Topps Tiles (LSE:TPT) — Investor Presentation

0:00 Good morning and welcome to the TOPPS TILES PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right corner of your screen. Just 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 will review your questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following call. I'd now like to hand you over to Rob Parker, CEO. Good morning to you, sir. Good morning. Thank you, Alessandro, and good morning, everyone. A very warm welcome to the TOPPS Group half year results presentation. As Alessandro just said, I'm Rob Parker, the chief exec, and my colleague joining me here today, Steven Hopson, is our CFO. So if we turn to our our running order today. So I will start with some highlights from the business over the first half.

0:48 Steven will then talk us through our financial performance, and then I'll come back on to talk through the operational activities of the business. So starting firstly with really, this page is designed to give us a view of the group at a glance. So the TOPPS group is actually a multifaceted business. We operate across three platforms. Our market leading omnichannel domestic which is TOPPS TILES, I'm sure will be very familiar to to all of our all of our viewers today. And then outside of that, we've also got a range of brands operating within our digital pure play market. We'll come on to those in much more detail. And our commercial facing business, PARX IR, which serves more than that more than a in the architect and design community and the commercial market in The UK. All of those things very decidedly pointed out our overall goal for the group. We've got one very clear goal, which is what we call one in five by 2025, and that is a market share based goal.

1:43 So it's about achieving a 20% market share of the entire UK market for tiles and also other closely associated products that we sell, so things like adhesives, grout, trims, and tools. So we wanna achieve a 20% market share of the entire UK market. That gives us a total addressable market of about £11,250,000,000 in The UK, and we want to get there by 2025. We're We're actually currently performing very well against that. So about 19% share at the end of last year, and we think there's a very good chance we may achieve that goal earlier than we originally planned to. In terms of highlights for the first half, specifically then, we've delivered a record ever period of trading for TOPPS for the TOPPS groups, a record ever six months with sales at a £130,000,000.

2:29 Stephen will come on to that in a little more detail. And that has a has also come off the back of I'll just pause for a second while we get some slight disruption this end. If you can hear that, that's a sandwich van local to the office. I apologize. So record period of sales for the group, and that comes off the back of two record ever years of turnover for the group as well. So demand has remained very robust, I'm pleased to say, across The UK consumer. The TOPPS TILES business itself has also recorded a record ever first half of sales with like for like growing by about 4.3% over the first half. The PRO TYLER business I mentioned on the previous page or was listed on the previous page, PRO TYLER business we acquired in April 2022. That's continued to perform very strongly during the first twelve months of our ownership, and that business in itself has grown by about 40% year on year. We'll come to that in more detail.

3:30 We have experienced quite significant cost pressures over the first half as well in common with lots and lots of businesses. Those pressures are now starting to abate, which is very positive. And particularly, like supply chain and employment pressures are easing from some of the peaks that we've seen over the last six to twelve months. On that basis, we do expect to deliver a materially second half profit than we've seen in the first half. There are some good reasons for that, some very clear reasons, which Stephen will cover. And we're also very comp we remain very confident in full year expectations for the business. And that goal I mentioned on the previous page of one in five, our 20% market share goal, do think we're gonna get there early. Actually, there's a very good chance. We think we could get there by the end of twenty twenty three, which would be two years ahead of the original time scale we set ourselves.

4:15 So that concludes my sort of introductory comments. I'll hand you over to Steven to run through our financials. Thank you very much, Rob. So I'll go through the p and l first of all, and then I'll touch on cash and the balance sheet, and I'll I'll do some sort of forward looking stuff at the end of my slot. So if we start, we're looking at the the p and l. So this covers the 26 to the 04/01/2023. And the comparative period from last year to to April 2022, as Rob mentioned, we did the acquisition of ProTidal right at the end of that period. So the structure of the group is a little bit different this half compared to last half, which I'll talk to in in my future slides. But in terms of numbers themselves, sales are very strong, plus 9.3% year on year, up to a £130,300,000. And as Rob said, that is the highest period that the group has ever done in six months period. So a record period in terms of sales. Gross profit was up 2.7% to £68,700,000.

5:10 Gross margins were down 3.3 percentage points, and I'll I'll touch on the reasons for that in a couple of slides time. Operating costs were up 7.4% year on year with the major factors here being cost inflation, as Rob mentioned, and then the addition of the cost base relating to that online PLC business, which went to the numbers last year. Again, I'll show that in a few in a few slides time. And all of that led to profit before tax, adjusted profit before tax being £4,400,000. And that was in line with our expectations, and we are much we are confident that much more profitable h two, which I'll come back to later on. I've now got a couple of slides looking at each of the key lines on the income statement, which I'll I'll go through one by one. So if we start by looking at sales, the way this chart works is that the sales last half one were a 119,200,000.

5:58 This half one were a 130.3. And then the the bridge that walks between those two numbers show the impact of each of the businesses. The numbers beneath the table are the actual sales delivered by the business in in in each brand. So for example, TOPPS TILES delivered a £115,800,000 in h one. And so starting with TOPPS, like for up sales were 4.3% up year on year, pretty similar growth in in q one and q two, and actually also pretty similar growth going into the start of q three, so that's quite consistent. And and the level of sales growth in TOPPS is quite impressive, particularly when you consider it in the same period last year. So the comparative period, TOPPS TILES grew its sales on a like for like basis by 22.7%. So sort of growth on growth within the TOPPS TILES brand. We did have slightly fewer stores than last year, which reduced sales by £2,000,000, and therefore, total sales growth in TOPPS TILES was £2,700,000 compared to last year.

6:50 Parkside, our commercial business, saw sales fall naught £400,000 to £4,600,000. And then online pure play, as I mentioned, not really in the numbers last year, but this year delivered £9,900,000 of sales to the group, taking overall sales to a £130,300,000, which was the highest six month period that we've recorded. Turning now to gross profit and gross margin. So starting with gross profit, GP stepped forward £1,800,000 compared to the first half last year to £68,700,000. And that is also actually another record period for the group. That's the highest h one that the group has ever had in terms of delivering gross profit of £68,700,000. And gross margin expressed as a percentage of sales stepped back 3.3 percentage points to 52.8%.

7:40 And there are really three things to pull out here. First of all, the different businesses that we now have in the group have very different gross margin structures. So TOPPS TILES versus PLC versus the online businesses. And and in particular in this period, the very, very fast growth in the online businesses, which have gross margins of around about 30%, reduced the group gross margin by 2.1 percentage points. It's a really important point here to note that all the businesses in the group have the potential to deliver eight to 10% net margins. It's just the structure of the gross to net margins are quite different by by different business units. Secondly, the rather volatile part of the pound over this period led to unusually high impact from FX. This 1% movement is down to two things. Firstly, the mark to market valuation of opening forward currency contracts, and secondly, retranslation of monetary items on the group's balance sheet.

8:35 And then finally, the change in business in in gross margin within each business, so within TOPPS, within Parkside, and within all the PLC was relatively immaterial at 0.2%. My final point on this slide is that we fully appreciate that the gross margin within TOPPS TILES has been on a bit of a downward trend in recent years. But actually, and this is an important point, the gross margin in TOPPS TILES troughed in the course of of h one. They started to grow again as we reached the end of h one. And we are confident that h two in TOPPS TILES will be stronger against the margin continues to build. And we'll talk about some of the things on that as we move forward through the presentation. Moving to operating expenditure. I mentioned earlier that OpEx costs were up 7.4%, and and that compared that it's up 7.4%, slightly lower level of increase than the level of sales growth, which is 9.3%.

9:25 And, again, there are three big factors to call out on this on this on this chart. The first is cost inflation. Overall cost inflation was about 5% in the group overall, and a big chunk of that was guest costs, which were up £1,600,000 year on year. And then the rest was across the cost base of the business. So things like employment costs, rent and rate inflation, and central contracts and so on. Partially offsetting that, we did have some savings. I mentioned earlier we had slightly fewer stores in TOPPS TILES, about 10 fewer stores on average across the first half. That generated cost savings from from the removal of the cost base associated with those stores of 1,100,000 half on half. And then finally, the addition of that online pure play business wasn't in the numbers last year. It is in the numbers this year, and therefore, the cost base associated with that grew the group cost base by £2,600,000.

10:14 And in h two, some of the inflationary costs will increase like our gas expense, and some things will reverse entirely. So we have a holding pay accrual, which will reverse in h two. I'll come back to that in my slide in a moment. So bringing it all together and and looking at profit before tax and this half compared to h one last year, the group delivered strong profit growth based on gross profit increases £3,200,000, but that was offset by £1,300,000 of negative effects movements and inflationary costs across the business and then the inclusion of the online pure play cost base of 1,000,000 before. And those were were more more than the benefit we got from reduced stores, and therefore, was 4,400,000 in h one. Profit is expected to be materially high in h two compared to h one. And, again, I'll talk to that in in a second.

11:05 Before I do, to finish off the half one story, I'll just touch on cash and balance sheet. And so we had a good performance in terms of cash flows in the first half. The business is strong and cash generative, and overall cash moved forward from 16,200,000 at the start of the financial year to 19,900,000 at the end of h one. This chart walks through the building blocks of that. The first thing is that the operational cash flow of the business were good. So £8,800,000 increase from operational cash flows. And that's really because the actual profit in the first half was impacted by a variety of non cash items such as those losses on FX contracts that I spoke about, the holiday pay accrual, and so on. And so actually, cash flows were stronger than the profit in h one. Secondly, we had a working capital benefit, £4,200,000 inflow of working capital that was based on higher trade payables and a higher batch creditor.

11:56 We spent £2,000,000 on CapEx in the first half, which is lower than our depreciation charge. Interest payments are basically zero, and we'll pay about £2,000,000 of tax in the first half. So therefore, even after an increase in our dividend, as we pay £5,100,000 in the first half relating to our final dividend payment from FY 2022. Even after that, cash flow step forward to £19,900,000 For the first half this year, we've declared an interim dividend of 1.2 p compared to one p last year. That interim dividend is set at one third of the prior year's full year dividend, which is in line with the capital allocation policy that we announced one year ago. And then finally, the group's balance sheet remains very strong. So as it says in the slide, about £20,000,000 of cash in the bank. We've also got a committed but unused £30,000,000 banking facility. And so therefore, in total, we've got about £50,000,000 of cash headroom in the group.

12:51 My final slide is is sort of looking forward really. And and in particular, I've spoken a couple times about why we think h two is gonna be materially stronger than h one from a profitability perspective. And the top four bullets in this chart detail the reasons for that. And so I'll just walk through them. The first one is I I mentioned earlier on that guests become a material cost to the group. And before the current energy crisis, our our annual gas bill in the group would be maybe 3 or £400,000. And this year, the gas bill will be about £2,400,000, that cost is weighted towards h one, which are the autumn and the winter months in the calendar. We use gas primarily for heating, and therefore, you know, the cost is much higher in the in in the colder periods of the year. So the gas bill in h two will be about £700,000 compared to £1,700,000, therefore, swing in the second half of more profit, about £1,000,000 related to that. And secondly, we have to approve for holiday pay, which is earned but not taken.

13:47 More people earn holidays in the winter and then take them in the summer. So therefore, we have a cost in the p and l of of naught £900,000 in H 1. That fully reverses as a credit in the p and l in H 2, therefore, giving a a positive swing of 1,800,000 of more profit in H 2 than H 1. So those two factors alone will deliver £2,800,000 more profit even if nothing else changed in H 2 compared to H 1. Thirdly, I mentioned earlier on, the gross margins are trending higher in TOPPS TILES, and we expect it to be higher in h two than h one. And then finally, the new businesses in the group, particularly the online pure play parts of the group is is growing fast and is expected to contribute more profit to the group in in h two than than in h 1. So overall, those factors give us a really high level of confidence that we will hit market expectations for the full year. And the rest of the points on that slide are more general information about our forward guidance, which you can read at your leisure. So I think at this point, I'll pass back to Bob.

14:41 Great. Thank you, Steven. So onto the operational review for the business. I'll start with the strategy for the business. So the strategy is obviously based around growth. Growth in order to deliver our goal of one in five by 2025 I mentioned at the start. And that growth really is hinged around our two core specialisms for the business, which are our products leading products and leading people. So leading products, I think, you know, quite obviously is all about tiles and closely associated products that we sell in order to do the whole job, adhesives, grouts, tools, trims, those kind of areas. And then combining that with really, really great levels of world class service, and we do have world class service across the business, which I'll come on to explain in more detail. Those two key areas of strength are then leveraged across our three trading businesses as we have them today. So as I went through at the start, our our omnichannel business, TOPPS TILES, our online pure play operations, and our commercial operation, Parkside.

15:36 And then increasing all of that being underpinned actually by environmental leadership. So it's obviously an important area for all businesses. We included a specific element of environment on our strategy schematic about a year ago, I think now. That is an increasing area of focus for all companies. As I said, we also think it's an area where we can genuinely lead our industry, our marketplace, and ultimately can be a source of competitive advantage to the business as well. So on to the first of those two horizontals, as we call them. So leading product as a specialist product is obviously hugely important to us. It really is a key source of our competitive advantage. Global supply chains allow us to generate lots of value in this area, and we think that's quite difficult for our competitors to follow because of the supply the scale point.

16:25 Supply chains have been really challenged as I'm sure people have been very very aware of. Been really challenged over recent years. The backdrop for supply chain has got a lot better over the last six months. New product development is a really important lifeblood of our business as well. Lots of the product we sell, we develop in conjunction with suppliers. 35% of the product we've launched over the first half, we've had some some element of collaboration with suppliers to bring to the market. We don't just buy product off the shelf from trade shows or direct from factory. And that is also a really important part of our of our of our source of differential and our competitive advantage. The business has been expanding into new categories, and so we've included some of them on the page here. Outdoor tiles, and these are tiles specifically, so two centimeter thick porcelain slabs. Luxury vinyl tile is a whole new category for us as well. That's an an alternate form of flooring. And then shower panels, a big sort of single piece shower panels that can that can do the whole wall in one hit and also XL tiles.

17:23 So the a sort of supersized porcelain tiles, which will really emerge as technologies allowed over the last few years, an increasing trend with customers. And all of that sort of underpinned by an own brand strategy for the business, which is also really important. So this covers both coverings and trade brands. For our trade customer base, I'll come on to that. The brands we have on offer here really help us to drive loyalty with our trade customers. And then for our homeowners, actually, some of the the tile brands that we have actually really help to provide assurance to customers in a marketplace where there are very few actual known brands in the world of tiles. So turning next then to leading people. So I mentioned world class service really is at the heart of everything we do. Our overall yeah. It's a huge source of of advantage for the business.

18:13 The chart, I think, shows a really encouraging, very clear long term trend of how we continue to strengthen our customer service credentials. So in excess of 90% of our customers score us five out of five for overall satisfaction. Actually, if you include the four out of fives as well, that would take us up to about 98%. So very few detractors in terms of the customer experience. Very strong achievement here. People availability pressures across the market have eased as well. This would have been a key area we would have been talking about twelve months ago. Vacancies are now actually back to really business as usual levels as far as they were. They were previously elevated for a period of time, and colleague turnover continues to fall, following again a spike sort of post COVID nineteen when the employment markets were were running pretty hot. We always try and develop our people internally where possible.

19:01 Cultural fit with the organization is absolutely key to us because it's underpinned everything we do. On average, we achieve about 60% fulfillment of roles through internal progression and succession, which is which is great, great, something we're very proud of. And engagement is obviously a key step for the business, about 80% colleague engagement consistently across the business. We also think it's a real strength and indexes very well against averages for The UK. In terms of environmental leadership, become a key area of the business, key area of focus probably over the last two years, something like that, I would suggest. Scope one and two emissions, the business currently generates just under 5,000 tons of carbon. We've already done some really good work to reduce that number down by about half. We're buying environmentally sourced or clean energy in terms of electricity.

19:50 The two key areas of emissions in terms of scope one and two that remain are m and a generated from our commercial delivery vehicles, so the vehicles we use to deliver product to our stores, and then also gas for heating our stores. We will continue to be sort of very thoughtful about how we continue to reduce our emissions on that basis. But in large part, we're out. We're probably waiting for technological solutions here, electric trucks or whatever the the final solution in that in that market is. We've got a really clear focus on two things. One, to be carbon neutral by 2030. And with carbon offsets, we think that we're likely to get there significantly sooner than that. And we're really keen to move on to scope three emissions, which I'll come on to at the end. And then circularity also becomes really important to the business. So the simple concept of sort of reduce, reuse, recycle.

20:36 Tile waste is a key area of focus for us this year. We do generate quite a lot of tar waste through breakages and damage, etcetera, maybe end of lines, mixed batches. We are really heavily focused on reducing that cost to the business because it is a cost to the business, but also the environmental impact. We ourselves set a target of 10%. I think we will significantly exceed that this year, and that that's gonna be a good success. Solar panels, we've just commissioned on our main office and warehouse site in Leicester. It's where the bulk of our operations are housed. We've now literally in the last few weeks come on stream. We've now got the capability of generating about 70% of our electricity to use on this site from solar. I think it's really exciting. That will give us about a three year payback on our investment as well, which is great. And scope then three, I mentioned. Scope three is becoming an increasingly important area of focus. These are the active these are the emissions that happen upstream in the supply chain. So at the point of manufacture and also shipping to The UK, we do have a global supply chain.

21:31 Early indications suggest that is likely to be the single biggest area of impact, maybe in the region of 10 to 20 times what our scope one and two emissions are. So that's that's an area we really wanna move on to and give a lot more focus to. On next to the TOPPS TILES business and TOPPS TILES brands specifically. So so quick introductory comments. It's our core business. It's market leading. It's an omnichannel specialist, and importantly, lots and lots of opportunity for growth still in in TOPPS TILES. We've been now very successfully serving the customer base across The UK for sixty years, so we're celebrating our sixtieth anniversary this year, which is something we're very proud of. Our website is genuinely industry leading. We generate about about three times the amount of traffic versus our next largest competitor. It's a key strength of the operation.

22:18 Our sales per store per week have really stepped up quite strongly versus 2019. So we're about 30% ahead of that. Some of that has been driven by some rationalization of stores. You can see here on the top right hand chart. We've also pushed harder into more of a value orientated part of our range. And the category extensions I mentioned on the leading product page, a majority of that has been incremental to our sales base as well. So we've seen good success there. And there's also an important reminder that whilst we serve we need lots of data lot lots of store coverage across The UK to serve a trade customer. We do have a really large part of our sort of our sales for the TOPPS TILES businesses in the trade customer, the professional installer. And we also serve a homeowner. So we're effectively serving two custom two quite different customers from the same roof or on the same roof from TOPPS TILES. And the next slide, I'll turn turn on to actually explain those differences in a little bit more detail.

23:13 So trade, super important to us, 59% in the period. Average is about 60% over over time. Time. So roughly a 60 sort of 40 split between trade and homeowner. In the world of digital, really, really important for the homeowner. Again, I mentioned sort of industry leading levels of of traffic. Provide We a genuine omnichannel experience. For our traders, it's actually much less digital interaction. We have a dedicated trade website. We have trader apps. People can go on and sort of view loyalty points, those sorts of things. But But in in general, we see the majority of our digital interaction comes through our homeowner route. So a 170,000 visitors a week, about a 165,000 or 97 are actually our homeowners interacting with us. Our stores are really important for both customers.

24:01 But when our traders come into our stores, they tend to be much more purposeful mode. So the 35,000 visitors a week you see on this slide of about a 165,000 overall visitors, and we know that through football counters, actually, the 20% that that represents 20% of our football is represented by trade. That accounts for 60%, therefore, of our sales. So you can see from there, I think, that when, basically when traders come into store, they will spend, and they're in as I say, they're in much more purposeful mode. But online spend, therefore, for trade is relatively low. And interestingly, when when homeowners are buying tiles and specifically when they're buying tiles, actually, the online penetration of the business is something in the region, therefore, of 18%, which we think indexes very well against DIY generalists, etcetera. So 18% online penetration for a homeowner buying tiles. So you can see how important the website is to us now, our digital operations.

24:58 Store teams and service are really important for both customer groups, actually. So we do have very well trained, very high levels of technical knowledge. We inspire our customers. We can support them with technical queries. That applies to both trade trade customer and homeowner. There are some some modest modest differences, particularly, I think things like the trader, the relationships with the store teams become really important. So these generally are people that are working on their own. They like to come to stores half seven in the morning, hopefully get get a a cup cup of of coffee coffee from the store team. They'll have some interact social type interaction with the store teams. They have quite strong relationships they form over time, and there's lots of going above and beyond. So a trader on their way home saying, could you get me some of this set aside? Maybe wait another five, ten minutes because running back slightly. I need this for a job tomorrow. We will always go above and beyond for our trade customers, and they really value really value that discretionary effort.

25:48 Brands are very important to our customers, but from two perspectives, actually. The TOPPS TILES brand, the name above the door, is really, really important to our homeowner customers. This is an infrequently shopped area. That's the next part of the slide. But, also, it's an area where there are not really any known brands from a homeowner perspective. And, therefore, they take a lot of trust and confidence from the the name that they do recognize. And the TOPPS TILES brand scores incredibly highly in terms of awareness with the with the customer core customer group. So 77% awareness from homeowner of the TOPPS TILES brand right up there with the likes of B and Q and Wix, etcetera. The next the next most the next most recognized brand is actually two and a half times less than TOPPS TILES scores. So you can see there's a there's a big sort of level of disparity between the awareness of brands in in the specialist sector.

26:37 And then for their trade customer, actually, there are lots of proprietary brands that they are very interested in and tend to be very loyal to. So what kind of a DC if you like, what sort of grounds you use, what kind of specialist tools you'll use for your tiling work, and we make sure we cover as many of those brands as possible. Frequency, Frequency, I've just touched on. We'll see traders with a very, very high level of frequency. So our best traders daily in store, certainly weekly, less frequent traders still monthly. So very high levels of frequency there. For a homeowner, they tend to come into this market space much less frequently, so maybe once every few years as home improvement cycles dictate. And price price is critical for trade, particularly on consumables. They know know what what they they should should be be paying. Paying. We need we make sure we keep our pricing very, very sharp. We deliver value to our trade customers through lots of different means. We have standard levels of discount for trade versus our sort of retail price list. We have bulk deals. We have loyalty schemes. Lots of ways we provide to our trade customers, which is super important.

27:34 For our homeowner, it's more about providing value across the across the range of their purchase. So often, it will be part of a bigger project. They may have a a budget in mind in terms of what they wanna spend for their tiles, and it's making sure we've got a really great range of product where we can offer brilliant value across across the entirety of their purchase. So that covers the TOPPS TILES part of the operation. I'll then move on to our commercial operation, Parkside. So Parkside really focuses on the sort of b to b market and the commercial market for tiles itself in The UK. The commercial market in The UK is almost the same size as the domestic market. So it is a really important market for us to be in, and it is a market we absolutely should be able to be successful in. The market's still slightly subdued versus sort of pre COVID nineteen period, so about 27% down. That's based on ONS market data.

28:26 We've established some really strong sector specialisms. We've been in this market now for about five years. So infrastructure and travel travel is a really successful area for us. Things like most of the airports in The UK, we now supply tiles to, increasingly supplying tiles into railway stations, things like high speed two contracts, those kind of areas. We actually had really good levels of success. And then retail and leisure, things like David Lloyd, who supply a lot of tiles to people like Soho House are sort of key customers for us. A lot of the sort of casual dining restaurants, you can see Marigami on this slide as well. But the business has been loss making and has been loss making for some time. Last year in our final quarter, quarter four, we got the business into breakeven. We were confident we will be able to stay there. But the sales chart on the page tells a very clear story. We've had half half year on half year sales and that obviously gave us confidence that we'd be able to continue to keep the business into breakeven and and small profit territory. In the first half, we have seen the sales performance of the business step back and declining by about £400,000.

29:27 On that basis, a loss this year is now likely. And we're very focused on an improvement plan to get that business back into breakeven, which is where we said it would be, and the plan is to get there by quarter four this year. The key for me on this slide is the opportunity for commercial remains intact. It is is a a market market I do think we should be in as the leading specialist to TILES in The UK, and I'm very confident we can get the formula right to get us exactly there. In terms of online pure play then, the first of the two businesses we have is TOPPS This was a new website we launched from the ground up, so an organic start up about twelve months ago. It's the first time we've moved into an online pure play just for TILES only across the business. It's designed to be complementary to the main brand of TOPPS TILES. So it's much more value orientated.

30:13 It's got a narrower range. TOPPS TILES might be 2,000 tile SKUs. This is about 400. And it's designed to be very much focused on a homeowner specifically, not really looking to attract a trade customer to this part of the business. The first year has all been about learning and refining, so we've been very focused on what is the right digital marketing strategy for tile warehouse, what's the correct customer offer that we need to really maximize the the return here. The secret to driving traffic is absolutely about pay per clicks. It's about investing money in digital marketing, and that does require investment. But ultimately, we believe this is a £15,000,000 plus sales opportunity across the business, and I think can represent a good scale part of our operations. And then on to the ProTiler summary. So ProTiler is a digitally focused or a trade focused digital only consumables business.

31:03 They've got really high credibility with the professional installer base. The cofounders and the people still running the business for us today are ex professional tilers. They're well known in the industry. It's a very strong brand. It sells everything you need to do the job except the tiles themselves. So the only thing ProTiler don't sell is tiles. They sell everything else you could possibly need. We acquired 60% of it just over a year ago. The first year has been very strong indeed. So about 40% growth we've been delivering consistently over TILES has been excellent, and we will acquire the remaining 40 of the business in April 2024. So it was a two year two year deal, and we will acquire the rest of that about a year from now. Really strong growth in the first year, which has been excellent, very pleasing indeed. And also, we've brought additional knowledge about brands to the business. So they have a very, very wide range of inventory and assortment.

31:53 Take an area like adhesives, for example, they'll have 14 or 15 brands available all on the next day delivery cycle. Our our core business TOPPS TILES would have three or four ranges of adhesive available through the store. So lots we're learning there. The digital skill set that Protala brings to the business can and is being leveraged further. I'm really excited about that. So the warm floor store web page you see on the bottom right hand side of this slide, that's a new business we've launched during the second half during the first half of the year, during the second quarter, very much focused on, as the name would suggest, under the underfloor heating market, again, with a professional installer in mind. So it sells a range of electric underfloor heating systems, which we've sold across the group for some time. We've now got a dedicated website. And, crucially, it's extended the extended the range into also water based underfloor heating systems, which we haven't sold previously.

32:43 We've expanded the range of brands available to us as well. So we've created a real destination for a specialist in store of underfloor heating systems. Very early days, but I'm excited about the growth that that can deliver and how we're leveraging our digital skill set across the business. And And ultimately, we are very confident that Protala can be GBP 30,000,000 plus sales opportunity for the business, and I think in relatively short order actually with the growth we're currently delivering. In summary then, a strong first half from a trading perspective. I think we've outlined that very clearly. Record ever, 130,000,000 of sales. We've got a very clear goal for the business. I do think we're delivering against that. We're continuing to develop and diversify our business. The has evolved TOPPS TILES business continues to evolve, and we're also delivering good levels of sustained like like growth out of TOPPS TILES. And the digital pure play story, we think, is very exciting. Lots of opportunity for scale and profit upside there as well. As Stephen mentioned, the net margins of these businesses actually don't need to be any different to that which we've experienced historically from our core operations.

33:46 In terms of outlook, Stephen covered some of these points. Really good start to the second half, actually. So our core our core business, TOPPS TILES, is delivering in the region of 4% like for like sales as broadly in line with what we saw over the first half of the year. So our consumers continue to remain robust. We are confident of an improved margin in the second half. Steven's been through some really good reasons to why we do feel the TOPPS TILES margins troughed over h one, and the outlook from here is for improvement. Some of those macro challenges we've seen, they are starting to ease, and that gives us a greater level of confidence in the outlook. And, ultimately, we're confident h two will be much stronger, and we will deliver our our full year profit in line with market expectations for the year. So that concludes this formal part of the presentation, and we're happy to turn to some questions. Steven, did you run on? Rob, Steven, thank you very much for your presentation.

34:35 Ladies and gentlemen, please please do do continue continue to to submit submit your your questions just by using the Q and A tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. We received a number of questions throughout today's presentation. And, Steven, if I could just hand over to you just to chair the q and a, what I'll do is I'll pick up to you at the end. That's great. Thank you very much, mister Simon. I'll just turn the slides off for minute so we can get a better better view. Okay. So we've had a number of questions. There's actually two questions on a similar theme, Rob, which is for you, Lisa. The first one is what's driving the growth of ProTyler and then what potential is there for us to continue moving forward? That's the first one.

35:21 And then it's sort of similar thing too. I've got a question from Chris t. Thank you for the question, Chris. And Chris asks, how pleased were you with the online peers, like, performance, and do you see this momentum continue? Yeah. So I think we can sort of roll them in together. I mean, look, ProTile has been a huge success. The business was growing rapidly at the point we bought it. We bought it off about 12,000,000 of sales at that stage. Obviously, we've come through the sort of peak of and lots of people switching online. So, well, it's quite difficult to know where where we may go next. The guys running it were super confident the trajectory was upwards, and I'm delighted to say they've continued to deliver against that. So been the sort of secret sauce over the last twelve months? Well, I think there are three things we've been very encouraging of the team there to do.

36:07 One is continue to invest and invest harder into digital marketing. We've seen a really good level of return on investment from that additional spend has really really given us an extra shot in the arm. The second one is investment in working capital. So the business does work on having really good levels of availability. Everything really goes out on the next day point. So we've gone we've gone harder into making sure that we've got really good levels of stock density in the business to serve that that professional customer base. And the third one actually is access to brands. Now from two perspectives. So brands, as I mentioned, for a trade customer are super, super important. There's lots of loyalty into certain types of adhesive or certain types of cutting equipment. From two perspectives, one, we were able to introduce some new brands into ProTiler brands that perhaps they weren't able to access previously, but the TOPPS group can. And secondly, actually, they've been able to go out and negotiate access to new brands to ProTiler and therefore to the group largely, though, off the back of having the TOPPS group name behind them, actually. So both of those things have been really helpful.

37:07 Confidence that we can continue to to to drive that growth. Yeah. Hi. As I've said in the presentation, I think, you know, we bought it off 12. We're probably currently annualizing it 20. I'm super confident we can get to 30 quite quickly. And the Protiler business itself continues to grow very quickly. And then plus the other activities that we can do, things like warm floor store. Again, very early days, but that's a good sized market that we're now accessing from a specialist dedicated platform, which is we what think professional installers want to want to use. So very excited about Pro Tile. Great. Alright. Thanks, Rob. Okay. The next question is related to property. We've seen a chart about the number of TOPPS TILES stores that were in the and the question that's come through is, is the TOPPS TILES store estate now the right size? Yep. Yes. Thank you.

37:54 The straight answer, the simple answer is yes. So we at our peak were about five years ago, we're about 370 stores. We did a big piece of analytical work. Actually, we partnered with CACI, who some of you may be familiar with, did a really good piece of analytics work and concluded that about 300 was the right number. And the way we would get there actually is in some towns where we had smaller smaller towns where we had two or larger towns where we had three, we we did some trials and concluded pretty quickly that we could actually trade more profitably from fewer units. So a smaller maybe market town where we had two, we'd say, actually, let's close one, sort of condense all of our operations into the stronger the two units. We were successful in transferring about 50% of the sales across from the closing unit. So we will have given up some top line sales and therefore some market share in doing it. But ultimately, we've made the business more efficient and more profitable as a result. So we arrived at our target of 300 last year. We think it's about the right number.

38:51 It may oscillate by five or 10 over time, but I don't see it significantly changing from there. Back to the thing I mentioned earlier, if you if we were just serving a homeowner customer, I think that number, you know, maybe could be a 100 across The UK. But with a trade with a trade customer base, you have to offer lots of geographical convenience. So you do need to be in lots and lots of towns and locations across The UK. And we take 300 strikes that balance that balance very well. Okay. Great. Thank you. Alright. I've got another question here, which is on gross margins. So in my bit, I talked about confidence in in the improvements in gross margins in the top tiles brand moving forward. So the the question the question has said, what gives you the confidence in gross margins moving forward? We're sure we don't know you want to talk about some of the supply chain aspects.

39:37 Absolutely. So, I mean, it's been a very tough time from a supply chain perspective. We we run a gen truly global supply chain is the first thing. So we source tiles probably more than consumable items, but tiles, we source genuinely all over the world. We we're well known to factories. We've got very good understanding of the global market for supply chain manufacturer. It's been a very tough period, particularly in European tile manufacture with from two perspectives. One is European gas prices, as everyone will be familiar, has been a real roller coaster over the last twelve to eighteen months. But actually, also availability of clay, sadly, coming out of the, obviously, the awful events in Ukraine, the war in Ukraine. Ukraine is actually a major source of what's called white body clay for European manufacturers. So that also caused quite a lot of disruption to supply chains and has caused a lot and both factors, more gas than clay, actually, but both factors have caused significant inflationary pressures in supply chain. Shipping was the other one really coming out of COVID. Again, I'm sure lots of people will be familiar with shipping costs were significantly heightened.

40:42 We went through a period where actually just getting availability of product was a sort of key concern. Price Price was actually a little bit secondary. We've tried to shield our customers, our consumers from the worst of that. So certainly, most of last year, '22, we were passing cost price inflation on a pound for pound basis. So protecting our profit, but that does mean we have diluted gross margin percentages to an extent. That's how the maths works. This year, we've taken a stronger approach, which is say cost price pressures need to be passed on percentage for percentage. And we're now in a period where we're actually starting to see some easing of those pressures. That does mean we can make sure we continue to offer value to our customers. So we do expect some prices to ease at the customer point as well, but there's also an opportunity within that to make sure we just rebuild our margins a bit back to where we think the longer term trend should be. We're not gonna go back to where we were prior to sort of, you know, the COVID period because we have done some strategic sort of realignment of the positioning of the business and margins, but there's definitely some opportunity in the outlook from here. And we're already seeing that coming through in the first half.

41:47 The other thing we do is we constantly look to sort of resource products. So as the sort of world settles a little bit post COVID nineteen and other events, we can and will and are doing looking at sort of global opportunities. So countries like South America, Brazil specifically. Ten years years ago, ago, we sourced quite a lot of tiles from Brazil. Three years ago, very little. Actually, things like Brazil are coming back on our radar again, we are sourcing back there because of shipping rates and manufacturing costs. India has actually gone through a period of some factories have invested very heavily. Most tiles in the end are manufactured on Italian equipment. It's not really a labor model, particularly it's about well invested modern manufacturing facilities. India is an increasing area for us as well. We're getting really good quality tiles advantage rates. So lots of opportunities. Our buying team are working very hard to make sure we continue to offer great value to our customers.

42:37 Great. Thank you very much. I think that's one more one for me. So someone has written in and asked, can you explain the difference between adjusted and statutory profits in the period? Yes. I can. Thank you for the question. So I'm just gonna pop the slides back on for one sec because there's slight bit here as we start waiting. Hopefully, they've come back on for all our viewers. So in my section, I was talking about the adjusted profit before tax of £4,400,000 in the period. And if you look at the face of p and l statement in our results, you'll see that the statutory profit before tax was £1,700,000. And what we do in common with lots of companies is we take out items which are either very volatile or non cash or non reoccurring, and and we sort of strip them out of the adjusted profit whole tax number.

43:31 The reason for that is to present more consistent view of profitability over a period of time that sort of all distorted by sort of all events. And so the the three things that have been removed this time around are the three adjusting items in the table. So I'll just quickly touch on each one. So property, we just talked through the reduction in the store stored estate in TOPPS TILES and going to 304 stores at the end of the year. And that closure program, the cost associated with that, so for example, the cost of dilapidations, the cost of strip out from stores and so on, those have been adjusted out of our adjusted profit number. So that was not £600,000 in the half. And now that that program has ended, we we now kind of at the right level of stores, those costs will start to go back into the adjusted profit before tax moving moving forward.

44:19 The next thing is that when we were describing the pro title purchase, Rob said that we bought percent of the shares last year, we will buy 40% of the shares. The remaining 40% of shares next year. And the way the accounting for this works under IFRS three is that we have to build up a a provision over that two year period. So between when we bought 6040%. And so that that that is a charge that you'll see in every six month period up until the end of that two year, which ends in ending in March 2024. So in this period, there's a 1.7 charge related to that. And then finally, we tend to strip out new restructuring costs, which were £1,400,000 in the period. So those are the those are the differences between adjusted and statutory for tax in in the period. So thanks for the question. I hope that's clear.

45:05 We should take the slides away. Okay. Next question, we've now got from Tom m. So thank you, Tom, for your question. And the question is one for you, Rob, I think. It says, what visibility do you have on the delayed projects that impacted the revenue in part time? So, I mean, the commercial market does work much further in advance. I think that's absolutely right. So typically, we might if we sort of in at the ground at the ground start point for these projects, they might be coming out of the ground in twelve, eighteen, even twenty four months and tiles are obviously sort of right at the end of the project. The sort of heavier side of the the building materials will be at the early point. But reality is at the point we actually take an order, those orders probably turn into sales in about three months' time. So our visibility of the outlook is perhaps not far forward as as people might expect.

45:55 My where we are currently is we expect the second half to continue to be a little subdued still and a bit tougher as the first half has been, which is why we're really focused on that business improve improvement program that we've that we talked about. Great. Alright. Thank you, Robert. That's brilliant. And and then another one which I explore in my area from Chris Tee. Thank you for the question, Chris. The question is, what's your capital allocation policy with regards to share buybacks? Yes, good question, Bruce. Thank you. And so if you go back one year, so to the interim results from 2022, we laid out a new capital allocation policy, an updated capital allocation policy for the business. And there were four things in that capital allocation policy and sort of four priorities really for us in terms of how we think about cash and capital allocation.

46:41 And the first one is business resilient excuse me, business resilience. And having just been through pandemic and was with more conscious than ever really of the, you know, the importance of having great resilience in our business. And we are quite a operationally geared business in the sense of we have quite a lot of fixed costs. So therefore, as the sales line changes a bit, our profit can move around quite a lot. And so therefore, that that that that means even more so within some other companies. I think we need to have quite a lot of financial firepower to give us that really good resilience to protect the business moving forward. So that's always gonna be the first thing that we prioritize. And the next thing is that we always continue to invest at an adequate level in existing business, particularly in in TOPPS TILES, which has reminded sort of 90% of what we what we do. So to keep a good level of investment behind TOPPS TILES will always be a right up there in terms of capital allocation.

47:29 It's not a massive cash draw. I think, you know, we're we're guiding to five to six million pounds of CapEx this year, year, but we will always prioritize that in in the in the group. And the third thing in the allocation policy was to do with new value creation opportunities. The acquisition of Bright House is a great example of that. So having some cash available to go and do things such as, you buying new business that we think can really add some value to and can add value to the group, I think, is always something that we will want to be able to do and have the flexibility to do. And then finally, returns to shareholders, think, you know, which is direct to Chris' question, really. So as part of that, we increased or we signaled the increase of our dividend payments to shareholders. Our previous policy was to pay around about half of our adjusted EPS out to shareholders each year.

48:14 And if you go back here, we signaled the intention to increase that to two thirds of our adjusted EPS we'd look to pay out. So we've actually increased our dividend payments to shareholders, which I know is very important to to I mean, quite a of viewers on the call, really. So I think, hopefully, that's a very positive sign. In terms of things like share buybacks and you know, returns of excess cash to shareholders, again, if you if you look at the statement last year, we we outlined when we might start thinking about those. So we have about £20,000,000 of cash in the bank, but we also do have a lot of commitments, particularly around leases. So if you look at our balance sheet, we've got about a £100,000,000 of lease liabilities on our balance sheet. So if you include the lease liabilities, we actually have a net debt in the business of about £80,000,000. So it's not, you know and those are commitments that we made. We've got we can't move away from those.

49:03 So when we think about level of cash in the business, I I think about lease adjusted net debt, which is about £80,000,000, and then I compare that to our lease adjusted EBITDA. And what we said in the policy last year is that if if our lease adjusted net debt got to the point where it's less than 1 times our lease adjusted EBITDA, then we would look to return that excess cash to shareholders. That could be in the form of share buybacks. It could be in the form of special dividends. You know, I think that probably remains to be seen. We're a little bit away off that at the moment, but I think, know, hopefully there's a clear signal of how we how we might think about that moving moving forward. I hope that answers your question, Chris. Thanks for the question. And actually, I think that is actually the last question that we have at So the I would just go back to you. Rob and Steven, thank you very much for that. I think that should address every question from the investors. And of course, the company will review all the questions submitted today and will publish their response on the investor meet company platform.

49:52 But just before redirecting investors to provide you with their feedback, which is important to you both, could I just ask you for a few closing comments? Well, no. I I suppose firstly, thank you. Thank you, Alessandro, for hosting. Thank you to our viewers for joining us today. It's our first time on the Investor Meet platform, so, hopefully, it's a good thing that we can continue to to build and and attract more more investors to the story. Hopefully, Hopefully, you've got a really clear view of the story. So really good first half, record level of sales, really strong trading across our key TOPPS TILES, our core TOPPS TILES business as well. Lots of opportunity for further growth. TOPPS TILES continues to grow. We're excited about the the online pure play story there as well and the continued growth of ProTile and Tile Warehouse over time. And we think a much stronger second half is coming in the first half and remain very committed to those full year expectations in the market. So we think the outlook for the business is is strong.

50:41 Thank you. Rob, Steven, thank you once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This This will only take a few moments to complete, but I'm sure it 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.