Topps Tiles (LSE:TPT) — Interim Results

0:00 Good morning, and welcome to the TOPPS TILES PLC Interim 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 or receives during the meeting itself. However, 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.

0:31 And I would now like to hand you over to CEO, Rob Parker. Good morning to you. Thank you. Yes, good morning, everyone. Very warm welcome to the half year results update investor update and presentation. I'm Rob Parker, the chief executive, and with me this morning is our CFO, Steven Hobson. Slightly different update for investors this week. Actually, we're gonna cover the usual half year results, but we've also launched an exciting new goal for the business and a strategy to support that goal, and we're gonna spend more of our time through the presentation focusing on on that side of the update. So the the structure for this morning, I'll do the introduction. Steven will then cover the financials over the first half, and then I'll come on and talk again about goal and and strategy. On then to, the first slide of the presentation, the highlight slide, the macro, absolutely continues to remain tough. It has been for at least six months.

1:25 Within our market, group sales over the first half of the year were actually down 5.8%. We do consider that an outperformance of the market. Fixed data is quite difficult to obtain, but in terms of our analysis and our understanding of the market, we think our market for the tile tile sector in The UK is down somewhere between 1015% over the first half. That even at that level, like, this continues to be an outperformance. And then over a longer period of time, we now believe certainly by the end of this year, the market for TILES in The UK will probably be about 20% lower than it was in 2019, obviously, before the pandemic. And over that same period of time, we estimate ourselves will have by around 11%. So the business has been consistently outperforming the market and taking share for some period of time, and I'll come back to that theme in one of the later slides.

2:11 Gross margin over the first half has been positive, has been in growth as we indicated it would be. Steven will pick that up in a bit more detail. Costs also continue to be well managed. Costs are actually slightly lower, half on half, year on year. Again, Steven will pick up the detail of that. But the weight of pressure that we see at the top of the income statement of the p and l, that's our shortfall I've already mentioned, does mean the profit over the first half is down on an adjusted basis by around GBP 1,300,000. Online pure play continues to perform very well for the business. That's a new area of the business we established around two years ago, and we're seeing very strong growth for online pure play in the region of 40%. We'll talk to that in more detail. And our part side, our commercial business, we did some restructuring work there last summer. Having been through a period of sustained losses, we've actually turned that business into a small profit over the first half of the year, going from around a £500,000 loss in the first half of last year to actually £200,000 gain, over the first half of this year.

3:08 And then our Protiler business, which we acquired 60% off two years ago, we're now at the end of the earn out period on Protylar. Steven will pick up the calculations in a bit more detail, but we're we bought that business over a two year period for around five times EBITDA multiple, which for a high growth online pure play business, which is performing very well and continues to. We think that's been an excellent addition for the group and has created significant value for shareholders. And then final point on the left hand side of the slide, the interim dividend has been maintained at 1.2p per share over the first half as well.

3:40 So then moving to the right hand side of the slide, we're excited to announce a new goal for the business. Our last goal, which was one in five by 2025, that was to gain a 20% market share of the entire UK tire market. We delivered. We actually exceeded on that now with about 22% market share, and we hit that last November when we announced our full year results. We said we wanted to come back to investors this time with a new goal for the business, and that's exactly what we've done. So mission three six five is the new goal for the business. That's about delivering £365,000,000 worth of sales, roughly a £110,000,000 more sales than we're doing today or circa 50% increase from where we are. And we wanna get that also with a really strong profit underpin. We realize the profit's very important from a company and shareholder perspective. So we believe every part of our business can operate within a margin a net margin range, adjusted pretax profit margin, between 810%.

4:31 So three hundred and sixty five million pounds of sales is our goal, and we wanna do that with an 8% to 10% margin, which we think is is absolutely achievable. This goal is the goal and strategy to deliver is very much driven by self help. This is not a market recovery based goal. We think we can get there with very little help from the market, and we'll we'll come on to those numbers. And it's also facilitated by expanding our addressable market. We see the business as a hard surface coverings operation. And, again, I'll I'll talk to that when we come on to later slides. And there are some investments required in the business. These will be things such as digital marketing, systems, physical infrastructure. Steven will pick up some of that detail as we as we go through. So I'll hand you over to Steven now to cover the financial highlights, and then I'll come back on strategy and goal. Thank you. Thank you, Rob, and good morning, everyone. So, yeah, as Rob said, I'll I'll walk through the numbers for the first half of the year, and I'll start with sales. So as Rob said, overall, our group sales were down 5.8% to a 122,800,000 against what was a record first half for the year last year, actually.

5:32 And the drop says we think that is a a sort of a market beating out performance. We think the market is down year on year between 1015%. And so against that, you know, we think we continue to take market share. The group has three kind of parts to it. TOPPS TILES is the largest part, and then we have Parkside, which is our commercial business, and then online peer plan on right. So this chart bridges the sales into those three elements. Starting with TOPPS TILES, so TOPPS TILES like for like sales, that means equivalent stores that were trading last year were 9.2% lower in h one, and that was driven really by lower footfall. So actually, the conversion of customers into sales when they came in was actually slightly higher year on year. So footfall was probably the the biggest the biggest factor those life like sales. The other really important dynamic to notice is that we sell about 60 of our sales and TOPPS TILES go to trade customers and then 40% of the work to the homeowner. And the trade customer has to say, we we remain much more resilient than the homeowner, which is a a feature that's happened over the last few years actually.

6:32 So that's that's important to to to pull out. And within parts of the commercial market, the commercial and new build market does remain subdued. And parts of sales were no point £4,000,000 lower, but £4,200,000 in the first half. And then as Rochus mentioned, our online pure play business has continued to see really, really strong growth, up 39% year on year to just under £14,000,000 of sales. And there are two parts online pure play and pure pro title tools is the the large part of it, and that has seen the biggest share of growth. And it's continued to take lots and lots of market share and also benefits from being a very trade focused brand, which is therefore the same dynamic as I mentioned when talking about TOPPS. And but the other part of that this is the company is TOPPS Warehouse, which has also had a very strong first half with sales at the end of the first half running about three times the levels that it was achieving at the start of the year.

7:24 Moving on to talk about gross margin next. So we saw year on year gross margins increase at group level by 1.1 percentage points to 53.9%. That's also a bit higher than the second half of last year when margin was 53.3%. And essentially, the margin story kind of played out exactly as we expected it to. And last year, we had seen the trading margin in TOPPS TILES increased sequentially throughout the year and stepped up by the end of the year to to good levels in q four. And I think we said at the time that we expected that to be maintained, which is which is sort what happened. So therefore, that that came through as a year on year again. And in the graph, that's reflected as a gain within pricing and COGS. And, essentially, that's to do with the normalization of things like shipping costs and costs of goods compared to working goods compared to where they were a year or so ago.

8:14 The the next thing is that as as I've mentioned so far, we've had a bit of a mixed change, so more sales to trade customers, which we're really pleased about, but it does come in a slightly lower gross margin, so that's a slightly diluted effect, which the mix changes bar there. The new business growth bar refers to the same dynamic that we've seen actually for the last couple of years, which is that we've seen excellent growth in the online peer play parts of the business, and that that trades at a at a at a slightly lower gross margin than TOPPS TILES. So as that business grows, it has a mix effect and therefore dilutes gross margin slightly. And then the final of our FX and other, we had a slight hit from foreign exchange accounting in 2023, and and that's slightly less bad this year. So the slight gain from that to take the group margin to 53.9%.

9:01 Moving on to costs and interest. This slide combines operating costs and interest together. And the reason is that these days, which is way accounting works, there's quite crossover in that interest carries quite a lot of the cost relating to leases. So I've combined the two into one chart. And the good news here is that overall costs and interest were down £1,200,000 compared to h one last year, and that's despite some quite significant inflation that we're still seeing in the business of £2,200,000 in the first half. That's equivalent to about 3.5% inflationary increase, and that includes things like pay rises to our teams, some property cost increases. And offsetting that, we are seeing some small savings in utilities. So that's a net cost inflation number in the first half. The biggest sort of reduction in cost half on half is in the profit share line, that refers to variable remuneration in the business systems, store commission payments that we make and bonuses. It's a natural hedge really that we have in the company to start with weekly trading, and that's come through as a saving of £2,900,000 against last year.

10:00 There's then some further self help. So another £1,500,000 of cost savings that we flagged. About half of that relates to a restructure that we made to the commercial business, our parts of our business in the second half of last year when we took some cost out. And then half relates to other savings across the stores and and supply chain within the company. And online pure play, before we said a couple of times, it's been growing very fast. We continue to invest in costs there, so it's an extra £500,000 of costs in that area of the business. And then other costs include things like marketing and things like and provisions relating to strip outs of of of stores. So that's that's the cost bridge. And and therefore, I suppose bringing it together into the overall income statement, as we've mentioned already, sales were down 5.8% to a $122,100,000,000 pounds. And therefore, the fact that gross margins improved by 1.1 percentage points and costs reduced by £1,200,000 of cost of operating cost of interest. And we did see profit decline £1,300,000 to £3,100,000 on an adjusted basis in the first half.

11:04 Earnings per share is down slightly more than the profit before tax because our effective interest rate was a bit higher than H1 last year. I suppose the final thing to say is that we've chosen to maintain our return dividend at 1.2p per share. That's flat year on year, and it's been set in line with our capital allocation policy at one third for full year dividend of last year. So that's that's that's the way that's been that's been done. Moving on to cash. So the group has a strong balance sheet and we've placed a strong balance sheet and we finished the first half at £19,300,000 of cash with no debt. That number is pretty similar actually to what it was a year ago. So twelve months ago, we had cash of £19,900,000, so so pretty flat. And but over the first six months of the year, which is what this chart covers, we did see a decline of £4,100,000 of cash. And now, obviously, that is impacted

11:58 slightly by the the sort of the natural annual cash cycle. So for example, in the first half of the year, we paid a final dividend relating to the previous financial year, which is the £4,700,000 you can see on the right hand side of the chart. So we probably think that year on year is the most useful comparison, but there but there was a but there was a decline in the in the first half. And just talking through the moving parts, we had operational cash inflows of £5,900,000, and that was 1.3 lower than the equivalent number from the first half last year, which is in line with the moving in adjusted profit before tax that I spoke about, which would sort of make sense because a lot of the adjusting items were non cash in the period. So that that sort of follows. And working capital was an outflow of £1,700,000 over the first half. That compares with an inflow in the first six months of last year, and that is based on payables being lower than they were at the end of the for twenty three financial year as well as slightly higher levels of receivables at year end. CapEx was relatively modest at £1,900,000, although we're still guiding to full year CapEx of between 6 to £8,000,000, which is the same as we said six months ago. And interest and tax payments were similar to the previous year. I've mentioned the the dividend payment relating to the to the final dividend payment for FY '23.

13:14 And so therefore, we finished the half at 19,300,000 of cash. And we have a banking facility of £30,000,000, which is unused. And therefore, if you add those together, our headroom of cash against those banking facilities is £49,300,000. That banking facility goes on until at least October 2026 with the option of one year and one third year extension. I'm just gonna touch on the ProTylar acquisition. As Rob said at the start, we've reached the end of the two year earn out period now. That runs till the end of the the first half. And so I just would love to take the opportunity just to walk through the numbers on the deal as a whole. So as investors might remember, we bought 60¢ of the shares two years ago for £5,300,000, and and we agreed a formula at that time to acquire the remaining 47 shares that was based on a multiple of earnings that the business generated over the the subsequent two years. And as the graph on the right hand side of the page shows, that performance has been very strong. The business profile has moved from trading at about £250,000 a week at the start of the period when when we bought it, and and now it's trading about £500,000 a week. It says, well, it's it's probably doubled in that in that two year period.

14:27 And so we'll end up based on that formula I described, we'll end up buying the remaining 40% of the shares for £8,700,000, taking the total acquisition cost to £14,000,000. However, in the two year period that we've been involved in the business, it has been successful, and it's generated £2,800,000 of post tax earnings in that time frame. Now TOPPS TILES has been the 60% shareholder over those two years as I've explained. And so therefore, we have sort of taken our share of of 1,700,000 of of the post tax earnings the group has made. And and so if you take the £14,000,000 that we paid for the shares, less the £1,700,000 that we've received as a 60% shareholder in that time, The the sort of the total all in cost for the group end to end has been £12,300,000.

15:14 And ProTarget is generating £2,400,000 of EBITDA at the moment. And so if you divide one by the other, we have paid 5.1 times EBITDA for that business, which I would agree with Rob. I think it's it's pretty good for a fast growing online pure play business that is already actually making operating margins in line with our target and threshold. So that's a summary of the pro title deal. And then my final slide before passing back to what's about strategy is on the sort of current trading and the outlook. And and I suppose what we're seeing is we're seeing quite a lot of positivity really in macroeconomic lead indicators. So GDP is rising. Real wages have been rising for ten or eleven months in a row now. Inflation is falling, as we saw. Mortgage approvals are up quite strongly, and then customer conference, is continuing to to to rise. But, truthfully, these these lead indicators are yet to flow through to our numbers. Logic says they will at some point, but they they haven't done so far. And the first seven weeks of trading in the second half have seen group sales down 7.3% year on year with TOPPS TILES like for like sales down 10.1% year on year. And now the business does have a lot of competitive advantages, which I think is the thing that's leading to our gains in market share. And we have world class brands, and we have world class customer service specialist expertise, and we've got great global sourcing from around the world. And I suppose our belief is that those competitive advances combined with the the strategy that Rob is just about to

16:44 talk about will lead to us delivering the strong numbers in the medium term. So with that, I'll pass back to Rob to talk you through the strategy. Thank you very much, Steven. Excuse me. So, yes, moving on to the next slide, we'll talk about a little bit more of a focus on the market, sort of five year view of the market and our and our performance over that time and our share. The market's been quite variable over the last five years. So in, obviously, 2020, we had COVID impacts. The market was therefore down, and then that was sort of followed by two years of what we've referred loosely to as a sort of home improvement boom. Last year is a matter of record, and this has been until data. The market was lower, about 7% down. And as we already said, we think it will be down again this year. We're we're confident it will be.

17:26 And then with the exception of 2020, the key output from this slide, really, the business has consistently grown share over that time, and we believe we can continue to outperform the market. And that then combined with a a materially enlarged addressable market, which I've already mentioned, and I'll come on to a more detail on the next slide, actually, we think creates a really exciting opportunity for the business. So on to the next slide. Thank you, Stephen. The goal in the addressable market, the goal I covered earlier on, but again, to reiterate, pounds $3.65 of the sales in a single year underpinned by an 8% to 10% adjusted pretax profit margin. That is very clearly our goal. We believe we can get there over the medium term. And then the addressable market on the right hand side of the page. So historically, we refer to our market as about £1,200,000,000 addressable. That was sort of tiles and associated products, what we call essential items, adhesive scrap, trims, tools, these sorts of products. And what we've done actually now is to look at the broader market and really redefine the business as a provider of hard floor and wall surface covering. So if it's within that broader catchment, we think that is now our addressable market. And when you review the sizes of those those adjacent categories, we believe that now takes us to approximately 2,100,000,000 addressable market. So a 75% increase by redefining the business again as a hard floor and wall surface covering enterprise.

18:47 And then some of these we've already been operating in, and I'll talk to those in a few slides time. What that effectively does though is, as I say, significantly extends the addressable market for the company, and this slide actually illustrates that point very well. So historically, we may have thought of the business as really being concerned with the kitchen and bathroom area of the home. There's actually much more of the home which is addressable to us. So examples of that might include now, kitchen diners, running into outdoor spaces where porcelain tiles, two centimeter thick porcelain tiles make make a great choice and we can do sort of an in and out seamless look and and that tends to be a larger number of square meters sold on those sorts of sales. Luxury vinyl tile, we started selling a couple of years ago, actually makes a great choice for things like entrance hallways or bathroom floors.

19:34 Wood flooring is may make great choices for things like lounges or bedrooms. Shower panels increasingly customers will ask about to place in the shower itself and then tiles elsewhere in the bathroom. Lots of different areas of the home where we can place hard surface covering products, and that that makes the the the broader addressable market really exciting for us. Onto the strategy on the next slide. Thank you. The strategy from previous from previous followers has been has been lightly enhanced, I would say, with the strategy, I think, continues to serve the business very well. So now clustered all of the existing businesses under one banner of organic growth. We are calling out more clearly new growth channels for the business, so we're signaling very clearly to investors that we are interested in continuing to grow the scale of our operations. Some of those, I'll talk a little bit about today.

20:21 Some of those, we'll talk about more over time. And then the two key, what we sort of call horizontals of the business, things that really underpin everything we do in the organization. Leading product, I think self evident by the fact we are specialist, you know, tiles and those adjacent categories are our absolute core specialists in anything that's in the hard floor, and wall covering space. We're not a generalist. So it's very, very important to us that we continue to maintain and enhance those specialist credentials. And then leading people is really about underpinning our world class service, which we we absolutely deliver and aspire to continue delivering across all of our trading

20:56 of customers. Customers. A lot our We We work can lead our market in that space and are doing so. And then the other work enhancement we've made this time out is to include strategic enablers on there, and that is really to underpin the fact that there there we are recognizing there are some investments we need to make in the business, and and Steven will pick those up in a bit of detail today. We're very confident we've got the team to deliver this plan, and this is the senior team that runs the business day to day. So myself, I've been with the business just coming up for seventeen or just about seventeen years, actually, and I've been in my role since as chief exec since 2019. Steven's been with the business, going up for four years. He's an experienced CFO, now very well established in in role.

21:44 Our buying director, group buying director, Tim Tatlock, has been in the tile and associated product sectors for in excess of twenty years and been with our business almost twenty years. Very well known across the industry. Knows excellent knowledge, technical knowledge, and knows the supply base very, very well indeed. And then Simon Robinson actually joined us back in January, so relatively new member of the team. Simon has joined us as sales and operating operations director for TOPPS TILES, so really running the TOPPS TILES business day to day. And, again, Simon brings with him an excellent background and credentials, most previously working as the operations director for the Toolstation business in The UK. We currently have an interim HRD in role. We are recruiting for a permanent HRD, but, again, Joe Joanne Shawcroft comes to us with excellent credentials. He's doing a great job in the interim role, previously HR director or CPO chief people officer at the BFS business in The UK.

22:36 And then Protala, we've mentioned a couple of times, the two cofounders there have been key to the growth of the business up to this point, including the last two years, Sam and TOPPS PLC. I'm really delighted to say they they absolutely desire to continue their journey with the group post the buyout of of their equity, and we think that's a really exciting journey to continue partnering with them on as well.

22:55 So on to the next slide then. Lots of things going on in the strategy to deliver this goal. Five things that I'm really gonna pull out and focus on today as part of this presentation, then the idea is we'll talk about more things over time because there is there's a very broad range of activity going on. But five things I think are really key for investors to understand, and we'll be key we'll be keen to continue updating investors on our progress in these spaces as well. So those five things are, trade digital experience, we think there's more to do. That's my next slide. The category extensions, I've already about how we're actually gonna deploy and activate those opportunities. B to b growth, we've been talking about for a while. We think that's a bigger opportunity from here. The pro tiler business already mentioned a couple of times. We've got very good ambition, strong ambitions to continue growing that business. And TOPPS is our the newest part of the operation actually, which I'll come on to in a few slides time.

23:45 So traded digital experience. I think it's important to remind investors that actually the trade side of the business, particularly in TOPPS TILES has been the strongest performing area of the business. We've consistently grown trade. We've consistently outperformed the market. It's now more than 60% of our sales across TOPPS TILES are to professional installers. And that really has been built around significant strength in terms of our store base, which drives convenience for trade, you know, over 300 locations across The UK. It's our in stock availability, which is which is excellent on all the sort of trade essential items that those those customers really need, the adhesives, the grouts, etcetera, those kind of products. And then the relationships we have between our local store teams and their local trade base, which, you know, drive lots and lots of loyalty and share of wallet. And I think we're also recognizing that there is a bigger opportunity in the trailer digital space, and we're now really keen to push into that as we move forward. And we think there are some important steps for us to take. So on the right hand side of the slide, it really recognizes what some of those steps might be. So we already have a trade website, but we think there's now a good opportunity to refresh that website to enhance it.

24:52 And one of the things we've spoken about with investors this week is that there are some elements of friction in the trade in the trade digital journey. So an example being when you come to register as a trader, you can do your initial registration on the website. You're then required to come into stores, so have your registration validated. And there are a number of steps you have to go through before you can actually access the full trade offer, including trade pricing, etcetera. We wanna make that part of the journey much simpler. So we're going to relaunch the trade website, review the trade registration process, make it easier for traders to access the excellent value that we think we really have to offer them across the business. Trade pricing then links into stores as well. We are experimenting with showing more trade prices in stores. Historically, we've priced everything at the retail price, and then we'd have to engage traders around what the what the correct trade price would be for them. So we're starting to show more trade prices in the stores and actually having some good success with that as well. We've had a loyalty scheme running for trade for some time, but, again, it's time to refresh that. We plan to review it, and we plan to, focus harder on sort of features and benefits for trade to really make sure they're locked into our ecosystem.

25:58 And then the plan is we deliver all that through the app, which I'll I'll come on to last. Trade credit is an interesting area. We've had lots of different solutions over time across the group. About eighteen months, we decided to bring trade credit in house. And actually, we feel we've really landed a very good solution and now we're very confident. It's a small part of what we do currently, but we think there are bigger opportunities to be exploited there, particularly as a group, go

26:21 after larger trade spenders. We know that credit is very much an expectation of those customers. We feel now we've got a really good solution to offer them. And then a customer engagement platform or perhaps, you know, the customer relationship management as as people may have known it historically is a really important area for the business. We have a CRM system currently. We think that needs to move on. We need better capability, better ability to market to our trade customers and sort of talk to them in real time also better opportunities to make more of the extensive amounts of day customer data that we have at our disposal. So a really modern up to date customer engagement platform, we think, is gonna be really important addition. And then the idea is we embed all of that. We wrap all of that up into an app. The the purpose of which, of course, is we essentially keep our traders plugged into our business twenty four seven so we can talk to them. We can market to them. We can update them on their loyalty and reward points, etcetera, that they've earned with us.

27:14 We can enable things like really strong click and click functionality through an app. We think all of that embedded into in into that as our ecosystem for trade digital interactions

27:24 will be a really strong step forward for the business. In terms of category extensions then, so the the structure of the slide really is the boxes across the top are actually areas where we are already involved in selling products. We started with outdoor tiles. A few years ago now, just after COVID, I think we really pushed harder into outdoor tiles. That's been an area of technical innovation in the market. So porcelain, two centimeter thick porcelain tiles make a a brilliant outdoor tiling solution. We've had some good success there, but we still think there is more to be done. Luxury vinyl tile, we've had in the business now for a couple of years. Again, we've, got now got it rolled in, and we started with a trial online then into some of our stores and we've now rolled out all of our stores. Had some good success, but there is more that we can do there we believe. And then shower panels are currently being trialed in about a 100 stores.

28:12 Again, signs we'd like to push on and roll that out across the store estate. And then on the bottom half of the slide, these are areas we're not currently in, certainly the first two, laminate and engineered wood flooring. We don't sell that currently. We're about to launch a trial in in some of our stores. And based on pending success, we would then plan to roll that out.

28:31 And then splashbacks, similarly, we're about to launch a trial on on splashbacks with a view to rolling these things out across the business, all of which create opportunities for us. And then what we call double XL porcelain. These are the very large slabs, as they're sometimes known, very large pieces of porcelain tile, which are coming out of factories, which can be 2.4 meters long or 3.6 meters long, very, very large pieces. And they have a range of different applications, quite limited today in The UK market, but we see that growing over time, and we wanna make sure we're playing a really full and active role because this is absolutely in our sweet spot as a tile specialist business.

29:05 And then on to the next slide to try and tease out what some of those opportunities might look like in a from a value perspective, from a sales and profit, or from a sales perspective. And you can see here really the we've broken down the market across The UK. The key point being the addressable market of all these categories is about a billion pounds. Our share of them is currently very, very small. There's about £11,000,000 of sales being captured here out of a billion addressable. And for a business that has a very strong core market share, as I've said at the start, about 22 of the entire UK and sort of associated product market currently across the group, we think even a 5% share of these categories would be very modest and should be very achievable, slightly higher for outdoor because we're already sort of further on with that journey, and it's much closer to our core market. But if we achieve the level of market share that we've targeted on this page, that's £50,000,000 of sales, and we're currently doing around 10

29:58 or 11 today. So that represents a very strong opportunity. And the key then really being how do we deploy against this activity, how we reactivate this, and we think there are four things really. One is obviously range, you know, customer offer, either refining and honing and refining what we've got or introducing an offer to the business, which is what we're currently very active with. The marketing of these products is key as well. Our experience is customers do come to us and ask for them, so there's an expectation that they that we will sell these products, and we wanna make sure we can really deliver on that for our customers, but actually making sure the customers are better educated in terms of an expectation that we'll have these as well. So we think there's a much bigger job to be done in terms of marketing these adjacent categories to our customers and potential customers.

30:43 Training colleagues in store, of course, is key. You know, we we absolutely pride ourselves on our world class levels of service. We need to make sure we can deliver that entire in our core offer of target in these adjacent categories as well. Our experience so far has been really positive in that colleagues seem very happy selling a broad range of product. They they've actually engaged with it very well, but there'll be work to be done there. And then the final one is in store presentation. We're obviously we're keen to make sure we've got very good merchandising and fixturing of stores. And, ultimately, we wanna try some new treatments in a couple of stores as well. And if they're successful, we'd look to roll those out based on a based on a an acceptable level of return on investment, obviously.

31:20 Moving on then to b to b side of the strategy. B to b has been an increasing area of focus for the business for some time. We've had the commercial Parkside operation for a number of years now. We've actually built our TOPPS TILES contract team, which is actually now represents more sales than Parkside business itself, so that's been very successful for us. And in acquiring ProTile, obviously, a good majority of the ProTile sales are are through the b to b side of the market as well. And the way we've laid this page out is essentially all of the customers we can serve, the sort of homeowner starting on the left hand side then through to sort of smaller local, tile fitters, which historically has been TOPPS TILES sort of really key heartland into maybe sort of slightly larger operators, local developers, these kind of people, smaller contractors, and then through to the much much larger type of customers, large contractors, national accounts, up to and including house builders.

32:11 And then the other point we've really laid out laid out here is what is the route to get to that customer. There's a sort of idea of inbound I e those customers will come to us. Our core customer, of course, you know, the homeowner does come to us, walks into our stores, comes onto our website. Even the sort of smaller the the largest sort of local fitters will come to us, and we've done a good job with the TOPPS TILES contracts team of being able to respond to those.

32:35 But we're still quite reactive in that mode. We wait for them to come to us first, and then we sort of understand how we can really help them with their requirements. Parkside does work on an outbound selling model. We've got a sort of national sales team on the road in and out of architects and designers' offices, these kind of things. We think there's a bigger opportunity to drive a much greater share of the market by essentially having more of a proactive approach to sales in this space. And that's exactly what we plan to do. And then on the following slide, in terms of how we would wrap that together, that we do see it as a material opportunity, and we think we've got lots and lots of capability across the group to deliver this. So we've got a range of different brands that we can present. So we've got our TOPPS TILES contracts, part of business with a part side. We've got ProTile. There is all all important different players in the market. We've got lots of physical assets to deploy here, so over 300 stores across The UK, which essentially serve as 300 collection points for our for our larger trade customers that can really help drive convenience for them.

33:30 We've got our fleet of owned vehicles and, you know, very good three PL arrangements as well to ensure, you know, accurate deliveries to sites should that be required. 200,000 square foot of warehousing across The UK and about £35,000,000 worth of stock to deploy. We think that's a really unrivaled offer for some of these larger trade customers b to b side of the market. And then, obviously, we have the core range of tiles and associated products. And as we extend our offer, we can we can offer much more of a wraparound service to some of these customers who time and time, again, what we learn is what they really what they really value is convenience, ease, and simplicity.

34:06 In conversations we're having with these people, it becomes quite clear. There's just a, a really low level of understanding of what TOPPS as a group can actually deliver. People still think of us too much as a a a chain of retail stores that homeowners will sort of use. When we actually talk about the broader capability of the group, some of these much larger customers, they're really impressed with what we can do, and we think this is a really hence, it's a really exciting opportunity for the business. All of that then gets wrapped up through our world class service credentials. So whether that's our in store teams, the direct sales channels that we have, the direct selling teams, our central support, and our digital convenience, within that makes a really compelling offer for these customers.

34:45 I'll move next then on to Protylar. We've mentioned it a couple of times. Protylar is a market leader in their space, tiling consumables. It's been a really strong engine of growth for the last two years. Steven's already mentioned it. We've essentially doubled sales from when we bought the business early on in 2022. It's been an excellent journey. There are a number of different parts of the business, but ProTile tools is the is the is the biggest part of the operation, and we continue to be very excited about what we can do here. In essence, we are saying with this page, we've doubled the business from when we first got involved, and we believe it can double again. So going from roughly 25,000,000 today to about £50,000,000. They've been taking share, very rapidly in the market, and we think that journey can absolutely continue. So it's a really a really exciting part of the overall strategy and part of the delivery of the goal for the business. We do need to see little bit of investment in the business. So from a logistics warehousing perspective, as I say, the business has doubled from

35:39 when we bought it. We are now starting to feel a little bit constrained in terms of warehouse space, and we do plan to make some changes and some additions to the operation over the over the latter part of 2024. And then tile warehouse is the newest part of our operations. We started this business from scratch back in 2022. This represents a £100,000,000 market for tiles in The UK, so the market for online pure play tiles we estimate is at least a £100,000,000. There's a really clear opportunity here for a more value orientated part of the offer. And TOPPS allows us to compete in that side of the market without actually taking the TOPPS TILES brand and core customer, too far away from the traditional heartland, which does TOPPS TILES does tend to over slightly over index in a in a slightly more affluent customer base, and that's quite an important part of the model. So so our warehouse allows us to compete on a value basis much more cleanly and away from the core brand.

36:33 And and I'm really pleased to say we've made great progress over the first half. So we've roughly tripled the run rate of sales from the start of this financial year through to the half year. So in six months, we've roughly tripled the level of run rate sales in Tower Warehouse, which is great. And I continue to be very excited about the opportunity, which we've said previously and continue to. We think this is a £15,000,000 sales opportunity, and we think we can get there within five years. So that concludes the run through of the sort of key points of the strategy. I'll hand you back to Steven who'll talk through some of the financial highlights. Thank you, Robert. And yes, the this chart illustrates mission three six five from a sales perspective. It gives, as I say, an illustrative indicative impact of how how that might come come to pass. And I'll I'll just walk you through it.

37:18 So it starts with the sort of approximate market consensus for f y twenty four sales for the group, which are about 250,000,000. And the first bar refers to the changing market that we that we're embedding into these numbers over the over the medium term. And you can see that I'm assuming 10 to £20,000,000 of support from market growth in volumes and also business as usual pricing. So just generally inflationary price rises. And 10 to £20,000,000 compared to 250 equates to about four to 8% increase from that. We haven't got a time frame on the goal since a medium term goal. But if you took that as an example to be over about four years, then four to 8% becomes one to 2% per year for four years. So that's the sort of level of market assumption that we're we're assuming.

38:08 As a reminder, we think the market stays about 20% level than it was in the pre pandemic levels. And so, therefore, I think the conclusion from that is that we're not relying on the market recovering back to where it was pre pandemic for these numbers to be delivered. And and then the five bars on the right hand side of of the chart refers to the five strategic growth areas that Rob just spoke to. And so the first one was all the digital trade stuff that we talked about. We think that could be 15 to £70,000,000. That can be delivered through lots of ways. And but, you know, things like increasing share of wallet, increasing the number of trade customers we engage with, we think we'll deliver that. And that is about a 10 to 15% increase against current level of trade sales within the TOPPS TILES. So that's that one. And the second one, the new categories, that was the the the slide where we talked about a billion pounds of potential market.

38:56 We've actually slightly derisked the numbers in there in terms of what we think we get at. And so we we we're sort of putting 25 to £30,000,000 against that new area. B two b growth, so the national accounts, the contractors moving more into b two b, we think we can do 15 to £25,000,000 more from that area. And pro Tyler, we we just spoke to you. So it's at about 25,000,000 at the moment. We think we can double that to about 50,000,000, and then TOPPS warehouse is currently still relatively modest levels at final bar, and we think we can take that to £15,000,000, which takes you as an indicative way to how we market to something like £365,000,000, which is the the goal we've spoken about. And to understand what that means to the profit, I think it's worth just taking a few seconds to to look at our historical cost performance over the last few years. And this chart bridges our operating costs and interest from 2019 to 2023, 2019 being the last sort of clean year pre COVID.

39:56 And what the chart says in essence is that over that very inflationary period of time where we've had over £30,000,000 of inflation, it's our cost base. The group has actually offset all of those through savings. And therefore, the cost base of the equivalent business, so that's TOPPS TILES and PERCIDE was actually flat over that four year period. The growth in costs on the right hand side of the chart is showing because we've added a new part to the business, the online PLC part of the business, which is taking cost up off of the new plans. But as you know, that's been sort of good success story for us over over time. So as a result of that, the group's costs have been on a downward trend when expressed as a percentage of sales from about 54% of sales to about 48% of sales over that time period. And the next chart then explains what I think will happen to costs as a percentage of sales as we look forward and move towards the delivery of the mission three six five goal. And the short story is that I think costs expressed in that way as a percent of sales should fall from the 48% that they were last year to a range of 42 to 44% of sales, which is the bar on the right hand side of the chart.

41:01 And the bar on the left hand side of the chart breaks down the cost base of the business into its component parts in 2023. And you can see that just over 60% of the cost base of the group currently relates to the TOPPS TILES store network because there's just over 300 shops. And that network is a real strength of the group. And we think it's it's sort of a good number in terms of the number of shops that we need, but we need to leverage really the shops where we think we can put more volume through the stores, and we think we can do that with relatively little additional cost because things like rent and rates are obviously fixed. They don't they don't change as we push more through through through the stores. And in fact, that's true of quite a lot of the the cost base of the business. It doesn't intend to flex that much with with volume, so so it is relatively fixed. And that means that we push more sales through than the cost base shrinks as a percentage of sales.

41:49 We do need to make some investments to enable this this this growth story, and they're detailed on the right hand side of the chart. The first one is into systems. We've talked about things like the trade pack today and a customer engagement platform, that's CEP. We also need to make investments into the core systems of the group. So our warehouse systems and our central finance systems and so on. And we we we think that that will spend just just slightly less than £3,000,000 over three years since investment program on that. The second thing is that we want to spend more on marketing. We think we can, you know, sell the message of the business quite a lot more than we're currently doing. And you can see if you look at the breakup of the of the cost base, the yellow marketing bar actually grows in size between 2023 and the sort of the future cost base of the business. So we'll push more into marketing.

42:34 We're willing to recruit into some specialist roles and such as digital marketing maybe or or growing that b two b side of the business share a few specific areas. And then as Rob said, we need to invest in supply chain. ProTile at all supply chain in the in the more in the more short term. And then at some point, we will need to add additional facilities to our our group and and TOPPS TILES supply chain as well. But most of the costs will increase more slowly than sales. And as I've shared in the last slide, we've been quite good at maintaining quite tight cost discipline over recent years. And so therefore, I do think cost as a percentage of sales will fall over time. And so therefore, the sort of the financial outcomes of Mission three six five are then shown on this chart. And we've talked about sales quite a bit, so a £115,000,000 of extra sales from from about where we'll finish this year takes us to 365.

43:23 And I think gross margins will fall by two to three percentage points versus today for the reasons written on the chart largely to do business and category mix changes at the time. But because the cost base of the business expresses a percentage of sales falls in in line with the chart that I just showed, I think that we can increase our adjusted profit before tax margins to between 810%. And and therefore, if you take £365,000,000 of sales and and sort of do the math, multiply that down, you get to a profit before tax number of at least £30,000,000, which is which is our target. Other types of investments needed on the on the bottom line, there'll be some working capital investment required. And and as we've mentioned, difficult times, we're willing to invest in supply chain, and we've signaled up to it's an it's an approximate number, but perhaps £5,000,000 of expenditure over the medium term to to support that. But even taking that into account, this plan should deliver more substantial incremental return.

44:19 Currently, we should be moving that way. So that's the financial outcome for that of our machine three six five plan. I'll hand back to Robert to someone else. Thank you, Steven. Yeah. Excellent. So, yeah, in summary, we think Mission three sixty five is an exciting new goal for the business. It is combined by a really clear financial target, which is eight to 10% adjusted pretax margin for the business, which will drive a significant shift in profitability from where we are today. We've significantly expanded our addressable market. We're very thoughtful about how we can participate across a broader range of hard floor and wall surface coverings, and we know it offers us an excellent opportunity for growth. And then the five key initiatives, which there's lots of things going on in strategy to repeat myself, but five key things we've spoken about today, we wanna keep, we will continue to update shareholders on as we go through the period of time. So that really concludes the, formal side of the presentation.

45:13 There's a chance to move to some questions. 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. And, Rob, Steven, as you can see, we have received several 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 both at the end. Thank you very much for that. And what we'll do is I'll sort of farm out the questions so either myself or or Rob to answer, and then we'll get through as many as we can in the in the time that we've got. So thanks for your questions, first of all. And I think we'll probably go through them in the order that they're in front of me. So the first question is from John, and and it says that the trading estate increased slightly to 304 stores.

46:10 What are the future plans for store expansion or optimization? So I think, Rob, I'll I'll maybe start with this and then hand to you if you got anything to to add. Also, so first of yes, John, and thanks for your question. And you're obviously right. The store state increased by by one in the first half. We've got the one new store opening up in Newcastle, and we also have one relocation as well, which is a sort of one one in, one out. I think the first thing I'd say is actually the the store estate has been on quite a journey over recent years. So and we peaked at just over 370 stores actually. So that's come down about 20% in in recent years. And that has been quite a successful program. We've sort of closed stores where we maybe had three stores in a town going to two or two going to one, and we've managed to move sales across to the remaining store and hence increase profitability as a result of that. And that's been a, you know, a sort of good journey for us.

47:02 And I think the estate we've got now just over 300 is actually a a really good estate. I mean, it's an estate that no one can match in our competitor set. And we see it as a really good strategic asset for the for for the group. And clearly, it is as I showed on my cost slide, it is a very material part of the cost base of the group. And therefore, as you'd expect, we will continue to review that over time. And our key point, I suppose, when it comes stores to is that we think we can actually push a lot more through them. We think we can increase sales densities and therefore increase the profitability of those stores as we continue to grow the top line also of the business. But, yeah, that's my general take. What do think you can say? No. I think the last point is the key one, which, yeah, think that is worth clarifying. And a lot when we talk about certainly the category extensions and the additional sales, we see a lot of that being driven through the existing TOPPS TILES estate, which obviously from a return on investment, internal capital perspective makes it super, super attractive because that's where we really maximize the operational gearing, which is in Stephen's slides pretty clearly, but it's where we really start to drive the operational gearing and the drop through Internet margins.

48:10 Thank you for that question. The next question is also related with this property. And it says, how does the average unexpired lease term of three years provide flexibility? And what are the plans for stores with shorter lease terms? So the question here is is is picking up some disclosure that we give in the RNS statement where we we talk about this this sort of time to be I mean, to the next lease break or end of lease time period. And the way we think about this is we segment our TOPPS TILES store states into three chunks really. And so the the sort of the top chunk of it is our is our most strategically important stores, those that are most profitable for us. And when we're thinking about those from a property perspective, we're thinking about maximum securities. How do we lock into those stores for a period of time such that we can guarantee that we'll be able to keep trading from them and keep, you know, generating value value for the group. And at the the other end of the scale, there's stores where we want maximum flexibility.

49:13 So maybe we think, you know, we're in the right town, but maybe we're not quite in the right pitch or, you know, or the, you know, the rent's not quite set at the right level, whatever it might be. In those stores, we will try and get maximum flexibility so we can have the option to, you know, to to do things in the future. And then in the middle, I suppose, we're trying to strike a balance between those two. And so when, you know, when we're thinking about new leases, we will very often maybe sign up for, say, a ten year lease, but we'll we'll ask for a five year break in it, which therefore means that we have the option to move things around. And we we have done that very successfully in in in recent years. That's been a big driver of our success in terms of exiting those 20% or so stores that I spoke about in the answer to the last question. So I think flexibility is is is really important to us. And I think to be honest, I do think that, you know, having three years on average till the next break or end of the lease does give us does give us that flexibility.

50:01 Anything? So I don't know. No. Think it's a good summary. Yeah. No. Nothing good. Alright. Thank you. Well, thank you for that thanks for that question. The next question concerns the addressable market. Well, I think you may have answered part of this, but the question says, addressable market has been expanded to include hard floor and wall surface coverings and related products. What are the implications of this broader market focus for the company's growth strategy? Yeah. I mean, I think we have covered it really really in in in in a fair bit of detail today. I think combined with the point of we believe a lot of it can be delivered through our existing business channels. Therefore, you know, the operational gearing makes it very efficient. Customer sees as a surface covering business. They come in and ask, you know, where's your LVT in store?

50:47 Do you sell LVT? These sorts of questions. So I think there is lots of evidence. The customer is an expectation and a demand from customers that I wanna make sure we can really service those those those demands, those expectations. Colleagues seem really happy serving a broader range of categories. I think it's a great opportunity. We've done a bit. We've had success. There's more more to go after here. So, yeah, it's one of the opportunities we're we're really excited by. Thanks, Rob. And then the next question is about new goal. So the new goal is to increase sales to 365,000,000 and to achieve an adjusted profitable tax margin of eight to 10%. That's a that's a good summary of new laws. That's good. And what are the key drivers and assumptions behind this goal? Well, I I mean, I guess, maybe if I if I briefly start, hopefully, we've chatted you through them within the presentation today. And and thank you for the question.

51:35 I mean, the we see quite a clear series of five key initiatives that will deliver three hundred and sixty five million. And, importantly, the $3.65 is not reliant on a massive market recovery. Obviously, it would be great if we see that, but we don't need that to happen to to get to get to the 365,000,000. And and then in terms of the profit before tax margin, we are very conscious that, you know, we need to deliver increased profits. The the goal refers to that in, you know, in the title of it. It's it's gross sales and build profit. It's it's sort of right there in in the statement of the goal. And so we think we can do that. And and I've sort of explained how we think we can leverage the cost base of the business while making some investments in certain areas and and still deliver, you know, that eight to 10% net margin. So, I mean, hopefully, we have laid out the key driving assumptions, but, yeah, anything Yeah. I'll I'll make a couple of points. I think firstly, Protile currently has a 10% net margin. Protile is a very different model, doesn't have all the costs of stores, etcetera, and, you know, higher labor bills, but it operates off a 30% gross margin and is delivering 10% net. That gives us real confidence. They're already there. And the TOPPS TILES business historically operated off an eight to 10% net margin.

52:45 The key to get back there is operation gearing. We need to push more sales and generate more GP to resource. That was the thing that will trigger the upside to the TOPPS TILES part the business, but we've been there historically. There are no structural reasons why we can't get back there. And historically, I mean, sort of within the last five years, it's no longer ago than that. So no structural reasons why we can't get back there, and that's what the strategy is revolving around. Thank you, Rob. So then another couple of questions that have just come in. The first one is to do with our balance sheet structure. No problem. If if if you list this, that's completely fine. So the question is, essentially, do you see debt reducing substantially? So so actually, Anthony, we don't have any debts in the in the group. So just in case you did join, then you could flip back to to slide 10 in the presentation when you when you have a moment later on.

53:39 What that explains is that level of cash cash in the business. So we have cash. We don't have any debts in the business. We have £19,300,000 of cash at the end of the first half. What we have, which you might be thinking of is we have £19,300,000 of cash in the bank, and then we also then have a debt facility. So an arrangement with our banks to provide us with borrowing facilities that we can access if we need to use them of £30,000,000. So that's a sort of committed facility which is available to us to use if we need to, but we we aren't using that at the moment. And so what I explained when I'm talking through slide 10 is that if you take the £19,000,000 of cash that we have in the bank and then also the £30,000,000 that we could choose to access if we needed to, you add them together and we have over £49,000,000 of headroom to our banking facilities. So so, no, we have no debt and therefore, we we don't see debt reducing substantially. But thank you for the question.

54:32 And then another question is, do you see driving up return capital employed and return on equity as important? And, again, maybe I'll try to briefly start, and then you can you can answer it, Rob. So first of all, yes. I mean, absolutely, we do. We actually we publish our return on capital employed numbers. And so our lease adjusted return on capital employed in the first half was up slightly. So 16.4% is our in the first half. That's up from 15.5% in the first half last year. A big driver of that for us as well as profitability is the amount of lease liabilities that we have on the balance sheet, which which drives that number, which has come down slightly, which which has been helpful. Do do we see driving up as important?

55:18 Well well, absolutely. And I think a big part of the way that we've tried to discuss our sales and profit growth plans today with emission three sixty five is to emphasize the fact that these aren't relying on a very, very large amount of either capital investment or working capital investment over time. And I think and our modeling suggests that you should see pretty substantial improvements to return on capital employed as a result of delivering this plan. So so yes and yes, I think, is the answer to to to the question. Anything to add on that? I don't I don't know how to answer it other than, yes. Arguably, it's the most return on capital employed arguably is the most important thing. And if I remember my classical finance theory correctly, it's effectively an amalgamation of net margins and asset turn. In our world, we use net margin, therefore, as a shorthand because this isn't a big balance sheet play, I suppose, is the point.

56:06 If we needed to make multimillion pound investments, then we'd be talking about that in the same breath. But, largely, we don't. Therefore, net margin is our shorthand, and that will will drive up return on capital employed. But, ultimately, that's the thing we're really focused on, I think. Got it. Thank you for that question. I I think that's it, actually, in terms of the questions you've you've got got now. Now. Yes. Yes. That's correct, Steven. I believe you have addressed all the questions for investors today, so thank you for that. And, of course, the company can review all questions submitted today. I will publish those responses on the investment company platform. But before redirecting investors to provide you with their feedback, which which shows particular importance to the company, Rob, could I please ask you for a few closing comments? Well, no. Great. It's just, yeah, thank you for people's attendance today. We hope you found that useful. It's the third one of these we've done. We're keen to keep reaching out to, perhaps some of our smaller investors and broaden our opportunity the for people to engage in the story.

56:55 Hope you found it useful. We're really excited by our new goal, mission three six five, and, hopefully, we've laid out our strategy as clearly as we can today, that we believe will help us get there and be successful with it. So thank you very much. Thank you. Fantastic. 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 would 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.