Topps Tiles (LSE:TPT) — Full Year Results

0:01 Good morning, and welcome to the TOPPS TILES PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you

0:31 over to CEO Rob Parker. Good morning to you. Hi. Yes. Thank you for that. Thank you for the introduction. Hello, everyone. A really warm welcome to the TOPPS Group full year results for the financial year ended 2023. I'm Rob Parker, chief executive, and my cohost today, Steven Hopson, is our CFO. So turning firstly to cover the key highlights for the period. We start with the real high point for the business, which is the successful delivery of our goal, our market share goal of one in five by 2025, so that was a goal to take a 20% market share, and we are delighted to be announcing this week as part of our results. We've actually now at the achieved 22% market share of the entire, UK tire market and so closely associated, products. And that is two years ahead of our original plans. We plan to get it by 2025, and we've achieved that this year. So very significant outperformance to the market. Great to be able to combine that with a third consecutive record year of turnover for the group as well, And we've done both of those things also in our sixtieth anniversary year. So the first TOPPS TILES opening in 1963, up in Manchester. So really proud set set of achievements for the business this year. The TOPPS TILES business itself has also, achieved a further record year of sales within that business, itself.

1:48 So also continued successful delivery there. Online pure play, the newest part of the business has also had a successful year led by the continued growth of our pro tile and tools business and delivery sales growth in that part of the business is up in excess of 50% year on year this year. Our parts of our commercial business has been successfully restructured at the end of quarter three. We've seen significant cost savings on that part of the business and are now achieving profitable are are now profitable and have been each period since we achieved since we took on the restructure. Profit for the year at £12,500,000. It's slightly ahead of analyst expectations, but we're also very conscious it's down. You are near. Stephen will talk through this one in a little bit more detail in a few slides time. Cash continues to be a real highlight for the business. The business is strongly cash generative.

2:35 We've generated almost £15,000,000 worth of free cash flow this year. And again, Stephen will come on to cover that in a bit more detail. And our balance sheet is also very strong, and that creates opportunities for us. It is a slightly tougher market, but we feel the business is very well positioned to capitalize on opportunities that are going through the market as we continue to take more share. We're also announcing this week that we have rebranding the business to TOPPS Group. It's the first time we're sharing that with our shareholders and with our stakeholders today, and that's actually really the subject of the next slide. So if we turn on one, we'll talk through that. And the group has been the rebranding of the group really reflects the success of our strategy and continued ambition for our business. The group's actually the group brand is designed to designed to encompass the broader range of stakeholders that includes colleagues, suppliers, and shareholders, principally the people we're thinking about when we come to this slide.

3:27 So we feel the business has come a long way since 2019. We've been talking about developing and diversifying our diversifying our operations over the last few years. This slide really refreshes some of the progress we've actually made as a business. So back in 2019, Parkside was already part of the part of the business operations, but we were still very much in the setup phase, and we're actually excluding the financial results of parts of full financials for that period of time. Today, though, we're we're now already four four different businesses, four different trading industries, and actually within those operations, we have eight consumer facing brands as well. So sales for the business now are in excess of £40,000,000 higher than they were in 2019, and we've seen growth from every part of our operations in order to achieve that over the last few years as well. Our market share, as I touched on the previous page, has grown from 17% to 22%. That is a significant improvement to the market.

4:21 Group online penetration back in 2019 was less than 5%. It's now almost 15% of the traveling by our online participation through the through our business operations. And we've rationalized the TOPPS TILES store estate. So back in 2019, we got around three sixty stores. We've been in more strategic downsizing or rightsizing program to get us to around 300 stores. That's helped us to drive sales per store per week, so store densities, and you can see the numbers in this page. We've gone from 13,500 average sales per store per week up to £17,500. So that's really helped us to drive densities. The amount in itself helps us to drive the profitability of TOPPS TILES estate as well. The business continues to be more trade focused. So in reality, we're actually more merchant than we are a retailer. We're now at 64% trade mix. That's a 7% increase over the last four years.

5:12 And I mentioned cash on the previous slide. Our cash position has really been transformed. So back in 2019, we still had debt on the balance sheet, and we've been in that position for more than a decade. We've actually seen a £35,000,000 fully in terms of cash resources over the last four years.

5:28 It's put us in really very strong positions. We're standing now at GBP 23,000,000 balance with cash and balance sheet. And finally, our dividend. Notwithstanding some brief COVID disruption, actually, our dividend has been maintained over the period of the last four years. And actually, as we stand, we're playing 6% higher despite a slightly lower level of profit for the business as well. So I think this is really a key slide. It's a really pleased key slide, I think, for, as I say, all of our major stakeholders in the in the in the business to really try and see the business in a different light now than than over the four years ago. I'll hand you on to Steven now to go through the financial balance. Thank you. Thank you very much, Rob. Okay. So as Rob says, I'll talk to you through the numbers, and I'll start with the adjusted p and l for the twelve months, which ended the 09/30/2023.

6:13 Just as a quick reminder, in 2022, we did the acquisition of ProTiler Tools about halfway through the year, and we also launched one of our other businesses called Tile Warehouse in May 2022. So the the year on year p and l is clearly impacted by those changes in the group structure, which, again, I'll I'll I'll talk to you here in a few seconds. But but just in terms of the numbers themselves, sales grew strongly 6.3% up year on year to £263,000,000, which as Rob mentioned in is a is a record level of turnover for the group. And 13,000,000 of that increase was from online peer play. I'll show that again in in a slide time. Gross profit was up 2.8% to a £139,200,000, which is also a record for the group in terms of gross profit delivery. Gross margins were down 1.8 percentage points to 53.0%.

7:02 That's to do with the growth of online pure play and negative FX movements. Again, I've got a slide on that in a second. And importantly, we saw margin progression in the TOPPS TILES brand every quarter of the year, which again, I'll I'll return to in a second. Operating costs were 5.7% higher year on year down to inflation and then the addition of that one pure play cost base, which we had only half of last year. And then I suppose in line with what we said at half year, the impact of inflation did ease over the course of the year as gross margins also improved and leading to a much improved picture for profitability as the year went on with full year profit, as Rob said, slightly ahead of consensus at £12,500,000. Earnings per share, 4.49p, were down slightly more than the decline in profit before tax. And the reason for that was the increase in the rate of UK corporation tax, which went from 19% to 25% halfway through our financial year.

7:54 And also the part of ProTile that we don't yet own, so we don't own 40% of that business yet, is excluded from EPS measures. So those are the two reasons for the difference in EPS and PBT. So I've now got a slide on each of the key lines on the p and l, which I will walk through now. So starting with sales. As you can see on the chart, strong strong growth in sales in the course of the year, and this chart walks from the f y twenty two sales number of 247 to the f y twenty three sales number of 263,000,000. And it's clear from the chart, really, that there's two main drivers of that. One is like for like growth within the TOPPS TILES brand, and the second one is online pure play. So like for like growth means sales delivered from stores that were trading this year and last year, and we had 3.1% like like growth in the business, which led to £6,300,000 of additional like for like sales.

8:41 There was a moderating trend throughout the year on that. So h one was up 4.3%, and h two was up 1.9%. So and and that actually, as Rob said, that leaves overall store sales in TOPPS up 30% compared to the pre pandemic period. We did have slightly fewer stores this year than last year, so that had a negative impact in sales of £2,400,000. And therefore, overall level of sales growth within TOPPS TILES was 3,900,000. Upside, our commercial business saw sales full £1,500,000 to £9,400,000. Rob will talk about that in a second. And then we did have very strong growth from the online pure play part of the business. So overall, it delivered £22,400,000 of sales in the year, which is £13,000,000 up year on year. And then if you compare the £22,000,000 of sales it delivered to the full twelve months trading period in the in the previous year, which included the pre acquisition period, we had growth of 52% in that part of the business. So overall sales, 263,000,000.

9:38 Moving on to gross profit and gross mark gross margins next. So on a pounds basis, as I say, GP moved forward £3,800,000 to a £139,200,000, which is another record performance for the group. Gross margin when expressed as a percentage of sales moved backward 1.8 percentage points to fifty three point naught percent, but with an increase in the year from 52.8% in h '1 to 53.3% in h two. And I think there are four things to pick out here from this chart. So looking first of all at the chart on the left hand side, and this is the walk of the gross margin percentage year on year. So first of all, the first block on it is the business mix block. This is, I suppose, a reminder that the different businesses that now make up the group have different gross margin structures. So in particular, our fast growth online pure play businesses have gross margins of around about 30%, and that compares to, for example, the TOPPS TILES brand, which has gross margins in the in the mid to high 50%. So as that business grows at a much faster rate, that will have a dilutive impact on the gross margin at a group level. It is important to note, though, that all of the businesses in the group have the potential to deliver net margins of eight to eight to 10%.

10:48 And so although the growth in these businesses is diluted from a gross margin perspective, it isn't diluted from a net margin perspective. Secondly, as we mentioned at half year, this year, there's been an unusually high impact from FX. So the naught point eight percent that you can see on the graph refers to two things. First of all, the mark to market valuation of all forward currency contracts, and then secondly, retranslation of monetary items on the balance sheet. So that's fairly negative for us this year.

11:14 Third, the business margin, the the positive point two you can see on the graph, that means sort of compare top stars to top stars, part side to part side, and online peer play to online peer play, and that was actually slightly positive in the year. And then fourth, and and importantly, looking at the graph on the right hand side, as we said at half year, the trading margins in TOPS TILES and trading margin basically means the margin before things like FX revaluations, rebates, stock provisions, and so on. So it's a sort of weekly trading margin number. The trading margins in TOPS have been on a downward trend, but that changed from the start of 2023. So q one was the the lowest the lowest quarter for us. And then since then, the trading margin in TOPPS TILES has improved by about a percentage point every every quarter. And I would expect that moving forward, the TOPPS TILES trading margin probably stays at about the levels that it achieved at q four as we try and balance value for customers and and profitability for the group.

12:09 Moving on to talk about operating costs and interest. So this year, I've combined OpEx and interest, and that's for two reasons. First of all, because there's increasing crossover between the lines. So things like discounting and provisions has to go into the interest line. And secondly, because in a second, I want to compare the 2019 numbers to the 2023 numbers, and those were accounted for under different lease accounting standards. So you sort of need to compare them to to make So so that's why I've combined them. But if we start with the chart on the left, so overall, we had a year on year increase of £6,900,000 in terms of our combined interest and operating costs, of which £6,600,000 was was in the OpEx line. Cost inflation in the year was quite material at £5,500,000. That's 4.6%, and that was largely driven by people costs and energy costs, particularly gas costs, which as you remember, were particularly high particularly in the winter last year.

13:00 Offsetting that partly offsetting that, we had £2,300,000 of savings. That's from, first of all, having fewer stores year on year in the TOPPS TILES brand, and then secondly, from cost reductions in Parkside, which again Robert will to in a second. And then finally, the addition of the online pure play business for a full year, whereas we only had it for half year in 2022, increased our costs by by £3,100,000. So I think moving forward, looking at FY '24, we'll see we will see about another £5,000,000 of operating inflation. But I would say that in general, operation operating costs on the business, the inflationary impact of that are starting to decrease, and we do have better cost visibility moving forward. Looking at the right hand chart on the page, I also thought it'd be useful to go back to 2019, which was the last year before the pandemic period, and I suppose before the current sort of cost of living inflationary crisis started to to hit The UK, and then compare that to 2023.

13:54 So in 2019, our our cost base was a £117,000,000. And as Rob mentioned at that point, we did have the parts of our business, but we were excluding it from our adjusted profit measures. So if you add that back in, the the cost base of the business in 2019 including parts of the was a £121,200,000. And then in the four years since then to now, we estimate that the business has faced about £13,000,000 of cost inflation, which has been through, you know, four years of rises and everything from people cost to to energy cost that I just referred to. So so pretty material over the four year period. And the business has successfully offset virtually all of that. So £13,100,000 has been offset, and that's been largely due to a couple of things. So the reduction in the store base that we've spoke about has been a profitable move for us. And then secondly, we've, you know, we've had other efficiency in programs in the business such as LED lighting, store efficiencies, and some head office savings too.

14:47 So all of that cost base has been offset. And then the only other change since then to to now is that we've then added more parts to the group. So we've now added the online pure play part of the business into the group as well. So that that's a driver of the costs over over a longer term time frame. So bringing it together and looking at the movement of profit in total, profit declined from £15,600,000 last year to £12,500,000 this year. The drivers of that were the good growth in in sales and gross profit, which which led to £5,800,000 more more profit. But, unfortunately, offsetting that, there were £2,000,000 of negative FX movements and the inflationary costs I just spoke about. And then although we did have some savings from store space and and part side cost reduction, the those factors combined with the addition of online peer play meant that profits were were were down to £12,500,000, weighted two thirds towards the the second half of of the year.

15:41 Turning to cash now before I hand back to Rob. So it was a strong year for cash, actually, a good performance. So we had good operating cash flows which were in excess of profits for the period. So £18,900,000 of operating cash flows, including all costs relating to leases. And that's because profit in the year was impacted by a variety of noncash items such as some of those impacts like FX contract revaluations and so on. And so operating cash flows were good. We also had a working capital inflow in the year of £3,400,000, which included a reduction in stock levels. And we'd previously been holding a bit more stock due to, I suppose, issues in global supply chain, so we wanted to make sure we had good availability of customers. Those are now starting to unwind, so therefore, started to decrease a little bit. So so we benefited from an inflow on that.

16:26 CapEx was relatively modest at £4,200,000, which was lower than our depreciation charge in the year. And then there was about £3,000,000 cash tax bill on top of that. So those factors led to a very strong free cash flow generation of £14,700,000. Against that, we then paid a dividend payment to shareholders of 7,500,000, and therefore, we finished the year at £23,400,000 of cash at the year end. The business doesn't have any any debt, so we just have cash on the balance sheet. What we do have is a banking facility, which is unused of £30,000,000. So if you add the 23,000,000 of cash and then the £30,000,000 of banking facilities we have, then we've got £53,000,000 of sort of total headroom, I guess, to our to our financing.

17:12 And that balance sheet strength actually gives us the confidence to continue to to to maintain that dividend, as I said, at 3.6p for the for the for the full year as a whole. So that's the summary of the numbers. I think I'm now gonna hand back to Rob. Great. Thanks, Steven. So turning next to Golden Structures, and just sort of reiterating. So we have grown very strongly against the market this year. Mintel, published the the only sort of real quality research into the TAR market, Mintel actually had estimated that 2023 or the equivalent of our financial year, which obviously ends in September, The UK tire market will have declined by around 9% this year. We combine that with our other estimates for other major category of markets we participate in, things like adhesives, sprouts, tools, etcetera.

17:58 It means that brings our market share, as I said, to 22%, a significant outperformance. Great. We've achieved that goal. There will be a new goal a new goal communicated in 2024. We're not quite ready to talk about that yet. We wanna really make sure we've landed the message of, delivering our existing goal this time around, particularly with our with our colleagues internally and not to all our stakeholders. Yeah. New new exciting goal coming to the business, that will be along in 2024. The strategy for the business, remains clear and hasn't changed. We don't feel it needs to. We're specialists in TILES and associated products, and we combine it with world class service costs now at four trading businesses. And those points really are the, areas of focus for the next couple of slides, actually. So if we turn on to Steven, and I can see we've had a couple of questions in already, so I'm gonna stir those into, the sort of narrative as I go through on this page.

18:51 So in terms of leading product, I mean, as I've mentioned on the previous slide, we're specialists. Product is hugely important to us. It's a key, key source of our competitive advantage. We have genuinely global supply chains. They allow us to generate lots of value, which I think is quite different to a number of our competitors, and it's quite difficult for our competitors to follow in terms of what what we do. They don't have the scale. They don't have the reach, and they don't have the relationships that we will have. First key point, I think your supply chains are now much improved from where they were twelve, eighteen months ago. This probably would have been, you know, one of the top two things on my list sort of, you know, where are we getting product from and how's the supply chain, how robust is the is the supply chain. That is now much, much better, I would say, in all intents purposes, we're now back to business as usual. So one of the questions is about global supply chains and how resilient can we be. I mean, we source all over the world. We've got relationships with suppliers that genuinely date back decades, twenty, thirty years. It's not that uncommon.

19:52 Southern European countries are, of course, an important part of our supply chain. I think most people would expect that. Spain, Italy, Turkey, countries like that. But we do generally resource all over the world. So and we and we can do. And we can because there are no brands as such in TILES. We can resource products from one territory into another one. We did that through the more challenging periods of sort of European gas price spikes, etcetera. Any any producer that wasn't linked to European gas pricing was became quite attractive. And, obviously, shipping rates have moved things. But now the supply chain is very robust and top, so we can do resource products from one area of the world to another, in terms of, delivering best value for our customers and our business. New product development is a really key driver for us as well. Obviously, we've seen greater level of activity this year. That's good. I think it is supported by a general sense of where we're much more back to business as usual than we have been over the last few years, and that's, yeah. That that's really to be encouraged.

20:53 In category expansion, another area of question we've already had in this morning. Category expansion continues to be successful. How do we think about this? How I think about the TOPPS TILES business and the TOPPS group, actually, is if it's a hard floor or wall surface covering. So I'll say that again for clarity. Even in TOPPS TILES, if it's a hard full, or warm surface covering, we would say potentially that's our game. Clearly, tiles is a major, major part of what we do, but we're already selling luxury vinyl tile flooring. That's not a ceramic or porcelain device. It's a vinyl product. We've started to shell shower panels. Again, these are all alternatives to tiles. We've successfully trialed those online in a number of stores. They're now rolled out to, about a 100 stores and and continue to sell through your website.

21:39 Tiles are getting ever larger. We've got exciting new ranges of sort of supersized tiles or XL sized tiles coming through the business as well. And, yeah, we're keen to continue expanding what we can sell within the within the four walls of the TOPPS TILES business. I think it's another exciting year of growth for the for the TOPPS business. And I think so I think that covers the question on some category extensions, hopefully. So if we turn on next to leading people, the second really, really key area of competitive advantage for the business. So people are a huge part of our success. We have really high levels of customer service, world class levels of customer service, and I'll come back to this thing a couple of times through the deck. You can't have great service without having great people. It's as simple as that. So engagement levels are really important to us. We've got 78% in the last survey. Did 85% of colleagues filled in, which, of course, is the first sign of pro engagement.

22:33 If no one completes your survey, that tells you something in itself. So 85% of our colleagues did take the time to fill it in. And this is about 40 odd questions. It takes twenty minutes or so, and just under 80% overall engagement level, which, again, indexes very well against UK averages. Colleague turnover, I'm pleased to say, significantly down year on year as well. That's really important for us. The market has helped us, no doubt. But we've also been very focused on recruitment, retention, onboarding, and, also, recruitment right first time, actually. It's been a carrier focus for us. We like to promote internally where we can. It's really important for ensuring sort of cultural fit, and that works really well, particularly in stores around nine seventy around 70% of all promotions are through are from existing internal colleagues.

23:21 So lots of lots of really key areas in terms of leading people. I think one of the other areas questions have been asked already is around how do we maintain world class levels of customer service. I mean, there's a couple of answers here. One is it's absolutely fundamental cultural part of what we do. We talk about it all the time. We measure it all the time. We look at it. We analyze it. We understand it. It's just constantly in the narrative of the business, just offering great, great service to our customers. It's a key part of the strategy as I've as I've just shown to you. And the other area then is we may we measure it. So our surveys are based every customer that purchases from from the business is asked to complete a TOPPS survey, and we get around 30,000 data points a year. So when we talk about our customer satisfaction levels, these are really, really based on really, really meaningful size samples of data.

24:07 Yeah. We we we are we are almost borderline for that. So that's how we very much keep it alive in the business.

24:15 And and then if we turn on to the third, what we might sort of call horizontal for the business, the things that sort of run across all of our operations is our environmental leadership. We included this part of the this part of the strategy a couple of years ago now. So, again, another really key area of focus for us. We know it's important to colleagues. We know it's important to customers, and therefore, all of our stakeholders. Our goal very clearly is to be carbon neutral across scope one and two emissions by 2030. We've made some good progress here. We're now down to about 5,000 tons of carbon the business is generating. That comes down to two two really clear areas. One is our commercial delivery vehicles, our lorries, and the other one is our stores in that we use gas gas to power the heating systems for the majority of our stores. Currently, there aren't really any technical solutions for those issues. They will come. And when they do, we will be very keen to invest in those areas. But at the moment, we think that number is likely to remain broadly stable certainly for the next certainly for the next couple of years.

25:14 Tile waste has been a carrier focus for us. Quite a lot of tiles are disposed of out of business through damages, displays, these kind of areas. We've actually seen a 12% reduction in tile waste this year. That's good. So that's about 300 tons less tiles are exiting the business through waste. We've installed solar panels on the warehouse of our on the roof of our central warehouses in Leicester, just short of thousand panels now actually, and that's generating about 70% of the electricity that we need on-site, which is really good and has a very attractive payback sort of less than three year payback on that investment, and that's very attractive to the business. And scope three emissions. Scope three emissions are now becoming a major area of focus. We've committed to measuring our scope three emissions during the year, financial year twenty fourth, so the year we've now started.

26:03 And we already know that is likely to be our biggest area of impact. So some estimates are in the region that could be 10 to 20 times our scope one and two emissions. So it's an area we're really keen to understand and then really keen to work with our supply base to try and minimize those those emissions. Product, of course, product is also a really important area. And sales of recycled content products are in in the case of the slide here, content product that has a content in excess of 50% is actually grown by around 22% year on year. We have our own range of environmentally sustainable ADC products called Regenerate. Again, that's all our own trademark, all our own IP, and that's that's a key area of focus for the business as well, and and and I think can deliver future success risk.

26:47 Onto the TOPPS TILES business specifically then, and we've got we've got three slides on TOPPS TILES. It is the biggest part of our operations. Mean, I the investment case is a reminder on TOPPS TILES is we are a market leading omnichannel specialist with still really strong opportunities for profitable growth, which I think, hopefully, you can see on the top right hand side of this chart in terms of schematic, again, with some COVID disruption in 2020, taking into account the business is growing consistently and very strongly over that period of time. And we have with national coverage, so 100 stores across The UK is in excess of three times the next largest specialist competitor. That's really important particularly for trade if you want to serve trade based geographical convenience multiple locations. It's really important.

27:33 And we are a true omnichannel market leader, so 90% of our customer homeowner customers will visit the website as part of their journey.

27:41 And if we stick with the theme of homeowner on the next slide, brand strength is a real key, so hopefully, most people, viewing this call today will be quite familiar with the TOPPS TILES brand. And, actually, if you ask, people customers in our in our space, on an unprompted basis, the TOPPS TILES brand will score 25 times the level of recognition versus the next, the next best known, tile specialist business, and I'm talking about tile specialists here. And even on a property basis, even with a list of names of, tops and other sort of tile specialist businesses, TILES still scores about two and a half times higher than than anyone else on that list. So the brand strength is a is a really major asset for the business. Customer service, we've already touched on on previous slide, but the schematic here, think, is very strong. So So in excess of 90%, 91 and a half percent overall customer satisfaction.

28:32 And just for clarity, this is customer scoring is five out of five as part of the survey. If you take into account customers that also scored us four out of five, this number would be at 98%. Again, genuinely world class levels,

28:46 and a really strong sustained history over time. This is the first time I've actually been in excess of 90, which has which has been brilliant. And the core customer base is a real strength as well. So TOPPS TILES has historically tended to slightly over indexing or over over indexing a slightly more affluent customer base. I mean, obviously, it's you really need to be a homeowner in some capacity to be a sort targeted customer for us.

29:11 So that immediately puts you inside a more affluent customer demographic. But, yeah, TOPPS TILES business actually does attract a more affluent customer. We're widening the base of our of our customer group as well, widening that through our widening that through our stronger value credentials. But that's also an important area of growth for the business. And then turning next to our trade customer base. So this accounts for 60% of our sales through the TOPPS TILES business. So, again, we're actually slightly more merchant than we are homeowner, albeit the two custom groups are fundamentally interlinked. I think that's an important point. But we now have in excess of a 130,000 registered traders with TOPPS TILES business that have shopped in the last twelve months, and total registered traders in excess of that. But, yeah, yeah, it shopped in the last twelve months in excess of a 130,000.

29:57 Loyalty is hugely important here. These are people that are obviously shopping all the time for TOPPS and associated products. So, you know, daily, weekly, certainly multiple multiple purchases. They're obviously very, therefore, very important to the business that we that we know who we are, and we we look after them and retain them. And value is really important to trade. Really, really important. We deliver value through various ways designed to really lock in our our core traders and make sure we maximize share of wallet with those with those customers. And the commercial market is also an exciting opportunity for the TOPPS TILES business. That's been

30:30 helped by the establishment of a contracts team. And, actually, if you turn forward to the commercial slides, we'll touch on that in a bit more detail. So this is a new slide we've included this time really to try and help investors understand that when we think about the commercial TAR market, which is almost the same size as the domestic TAR market in The UK. So this is sort of b b to b stage, really, we're talking about here. Actually, three of our trading entities can and do have a relevance in this market. So starting with Parkside first, which is the most obvious one. Key points here, I think, talk about our park site primarily focused on coverings, not really consumables. So and when I say that, mean, adhesive scraps, trims, etcetera, expansion joints, primarily focused on coverings.

31:15 They're work we're working through a direct selling team here. So it's not about stores. It's about people. It's about contacts, these kind of areas. They tend to be larger projects in part size. They tend to be longer lead times, but it's also really important to note that whilst the architects we are dealing with architects and designers. Whilst those people are the ones that are specifying the product almost invariably. It doesn't actually buy us the product, will be a contractor, and contractors obviously also need lots of consumables, which is where the ProTile business is an excellent addition to the group. So ProTile make a really excellent partner to Parti. They're experts in consumables, and they already pick up commercial business naturally through the website. We're actually now starting to become much more proactive in terms of mutual referrals between the two businesses.

32:02 So talking much talking to contractors is much more joined that way about being able to meet all of their needs. And most of the pro style business today comes through online. As you expect, it's an online pure play operation, but we also have a small direct selling team, and that's an area of growth for us as well in the area of an opportunity as we move forward. And then the TOPPS TILES business itself, as I just touched on, can provide everything that I I think really a smaller contractor or a local developer needs in terms of offering coverings and consumables. We can also offer the convenience store collections, again, 300 stores across The UK. We can offer lots of things that our competitors can't in the space and the introduction of the contracts team into the TOPPS TILES business is really helping us continue to grow this area of the business as well.

32:48 The parts of our business itself then, a tougher year for the parts of our business, but also a really important year. We feel, sales, if you look at the bottom right hand side of this chart, you can see the sales were growing very well. We actually hit a hit buffers a little bit this year as we saw overall headline sales decline modestly. That meant we weren't gonna be able to trade ourselves out of the losses that we've been making for some time. And the level of sales that we were at, the cost base did need some action to get us back into positive profitable territory. We took that action at the end of quarter three. We managed to remove about 35% of the cost base of our business. We retained all of the key clients and actually retained the sales as well throughout the period, which was excellent. The business is now appropriately structured for for an entity with around £10,000,000 of top line sales, and I'm pleased to be pleased to report, as I said in the introductory slide, each period since the restructure, we have been generating now, small but sustained prop levels of profitability, which is great.

33:49 But commercial operation in its entirety, the commercial side of the market remains an important area of focus for the group. And the key message this time really is it's not just about part of our operation. That's an important part of what we do, but the other there are three elements in total of our operations that will have relevance in the in the commercial side market. Turning next to online pure play. The entire warehouse is the newest part of our operations. I think why why have we entered this market? Well, we believe we can be advantaged. It's a 100,000,000. We estimate the online time market has been reaching a £100,000,000. We feel we can be advanced this year as well. We're the leader in the omnichannel side of the market. We also believe we can be a a leading player in the peer play market. There's no reason at all to buy that. That couldn't be the case. So and we have we we've made some we've we've made good progress in FY '23, but we're not quite as far on as we really wanted to be. We've made some changes to the business, and we expect to see some, some really strong progress during the course of 2024.

34:50 And ultimately, we believe this is a £15,000,000 plus profitable sales opportunity, and that's what continues to drive our ambition in this space. The Protile business then, as a reminder, is a trade focused, digital consumable business, really high credit credibility with professional installers. The business is really founded on tires selling to other tires. Really impressive sales growth this year. It's been an excellent addition to the group. We're now the clear market leader in this space, as I mentioned earlier, in excess of 50% year on year growth this year. It is a lower gross margin, Stephen called it earlier, so it's around a 30% gross margin. It's quite different for us as a business. But ultimately, our target level of profitability for each trading element of the business is between 8% to 10% net margins, and the Protal business can and easily see that level of profitability, which is which is excellent.

35:44 Business is big the business is being expanded through that core digital and trade skill set. So we've actually launched two new brands this year as well, the warm floor store and floor and material, which you can see the logos on this page. So ProTile, the majority of sales today come through the ProTile tools website, but this business is now five brands. It was three when we bought it, and it's now five today. And they're all exciting areas of future growth for the business. Our ambition here is 30,000,000 in excess of £30,000,000 of sales, and we are confident we will get to that target sooner rather than later, actually. Brings me to my last slide then in terms of market and outlook. So the market has definitely got tougher. I think we've seen a number of factors really influencing that. So a number of headwinds coming at the consumer, particularly things like sustained high levels of inflation, higher mortgage rates, obviously, at the back of higher interest rates. And the housing market generally is going through a weaker period. We can we can see transactions have come down. We can see house prices has stepped away from where it was as well.

36:46 And for us, really, what's happening in the current trading period is the peak that we see coming out of summer. So October, children go back to school. September would step up versus August, October again, and then ultimately to November. November is our busiest period of the year as it is for lots of home improvement based businesses, and that's really just about customers getting homes ready for Christmas, finishing off jobs, etcetera. We've seen a peak coming out or we've seen a build of sales, a seasonal build of sales coming out in some of it. It hasn't been as strong as perhaps we might have expected based on previous years' experiences. Consumer discretionary spending is definitely weaker. I think the best data point we've seen that we can share is obviously lots of softer data points. The best hard data point I think is Barclaycard published an annual spend sorry, a monthly spend report, and they helpfully subdivide that down if you look at the GRI and open improvement spend for October per BarkerCard.

37:41 They yes. They are reporting the market down about 8% in that space, and their numbers will look at, yeah, with we they they they make quite a lot of sense to to what we're seeing in our business. So what does all that actually mean? Well, it means for the first eight weeks of our new financial year, so October and November. Total sales for the group are down about 3% year on year. The TOPPS TILES business on a like for like basis is down about six, so slightly behind that level. And that in itself really shows how much growth we're still getting from principally the pro tiler business. That's given us a real benefit at a group level, which is great. So we think, you know, trading is more challenging, but also that creates opportunities for us. We've got a strong balance sheet as a business. We feel we're really well positioned to take advantage of maybe weaker competitors in this kind of the market as well. Our competitive advantage remains strong. We've got brands.

38:29 We've got that World Cup service we've talked about. We've got the expertise, you know, it's our specialist and it's all we do. And most importantly, we've got the ambition to continue taking our business forward. So that completes the formal part of the presentation. We'll, we'll turn to some questions now. Thank you. Perfect. Rob, Steven, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via our investor dashboard. Rob Steven, as you can see, we have received a number of questions throughout today's presentation. And if I may now hand back to you and kindly ask you to read out the questions, give responses where appropriate to do so, and I'll pick up from you at the end.

39:17 Thanks, Alex. That's great. Yes. We have had a couple of questions. There there've been a couple that have come in that I think we've dealt with through the course of the presentation, so we won't go over those again now. But what I'll do is I will go to the third question, if that's alright, Rob, which comes in from Ian. So thanks for the question, Ian. And the question is how does TOPPS TILES plan to stay competitive in the evolving retail landscape, with the rise of e commerce? I mean, I I think so much of this question has been answered through the strategy slides really is my first answer. I think, you know, the TOPPS TILES business is a very strong market leading omnichannel model relevant to trade and homeowners alike, and that business has been really keen to that, has continued to go from strength to strength. I think we have really driven that business forward by making sure we've got really great value for both groups of customers, frankly, in the way that I think I've described, you know, expanding our value ranges. I think it's been a really important step in the last few years for our for our for our home only customers.

40:22 And I think particularly those customers that maybe are, you know, more budget conscious, maybe first time buyers, you know, just bought their first home, etcetera, or just on title budgets. It's really important that we can offer a very, what I sort of loosely call out sort of broad church of offer. Anyone that walks in the doors of the TOPPS TILES store, certainly, that's a broad mid category, the mass market area. We absolutely can and should get to offer them a really compelling, really good value offer. And I I believe we now can. I think we're in as absolutely our sweet spot of offer. The trade side of the business, as I've also explained, has gone from strength to strength. You know, trade participation has grown year on year on year, and that, again, is making sure we've got really great products and also really great value combined with that strong service. And the service applies just as much to our trade customers as it does our homeowners in slightly different ways maybe. You know, our trade customers, they want strong relationships, they wanna feel like they've been looked after, they wanna feel like we've gone above and beyond, you know, maybe keeping the store open for ten minutes later or opening up ten minutes early so they can get the things they need to get on with their jobs, things like the loyalty points, the loyalty reward scheme, lots of areas.

41:31 I mean, the rise of ecommerce, it was part of this question. So firstly, TOPPS TILES enjoys market leading levels of online tile related traffic by a factor of at least three times. So it's a it's a misunderstanding, I think, if it's the view that TOPPS TILES isn't really online. Absolutely. Most customer journeys will start online in terms of initial research. That is where, you know, TOPPS TILES excels and excels in natural search rankings as well as paid search rankings. So the TOPPS TILES business is a really strong digital player. But, of course, you know, as I've covered, we've observed the rise of some of the online specialists as well. I think a lot of customers do want a physical experience. They wanna come to the store. They wanna seek advice. They wanna see tiles. They wanna touch tiles, which is quite tactile for us as well. They wanna get pick up samples.

42:19 They want the convenience of physical store and the interaction with the store colleagues, but some customers are happy buying online and just a pure play, if you like. And that's why we've also created the tile warehouse business so we can apps as I've said, we believe we have everything we need to be, you know, market leaders in that space as well. And that's exactly why we've why we've taken that into account as part of our overall strategy. I think that probably covers the question, though. I think as best as I'm able to today. That's great. Thank you, Rob. Okay. There's one for me now. So we had a question from Mark. So thanks for the question, Mark. And the question is, are you expecting to be able to fully offset recently announced increase in in the national minimum wage with cost savings elsewhere? So, yeah, Mark's referring here to the sort of 10% increase in the national living wage, which the charts announced in his autumn statement, which comes in from April 2024.

43:12 I mean, I I suppose first thing is that when I was talking to the operating costs, I talked to the fact that we were expecting about £5,000,000 of cost inflation to impact us in the next financial year. Clearly, that cost increase specifically only comes halfway through the financial year, but it's sort of included in part of the overall level of cost inflation that I was talking to. Will we be able to assess it? Well, the the savings that the group has made in in recent years has been through, I suppose, a couple of things. So we've reduced our store network, as I mentioned. That has really come to an end now, so we've got about 303 stores at the end of year. We think that's about the right level, so I don't think we're getting more savings there. And we also run quite a lean central cost and central cost base as well. So I don't think we're going into the year thinking how can we cut costs to to offset that. I think what we wanna do is keep on taking market share and growing sales and and gross profit really to cover that.

44:02 So I think that's how we're how we're thinking about it. Mainly other point just on national living wages that although colleagues who join us as service specialists, which is the sort of entry level position in our company, do earn national living wage, they also earn lots of other parts of variable remuneration as well. So they have commissioned a little bit on various other things as well. So that that is quite an important part of our overall our overall pay policy. So, hopefully, that answers your question, Mark. Next one, Rob, I'm going to come back to you, please, on this one. So this is also from Mark. I don't if it's same Mark. Maybe it is. And the question is, given your 22% market share, can you grow above your end market, or will you simply track general market trends? So I still feel like there's two questions embedded. It's one here today, Mark. So I think saying asking the question, can we grow above our end market might suggest new new markets too, so I suppose. So firstly, let's let's answer the the first question, I think, which is do we believe we can continue to grow market share? Absolutely.

45:02 We believe we can continue to take share. I think we are doing, frankly. I think current level performance is an outperformance of the market. And we are ever expanding our market, of course, some of the additional categories I've talked about. I mean, buying the PRO TOPPS business took us into new areas of the market we went into previously, and it's cash for expansion to the TOPPS TILES business, SHOW panels, LVT. Again, hard floor or surface coverings is a continued expansion of our market. We do see ourselves as specialists, not generalists. I think anything further beyond that, would need careful consideration, careful strategic consideration. But but, ultimately, markets that are adjuncts to tiles could be of interest to us longer term. But in the here and now, I think we continue to do a good job of taking share of the core markets room with, you know, careful, and considered cash flow expansion to really help, you know, continue to expand our our addressable market.

46:00 Thanks, Rob. And that's great. And we've got a a question from Cole here, and I'm not entirely sure how much we can say in response to some of these points. But I think Cole has two questions. One is about pricing outlook into into into next year. And then the second one is I think I presume that's sort of our pricing out customers. To And then the next one is about Black Friday trading and how was it compared to last year and with discounting more or less intense than last year. So Yeah. So let's do them in reverse order on Black Friday. It's it's not a big area of focus for the business. I would say it's probably the same year on year. We did a 10 we ran 10% off offer for I think it was over the weekend, but Black Friday is not a big area of focus for us. Frankly, I think people are consumers are more focused on sort of 50 inch televisions and that sort of stuff on Black Friday deals and now their titles.

46:50 But, yeah, we we always make sure we've sort of we're around we've got a little bit of activity running. I mean, pricing outlook, we could talk about, you know, some cost price reductions. So we could talk a bit about the past, some of those through to consumers. There have been some retail price reductions going through the business. I've mentioned a couple of times already. The key for us is we offer our customers really good value. Sometimes that might be a price reduction. Sometimes it might be bringing a whole new range in a lower price point. There's lots of different ways to know about it to our customers. Overall, what are we expecting to see? We're still seeing modest, but it's much more modest than it was from Us inflation, and that's the plan for this year. But it is significantly less than it's been past couple years. Definitely. Okay. Thank you. That's actually end of the questions. So, Alex, I'm just gonna pass back to you, think, for a second. Perfect. Thank you for that, Steven and Rob, and thank you. I think you have addressed all the questions for investors today.

47:45 And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. But before we direct investors to provide you with their feedback, which I know is particularly important to the company, Rob, can I please ask you for a few closing comments? Well, I think this is really helpful for us. It's the second time we've done it. So hopefully, our viewers have found it useful. In lots of ways. You know, we're really, really pleased with the progress the business has made this year, hitting that goal two years early, third record year of sales. Lots, you know, the turnaround in parts of our business, successful acquisition, and and continued growth of ProTile. Lots of exciting things going on across the business. We are very conscious of management team that profit also needs to move forward. You know, it's not something we take lightly. We've seen profits decline this year. We can give lots of reasons as Stephen has in terms of inflationary pressures coming on business, But, ultimately, we recognize we also need to get profit moving forward, and that's a key area of focus for us as a management team now moving forward.

48:43 Perfect, Rob, Steven. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of TOPPS TILES PLC, we'd like to thank you for attending today's presentation, and good morning to you all. Thank you.