Commenting on the results, Matthew Williams, Chief Executive said:

 

"This has been a robust performance from the business during a tough trading period, which demonstrates the effectiveness of our strategy and the strength and resilience of our business model.  Through the prudent management of costs and careful control of our business, we have significantly reduced our net debt position during the period and continued to build on our market leading position.

 

"We are encouraged by current trading despite the challenging economic outlook and subdued levels of consumer confidence.  We are confident that the business will benefit from our growth strategy and our continued focus on delivering outstanding value to our customers."

 

For further information please contact:

 

Topps Tiles Plc

Matthew Williams, CEO

Rob Parker, Finance Director

Barry Bester, Chairman

c/o Pelham Bell Pottinger                                                           020 7861 3232

 

Emma Kent / Rosanne Perry / Duncan Mayall

Pelham Bell Pottinger                                                                 020 7861 3232

 

 

Chairman's Statement

 

In our Interim Management Report we noted that the retail environment had continued to be challenging, particularly for those retailers dependent on discretionary spend.  I am encouraged to be able to report that we have seen a return to like-for-like growth across the financial period as a whole.

 

Our performance for the period has demonstrated the resilience of our business model and the prudence of management's decisions regarding the pursuit of growth, expansion of the store estate and marketing of the business.  We have continued to manage the business prudently, focusing on cost control, and we remain firmly cash generative with a secure balance sheet and increasing strength in our trading levels.  We are confident that we are well positioned to benefit when market conditions materially improve and consumer confidence returns more strongly.

 

Financial Results

Total Group revenue for the 53 week period has increased to £182.4 million (2009: £178.8 million* for the 52 week period) with like-for-like revenue for the period showing an increase of 1.7% on last year.  Operating profit for the period was £19.9 million (2009: £21.3 million*) giving a profit before tax of £12.4 million (2009: £9.9 million*).  Basic earnings per share were 5.37 pence (2009: 1.00 pence, see note 13). 

 

During the period we have incurred £1.2 million (2009: £1.5 million*) of exceptional charges relating to the closure and relocation of stores in the UK.  On an adjusted basis, we have generated an operating profit** of £21.1 million (2009: £22.8 million*) and a profit before tax of £16.3 million*** (2009: £17.5 million*).  Adjusted basic earnings per share for continuing operations **** were 6.18 pence (2009: 7.34 pence, see note 13).

 

Dividend

The Board has given careful consideration to the resumption of dividend payments.  Trading has improved and we are encouraged that we have seen a good level of stability, from which we feel we can plan and move forward.  We have also commenced early negotiations with our existing lenders to extend our current banking facilities and, based on those discussions, the Board is now confident that new committed facilities will be in place over the coming months.  As a result of progress on these two key issues, the Board feels that the resumption of dividend payments at this time is appropriate.  The Board is recommending to shareholders a final dividend of 1 pence per share, £1.9 million in total.  Subject to approval by shareholders at the Annual General Meeting, this will be payable on 31 January 2011 to all shareholders on the register as at 31 December 2010.

 

People

The Company's staff remain fundamental to the success of the business through their delivery of outstanding customer service.  This service ethic sets Topps Tiles apart from its competitors and underpins the robust business model that has proved so valuable in enabling the Group to withstand the economic downturn.  I would like to extend the Board's thanks and gratitude once again to everyone in the Group for their continuing efforts and hard work. 

 

Outlook

The management team has maintained a keen focus on delivering profits whilst prudently managing costs, continuing to invest in infrastructure and pursuing targeted growth of the store estate. The business is performing in line with management's expectations and current trading figures also offer cause for confidence.

 

We are, however, conscious of the demands on our consumers and that the recently announced Government spending reductions may have an impact on the macro economy as we look forward.  We remain confident that our business is both well positioned to benefit from further improvements in consumer confidence and is also well protected against further economic pressures.

 

 

Barry Bester

Chairman

 

 

Chief Executive's Statement

 

Topps Tiles continues to be the market leader in its sector with a strong and resilient business model.  The economic environment has continued to be challenging for retailers and to mitigate the possible impact on our performance we have maintained our focus on delivering outstanding customer service and providing excellent value high quality products.  This focus has ensured that we have delivered a robust set of financial results against what remains a challenging economic backdrop.  When combined with the continued prudent management of costs and material reduction in net debt, I feel the business is financially well positioned and we can progress our plans for growth.

 

UK Store Development and Expansion

Over the last three years our store expansion strategy was realigned to take account of the changes in the economic environment.  In the last 12 months we have again returned to store growth and have opened 12 new stores and closed or relocated 9 stores, resulting in a net increase of 3 stores.

 

The Group is now trading from a total of 312 outlets throughout the UK and in the coming year we have plans in place to increase the size of the business by at least 10 new stores.

 

In order to facilitate our plans for store expansion and to enable us to integrate our supply chain further, we have commenced construction of a second warehousing facility at our Leicestershire headquarters, at an expected cost of £3 million.  This will form a key part of our logistics strategy over the coming years and we anticipate it will be fully operational by April 2011.

 

Topps Tiles

We have opened a net 10 new stores and now have a total of 275 Topps outlets.  This includes 8 new openings and 5 stores we have rebranded from Tile Clearing House (TCH). We have closed 7 stores in the period, 4 of which have been relocated to improved sites.

 

Our e-commerce business continues to make good progress, now offering the vast majority of our instore offer and, in addition, some internet only products.  Customers are able to research projects, browse the ranges and make decisions about projects before final purchase, which can then be completed either online or in-store depending upon customers' preference.  This part of the business now represents approximately 1% of our turnover and we anticipate another year of strong growth.  We will continue to invest in this important source of growth and expect to see it play an increasingly important role in our overall customer offer.

 

Tile Clearing House (TCH)

TCH remains focused on trade customers and jobbing builders, operating a "cash and carry" type format.  During the period we have refitted and rebranded 5 stores to the Topps format and closed a further 2, a net reduction of 7 stores to 37 outlets.  Results from rebranded stores demonstrate that a higher level of turnover is now being generated, which we believe is due to stronger branding and an enhanced customer offer available from the Topps format.

 

Holland

We reported in the Interim Management Report that during the period the Board had taken the decision to withdraw support and funding for its loss-making Dutch subsidiary, as announced on 18 December 2009.

 

As a consequence of the notification of the withdrawal of support, the local management team took the decision to cease trading and appoint an administrator.

 

This series of actions, and subsequent removal of the Dutch business from the Group's consolidated financial statements, has resulted in a £1.5 million one off non cash gain.  This gain reflects the final accounting entries relating to the Dutch subsidiary and includes the write down and releases of the remaining balance sheet items, principally creditors, onerous lease provisions, stock and overdraft balances. This has been presented in the consolidated income statement under "discontinued operations", together with the losses from the comparative periods.

 

Marketing, Advertising and Sponsorship

For the majority of the financial period we have maintained a more cautious approach to marketing spend and activity levels remain at an historically low level.  The marketing we have engaged in has been focused on tactical store based activity rather than external media campaigns.  However, during the second half of the period we secured a competitive television weather sponsorship campaign with ITV in London, which was then rolled out on Granada TV, followed by a national campaign which is running currently.  We will continue to focus on tight cost control of our marketing activities but will also continue to review where great value opportunities exist that allow us to focus on promoting our brand.

 

Our commitment to our local communities through sponsorship and charitable activity remains strong.  We aim to make positive contributions to those communities served by our stores, working closely with them to promote our priority of being a 'good neighbour'.  We currently sponsor over 310 youth football teams nationwide, providing the teams with new kits and equipment.  Our work for the charity, Help for Heroes, which we have been supporting since 2008, has gone from strength to strength and we have already helped to raise over £120,000.  We also work with the British Association of Modern Mosaic ('BAMM'), sponsoring two national competitions and supporting the promotion of mosaic art in schools and community groups countrywide. Alongside this work with the BAMM, Topps Tiles participated in one of London's biggest ever public art events, the Elephant Parade 2010, in support of the charity, Elephant Family.  We sponsored a life-sized model baby elephant named Phoolan, which was decorated entirely in mosaic tiles, and was installed outside the Natural History Museum, highlighting the plight of endangered Asian elephants.

 

Staff Development and Customer Service

We have always said that our staff are fundamental to fulfilling our key objective of delivering excellent customer service.  We believe it is imperative to assist the professional development of our staff to deliver this service, and we continue to be rigorous in the recruitment and retention of high calibre employees who are committed to upholding this customer service ethic and contributing to the ongoing success of the business.  We encourage staff to learn as they work and have recently completed some significant maintenance and upgrade work to our sophisticated in store e-learning training system.  These improvements have facilitated the recent introduction of vocational qualifications to our customer facing staff, which not only acknowledges their existing skills, but also signposts their future development needs as well as having a key role in succession planning.  A successful pilot scheme has led to a national rollout of a Certificate in Retail - Level 2, accredited by City & Guilds.  Plans are already underway for a Level 3 award as well as a Young Apprenticeship Programme.

 

All our staff are incentivised with competitive benefit packages and performance based rewards, and we encourage internal promotion.  We anticipate that staffing levels will increase as we start to expand the store base and further develop new areas of growth.

 

Our customer satisfaction levels remain consistently high, with 97.6% of customers recently surveyed expressing levels of satisfaction as 'good to excellent' (2009: 98.8%).  These levels of satisfaction are driven by the performance of our friendly and knowledgeable staff combined with a product and value service unmatched by our competitors: all of our stores carry a wide range and supply of stock; we offer a loan-a-tile service; a tile cutting service and a buy-back service allowing customers to "sell back" undamaged tiles within 45 days of purchase.  We also supply a free "How to" DVD and have a comprehensive selection of helpful 'Topps Tips' on our website.  In addition, each of our stores has links with accredited traders who can provide customers with a Topps' approved installation service.

 

Corporate Responsibility

The management team at Topps Tiles is committed to a corporate responsibility policy that ensures the Group's business is conducted according to socially responsible, environmentally friendly and ethical policies.  We are very proud of the work that we have been involved in and have endeavored to work responsibly with all of our stakeholders for a number of years.

The areas we have given most focus to are:

§ Community and Charity

§ Environment

§ Our People

 

Our policy is published on our website at www.toppstiles.co.uk and more detail on our achievements can be found in the full Report & Accounts.

 

Topps Tiles is pleased to be a constituent member of the FTSE4Good UK Index

 

The Market

Topps has seen its position as the UK's leading tile retailer further strengthen as market share has grown to 25% (2009: 23%) (source: MBD).  Market conditions remain tough but despite this we have managed to outperform the market and grow share due to our unwavering focus on offering our customers outstanding value.

 

Tile consumption in the UK continues to be low in comparison to the rest of Europe (roughly one third compared to Northern Europe, source MBD), and long term growth projections, based on increases in housing stock and consumer usage of tiles, remain attractive.  There is the potential for over 400 Topps Tiles stores in the UK.

 

Current Trading and Outlook

In the first 7 weeks of the new financial period, Group revenues increased by 2.9% and increased by 3.2% on a like-for-like basis.

 

We are encouraged by current trading despite the challenging economic outlook and subdued levels of consumer confidence.  We are confident that the business will benefit from our growth strategy and our continued focus on delivering outstanding value to our customers.

 

Matthew Williams

Chief Executive Officer

 

 

BUSINESS REVIEW

 

Cautionary statement

 

This Business Review has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.  The Business Review should not be relied on by any other party or for any other purpose.

 

The Business Review contains certain forward-looking statements.  These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

 

The Directors, in preparing this Business Review, have complied with s417 of the Companies Act 2006.  This Business Review has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to Topps Tiles Plc and to its subsidiary undertakings when viewed as a whole.

 

Nature, Objectives and Strategies of the Business

Topps Tiles is a specialist tile and wood flooring retailer with 312 outlets across the UK, and is the country's largest retailer of its kind with a 25% market share.  The Group operates two retail brands, Topps Tiles and Tile Clearing House.  Topps is the UK's leading branded tile retailer with 275 stores offering wall and floor tiles, natural stone, laminate, solid wood flooring and a comprehensive range of associated products such as under-floor heating, adhesives and grouts. Tile Clearing House comprises a further 37 stores nationwide focusing on a mini warehouse type format and a "when it's gone it's gone" style customer offer.

 

The Group strategy is focussed upon delivering outstanding value and service to our customers.  The key elements to the success of this strategy are the professionalism of our staff, store locations, store layout, product choice and availability. 

 

Key operational objectives:

·      Deliver outstanding value for money and service to ensure customers always "return and recommend"

·      Maintain our market leading position

·      Manage the store estate prudently, opening new stores where opportunities arise that complement the existing estate

·      Constant evolution of in-store customer offer to maintain our competitive advantage

·      Continued development of the e-commerce offering to maintain leading edge customer service

·      Ongoing review of the store portfolio to ensure our estate is keeping track with consumer shopping patterns and our cost base is as efficient as possible

 

Key financial objectives

·      Primary focus on increasing revenues and cash generation, maintaining tight cost control and continued reduction in net debt

·      Maximising earnings per share and shareholder returns, including bi-annual review of our dividend policy

·      Ongoing supplier tendering and benchmarking of non-stock suppliers

·      Managing the Group's exposure to fluctuations in foreign exchange rates

·      Maintaining a capital structure which enables an appropriate balance of financial flexibility and capital efficiency

 

Progress against these objectives is discussed throughout this report and, where appropriate measures are utilised, these are included in the Key Performance Indicators section.

 

Operational review

The Group's focus remains on effective and efficient trading to minimise the impact of the continuing challenging economic cycle Our primary objectives continue to be centred on optimising returns from the existing estate, careful management of our cost base and improving our financial flexibility. The Board is encouraged by the performance during the period which has demonstrated the effectiveness of our strategy and the strength of our business model. We have continued to deliver operating profit, reduce net debt and generate cash.  The Board believes that the business is well placed to take advantage of a contraction in the competition and a return of consumer confidence. 

 

Over the financial period we have maintained our focus on cost control and have only seen increases in costs where we have decided that additional investment was appropriate or business performance has driven higher rewards for staff.  Key areas of additional expenditure have been marketing and employee profit share.    Further detail of expenditure is provided within the Financial Review.

 

Key Performance Indicators (KPIs)

The Directors monitor a number of financial and non-financial metrics and KPIs for the Group and by individual store, including:

 


53 weeks to

2 October

2010

52 weeks to

26 September

2009

Financial KPIs



Like-for-like sales growth year-on-year %

1.7%

-13.1%*

Total sales growth year-on-year %

2.0%

-10.3%*

Gross margin %

58.7%

59.2%*

Adjusted PBT***

£16.3m

£17.5m*

Net debt

£49.1m

£71.2m

Stock days

121

128




Non-financial KPIs



Market Share %

25%

23%

Customer satisfaction %

97.6%

98.8%

Number of stores

312

309*

 

* Comparative numbers have been restated to exclude the impact of the Dutch business, which is now a discontinued operation.

 

The Directors receive regular information on these and other metrics for the Group as a whole.  This information is reviewed and updated as the directors feel appropriate.

 

Risks and Uncertainties

The Board conducts a continuing review of key risks and uncertainties.  The Board's primary focus when reviewing these risks and uncertainties over the last 12 months has included:

-     The continuing challenges of the UK economy and the anticipated business impact

-     Balancing the Group's plans for UK growth against the uncertain economic outlook

-     Ensuring that the Group's capital structure remains appropriate and that future funding requirements are accessible

 

UK Economy

The Board is encouraged by the recent financial performance of the Group.  The Board monitors the sales per store on a 52 week rolling average basis and this metric has grown at a small but consistent rate since September 2009, equivalent to an annualised growth rate of 1.7%.  The UK economy continues to face a number of challenges but based on performance over the financial period the Board is cautiously optimistic that Group revenues will remain stable over the coming year.

 

Balancing the Group's plans for growth against the uncertain economic outlook

During the financial period the Board has monitored both the company's performance and the macro economy closely and considered that a return to investing in key areas of growth for the business was appropriate.  This has resulted in an overall increase in the number of stores, following a reduction in overall stores number in the financial period to September 2009. The Board anticipates that this growth will continue and are targeting an increase of approximately 10 new stores over the next 12 months; this target remains significantly below the historic levels of openings reflecting the Board's cautious approach.  The Board have also decided that investment in other key areas is now appropriate, the biggest of which will be a new warehousing facility at the Group's existing site in Leicester at a cost of approximately £3 million.  

 

Appropriate Capital Structure

The Group has in place loan facilities of £91.0 million repayable at a rate of £7.5 million per annum.  The facility terminates in January 2012 with a final repayment of £83.5 million.  The loan facility contains financial covenants which are tested on a bi-annual basis.  Based on current trading and the Board's current expectations for the next 12 months, the Board expects that the Group will be able to continue to operate within its current financial covenants.  The Board has a policy of having at least 12 months of committed facilities available.  As a consequence the Board has commenced early discussions with its existing lenders and is confident that new committed facilities will be in place over the coming months.

 

Other Key Risks

In addition to the above, the Board considers other key risks including its relationship with key suppliers, the potential threat of new competitors, the risk of failure of key information technology systems, possible impacts on costs of sourcing due to weakness of sterling in comparison to the Euro and US Dollar currencies, loss of key personnel and the development of substitute products.  The Board's response to these risks is articulated throughout this report and includes:

 

·      Continuing improvement in our existing retail operations, including regular review of our product offer and customer service to ensure that we are maximising the opportunity to deliver sales

·      Careful management of costs across all areas of the business with increases in expenditure only in areas that the board decides are appropriate in order to either drive short term gains or generate longer term strategic benefits

·      Tight management of cash and continued reduction in net debt to improve financial flexibility

·      Continuing review of the Group's sourcing strategy to enable us to deliver greater value for money whilst maintaining returns and minimise the risk of over reliance on any individual supplier

 

The Directors will continue to monitor all of the key risks and uncertainties and the Board will take appropriate actions to mitigate these risks and their potential outcomes.

 

Going concern

Based on a detailed review of the above risks and uncertainties, management's latest revised forecasts, a range of sensitised scenarios and the current banking facilities, the Board has a reasonable expectation that the Group will continue to meet all of its financial commitments as they fall due and will be able to continue as a going concern.  The Board, therefore, considers it appropriate to prepare the financial statements on the going concern basis.

 

FINANCIAL REVIEW

 

PROFIT AND LOSS ACCOUNT

 

Please note this report has been prepared for the 53 weeks ended 2 October 2010 and the comparative period has been prepared for the 52 weeks ended 26 September 2009.  With the exception of the Group like-for-like revenue measure which is comparable, the reported figures are presented on this basis and are not entirely comparable.  The impact of the additional week is to increase revenue by £3.6 million and operating profit by £0.4 million.

 

Revenue

Revenue for the period ended 2 October 2010 increased by 2.0% to £182.4 million (2009: £178.8 million*). When restated to a 52 week reporting period the total revenue is £179.0 million compared to the prior year. Like-for-like store sales increased by 1.7% across the year, this consisted of a 2.0% increase over the first half of the financial period and a 1.3% increase over the second half.  Although challenges to the economic environment remain, this performance reflects a cautious improvement in levels of consumer confidence and indicates a return to stability in trading levels.

 

Gross margin

Overall gross margin was 58.7% compared with 59.2%* in the previous financial period.  At the interim stage of this period gross margin was 58.8%, and we have recorded a gross margin of 58.7% in the second half of the period, demonstrating an encouraging level of stability.  The environment we operate in continues to be a highly competitive one and we are able to utilise our scale to ensure that we can offer customers outstanding value and also generate increasing levels of returns.  Previous financial periods have seen significant reductions in margins due to a weakening of sterling and subsequent increased cost of sourcing.  Whilst this pressure remains we have seen a greater level of stability in sterling exchange rates and this has helped in our forward planning on both purchases and pricing. We will continue to invest margin in a controlled way to drive transactions where we consider it appropriate to do so.

 

Operating expenses

Total operating costs have increased from £84.5 million* to £87.3 million, an increase of 3.3%.  Costs as a percentage of sales were 47.8% compared to 47.3%* last year.   When adjusting for exceptional items, detailed below, operating costs were £86.1 million (2009: £83.1 million*), equivalent to 47.2% of sales (2009: 46.5% of sales*).

 

The movement in adjusted operating costs is explained by the following key items:

·      The additional week we have accounted for in this financial period equates to approximately £1.6 million of additional costs

·      The average number of UK stores trading during the financial period was 310 (2009: 316), which would imply a 1.9% reduction in store costs, generating approximately £1.3 million of savings

·      We have made additional investments in marketing, increasing spend by approximately £1.0 million

·      Business performance has generated increased rewards for staff and our employee profit share costs have risen by £1.6 million.  This includes the payment of a senior management bonus equating to £0.75 million (2009: £ nil).

·      The remaining elements of the cost base are broadly flat when compared to the prior year

 

During the period we have incurred several charges which we have categorised as exceptional due to their nature.  These charges primarily relate to impairments of plant, property & equipment of £0.8 million (2009: £1.0 million*) and other restructuring and one-off costs of £0.4 million (2009: £0.5 million*).

 

Operating Profit

Operating profit for the period was £19.9 million (2009: £21.3 million*).

 

Operating profit as a percentage of sales was 10.9% (2009: 11.9%*).

 

When adjusted for the exceptional items detailed on page 1 operating profit was £21.1 million (2009: £22.8 million*).

 

Other gains and losses

Other gains & losses include the impact of property disposals.  During the period we purchased at auction the freehold on one of our trading stores at a cost of £0.9 million.  The property has now subsequently been sold for £1.0 million, with a profit on disposal of £0.1 million.

 

Financing

The net cash interest charge for the year was £4.8 million (2009: £5.3 million), excluding the impact of revaluations of derivatives instruments.  Whilst the interest charge has fallen compared to the prior year we have only seen limited benefit from the very low interest rates that prevail in the market.  This is due to a series of interest rate derivatives we have in place which negate the majority of any impact from interest rate movements.

 

The interest rate derivatives give rise to a "marked to market" revaluation per the requirements of IAS39 "Financial Instruments; Recognition and Measurement".  This revaluation has generated a fair value (non cash) charge of £2.8 million (2009: £5.8 million).  Due to the nature of the underlying financial instruments, IAS39 does not allow hedge accounting to be applied to these losses and hence this charge is being applied direct to the income statement rather than offset against balance sheet reserves.

 

Net interest cover was 5.1 times (2009: 5.0 times) based on earnings before interest, tax and depreciation, excluding the impact of IAS39 in finance charges.

 

Fund Raising

During the period the Company completed a successful accelerated bookbuild placing on 24 November 2009, raising gross proceeds of approximately £15.4 million. The placing was undertaken to help provide the Company with both additional financial flexibility in the event of a further downturn in consumer confidence and spending and also additional resources to support the Company's growth strategy as opportunities arise in the market. 

 

Profit before tax

Reported profit before tax is £12.4 million (2009: £9.9 million*). 

 

Group profit before tax margin was 6.8% (2009: 5.5%*)

 

When adjusted for the exceptional and non-cash items detailed on page 1 the profit before tax is £16.3 million (2009: £17.5 million*).

 

Tax

The effective rate of Corporation Tax in respect of continuing operations was 31.5% (2009: 32.2%*).

 

Taking into account discontinued operations the overall effective rate of Corporation Tax was 25.6% (2009: 64.9%).

The effective rate of tax on discontinued operations has been reduced by the recognition in the current period of the benefit of losses incurred by the Dutch trading subsidiary in prior periods.

 

The underlying UK tax rate was 31.5% (2009: 32.2%).

 

Earnings per Share

Basic earnings per share were 5.37 pence (2009: 1.00 pence, see note 13).

 

Diluted earnings per share were 5.26 pence (2009:  0.99 pence, see note 13).

 

Dividend and dividend policy

The Board has given careful consideration to the resumption of dividend payments.  Trading has improved and we are encouraged that we have seen a good level of stability, from which we feel we can plan and move forward.  We have also commenced early negotiations with our existing lenders to extend our current banking facilities and, based on those discussions, the Board is now confident that new committed facilities will be in place over the coming months.  As a result of progress on these two key issues the Board feels that the resumption of dividend payments at this time is appropriate.  The Board is recommending to shareholders a final dividend of 1 pence per share.  Subject to approval by shareholders at the Annual General Meeting, this will be payable on 31 January 2011 to all shareholders on the register as at 31 December 2010.

 

BALANCE SHEET

 

Capital Expenditure

Capital expenditure in the period amounted to £4.9 million (2009: £2.1 million), an increase of 133%, reflecting the very low level we were at in 2009, the acquisition of a freehold store and the commencement of some cautious steps towards expansion in the current financial period.  Capital expenditure includes the cost of 8 new openings, 5 rebrands, 4 relocations and a small number of refits at a cost of £3.0 million.  In addition to this we purchased the freehold on an existing store at a cost of £0.9 million (and subsequently disposed of via a sale and leaseback arrangement).  Other capital expenditure amounted to £1.0 million and reflects the ongoing renewal of the estate.

 

At the period end the Group held six freehold or long leasehold sites including two warehouse and distribution facilities with a total net book value of £13.4 million (2009: £13.5 million).

 

Stock

Stock at the period end was £24.9 million (2009: £27.4 million) representing 121 days turnover (2009: 128 days turnover).  We have continued our focus on improving working capital efficiencies and as a result have realised savings across both stores and warehouse.

 

Capital Structure and Treasury

Cash and cash equivalents at the period end were £41.9 million (2009: £27.3 million) with repayable borrowings at £91.0 million (2009: £98.5 million).

 

This gives the Group a net debt position of £49.1 million compared to £71.2 million as at 26 September 2009.

 

Cashflow

Cash generated by operations was £19.8 million, compared to £33.4 million last period.  The additional week in the current financial period accounts for approximately £8.0 million of adverse working capital movement due to key payments to suppliers, staff and landlords having been made.  An equivalent favourable impact was included in the 2009 cashflow, resulting in underlying cash generation being broadly stable. 

 

Directors' Responsibility Statement

 

We confirm to the best of our knowledge:

 

1)   the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

2)   the management report, which is incorporated into the Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face

 

After making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For this reason the directors continue to adopt the going concern basis in preparing the financial statements.

 

 

 

ANNUAL GENERAL MEETING

 

The Annual General Meeting for the period to 2 October 2010 will be held on 11th January 2011 at 10.30am at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU.

 

 

Matt Williams                                                                                       Rob Parker

Chief Executive Officer                                                                            Finance Director

 

29 November 2010

 

 

Consolidated statement of financial performance




For the 53 weeks ended 2 October 2010







Restated*

 

 

 

 

 

Notes

53 weeks ended

2 October

2010

 

52 weeks ended

 26 September

2009



£'000

£'000

Group revenue - continuing operations

3 & 4

182,406

178,796

Cost of sales


(75,254)

(72,929)

Gross profit


107,152

105,867





Employee profit sharing


(6,902)

(5,258)

Distribution costs


(64,492)

(65,405)

Other operating expenses


(5,452)

(4,827)

Administrative costs


(7,044)

(6,688)

Sales and marketing costs


(3,385)

(2,348)

Group operating profit before exceptional items


21,093

22,837

Impairment of plant, property and equipment

5

(815)

(1,027)

Restructuring and other one-off costs

5

(401)

(469)

 

Group operating profit

 

4

 

19,877

 

21,341

Other gains and losses

8

100

(349)

Investment revenue

9

453

329

Finance costs

9

(5,275)

(5,607)

Fair value loss on interest rate derivatives

9

(2,780)

(5,833)

Profit before taxation

6

12,375

9,881

Profit for the period from continuing operations


8,472

6,699

Discontinued operations




Profit/ (loss) for the period from discontinued operations

11

1,502

(4,977)

Profit for the period attributable to equity holders of the company

 

29

 

9,974

 

1,722

 

 

Earnings per ordinary share (restated)

From continuing operations

 

 

13



- basic


4.56p

3.90p

- diluted


4.46p

3.86p

From continuing and discontinued operations

- basic


 

5.37p

 

1.00p

- diluted

 

 


5.26p

0.99p

 

Consolidated statement of comprehensive income

For the 53 weeks ended 2 October 2010

 



53 weeks ended

2 October

2010

52 weeks ended

 26 September

2009



£'000

£'000

Exchange differences on retranslation of foreign operation

28

-

88

Profit for the period


9,974

1,722

Total comprehensive income for the period attributable to equity holders of the parent Company


 

9,974

 

1,810

 

*The figures for the 52 weeks to 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009.

 

Consolidated statement of financial position



As at 2 October 2010






2010

2009


Notes

£'000

£'000

Non-current assets




Goodwill

14

245

245

Property, plant and equipment

15

31,639

32,584







31,884

32,829

Current assets




Inventories


24,874

27,426

Trade and other receivables

17

7,594

4,105

Cash and cash equivalents

18

41,879

27,270



74,347

58,801

Total assets


106,231

91,630

Current liabilities




Trade and other payables

19

(25,588)

(30,669)

Derivative financial instruments

21

(10,557)

(7,826)

Bank loans

20

(7,250)

(7,250)

Current tax liabilities


(6,181)

(5,527)



(49,576)

(51,272)

Net current assets


24,771

7,529

Non current liabilities




Bank loans

20

(83,466)

(90,712)

Deferred tax liabilities

22

(422)

(1,877)

Provisions for liabilities and charges

22

(1,297)

(1,051)

Total liabilities


(134,761)

(144,912)





Net liabilities


(28,530)

(53,282)





Equity




Share capital

23

6,273

5,703

Share premium

24

1,001

1,001

Merger reserve

25

(399)

240

Share based payment reserve

26

367

240

Capital redemption reserve

27

20,359

20,359

Foreign exchange reserve

28

-

336

Retained earnings

29

(56,131)

(81,161)

Total deficit attributable to equity holders of the parent


 

(28,530)

 

(53,282)

 

The accompanying notes are an integral part of these financial statements.

 

The financial statements of Topps Tiles Plc were approved by the Board of Directors on 29 November 2010 and authorised for issue on 30 November 2010. They were signed on its behalf by:

 

M.T.M Williams

R. Parker

Directors

 

 

 

Consolidated cash flow statement




for the 53 weeks ended 2 October 2010







Restated*



53 weeks

52 weeks



ended

ended



2 October

26 September



2010

2009



£'000

£'000

Cashflow from Operating Activities




Profit for the period


9,974

1,722

(Profit)/loss for the period from discontinued operations


(1,502)

4,977

Taxation


3,903

3,182

Fair value on interest rate derivatives


2,780

5,833

Finance costs


5,275

5,607

Investment revenue


(453)

(329)

Other gains and losses


(100)

349

Group operating profit


19,877

21,341

Adjustments for:




Depreciation of property, plant and equipment


4,040

4,317

Impairment of property, plant and equipment


815

1,027

Restructuring and other one-off costs


401

469

Share option charge / (credit)


127

(82)

(Increase)/ decrease in trade and other receivables


(3,351)

3,260

Decrease in inventories


1,853

919

(Decrease)/ increase in payables


(3,991)

2,141

Cash generated by operations


19,771

33,392

Interest paid


(5,308)

(5,901)

Taxation paid


(4,112)

(6,514)

Net cash  from operating activities


10,351

20,977

Investing activities




Interest received


107

303

Purchase of property, plant & equipment


(4,292)

(2,096)

Proceeds on disposal of property, plant & equipment


949

1,972

Net cash (used in)/ from investment activities


(3,236)

179

Financing activities




Proceeds from issue of share capital


14,874

-

Repayment of bank loans


(7,500)

(7,500)

Net cash from/ (used in) financing activities


7,374

(7,500)





Net increase in cash and cash equivalents


14,489

13,656





Cash and cash equivalents at beginning of period


27,270

13,977

Effect of foreign exchange rate changes


120

(363)

Cash and cash equivalents at end of period


41,879

27,270

 

*Comparative numbers are presented after restating the cash flow statement to reflect the Dutch business as a discontinued operation. Further information is provided in note 11.

 

 

Notes to the Financial Statements

For the 53 week period ended 2 October 2010

 

1          General information

 

Topps Tiles Plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given in the Annual Report.  The nature of the Group's operations and its principal activity is set out in the Directors' Report of the Annual Report.

These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.  Foreign operations are included in accordance with the policies set out in note 2l.

 

Adoption of new and revised standards 

In the current period, the following new and revised standards and interpretations have been adopted and have affected the amounts reported in the financial statements.

 

Amendments to IFRS 7: Financial Instrument disclosures.

 

The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current period in accordance with the transitional reliefs offered in these amendments.

 

IFRS 8 Operating Segments

IFRS 8 is a disclosure standard that has resulted in a re-designation of the Group's reportable segments (see note 4).

 

IAS 1 (Revised 2007) Presentation of Financial Statements

This standard relates to the presentation of financial statements and has introduced a number of changes in the format and content of the financial statements.

 

Specifically, this revised standard requires an entity to present a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements i.e. to provide a second comparative for the statement of financial position, when the entity applies an accounting policy retrospectively or makes a retrospective restatement, or when the entity reclassifies items in the financial statements. However, the Directors consider that because the adoption of IFRS 8 has no effect on the statement of financial position, no presentation of a third statement of financial position is required.

 

At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective:

 

IFRS 3 (revised 2008)     Business Combinations

IAS 24 (revised 2009)     Related Party Disclosures

IAS 27 (revised 2008)     Consolidated and Separate Financial Statements

IFRIC 17                        Distribution of Non-cash Assets to Owners

Improvements to IFRSs (2009)

The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group.

 

2          Accounting policies

a)         Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

Based on a detailed review of the risks and uncertainties (referenced in the Business Review), management's latest revised forecasts, a range of sensitised scenarios and the current banking facilities the Board has, at the time of approving the financial statements, a reasonable expectation that the Group will continue to meet all of its financial commitments as they fall due and will be able to continue as a going concern.

The Board, therefore, considers it appropriate to prepare the financial statements on the going concern basis.

The principal accounting policies adopted are set out below.

b)         Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of financial performance from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 c)        Financial period

Throughout the financial statements, Directors' Report and Business Review, references to 2010 mean at 2 October 2010 or the 53 weeks then ended; references to 2009 mean at 26 September 2009 or the 52 weeks then ended.

d)         Business combinations

The acquisition of subsidiaries is accounted for using the purchase method.  The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.  The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5: Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

e)         Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in the statement of financial performance and is not subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill of £15,080,000 written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

f)          Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.  Sales of goods are recognised when title has passed. Sales returns are provided for based on past experience and deducted from income.

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

 

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established (provided that it is probable that the economic benefit will flow to the Group and the amount of income can be measured reliably).

g)         Exceptional items

The Group has identified certain items as exceptional where they relate to one-off costs incurred in the period that they do not expect to be repeated on an annual basis. The principles applied in identifying exceptional costs are applied consistently each period.

h)         Property, plant & equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost of assets, less estimated residual value, over their estimated useful lives, on the following bases:

Freehold buildings                                              2% per annum on cost on a straight-line basis

Short leasehold land and buildings                       over the period of the lease, up to 25 years on a straight line basis

Fixtures and fittings                                            over 10 years or at 25% per annum on a reducing balance basis as appropriate

Motor vehicles                                                   25% per annum on a reducing balance basis

Freehold land is not depreciated.

Residual value is calculated on prices prevailing at the date of acquisition.

 

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of asset and is recognised in the statement of financial performance.

i)          Impairment of tangible and intangible assets excluding goodwill

At each period end, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

 

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

j)          Inventories

Inventories are stated at the lower of cost and net realisable value and relate solely to finished goods for resale.  Cost comprises purchase price of materials and an attributable proportion of distribution overheads based on normal levels of activity and is valued at standard cost.  Net realisable value represents the estimated selling price, less costs to be incurred in marketing, selling and distribution.  Provision is made for those items of inventory where the net realisable value is estimated to be lower than cost. The net replacement value of inventories is not considered materially different from that stated in the consolidated statement of financial position.

k)         Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of financial performance because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, and interests in jointly controlled entities, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the statement of financial performance, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

l)          Foreign currency

Transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of transactions. At each period end, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the statement of financial performance for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in statement of financial performance for the period.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

- exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

- exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial instruments/ hedge accounting); and

- exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operation are translated at exchange rates prevailing at period end dates. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the dates of transactions are used. Exchange differences arising are recognised in other comprehensive income and accumulated in equity, in the Group's foreign exchange reserve. Such differences are recognised as income or expense in the period in which the operation is disposed of.

m)        Leases

Rentals payable under operating leases are charged to income on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

n)         Investments

Fixed asset investments are shown at cost less provision for impairment.

o)         Retirement benefit costs

For defined contribution schemes, the amount charged to the statement of financial performance in respect of pension costs is the contributions payable in the year.  Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.

p)         Finance costs

Finance costs which are directly attributable to the construction of tangible fixed assets are capitalised as part of the cost of those assets.  The commencement of capitalisation begins when both finance costs and expenditures for the asset are being incurred and activities that are necessary to get the asset ready for use are in progress.  Capitalisation ceases when substantially all the activities that are necessary to get the asset ready for use are complete.

All other finance costs of debt are recognised in the statement of financial performance over the term of the debt at a constant rate on the carrying amount.

q)         Financial instruments

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

 

Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL), 'held-to-maturity' investments, 'available-for-sale' (AFS) financial assets and 'loans and receivables'.  The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

 

Financial assets at FVTPL

 

Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL.  The Group has no designated FVTPL financial assets.

 

A Financial asset is classified as held for trading if:

 

·      it has been acquired principally for the purpose of selling in the near future; or

·      it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

·      it is a derivative that is not designated and effective as a hedging instrument.

 

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss.  Fair value is determined in the manner described in note 2v.

 

Loans and receivables

 

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables.  Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.  Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

 

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

Income is recognised on an effective interest basis for debt instruments other than those financial assets and liabilities classified as at FVTPL.

 

Impairment of financial assets

 

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date.  Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis.  Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 39 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.  When a trade receivable is considered uncollectible, it is written off against the allowance account.  Subsequent recoveries of amounts previously written off are credited against the allowance account.  Changes in the carrying amount of the allowance account are recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

 

Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash within three months and are subject to an insignificant risk of changes in value.

 

Derecognition of financial assets

 

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.  If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay.  If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

 

Financial liabilities and equity

 

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.  An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL.  The Group does not have any designated FVTPL liabilities.

A financial liability is classified as held for trading if:

·      it has been incurred principally for the purpose of disposal in the near future; or

·      it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit taking; or

·      it is a derivative that is not designated and effective as a hedging instrument.

 

Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss.  Fair value is determined in the manner described in note 2v.

 

Other financial liabilities

 

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.  Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.  The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period.  The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

Derecognition of financial liabilities

 

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

 

Derivative financial instruments

 

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

 

The Group uses foreign exchange forward contracts and interest rate swap contracts to manage these exposures.  The Group does not hold or issue derivative financial instruments for speculative purposes.

The use of financial derivatives is governed by the Group's policies approved by the board of directors, on the use of financial derivatives.

 

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each period end date. The resulting gain or loss is recognised in profit or loss immediately.

 

A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

 

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss.

 r)         Share-based payments

The Group has applied the requirements of IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 October 2005.

 

The Group issues equity settled share based payments to certain employees. Equity settled share based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the share based payment is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of the Black Scholes model.

 

The Group provides employees with the ability to purchase the Group's ordinary shares at 80% of the current market value through the operation of its share save scheme. The Group records an expense, based on its estimate of the 20% discount related to shares expected to vest on a straight line basis over the vesting period.

 

s)         Trade payables

Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.

t)          Operating profit

Operating profit is stated after charging restructuring costs but before property disposals, investment income and finance costs.

u)         Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of that obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

v)          Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described above, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.  The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.  Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

The critical judgement, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that has the most significant effect on the amounts recognised in financial statements is the detailed criteria for the recognition of revenue from the sale of goods set out in IAS 18 Revenue and, in particular, whether the Group has transferred to the buyer the significant risks and rewards of ownership of the goods. The Group only recognises revenue where this is the case.

 

Key sources of estimation uncertainty

 

The key assumptions concerning the future, and other key sources of estimation uncertainty at the period end date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are discussed below:

 

Impairment of goodwill

 

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated.  The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and to discount by a suitable discount rate in order to calculate the present value.  The carrying amount of goodwill at the balance sheet date is £0.2 million (2009: £0.2 million).

 

Impairment of property, plant and equipment

 

During the period, the Group has closed 9 stores in the UK, including some before their lease end dates. As the fixtures and fittings within these stores cannot be re-used in other locations within the Group, the carrying value of these assets has been fully provided for in the period.

 

Onerous lease provisions

 

During the period the Group has continued to review the performance of its store portfolio, which has resulted in two further stores being exited before their lease term has expired (2009: 8 stores). In respect of these leases, and those in relation to stores exited before lease end dates in the prior period that are still vacant, the Group has provided for what it considers to be the unavoidable costs prior to lease termination or sublease. The Group has further reviewed any trading loss making stores and provided for those leases considered to be onerous. These estimates are based upon available information and knowledge of the property market. The ultimate costs to be incurred in this regard may vary from the estimates.

 

Dilapidations provision

 

The Group has estimated its likely dilapidation charges for its store portfolio and provided accordingly. This estimate involves an assessment of average costs per store and the expected exit period for the current portfolio, and is based on management's best estimate, taking into account knowledge of the property market and historic trends. The ultimate costs to be incurred may vary from the estimates.

 

Fair value of derivatives and other financial instruments

 

As described above, the directors use their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an active market.  Valuation techniques commonly used by market practitioners are applied, such as discounted cash flows and assumptions regarding market volatility.

 

Tax

 

The directors are aware of the material impact that corporation tax has on the Group accounts and therefore they ensure that the Group continues to provide at a sufficient level for both current and deferred tax liabilities.

 

3          Revenue

An analysis of Group revenue is as follows:

 
 

Restated*

 
53 weeks ended
2 October
2010
52 weeks
ended
 26 September
2009
 
£’000
£’000
Topps Tiles
165,068
158,643
Tile Clearing House
17,338
20,153
Revenue from the sale of goods
182,406
178,796
 
 
 
Interest received on interest rate swaps
-
79
Interest receivable
457
155
Total revenue
182,863
179,030

 

 

Interest receivable represents gains on loans and receivables.  There are no other gains recognised in respect of loans and receivables.

 

*The figures for the 52 weeks to 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009.

 

4          Business segments

The Group has adopted IFRS 8 Operating Segments with effect from 27 September 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. These segments comprise (a) Topps Tiles retail operations in the UK; (b) TCH retail operations in the UK; and (c) the Topps Floorstore operation in Holland, which was disposed of on 22 December 2009.

 

Segment result represents the profit / (loss) earned by each segment without allocation of the central administration costs including Directors' salaries, other gains and losses, investment income, finance costs, fair value loss on interest rate derivatives and income tax expense.

 

Revenues from major products and services and information about major customers

Information regarding the above is required by IFRS 8 (paragraphs 32 and 34) but is not given in these notes to the financial statements because of the nature of the Group's business. The Group's principal activity, being a 'specialist tile and woodflooring retailer', is reported in the segments shown below and due to its wide product offering the disclosure of revenues from major products is not appropriate. As the Group's revenue is derived from sales to the general public, it has no reliance on any individual major customer.

 

Geographical segments

The Group's reporting format is by business segment. Although the Group operated in two geographic segments, the UK and Holland during the period, neither the revenue from sales to external customers nor the value of net assets within Holland represented more than 10 per cent of Group totals.

 

Amounts reported for the comparative periods have been re-presented to conform to the requirements of IFRS 8. No inter-segment sales were made during the periods presented.

 

The following is an analysis of the Group's revenue and results by reportable segment:

 




Topps

Discontinued


 

53 weeks ended

Topps

TCH

Floorstore

operations

Consolidated

 

2 October 2010

£'000

£'000

£'000

£'000

£'000

 







 

Revenue

165,068

17,338

1,014

(1,014)

182,406

 

Segment result

20,276

964

1,022

(1,022)

21,240

Central administration costs





(1,363)

Operating profit





19,877

Other gains and losses





100

Investment revenues





453

Finance costs





(5,275)

Fair value loss on interest rate derivatives





(2,780)

Profit before tax





12,375

Tax





(3,903)






8,472

Profit for the period from discontinued operations





1,502

Profit after tax and discontinued operations





9,974

 

Other information


 

 

 

Topps

£'000

 

 

 

TCH

£'000

 

 

Topps Floorstore

£'000

 

Head office/ distribution centre

£'000

 

 

Discontinued operations

£'000


 

 

 

Consolidated

£'000

Capital additions

2,986

836

-

1,031

-


4,853

Depreciation

2,704

952

3

384

(3)


4,040

Impairment losses recognised

374

441

48

-

(48)


815

Balance sheet








Segment assets

113,223

8,268

-

-



121,491

Unallocated corporate assets

-

-

-

(15,260)



(15,260)

Consolidated total assets

113,223

8,268

-

(15,260)



106,231

Segment liabilities

(20,824)

(5,707)

-

-



(26,531)

Unallocated corporate liabilities

-

-

-

(108,230)



(108,230)

Consolidated total liabilities

(20,824)

(5,707)

-

(108,230)



(134,761)

 

 

Unallocated corporate assets include the Group's overdraft, which in the statement of financial position is presented net within cash and cash equivalents due to a legal right of off-set between Group entities.

 

Unallocated corporate liabilities comprise bank loans, derivatives, corporation and deferred tax liabilities and sundry head office creditors.

 

 

Restated*



Topps

Discontinued


52 weeks ended

Topps

TCH

Floorstore

operations

Consolidated

26 September 2009

£'000

£'000

£'000

£'000

£'000







Revenue

158,643

20,153

7,265

(7,265)

178,796

Segment result

20,207

1,625

(4,977)

4,977

21,832

Central administration costs





(491)

Operating profit





21,341

Other gains and losses





(349)

Investment revenues





329

Finance costs





(5,607)

Fair value loss on interest rate derivatives





(5,833)

Profit before tax





9,881

Tax





(3,182)






6,699

Loss for the period from discontinued operations





(4,977)

Profit after tax and discontinued operations





1,722

 

Other information


 

 

Topps

£'000

 

 

TCH

£'000

 

Topps Floorstore

£'000

Head office/ distribution centre

£'000

 

Discontinued operation
£'000

 

 

Consolidated

£'000

Capital additions

1,068

370

-

658

-

2,096

Depreciation*

2,869

689

324

759

(324)

4,317

Impairment losses recognised*

209

610

2,025

208

(2,025)

1,027

Balance sheet







Segment assets

96,718

7,109

926

-


103,827

Unallocated corporate assets

-

-

-

(13,123)


(13,123)

Consolidated total assets

96,718

7,109

926

(13,123)


90,704








Segment liabilities

(17,690)

(3,059)

(2,800)

-


(20,749)

Unallocated corporate liabilities

-

-

-

(121,363)


(121,363)

Consolidated total liabilities

(17,690)

(3,059)

(2,800)

(121,363)


(142,112)

*The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009.

 

5          Exceptional items

During 2010 9 stores in the UK (2009: 15) were closed resulting in a write-off of property, plant and equipment totalling £815,000. The Group also reviewed its potential exposure to future lease commitments pertaining to closed stores resulting in a charge of £401,000.

 



Restated*


53 weeks ended

2 October

2010

52 weeks ended

 26 September

2009




Impairment of property, plant and equipment

815

1,027

Restructuring and other one-off costs

401

469





1,216

1,496




*The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009.

 

6          Profit before taxation

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



53 weeks
ended
2 October
2010
£'000

Restated*
52 weeks
ended
26 September
2009
£'000




Depreciation of property, plant and equipment

4,040

4,317

Impairment of property, plant and equipment

815

1,027

Restructuring and other one-off costs

401

469

Staff costs (see note 7)

40,152

40,242

Operating lease rentals

20,861

20,730

Write down of inventories recognised as an expense

2,493

3,539

Cost of inventories recognised as expense

73,936

76,080

Net foreign exchange loss/(gain)

17

(25)




*The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009.

 

Analysis of auditors' remuneration is provided below:


53 weeks ended

2 October

52 weeks ended

26 September


2010

2009


£'000

£'000

Fees payable to the Company's auditors with respect to the Company's annual accounts

40

44

Fees payable to the Company's auditors and their associates for other audit services to the Group:

Audit of the Company's subsidiaries pursuant to legislation

105

110




Total audit fees

145

154




Tax services:



compliance services

47

57

advisory services

21

5

Corporate finance services - business advice

-

175

Other services

-

47




Total non audit fees

68

284





213

438




 

A description of the work of the Audit Committee is set out in the Annual Report and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.



 

7          Staff costs

The average monthly number of persons and their full time equivalents employed by the Group and Company in the UK during the accounting period (including executive directors) was:

 


53 weeks
ended
2 October

52 weeks ended

26 September


2010

2009


Number

employed

Number

employed

Selling

1,441

1,463

Administration

174

162





1,615

1,625




 


2010

2009


£'000

£'000

Their aggregate remuneration comprised:



Wages and salaries (including LTIP, see note 31)

36,541

36,570

Social security costs

3,430

3,486

Other pension costs (see note 30b)

181

186





40,152

40,242




 

Details of directors' emoluments are disclosed in the Annual Report. Employee profit sharing of £6.9 million (2009: £5.3 million) is included in the above and comprises sales commission and bonuses.

 

8          Other gains / (losses)

Other gains in 2010 relate to the sale of one freehold property and in 2009 the other losses relate to the sale of two freehold properties.

 

9          Investment revenue, finance costs and fair value loss on interest rate derivatives



Restated*


53 weeks

ended

2 October
2010
£'000

 

52 weeks
ended

26 September
2009
£'000

Investment revenue



Bank interest receivable and similar income

457

234

Fair value (loss) /gain on forward currency contracts

(4)

95




 

 

 

453

 

329

Finance costs



Interest on bank loans and overdrafts

(5,275)

(5,607)




No finance costs are appropriate to be capitalised in the period, or the prior period.



9          Investment revenue, finance costs and fair value loss on interest rate derivatives (continued)

Interest on bank loans and overdrafts represents gains and losses on financial liabilities measured at amortised cost, including interest charges levied, together with interest paid on the interest rate derivatives of £2,678,000 (2009: £1,016,000).  There are no other gains or losses recognised in respect of financial liabilities measured at amortised cost.  Net losses from the movement in fair value on held for trading assets and liabilities (derivative instruments) were £2,784,000 (2009: £5,738,000), which include fair value losses on interest rate swaps of £2,780,000 (2009: £5,833,000) and fair value losses on forward currency contracts of £4,000 (2009: £95,000 gain). Included within bank interest receivable and similar income is interest receivable on interest rate derivatives of £nil (2009: £79,000).

 

*The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009.

 

10         Taxation

 

 

 
 
Restated*
 
 
53 weeks ended
 2 October
52 weeks
 Ended
 26 September
Continuing operations:
2010
£’000
2009
£’000
Current tax – charge for the year
5,276
3,441
Current tax – adjustment in respect of previous periods
(39)
(275)
Deferred tax – effect of reduction in UK corporation tax rate
(31)
-
Deferred tax – credit for year (note 22)
(1,246)
102
Deferred tax - adjustment in respect of previous periods (note 22)
(57)
(86)
 
 
 
 
3,903
3,182
 
 
 

Corporation tax in the UK is calculated at 28% (2009: 28%) of the estimated assessable profit for the period.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The charge for the year can be reconciled to the profit per the statement of financial performance as follows:

 

 
 
Restated*
Continuing operations
53  weeks ended
2 October
52 weeks
ended
 26 September
 
2010
£’000
2009
£’000
Profit before taxation
12,375
9,881
 
 
 
Tax at the UK corporation tax rate of 28% (2009: 28%)
3,465
2,767
Tax effect of expenses that are not deductible in determining taxable profit
173
276
Tax effect of chargeable gain (lower than)/ in excess of profit on sale of freehold property
(28)
98
Tax effect of tangible fixed assets which do not qualify for capital allowances
389
402
Tax effect of adjustment in respect of prior periods
(96)
(361)
 
 
 
Tax expense for the period
3,903
3,182
 
 
 
         Discontinued operations:
2010
£’000
2009
£’000
Current tax – adjustment in respect of previous periods
(480)
-
 
 
 
 
(480)
-
 
 
 

 

 

 *The figures for the 52 weeks ended 26 September 2009 have been re-presented to take into account the discontinued operations arising as a result of the sale of Dutch operations on 22 December 2009.

 

11         Discontinued operations

On 18 December 2009, the Group announced that it was withdrawing funding to the Dutch operation, which resulted in Topps Retail BV being placed into administration on 22 December 2009. The transaction was completed on 22 December 2009, on which date control of Topps Retail BV passed to the administrator and is therefore accounted as a disposal in the consolidated financial statements.

 

The results of the discontinued operations, which have been included in the consolidated statement of financial performance, were as follows:

 











Revenue


Expenses


(1,329)

(12,242)

Loss before tax


Attributable tax expense


 -

-



Profit on disposal of discontinued operations


1,337

-



Attributable tax expense


480

-

Net profit/(loss) attributable to discontinued operations (attributable to owners of the Company)


1,502

(4,977)

 

During the year Topps Retail BV received £204,000 (2009: received £208,000) from the group's net operating cash flows, paid £nil (2009: £175,000) in respect of investing activities and paid £nil (2009:£nil) in respect of financing activities.

 

A profit of £1,337,000 arose on the disposal of Topps Retail BV, being the proceeds of disposal (£nil) net of the carrying amount of the subsidiary's assets and liabilities. Further detail is provided in the table on the following page.

 

The effect of discontinued operations on segment results is disclosed in note 4. 

 

The net liabilities of Topps Retail BV at the date of disposal and for the comparative period are detailed below:

 


22

26


December

September


2009

2009


£'000

£'000




Property, plant and equipment

44

92

Inventories

596

699

Trade receivables

26

136

Sundry payables

(293)

(517)

Current tax receivables

7

27

Trade payables

(773)

(1,104)

Onerous lease provision

(340)

(436)

Foreign exchange reserve

(288)

(336)

Bank overdraft

 (316)

(112)





 (1,337)

(1,551)




Total consideration

 -





Gain on disposal

1,337


 

12         Dividends

There was no final dividend paid in respect of the 52 week period ended 26 September 2009 (2008: £nil), or interim dividend for the 27 weeks ended 3 April 2010 (2009: £nil).


2010

2009


£'000

£'000

Proposed final dividend for the 53 week period ended 2 October 2010 of £0.01 (2009: £nil) per share

 

1,882

 

-




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

 

13         Earnings per share

The calculation of earnings per share is based on the earnings for the financial period attributable to equity shareholders and the weighted average number of ordinary shares.

 

The number of shares in issue for the prior period has been adjusted retrospectively for the bonus element of the placing and open offer completed in November 2009. Basic and diluted earnings per share have accordingly been restated for the 52 week period ended 26 September 2009 as follows:

 


 

2010

Restated

2009


Number of

Number of


shares

shares

Weighted average number of shares



For basic earnings per share

185,643,741

171,836,222

Weighted average number of shares under option

4,123,000

1,936,826




For diluted earnings per share

189,766,741

173,773,048




13         Earnings per share (continued)

The calculation of the basic and diluted earnings per share used the same denominators as shown above for both basic and diluted earnings per share. The adjusted earnings figure is based on the following data:

 

From continuing and discontinuing operations

53 weeks ended

2 October

52 weeks ended

26 September


2010
£'000

2009
£'000

Profit after tax for the period

9,974

1,722

Post tax effect of:



Impairment of property, plant and equipment

863

3,052

Interest rate derivative charge

2,001

4,199

Property disposal  (gain)/ loss

(100)

349

Restructuring and other one-off costs

(977)

2,005




Adjusted profit after tax for the period

11,761

11,327




 

From continuing operations

2010
£'000

2009
£'000

Profit after tax for the period

8,472

6,699

Post tax effect of:



Impairment of property, plant and equipment

815

1,027

Interest rate derivative charge

2,001

4,199

Property disposal  (gain)/ loss

(100)

349

Restructuring and other one-off costs

289

339




Adjusted profit after tax for the period

11,477

12,613




From discontinued operations

2010

2009

Basic

0.81p

-2.90p

 

Diluted

0.79p

-2.86p

 

 

14         Goodwill



 

£'000




Cost and carrying amount at 27 September 2008, 26 September 2009 and 2 October 2010


245

 

The balance of goodwill remaining is the carrying value that arose on the acquisition of Surface Coatings Ltd in 1998.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. Goodwill is allocated to the TCH segment.

The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates based on the Groups weighted average cost of capital. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.  Discounted cash flows are calculated using a post tax rate of 6.0% (2009: 5.8%).

 

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years based on an estimated growth rate of 2 per cent (2009: 2 per cent). This rate does not exceed the average long-term growth rate for the relevant markets.

 

The accounting judgements and sources of estimation uncertainty involved in assessing any impairment loss are referred to in note 2 of these Notes to the financial statements.

 

As a result of the annual test of impairment of goodwill, no impairment has been identified for the current period.

 

15         Property, plant and equipment


Land and buildings

Fixtures





Short

And

Motor



Freehold

leasehold

Fittings

Vehicles

Total

Cost

£'000

£'000

£'000

£'000

£'000

At 28 September 2008

16,648

1,842

43,603

343

62,436

Foreign exchange movement

-

-

-

21

21

Additions

618

-

1,438

40

2,096

Disposals

(2,412)

-

(1,322)

(198)

(3,932)

At 26 September 2009

14,854

1,842

43,719

206

60,621

Additions

1,002

-

3,832

19

4,853

Disposals

(850)

-

-

(202)

(1,052)

At 2 October 2010

15,006

1,842

47,551

23

64,422







Accumulated depreciation and impairment






At 28 September 2008

1,022

1,145

19,737

146

22,050

Foreign exchange movement

-

-

-

13

13

Charge for the period

246

125

4,227

43

4,641

Provision for impairment

208

-

2,844

-

3,052

Eliminated on disposals

(98)

-

(1,523)

(98)

(1,719)

At 26 September 2009

1,378

1,270

25,285

104

28,037

Charge for the period

213

113

3,702

15

4,043

Provision for impairment

-

66

749

-

815

Eliminated on disposals

 

-

-

-

(112)

(112)

At 2 October 2010

1,591

1,449

29,736

7

32,783







Carrying amount






At 2 October 2010

13,415

393

17,815

16

31,639

At 26 September 2009

13,476

572

18,434

102

32,584







 

Freehold land and buildings include £4,104,000 of land (2009: £4,104,000) on which no depreciation has been charged in the current period.

Cumulative finance costs capitalised in the cost of tangible fixed assets amount to £nil (2009: £nil).

 

The Group has no contractual commitments for the acquisition of property, plant and equipment (2009: £nil).

 

During the period, the Group has closed 9 stores in the UK, including some before their lease end dates. As the fixtures and fittings within these stores cannot be re-used in other locations within the Group, the carrying value of these assets has been fully provided for in the period, with the associated impairment charge included within other operating expenses. 

 

16         Subsidiaries

A list of the significant subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note 3 to the Company's separate financial statements.

 

17         Trade and other receivables


2010

2009


£'000

£'000

Amounts falling due within one year:



Amounts receivable for the sale of goods

420

655

Other debtors and prepayments



 -Rent and rates

5,503

1,438

 -Derivative financial instruments

-

49

 -Other

1,671

1,963





7,594

4,105




 

The Directors consider that the carrying amount of trade and other receivables at 2 October 2010 and 26 September 2009 approximates to their fair value on the basis of discounted cash flow analysis.

Credit risk

 

The Group's principal financial assets are bank balances and cash and trade receivables.

The Group considers that it has no significant concentration of credit risk.  The majority of sales in the business are cash based sales in the stores.

Total trade receivables (net of allowances) held by the Group at 2 October 2010 amounted to £0.4 million (2009: £0.7million). These amounts mainly relate to insurance generated sales, Tesco Clubcard Scheme, sundry trade accounts and contracts division generated sales. In relation to these sales, the average credit period taken is 39 days (2009: 65 days) and no interest is charged on the receivables. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.

Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed periodically. Of the trade receivables balance at the end of the year, £100,000 (2009: £112,000) is due from Independent Inspections and £104,000 (2009: £nil) is due from Tesco Plc, the Group's two largest customers.

Included in the Group's trade receivable balance are debtors with a carrying amount of £110,000 (2009: £64,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 124 days (2009: 134 days), however this ageing is distorted by one account of £19,000 (2009: £21,000) which is overdue by 202 days (2009: 154 days).

Ageing of past due but not impaired receivables


2010

2009


£'000

£'000




60 - 120 days

91

64

121 - 202 days

19

-

 

The allowance for doubtful debts has been increased to £103,000 by the end of the period (2009:£5,000).  Given the minimal receivable balance, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

The allowance for doubtful debts includes £103,000 relating to individually impaired trade receivables (2009: £2,000) which have been placed under liquidation.

 

18         Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Group and short term bank deposits (with associated right of set off) with an original maturity of three months or less.  The carrying amount of these assets approximates their fair value.  A breakdown of significant bank and cash balances by currency is as follows:

 


2010

2009


£'000

£'000




Sterling

41,109

24,196

US Dollar

331

2,901

Euro

439

173




Total cash and cash equivalents

41,879

27,270

 

19         Other financial liabilities

Trade and other payables


2010

2009


£'000

£'000

Amounts falling due within one year



Trade payables

12,489

14,577

Other payables

3,406

8,493

Accruals and deferred income

9,693

7,599





25,588

30,669

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.  The average credit period taken for trade purchases is 41 days (2009: 46 days). No interest is charged on these payables.

The directors consider that the carrying amount of trade payables at 2 October 2010 and 26 September 2009 approximates to their fair value on the basis of discounted cash flow analysis.

20         Bank loans


2010
£'000

2009
£'000




Bank loans (all sterling)

90,716

97,962




 

The borrowings are repayable as follows:




On demand or within one year

7,500

7,500

In the second year

7,500

7,500

In the third to fifth year

76,000

83,500


91,000

98,500




Less: Total unamortised issue costs

(284)

(538)





90,716

97,962

Less: amount due for settlement within 12 months (shown under current liabilities)

(7,500)

(7,500)

Issue costs to be amortised within 12 months

250

250




Amount due for settlement after 12 months

83,466

90,712

 

The Directors consider that the carrying amount of the bank loan at 2 October 2010 and 26 September 2009 approximates to its fair value since the amounts relate to floating rate debt.

 

The average weighted interest rates paid on the loan were as follows:


2010
%

2009
%




Loans

2.6747

3.9011

 

The Group borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk.

Whilst the interest charge on the loan has fallen compared to the prior period, the Group has seen limited benefit due to the interest rate derivatives which negate the majority of any impact on the interest rate movement.

 

The Group has one principal bank loan taken out on 1 August 2006, with a balance of £91 million outstanding at the period end. During the period ended 27 September 2008 the banking facilities were renegotiated with a relaxation of both covenants associated with the debt.  Repayments commenced on 28 July 2007 and will continue for an extended period until 28 Jan 2012. There was an arrangement fee of £0.5 million associated with the original loan agreement, which is being amortised over the original period of the facility.  An additional fee of £0.5 million was incurred in a prior period on renegotiation of the loan.  This fee is being amortised over the remaining period of the facility.  The loan is secured by upstream guarantees provided by certain subsidiaries.  The LIBOR margin shall be adjusted between 1.5% and 2.75% dependent on the Group's level of compliance with a net debt to EBITDA covenant.

 

At 2 October 2010, the Group had available £5 million (2009: £5 million) of undrawn committed banking facilities.

 

21         Financial instruments

 

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.  The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 20, cash and cash equivalents disclosed in note 18 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 23 to 29.

 

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2q to the financial statements.

 

Categories of financial instruments

 


Carrying Value and Fair Value


2010

2009


£'000

£'000

Financial Assets



 

Held for trading

-

49

Loans and receivables (including cash and cash equivalents)

49,473

31,326




Financial liabilities



 

Held for trading

10,557

7,826

Amortised cost

116,304

128,631




 

The Group considers itself to be exposed to risks on financial instruments, including market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk.

 

The Group seeks to mitigate the effects of these risks by using derivative financial instruments to hedge these risk exposures economically. The use of financial derivatives is governed by the Group's policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

 

Market Risks

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:

 

·      forward foreign exchange contracts to hedge the exchange rate risk arising on the import of goods from South America and China; and

·      interest rate swaps and collars to mitigate the risk of movements in interest rates.

 

Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.

 

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

 


Assets

Liabilities


2010

2009

2010

2009


£'000

£'000

£'000

£'000

Euro

439

3,064

1,129

4,546

US dollar

331

2,923

329

344

 

Foreign currency sensitivity analysis

The Group is mainly exposed to the currency of China and Brazil (US dollar currency) and from various European countries (Euro) as a result of stock purchases. The following table details the Group's sensitivity to a 10% increase and decrease in Sterling against the relevant foreign currencies. 10% represents management's assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in profit and other equity where Sterling strengthens 10% against the relevant currency.

 


2010
£000

2009
£000




Profit or Loss movement on a 10% strengthening in Sterling against the Euro

63

135

Profit or Loss movement on a 10% strengthening in Sterling against the US Dollar

-

(234)

 

Profit or Loss movement on a 10% weakening in Sterling against the Euro

(77)

(165)

Profit or Loss movement on a 10% weakening in Sterling against the US Dollar

-

287

 

Currency derivatives

The Group utilises currency derivatives to hedge significant future transactions and cash flows.  The Group uses foreign currency forward contracts in the management of its exchange rate exposures.  The contracts are denominated in US dollars and Euros.

 

At the balance sheet date, the total notional amounts of outstanding forward foreign exchange contracts that the Group has committed to are as below:

 


2010
£'000

2009
£'000




Forward foreign exchange contracts

4,356

512

 

These arrangements are designed to address significant exchange exposures for the first half of 2011 and are renewed on a revolving basis as required.

At 2 October 2010 the fair value of the Group's currency derivatives is a £22,000 asset (2009: an asset of £30,000). These amounts are based on market value of equivalent instruments at the balance sheet date.

Losses of £4,000 are included in operating profit in the year (2009: gains of £95,000).

 

Interest rate risk management

 

The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, by the use of interest rate swap contracts and collars.  The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

 

Interest rate sensitivity analysis

 

The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at 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:

 


50 basis points increase in interest rates

50 basis points decrease in interest rates


2010

2009

2010

2009


£'000

£'000

£'000

£'000

Profit or (loss)

1,443

1,248

(1,385)

(1,219)

 

The Group's sensitivity to interest rates mainly relates to the interest rate derivatives.

 

Interest rate derivatives

 

The Group uses interest rate derivatives to manage its exposure to interest rate movements on its bank borrowings.

The Group's interest rate derivatives comprise;

-           5 year interest rate cap with a notional value of £20 million with interest capped at 6%

-           5 year interest rate swap with a notional value of £20 million paying interest at a fixed rate of 5.63%

-           10 year cancellable collar with a notional value of £60 million with a cap of 5.6% and a floor of 4.49%, the interest rate within this range is LIBOR less 0.4%. Where LIBOR falls below the floor the interest rate resets to a fixed level of 5.55%

 

The fair value liability of the swaps entered into at 2 October 2010 is estimated at £10,557,000 (2009: £7,777,000). Amounts of £2,780,000 have been charged to the statement of financial performance in the period (2009: £5,833,000).

 

Credit risk management

 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Management has considered the counterparty risk associated with the cash and derivative balances and do not consider there to be a material risk. The Group has a policy of only dealing with creditworthy counterparties. The Group's exposure to its counterparties is reviewed periodically. Trade receivables are minimal consisting of a number of insurance companies and sundry trade accounts, further information is provided in note 17.

 

The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group's maximum exposure to credit risk without taking account of the value of any collateral obtained.

 

Liquidity risk management

 

Ultimate responsibility for liquidity risk management rests with the board of directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.  Included in note 20 is a description of additional undrawn facilities that the Group has at its disposal to reduce liquidity risk further.

 

Liquidity and interest risk tables

 

The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows (and on the assumption that the variable interest rate remains constant at the latest fixing level of 2.74665% (2009: 2.59450%)) of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

2010

Less than 1 month

1-3 months

3 months to 1 year

1-5 Years

5+ Years

 

Total


£'000

£'000

£'000

£'000

£'000

£'000

Non-interest bearing

25,588

-

-

-

-

25,588

Variable interest rate instruments

630

418

9,290

84,266

-

94,604















2009

Less then 1 month

1-3 Months

3 months to 1 year

1-5 Years

5+ Years

Total


£'000

£'000

£'000

£'000

£'000

£'000

Non-interest bearing

30,669

-

-

-

-

30,669

Variable interest rate instruments

-

722

9,564

94,204

-

104,490

 

The Group has access to financing facilities, of which the total unused amount is £5 million at the balance sheet date (2009: £5 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.

 

The following table details the Group's liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/(outflows) on the derivative instruments that settle on a net basis and the undiscounted gross inflows and (outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest and foreign currency rates as illustrated by the yield curves existing at the reporting date.

 

2010

Less than 1 month

1-3 Months

3 months to 1 year

1-5 Years

5+ Years

Total


£'000

£'000

£'000

£'000

£'000

£'000








Interest rate swaps payments

-

(603)

(1,572)

(6,606)

(2,331)

(11,112)

Foreign exchange forward contracts payments

-

(1,933)

(2,423)

-

-

(4,356)

Foreign exchange forward contracts receipts

-

1,928

2,450

-

-

4,378








 

 

2009

Less than 1 month

1-3 Months

3 months to 1 year

1-5 Years

5+ Years

Total


£'000

£'000

£'000

£'000

£'000

£'000








Interest rate swaps payments

-

(702)

(1,926)

(4,776)

(2,331)

(9,735)

Foreign exchange forward contracts payments

(512)

-

-

-

-

(512)

Foreign exchange forward contracts receipts

548

-

-

-

-

548

 

Fair value of financial instruments

The fair values of financial assets and financial liabilities are determined as follows:

·    Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.

·      Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.

·      Interest rate collars are measured using applicable yield curves derived from quoted interest rates and market volatilities.

The fair values are therefore categorised as Level 2, based on the degree to which the fair value is observable. Level 2 fair value measurements are those derived from inputs other than unadjusted quoted prices in active markets (Level 1 categorisation) that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

22         Provisions for liabilities and charges












Onerous lease

Dilapidations






provision

provision

Total

Less than one year :




£000

£000

£000

At 28 September 2008




-

-

-

Additional provision in the period




873

178

1,051

At 26 September 2009




873

178

1,051

Additional provision in the period




118

372

490

Utilisation: continuing




(15)

(20)

(35)

Utilisation: discontinued




(96)

-

(96)

Release of provision in the period




(340)

(56)

(396)

At 2 October 2010




540

474

1,014








Greater than one year :







At 28 September 2008 and 26 September 2009




-

-

-

Additional provision in the period




283

-

283

At 2 October 2010




283

-

283








Total provisions at 2 October 2010




823

474

1,297

The onerous lease provision relates to estimated future unavoidable lease costs in respect of closed and non-trading stores. The provision is expected to be utilised over the following two financial periods. The dilapidations provision represents management's best estimate of the Group's liability under its property lease arrangements based on past experience.

 

The following are the deferred tax liabilities / (assets) recognised by the Group and movements thereon during the current and prior reporting period.

 


Accelerated tax depreciation

Tax

Losses

Share Based Payments

Exchange Rate Differences

Interest Rate Hedging

 

 

Rent Free

 

 

Total


£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 28 September 2008

3,054

(215)

(133)

4

(545)

(201)

1,964

(Credit) /charge to income

(633)

215

23

5

282

124

16

Credit to Equity

-

-

(103)

-

-

-

(103)









At 27 September 2009

2,421

-

(213)

9

(263)

(77)

1,877

(Credit)/charge to income

(86)

-

(64)

(1)

(1,174)

22

(1,303)

Impact of rate change

(138)

-

2

-

106

(1)

(31)

Credit to equity

-

-

(121)

-

-

-

(121)









At 2 October 2010

2,197

-

(396)

8

(1,331)

(56)

422

 

The Finance Bill 2010 received Royal ascent on 27 July 2010 and included a reduction in the main rate of corporation tax for the financial year beginning 1 April 2011 from 28% to 27%. The Government has also indicated that it intends to enact future reductions in the main corporation tax rate of 1% each year, down to 24% by 1 April 2014. The future 1% main corporation tax rate reductions are expected to have a similar impact on our financial statements as above, however the actual impact will be dependent on our deferred tax position at that time.

 

23         Called-up share capital


2010
£'000

2009
£'000

Authorised 240,000,000 (2009: 240,000,000) ordinary shares of 3.33p each (2009: 3.33p)

 

8,000

 

8,000

Authorised 37,000,000 (2009: 37,000,000) redeemable B shares of £0.54 each

19,980

19,980

Authorised 124,890,948 (2009: 124,890,948) irredeemable C shares of £0.001 each

 

125

 

125





28,105

28,105




Issued and fully-paid 188,202,323 (2009: 171,093,021) ordinary shares of 3.33p each (2009: 3.33p)

 

6,273

 

5,703




Total

6,273

5,703

 

The Group issued 17,109,302 shares as part of a placing and open offer on 27 November 2009. The issue increased the number of shares from 171,093,021 to 188,202,323. Under the arrangements of the placing, the Company issued shares in exchange for shares in Tail Finance Jersey Limited. No share premium is ultimately recorded in the Company's financial statements through the operation of the merger relief provisions of the Companies Act 2006. The subsequent redemption of these shares gave rise to distributable profits of £14.3 million which have been transferred to retained earnings.

 

During the period the Group issued no (2009: 515) ordinary shares with a nominal value of £nil (2009: £17) under share option schemes for an aggregate cash consideration of £nil (2009:  £330).

 

24         Share premium



2010
£'000

2009
£'000




At start of period

1,001

1,001

Shares issued in respect of placing and open offer

14,296

        -

Transfer to retained earnings

(14,296)

        -




At end of period

1,001

1,001

 

25         Merger reserve



2010
£'000


2009
£'000




At start of period

240

240

Release of reserve on disposal of subsidiary

(639)

-




At end of period

(399)

240

 

26         Share based payment reserve



2010
£'000


2009
£'000




At start of period

240

322

Charge/(credit) to equity for equity-settled share based payments

127

(82)




At end of period

367

240

 

27         Capital redemption reserve



2010
£'000


2009
£'000




At start and end of period

20,359

20,359

 

The capital redemption reserve arose on the cancellation of treasury shares and as a result of a share reorganisation in 2006.

 

28         Foreign exchange reserve



2010
£'000


2009
£'000




At start of period

336

248

Exchange differences on consolidation of overseas operations

-

88

Release of reserve on disposal of subsidiary

(336)

-




At end of period

-

336

 

29         Retained earnings


£'000



At 28 September 2008

(82,986)

Deferred tax on sharesave scheme taken directly to equity

103

Net profit for the period

1,722

At 27 September 2009

(81,161)



Release from Merger reserve on disposal of subsidiary

639

Transfer from the share premium account

14,296

Deferred tax on sharesave scheme taken directly to equity

121

Net profit for the period

9,974



At 2 October 2010

(56,131)

 

The transfer from the share premium account arose from the firm placing and open offer in November 2009. Within these arrangements, the Company issued shares in exchange for ordinary shares and redeemable preference shares in Tail Finance Jersey Limited. No share premium is ultimately recorded in the Company financial statements through the operation of the merger relief provisions of the Companies Act 2006.

 

The realised gain is taken after the deduction of transaction costs of £0.5 million, principally as a result of commissions and professional charges.

 

The subsequent redemption of these shares gave rise to distributable profits of £14.3 million which have been transferred to retained earnings.

 

29   Financial commitments

a)         Capital commitments

 

At the end of the period there were no capital commitments contracted (2009: £nil).

b)         Pension arrangements

The Group operates separate defined contribution pension schemes for employees.  The assets of the schemes are held separately from those of the Group in independently administered funds.  The pension cost charge represents contributions payable by the Group to the funds and amounted to £181,000 (2009: £186,000).

c)         Lease commitments

The Group has entered into non‑cancellable operating leases in respect of motor vehicles, equipment and land and buildings.

Minimum lease payments under operating leases recognised as an expense for the period were £20,861,000 which includes property service charges of £649,000 (2009: £20,730,000 including property service charges of £542,000).

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:


2010

2009


Land and


Land and



buildings

Other

buildings

Other


£'000

£'000

£'000

£'000






- within 1 year

17,908

1,014

17,124

881

- within 2 - 5 years

58,796

1,922

57,497

1,478

- after 5 years

63,027

80

60,396

193







139,731

3,016

135,017

2,552

 

30         Financial commitments

Operating lease payments primarily represent rentals payable by the Group for certain of its office and store properties. Leases are negotiated for an average term of 15 years and rentals are fixed for an average of 5 years (2009: same).

 

31         Share based payments

The Group operates three share option schemes in relation to Group employees. 

 

Equity settled share option scheme

Options are exercisable at the middle market closing price for the working day prior to the date of grant and are exercisable 3 years from the date of grant if the employee is still employed by the Group at that date.

Details of the share options outstanding during the period are as follows:

 

 

Date of grant

Option price

Exercisable period

No. of options outstanding




2010

2009






26 January 2001

54p

7 Years

78,020

81,520

12 February 2002

54p

7 Years

40,779

40,779









118,799

122,299

 

Movements in share options are summarised as follows:


 

2010

number of share options

2010 weighted average exercise price

 

2009 number of share options

2009 weighted average exercise price



£


£

Outstanding at beginning of period

122,299

0.54

149,299

0.54

Expired during the period

(3,500)

0.54

(27,000)

0.54

Outstanding at end of period

118,799

0.54

122,299

0.54

Exercisable at end of period

118,799

0.54

122,299

0.54

 

The options outstanding at 2 October 2010 had a weighted averaged exercise price of 54 pence (2009:  54 pence) and a weighted average remaining contractual life of one year (2009: two years).

 

Other share based payment plans

 

Employee share purchase plans are open to almost all employees and provide for a purchase price equal to the daily average market price on the date of grant, less 20%. The shares can be purchased during a two-week period each financial period. The shares so purchased are generally placed in the employee share savings plan for a 3 or 5 year period.

 

Movements in share based payment plan options are summarised as follows:


 

2010

number of share options

2010

weighted average exercise price

 

2009 number of share options

2009 weighted average exercise price






Outstanding at beginning of period

5,974,783

19p

717,635

135p

Issued during the period

-

-

5,963,943

17p

Expired during the period

-

-

(706,795)

135p

Exercised during the period

(521,836)

19p

-

-

Outstanding at end of period

5,452,947

19p

5,974,783

19p

Exercisable at end of period

5,452,947

19p

5,974,783

19p

 

 

The inputs to the Black-Scholes Model for the above two schemes are as follows:


2010

2009




Weighted average share price        - pence

22.6

24.3

Weighted average exercise price    - pence

18.1

19.4

Expected volatility                         - %

32.4

114.6

Expected life                                 - years

3 or 5

3 or 5

Risk - free rate of interest               - %

0.8

2.9

Dividend Yield                               - %

5.04

4.7




 

Expected volatility was determined by calculating the historical volatility of the Group's share price over the 2009/10 financial period (2009: 2008/09 financial period). The expected risk used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces.

 

Deferred bonus long-term incentive plan

At the AGM in January 2010 a new deferred bonus long term incentive plan (LTIP) was approved by shareholders.  Under this long term incentive plan a proportion of the annual bonus is deferred in the form of shares for a two year period with a matching share award that vests at the end of two years subject to the achievement of performance conditions.  25% of the annual bonus has been deferred into shares, on a net basis, for a two year period, with a further match on a gross basis which vests two years later subject to the achievement of performance conditions relating to continued employment in the business and EBITDA earnings growth measured over the two year period.

 

For the period ending 2 October 2010 it was determined that a bonus be paid equivalent to 50% of basic salary for Executive Directors and the members of the Senior Management Team.  25% of the annual bonus will be deferred under the deferred bonus long term incentive plan. The total number of shares due to be awarded is 129,489, the fair value of these deferred shares as at 2 October 2010 was £79,000.

 

The total number of matching shares that are expected to be awarded, subject to fulfilment of the performance conditions is 242,144.

 

The inputs to the Black-Scholes Model are as follows:


2010

2009



 

Weighted average share price        - pence

60.0

-

Weighted average exercise price    - pence

-

-

Expected volatility                         - %

81.6

-

Expected life                                 - years

2

-

Risk - free rate of interest               - %

0.8

-

Dividend Yield                               - %

0

-

 

Expected volatility was determined by calculating the historical volatility of the Group's share price over the 2008/09 and 2009/10 financial periods (2009: 2008/09 financial period). The expected risk used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces.

 

In total, the Group recognised a total expense of £127,000 (2009: £82,000 income) relating to share based payments.

 

32         Related party transactions

 

S.K.M. Williams has the non-statutory role of President, advising on property matters and is a related party by virtue of his 10.6% shareholding (19,903,950 ordinary shares) in the Group's issued share capital (2009: 11.4% shareholding of 19,503,950 ordinary shares).

 

At 26 September 2009 S.K.M. Williams was the landlord of three properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £134,000 (2009: £84,000) per annum.

No amounts were outstanding at 2 October 2009 (2009: £nil).

The lease agreements on both properties are operated on commercial arms length terms. His salary for the year in his role as President was £41,000 (2009: £40,000).

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

 

The remuneration of the Board of Directors, who are considered key management personnel of the Group was £1.4 million (2009: £1.0million).  Further information about the remuneration of the individual directors is provided in the Remuneration Report in the Annual Report.

 

33    Events after the balance sheet date

 

On 19 October 2010 the Group issued a letter of intent to Herbert Baggley Construction Limited detailing its intention to enter into a formal contract for the construction of a new warehouse facility at Grove Park. The cost of construction is estimated to be £3 million.


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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Topps Tiles (TPT)
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