RNS announcement - Topps Group

RNS Number : 9481C

Topps Tiles PLC

24 November 2009

Topps Tiles Plc

Annual Financial Report

Topps Tiles Plc ("Topps", "Topps Tiles" or "the Group"), the UK's largest tile and wood flooring specialist with 321 stores, announces its annual financial results for the 52 weeks ended 26 September 2009.

Financial Performance

Total Group revenue declined 10.6% to £186.1 million (2008:£208.1 million)
Like-for-like revenue declined 13.5% (2008: declined 5.4%)
Group gross margin 58.3% (2008: 61.8%)
Operating profit of £16.4 million (2008: £34.6 million)
Adjusted operating profit of £21.6 million (2008: £35.8 million) *
Adjusted profit before tax of £16.3 million (2008: £29.5 million) **
Profit before tax of £4.9 million (2008: £27.7 million)
Basic earnings per share of 1.01 pence (2008: 9.56 pence)
Adjusted basic earnings per share of 6.62 pence (2008: 11.16 pence) ***
No final dividend declared in order to accelerate reduction in net debt and improve financial flexibility (2008: no final dividend)
Net debt reduced by £20.8 million to £71.2 million (2008: £92.0 million)
Disposal of two freehold properties for £2.0 million, with a loss on disposal of £0.3 million (2008: profit on disposal of £0.9 million)

* 2009 adjusted operating profit is adjusted for exceptional items being the impairment of plant, property and equipment of £3.1 million and other restructuring and one-off costs of £2.1 million (2008: £1.2 million goodwill impairment charge)

** 2009 adjusted profit before tax is adjusted for the effect of exceptional items above plus:

- £5.8 million (non cash) charge relating to the interest rate derivatives the Group has in place (per IAS39) (2008: £1.5 million)

- Property disposal loss of £0.3 million (2008: gain of £0.9 million)

*** Adjusted for post tax effect of non recurring items highlighted above (2008: above items plus £1.1 million deferred tax charge relating to withdrawal of Industrial Buildings Allowances)

Operational Performance

UK trading from 309 stores (2008: 320 stores), sales over the first 7 weeks of the new financial period have increased by 2.2% on a like-for-like basis
Holland trading from 12 stores (2008: 22 stores), sales over the first 7 weeks of the new financial period have decreased by 42.2% on a like-for-like basis
First 7 weeks of the new financial period total Group revenue increased by 0.5% on a like-for-like basis, total Group revenues declined by 2.0%

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

"The retail environment continues to be challenging and the outlook for consumer confidence remains uncertain. Against this context we are pleased to have delivered a performance that is in line with both management and market expectations and demonstrates the resilience of the business model with the continuing generation of both profit and free cashflow. Furthermore, our current trading performance indicates that signs of stability are returning. We have the market leading position in our sector and an outstanding customer service ethic which will continue to serve us well particularly as consumer confidence returns."

For further information please contact:

Topps Tiles Plc

Matthew Williams, CEO

Rob Parker, Finance Director

Barry Bester, Chairman

c/o Bell Pottinger Corporate & Financial 020 7861 3232

Emma Kent / Duncan Mayall

Bell Pottinger Corporate & Financial 020 7861 3232

Chairman's Statement

We indicated in our Interim Management Report that the challenges facing retailers through the economic downturn were still very evident. Although there are signs that a level of stability is returning to our market, consumer confidence is still being impacted by the continuing economic pressures and our results reflect this. However, the business has continued to demonstrate its robustness and resilience and we are pleased to deliver financial results that are in line with both the management's and the market's expectations. We continue to address the challenges to our business through prudent cash management, attention to our customer offer and ensuring that we maintain our market leading position.

We have a strong business model which continues to generate both profit and free cash flow and I remain confident that we will be well positioned to benefit when consumer confidence returns.

Financial Results

Total group revenue has declined year on year to £186.1 million (2008: £208.1 million) with like-for-like revenue for the period showing a decline of 13.5% on last year. Operating profit for the period was £16.4 million (2008: £34.6 million) giving a profit before tax of £4.9 million (2008: £27.7 million). Basic earnings per share were 1.01 pence (2008: 9.56 pence).

During the period we have incurred £5.2 million of exceptional charges relating to the closure of stores in both the UK and Holland and a £5.8 million non cash charge relating to interest rate derivatives the group has in place. On an adjusted basis, we have generated an operating profit* of £21.6 million (2008: £35.8 million) and a profit before tax** of £16.3 million (2008: £29.5 million). Adjusted basic earnings per share were 6.62 pence (2008: 11.16 pence).

Dividend

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

Board Changes

Victor Watson did not seek re-election at the AGM on 13th January 2009 and stepped down from the Board. There have been no further changes to the Board over the last period. The Board is grateful to Victor for all of his support and contribution to the Company over a very successful 10 year period.

People

The Company's staff are fundamental to delivering the outstanding customer service ethic that we have pursued, and their performance is a key factor in the continuing success of the business. This service ethic differentiates Topps Tiles from its competitors and I would like to extend the Board's thanks and gratitude to everyone in the Company for their continuing efforts and hard work.

Outlook

Our management team has continued to make significant progress to ensure we have a resilient business that is as well placed as possible to benefit from a return of consumer confidence. We have delivered profits in line with expectations, prudently managed our store estate and aggressively reduced costs and net debt. Our current UK trading figures offer some encouragement, suggesting that we have seen a stabilising of sales levels in our primary market. The Board remains confident that we will continue to withstand the challenging economic environment and will be in a strong position to benefit as the economy recovers.

Barry Bester

Chairman

Chief Executive's Statement

Topps Tiles continues to be the market leader in its sector with a resilient business model. We have maintained our focus on prudent management of costs whilst at the same time ensuring that we continue to deliver outstanding customer service and excellent value ranges, and we believe that our business will emerge stronger as consumer confidence returns.

UK Store Development and Expansion

Our expansion strategy has been realigned to take account of the changes in the economic environment and we have adopted a more cautious approach to our store opening programme. During the period we have opened 4 new stores and closed 15 stores, resulting in a net decline of 11 stores. The Group is now trading from a total of 309 outlets throughout the UK. For the coming year we will focus the majority of our attention on improvements to our existing estate and we will continue to monitor the market for new store opportunities in prime locations.

Topps Tiles

We have opened a net 2 new stores and now have a total of 265 Topps outlets. This includes 4 new openings and 1 rebrand from Tile Clearing House (TCH), offset by 3 closures.

Our e-tailing business has completed its first full year of trading, offering a selection of our most popular ranges and additional complementary products. Whilst we are still relatively early in the development of the internet as a new channel to market we are pleased with progress to date and this part of the business now represents a similar level of turnover to that which a good store would generate. Our online offer can be found at www.toppstiles.co.uk.

Tile Clearing House

Tile Clearing House remains focused on trade customers and jobbing builders, operating a "cash and carry" type format. We have closed a net 13 stores during the period and now have a total of 44 TCH outlets.

Holland

Our business in Holland has faced increasing challenges as financial performance has declined, in part driven by the difficult economic climate. We have closed 10 stores as a result of poor performance and / or lease expiry and we have not opened any new stores. We are now trading from 12 stores and have no plans to expand the business further whilst current conditions prevail. During the period we have seen a decline in like-for-like revenues of 22.1% (2008: -2.9%) and we have recognised a loss of £4.9 million (2008: loss of £0.8 million). This loss includes approximately £3.7 million of exceptioal costs including a £2.0 million charge for impairment of plant, property and equipment and restructuring costs of £1.7 million associated with the 10 store closures. We do not believe the business will return to profit in the short term and will continue to review the business closely.

Marketing, Advertising and Sponsorship

During the financial period we have significantly reduced our marketing spend and have concentrated on regional marketing rather than the national advertising campaigns that we have conducted in previous years.

Our commitment to our local communities remains strong as we maintain our aim to make positive contributions to those communities served by our stores. Being a 'good neighbour' is Topps' priority and our current initiatives include nationwide youth football sponsorship, our work for the charity, Help for Heroes, and our support for mosaic art in schools and community groups countrywide.

Staff Development and Customer Service

Our staff are fundamental to our key objective of delivering excellent customer service. We have always prioritised the development of our staff to deliver this service and we continue to be rigorous in the recruitment and retention of high calibre employees who are committed to delivering this customer service ethic and also playing a role in the continuing success of the business. We encourage staff to increase their level of knowledge and progress throughout the business, with an emphasis on internal promotion wherever possible. We have a sophisticated in store e-learning training system and we incentivise our staff with competitive employee benefit packages and profit based rewards.

We continue to enjoy very high levels of customer satisfaction, with 98.8% of customers recently surveyed expressing levels of satisfaction as 'good to excellent' (2008: 98.2%). These levels of satisfaction are driven not only by our friendly and knowledgeable staff, but also by our customer offering which is differentiated from our competitors in a number of ways: all of our stores carry a wide range and supply of stock; we offer a loan-a-tile service; a tile cutting service and a buy-back service allowing customers to "sell back" undamaged tiles within 45 days of purchase. We also supply a free "How to" DVD and have a comprehensive selection of helpful 'Topps Tips' on our website. In addition, we have teamed up with traders local to each of our stores to provide customers with a Topps' approved tile installation service.

Corporate Responsibility

The management team at Topps Tiles is committed to a corporate responsibility policy that ensures the Group's business is conducted in a socially responsible, environmentally friendly and ethical manner. We are very proud of the work that we have been involved in and have endeavored to work responsibly with all of our stakeholders for a number of years.

We have a working party chaired by a main Board director to review policies and look for opportunities for improvement, and our responsibilities cover many areas. The areas we have given most focus to are:

Community Relations
Environment
Workplace & Employees
Supply Chain

Our policy is published on our website at www.toppstiles.co.uk and more detail on our achievements can be found in the full Report & Accounts.

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

The Market

Topps has seen its position as the UK's leading Tile retailer strengthen with a market share in excess of 23%. Further consolidation of the retail market has taken place as regional tile businesses have either reduced their number of retail outlets or closed completely.

Overall tile consumption in the UK remains below the rest of Europe (roughly one third of Northern Europe, source MBD), providing significant short term and long term opportunities as consumers usage of tiles expands across the home including halls, dining areas, conservatories and general living areas.

Current Trading and Outlook

In the first 7 weeks of the new financial period Group revenue decreased by 2.0% and like-for-like sales increased by 0.5%. We are focussed on our primary market, the UK, and during this period revenues increased by 2.2% on a like-for-like basis.

At the half year we highlighted that the economic uncertainties continued to put pressure on consumer spending and we remained cautious for the outlook. We are, however, reassured by current trading and the signs of stability that we are starting to see return to our primary market.

We will maintain our drive for tight cost control and reduction in net debt, whilst remaining focused on sustaining the high levels of customer service which have helped us remain the market leader. We believe that our robust business model will enable us to deliver profits in line with expectations and continue to generate free cash and reduce net debt; as we have done over the last financial period. We remain confident that the business will benefit greatly as consumer confidence returns.

Matthew Williams

Chief Executive Officer

BUSINESS REVIEW

Cautionary statement

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

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

Nature, Objectives and Strategies of the Business

Topps Tiles is a specialist tile & wood flooring retailer with 321 outlets across the UK and Holland. In the UK, we are the country's largest retailer of our kind with a total of 309 stores and a 23% market share. We operate two retail brands, Topps Tiles and Tile Clearing House. Topps is the UK's leading branded tile retailer with 265 stores offering wall and floor tiles, natural stone, laminate, solid wood flooring and a comprehensive range of associated products such as underfloor heating, adhesives and grouts. Tile Clearing House comprises a further 44 stores nationwide focusing on a mini warehouse type format and a "when it's gone it's gone" style customer offer.

Our European operation in Holland provides a similar style of customer offer to the UK Topps Tiles stores and currently trades from 12 stores.

The Group strategy is focussed upon delivering outstanding value to our customers. The key elements to the success of this strategy are customer service, store locations, store layout, product choice and availability.

Key operational objectives:

Deliver outstanding value for money and service to ensure customers always "return and recommend"
Maintain our market leading position
Manage the store estate prudently, and open new stores where excellent property opportunities arise
Continue to develop our in store customer offer to maintain our competitive advantage
Develop additional routes to market where we believe the Topps brand can generate value
Ongoing review of the store portfolio to ensure our estate is keeping track with consumer shopping patterns and our cost base is as efficient as possible

Key financial objectives:

Primary focus on increasing revenues and cash generation, reducing costs and maximising net debt reduction
Maximising earnings per share and shareholder returns, including bi-annual review of our dividend policy
Ongoing supplier tendering and benchmarking of non-stock suppliers
Managing the Group's exposure to fluctuations in foreign exchange rates
Maintaining a capital structure which enables an appropriate balance of financial flexibility and capital efficiency

Operational review

We are focused on trading as effectively and efficiently as possible through this current economic cycle. Our primary objectives continue to be centred on optimising returns from the existing estate, managing our cost base very carefully and improving our financial flexibility. We have continued to deliver operating profit, reduce net debt and generate cash despite the difficult trading environment, demonstrating the resilience of the business model. The Board is satisfied with progress during the period and believes that the business is well placed to take advantage of a contraction in the competition.

Over the financial period we have worked hard to deliver savings to our cost base and in total have generated savings of around £9.3m. These have been driven from 4 broad business areas of marketing, staff costs, logistics and central expenditure. Further detail of these savings is provided within the Financial Review.

Key Performance Indicators (KPIs)

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

	52 weeks to 26 September 2009	52 weeks to 27 September 2008
Financial KPIs
Like-for-like sales growth year-on-year %	-13.5%	-5.4%
Total sales growth year-on-year %	-10.6%	0.1%
Gross margin %	58.3%	61.8%
Net debt	£71.2 m	£92.0m
Stock days	128	140

Non-financial KPIs
Customer satisfaction %	98.8%	98.2%
Number of stores	321	342

The directors receive regular information on these and other metrics for the Group as a whole. This information is reviewed and updated as the directors feel is required.

Risks and Uncertainties

The Board conducts a continuing review of key risks and uncertainties. The Board's primary focus over the last 12 months has included:

- The weakness of the UK economy and the consequent business impact

- Additional costs of sourcing due to weakness of sterling in comparison to the Euro and US Dollar currencies over most of the financial period

- Ensuring that the company's capital structure remains appropriate taking into account the reduction in revenues and earnings

- The availability of credit insurance

These risks are discussed in more detail below.

In addition to the above the Board considers other key risks including its relationship with key suppliers, the potential threat of new competitors, the risk of failure of key information technology systems, loss of key personnel and development of substitute products. The Board's response to these risks is articulated throughout this report and this includes:

Continuing improvement in our existing retail operations, including regular review of our product offer and customer service to ensure that we are maximising the opportunity to deliver sales
Review and reduction of costs across all areas of the business to offset as far as possible the reduction in revenues, accounting for approximately £9.3m of savings during the financial period (detailed in the operational review)
A more cautious approach to further expansion, and consequent reduction in capital expenditure of 68% compared to the previous financial period
Tight management of cash and reduction in net debt to improve financial flexibility
Continuing review of the Group's sourcing strategy to enable us to deliver greater value for money whilst maintaining returns

Weakness of the UK Economy

The Board's view at the time of writing this report is that the impact of the economy on sales revenues has now stabilised. The Board monitors sales per store on a 52 week rolling average basis and this metric has been at a stable level since the end of July. There are a number of uncertainties that continue to face the UK economy and as such a further reduction in revenues cannot be ruled out but based on performance over the last 4 months this now seems less likely than it did at the time of the Interim Report and Accounts, when sales levels were still in decline.

Impact of Sterling

We have continued to highlight our exposure to foreign exchange rates due to our international sourcing strategy. In the last year we have sourced approximately 22% of our supplies from international suppliers and paid in either Euros or US Dollar. The period to September 2009 has been a particularly difficult one with Sterling being comparatively weak through most of the period. The impact of currency movements has added around £3.4 million to our cost of goods sold over this period.

We manage this risk by constantly reviewing the most effective sourcing strategy, including which currencies it is most efficient to use for payment of goods. We also enter into forward currency contracts based on expected requirements for foreign currency, at most on a 6 month basis.

Appropriate Capital Structure

The Group has in place loan facilities of £98.5 million repayable at a rate of £7.5 million per annum. The facility terminates in January 2012 with a final repayment of £83.5 million, as a result the Board would envisage renewing the facilities during 2011. The loan facility contains financial covenants which are tested on a bi-annual basis. Based on current trading and the Board's current expectations for the next 12 months the Board expects that the Group will be able to continue to operate within its current financial covenants. The primary assumption within these estimates is that the business can maintain sales at the levels seen in the later part of the financial period and this remains a key uncertainty given the UK economy. The Board's basis for this estimate is the level of actual weekly cash takings over the last four months of the period, which we believe has now stabilised. Appropriate downward sensitivities have been applied and the Board has assessed the further mitigating actions that can be taken if required, principally relating to more aggressive management of working capital.

The Board has had a number of discussions with its lending banks and is highly confident that it could successfully renegotiate its loan facilities should it so require.

Availability of Credit Insurance

Many suppliers have come to rely on credit insurance to manage their risk of key customers defaulting. Over the last year, significant amounts of credit insurance have been withdrawn based on a significant increase in the number of business failures in the economy. During January 2009 a number of our key suppliers had their cover withdrawn by leading suppliers of credit insurance. This was a risk we had been monitoring for some time and our response to this event was well prepared. We are pleased to confirm that this event did not cause the business any material impact and the Board does not believe any future significant impact will prevail.

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

Going concern

Based on a detailed review of the above risks and uncertainties, management's latest revised forecasts, a range of sensitised scenarios and the current banking facilities, the Board has a reasonable expectation that the Group will continue to meet all of its financial commitments as they fall due and will be able to continue as a going concern. The Board, therefore, considers it appropriate to prepare the financial statements on the going concern basis.

FINANCIAL REVIEW

PROFIT AND LOSS ACCOUNT

Revenue

Revenue for the period ended 26 September 2009 decreased by 10.6% to £186.1 million (2008: £208.1 million). Like-for-like store sales declined by 13.5% across the year, falling by 18.5% in the first half, but showing a modest improvement in the rate of decline in the second half of the year with the level of decline at 8.3%. The performance reflects the continued constraints on the economy and the impact that this has had on consumer spending across the retail sector.

Gross margin

Overall gross margin was 58.3% compared with 61.8% last period. At the interim stage of this period gross margin was 59.4%. In the second half of the period we have generated a gross margin of 57.2%. The decline in margin is driven by two primary factors: approximately 22% of the goods for resale are sourced in foreign currency and the weakness of Sterling has increased the cost of the goods we buy; and the environment we operate in has become increasingly competitive and we have responded by ensuring we offer all of our customers the very best value for money by guaranteeing that our prices are never beaten. The flexibility of our business model means that we do not need to resort to widespread discount promotions but instead can invest margin in a controlled way to drive transactions.

Operating expenses

Total operating costs have decreased from £93.9 million to £92.1 million, a reduction of 2.0%. Costs as a percentage of sales were 49.5% compared to 45.1% last year. When adjusting for exceptional items, detailed below, operating costs as a percentage of sales are 46.7% (2008: 44.6%).

The average number of stores trading during the financial period was 335 (2008: 329), which would imply a 1.8% increase in store costs. The increase in the average number of stores and general inflationary pressures would be expected to generate additional costs of £3.7 million compared to the prior period and in addition to this there are a number of exceptional costs, including:

Impairment of plant, property & equipment of £3.1 million (2008: £0.5 million) relating to store closures in the UK and the impairment of the majority of the Dutch fixed asset balance.
Other restructuring and one-off costs of £2.1 million (2008: £1.2 million goodwill impairment charge).

These additional costs have been offset by a number of key cost saving initiatives totalling £9.3 million, as follows:

Marketing expenditure has been significantly reduced following the cessation of the national TV campaign in August 2008. Savings are in the region of £3.5 million compared to the prior period. Our marketing activities continue to be based on short term tactical opportunities and we will continue to monitor the market for great value media opportunities.

We have improved the utilisation of our own logistics infrastructure which has enabled savings in third party transport costs from warehouse to stores in the order of £0.9 million. Over the period we utilised 87.8% of our maximum fleet capacity (2008: 83.6%).

Reductions in sales volumes have resulted in reduced store labour, at the end of the period we employed 1,353 store staff, compared to 1,451 in September 2008, a 6.8% reduction in headcount. Headcount reductions and other staff savings have generated savings of £3.0 million over the period.

Non staff store costs have been under close review all year. This detailed focus on cost reduction has generated savings of around £1.0 million.

We have rationalised our central support structures and reduced headcount by 15%. Across all central functions we have realised savings of approximately £0.9 million over the period.

Operating Profit

Operating profit for the period was £16.4 million (2008: £34.6 million).

Operating profit as a percentage of sales was 8.8% (2008: 16.6%).

When adjusted for the exceptional items detailed on page 1 of this statement operating profit was £21.6 million (2008: £35.8 million).

Other gains and losses

Other gains & losses include the impact of property disposals. During the period we completed the sale and leaseback of 2 freehold properties for £2.0 million, with a loss on disposal of £0.3 million (2008: £0.9 million profit on disposal).

Financing

The net cash interest charge for the year was £5.3 million (2008: £6.3 million), excluding the impact of IAS39 revaluations. Whilst the interest charge has fallen compared to the prior year we have only seen limited benefit from the very low interest rates that prevail in the market. This is due to a series of interest rate derivatives we have in place which negate the majority of any impact from interest rate movements.

The interest rate derivatives give rise to a "marked to market" revaluation per the requirements of IAS39 "Financial Instruments; Recognition and Measurement". This revaluation has generated a fair value (non cash) charge of £5.8 million (2008: £1.5 million). Due to the nature of the underlying financial instruments, IAS39 does not allow hedge accounting to be applied to these losses and hence this charge is being applied direct to the income statement rather than offset against balance sheet reserves.

Net interest cover was 4.5 times (2008: 6.4 times) based on earnings before interest, tax and depreciation, excluding the impact of IAS39 in finance charges.

Profit before tax

Reported profit before tax is £4.9 million (2008: £27.7 million).

Group profit before tax margin was 2.6% (2008: 13.3%).

When adjusted for the exceptional and non cash items detailed on page 1 of this statement the profit before tax is £16.3 million (2008: £29.5 million).

Tax

The effective rate of Corporation Tax was 64.9% (2008: 41.0%).

The effective rate of corporation tax has been adversely affected by a £4.9 million loss in Holland for which relief against taxable profits may not be available. At this time no deferred tax asset has been recognised, however, the ability to utilise this loss is still being investigated.

The underlying UK tax rate was 32.2% (2008: 31.3%).

Earnings per Share

Basic earnings per share were 1.01 pence (2008: 9.56 pence).

Diluted earnings per share were 1.00 pence (2008: 9.55 pence).

Dividend and dividend policy

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

BALANCE SHEET

Capital Expenditure

Capital expenditure in the period amounted to £2.1 million (2008: £6.6 million), a reduction of 68%, reflecting the Board's prudent cost control and cautious approach to expansion. Capital expenditure includes the cost of 4 new openings, 1 rebrand and a small number of refits at a cost of £0.8 million. We have improved our central warehousing facilities at a cost of £0.6 million. The remaining £0.7 million is expenditure on renewal of the existing store base.

At the period end the Group owned six freehold or long leasehold sites including two warehouse and distribution facilities with a total net book value of £13.5 million (2008: £15.6 million).

Stock

Stock at the period end represents 128 days turnover compared with 140 days for the same period last year.

Capital Structure and Treasury

Cash and cash equivalents at the period end were £27.3 million (2008: £14.0 million) with repayable borrowings at £98.5 million (2008: £106.0 million).

This gives the Group a net debt position of £71.2 million compared to £92.0 million as at 27 September 2008.

Cashflow

Cash generated by operations was £33.3 million, compared to £38.7 million last period.

Directors' Responsibility Statement

We confirm to the best of our knowledge:

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

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

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

ANNUAL GENERAL MEETING

The Annual General Meeting for the period to 26 September 2009 will be held on 12th January 2010 at 10.30am at Topps Tiles Plc, Thorpe Way, Grove Park, Enderby, Leicestershire LE19 1SU.

Matt Williams Rob Parker

Chief Executive Officer Finance Director

23 November 2009

Consolidated Income Statement For the 52 weeks ended 26 September 2009	Notes	2009	2008
		£'000	£'000
Group revenue - continuing operations	3 & 4	186,061	208,084
Cost of sales		(77,584)	(79,537)
Gross profit		108,477	128,547

Operating expenses
employee profit sharing		(5,258)	(6,514)
distribution costs		(69,167)	(66,142)
other operating expenses		(7,988)	(7,024)
administrative expenses		(7,039)	(8,082)
sales and marketing		(2,600)	(6,165)
Group operating profit before exceptional items Impairment of goodwill	5, 13	21,636 -	35,805 (1,185)
Impairment of plant, property and equipment	5	(3,052)	-
Restructuring and other one-off costs	5	(2,159)	-
Group operating profit	4	16,425	34,620
Other (losses) / gains	8	(349)	877
Investment revenue	9	429	992
Finance costs	9	(5,768)	(7,302)
Fair value loss on interest rate derivatives	9	(5,833)	(1,464)
Profit before taxation	6	4,904	27,723
Taxation	10	(3,182)	(11,370)
Profit after taxation for the period attributable to equity holders of the parent company	28	1,722	16,353

Earnings per ordinary share	12
- basic		1.01p	9.56p
- diluted		1.00p	9.55p

All of the above results relate to continuing operations.

Consolidated Statement of Recognised Income and Expense

For the 52 weeks ended 26 September 2009

		2009	2008
		£'000	£'000
Exchange differences on retranslation of overseas operation	27	88	248
Deferred tax on share options taken directly to equity	21	103	(305)
Profit for the period		1,722	16,353
Total recognised income and expense for the period attributable to equity holders of the parent company		1,913	16,296

Consolidated Balance Sheet
As at 26 September 2009
		2009	2008
	Notes	£'000	£'000
Non-current assets
Goodwill	13	245	245
Property, plant and equipment	14	32,584	40,386

		32,829	40,631
Current assets
Inventories		27,426	30,496
Trade and other receivables	16	4,105	7,909
Cash and cash equivalents	17	27,270	13,977
		58,801	52,382
Total assets		91,630	93,013
Current liabilities
Trade and other payables	18	(30,669)	(29,961)
Derivative financial instruments	20	(7,826)	(2,110)
Bank loans	19	(7,250)	(7,250)
Current tax liabilities		(5,527)	(8,878)
		(51,272)	(48,199)
Net current assets		7,529	4,183
Non current liabilities
Bank loans	19	(90,712)	(97,963)
Deferred tax liabilities	21	(1,877)	(1,964)
Provisions for liabilities and charges	21	(1,051)	-
Total liabilities		(144,912)	(148,126)

Net liabilities		(53,282)	(55,113)

Equity
Share capital	22	5,703	5,703
Share premium	23	1,001	1,001
Merger reserve	24	240	240
Share based payment reserve	25	240	322
Capital redemption reserve	26	20,359	20,359
Foreign exchange reserve	27	336	248
Retained earnings	28	(81,161)	(82,986)
Total deficit attributable to equity holders of the parent		(53,282)	(55,113)

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

The financial statements in the Annual Report were approved by the Board of Directors and authorised for issue on 24 November 2009. They were signed on its behalf by:

M.T.M Williams

R. Parker

Directors

Consolidated Cash Flow Statement

For the 52 weeks ended 26 September 2009

Cash flow from operating activities
		2009	2008
		£'000	£'000
Group operating profit		16,425	34,620
Adjustments for:
	Depreciation of property, plant and equipment	4,641	4,792
	Impairment of property, plant and equipment	3,052	-
	Impairment of goodwill	-	1,185
	Restructuring and other one-off costs	1,876	-
	Share option (credit) / charge	(82)	100
	Loss on sale of property, plant and equipment	-	513
	Decrease / (increase) in receivables	3,424	(833)
	Decrease in inventories	2,262	877
	Increase / (decrease) in payables	1,747	(2,557)
Cash generated by operations		33,345	38,697

	Interest paid	(6,062)	(6,154)
	Payment of loan arrangement fee	-	(530)
	Taxation paid	(6,514)	(10,650)
Net cash from operating activities		20,769	21,363

Cash flows from investing activities
	Interest received	403	960
	Purchase of property, plant and equipment	(2,096)	(6,622)
	Proceeds on sale of property, plant and equipment	2,047	4,004
Net cash from / (used in) investment activities		354	(1,658)

Cash flows from financing activities

	Proceeds from issue of share capital	-	337
	Repayment of loans	(7,500)	(5,000)
	Dividends paid	-	(17,014)
Net cash used in financing activities		(7,500)	(21,677)

Net increase / (decrease) in cash and cash equivalents		13,623	(1,972)
Cash and cash equivalents at beginning of period		13,977	15,781
Effect of foreign exchange rate changes		(330)	168
Cash and cash equivalents at end of period		27,270	13,977

1. General information

Topps Tiles Plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given in the Annual Report. The nature of the Group's operations and its principal activity is set out in the Directors' Report of the Annual Report.

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

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

Standards and interpretations in issue but not yet effective

IFRS 2 (amended) Share-based Payment

IFRS 3 (revised 2008) Business Combinations

IFRS 7 (amended) Financial Instruments: Disclosures

IFRS 8 Operating Segments

IFRS 9 Financial Instruments

IAS 23 (amended) Borrowing Costs

IAS 27 (revised 2008) Consolidated and Separate Financial Statements

IAS 32 (amended) Financial Instruments: Presentation

IAS 39 (amended) Financial Instruments: Recognition and Measurement

IFRIC 12 Service Concession Arrangements

IFRIC 14 IAS 19 - The Limit on a Deferred Benefit Asset, Minimum Funding
Requirements and their Interaction

IFRIC 15 Agreements for the Construction of Real Estate

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 17 Distribution of Non-cash Assets to Owners

IFRIC 18 Transfer of Assets from Customers

The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group, except for limited additional disclosures when IFRS 8 comes into effect for periods commencing on or after 1 January 2009.

2. Accounting policies

a) Basis of accounting

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

Based on a detailed review of the risks and uncertainties (see pages 10 and 13 of the Business Review), management's latest revised forecasts, a range of sensitised scenarios and the current banking facilities the Board has a reasonable expectation that the Group will continue to meet all of its financial commitments as they fall due and will be able to continue as a going concern.

The Board, therefore, considers it appropriate to prepare the financial statements on the going concern basis.

The principal accounting policies adopted are set out below.

b) Basis of consolidation

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

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

c) Financial period

Throughout the financial statements, Directors' Report and Business Review, references to 2009 mean at 26 September 2009 or the 52 weeks then ended; references to 2008 mean at 27 September 2008 or the 52 weeks then ended.

d) Business combinations

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

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

e) Goodwill

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

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

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

f) Revenue recognition

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

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

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

g) Exceptional items

The Group has identified certain items as exceptional where they relate to one-off costs incurred in the period that they do not expect to be repeated on an annual basis. The principles applied in identifying exceptional costs are applied consistently each period.

h) Property, plant & equipment

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

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

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

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

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

Motor vehicles 25% per annum on reducing balance

Freehold land is not depreciated.

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

i) Impairment of tangible assets

At each balance sheet date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

i) Impairment of tangible and intangible assets excluding goodwill (continued)

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

j) Inventories

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

k) Taxation

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

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

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

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

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

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

l) Foreign currency

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

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period.

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

m) Leases

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

n) Investments

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

o) Retirement benefit costs

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

p) Finance costs

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

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

q) Financial instruments

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

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

Financial assets at FVTPL

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

A Financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling in the near future; or
it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

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

Loans and receivables

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

Impairment of financial assets

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

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 65 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

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

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

Cash and cash equivalents

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

Derecognition of financial assets

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

Financial liabilities and equity

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

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

A financial liability is classified as held for trading if:

it has been incurred principally for the purpose of disposal in the near future; or
it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit taking; or
it is a derivative that is not designated and effective as a hedging instrument.

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

Other financial liabilities

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

Derecognition of financial liabilities

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

Derivative financial instruments

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

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

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

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

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

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

r) Share-based payments

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

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

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

s) Trade payables

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

t) Operating profit

Operating profit is stated after charging restructuring costs but before property disposals, investment income and finance costs.

u) Provisions

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

v) Critical accounting judgements and key sources of estimation uncertainty

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

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

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

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

Key sources of estimation uncertainty

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

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and to discount by a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the balance sheet date is £0.2 million (2008: £0.2 million).

Impairment of property, plant and equipment

During the period, the Group has undertaken a restructuring exercise, resulting in the closure of 12 stores (8 in the UK and 4 in The Netherlands) before their lease end dates. As the fixtures and fittings within these stores cannot be re-used in other locations within the Group, the carrying value of these assets has been fully provided for in the year. Additionally, as part of an impairment review of all the remaining assets and liabilities of the Dutch business, including a sensitised analysis of forecasts by local management, it was concluded that the fixtures and fittings in the remaining trading stores in Holland would be unlikely to generate any positive future cash flows. The Group has therefore provided in full for these assets.

The Group is marketing for sale a former distribution centre and, following detailed discussions with the marketing agent and taking into account any likely sale value, the Group has decided to impair the carrying value.

Onerous lease provisions

During the period, as noted above, the Group has undertaken a restructuring exercise which has resulted in a number of stores being exited before their lease term has expired. In respect of these leases, the Group has provided for what it considers to be the unavoidable costs prior to lease termination or sublease.

Fair value of derivatives and other financial instruments

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

Tax

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

3. Revenue

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

	2009	2008
	£'000	£'000

Non-Trade customers	165,908	184,107
Trade customers	20,153	23,977
Revenue from the sale of goods	186,061	208,084

Interest received on interest rate swaps	79	347
Interest receivable	255	645
Total revenue	186,395	209,076

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

4. Business segments

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

Segmental revenue and operating profit / (loss) before central costs by business activity were as follows:

	Segmental information for the 52 weeks to 26 September 2009
	Topps £'000	TCH £'000	Topps Floorstore £'000	Consolidated £'000
Revenue	158,643	20,153	7,265	186,061
Operating profit / (loss) before central costs	20,207	1,625	(4,916)	16,916
Head office /distribution centre costs				(491)
Group operating profit				16,425
Other losses				(349)
Finance costs, fair value loss on interest rate derivatives and investment revenue				(11,172)
Profit before taxation				4,904

Other information

	Topps £'000	TCH £'000	Topps Floorstore £'000	Head office/ distribution centre £'000	Consolidated £'000

Capital additions	1,068	370	-	658	2,096
Depreciation	2,869	689	324	759	4,641
Impairment losses recognised	209	610	2,025	208	3,052
Balance sheet
Segment assets	96,718	7,109	926	-	104,753
Unallocated corporate assets	-	-	-	(13,123)	(13,123)
Consolidated total assets	96,718	7,109	926	(13,123)	91,630

Segment liabilities	(17,690)	(3,059)	(2,800)	-	(23,549)
Unallocated corporate liabilities	-	-	-	(121,363)	(121,363)
Consolidated total liabilities	(17,690)	(3,059)	(2,800)	(121,363)	(144,912)

Unallocated corporate assets include the Group's overdraft which is presented net within cash and cash equivalents due to a legal right of off-set between Group entities.

Unallocated corporate liabilities comprise bank loans, derivatives, corporation and deferred tax liabilities and sundry head office creditors.

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

Other information

	Topps £'000	TCH £'000	Topps Floorstore £'000	Head office/ distribution centre £'000	Consolidated £'000
Capital additions	4,260	651	401	1,310	6,622
Goodwill impairment	-	-	-	1,185	1,185
Depreciation	2,922	440	353	1,077	4,792
Balance sheet
Segment assets	75,284	8,833	4,644	-	88,761
Unallocated corporate assets	-	-	-	4,252	4,252
Consolidated total assets	75,284	8,833	4,644	4,252	93,013

Segment liabilities	(16,897)	(5,285)	(3,749)	-	(25,931)
Unallocated corporate liabilities	-	-	-	(122,195)	(122,195)
Consolidated total liabilities	(16,897)	(5,285)	(3,749)	(122,195)	(148,126)

5. Exceptional items

During 2009 12 stores were closed before their lease end date as part of a restructuring exercise undertaken by the Group. As a result of this exercise, management has identified a number of one-off costs, charged to the income statement in the 52 week period ended 26 September 2009, including onerous lease costs, redundancy costs, impairment of property, plant and equipment and inventory, and other one-off store exit costs:

	2009 £’000	2008 £’000

Impairment of goodwill	-	1,185
Impairment of property, plant and equipment	3,052	-
Restructuring and other one-off costs	2,159	-

	5,211	1,185

6. Profit before taxation

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

	2009 £’000	2008 £’000

Depreciation of property, plant and equipment	4,641	4,792
Impairment of property, plant and equipment	3,052	-
Staff costs (see note 7)	40,242	42,574
Impairment of goodwill	-	1,185
Operating lease rentals	20,730	19,861
Cost of inventories recognised as expense	76,080	77,735
Net foreign exchange gain	(25)	(32)

Analysis of auditors' remuneration is provided below:

	2009	2008
	£’000	£’000
Audit services:
Statutory audit of the Company’s annual accounts	44	32
Audit of Company’s subsidiaries pursuant to legislation	110	105

Total audit fees	154	137

Tax services:
compliance services	57	59
advisory services	5	2
Corporate finance services – business advice	175	-
Other services	47	-

Total non audit fees	284	61

	438	198

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

7. Staff costs

The average monthly number of employees (including Executive Directors) was:

	2009	2008
	Number employed	Number employed
Selling	1,463	1,553
Administration	162	190

	1,625	1,743

	2009	2008
	£’000	£’000
Their aggregate remuneration comprised:
Wages and salaries (including LTIP)	36,570	38,713
Social security costs	3,486	3,666
Other pension costs (see note 29b)	186	195

	40,242	42,574

Details of Directors' emoluments are disclosed in the Annual Report.

Employee profit sharing of £5.3 million (2008: £6.5 million) is included in the above and comprises sales commission and bonuses.

8. Other (losses) / gains

Other losses in 2009 relate to the sale of two freehold properties and in 2008 the other gains relate to the sale of four freehold properties.

9. Investment revenue, finance costs and fair value loss on interest rate derivatives

	2009	2008
	£’000	£’000

Investment revenue
Bank interest receivable and similar income	334	992
Fair value gain on forward currency contracts	95	-

Finance costs	429	992

Interest on bank loans and overdrafts	(5,768)	(7,302)

No finance costs are appropriate to be capitalised in the period, or the prior period.

Interest on bank loans and overdrafts represent gains and losses on financial liabilities measured at amortised cost. There are no other gains or losses recognised in respect of financial liabilities measured at amortised cost. Net losses from the movement in fair value on held for trading assets and liabilities (derivative instruments) were £5,738,000 (2008: £1,464,000), which include fair value losses on interest rate swaps of £5,833,000 (2008: £1,464,000) and fair value gains on forward currency contracts of £95,000 (2008: £nil). Included within bank interest receivable and similar income is interest receivable on interest rate derivatives of £79,000 (2008: £347,000).

10. Taxation

	2009 £’000	2008 £’000
Current tax – charge for the year	3,441	9,711
Current tax – adjustment in respect of previous periods	(275)	1,209
Deferred tax – charge for year (note 21)	102	434
Deferred tax - adjustment in respect of previous periods (note 21)	(86)	16

	3,182	11,370

Corporation tax in the UK is calculated at 28% (2008: 29%) of the estimated assessable profit for the year.

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

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

	2009 £’000	2008 £’000
Profit before taxation	4,904	27,723

Tax at the UK corporation tax rate of 28% (2008: 29%)	1,373	8,040
Tax effect of expenses that are not deductible in determining taxable profit	277	604
Tax effect of losses for which deferred tax is not recognised	1,393	-
Tax effect of IBA release	-	1,129
Tax effect of chargeable gain in excess of / (lower than) profit on sale of freehold property	98	(36)
Tax effect of different tax rates on overseas earnings	-	29
Tax effect of tangible fixed assets which do not qualify for capital allowances	402	379
Tax effect of adjustment in respect of prior periods	(361)	1,225

Tax expense for the period	3,182	11,370

11. Dividends

Amounts recognised as distributions to equity holders in the period:	2009	2008
	£’000	£’000
Final dividend paid for the 52 weeks ended 27 September 2008 of 0.00p (2007: 6.95p) per ordinary share	-	11,860
Interim dividend paid for the 26 weeks ended 28 March 2009 of 0.00p (2008: 3.00p)	-	5,117
Under provision in respect of the prior period final dividend	-	45

	-	17,022

Proposed final dividend for the 52 weeks ended 26 September 2009 of 0.00p (2008: 0.00p) per share	-	-

12. Earnings per share

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

	2009	2008
	Number of	Number of
	shares	Shares
Weighted average number of shares
For basic earnings per share	171,092,342	171,008,982
Weighted average number of shares under option	1,936,826	175,931

For diluted earnings per share	173,029,168	171,184,913

The calculation of adjusted earnings per share uses the same denominators as shown above for both basic and diluted earnings per share. The adjusted earnings figure is calculated as follows:

	2009 £’000	2008 £’000
Profit after tax for the period	1,722	16,353
Post tax effect of:
Goodwill impairment	-	1,185
Impairment of property, plant and equipment	3,052	-
Interest rate derivative charge	4,199	1,039
Withdrawal of Industrial Buildings Allowance	-	1,129
Property disposal loss/ (gain)	349	(624)
Restructuring and other one-off costs	2,005	-

Adjusted profit after tax for the period	11,327	19,082

13. Goodwill

		£'000

Cost at 1 October 2007		1,430
Impairment of goodwill in the prior period		(1,185)
Cost and carrying value at 27 September 2008 and 26 September 2009		245

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

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. Goodwill is allocated to the TCH segment.

The recoverable amounts are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates based on the Groups weighted average cost of capital. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Discounted cash flows are calculated using a post tax rate of 5.8% (2008: 5.8%).

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years based on an estimated growth rate of 2 per cent (2008: 2 per cent). This rate does not exceed the average long-term growth rate for the relevant markets.

As a result of the annual test of impairment of goodwill, no impairment has been identified for the current period. In the prior period the Directors decided that an impairment of the goodwill relating to the Dutch operation was required. The review of the business valuation took into account the operating loss in the prior period of £758,000 and local management's internal budgets and expectations for the next 5 years. As a result of this, it was considered that a business valuation could not support the carrying value of the goodwill that arose on acquisition. Therefore the Group impaired the full carrying value of goodwill relating to the acquisition of Topps Holding BV.

14. Property, plant and equipment

	Land and buildings		Fixtures
		Short	And	Motor
	Freehold	leasehold	Fittings	Vehicles	Total
Cost	£'000	£'000	£'000	£'000	£'000
At 1 October 2007	18,522	1,766	39,659	342	60,289
Foreign exchange movement	142	16	373	3	534
Additions	1,231	60	5,311	20	6,622
Disposals	(3,247)	-	(1,740)	(22)	(5,009)
At 28 September 2008	16,648	1,842	43,603	343	62,436
Foreign exchange movement	-	-	-	21	21
Additions	618	-	1,438	40	2,096
Disposals	(2,412)	-	(1,322)	(198)	(3,932)
At 26 September 2009	14,854	1,842	43,719	206	60,621

Accumulated depreciation and impairment
At 1 October 2007	856	1,004	16,494	84	18,438
Foreign exchange movement	9	10	169	1	189
Charge for the period	281	131	4,307	73	4,792
Eliminated on disposals	(124)	-	(1,233)	(12)	(1,369)
At 28 September 2008	1,022	1,145	19,737	146	22,050
Foreign exchange movement	-	-	-	13	13
Charge for the period	246	125	4,227	43	4,641
Provision for impairment	208	-	2,844	-	3,052
Eliminated on disposals	(98)	-	(1,523)	(98)	(1,719)
At 26 September 2009	1,378	1,270	25,285	104	28,037

Carrying amount
At 26 September 2009	13,476	572	18,434	102	32,584
At 27 September 2008	15,626	697	23,866	197	40,386

Freehold land and buildings include £4,104,000 of land (2008: £4,104,000) on which no depreciation has been charged in the current period.

Cumulative finance costs capitalised included in the cost of tangible fixed assets amount to £nil (2008: £nil), see note 9 for further details.

The Group has no contractual commitments for the acquisition of property, plant and equipment (2008: £nil).

During the period, the Group has undertaken a restructuring exercise, resulting in the closure of 12 stores (8 in the UK and 4 in The Netherlands) before their lease end dates. As the fixtures and fittings within these stores cannot be re-used in other locations within the Group, the carrying value of these assets has been fully provided for in the year, with the associated impairment charge included within other operating expenses. Additionally the Group, as part of an impairment review of all the remaining assets and liabilities of the Dutch business, including a sensitised analysis of forecasts by local management, concluded that the fixtures and fittings in the remaining trading stores in Holland would be unlikely to generate any positive future cash flows and therefore the Group has also provided in full for these assets.

The Group is marketing for sale a former distribution centre, and following detailed discussions with the marketing agent and taking into account any likely sale value, the Group has decided to impair the carrying value.

15. Subsidiaries

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

16. Trade and other receivables

	2009	2008
	£’000	£’000
Amounts falling due within one year:
Amounts receivable for the sale of goods	655	493
Other debtors and prepayments
-Rent and rates	1,438	4,693
-Derivative financial instruments	49	165
-Other	1,963	2,558

	4,105	7,909

The Directors consider that the carrying amount of trade and other receivables at 26 September 2009 and 27 September 2008 approximates to their fair value on the basis of discounted cash flow analysis.

Credit risk

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

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

Total trade receivables (net of allowances) held by the Group at 26 September 2009 amounted to £0.7 million (2008: £0.5million). These amounts mainly relate to insurance generated sales, sundry trade accounts and contracts division generated sales. In relation to these sales, the average credit period taken is 65 days (2008: 94 days) and no interest is charged on the receivables. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.

Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed periodically. Of the trade receivables balance at the end of the year, £112,000 (2008: £137,000) is due from Independent Inspections, the Group's largest customer.

Included in the Group's trade receivable balance are debtors with a carrying amount of £64,000 (2008: £228,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 134 days (2008: 200 days), however this ageing is distorted by one account of £21,000 (2008: £6,000) which is overdue by 154 days (2008: 1,092 days).

Ageing of past due but not impaired receivables

	2009	2008
	£’000	£’000

60 – 120 days	64	228

The allowance for doubtful debts was £5,000 at the beginning and end of the period (2008:£5,000). Given the minimal receivable balance, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

The allowance for doubtful debts includes £2,000 relating to individually impaired trade receivables (2008: £nil) which have been placed under liquidation.

17. Cash and cash equivalents

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

	2009	2008
	£’000	£’000

Sterling	24,196	13,906
US Dollar	2,901	316
Euro	173	(245)

Total cash and cash equivalents	27,270	13,977

18. Other financial liabilities

Trade and other payables

	2009	2008
	£’000	£’000
Amounts falling due within one year
Trade payables	14,577	15,373
Other payables	8,493	7,339
Accruals and deferred income	7,599	7,249

	30,669	29,961

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 46 days (2008: 48 days). No interest is charged on these payables.

The Directors consider that the carrying amount of trade payables at 26 September 2009 and 27 September 2008 approximates to their fair value on the basis of discounted cash flow analysis.

19. Bank loans

	2009 £’000	2008 £’000

Bank loans (all sterling)	97,962	105,213

The borrowings are repayable as follows


On demand or within one year	7,500	7,500
In the second year	7,500	7,500
In the third to fifth year	83,500	91,000

	98,500	106,000
Less: Total unamortised issue costs	(538)	(787)

	97,962	105,213
Less: amount due for settlement within 12 months (shown under current liabilities)	(7,500)	(7,500)
Issue costs to be amortised within 12 months	250	250

Amount due for settlement after 12 months	90,712	97,963

The Directors consider that the carrying amount of the bank loan at 26 September 2009 and 27 September 2008 approximates to its fair value since the amounts relate to floating rate debt.

The average weighted interest rates paid on the loan were as follows:

	2009 %	2008 %

Loans	3.9011	6.4658

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

Whilst the interest charge on the loan has fallen compared to the prior period, the Group has seen limited benefit due to the interest rate derivatives which negate the majority of any impact on the interest rate movement.

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

At 26 September 2009, the Group had available £5 million (2008: £5 million) of undrawn committed banking facilities.

20. Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 19, cash and cash equivalents disclosed in note 17 and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 22 to 28.

Significant accounting policies

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

Categories of financial instruments

	Carrying Value and Fair Value
	2009	2008
	£'000	£'000
Financial Assets
Held for trading	49	165
Loans and receivables (including cash and cash equivalents)	31,326	21,721

Financial liabilities
Held for trading	7,826	2,110
Amortised cost	128,631	135,174

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

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

Market Risks

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

forward foreign exchange contracts to hedge the exchange rate risk arising on the import of goods from South America and China; and
interest rate swaps and collars to mitigate the risk of movements in interest rates.

Foreign currency risk management

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

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

	Assets		Liabilities
	2009	2008	2009	2008
	£'000	£'000	£'000	£'000
Euro	3,064	1,471	4,546	5,278
US dollar	2,923	317	344	323

Foreign currency sensitivity analysis

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

	2009 £000	2008 £000

Profit or Loss movement on a 10% strengthening in Sterling against the Euro	135	479
Profit or Loss movement on a 10% strengthening in Sterling against the US Dollar	(234)	1

Currency derivatives

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

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

	2009 £’000	2008 £’000

Forward foreign exchange contracts	512	400

These arrangements are designed to address significant exchange exposures for the first half of 2009 and are renewed on a revolving basis as required.

At 26 September 2009 the fair value of the Group's currency derivatives is a £30,000 asset (2008: a liability of £65,000). These amounts are based on market value of equivalent instruments at the balance sheet date.

Gains of £95,000 are included in operating profit in the year (2008: gains of £189,000).

Interest rate risk management

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

Interest rate sensitivity analysis

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

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

	50 basis points increase in interest rates		50 basis points decrease in interest rates
	2009	2008	2009	2008
	£'000	£'000	£'000	£'000
Profit or (loss)	1,248	(558)	(1,219)	(3,208)

The Group's sensitivity to interest rates mainly relates to the interest rate derivatives.

Interest rate derivatives

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

The Group's interest rate derivatives comprise;

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

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

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

The fair value liability of the swaps entered into at 26 September 2009 is estimated at £7,777,000 (2008: £1,945,000). Amounts of £5,833,000 have been charged to the income statement in the period (2008: £1,464,000).

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Management has considered the counterparty risk associated with the cash and derivative balances and do not consider there to be a material risk. The Group has a policy of only dealing with creditworthy counterparties. The Group's exposure to its counterparties is reviewed periodically. Trade receivables are minimal consisting of a number of insurance companies and sundry trade accounts, further information is provided in note 16.

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

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 19 is a description of additional undrawn facilities that the Group has at its disposal to reduce liquidity risk further.

Liquidity and interest risk tables

The following tables detail the Group's remaining contractual maturity for its non-derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows (and on the assumption that the variable interest rate remains constant at the latest fixing level of 2.59450% (2008: 7.4536%)) of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

2009	Less than 1 month	1-3 months	3 months to 1 year	1-5 Years	5 Years	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Non-interest bearing	30,669	-	-	-	-	30,669
Variable interest rate instruments	-	722	9,564	94,204	-	104,490


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

The Group has access to financing facilities, of which the total unused amount is £5 million at the balance sheet date (2008: £5 million). The Group expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets. The Group expects to continue to reduce its debt to equity ratio, which is currently 1.85 (2008: 1.92).

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

2009	Less than 1 month	1-3 Months	3 months to 1 year	1-5 Years	5 Years	Total
	£’000	£’000	£’000	£’000	£’000	£’000

Interest rate swaps payments	-	(702)	(1,926)	(4,776)	(2,331)	(9,735)
Foreign exchange forward contracts payments	(512)	-	-	-	-	(512)
Foreign exchange forward contracts receipts	548	-	-	-	-	548

2008	Less than 1 month	1-3 Months	3 months to 1 year	1-5 Years	5 Years	Total
	£’000	£’000	£’000	£’000	£’000	£’000

Interest rate swaps payments	-	-	(679)	(2,462)	-	(3,141)
Foreign exchange forward contracts payments	(400)	-	-	-	-	(400)
Interest rate swaps receipts	18	58	-	-	-	77
Foreign exchange forward contracts receipts	338	-	-	-	-	338

Fair value of financial instruments

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

Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.
Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.
Interest rate collars are measured using applicable yield curves derived from quoted interest rates and market volatilities.

21. Provisions for liabilities and charges


	Restructuring	Dilapidations
	provision	provision	Total
	£000	£000	£000
At 1 October 2007 and 28 September 2008	-	-	-
Additional provision in the period	873	178	1,051
At 26 September 2009	873	178	1,051

The restructuring provision relates to estimated future unavoidable lease costs in respect of closed and non-trading stores. The provision is expected to be utilised over the following two financial periods. The dilapidations provision represents management's best estimate of the Group's liability under its property lease arrangements based on past experience and is expected to be utilised within one year.

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

	Accelerated tax depreciation	Tax Losses	Share Based Payments	Exchange Rate Differences	Interest Rate Hedging	Rent Free	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 1 October 2007	1,945	-	(557)	(70)	(135)	(121)	1,062
Charge/(credit) to income	1,109	(215)	(28)	74	(410)	(80)	450
Share Options exercised in the period	-	-	147	-	-	-	147
Charge to Equity	-	-	305	-	-	-	305

At 28 September 2008	3,054	(215)	(133)	4	(545)	(201)	1,964
Charge/(credit) to income	(633)	215	23	5	282	124	16
Credit to equity	-	-	(103)	-	-	-	(103)

At 26 September 2009	2,421	-	(213)	9	(263)	(77)	1,877

At the balance sheet date the Group has unused tax losses of £5,700,000 (2008: £800,000) in relation to the Dutch entities. No deferred tax asset has been recognised in respect of these losses as management are currently investigating their ability to utilise them.

22. Called-up share capital

	2009 £’000	2008 £’000
Authorised 240,000,000 (2008: 240,000,000) ordinary shares of 3.33p each (2008: 3.33p)	8,000	8,000
Authorised 37,000,000 (2008: 37,000,000) redeemable B shares of £0.54 each	19,980	19,980
Authorised 124,890,948 (2008: 124,890,948) irredeemable C shares of £0.001 each	125	125

	28,105	28,105

Issued and fully-paid 171,093,021 (2008: 171,092,506) ordinary shares of 3.33p each (2008: 3.33p)	5,703	5,703

Total	5,703	5,703

During the period the Group allotted 515 (2008: 512,570) ordinary shares with a nominal value of £17 (2008: £17,000) under share option schemes for an aggregate cash consideration of £330 (2008: £337,000).

23. Share premium

	2009 £’000	2008 £’000

At start of period	1,001	681
Premium on issue of new shares	-	320

At end of period	1,001	1,001

24. Merger reserve

	2009 £’000	2008 £’000

At start and end of period	240	240

The merger reserve arose on the issue of share capital as consideration for the acquisition of Topps Tiles Holdings BV.

25. Share based payment reserve

	2009 £’000	2008 £’000

At start of period	322	222
Share option (credit) / charge	(82)	100

At end of period	240	322

26. Capital redemption reserve

	2009 £’000	2008 £’000

At start and end of period	20,359	20,359

The capital redemption reserve arose on the cancellation of treasury shares and as a result of a share reorganisation in 2006.

27. Foreign exchange reserve

	2009 £’000	2008 £’000

At start of period	248	-
Exchange differences on consolidation of overseas operations	88	248

At end of period	336	248

28. Retained earnings

	£’000

At 1 October 2007	(82,012)
Dividends paid	(17,022)
Deferred tax on sharesave scheme taken directly to equity	(305)
Net profit for the period	16,353

At 27 September 2008	(82,986)
Dividends paid	-
Deferred tax on sharesave scheme taken directly to equity	103
Net profit for the period	1,722

At 26 September 2009	(81,161)

29. Financial commitments

a) Capital commitments

At the end of the period there were no capital commitments contracted (2008: £nil).

b) Pension arrangements

The Group operates separate defined contribution pension schemes for employees. The assets of the schemes are held separately from those of the Group in independently administered funds. The pension cost charge represents contributions payable by the Group to the funds and amounted to £186,000 (2008: £195,000).

c) Lease commitments

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

Minimum lease payments under operating leases recognised as an expense for the period were £20,730,000 which includes property service charges of £542,000 (2008: £19,861,000 including property service charges of £593,000).

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

	2009		2008
	Land and		Land and
	buildings	Other	buildings	Other
	£’000	£’000	£’000	£’000

- within 1 year	17,124	881	17,953	1,021
- within 2 - 5 years	57,497	1,478	60,203	1,519
- after 5 years	60,396	193	66,116	104

	135,017	2,552	144,272	2,644

Operating lease payments primarily represent rentals payable by the Group for certain of its office and store properties. Leases are negotiated for an average term of 15 years and rentals are fixed for an average of 5 years (2008: same).

30. Share based payments

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

Equity settled share option scheme

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

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

Date of grant	Option price (p)	Exercisable period	No. of options outstanding
			2009	2008

26^th January 2001	0.54p	7 Years	81,520	108,520
12^th February 2002	0.54p	7 Years	40,779	40,779

			122,299	149,299

Movements in share options are summarised as follows:

	2009 number of share options	2009 weighted average exercise price	2008 number of share options	2008 weighted average exercise price
		£		£
Outstanding at beginning of period	149,299	0.54	392,790	0.54
Exercised during the period	-	-	(243,491)	0.54
Expired during the period	(27,000)	0.54	-	-
Outstanding at end of period	122,299	0.54	149,299	0.54
Exercisable at end of period	122,299	0.54	149,299	0.54

The options outstanding at 26 September 2009 had a weighted averaged exercise price of 54 pence (2008: 54 pence) and a weighted average remaining contractual life of two years (2008: three years).

Other share based payment plans

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

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

	2009 number of share options	2009 weighted average exercise price	2008 number of share options	2008 weighted average exercise price

Outstanding at beginning of period	717,635	135p	913,701	129p
Issued during the period	5,963,943	17p	376,805	131p
Expired during the period	(706,795)	135p	(303,792)	129p
Exercised during the period	-	-	(269,079)	76p
Outstanding at end of period	5,974,783	19p	717,635	135p
Exercisable at end of period	5,974,783	19p	717,635	135p

During the period ended 26 September 2009 the eligible purchase period fell between 19 February 2009 to 9 March 2009, when the average share price was 21.8 pence, resulting in a high employee take up.

The Group recognised a total income of £82,000 (2008: £100,000 expense) relating to share based payments.

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

	2009	2008

Weighted average share price - pence	24.3	140.0
Weighted average exercise price - pence	19.4	112.0
Expected volatility - %	114.6	88.2
Expected life - years	3 or 5	3 or 5
Risk - free rate of interest - %	2.9	4.5
Dividend Yield - %	4.7	4.6

Expected volatility was determined by calculating the historical volatility of the Group's share price over the 2008/09 financial period (2008: 2007/08 financial period). The expected risk used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural forces.

31. Related party transactions

S.K.M. Williams has the non-statutory role of President, advising on property matters and is a related party by virtue of his 11.4% shareholding (19,503,950 ordinary shares) in the Group's issued share capital.

At 26 September 2009 S.K.M. Williams was the landlord of two properties leased to Multi Tile Limited, a trading subsidiary of Topps Tiles Plc, for £84,000 (2008: £66,000) per annum.

No amounts were outstanding at 26 September 2009 (2008: £nil).

The lease agreements on both properties are operated on commercial arms length terms. His salary for the year in his role as President was £40,000 (2008: £40,000).

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

The remuneration of the Board of Directors, who are considered key management personnel of the Group was £1.0 million (2008: £1.1 million). Further information about the remuneration of the individual Directors is provided in the Remuneration Report in the Annual Report.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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