Topps Tiles Regulatory News (TPT)

25 Nov 2008 07:00



Topps Tiles Plc

Preliminary Results

Topps Tiles Plc ("Topps", "Topps Tiles" or "the Group"), the UK's largest tile and wood flooring specialist with 342 stores, announces its preliminary results for the 52 weeks ended 27 September 2008.

Financial Performance

Total Group revenue grew 0.1% to £208.1m (2007:£207.9m)

Like-for-like revenue declined 5.4% (2007: up 4.7%)

Group gross margin 61.8% (2007: 62.8%)

Operating profit of £34.6m (2007: £44.3m)*

Profit before tax of £27.7m (2007: £37.8m)** 

Basic Earnings per share of 9.56 pence (2007: 15.09 pence)

Adjusted Basic Earnings per share of 11.16 pence (2007: 14.94 pence) ***

No final dividend declared in order to accelerate reduction in net debt and improve financial flexibility (2007 : 6.95 pence per share)

Net debt position of £92.0m (2007: £95.2m)

Renegotiated loan facility, favourable relaxation of covenants and extension of the facility to January 2012

Sale and leaseback of 4 freehold properties for £4m, with a profit on disposal of £0.9m (2007 : £0.3m)

* 2008 Operating profit includes a goodwill impairment charge (non-cash) of £1.2m (2007 : £nil)

** 2008 profit before tax includes the following non-recurring items in addition to the above note:

£1.5m (non-cash) charge relating to the interest rate hedging the company has in place (per IAS39), (2007 : £0.5m)

Property disposal gain of £0.9m (2007 : £0.3m)

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

£1.1m deferred tax charge relating to withdrawal of Industrial Buildings Allowances (2007 : £nil)

Operational Performance

Net 19 new stores opened in the UK, now trading from 320 stores in the UK (2007: 301 stores)

Holland - now trading from 22 stores (2007: 20 stores)

First 7 weeks of the new financial period total Group revenue declined by 13.5% and Group like-for-like revenue declined by 18.3%

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

"This is a credible performance when taking into account that the retail trading environment has become increasingly challenging during the year and our results have been affected accordingly. We intend to capitalise on our market leading position - we have a resilient business model, and an outstanding customer service ethic which will enable us to progress through this downturn, and believe that we will benefit significantly when consumer confidence returns.

For further information please contact:

Topps Tiles Plc

Matt Williams, CEO

Barry Bester, Chairman

c/o Bell Pottinger Corporate & Financial 020 7861 3232

Emma Kent / Laura Pope

Bell Pottinger Corporate & Financial 020 7861 3232

Chairman's Statement

This has been a challenging year for the Topps business in a difficult trading environment. However, we are facing these challenges and managing the business in a robust and prudent manner. We have delivered a credible financial performance in a tough operating environment. I remain confident that our business will show resilience through this period and we will be well positioned to capitalise on the strong foundations of the company as the economic situation improves.

Financial Results

Total group revenue has been almost flat year on year at £208.1 million (2007: £207.9 million) with like-for-like revenue for the period showing a decline of 5.4% on last year. Operating profit for the period was £34.6 million (2007: £44.3 million) giving a profit before tax of £27.7 million (2007: £37.8 million). Basic earnings per share is 9.56 pence (2007: 15.09 pence). During the period our banking facilities were renegotiated with a relaxation of both covenants associated with the debt and the facility has been extended to 2012. There was a one-off arrangement fee of £0.5 million which will be amortised over the remaining period of the facility.

Dividend

In order to reduce net debt and improve the Company's financial flexibility, the Board has decided not to pay a final dividend for this financial year. We believe this is in the best interests of the business in the prevailing economic environment and we will continue to review the dividend policy on a bi-annual basis. 

Board Changes

In March this year we announced the appointment of Alan White, currently CEO of N Brown Group plc, to the Board as a non-executive director. His appointment was effective from 1 April 2008. In addition we also announced the resignation from the Board of Alan McIntosh with effect from 31 March 2008. I would like to thank Alan McIntosh for his support and contribution to the Company during his 10 years as non-executive director.

We are also announcing that Victor Watson will not seek re-election at the next AGM, after 10 very successful years on the Board Victor has decided to step down. I would like to thank Victor for all of his support and contribution to the Company.

People 

The Company's staff are fundamental to the continuing success of the business. Their ability to deliver exceptional customer service is a key factor in differentiating Topps from its competitors and will contribute to the future success of the business.

I would like to extend the Board's thanks and gratitude to everyone in the Company for their continuing efforts and hard work.

Outlook

We have a very resilient business model and an extremely capable team who are managing the business prudently. The team have made significant progress during the year to ensure that the business is in the best possible condition for the year ahead. We have again tightened our cost base for the coming year, reviewed our plans for growth, focused our attention on cash management, and extended our banking facilities. The Board is confident that as a result of these actions the business can withstand a sustained period of weak consumer activity.

I am confident that we can capitalise on our position as market leader as we trade through the current economic cycle and expect to benefit significantly when consumer confidence returns.

Barry Bester

Chairman

Chief Executive's Statement

We have maintained our market leading position and expect to capitalise on this during the coming year. We will achieve this by continuing to focus on excellent customer service, outstanding value ranges and an anticipated contraction in the competition. We have delivered a credible performance and anticipate that our resilient business model will help us to create an even stronger business.

UK Store Development and Expansion

We are pleased to have achieved our store opening target with a net 19 new stores opened in the period. This now gives us an overall total of 320 trading outlets throughout the UK. For the coming year we will focus the majority of our attention on improvements to our existing estate. In the current economic climate we believe that a more cautious approach to expansion is appropriate. We anticipate that an easing of pressures in the property market should create opportunities for us to open a small number of new stores in strong trading locations.

Topps Tiles

We have opened a net 17 new stores and now have a total of 263 Topps outlets. This includes 24 new openings offset by 2 closures, 3 relocations and 2 rebrands to Tile Clearing House (TCH).

Alongside our traditional retail channel we have, this year, launched our first online business. This offers a wide selection of our most popular ranges as well as some additional complementary products not found in our stores. These include bathrooms accessories and heated towel radiators. We have developed the online offer during the year and whilst this element of the business is still in its infancy we look forward to it increasing sales as it grows in popularity. Our online offer can be found at www.toppstiles.co.uk.

Tile Clearing House

Tile Clearing House remains focused on trade customers and jobbing builders, operating a "cash and carry" type format. We have opened a net 2 new stores under the Tile Clearing House brand and now have a total of 57 outlets.

Holland

In Holland we have opened a further net 2 stores during the year taking the total to 22. This consisted of 3 new openings and 1 closure due to a relocation. The business has had to contend with a difficult trading environment and a number of other issues. Against this backdrop we have seen a decline in like for like revenues and the business has generated a loss for the year.

We have also conducted a review of the goodwill that arose on acquisition of the Dutch business and decided that against the context of the current year's results and a more cautious outlook for the future it is appropriate to impair the goodwill and write it down by £1.2 million to £nil in the current year.

Whilst we operate a tight cost base which is appropriate for a small business, the key issues which we are tackling are store sales density and gross profit margins. We have a new management team in place with a very clear agenda. They will be focused on driving sales and improving margins by upweighting the mix of tile sales. The year ahead is likely to be one of continued, measured progress with less focus on expansion than we have seen previously.

Marketing, Advertising and Sponsorship

Over the last year we ran both national and regional marketing and advertising campaigns. These included the launch of a new TV advertising campaign on ITV. The campaign featured works of art created entirely from our tiles and wooden flooring, with the adverts appearing on ITV three times a day straight after the national news. This campaign served us well through the year and we have achieved our goal of continuing to build consumer awareness of the brand. During the year ahead we expect to focus on targeted regional and local marketing where the business requires it. Topps Tiles is Britain's biggest supporter of community youth football and we currently sponsor over 200 local teams nationwide.

Staff Development and Customer Service

A core part of our strategy is to deliver outstanding customer service. In order to provide this we place the highest importance on the development of our staff to deliver an excellent standard of service. We are rigorous in our recruitment and retention of capable, ambitious people and are committed to the development and career progression of our employees. We have a sophisticated in store e-learning training system and additionally we incentivise our staff with competitive employee benefit packages. 

We continue to differentiate our business from the competition in a number of ways. All of our stores carry a wide range and supply of stock, we offer a loan-a-tile service, a free "How to" DVD, a tile cutting service and a buy-back service allowing customers to "sell back" undamaged tiles within 45 days of purchase. In addition, we have teamed up with traders local to each of our stores to provide customers with a Topps approved tile installation service. These services coupled with friendly and knowledgeable staff offering expert technical advice led to 98.2% of customers surveyed expressing levels of satisfaction as 'good to excellent' (2007: 97.6%).

Corporate Responsibility

The management team at Topps Tiles is committed to conducting the Company's business in a socially responsible manner, taking into consideration social, environmental and ethical matters, whilst at the same time ensuring the Company achieves its objectives. Our policy is published on our website at www.toppstiles.co.uk and more detail on our achievements can be found in this report. 

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

The Market

Topps continues to be the leading tile retailer in the UK with a market share in excess of 22%.

As consumers preferences continue to converge with European tastes the relatively low consumption of tiles per head in the UK compared with the rest of Europe (roughly one third of Northern Europe, source: MBD) provides significant opportunities. Consumers are continuing to refurbish the traditional tiling areas such as kitchens, bathrooms and conservatories and are also increasingly extending into general living areas, helped by the broad range of under flooring heating products now commonly available.

During the year we have also seen a reduction in customer choice as some consolidation in the retail market has taken place, particularly with smaller regional tile businesses.

Worldwide consumption for tiles, in particular in the more developed tile markets is likely to continue to weaken in the short term. This has begun to present some buying opportunities, with regard to both price and terms. With a dedicated tile distribution warehouse, Topps is well positioned to take advantage of these opportunities.

Current Trading and Outlook

In the first 7 weeks of the new financial period Group overall revenue decreased by 13.5% and like for like sales decreased by 18.3%.

At the half year we highlighted that the key driver of risk to the business was the general economic climate and since then the economy has continued to weaken. The business is well equipped to deal with the current economic cycle and we have made good progress in tightening our cost base for the coming year, focusing our attention on cash management and improving our financial flexibility by renegotiating our banking facilities.

We will continue to maintain our focus on tight cost control and prudent management of the business at the same time as delivering the service element that our customers expect. We intend to capitalise on our market leading position and believe that we will emerge from the current economic situation a stronger business and benefit significantly when consumer confidence returns.

Matthew Williams

Chief Executive Officer

  

BUSINESS REVIEW 

Cautionary statement

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

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

Nature, Objectives and Strategies of the Business

Topps Tiles is a specialist tile & wood flooring retailer with 342 outlets across the UK and Holland.  In the UK, we are the country's largest retailer of our kind with a total of 320 stores and a 22% market share. We operate two retail brands, Topps Tiles and Tile Clearing House. Topps is the UK's leading branded tile retailer with 263 stores offering wall and floor tiles, natural stone, laminate, solid wood flooring and a comprehensive range of associated products such as underfloor heating, adhesives and grouts. Tile Clearing House is the biggest clearance tile retailer in the UK with 57 stores nationwide focusing on a mini warehouse type format and a "when it's gone it's gone" style customer offer.

Our European operation in Holland provides a similar style of customer offer to the UK Topps Tiles stores and currently trades from 22 stores.

The Topps' strategy is focused on delivering outstanding value to our customers. This has enabled us to retain our competitive advantage built upon the strong foundations of customer service, store locations, store layout, product choice and availability. We believe that this strategy will continue to serve the company and its many stakeholders well and will see us through the current economic downturn.

Key Operational objectives:

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

Maintain our brand leading position in the market

Grow the store estate where excellent property opportunities arise

Continue to develop our in store customer offer to maintain our competitive advantage

Build an increased online presence and establish the brand as the market leader 

Continued measured progress in Holland towards a return to profitability

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

Financial objectives:

Maintaining an appropriate capital structure will continue to be a key financial objective for the group.

Continued management of the business with a priority on revenues, cost control and cash generation.

Review our dividend policy on a bi-annual basis.

Supplier tendering & benchmarking for non stock suppliers has continued through the year and has seen a change in a number of key suppliers. This will continue to contribute towards our focus on cost control and ensuring that we are as efficient as possible.

Manage the Group's exposure to fluctuations in foreign exchange rates.

Key Performance Indicators (KPIs)

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

Financial KPIs	52 weeks to 27 September 2008	52 weeks to 29 September 2007
Like-for-like sales growth year-on-year %	-5.4%	+4.7%
Total sales growth year-on-year - %	+0.1%	+15.4%
Gross margin - %	61.8%	62.8%
Net debt	£92.0m	£95.2m
Stock days	140	146
Non-financial KPIs
Customer satisfaction %	98.2%	97.6%
Number of stores	342	321

The Directors receive regular information on these and other metrics and KPIs for the Group as a whole. These KPIs are reviewed and updated as the Directors feel is required.

Risks and Uncertainties

The key risks to the business continue to be its relationship with key suppliers, the potential threat of competitors, the risk that key information technology or EPOS systems could fail, the loss of key personnel, the risk of a prolonged economic downturn, the impact of foreign exchange rates and the development of substitute products.

Following a modest weakening of results in the first half we highlighted at that time that the key risk for the second half was the general economic climate. The deterioration in the economy has been more pronounced during the second half of the year and when reviewing risks and uncertainties this is currently accounting for the majority of the Board's focus.

The business has responded to these risks by taking the appropriate action as described in this report. Specifically, we have tightened our cost base, reviewed our plans for growth, focused our attention on cash management, and renegotiated and extended our banking facilities. We are also seeking to enhance and improve our retail operations where possible by reviewing our product offer, customer service and marketing strategies.

We also highlighted at the half year point that an appreciation in the Euro had put pressure on gross margins as a result of our overseas sourcing. The US Dollar has also strengthened over the course of the second half of the year. The current general weakness of the Pound will put further pressure on margins for the coming year but we are addressing this risk by constantly reviewing our sourcing opportunities. During the year approximately 20% of purchases were sourced from overseas.

Post the end of the financial reporting period there have been significant reductions in interest rates. The Group will see a small amount of direct benefit from this via our cash interest charge, however, a more significant benefit would be the potential improvement in consumer confidence.

There are currently a number of risks and uncertainties that the Group is managing. If sales performance continues at the current levels we will need to manage costs and cash even more tightly, however, the Board remains confident the business will continue in its ability to generate positive returns and meet all of its financial commitments in full.

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

We have conducted a review of existing contractual relationships and have concluded that there are none which are essential to the business.

  FINANCIAL REVIEW

PROFIT AND LOSS ACCOUNT

Revenue

Revenue for the period ended 27 September 2008 increased by 0.1% to £208.1 million (2007: £207.9 million). Like-for-like store sales declined by 5.4% across the year, falling by 0.9% in the first half and 9.8% in the second half of the year. The deterioration in performance reflects the tightening in the economy and the impact that this has had on both the financial and consumer sector.

Gross margin

Overall gross margin was 61.8% compared with 62.8% last year. At the interim stage of this period gross margin was 62.7%. In the second half of the period we have generated a gross margin of 60.8%. Erosion of gross margin reflects exchange rate impacts and also the pressure of the current trading environment. However, the relatively small deterioration in gross margin reflects the company's strong brand and business model as we are able to invest margin in a controlled way to drive transactions.

Operating expenses

Total operating costs have increased from £86.2 million to £93.9 million, an increase of 8.9%. 

Costs as a percentage of sales were 45.1% compared to 41.4% last year.

The increase in costs has been mainly driven by our enlarged store estate. The average number of stores trading during the financial period was 329 (2007 : 303). This has generated an increase in our total operating expenses of 7.3%.

Further to this there have been several non-recurring items as follows:

We have spent an additional £1.5 million on group marketing activities, in particular a nationwide ITV1 television campaign.

We have incurred a £1.2 million (non cash) charge for goodwill impairment in relation to the acquisition of the Dutch joint venture. This reflects the Boards more cautious outlook for the Dutch business as described in the Business Review section of this report.

Offsetting these additional charges, in part, is a saving of £1.1 million on management bonuses compared to the previous financial period. This saving was due to management bonus targets not being met during the period.

When taking these items into account, the underlying cost base has reduced by 0.2% for the year as a whole.

Operating Profit

Operating profit for the period was £34.6 million (2007 : £44.3 million).

Operating profit as a percentage of sales was 16.6% (2007: 21.3%).

Underlying operating profit, excluding the non cash goodwill impairment highlighted above was £35.8 million (2007 : £44.3 million). 

Other gains and losses

Other gains & losses include the impact of property disposals. During the period we completed the sale and leaseback of 4 freehold properties for £4.0 million, which generated a £0.9 million profit on disposal (2007: £0.3 million).

Financing

The cash interest charge for the year was £6.3 million (2007: £6.3 million), excluding the impact of IAS39 revaluations. Despite higher interest rates we have maintained the interest charge at the same level of the prior year through a combination of reducing net debt and also the economic benefit we have received from the interest rate derivatives we have in place.

The interest rate derivatives give rise to a "marked to market" revaluation per the requirements of IAS39 "Financial Instruments; Recognition and Measurement". This revaluation has generated a fair value (non cash) charge of £1.5 million (2007: £0.5 million). Due to the nature of the underlying financial instrument, IAS39 does not allow hedge accounting to be applied to these losses and hence this charge is being applied direct to the income statement rather than offset against balance sheet reserves.

Net interest cover was 6.4 times based on earnings before interest, tax and depreciation, excluding the impact of IAS39 in finance charges.

Profit before tax

Reported profit before tax is £27.7 million (2007: £37.8 million).

Group profit before tax margin was 13.3% (2007 : 18.2%)

Tax

The effective rate of Corporation Tax was 41.0% (2007 : 32.0%). 

There are a series of key items affecting the tax rate during the year, as follows:

The withdrawal of Industrial Buildings Allowances has resulted in a one off deferred tax charge of £1.1m, accounting for 4.1% of the effective tax rate.

Changes to the capital allowances regime and prior year adjustments have impacted the tax charge by £1.2m, accounting for 4.4% of the effective tax rate.

The impairment of goodwill described under "Operating Expenses" does not qualify for corporation tax relief, thereby increasing the effective tax rate by a further 1.2%.

The underlying tax rate, excluding the above items, was 31.3% (2007 : 30.8%).

Earnings per Share

Basic earnings per share were 9.56 pence (2007 : 15.09 pence).

Diluted earnings per share were 9.55 pence (2007 : 15.02 pence). 

Dividend and dividend policy

In order to reduce net debt and improve the Company's financial flexibility, the Board has decided not to pay a final dividend for this financial year. We believe this is in the best interests of the business in the prevailing economic environment and we will continue to review the dividend policy on a bi-annual basis.

BALANCE SHEET

Capital Expenditure

Capital expenditure in the period amounted to £6.6 million (2007: £9.7 million). This includes the cost of developing 2 freehold sites for £1.2 million. In addition we have opened 33 new outlets at a cost of £3.8 million, refitted 11 existing sites at a cost of £0.6 million, plus a further £1.0 million on other associated activities.

At the period end the Group owned 8 freehold or long leasehold sites including 2 warehouse and distribution facilities with a total net book value of £15.6 million (2007: £17.7 million).

Stock

Stock at the period end represents 140 days turnover compared with 146 days for the same period last year.

Capital Structure and Treasury

Cash and cash equivalents at the period end were £14.0 million (2007: £15.8 million) with repayable borrowings at £106.0 million (2007: £111.0 million). 

This gives the Group a net debt position of £92.0 million compared to £95.2 million as at 1 October 2007.

During the period we renegotiated our current loan facility, securing a favourable relaxation of the covenants associated with our debt and an extension of the facility to January 2012. There is an associated one off fee of £0.5 million which will be amortised over the remaining period of the facility.

Cashflow 

Cash generated by operations was £38.7 million, compared to £49.8 million last year.

Directors' Responsibility Statement

We confirm to the best of our knowledge :

the Group's financial statements, prepared in accordance with IFRS, and the Company's financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

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

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

ANNUAL GENERAL MEETING

The Annual General Meeting for the period to 27 September 2008 will be held on 13th January 2009 at 10.30am at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU.

Matt Williams  Rob Parker

Chief Executive Officer Finance Director

24 November 2008

Consolidated Income Statement For the 52 weeks ended 27 September 2008	Notes	2008	2007
		£’000	£’000
Group revenue	3 & 4	208,084	207,898
Cost of sales		(79,537)	(77,344)
Gross profit		128,547	130,554
Operating expenses
employee profit sharing		(6,514)	(7,943)
distribution costs		(66,142)	(61,504)
other operating expenses		(7,024)	(5,093)
Administration expenses		(8,082)	(7,027)
Sales and marketing		(6,165)	(4,645)
Group operating profit before impairment of goodwill Impairment of goodwill	12	35,805 (1,185)	44,342 -
Group profit from operations	4	34,620	44,342
Other gains	7	877	270
Investment revenue	8	992	1,012
Finance costs	8	(8,766)	(7,791)
Profit before taxation	5	27,723	37,833
Taxation	9	(11,370)	(12,093)
Profit after taxation for the period attributable to equity holders of the parent company		16,353	25,740
Earnings per ordinary share	11
- basic		9.56p	15.09p
- diluted		9.55p	15.02p

All of the above results relate to continuing operations.

Consolidated Statement of Recognised Income and Expense

For the 52 weeks ended 27 September 2008

		2008	2007
		£'000	£'000
Exchange differences on retranslation of overseas operation		248	-
Tax effect of share options exercised		-	195
Deferred tax on share options taken directly to equity	20	(305)	(157)
Profit for the period		16,353	25,740
Total recognised income and expense for the period attributable to equity holders of the parent company		16,296	25,778

.

Consolidated Balance Sheet
As at 27 September 2008
		2008	2007
	Notes	£'000	£'000
Non-current assets
Goodwill	12	245	1,430
Property, Plant and Equipment	13	40,386	41,851
		40,631	43,281
Current assets
Inventories		30,496	31,067
Trade and other receivables	15	7,909	7,002
Cash and cash equivalents	16	13,977	15,781
		52,382	53,850
Total assets		93,013	97,131
Current liabilities
Trade and other payables	17	(29,961)	(31,016)
Derivative financial instruments	19	(2,110)	(481)
Bank loans	18	(7,250)	(4,907)
Current tax liabilities		(8,878)	(8,752)
		(48,199)	(45,156)
Net current assets		4,183	8,694
Non current liabilities
Bank loans	18	(97,963)	(105,737)
Deferred tax liabilities	20	(1,964)	(1,062)
Total liabilities		(148,126)	(151,955)
Net liabilities		(55,113)	(54,824)
Equity
Share capital	21	5,703	5,686
Share premium	22	1,001	681
Merger reserve	23	240	240
Share based payment reserve	24	322	222
Capital redemption reserve	25	20,359	20,359
Foreign exchange reserve	26	248	-
Retained earnings	27	(82,986)	(82,012)
Total deficit		(55,113)	(54,824)

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

The financial statements on pages 34 to 57 of the Annual Report were approved by the Board of Birectors on 24 November 2008 and signed on its behalf by:

M Williams

R Parker

Directors

Consolidated Cash Flow Statement

For the 52 weeks ended 27 September 2008

Cashflow from Operating Activities
			2008	2007
			£'000	£'000
Group profit from operations			34,620	44,342
Adjustments for:
	Depreciation of property, plant and equipment		4,792	4,424
	Impairment of goodwill		1,185	-
	Share option charge		100	56
	Loss on sale of fixed assets		513	772
	Increase in receivables		(833)	(1,144)
	Decrease / (Increase) in inventories		877	(2,624)
	(Decrease) / Increase in payables		(2,557)	4,000
Cash generated by operations			38,697	49,826
	Interest paid		(6,154)	(7,805)
	Payment of loan arrangement fee		(530)	-
	Taxation paid		(10,650)	(10,980)
Net cash from operating activities			21,363	31,041
Cashflows from investing activities
	Acquisition of Joint Venture		-	(1,286)
	Interest received		960	1,012
	Purchase of Property, plant and equipment		(6,622)	(9,674)
	Proceeds on sale of property, plant and equipment		4,004	1,166
Net cash used in investment activities			(1,658)	(8,782)
Cashflows from financing activities
	Proceeds from issue of share capital		337	158
	Repayment of loans		(5,000)	(5,000)
	Dividends paid		(17,014)	(18,169)
Net cash used in financing activities			(21,677)	(23,011)
Net decrease in cash and cash equivalents			(1,972)	(752)
Cash and cash equivalents at beginning of period			15,781	16,533
Effect of foreign exchange rate changes			168	-
Cash and cash equivalents at end of period			13,977	15,781

 

Notes to the Financial Statements

For the 52 week period ending 27 September 2008

1  General Information

Topps Tiles Plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on page 22 of the Annual Report. The nature of the Group's operations and its principal activity is set out in the Directors' Report on page 24 of the Annual Report.

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

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

Standards and interpretations in issue but not yet effective 

IFRS 8 Operating Segments

IAS 23 Amendment 'Borrowing Costs'

IFRS 3 Revised 'Business Combinations'

IAS 27 Amendment 'Consolidated and Separate Financial Statements'

IFRS 2 Amendment 'Share Based Payment'

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programmes

IFRIC 14 IAS19 - The Limit on a Deferred Benefit Asset, Minimum Funding Requirements and their Interaction

IFRIC 15  Agreements for the Construction of Real Estate

IFRIC 16  Hedges of a Net Investment in a Foreign Operation

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

Adoption of new and revised Standards

In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007 and the related amendment to IAS 1: Presentation of Financial Statements. The impact of the adoption of IFRS 7 and changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital (see notes 2o, 15,17 and 19).

 

2 Accounting policies

a) Basis of accounting

 

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies adopted are set out below.

 

b) Basis of consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to the Saturday nearest to the 30 September each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee so as to obtain benefits from its activities.

The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

c) Financial period

The accounting period ends on the Saturday which falls closest to 30 September, resulting in financial periods of either 52 or 53 weeks.

Throughout the financial statements, directors' report and financial review, references to 2008 mean at 27 September 2008 or the 52 weeks then ended; references to 2007 mean at 29 September 2007 or the 52 weeks then ended.

d)  Business Combinations

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

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.

e) Goodwill

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

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

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

f) Revenue Recognition

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

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.

g) Property, plant & equipment

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

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

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

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

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

Motor vehicles - 25% per annum on reducing balance

Freehold land is not depreciated.

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

h) Inventories

Inventories are stated at the lower of cost and net realisable value and relate solely to finished goods for resale. Cost comprises purchase price of materials and an attributable proportion of distribution overheads based on normal levels of activity and is valued at standard cost. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and costs to be incurred - marketing, selling and distribution. Provision is made for those items of inventory where the net realisable value is estimated to be lower than cost. 

i) Taxation

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

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

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

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

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

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

j) Foreign currency

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

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

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

k) Leases

Rentals under operating leases are charged on a straight line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the lease term.

l) Investments

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

m) Retirement Benefit costs

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

n) Finance costs

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

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

o)  Financial instruments

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

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

Financial assets at FVTPL

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

A Financial asset is classified as held for trading if:

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

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

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

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in note 2t.

Loans and receivables

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

Impairment of financial assets

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

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 94 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

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

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

Cash and cash equivalents 

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

Derecognition of financial assets

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

Financial liabilities and equity

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

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

A financial liability is classified as held for trading if:

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

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

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

Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in note 2t.

Other financial liabilities

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

Derecognition of financial liabilties

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

Derivative financial instruments

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

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

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

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.

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

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

p)  Share-based payments

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

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

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

q) Trade Payables

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

r) Profit from operations

Profit from operations is stated after charging restructuring costs but before property disposals, investment income and finance costs.

s) Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

t) Critical accounting judgements and key sources of estimation uncertainty

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

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

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

Management consider the detailed criteria for the recognition of revenue from the sale of goods set out in IAS 18 Revenue and, in particular, whether the Group has transferred to the buyer the significant risks and rewards of ownership of the goods and only recognise revenue where this is the case.

Key sources of estimation uncertainty

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

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and to discount by a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the balance sheet date is £0.2 million. During the period the Group has incurred an impairment charge of £1.2 million. (Details of the impairment charge calculation are provided in note 12).

Fair value of derivatives and other financial instruments

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

Tax

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

3 Revenue 

An analysis for the 52 week period of revenue is as follows:

	2008	2007
	£'000	£'000
Non-Trade customers	184,107	182,830
Trade customers	23,977	25,068
Revenue from the sale of goods	208,084	207,898
Interest received on interest rate swaps	347	165
Interest receivable	645	847
Total revenue	209,076	208,910

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

4 Business Segments

The Group is currently organised into three retail operating divisions; Topps Tiles (Topps) and Tile Clearing House (TCH), both based in the UK, and Topps Floorstore (Holland). These divisions are the basis on which the Group reports its primary segment information.

Segmental revenue and profit before taxation by business activity were as follows:

	Segmental information for the  52 weeks to 27 September 2008
	Topps £'000	TCH £'000	Topps Floorstore £'000	Consolidated £'000
Revenue	175,312	23,977	8,795	208,084
Operating profit before central costs	34,353	3,112	(758)	36,707
Head office /distribution centre costs				(2,087)
Group profit from operations				34,620
Other gains				877
Finance costs less investment revenue				(7,774)
Profit before taxation				27,723

Other information

	Topps £'000	TCH £'000	Topps Floorstore £'000	Head office/ Distribution centre £'000	Consolidated £'000
Capital additions	4,260	651	401	1,310	6,622
Goodwill impairment	-	-	-	1,185	1,185
Depreciation	2,922	440	353	1,077	4,792
Balance sheet
Segment assets	75,283	8,833	4,644	-	89,459
Unallocated corporate assets	-	-	-	4,252	3,554
Consolidated total assets	75,283	8,833	4,644	4,252	93,013
Segment liabilities	(16,897)	(5,285)	(3,749)	-	(25,931)
Unallocated corporate liabilities	-	-	-	(122,195)	(122,195)
Consolidated total liabilities	(16,897)	(5,285)	(3,749)	(122,195)	(148,126)

	Segmental information for the  52 weeks to 29 September 2007
	Topps £'000	TCH £'000	Topps Floorstore £'000	Consolidated £'000
Revenue	175,380	25,068	7,450	207,898
Operating profit before central costs	40,448	5,273	314	46,035
Head office /distribution centre costs				(1,693)
Group profit from operations				44,342
Other Gains				270
Finance costs less investment revenue				(6,779)
Profit before taxation				37,833

Other information

	Topps £'000	TCH £'000	Topps Floorstore £'000	Head office/ Distribution centre £'000	Consolidated £'000
Capital additions	4,733	1,087	881	2,973	9,674
Depreciation	2,683	451	271	1,019	4,424
Balance sheet
Segment assets	72,626	10,063	5,044	-	87,733
Unallocated corporate assets	-	-	-	9,398	9,398
Consolidated total assets	72,626	10,063	5,044	9,398	97,131
Segment liabilities	(17,272)	(1,578)	(3,712)	-	(22,562)
Unallocated corporate liabilities	-	-	-	(129,393)	(129,393)
Consolidated total liabilities	(17,272)	(1,578)	(3,712)	(129,393)	(151,955)

5 Profit before taxation

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

	2008 £'000	2007 £'000
Depreciation of property, plant and equipment	4,792	4,424
Staff costs (see note 6)	42,574	40,156
Impairment of goodwill	1,185	-
Operating lease rentals	19,861	16,725
Cost of inventories recognised as expense	77,735	75,331
Net foreign exchange gains	(32)	(270)

Analysis of auditors' remuneration is provided below:

	2008	2007
	£’000	£’000
Audit services:
Statutory audit of the Company’s annual accounts	32	15
Audit of Company’s Subsidiaries pursuant to legislation	105	110
Total audit fees	137	125
Tax services:
compliance services	59	57
advisory services	2	73
Total non audit fees	61	130
	198	255

A description of the work of the audit committee is set out on page 28 of the Annual Report and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

6 Staff costs

The average monthly number of employees (including executive directors) was:

	2008	2007
	Number employed	Number employed
Selling	1,553	1,541
Administration	190	181
	1,743	1,722

	2008	2007
	£'000	£'000
Their aggregate remuneration comprised:
Wages and salaries (including LTIP)	38,713	36,524
Social security costs	3,666	3,397
Other pension costs (see note 28b)	195	235
	42,574	40,156

Details of director's emoluments are disclosed on page 31 of the Annual Report.

Employee profit sharing of £6.5 million (2007: £7.9 million) is included in the above and comprises sales commission and bonuses.

7 Other gains and losses

Other gains and losses in 2008 relates to the sale of 4 freehold properties and in 2007 to the sale of a long leasehold property.

 

8. Investment revenue and finance costs

	2008	2007
	£’000	£’000
Bank interest receivable and similar income	992	1,012
Finance costs
Interest on bank loans and overdrafts	(7,302)	(7,325)
Fair value loss on interest rate swaps	(1,464)	(480)
Interest costs capitalised	-	14
Finance costs	(8,766)	(7,791)

No finance costs are appropriate to be capitalised in the period. In the prior period finance costs in respect of development sites were capitalised based on a capitalisation rate of 5.1% last year, which was the weighted average of rates applicable to the Group's general borrowings outstanding during the period.

Interest on bank loans and overdrafts represent gains and losses on financial liabilities measured at amortised cost. There are no other gains or losses recognised in respect of financial liabilities measured at amortised cost. Total losses from the movement in fair value on held for trading on assets and liabilities (derivative instruments) were £1,464,000 (2007: £480,000). Included within bank interest and similar income is £347,000 (2007: £165,000) being interest received on interest rate swaps.

9. Tax

	2008 £'000	2007 £'000
Current tax - charge for the year	9,711	11,975
Current tax - adjustment in respect of previous periods	1,209	446
Deferred tax - charge / (credit) for year (note 20)	434	(334)
Deferred tax - adjustment in respect of previous periods (note 20)	16	6
	11,370	12,093

Corporation tax in the UK is calculated at 29% (2007: 30%) of the estimated assessable profit for the year.

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

The charge for the year can be reconciled to the profit per the income statement as follows:

	2008 £'000	2007 £'000
Profit before taxation	27,723	37,833
Tax at the UK corporation tax rate of 29% (2007: 30%)	8,040	11,350
Tax effect of expenses that are not deductible in determining taxable profit	604	90
Tax effect of IBA release	1,129	-
Tax effect of change in tax rate	-	(119)
Tax effect of profit in excess of chargeable gains on sale of freehold property	(36)	(6)
Tax effect of different tax rates on overseas earnings	29	-
Tax effect of tangible fixed assets which do not qualify for capital allowances	379	326
Tax effect of adjustment in respect of prior periods	1,225	452
Tax expense for the period	11,370	12,093

10  Dividends

Amounts recognised as distributions to equity holders in the period:	2008	2007
	£’000	£’000
Final dividend paid for the 52 weeks ended 29 September 2007 of 6.95p (2006: 6.90p) per ordinary share	11,860	11,767
Interim dividend paid for the 26 weeks ended 29 March 2008 of 3.00p (2007: 3.75p)	5,117	6,396
Under provision in respect of the prior period final dividend	45	6
	17,022	18,169
Proposed final dividend for the 52 weeks ended 27 September 2008 of 0.00p (2007: 6.95p) per share	-	11,860

11 Earnings per share

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

	2008	2007
	Number of	Number of
	shares	Shares
Weighted average number of shares
For basic earnings per share	171,008,982	170,536,121
Weighted average number of shares under option	175,931	823,079
For diluted earnings per share	171,184,913	171,359,200

 

12  Goodwill

		£'000
Cost at 1 October 2006		551
Acquisition of joint venture		879
Cost and carrying value at 30 September 2007		1,430
Impairment of goodwill in the period		(1,185)
Cost and carrying value at 27 September 2008		245

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

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates based on the Groups weighted average cost of capital. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Discounted cashflows are calculated using a post tax rate of 5.8% (2007: 7.5%).

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

As a result of the annual test of impairment of goodwill, the Directors have decided that an impairment of the goodwill relating to the Dutch operation is prudent at this stage. The review of the business valuation has taken into account the operating loss in the period of £758,000 and local managements internal budgets and expectations for the next 5 years. As a result of this, it is considered that a business valuation can support the carrying value of the current tangible fixed assets, but not the goodwill that arose on acquisition. Therefore the Group has impaired the full carrying value of goodwill relating to the acquisition of Topps Holding BV. 

13. Property, plant and equipment

	Land and buildings		Fixtures
		Short	And	Motor
	Freehold	leasehold	Fittings	Vehicles	Total
Cost	£'000	£'000	£'000	£'000	£'000
At 1 October 2006	16,482	2,397	32,882	111	51,872
Additions	2,040	115	7,288	221	9,664
Acquisition of joint venture	-	-	1,879	156	2,035
Disposals	-	(746)	(2,390)	(146)	(3,282)
At 30 September 2007	18,522	1,766	39,659	342	60,289
Foreign exchange movement	142	16	373	3	534
Additions	1,231	60	5,311	20	6,622
Disposals	(3,247)	-	(1,740)	(22)	(5,009)
At 27 September 2008	16,648	1,842	43,603	343	62,436
Accumulated depreciation and impairment
At 1 October 2006	588	902	13,482	43	15,015
Acquisition of joint venture	-	-	649	30	679
Charge for the period	268	130	3,954	72	4,424
Eliminated on disposals	0	(28)	(1,591)	(61)	(1,680)
At 30 September 2007	856	1,004	16,494	84	18,438
Foreign exchange movement	9	10	169	1	189
Charge for the period	281	131	4,307	73	4,792
Eliminated on disposals	(124)	-	(1,233)	(12)	(1,369)
At 27 September 2008	1,022	1,145	19,737	146	22,050
Carrying amount
At 27 September 2008	15,626	697	23,866	197	40,386
At 29 September 2007	17,666	762	23,165	258	41,851

Freehold land and buildings include £4,104,000 of land (2007: £4,104,000) on which no depreciation has been charged in the current period.

Cumulative finance costs capitalised included in the cost of tangible fixed assets amount to £nil (2007: £422,000), see note 8 for further details.

The group has not contractual commitments for the acquisition of property, plant and equipment (2007 - £nil).

14 Subsidiaries

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

 

15. Trade and other receivables

	2008	2007
	£'000	£'000
Amounts falling due within one year:
Amounts receivable for the sale of goods	493	357
Other debtors and prepayments
-Rent and rates	4,693	4,277
-Derivative financial instruments	165	-
-Other	2,558	2,368
	7,909	7,002

The directors consider that the carrying amount of trade and other receivables at 27 September 2008 and 29 September 2007 approximates to their fair value on the basis of discounted cash flow analysis.

 

Credit risk

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

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

Total trade receivables (net of allowances) held by the Group at 27 September 2008 amounted to £0.5million (2007: £0.4million). These amounts mainly relate to insurance generated sales and sundry trade accounts. In relation to these sales, the average credit period taken is 94 days and no interest is charged on the receivables. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.

Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed periodically. Of the trade receivables balance at the end of the year, £137,000 (2007: £46,000) is due from Independent Inspections, the Group's largest customer. There are no other customers who represent more than 5 per cent of the total balance of trade receivables.

Included in the Group's trade receivable balance are debtors with a carrying amount of £228,000 (2007: £92,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 200 days (2007: 340 days), however this ageing is distorted by one account of £6,000 (2007: two accounts totalling £6,300) which is overdue by 1,092 days (2007: 834 days).

Ageing of past due but not impaired receivables

	2008	2007
	£'000	£'000
60 - 120 days	228	92

The allowance for doubtful debts was £5,000 at the beginning and end of the period (2007:£5,000). Given the minimal receivable balance, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

The allowance for doubtful debts includes no individually impaired trade receivables (2007: £nil) which have been placed under liquidation. 

16 Cash and cash equivalents

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

	2008	2007
	£'000	£'000
Sterling	13,906	18,386
US Dollar	316	(462)
Euro	(245)	(2,143)
Total cash and cash equivalents	13,977	15,781

 

17 Other financial liabilities

Trade and other payables

	2008	2007
	£'000	£'000
Amounts falling due within one year
Trade payables	15,373	19,702
Other payables	7,339	4,743
Accruals and deferred income	7,249	6,571
	29,961	31,016

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 48 days (2007: 65 days). No interest is charged on these payables. 

The Directors consider that the carrying amount of trade payables at 27 September 2008 and 29 September 2007 approximates to their fair value on the basis of discounted cash flow analysis.

 

18. Bank loans 

	2008 £'000	2007 £'000
Bank loans (all sterling)	105,213	110,644

The borrowings are repayable as follows

On demand or within one year	7,500	5,000
In the second year	7,500	5,000
In the third to fifth year	91,000	101,000
	106,000	111,000
Less: Total unamortised issue costs	(787)	(356)
	105,213	110,644
Less: amount due for settlement within 12 months (shown under current liabilities)	(7,500)	(5,000)
Issue costs to be amortised within 12 months	250	93
Amount due for settlement after 12 months	97,963	105,737

The weighted average interest rates paid were as follows:

 

	2008 %	2007 %
Loans	6.4658	6.1286

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

The Group has one principal bank loan of £116 million taken out on 1 August 2006. During the period the banking facilities were renegotiated with a relaxation of both covenants associated with the debt. Repayments commenced on 28 July 2007 and will continue for an extended period until 28 Jan 2012. There was a one-off arrangement fee of £0.5 million which is being amortised over the remaining period of the facility. The loan is secured by upstream guarantees provided by certain subsidiaries. The LIBOR margin shall be adjusted between 1.5% and 2.75% dependent on the Group's level of compliance with a net debt to EBITDA covenant.

At 27 September 2008, the Group had available £5 million (2007: £5 million) of undrawn committed banking facilities.

 

19. Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 18, cash and cash equivalents disclosed in note 16 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 21 to 27.

Significant accounting policies

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

Categories of financial instruments

	Carrying Value and Fair Value
	2008	2007
	£'000	£'000
Financial Assets
Held for trading	165	-
Loans and receivables (including cash and cash equivalents)	21,721	22,783
Financial liabilities
Held for trading	2,110	481
Amortised cost	135,174	141,660

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

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

Market Risks

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

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

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

Foreign currency risk management

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

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

	Assets		Liabilities
	2008	2007	2008	2007
	£'000	£'000	£'000	£'000
Euro	1,471	552	5,278	4,889
US dollar	317	-	323	1,091

Foreign currency sensitivity analysis 

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

	2008 £000	2007 £000
Profit or Loss movement on a 10% strengthening in Sterling against the Euro	479	642
Profit or Loss movement on a 10% strengthening in Sterling against the US Dollar	1	213

Currency derivatives

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

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

	2008 £'000	2007 £'000
Forward foreign exchange contracts	400	7,800

These arrangements are designed to address significant exchange exposures for the first half of 2008 and are renewed on a revolving basis as required.

At 27 September 2008 the fair value of the Group's currency derivatives is a £62,000 liability (2007: a liability of £251,000). These amounts are based on market value of equivalent instruments at the balance sheet date.

Gains of £189,000 are included in operating profit in the year (2007: losses of £251,000).

Interest rate risk management

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

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at balance sheet date was outstanding for the whole year. A 50 basis points increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group's profit would be impacted as follows:

	50 basis points increase in interest rates		50 basis points decrease in interest rates
	2008	2007	2008	2007
	£'000	£'000	£'000	£'000
Profit or (loss)	(558)	689	(3,208)	(1,808)

The Group's sensitivity to interest rates has decreased during the current period mainly due to the

reduction in variable rate debt instruments and the increase in interest rate swaps.

Interest Rate Swaps

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

The Group's interest rate swaps comprise;

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

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

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

The fair value liability of the swaps entered into at 27 September 2008 is estimated at £1,945,000 (2007: £481,000). Amounts of £1,464,000 have been charged to finance costs in the year (2007: £481,000).

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Management have considered the counterparty risk associated with the cash and derivative balances and do not consider there to be a material risk. The Group has a policy of only dealing with creditworthy counterparties. The Group's exposure to its counterparties is reviewed periodically. Trade receivables are minimal consisting of a number of insurance companies and sundry trade accounts, further information is provided in note 15. 

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

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 18 is a description of additional undrawn facilities that the Group has at its disposal to reduce liquidity risk further.

Liquidity and interest risk tables

The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows (and on the assumption that the variable interest rate remains constant at the latest fixing level of 7.4536%) of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

2008	Less then 1 month	1-3 Months	3 moths to 1 year	1-5 Years	5+ Years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Non-interest bearing	29,961	-	-	-	-	29,961
Variable interest rate instruments	-	3,190	12,553	114,863	-	130,606

2007	Less then 1 month	1-3 Months	3 moths to 1 year	1-5 Years	5+ Years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Non-interest bearing	31,016	-	-	-	-	31,016
Variable interest rate instruments	-	1,900	10,242	129,412	-	141,554

The Group has access to financing facilities, of which the total unused amount is £5 million at the balance sheet date (2007: £5 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. The Group expects to continue to reduce its debt to equity ratio, which is currently 1.92.

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

2008	Less then 1 month	1-3 Months	3 moths to 1 year	1-5 Years	5+ Years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Interest rate swaps payments	-	-	(679)	(2,462)	-	(3,141)
Foreign exchange forward contracts payments	(400)	-	-	-	-	(400)
Interest rate swaps receipts	18	58	-	-	-	23
Foreign exchange forward contracts receipts	338	-	-	-	-	338

2007	Less then 1 month	1-3 Months	3 moths to 1 year	1-5 Years	5+ Years	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Interest rate swaps payments	-	-	-	(3,141)	-	(3,141)
Foreign exchange forward contracts payments	(600)	(1,200)	(5,400)	(600)	-	(7,800)
Interest rate swaps receipts	29	171	144	22	-	366
Foreign exchange forward contracts receipts	594	1,157	5,208	590	-	7,549

Fair value of financial instruments

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

Deferred tax

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

	Accelerated tax depreciation	Tax Losses	Share Based Payments	Exchange Rate Differences	Interest Rate Hedging	Rent Free	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 2 October 2006	2,088	-	(696)	(17)	-	(142)	1,233
Charge / (credit) to income	(143)	-	(18)	(53)	(135)	21	(328)
Share Options exercised in the period	-	-	195	-	-	-	195
Credit to Equity	-	-	(38)	-	-	-	(38)
At 30 September 2007	1,945	-	(557)	(70)	(135)	(121)	1,062
Charge / (credit) to income	1,109	(215)	(28)	74	(410)	(80)	450
Share options exercised in the period	-	-	147	-	-	-	147
Charge to equity	-	-	305	-	-	-	305
At 27 September 2008	3,054	(215)	(133)	4	(545)	(201)	1,964

 

21. Called-up share capital

	2008 £'000	2007 £'000
Authorised 240,000,000 (2007: 240,000,000) ordinary shares of 3.33p each (2007: 3.33p)	8,000	8,000
Authorised 37,000,000 (2007: 37,000,000) redeemable B shares of £0.54 each	19,980	19,980
Authorised 124,890,948 (2007: 124,890,948) irredeemable C shares of £0.001 each	125	125
	28,105	28,105
Issued and fully-paid 171,092,506 (2007: 170,579,936) ordinary shares of 3.33p each (2007: 3.33p)	5,703	5,686
Total	5,703	5,686

During the period the Group allotted 512,570 (2007: 272,096) ordinary shares with a nominal value of £17,000 (2007 £8,000) under share option schemes for an aggregate cash consideration of £337,000 (2007: £158,000).

 

22. Share premium

	2008 £'000	2007 £'000
Balance at start of period	681	531
Premium on issue of new shares	320	150
Balance at end of period	1,001	681

 

23. Merger reserve

	2008 £'000	2007 £'000
Balance at start of period	240	(399)
Premium on issue of new shares	-	639
Balance at end of period	240	240

250,000 Ordinary Shares with a market value of £647,500 were issued in 2007 as consideration for the acquisition of Topps Tiles Holdings BV leading to an increase in the merger reserve of £639,000.

 

24. Share based payment reserve

	2008 £'000	2007 £'000
At start of period	222	166
Share option charge	100	56
At end of period	322	222

 

25. Capital redemption reserve

	2008 £'000	2007 £'000
At start of period	20,359	20,254
Cancellation of shares	-	105
At end of period	20,359	20,359

26. Foreign exchange reserve

	2008 £'000	2007 £'000
At start of period	-	-
Exchange differences on consolidation of overseas operations	248	-
At end of period	248	-

27 Retained earnings

	£'000
At 1 October 2006	(89,621)
Dividends paid	(18,169)
Deferred tax on sharesave scheme taken directly to equity	(157)
Tax effect of share options exercised	195
Net profit for period	25,740
At 30 September 2007	(82,012)
Dividends paid	(17,022)
Deferred tax on sharesave scheme taken directly to equity	(305)
Net profit for the period	16,353
At 27 September 2008	(82,986)

28 Financial commitments

a) Capital commitments

At the end of the period there were no capital commitments contracted (2007: £nil).

b) Pension arrangements

The Group operates separate defined contribution pension schemes for employees. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to the funds and amounted to £195,000 (2007: £235,000).

c) Lease commitments

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

Minimum lease payments under operating leases recognised as an expense for the period were £19,861,000 which includes property service charges of £593,000 (2007: £16,725,000 including property service charges of £470,000). 

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

	2008		2007
	Land and		Land and
	buildings	Other	buildings	Other
	£'000	£'000	£'000	£'000
- within 1 year	17,953	1,021	16,642	858
- within 2 - 5 years	60,203	1,519	56,421	1,435
- after 5 years	66,116	104	64,131	168
	144,272	2,644	137,194	2,461

Operating lease payments primarily represent rentals payable by the Group for certain of its office and store properties. Leases are negotiated for an average term of 15 years and rentals are fixed for an average of 5 years (2007: same).

29 Share based payments

The Group operates 2 share option schemes in relation to Group employees.

Equity Settled share option scheme

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

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

Date of grant	Option price (p)	Exercisable period	No. of options outstanding
			2008	2007
26th January 2001	0.54p	7 Years	108,520	345,345
12th February 2002	0.54p	7 Years	40,779	47,445
			149,299	392,790

Movements in share options are summarised as follows:

	2008 number of share options	2008 weighted average exercise price	2007 number of share options	2007 weighted average exercise price
		£	£	£
Outstanding at beginning of period	392,790	0.54	422,135	0.54
Exercised during the period	(243,491)	0.54	(28,345)	0.54
Expired during the period	-	-	(1,000)	0.54
Outstanding at end of period	149,299	0.54	392,790	0.54
Exercisable at end of period	149,299	0.54	392,790	0.54

The weighted average share price at the date of exercise for options exercised in the period was 133.88 pence (2007: 259.10 pence). The options outstanding at 27 September 2008 had a weighted averaged exercise price of 54 pence (2007: 54 pence) and a weighted average remaining contractual life of three years (2007: four years).

Other Share based payment plans

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

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

	2008 number of share options	2008 weighted average exercise price	2007 number of share options	2007 weighted average exercise price
Outstanding at beginning of period	913,701	129p	1,009,538	96p
Issued during the period	376,805	131p	198,211	217p
Expired during the period	(303,792)	129p	(72,768)	96p
Exercised during the period	(269,079)	76p	(221,280)	60p
Outstanding at end of period	717,635	135p	913,701	129p
Exercisable at end of period	717,635	135p	913,701	129p

The Group recognised a total expense of £100,000 (2007: £56,000) relating to share based payments.

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

	2008	2007
Weighted average share price  - pence	140.0	144.8
Weighted average exercise price - pence	112.0	115.8
Expected volatility - %	88.2	27.8
Expected life - years	3 or 5	3 or 5
Risk - free rate of interest - %	4.5	4.3
Dividend Yield - %	4.6	4.4

Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous 3 years. The expected risk used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces.

30 Related parties

S.K.M. Williams has the non-statutory role of President, advising on property matters and is a related party by virtue of his 10.4% shareholding (17,718,950 ordinary shares) in the Group's issued share capital. 

At 27 September 2008 S.K.M. Williams was the landlord of two properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £66,000 (2007: £66,000) per annum.

No amounts were outstanding at 27 September 2008 (2007: £nil).

The lease agreements on both properties are operated on commercial arms length terms. His salary for the year in his role as President was £40,000 (2007: £96,000).

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

The remuneration of the Board of Directors, who are considered key management personnel of the Group was £1.1 million (2007: £1.9 million). Further information about the remuneration of the individual directors is provided in the Remuneration Report on pages 29 to 31 of the Annual Report.

ENDFR IFFFVLFLSFIT