TIDMTPT
RNS Number : 2609N
Topps Tiles PLC
19 May 2020
19 May 2020
Topps Tiles Plc
("Topps Tiles", "the Group" or "the Company")
UNAUDITED INTERIM REPORT FOR THE 26 WEEKSED 28 MARCH 2020
First half performance primarily reflects tough pre-COVID-19
trading: business responding well to pandemic challenges, with
liquidity strengthened, new operating procedures in place and a
phased programme of store re-openings underway
HIGHLIGHTS
Topps Tiles Plc, the UK ' s largest tile specialist, announces
its interim results for the 26 weeks ended 28 March 2020.
26 weeks ended 26 weeks ended YoY
28 March 30 March
2020 2019
Statutory Measures
Group revenue GBP106.2 million GBP110.3 million (3.7)%
Gross margin 59.2% 61.2% (200)bps
(Loss)/profit before tax GBP(4.0) million GBP5.2 million
Basic earnings per share (1.86)p 2.03p
Interim dividend per share nil 1.1p
Statutory Measures (pre-IFRS
16)
(Loss)/profit before tax GBP(0.4) million GBP5.2 million (107.7)%
Basic earnings per share (0.18)p 2.03p (108.9)%
Adjusted Measures (pre-IFRS
16)
Like-for-like revenue growth
year-on-year(2) (6.1)% +0.2% n/a
Adjusted Group profit before
tax(3) GBP1.2 million GBP8.0 million (85.0)%
Adjusted earnings per share(4) 0.60p 3.15p (81.0)%
Net debt(1) GBP17.3 million GBP18.0 million GBP0.7
million
Free cash flow(5) GBP(1.6) million GBP2.7 million GBP(4.3)
million
Adjusting items are detailed in the notes below - these include
items which are either one off in nature or can fluctuate
significantly from year to year (such as some property related
items). In the prior year, adjusting items included trading losses
from the Parkside business whilst the business went through an
initial two year phase of investing in growth.
Financial Summary
-- First half like-for-like sales declined by 6.1% (2019: +0.2%),
with like-for-like sales excluding week 26 when all stores
were closed due to COVID-19 down by 4.3% due to challenging
trading environment;
-- Gross margin of 59.2% (2019: 61.2%) reflects first time
inclusion of commercial operation (with a dilution of 80bps),
trade mix, and increased competitiveness on pricing;
-- Adjusted profit before tax of GBP1.2 million (2019: GBP8.0
million), the year on year decrease being due to the above
items, and the inclusion of GBP1.0 million of trading losses
from the commercial business which had been excluded in
FY19;
-- When adjusting items (detailed below) are included, the
loss before tax on a statutory basis pre-IFRS 16 was GBP0.4
million and post-IFRS 16 the loss was GBP4.0 million (2019:
profit of GBP5.2 million);
-- IFRS 16 impact of GBP3.6 million includes a GBP2.7 million
impairment of right-of-use assets and property, plant and
equipment relating to store closures planned before the
onset of COVID-19;
-- Net debt reduced by GBP0.7 million year-on-year to GBP17.3
million; and,
-- No interim dividend will be paid (2019: 1.1p), with a full
year dividend for 2020 also unlikely in light of the trading
losses expected from period of store closures and trading
outlook. The Board is keen to re-instate dividends as soon
as is appropriate.
COVID-19 Update
-- Health and safety of colleagues, customers and business
partners is paramount;
-- Retail stores closed from 23 March 2020 to safeguard colleagues
and customers;
-- Strength of supplier relationships demonstrated by flexible
arrangements and continued supply - nature of product means
minimal obsolescence from disruption;
-- Recently re-launched website has performed well, with revenues
c.3x pre-crisis levels, but overall retail sales down significantly
during period of store closures;
-- Trials of new safe operating procedures commenced 22 April
2020 - 250 stores currently offering a click and collect
service, and of those 130 are also allowing controlled customer
entry, with strict social distancing and other protective
measures in place;
-- Commercial business has seen a material impact from COVID-19
but has continued to trade and build new customer relationships
over this period;
-- Board and senior management agreed a voluntary 20% reduction
in base pay from April;
-- UK Government support schemes utilised - 90% of colleagues
furloughed at peak, business rates relief and VAT deferral;
-- Additional GBP10 million loan facility through existing
lenders and backed by the UK Government Coronavirus Large
Business Interruption Loan Scheme ("CLBILS") credit approved
and to be finalised shortly, including a substantial relaxing
or removal of covenant conditions over the next 12 months;
and
-- Robust liquidity position with option for further funding
through asset sales in event of extended disruption. Cash
headroom as at 28 March 2020 stood at GBP21.7 million, and
is currently at GBP14.0 million, cash consumption since
the half year primarily driven by unwinding of working capital
cycle and the earlier timing of the half year end date.
Strategic & Operational Summary
-- UK's leading tile specialist with a core purpose to inspire
customers through our love of tiles;
-- Competitive advantage generated from our specialist focus
- market leading product development and sourcing capability,
combined with world class customer service ;
-- Trade customer base key - loyalty scheme allows active communication
and retention;
-- Well invested and flexible store estate with average unexpired
lease term of just over three years;
-- Entry into commercial market has approximately doubled the
size of the Group's addressable UK market whilst maintaining
our specialism in tiles;
-- Commercial strategy is to disrupt the commercial tile market
and construct a new market leader over the medium term;
-- Commercial sales of GBP4.5 million, an increase of 246%
year on year, led by Parkside which more than doubled sales
over the period; and
-- Commercial breakeven profit target deferred to FY21 reflecting
first half performance and uncertainty in outlook.
Current Trading and Outlook
-- Primary focus is navigating the current crisis and ensuring
the Group emerges in the strongest possible position;
-- Material trading impact during April but gradual re-opening
of stores is generating an improving trend - expect to have
250 stores fully opened by end of May, with remaining 100
stores opened by the end of June;
-- Robust liquidity position following GBP10 million of additional
lender support; and
-- Topps remains a resilient, market-leading business with
a strong management team and the Board is confident that
the Group is well positioned to recover once the situation
normalises.
Commenting on the results, Rob Parker, Chief Executive said:
"COVID-19 has created a complex and extremely challenging
trading environment and I am pleased by the way the Group has
responded to this crisis so far. We are prioritising the safety of
our colleagues and customers, protecting the business and working
hard to ensure we emerge from this period in the strongest possible
position. The strong growth of our online business, the development
of a collection-only store model, and the encouraging initial
customer response to our phased programme of store re-openings, all
demonstrate our resilience in the face of the COVID-19 threat.
"The response of our colleagues throughout these most testing
times has been fantastic and I would like to thank them all for
their unwavering support. The health and safety of employees,
customers and business partners will remain our top priority as we
continue to progress our plans for a safe return to work.
"Having taken steps to strengthen our financial liquidity over
recent weeks we believe our resources are sufficient to address the
current challenge. Looking further ahead, as the UK's leading tile
specialist, Topps remains well-positioned as the economy begins to
recover."
Notes
(1) Net debt is defined as bank loans, before amortised issue
costs (note 6) and less cash and cash equivalents. Net debt is
pre-IFRS 16 adjustments.
(2) Like-for-like sales revenues are defined as sales from
online and stores that have been trading for more than 52
weeks.
(3) Adjusted profit before tax excludes several items that we
have incurred during the period in order to give users of the
accounts additional information around performance trends. These
are items which are either one off in nature or can fluctuate
significantly from year to year (such as some property related
items). Adjusted profit before tax is pre-IFRS 16 adjustments.
These are set out as follows:
2020 GBPm 2019 GBPm
Adjusted Pre-Tax Profit 1.2 8.0
---------- ----------
- Parkside trading loss - (1.0)
---------- ----------
Adjusted Pre-Tax Profit including Commercial 1.2 7.0
---------- ----------
- Vacant property costs (0.7) (0.1)
---------- ----------
- Non-recurring property provision movements (0.9) (1.7)
---------- ----------
Statutory Pre-Tax (Loss) / Profit (pre IFRS16) (0.4) 5.2
---------- ----------
- IFRS 16 adjustments (0.9) -
---------- ----------
- IFRS 16 - impairment of closure programme (2.7) -
stores
---------- ----------
Statutory Pre-Tax (Loss) / Profit (4.0) 5.2
---------- ----------
(4) Adjusted for the post tax effect of the above items.
(5) Free cash flow is defined as net cash generated from
operating activities less investing activities (pre-IFRS 16
adjustments).
The Group implemented IFRS 16 'Leases' for the first time in
FY20 using the modified retrospective approach. IFRS 16 has no
economic impact on the Group, no effect on how the business is run,
nor on cash flows for the Group. The standard does however have a
significant impact on how to recognise, measure, present and
disclose leases. Comparatives have not been restated and therefore
the statutory results are not comparable to the prior period. In
addition, adjusted measures have been presented before IFRS 16
adjustments. To aid period on period comparability, the statutory
measures above have been provided pre-IFRS 16 adjustments. Further
information on the implementation of IFRS 16 is included in the
appendix and note 8.
For further information please contact:
Topps Tiles Plc
(19/05/20) 020 3926
Rob Parker, Chief Executive Officer 8509 / 8503
Andrew Wilkinson, Interim Chief Financial (Thereafter) 0116 282
Officer 8000
Citigate Dewe Rogerson
Kevin Smith 020 3926 8509
Nick Hayns 020 3926 8503
A copy of this announcement can be found on our website
www.toppstilesplc.com
This announcement contains inside information within the meaning
of the Market Abuse Regulation. The person responsible for
arranging release of this announcement on behalf of Topps is Rob
Parker, Chief Executive Officer.
UNAUDITED INTERIM REPORT
Topps Tiles is the largest tile specialist in the UK. The
majority of our revenues are generated from the retail market for
the renovation, maintenance and improvement of UK homes, where the
Group remains the clear market leader. In 2017 the Group announced
a more explicit focus on the commercial tile market - which
represents approximately 45% of the overall UK market for tiles,
and which has therefore approximately doubled the size of the
Group's addressable market. In August 2017 Topps acquired Parkside,
a small business with a foothold in the commercial segment which we
have subsequently invested in and grown. In April 2019 we acquired
Strata Tiles Ltd as a further addition to our commercial
activities. These two businesses now form the core of our
Commercial activities.
Within our retail business, our successful strategy of "Out
Specialising the Specialists" remains at the heart of what we do.
This is focussed on offering customers outstanding value for money
through an industry-leading product range, world class customer
service and omni-channel convenience.
Financial Review
The financial review below excludes the impact of IFRS 16 to
allow for comparability of the results, unless stated otherwise. A
reconciliation between the loss before tax pre-IFRS 16 and
post-IFRS 16 is included within note 8.
Income Statement
As previously reported, the Group experienced challenging
trading conditions in the first half, with first quarter
performance impacted by economic uncertainty relating to the
outcome of the December General Election, with the weakness in home
improvement spending persisting into the second quarter, creating a
tough trading backdrop. The COVID-19 outbreak began to impact on
trading in the final week of the period, with the closure of all
Topps Tiles stores from 23 March 2020. A detailed explanation of
our response to COVID-19 is provided within the Strategic and
Operational Update section below.
Overall Group revenues for the first half decreased by 3.7% to
GBP106.2 million (2019: GBP110.3 million).
The average number of stores trading fell by two from 362 in the
prior year period to 360 in this period. Excluding the final week
of the period when all of the Group's stores were closed due to the
impact of COVID-19, like-for-like revenues fell by 4.3% (including
the final week like-for-like revenues fell by 6.1%). The retail
business experienced tough trading conditions throughout the
period, with political uncertainty and the snap general election in
December being followed by weak consumer confidence, house price
and housing transaction data in the early months of 2020.
Gross margin for the period was 59.2% (2019: 61.2%). Inclusion,
for the first time, of the commercial business, which operates at
lower gross margin levels, dilutes the group gross margin by 80bps
over the previous period, The remaining 120bps decrease over the
comparable period reflects increased competitiveness on pricing and
a greater share of trade sales.
Operating costs (pre-IFRS 16) were GBP62.8 million, compared to
GBP61.9 million in the prior year. On an adjusted basis (excluding
items as defined in the highlights section) operating costs were
GBP61.2 million, compared to GBP58.5 million in the prior year. The
principal drivers of changes in adjusted operating costs are as
follows:
-- Inclusion of the commercial business in the unadjusted measure,
the commercial business incurred operating costs of GBP2.8
million in the period (2019: GBP1.6 million)
-- A decrease in the number of stores trading (an average of
360 stores vs 362 in the prior year) which generated a reduction
of GBP0.3 million;
-- Employee profit share decreased by GBP0.9 million with the
challenging trading conditions of the current year being
compared to higher levels of payments in the prior year;
-- Inflation accounted for an increase of GBP1.1 million;
-- Regulatory changes relating to National Living Wage and
pension contributions have increased costs by GBP0.7 million
and;
-- Other cost savings across a number of areas, but primarily
driven by strong control of store labour utilisation reduced
costs by a further GBP0.7 million.
During the period we purchased one freehold property for GBP0.3
million (2019: nil).
The net interest charge (pre-IFRS 16) for the Group was GBP0.4
million (2019: GBP0.4 million).
Adjusted profit before tax was GBP1.2 million (2019: GBP8.0
million), representing a decrease of 85.0% year-on-year.
A number of items have been excluded from adjusted profit before
tax, these are items which are either one off in nature or can
fluctuate significantly from year to year (such as some property
related items). Adjustments in the current period all relate to
property related costs, including GBP0.9 million (2019: GBP1.7
million) of non-recurring property provision movements and GBP0.7
million (2019: GBP0.1 million) of cost related to closed stores
prior to leases being handed back to our landlords. The property
provision movements are non-cash and largely relate to the closure
of six stores in the period. These closures are utilising the
flexibility we have in our portfolio and create a more efficient
portfolio, maximising shareholder returns over the longer term.
In the prior two years we have excluded the trading loss from
our commercial business from the adjusted profit before tax measure
while we went through an initial phase of investment. In the
current period the loss in the expanded commercial business
(following the acquisition of Strata) was GBP1.0 million
Adjusted profit before tax also excludes the impact of IFRS 16.
The IFRS 16 related adjustments amount to GBP3.6 million, which
includes GBP2.7 million of impairment charges relating to store
closures planned before the COVID-19 crisis. Further details on
IFRS 16 are found in note 8.
When adjusting items are included, the pre-IFRS 16 statutory
loss before tax for the Group was GBP0.4 million (2019: statutory
profit before tax of GBP5.2 million). On a post-IFRS 16 basis, the
statutory loss before tax for the Group for the period was GBP4.0
million.
The effective tax rate for the 26 weeks to 28 March 2020 was
8.5% (2019: 23.6%). Tax rates are based on expectations for the
full year and are impacted by non-chargeable items.
Basic earnings per share (pre-IFRS 16) were (0.18)p (2019:
2.03p). Adjusting for the post tax impact of the items detailed in
note 5 in the highlights section the adjusted basic earnings per
share were 0.60p (2019: 3.15p), a decrease of 81.0%.
Capital Expenditure
Capital expenditure in the period amounted to GBP3.1 million
(2019: GBP3.6 million). The majority of this expenditure related to
three new stores, installation of LED lighting in 46 stores,
purchase of one freehold property and refurbishment of our central
office and warehouse facility. Our plans for the second half of our
financial year have been materially reduced to protect our cash
position and we anticipate full year capital expenditure being no
more than GBP4.0 million (2019: GBP7.8 million).
During the period we purchased one freehold property for GBP0.3
million (2019: no acquisitions).
The Group currently owns six freehold or long leasehold sites
(2019: six), including one warehouse, distribution and office
facility, with a total net book value of GBP13.6 million (2019:
GBP14.1 million).
Cash Generation
Net cash generated from operating activities (pre-IFRS 16) over
the period was GBP1.5 million, compared to GBP6.2 million in the
prior year period, a decrease of GBP4.7 million. The decrease was
driven by lower trading, partially offset by lower tax
payments.
Free cash flow (pre-IFRS 16) was a GBP1.6 million outflow,
compared to GBP2.7 million inflow in the prior year period, a
decrease of GBP4.3 million. The decrease was comprised of the
movement in operational cash flow detailed above, partially offset
by GBP0.5 million lower capital expenditure.
During the period we drew down GBP9.0 million of our banking
facility to its maximum level of GBP39.0 million, a cash inflow of
GBP9.0 million versus the prior year.
In addition to the above movements, dividends accounted for
GBP4.5 million cash outflow (2019: GBP4.5 million), resulting in a
net movement in cash of a GBP2.9 million inflow (2019: GBP1.8
million inflow).
At the period end cash and cash equivalents for the Group were
GBP21.7 million (2019: GBP12.0 million) and borrowings were GBP39.0
million (2019: GBP30.0 million), giving a net debt position on a
pre-IFRS 16 basis of GBP17.3 million (2019: GBP18.0 million).
Banking Facilities
The Group has a fully drawn GBP39.0 million revolving credit
facility in place which is committed to July 2022 (2019: GBP35.0
million). The Group is at the advanced stages of securing a further
GBP10.0 million of additional funding from its existing lenders,
Barclays and RBS, under the Coronavirus Large Business Interruption
Loan Scheme ("CLBILS"). The existing loan facility includes two
covenants which are tested at the interim and full year results -
these are the gearing ratio (net debt : EBITDA) and fixed cover
charge (EBITDAR : interest and rent). This new agreement also
includes a significant relaxation or removal of existing loan
facility covenants over the next 12 months, and authority to make
freehold property disposals. The facility is credit approved and we
are working through the legal documentation process which we expect
to conclude in the very near future. The cost of the new facility
over the next 12 months is expected to be GBP0.2 million. The Group
retains an GBP11.0 million uncommitted accordion facility which was
envisaged would be used for the purpose of business expansion
activity and as such is unlikely to be utilised over the short
term.
Liquidity
The business entered the COVID-19 crisis period with a healthy
balance sheet, with GBP21.7 million of cash headroom, having drawn
down all of its existing banking facility. The performance of the
Retail online business, plus the recent opening of Collection Hubs
and Controlled Entry Stores, have provided the business with
important sources of cash generation, and this, along with the
opportunity presented by UK Government support schemes, has
supported a robust current cash position. Cash headroom is
currently at GBP14.0 million. The majority of the cash consumption
since the half year period end can be accounted for by the
unwinding of the working capital cycle and the timing of the half
year end. When this is excluded, cash inflows from trading are
broadly offsetting other cash outflows.
As noted elsewhere in this statement, the business has received
credit approval for a COVID-19 related additional banking facility
of GBP10.0 million, which is expected to be finalised shortly. We
expect available cash headroom to be c.GBP25 million after receipt
of this loan.
The Group has run a series of future trading scenarios and
remains confident that its liquidity remains sufficient. In
addition, the Group retains the opportunity to consider the sale of
freehold assets, if this is in the long-term interests of the
business.
Inventory
At the period end the Group had GBP30.6 million of inventories
(2019: GBP33.2 million) which represented 132 days cover (2019: 154
days). The decrease in inventory over the first half of 2020
reflects the planned unwind of additional stock held in 2019 as a
buffer against potential supply chain disruption immediately
following the UK's exit from the EU.
Key Performance Indicators
As set out in our most recent annual report, we monitor our
performance in implementing our strategy with reference to a
clearly defined set of key performance indicators ("KPIs"). These
KPIs are applied on a Group-wide basis. Our performance in the 26
weeks ended 28 March 2020 is set out in the table below. The source
of data and calculation methods are consistent with those used in
the 2019 annual report, however excludes the impact of IFRS 16 to
allow for comparability of the results versus the prior period.
Results for the 26 weeks ended 28 March 2020
Highlights
26 weeks 26 weeks
to to
28 March 30 March
Financial KPIs 2020 2019
Like-for-like adjusted revenue year-on-year (6.1)% +0.2%
-------------------------------------------- --------- ---------
Gross margin 59.2% 61.2%
-------------------------------------------- --------- ---------
Adjusted profit before tax * GBP1.2m GBP8.0m
-------------------------------------------- --------- ---------
Net debt GBP17.3m GBP18.0m
-------------------------------------------- --------- ---------
Adjusted earnings per share * 0.60p 3.15p
-------------------------------------------- --------- ---------
Inventory days 132 154
-------------------------------------------- --------- ---------
26 weeks 26 weeks
to to
28 March 30 March
Non-Financial KPIs 2020 2019
-------------------------------------------- --------- ---------
Net Promoter Score ** 82% 71%
-------------------------------------------- --------- ---------
Overall customer satisfaction *** 88% 86%
-------------------------------------------- --------- ---------
Colleague turnover 37% 39%
-------------------------------------------- --------- ---------
Retail stores at period end 359 361
-------------------------------------------- --------- ---------
* As explained above in notes 1-5
** Net Promoter Score is calculated based on customer feedback
to the question of how likely they are to recommend Topps Tiles to
friends or colleagues. The scores are based on a numerical scale
from 0-10 which allows customer to be split into promoters (9 -10),
passives (7-8) and detractors (0-6). The final score is based on
the percentage of promoters minus the percentage of detractors.
*** Overall customer satisfaction score is defined the % of our
customers that have scored us 5 on the scale of 1 - 5 where 1 is
highly dissatisfied and 5 is highly satisfied.
Dividend
The Board has decided that in light of the COVID-19 pandemic, it
is not appropriate to pay an interim dividend (2019: 1.1 pence per
share). A full year dividend is also unlikely to be recommended by
the Board due to an expected increase in the level of net debt and
continued uncertainty in the outlook. The Board is cognisant of the
role dividends play in shareholders overall returns and is keen to
re-instate a dividend as soon as is appropriate.
Strategic & Operational Update
The primary long-term goal for the business is to generate
profitable sales growth from our core specialism in tiles. As the
UK's leading tile specialist, our aim is to differentiate ourselves
from our competitors by having the best products available for our
customers and the very best customer service to support them.
As market leader, the business was in a strong position coming
into the crisis period and has responded very well over the last
six weeks. Our priority has been to safeguard our colleagues and
customers, and to also ensure we protect the business by working to
emerge from this crisis in the strongest position possible.
Although its impact began to be felt only in the final weeks of the
period, the scale and severity of the COVID-19 pandemic has forced
us to fundamentally reappraise every aspect of our operations. This
global tragedy has had a very significant impact on the Group,
resulting in a material reduction in sales revenue from 23 March
2020 when our retail stores were closed to support the UK
Government efforts to contain the virus. Our strategy over the
short term is clear - protect our people, strengthen our financial
liquidity and, where we can do so while ensuring the safety of
colleagues and customers, adapt our operating model to continue to
trade.
The UK Government has put in place a range of support measures
for businesses and we have accessed all of those available to us.
This includes utilising the Coronavirus Job Retention Scheme to
furlough the c.90% of our colleagues who were unable to work from
home, business rates relief for the 2020/21 tax year, VAT deferral
and utilising the Coronavirus Large Business Interruption Loan
Scheme ("CLBILS"), which facilitates access to finance for
medium-sized and larger businesses affected by the coronavirus
outbreak.
In the period following the introduction of lockdown
restrictions on 23 March 2020, beyond safeguarding our colleagues
and customers, we have focused on maximising our trading
opportunity within the operating constraints of the current
situation, reducing costs wherever possible and taking steps to
strengthen financial liquidity across our business.
Retail
Our Retail business remains the clear market leader in the
domestic tile market and our strategy is centred on providing
differentiated products, and combining them with a great customer
experience, to deliver great value. Whilst we fully recognise the
scale of the short-term challenges facing our business in the
current crisis, as the market leader we believe we are well
positioned to deal with any lasting legacy from this period and we
remain optimistic about the longer term opportunities for our
business.
Whilst our retail operations are permitted to trade under the UK
Government's "Home and Hardware" retail dispensation, the health
and wellbeing of our colleagues and customers is our primary
concern and we took the decision to close our stores while we
developed new safe ways of working. We have seen a significant
increase in our online business with sales running at around three
times their pre-crisis level, principally driven by increased
conversion. This is providing a vital source of cash inflow to the
business during this period. This should, however, be seen in the
context of an overall revenue reduction of c.80% in our retail
business during April. The proportion of revenues coming from trade
customers has fallen over this period and we are continuing to stay
close to them with regular communications and promotional support.
A survey of our trade customers completed during April confirmed
that there has been a reduction in their activity levels of around
75%. For those that have continued to work, the majority have
purchased through our online operations and we are actively
targeting all of our trade customers to ensure we retain their
business following the re-opening of our stores.
In terms of our specialist competitors, we have seen a range of
responses over this period. Some ceased all operations (including
online), the majority maintained online operations (where they have
them), and a few continued to operate stores in a limited capacity.
Our assessment is that we remain well positioned to continue to
service our customers online and at such point that they are able
to return to stores on a fully unrestricted basis.
In response to the COVID-19 outbreak, we been actively explored
new operating models which would enable us to continue to support
customers, particularly those in the trade channel, while strictly
observing social distancing measures. From 22 April 2020 we began
to open some of our retail sites as Collection Hubs. This model
allows customers shopping online to choose delivery to their home
or to collect from their local store if this is more convenient for
them. The Collection Hub model does not mean the store has been
re-opened - all goods have to have been ordered and paid for in
advance, with the collection scheduled for a pre-arranged time and
the goods collected in the car park without direct contact between
customer and store colleagues. These sites are currently trading on
reduced hours and have been staffed on a voluntary basis - although
we have been overwhelmed by the support received from colleagues
and their desire to return to work. At the current time 250 of our
stores are trading in this format, of which 130 are now also
trading under the "Controlled Entry" model (see below).
In preparation for a wider re-opening of stores we have also
developed a "Controlled Entry" model which includes new in-store
protocols for social distancing and the introduction of enhanced
protective measures for colleagues. These new measures, which also
include limits on the number of customers allowed in store at any
one time, were tested in an initial small scale trial of stores and
have proved to be effective. The lessons learnt in this trial are
now being applied to the wider estate in a phased re-opening
programme. We have received a positive response from customers and
initial trading from these sites has been encouraging. We currently
have 130 stores trading in this format. The remaining stores
currently trading as Collection Hubs will all be converted to the
Controlled Entry model by the end of May, giving us 250 stores
fully open. We expect to re-open the remaining c.100 of our stores
by the end of June.
In order to ensure the strongest recovery possible for the
business we have pushed harder into our current promotional
programme. This includes running an "up to 50% off" promotion
online and extending and relaunching our "Get The Look For Less"
range which covers our more value orientated products. We are
actively communicating with our trade customers to ensure they
remain aware of our ability to continue to serve their needs and
provide them with great value.
This has been a period of extraordinary change across society
and for our business. We are seeing a number of changes in customer
behaviour, including an acceleration of the existing trend for more
digital transactions and an increase in the number of customers
taking on their own tiling work. The questions we must now consider
are the extent to which these changes are temporary or permanent,
and the impact they will have on the shape of our market over the
medium term. In particular, we will assess the implications of any
structural shift between physical and digital transactions on the
future size of our retail store portfolio. During the period,
before the COVID-19 crisis, we commenced a programme to close 25
stores. These are stores which we have identified as either being
in close geographical proximity to other stores and we can trade
more profitably from a single site, or stores where the economics
do not justify our continuing to trade. Across our store estate the
average unexpired lease term is just over three years and this
flexibility will be key as we continue to assess customer behaviour
and consider how to optimise returns for our shareholders.
Commercial
Our commercial business is still at a relatively early stage of
its growth and development. We have owned the Parkside business
since August 2017 and acquired the Strata business in April 2019.
Our market share remains small at around 3-4% and we believe we
have continued to take share over the first half through our
strategy of "Disrupt and Construct". The Parkside business has
grown rapidly under our ownership and first half sales were in
excess of GBP3 million, more than double the prior year. The Strata
business had a slower start to the period but had started to see a
much better level of sales in recent months and a more robust order
book, and this is encouraging as we look forwards beyond the
current crisis. Total commercial sales over the first half were
GBP4.5 million, an increase of 246% year on year.
Overall, we have been pleased by how well our commercial
business has responded to the COVID-19 challenge. Whilst we have
seen a very material reduction in invoiced sales since the UK
Government introduced lock down measures the business has continued
to trade and service its customers. This resilience has allowed us
to build new relationships and grow our market share. In light of
COVID-19, we are cautious in our view of the commercial market over
the medium term. Whilst the level of disruption in the construction
industry has not been as acute as we have seen in our retail
business, the potential for a medium term impact remains. At this
stage most of the active projects have simply been delayed due to
site or business closures and we expect these to recommence in the
coming months. What is more difficult to predict is the level of
new projects and investments that will be deferred or cancelled,
creating reduced invoiced sales in 6-18 months' time. Our teams are
working very actively with clients to understand where that
disruption might be most severe so that we can tailor our approach
accordingly.
Our previous financial target for commercial was to achieve a
breakeven position for this financial year. The level of
uncertainty resulting from COVID-19 that exists in the outlook,
combined with the weaker performance at Strata over the first half,
means we now consider this to be unachievable. Subject to the speed
of recovery in the construction sector, and based on our
significant sales growth prior to this crisis period, we believe
that a breakeven position for the business in the next financial
year remains a possibility.
Our ambition for our commercial business has not changed. We
believe that, in time, we can build a profitable business which
leverages the Group's sourcing specialism and, which can ultimately
achieve a market leading position.
Product and Supply Chain
The Group's supply chain is diverse and well established and we
work closely with a relatively small group of suppliers, which we
consider to be strategic relationships for the Group. COVID-19 has
underlined the importance of these relationships and we would like
to thank all of our suppliers, domestic and international, for
their tremendous support through this challenging period. Specific
measures have included:
-- Holding product at the factory while we worked through the
short term implications of store closures;
-- Agreeing new payment schedules to enable us to deal with
the adverse implications of an unwind of our working capital
cycle, which required around GBP14 million of payments to
suppliers during a period of limited revenues coming in;
-- Supporting the business with continued supply whilst working
through their own COVID-19 issues, including UK Government
restrictions and employee welfare (particularly in Italy,
Spain and China which are important parts of our supply
chain).
In general, we have very low levels of stock obsolescence and
during the period of lock down this is a major advantage. Our stock
is not seasonal and does not have expiry considerations which means
there is no material impact from a short term cessation of
trading.
Our "Leading Product" initiative continues to be very important
to us and are confident in our market leading range. As a result of
this we now expect to slow down new product development over the
short term whilst we focus on stabilising the business. We do not
believe that this will have any adverse long term implications and
we will accelerate these plans again as the outlook becomes
clearer.
In our distribution operations, we have been through a period of
very rapid change, going from what was essentially a bulk pick to
store operation to a customer order picking operation (which are
much smaller orders in much larger numbers). Our warehousing
operation has coped admirably and within a week had transformed
itself, which is a real testament to the commitment and flexibility
of our warehouse teams.
People
The Group's success is underpinned by industry-leading levels of
customer service and this is reflected in our "Leading People"
initiative. This means that we have always been very focussed on
our colleagues that deliver this service, with their capability and
engagement levels being absolutely key. Their importance to the
Group has never been more clear than at the current time.
Whilst, regrettably, it was necessary to furlough a large
proportion of our colleagues during the peak of the crisis, the
understanding and agreement of our store-based teams has been a
tremendous support to the business through this period. We have
also been very mindful of the well-publicised concerns on potential
social isolation and mental health implications during the
lockdown. We have encouraged colleagues to reach out to each other
through whatever means they can and provide a support network where
they feel people may be more vulnerable. We have supplemented this
with online materials to support colleagues.
In recognition of the impact of the crisis on colleagues, the
support the business has received from UK Government and acting in
the best long term interests of the business, the Board and senior
management agreed to a voluntary 20% reduction in their basic pay
from 1 April.
The commitment and support we have received from those
colleagues who have been able to continue to work has been nothing
short of incredible. Where it was possible for colleagues to work
remotely, we have supported them with technology and flexible
arrangements to ease the strain. For those non-store colleagues
where remote working is not possible, principally our central
warehouse teams, we have adapted our working practices to ensure
that we can continue to provide a safe working environment and
addressed any concerns raised, promptly and efficiently. We would
like to offer our heartfelt thanks to all of our teams that have
continued working through the COVID-19 period - the commitment they
have shown to our business has been outstanding.
Risks and Uncertainties
The Board continues to monitor the key risks and uncertainties
of the Group. The risk around the long term impact of the current
global pandemic is currently the most significant in our minds,
with other risks documented in the 2019 Annual Report and Accounts
remain as relevant now as they did previously. These key risks
include: Brexit (from a perspective of general economic and
consumer confidence, foreign exchange rate fluctuation, and supply
chain disruption), appropriate business strategy, threat from
competitors, attracting and retaining talent, store portfolio, loss
of a key supplier, financing, cyber security, major reputational
damage, and fitter availability.
Board Composition
The Board comprises an Independent Non-Executive Chairman, three
Independent Non-Executive Directors and two Executive Directors. As
such the composition is fully compliant with the UK Corporate
Governance Code.
Going Concern
Following the significant financial impact of store closures in
response to UK Government actions to combat the COVID-19 virus, the
Board has considered its ability to meet all of its financial
commitments as they fall due very carefully. This includes an
analysis of a range of trading scenarios, mitigating actions,
requirements of existing lending facilities and additional sourcing
of financing.
The strong performance of Topps online business, plus the recent
opening of Collection Hubs and Controlled Entry Stores, has
provided the business with important sources of cash generation,
and this, along with the opportunity presented by UK Government
support schemes around business staff retention, VAT deferrals and
rates relief, have all supported a robust current cash position.
The business is actively reviewing a series of self-help
initiatives that can support both profit and cash in the medium
term.
In recent weeks the business has received credit approval for a
COVID-19 related additional banking facility of GBP10.0 million,
under the UK Government's CLBILS backed scheme, across our two key
banking partners. We expect this to be fully documented and signed
in the coming days. Our existing lenders have also agreed to
substantially relax or remove covenant conditions for the tests
arising over the next 12 months.
The Group has run a series of future trading scenarios and
remains confident that current funding, supplemented by the
additional GBP10.0 million loan noted above, will provide
sufficient liquidity for the business. In the event of a more
severe, prolonged, but plausible downside scenario, we would expect
the business to adjust working capital levels and overhead costs
accordingly. It is noted that the Group also retains the
opportunity to consider the sale of freehold assets if this is in
the long-term interests of the business.
From a trading perspective the Board can see a path of recovery
back to a profitable and cash generative business and is confident,
that as market leader, the Group will leverage its scale and core
strategic capabilities to drive value from its chosen market of
tiles and associated products.
On this basis the Board considers that the Group has sufficient
liquidity to meet all of its financial commitments as they fall due
for a period of at least 12 months and therefore has prepared the
financial statements on a going concern basis.
Current Trading & Outlook
As indicated in the Strategic & Operational Update section
of this report, the current COVID-19 crisis is placing severe
trading pressure on our business and, with the duration and full
impact of the pandemic currently remaining uncertain, assessing the
outlook is unusually difficult. The steps we have taken to adapt
our trading model to the current reality and to strengthen our
financial liquidity are enabling the Group to meet the
challenge.
We remain confident about the positioning of our business as a
market leader and believe that our longer term prospects remain
attractive. However, navigating the current crisis is our key
focus.
Rob Parker Andrew Wilkinson
Chief Executive Officer Interim Chief Financial Officer
19 May 2020
APPIX - IFRS 16 'LEASES'
The Group has applied IFRS 16 'Leases' at 29 September 2019
(date of initial application), using the modified retrospective
approach. Under this approach, comparative information is not
restated and the cumulative effect of applying IFRS 16 is
recognised in retained earnings at the date of initial
application.
Accounting under IFRS 16
IFRS 16 applies a single 'on balance sheet' approach to lease
accounting. Under IFRS 16, leases are
accounted for as follows:
-- A right-of-use asset is recognised which represents the
lessee's contractual right to use the lease asset over
the lease term. The right-of-use asset is depreciated
on a straight-line basis over the lease term.
-- A lease liability is recognised which reflects the lessee's
obligation to make payments under the lease term. The
lease liability is held at amortised cost, with an associated
interest charge. This results in a higher interest expense
in the earlier years of the lease term.
IFRS 16 results in the timing of lease expense recognition being
accelerated for leases which would be currently accounted for as
operating leases. However, the total expense over the life of the
lease will be identical under IFRS 16 and IAS 17.
Statement of Financial Performance impact
The impact of the implementation of IFRS 16 on the Statement of
Financial Performance is as follows:
26 weeks ended 28 March 2020
Presented Impact Presented
under IAS of IFRS under IFRS
17 16 16
GBPm GBPm GBPm
----------------------- ----------- --------- ------------
Group revenue 106.2 - 106.2
Cost of sales (43.4) - (43.4)
----------------------- ----------- --------- ------------
Gross profit 62.8 - 62.8
Operating costs (62.8) (2.1) (64.9)
----------------------- ----------- --------- ------------
Group operating loss - (2.1) (2.1)
----------------------- ----------- --------- ------------
Net finance costs (0.4) (1.5) (1.9)
----------------------- ----------- --------- ------------
Loss before taxation (0.4) (3.6) (4.0)
----------------------- ----------- --------- ------------
Statement of Financial Position impact
On transition of IFRS 16 on 29 September 2019, the Group
recognised additional right-of-use assets of GBP124.6m, sub-lease
assets of GBP3.5m, lease liabilities of GBP128.2m and deferred tax
liabilities of GBP0.5m, as well as a reduction in prepayments,
provisions and liabilities. As a result, a transitional adjustment
of GBP2.5m increased the opening balance of retained earnings.
As at 28 March 2020, net debt on a pre-IFRS 16 basis was
GBP17.3m. This increases to GBP136.0m under IFRS 16 due to the
recognition of the lease liabilities which are now on balance
sheet.
Our banking covenants are based on a frozen-GAAP basis and
therefore the application of IFRS 16
has no impact.
Statement of Cash Flows impact
IFRS 16 does not impact the total cash flow during the period.
However, under IAS 17 the rental
payments were included within operating activities, whereas
under IFRS 16 these are treated as
financing activities. The GBPnil impact on the cash flow is
shown in the table below:
26 weeks ended 28 March 2020
Presented Impact Presented
under IAS of IFRS under IFRS
17 16 16
GBPm GBPm GBPm
------------------------------------- ----------- --------- ------------
Net cash from operating activities 1.5 11.1 12.6
Net cash used in investing (3.1) 0.3 (2.8)
Net cash from/(used in) financing
activities 4.5 (11.4) (6.9)
------------------------------------- ----------- --------- ------------
Cash flow 2.9 - 2.9
------------------------------------- ----------- --------- ------------
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34
'Interim Financial Reporting';
(b) the interim management report includes a fair review of the information required by DTR
4.2.7R (indication of important events during the first six months and description of principal
risks and uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair review of the information required by DTR
4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board,
Rob Parker Andrew Wilkinson
Chief Executive Officer Interim Chief Financial Officer
19 May 2020
Cautionary statement
This Interim Management Report ("IMR") 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 IMR should not be relied on by any other party or for
any other purpose.
The IMR 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 but 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.
This interim management report 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 its subsidiary
undertakings when viewed as a whole.
Condensed Consolidated Statement of Financial Performance
for the 26 weeks ended 28 March 2020
26 weeks 26 weeks 52 weeks
ended ended ended
28 March 30 March 28 September
2020 2019 2019
IFRS 16 IAS 17 IAS 17
GBP'000 GBP'000 GBP'000
Note (Unaudited) (Unaudited) (Audited)
Group revenue - continuing operations 106,188 110,346 219,197
Cost of sales (43,372) (42,852) (84,245)
--------------------------------------- ----- ------------ ------------ -------------
Gross profit 62,816 67,494 134,952
Distribution and selling costs (33,780) (45,460)* (93,138)
Repayment of historic import duty - - 2,272
Impairment of right-of-use assets (2,723) - -
and property, plant and equipment
Other operating expenses (16,479) (5,295) (8,070)
Administrative costs (8,781) (7,995)* (17,439)
Sales and marketing costs (3,115) (3,160) (5,244)
Group operating (loss)/profit (2,062) 5,584 13,333
Net finance costs (1,897) (416) (858)
(Loss)/profit before taxation (3,959) 5,168 12,475
Taxation 3 337 (1,220) (2,397)
--------------------------------------- ----- ------------ ------------ -------------
(Loss)/profit for the period (3,622) 3,948 10,078
--------------------------------------- ----- ------------ ------------ -------------
(Loss)/profit is attributable to:
Owners of Topps Tiles Plc (3,581) 3,948 10,119
Non-controlling interests (41) - (41)
--------------------------------------- ----- ------------ ------------ -------------
(3,622) 3,948 10,078
--------------------------------------- ----- ------------ ------------ -------------
Earnings per ordinary share from
continuing operations
-basic 5 (1.86)p 2.03p 5.18p
-diluted 5 (1.84)p 2.01p 5.14p
* Distribution and selling costs and administrative costs are
now inclusive of employee profit sharing costs, which were
separately identified in the prior period financial statements. The
prior period has been adjusted to be comparable. The Group has
reviewed its accounting policy and has reclassified employee profit
sharing costs of GBP1,958,000 (2018: GBP2,402,000) to distribution
and selling costs, and GBP64,000 income (2018: GBP416,000 cost) to
administrative costs.
There are no other recognised gains and losses for the current
and preceding financial periods other than the results shown above.
Accordingly a separate Condensed Consolidated Statement of
Comprehensive Income has not been prepared.
The Group has initially applied IFRS 16 'Leases' at 29 September
2019, using the modified retrospective approach. Under this
approach, comparative information is not restated and the
cumulative effect of applying IFRS 16 is recognised in retained
earnings at the date of initial application, 29 September 2019 (see
note 8). The comparative period is presented under the previous
accounting standard, IAS 17 'Leases' and has accordingly not been
restated. As such, the results for the 26 week period ended 28
March 2020 are not directly comparable with those reported in the
prior period. See note 8 for a reconciliation of the IFRS 16 impact
on the financial statements.
Condensed Consolidated Statement of Financial Position
as at 28 March 2020
28 March 30 March 28 September
2020 2019 2019
IFRS 16 IAS 17 IAS 17
GBP'000 GBP'000 GBP'000
Note (Unaudited) (Unaudited) (Audited)
------------------------------------- ----- ------------ ------------ -------------
Non-current assets
Goodwill 3,104 1,461 3,104
Intangible assets 2,651 548 2,663
Property, plant and equipment 44,776 46,861 46,958
Investment properties 750 1,233 1,233
Deferred tax assets 313 - -
Right-of-use assets 112,826 - -
------------------------------------- ----- ------------ ------------ -------------
164,420 50,103 53,958
------------------------------------- ----- ------------ ------------ -------------
Current assets
Inventories 30,602 33,183 30,924
Other financial assets 3,302 - -
Trade and other receivables 5,711 8,635 8,142
Cash and cash equivalents 21,673 12,030 18,747
------------------------------------- ----- ------------ ------------ -------------
61,288 53,848 57,813
------------------------------------- ----- ------------ ------------ -------------
Total assets 225,708 103,951 111,771
Current liabilities
Trade and other payables (38,472) (39,640) (43,336)
Lease liabilities (23,200) - -
Current tax liabilities (1,028) (2,251) (2,025)
Provisions (471) (1,424) (1,235)
Total current liabilities (63,171) (43,315) (46,596)
------------------------------------- ----- ------------ ------------ -------------
Net current (liabilities)/assets (1,883) 10,533 11,217
------------------------------------- ----- ------------ ------------ -------------
Non-current liabilities
Bank loans 6 (38,944) (29,894) (29,884)
Lease liabilities (95,507) - -
Deferred tax liabilities (1,634) (1,057) (1,197)
Provisions (2,075) (3,426) (3,862)
------------------------------------- -----
Total liabilities (201,331) (77,692) (81,539)
------------------------------------- ----- ------------ ------------ -------------
Net assets 24,377 26,259 30,232
------------------------------------- ----- ------------ ------------ -------------
Equity
Share capital 9 6,548 6,548 6,548
Share premium 2,492 2,490 2,490
Own shares (1,482) (1,548) (1,548)
Merger reserve (399) (399) (399)
Share-based payment reserve 3,960 4,070 3,962
Capital redemption reserve 20,359 20,359 20,359
Accumulated losses (7,058) (5,261) (1,178)
------------------------------------- ----- ------------ ------------ -------------
Capital and reserves attributable
to owners of Topps Tiles Plc 24,420 26,259 30,234
Non-controlling interests (43) - (2)
Total equity 24,377 26,259 30,232
------------------------------------- ----- ------------ ------------ -------------
The Group has initially applied IFRS 16 'Leases' at 29 September
2019, using the modified retrospective approach. Under this
approach, comparative information is not restated and the
cumulative effect of applying IFRS 16 is recognised in retained
earnings at the date of initial application, 29 September 2019 (see
note 8).
Condensed Consolidated Statement of Changes in Equity
For the 26 weeks ended 28 March 2020
Equity attributable to equity holders of the parent
---------------- ------------------------------------------------------------------------------------------------------------
Share-based Capital Accum-ulated
Share Share Own Merger payment redemption (losses)/ Non-controlling Total
capital premium shares reserve reserve reserve profits interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Balance at
28 September
2019 (Audited) 6,548 2,490 (1,548) (399) 3,962 20,359 (1,178) (2) 30,232
Impact of
change
in accounting
policy (IFRS
16) - - - - - - 2,251 - 2,251
---------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Adjusted
balance
at 29
September
2019* 6,548 2,490 (1,548) (399) 3,962 20,359 1,073 (2) 32,483
Loss and total
comprehensive
income
for the period - - - - - - (3,581) (41) (3,622)
Issue of share
capital - 2 - - - - - - 2
Dividends - - - - - - (4,484) - (4,484)
Own shares
issued
in the period - - 66 - - - (66) - -
Credit to
equity
for
equity-settled
share based
payments - - - - (2) - - - (2)
Deferred tax
on share-based
payment
transactions - - - - - - - - -
---------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Balance at
28 March 2020
(unaudited) 6,548 2,492 (1,482) (399) 3,960 20,359 (7,058) (43) 24,377
---------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
* The Group has initially applied IFRS 16 'Leases' at 29
September 2019, using the modified retrospective approach.
Under this approach, comparative information is not restated and
the cumulative effect of applying IFRS 16 is
recognised in retained earnings at the date of initial
application, 29 September 2019.
For the 26 weeks ended 30 March 2019
Equity attributable to equity holders of the parent
---------------- ------------------------------------------------------------------------------------------------------------
Share-based Capital
Share Share Own Merger payment redemption Accum-ulated Non-controlling Total
capital premium shares reserve reserve reserve losses interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Balance at
29 September
2018 (Audited) 6,548 2,490 (3,750) (399) 3,945 20,359 (2,530) - 26,663
Profit and
total
comprehensive
income
for the period - - - - - - 3,948 - 3,948
Issue of share
capital - - - - - - - - -
Dividends - - - - - - (4,483) - (4,483)
Own shares
issued
in the period - - 2,202 - - - (2,202) - -
Credit to
equity
for
equity-settled
share based
payments - - - - 125 - - - 125
Deferred tax
on share-based
payment
transactions - - - - - - 6 - 6
---------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Balance at
30 March 2019
(unaudited) 6,548 2,490 (1,548) (399) 4,070 20,359 (5,261) - 26,259
---------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
For the 52 weeks ended 28 September 2019
Equity attributable to equity holders of the parent
----------------- ------------------------------------------------------------------------------------------------------------
Share-based Capital
Share Share Own Merger payment redemption Accum-ulated Non-controlling Total
capital premium shares reserve reserve reserve losses interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Balance at
29 September
2018 (Audited) 6,548 2,490 (3,750) (399) 3,945 20,359 (2,530) - 26,663
Profit and total
comprehensive
income
for the period - - - - - - 10,119 (41) 10,078
Dividends - - - - - - (6,623) - (6,623)
Own shares
issued
in the period - - 2,202 - - - (2,202) - -
Credit to equity
for
equity-settled
share based
payments - - - - 17 - 64 - 81
Deferred tax
on share-based
payment
transactions - - - - - - (6) - (6)
Non-controlling
interest on
business
combination - - - - - - - 39 39
----------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Balance at
28 September
2019
(Audited) 6,548 2,490 (1,548) (399) 3,962 20,359 (1,178) (2) 30,232
----------------- -------- -------- -------- -------- ------------ ----------- ------------- ---------------- --------
Condensed Statement of Cash Flows
for the 26 weeks ended 28 March 2020
26 weeks 26 weeks 52 weeks
ended ended ended
28 March 30 March 28 September
2020 2019 2019
IFRS 16 IAS 17 IAS 17
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
------------------------------------------------- ------------ ------------ -------------
Cash flow from operating activities
(Loss)/profit for the period (3,622) 3,948 10,078
Taxation (337) 1,220 2,397
Finance costs 1,944 425 873
Finance income (47) (9) (15)
Group operating (loss)/profit (2,062) 5,584 13,333
Adjustments for:
Depreciation of property, plant and equipment 3,571 3,574 7,117
Depreciation of right-of-use assets 11,688 - -
Amortisation of intangible assets 137 45 245
Loss on disposal of property, plant and
equipment 318 851 866
Impairment charge/(reversal) of property,
plant and equipment 372 - (246)
Impairment of right-of-use assets and
associated property, plant and equipment 2,723 - -
Impairment of goodwill - - 245
Gain on lease modification (195) - -
Decrease in fair value of investment
properties 483 - 21
Share option charge/(credit) (2) 125 17
(Increase)/decrease in trade and other
receivables (1,021) 77 820
Decrease/(increase) in inventories 324 (3,029) (681)
(Decrease)/ increase in payables (881) 1,261 4,412
------------------------------------------------- ------------ ------------ -------------
Cash generated by operations 15,455 8,488 26,149
Interest paid (488) (393) (861)
Interest element of lease liabilities
paid (1,402) - -
Taxation paid (999) (1,846) (3,385)
------------------------------------------------- ------------ ------------ -------------
Net cash from operating activities 12,566 6,249 21,903
Investing activities
Interest received 6 9 15
Interest received on sublease assets 41 - -
Receipt of capital element of sublease
assets 224 - -
Purchase of property, plant, equipment
and intangibles (3,072) (3,587) (7,242)
Addition of intangibles - - (563)
Purchase of investment property - - (21)
Proceeds on disposal of property, plant
and equipment - - 185
Acquisition of subsidiary, net of cash
acquired - - (2,749)
Net cash used in investment activities (2,801) (3,578) (10,375)
Financing activities
Payment of capital element of lease liabilities (11,357) - -
Dividends paid (4,484) (4,483) (6,623)
Proceeds from issue of share capital 2 - -
Drawdown of bank loans 9,000 - 5,000
Repayment of bank loans - - (5,000)
Net cash used in financing activities (6,839) (4,483) (6,623)
Net increase/(decrease) in cash and cash
equivalents 2,926 (1,812) 4,905
------------------------------------------------- ------------ ------------ -------------
Cash and cash equivalents at beginning
of period 18,747 13,842 13,842
------------------------------------------------- ------------ ------------ -------------
Cash and cash equivalents at end of period 21,673 12,030 18,747
------------------------------------------------- ------------ ------------ -------------
The Group has initially applied IFRS 16 'Leases' at 29 September
2019, using the modified retrospective approach. Under this
approach, comparative information is not restated.
1. General information
The interim report was approved by the Board on 19 May 2020. The
financial information for the 52 week period ended 28 September
2019 has been based on information in the audited financial
statements for that period.
The comparative figures for the 52 week period ended 28
September 2019 are an abridged version of the Group's full
financial statements and, together with other financial information
contained in these interim results, do not constitute statutory
financial statements of the Group as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for that 52
week period has been delivered to the Registrar of Companies. The
auditor has reported on those accounts: their report was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under s498 (2) or (3) of
the Companies Act 2006.
This condensed set of consolidated financial statements has been
prepared for the 26 weeks ended 28 March 2020 and the comparative
period has been prepared for the 26 weeks ended 30 March 2019.
The interim financial statements have not been audited or
reviewed by auditors pursuant to the Auditing Practices Board
guidance on "Review of interim financial information" and do not
include all of the information required for full annual financial
statements.
Basis of preparation and accounting policies
The annual financial statements of Topps Tiles Plc are prepared
in accordance with IFRSs as adopted by the European Union. The
unaudited condensed consolidated set of financial statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the European Union. With the
exception of amendments to leases policies as a result of IFRS 16
(see note 8), the same accounting policies, presentation and
methods of computation are followed in the condensed set of
financial statements as applied in the Group's latest annual
audited financial statements.
New and amended standards adopted by the Group
The Group continues to monitor the potential impact of other new
standards and interpretations which have been or may be endorsed
and require adoption by the Group in future reporting periods.
This is the first set of the Group's financial statements in
which IFRS 16 has been applied. The impact of the adoption of this
standard is detailed in note 8.
Going concern
Following the significant financial impact of store closures in
response to UK Government actions to combat the COVID-19 virus, the
Board has considered its ability to meet all of its financial
commitments as they fall due very carefully. This includes an
analysis of a range of trading scenarios, mitigating actions,
requirements of existing lending facilities and additional sourcing
of financing.
The strong performance of Topps online business, plus the recent
opening of Collection Hubs and Controlled Entry Stores, has
provided the business with important sources of cash generation,
and this, along with the opportunity presented by UK Government
support schemes around business staff retention, VAT deferrals and
rates relief, have all supported a robust current cash
position.
In recent weeks the business has received credit approval for a
COVID-19 related additional banking facility of GBP10.0 million,
under the UK Government's CLBILS backed scheme, across our two key
banking partners. We expect this to be fully documented and signed
in the coming days. Our existing lenders have also agreed to
substantially relax or remove covenant conditions for the tests
arising over the next 12 months.
The business has run a series of future trading scenarios and
remains confident that current funding, supplemented by the
additional GBP10.0 million loan noted above will provide sufficient
liquidity for the business. In the event of a more severe,
prolonged, but plausible downside scenario, we would expect the
business to adjust working capital levels and overhead costs
accordingly. It is noted that the business also retains the
opportunity to consider the sale of freehold assets.
From a trading perspective the board can see a path of recovery
back to a profitable and cash generative business and are
confident, that as market leader, the business will leverage its
scale and core strategic capabilities to drive value from its
chosen market of tiles and associated products. The business is
actively reviewing a series of self-help initiatives that can
support both profit and cash in the medium term.
On this basis the Board considers that the Group has sufficient
liquidity to meet all of its financial commitments as they fall due
for a period of at least 12 months and therefore has prepared the
financial statements on a going concern basis.
2. Business segments
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. As there is one
segment, being the operation of retail stores and contract tile
sales in the UK and online business segment, and the Chief
Executive bases decisions on the performance of the Group as a
whole, separate operating segments have not been identified.
3. Taxation
26 weeks 26 weeks 52 weeks
ended ended ended
28 March 30 March 28 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
-------------------------------------- ------------ ------------ -------------
Current tax - (credit)/charge for
the period (313) 1,174 2,602
Current tax - adjustment in respect
of previous periods - - (101)
Deferred tax - (credit)/charge
for the period (24) 46 (65)
Deferred tax - adjustment in respect
of previous periods - - (39)
(337) 1,220 2,397
-------------------------------------- ------------ ------------ -------------
4. Interim dividend
An interim dividend of GBPnil (2019: 1.10p) per ordinary share
has been declared. A final dividend of 2.30p per ordinary share was
approved and paid in the period, in relation to the 52 week period
ended 28 September 2019.
5. Earnings per share
Basic earnings per share for the 26 weeks ended 28 March 2020
were (1.86)p (2019: 2.03p) having been calculated on earnings
(after deducting taxation) of GBP3,622,000 (loss) (2019:
GBP3,948,000 (profit)) and on ordinary shares of 194,969,302 (2019:
194,432,705), being the weighted average of ordinary shares in
issue during the period.
Diluted earnings per share for the 26 weeks ended 28 March 2020
were (1.84)p (2019: 2.01p) having been calculated on earnings
(after deducting taxation) of GBP3,622,000 (loss) (2019:
GBP3,948,000 (profit)) and on ordinary shares of 196,431,345 (2019:
196,086,530), being the weighted average of ordinary shares in
issue during the period adjusted to assume conversion of all
dilutive potential ordinary shares.
On a pre-IFRS 16 basis, basic earnings per share and diluted
earnings per share for the period were (0.18)p and (0.18)p,
respectively. These numbers are quoted pre IFRS 16 (applying IAS
17) and related tax charges in order to show comparability with the
prior period.
Adjusted earnings per share for the 26 weeks ended 28 March 2020
were 0.60p (2019: 3.15p) having been calculated on adjusted
earnings after tax of GBP1,166,000 (2019: GBP6,123,000) being
earnings (after deducting taxation) of GBP3,622,000 (loss) (2019:
GBP3,948,000 (profit)) adjusted for the post-tax impact of the
following items: a net charge in relation to property related
provisions of GBP373,000 (2019: GBP689,000), impairment of property
plant and equipment of GBP658,000 (2019: GBP678,000), the trading
loss for the period in relation to Parkside Ceramics Ltd of GBPnil
(2019: GBP808,000), a fair value loss on impairment properties of
GBP483,000 (2019: GBPnil), and the impact of IFRS 16 in the period
of GBP3,274,000 (charge) (2019: GBPnil). In the prior period, the
trading loss in relation to Parkside Ceramics Ltd had been
classified as an adjusting item as we were in an initial two year
phase of investing in growth, and as such the Board did not
consider this to be representative of underlying business
performance.
6. Bank loans
26 weeks 26 weeks 52 weeks
ended ended ended
28 March 30 March 28 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
------------------------------------ ------------ ------------ -------------
Bank loans (all sterling) 38,822 29,809 29,762
------------------------------------ ------------ ------------ -------------
The borrowings are repayable
as follows:
On demand or within one year - - -
In the third to fifth year 39,000 30,000 30,000
------------------------------------ ------------ ------------ -------------
39,000 30,000 30,000
Less: total unamortised issue
costs (178) (191) (238)
------------------------------------ ------------ ------------ -------------
38,822 29,809 29,762
Issue costs to be amortised within
12 months 122 85 122
------------------------------------ ------------ ------------ -------------
Amount due for settlement after
12 months 38,944 29,894 29,884
The Group has in place a GBP39.0 million committed revolving
credit facility, expiring 29 June 2022. The Group also has an
Accordion Option for GBP11.0 million. As at 28 March 2020, GBP39.0
million of this facility was drawn (2019: GBP30.0 million). The
loan facility contains financial covenants which are tested on a
biannual basis.
7. Financial instruments
The Group has the following financials instruments which are
categorised as fair value through profit and loss:
Carrying value and fair value
26 weeks 26 weeks 52 weeks
ended ended ended
28 March 30 March 28 September
2020 2019 2019
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
------------------------------- ------------ ------------ -------------
Financial assets
Fair value through profit and
loss 442 - 89
Financial liabilities
Fair value through profit and
loss - 255 -
------------------------------- ------------ ------------ -------------
The fair values of financial assets and financial liabilities
are determined as follows:
Foreign currency forward contracts are measured using quoted
forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contracts.
The fair values are therefore categorised as Level 2 (2019:
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).
At 28 March 2020 the fair value of the Group's currency
derivatives is a gain of GBP441,607 within trade and other payables
(2019: GBP254,913 loss). These amounts are based on the market
value of equivalent instruments at the balance sheet date.
Gains of GBP353,093 are included in cost of sales (2019:
GBP422,611 loss).
8. Changes in accounting policies
This note explains the impact of the adoption of IFRS 16
'Leases' on the Group's financial statements and discloses the new
accounting policies that have been applied from 29 September 2019.
IFRS 16 was issued in January 2016 and has been endorsed by the EU.
The standard specifies how to recognise, measure, present and
disclose leases and replaces IAS 17 'Leases' and IFRIC 4
'Determining whether an arrangement contains a lease'.
The Group adopted IFRS 16 from 29 September 2019 using a
modified retrospective transition approach, as described in
paragraph C5(b) of the standard, under which the cumulative effect
of initial application is recognised as an adjustment to the
opening balance of retained earnings at 29 September 2019. The
comparative information presented for the 52 weeks ended 28
September 2019 and the 26 weeks ended 30 March 2019 has not been
restated and therefore continues to be shown under IAS 17. For all
periods prior to 29 September 2019, the Group classified all of its
leases as operating leases under IAS 17. Operating lease rental
payments were recognised as an expense in the Consolidated
Statement of Financial Performance on a straight-line basis over
the lease term.
Lease liabilities
On adoption of IFRS 16, the Group recognised liabilities in
relation to leases which had previously been classified as
operating leases under the principles of IAS 17 'Leases'. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rate as of 29 September 2019. The weighted average incremental
borrowing rate applied to the lease liabilities on 29 September
2019 was 2.30%. The lease liabilities recognised on 29 September
2019 were as follows:
29 September 2019
GBP'000
-------------------------------- --- ------------------
Current lease liabilities 23,637
Non-current lease liabilities 104,608
------------------------------------- ------------------
128,245
------------------------------------ ------------------
Right-of-use assets
The associated right-of-use assets for the Group's property and
equipment leases were measured at either:
-- The carrying amount as if IFRS 16 had been applied since
the commencement date, but discounted using the incremental
borrowing rate at the date of initial application. The Group
has applied this to a small number of property leases where
it was possible to obtain sufficient historical data.
-- An amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments relating
to that lease recognised in the Consolidated Statement of
Financial Position immediately before the date of initial
application. The Group has applied this methodology to the
majority of its property leases and equipment leases.
On transition the Group have performed an impairment review
under IAS 36, recognising an impairment totalling GBP3.4m to the
right-of-use assets through retained earnings. A subsequent
impairment review was performed as at 28 March 2020 and an
impairment loss totalling GBP2.7m has been recognised in the
Consolidated Statement of Financial Performance . The recognised
right-of-use assets on transition relate to the following types of
assets:
29 September 2019
GBP'000
-------------------------------- --- ------------------
Property 120,807
Vehicles, plant and equipment 3,818
------------------------------------- ------------------
124,625
------------------------------------ ------------------
Adjustments to Statement of Financial Position items
The opening balance sheet position as at 29 September 2019 has
been restated on transition to IFRS 16. The Group recognised
additional right-of-use assets, sub-lease assets, lease liabilities
and deferred tax liabilities, as well as a reduction in
prepayments, provisions and liabilities, recognising the difference
as an adjustment to the opening balance of retained earnings. The
impact on transition is summarised below. Comparative periods have
not been restated.
28 September IFRS 16 29 September
2019 transition 2019
IAS 17 adjustments IFRS 16
GBP'000 GBP'000 GBP'000
------------------------------------ ---- ------------- ------------- -------------
Non-current assets
Goodwill 3,104 - 3,104
Intangible assets 2,663 - 2,663
Property, plant and equipment 46,958 - 46,958
Investment properties 1,233 - 1,233
Right-of-use assets - 124,625 124,625
------------------------------------ ---- ------------- ------------- -------------
53,958 124,625 178,583
------------------------------------ ---- ------------- ------------- -------------
Current assets
Inventories 30,924 - 30,924
Other financial assets - 3,450 3,450
Trade and other receivables 8,142 (4,264) 3,878
Cash and cash equivalents 18,747 - 18,747
------------------------------------ ---- ------------- ------------- -------------
57,813 (814) 56,999
------------------------------------ ---- ------------- ------------- -------------
Total assets 111,771 123,811 235,582
Current liabilities
Trade and other payables (43,336) 4,557 (38,779)
Lease liabilities - (23,637) (23,637)
Current tax liabilities (2,025) - (2,025)
Provisions (1,235) 806 (429)
Total current liabilities (46,596) (18,274) (64,870)
------------------------------------ ---- ------------- ------------- -------------
Net current assets/(liabilities) 11,217 (19,088) (7,871)
------------------------------------ ---- ------------- ------------- -------------
Non-current liabilities
Bank loans (29,884) - (29,884)
Lease liabilities - (104,608) (104,608)
Deferred tax liabilities (1,197) (461) (1,658)
Provisions (3,862) 1,783 (2,079)
------------------------------------ ----
Total liabilities (81,539) (121,560) (203,099)
------------------------------------ ---- ------------- ------------- -------------
Net assets 30,232 2,251 32,483
------------------------------------ ---- ------------- ------------- -------------
Equity
Share capital 6,548 - 6,548
Share premium 2,490 - 2,490
Own shares (1,548) - (1,548)
Merger reserve (399) - (399)
Share-based payment reserve 3,962 - 3,962
Capital redemption reserve 20,359 - 20,359
Accumulated losses (1,178) 2,251 1,073
------------------------------------ ---- ------------- ------------- -------------
Capital and reserves attributable
to owners of Topps Tiles Plc 30,234 2,251 32,485
Non-controlling interests (2) - (2)
Total equity 30,232 2,251 32,483
------------------------------------ ---- ------------- ------------- -------------
IFRS 16 requires derecognition of the rent element of onerous
lease provisions. The Group's property provisions have been
adjusted to reflect this, with an associated adjustment to retained
earnings on transition.
Under IFRS 16, balances such as rent prepayments/accruals, rent
free incentives and landlord contributions are reflected in either
the right-of-use asset or the lease liability, and therefore have
been derecognised on transition.
The total lease liability recognised in the accounts immediately
after transition differs from the operating lease commitments at 29
September 2019 largely due to the discount rate used in calculating
the lease liability under IFRS 16, the lease term, low value leases
and short-term leases.
Impact for the period
As a result of applying IFRS 16, the Group recognised an
additional depreciation charge of GBP11,688,000, gains on lease
modification of GBP195,000, impairments of GBP2,723,000, an
additional charge of GBP102,000 from the elimination of the onerous
lease provision, and net interest costs of GBP1,471,000 in relation
to the leases recognised under IFRS 16. This replaced an operating
lease expense that would have otherwise been recognised under IAS
17 of GBP12,213,000 increasing the loss before taxation by
GBP3,576,000. The impact on the Statement of Financial Performance
was as follows:
26 weeks ended 28 March 2020
Presented Impact Presented
under IAS of IFRS under IFRS
17 16 16
GBP'000 GBP'000 GBP'000
----------------------- ----------- --------- ------------
Group revenue 106,188 - 106,188
Cost of sales (43,372) - (43,372)
----------------------- ----------- --------- ------------
Gross profit 62,816 - 62,816
Operating costs (62,773) (2,105) (64,878)
----------------------- ----------- --------- ------------
Group operating loss 43 (2,105) (2,062)
----------------------- ----------- --------- ------------
Net finance costs (426) (1,471) (1,897)
----------------------- ----------- --------- ------------
Loss before taxation (383) (3,576) (3,959)
----------------------- ----------- --------- ------------
Earnings per share
- Basic (0.18)p (1.68)p (1.86)p
- Diluted (0.18)p (1.66)p (1.84)p
There is no cash flow impact as a result of adoption of IFRS 16.
There is only a movement between cash inflow from operating
activities and cash flow from investing and financing activities,
for rent received and rent paid, respectively. Lease
payments/receipts and interest payments/receipts are shown
separately on the Statement of Cash Flows.
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate for portfolios of leases
with reasonably similar characteristics;
-- accounting for low value operating leases and operating
leases with a remaining lease term of less than 12 months
as at 29 September 2019 on straight line basis as an expense
without recognising a right-of-use asset or a lease liability;
-- the use of hindsight in determining the lease term where
the contract contains options to extend or terminate the
lease;
-- on transition, no recognition of initial direct costs
incurred in entering the lease within the value of the
right-of-use asset.
The Group has also elected not to reassess whether a contract
is, or contains, a lease at the date of initial application.
Instead, for contracts entered into before the transition date the
Group relied on its assessment made applying IAS 17 'Leases' and
IFRIC 4 'Determining whether an arrangement contains a lease'.
Significant areas of judgement
The application of IFRS 16 requires significant judgement,
particularly around the calculation of the incremental borrowing
rate and determining the lease term when there are options to
extend or terminate early.
Lease term
IFRS 16 defines the lease term as the non-cancellable period of
a lease together with the options to extend or terminate a lease,
if the lessee were reasonably certain to exercise that option.
Where a lease includes the option for the Group to terminate the
lease before the term end, the Group makes a judgement as to
whether it is reasonably certain that the option will or will not
be taken, which can significantly affect the amount of lease
liabilities and right-of-use assets recognised.
This judgement is re-assessed on an ongoing and on a
lease-by-lease basis.
Discount rate
The discount rate used to calculate the lease liability is the
rate implicit in the lease, if it can be readily determined, or the
lessee's incremental borrowing rate if not. The Group uses the
lessee's incremental borrowing rate for all property and equipment
leases.
The Group applies judgement in determining the appropriate
discount rate used to calculate the lease liability. As mentioned
above, the Group applies a single discount rate to all leases with
similar characteristics, which is an option permitted by the
standard. This rate is calculated based on the Revolving Credit
Facility rate adjusted for a factor based on the lease term.
The weighted average incremental borrowing rate applied to the
lease liabilities on 29 September 2019 was 2.30%, ranging between
2.17% and 3.09% dependent on the length of the lease term.
Leases in which the Group is a lessee
The Group now assesses whether a contract is or contains a lease
based on the new definition of a lease. Under IFRS 16, a contract
is, or contains, a lease if the contract conveys a right to control
the use of an identified asset for a period of time in exchange for
consideration.
The Group leases assets which consist of properties, vehicles
and equipment. Rental contracts are typically made for fixed
periods but may have extension options or break options to maximise
operational flexibility. Lease terms are negotiated on an
individual basis and contain a wide range of different terms and
conditions.
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all the risks and rewards of ownership.
Payments made under operating leases were charged to profit or loss
on a straight-line basis over the period of the lease. Under IFRS
16, the Group recognises right-of-use assets and lease liabilities
for most leases.
Recognition exemptions
The Group has elected to account for lease payments as an
expense on a straight-line basis over the lease term or another
systematic basis for the following two types of leases:
-- leases with a lease term of 12 months or less and containing
no purchase options - this election is made by class of
underlying asset;
-- leases where the underlying asset has a low value when
new - this election can be made on a lease-by-lease basis.
For leases where the Group has taken short-term lease
recognition exemption and there are any changes to the lease term
or the lease is modified, the Group accounts for the lease as a new
lease.
From 29 September 2019 leases are recognised as a right-of-use
asset with a corresponding liability at the date at which the
leased asset is available for use by the group. Each lease payment
comprises an element of capital and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments),
less any lease incentives receivable;
-- variable lease payments that are based on an index or
a rate;
-- the exercise price of a purchase option if the lessee
is reasonably certain to exercise that option;
-- payments of penalties for terminating the lease if the
lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement
date less any lease incentives received;
-- any initial direct costs;
-- restoration costs.
After lease commencement, the Group measures right-of-use assets
using a cost model. Under the cost model a right-of-use asset is
measured at cost less accumulated depreciation and accumulated
impairment.
The lease liability is subsequently remeasured to reflect
changes in:
-- the lease term (using a revised discount rate);
-- the assessment of a purchase option (using a revised discount
rate);
-- the amounts expected to be payable under residual value
guarantees (using an unchanged discount rate);
-- future lease payments resulting from a change in an index
or a rate used to determine those payments (using an unchanged
discount rate).
The remeasurements are matched by adjustments to the
right-of-use asset.
Lease modifications may also prompt remeasurement of the lease
liability unless they are determined to be separate leases.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of
lease term. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property, plant and
equipment. In addition, the right-of-use asset is reduced by
impairment losses, if any, and adjusted for certain remeasurements
of the lease liability.
Leases in which the Group is a lessor
Lessor accounting remains similar to current accounting under
IAS 17. At lease inception, lessors will determine whether each
lease is a finance lease or an operating lease. To classify each
lease, the Group makes an overall assessment of whether the lease
transfers substantially all of the risks and rewards incidental to
ownership of the underlying asset. If this is considered to be the
case, then the lease is recognised as a finance lease, if not then
it is recognised as an operating lease. As part of this assessment,
the Group considers certain factors such as whether the lease is
for the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its
interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to
the right-of-use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-term
lease to which the Group applies the recognition exemption, then it
classifies the sub-lease as an operating lease.
The Group has reassessed the classification of sub-leases in
which the Group is a lessor. Under IAS 17, the subleases were
classified with reference to the underlying asset which resulted in
all subleases being classified as operating leases.
The Group has reclassified a small number of sub-leases as
finance leases, resulting in recognition of a finance lease
receivable of GBP3.5m, being equal to the net investment in the
lease, as at 29 September 2019. The Group recognises finance income
over the lease term of a finance lease, based on a pattern
reflecting a constant periodic rate of return on the net
investment.
There will be no change to the accounting for the remaining
subleases which continue to be accounted for as operating leases,
and income from these leases will continue to be recognised on a
straight-line basis over the term of the lease.
9. Share capital
The issued share capital of the Group as at 28 March 2020
amounted to GBP6,548,000 (30 March 2019: GBP6,548,000). During the
period the Group issued 2,352 shares, and therefore the number of
shares at 28 March 2020 were 196,443,323.
10. Seasonality of sales
Historically there has not been any material seasonal difference
in sales between the first and second half of the reporting period,
with approximately 50% of annual sales arising in the period from
October to March.
11. Related party transactions
S.K.M Williams is a related party by virtue of his 10.3%
shareholding (20,160,278 ordinary shares) in the Group's issued
share capital (2019: 10.5% shareholding of 20,343,950 ordinary
shares).
At 28 March 2020 S.K.M Williams was the landlord of one property
leased to Multi Tile Limited, a trading subsidiary of Topps Tiles
Plc, for GBP65,000 (2019: two properties for GBP122,000) per
annum.
No amounts were outstanding with S.K.M. Williams at 28 March
2020 (2019: GBPnil). The lease agreements on all properties are
operated on commercial arm's length terms.
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note, in accordance with the exemption available
under IAS 24.
12. Post balance sheet events
On 11 May 2020, the Group completed the sale of its only
investment property for a cash consideration of GBP0.7m.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR APMFTMTBBBTM
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May 19, 2020 02:00 ET (06:00 GMT)
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