Xponential Fitness H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 28, 2024

There are 3 speakers on the call.

Operator

And we'll publish our responses where it is appropriate to do so. And before we begin, as usual, we would just like to submit the following poll. And if you give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the executive management team from Topstiles Plc. Rob, good morning, sir.

Speaker 1

Hi. Good morning, and good morning, everyone. A very warm welcome to the full 20 24 full year results. That's about delivering 365,000,000 pounds of sales across the group, up from about 250,000,000 to that. We have also refreshed our strategy in order to help us deliver that goal with a specific focus on 5 key areas of growth across the business.

Speaker 1

Those 5 in turn, as detailed on slide here, are trade is a real area of strength for the business and it was actually been performing very well, so we're very encouraged by performance of trade. We recognize there's a lot of opportunity to engage trade, particularly digitally and we started that journey already over the second half of our year with some really strong performance coming through over the final quarter. We've significantly expanded our addressable market by expanding our category focus as a business. So a number of hard surface product categories are either in trial across the group or are being rolled out. We're already selling online.

Speaker 1

B2B business to business growth, we've identified as a real opportunity as well. We believe we can build on existing growth across the existing strength across the business. And in the second half, we completed the acquisition of some of the assets of CTD Tiles. We think that's a really strong fit for our strategy. We'll play an important part now since moving forward.

Speaker 1

That business is subject or that acquisition is subject to a competition and markets authority which remains ongoing and we're assisting the CMA with that investigation. ProTyl continues to ProTyl, which is a business we acquired a couple of years ago now, continues to perform very, very well indeed. So in fact, we've actually signed up to a new distribution center in the second half of the year. We'll actually come on to that a little bit later. That would be operational by January of 2025.

Speaker 1

And then Toll Warehouse, which is the newest part of our group, we started that just over 2 years ago. That also continues to make progress and sales have actually increased about 3 fold from where we were a year ago. So in terms of our financial results for the year, as investors in the market are already very much aware, 2024 has been tough year and it's tough year to perform for performance across the entire sector. Our group sales have declined around 5% across the year. We are very confident that that is a significant outperformance on the market.

Speaker 1

We believe the market has declined across the year by somewhere between 10% 15%. And actually, we now believe the

Speaker 2

market

Speaker 1

for the UK is around 20% below the level it was in 2019. Our sales are in a period of time actually growing 15% as a group. Profit for the year was at 6 point adjusted pre tax profit for the year was 6.3 million pounds That really reflects the operational gearing business. Stephen will cover it in more detail, but actually our margin costs are either broadly flat or actually slightly down in terms of costs for the year. So the decrease in performance in profitable performance is really all about the decline in sales.

Speaker 1

And we've continued to deploy our strategy. We've actually completed 2 acquisitions in the year, so the remaining element, both are the tools we require and then the CTD tile positions I mentioned. We have the balance sheet to do this and we've been saying for some time we have strong balance sheet and robust balance sheet and we've used taking those opportunities as they could and to deploy that that capacity that we have and we believe over time they've proved to be very good additions to the business. Current trading meant for the 1st 8 weeks of the year, so from the start of October to the end of November, we are pleased to be able to report we've returned to growth. It seems very modest.

Speaker 1

We're very conscious of that. It's just over 1% growth, but it is a positive number. And we and that is significantly driven on some of the results we saw during the course of 2024. Trading within that, we already mentioned trading is performing very well indeed, seeing strong growth in trade year on year, but that in itself does also underline how weak consumer and particularly consumer RMI continues to be across the UK and we will continue to deploy our strategy. We remain really well positioned for the medium term.

Speaker 1

So that's some of the highlights of the presentation. I'll hand you over to Stephen to go through some financials. Thank you very much Rob. Good morning everyone. I'm Stephen Hobson.

Speaker 1

I'm the CFO of Topstars.

Speaker 2

Thanks for joining us today. Just to frame the results before I get into the numbers, Rob's already mentioned that in the year the group completed 2 acquisitions and that was as we said, it's the remaining 40% of shares that we didn't previously own in a business called ProTitles. We bought 60% in 2022 and then 40% in the back of the second half of this year and also the CTD Tiles acquisition. In terms of financial reporting and the impact on financial reporting, the ProTiler business was already fully consolidated into group numbers from 2022 because the group held a control in the stakes. There isn't any change in that regard And then CTD has been consolidated into group numbers since the date of acquisition, which is about 6 weeks before the end of the year.

Speaker 2

We have taken the CTD trade performance out of our adjusted financial measures, which I'll explain as we go through the slides. The reason for that is that CTD was acquired out of administration and so in those remaining 6 weeks, it was sort of the trading will be representative of where the business I think will get to. We did quite a lot of support and attention in the 1st few weeks to get it back up and running. We've taken that out for the 6 weeks. I'll explain the impact of CTD on that as we go through the slides in the forthcoming section.

Speaker 2

That's the sort of context of it. If we start by looking at revenue with the P and L and starting with revenue, total group sales for the year on a statutory basis were down 4.1% to £252,000,000 and that follows 3 consecutive record years of revenue for the group during 2021 to 2023. As I just mentioned, we have excluded CTD from our adjusted measures so the sort of the blue bar 2 thirds away across the page refers to our adjusted sales of the year which were £248,500,000 which is down 5.4 percent year over year. Within that, the group has a number of businesses now and the main one being the Tops Tiles brand which is the largest part of the business at £210,000,000 of sales. Like for like sales in Topps Tiles were down 9.1% year on year with Q4 being slightly better than the previous couple of quarters with LikeFlux of minus 8.2%.

Speaker 2

And then from the start of the new financial year, as Rochus mentioned, LightFlux sales and Topsoft sales were actually very marginally down which is pleasing to us. As we said, trade customers were much stronger than home owned customers over the last year which has really supported the group's LightFlux sales. And as a result of that, our trade mix, so the proportion of sales in Topps tiles that were made to trade customers rather than homeowners, moved forward quite materially from 59.6% of sales in Topps tiles to 62.8% of sales in the year. And we do think that the group's focus on trade is a real key strength in terms of supporting the top line. It does have an impact in terms of gross margins which I'll come to on the next slide.

Speaker 2

PopSides and our sort of architecture design focused business saw sales decline £1,800,000 to £7,600,000 in the year in what was a very tough market. Online pure play, the yellow bar in the middle of the slide, consists of 2 different businesses. So Pro Tyler Tools, which I've mentioned, which we completed the definition of in the year, and then a smaller business called Tyler Warehouse. This part of the group continues to perform really, really strongly. So sales in this part of the group were up 36% year on year which follows growth of 50% in the previous financial year and now that part of the business is over $30,000,000 of sales and it's a material part of the group.

Speaker 2

CTD sales in those 1st 6 weeks of ownership were £3,300,000 which takes the total revenue, as you can see on the slide, to £252,000,000 Moving on to talk about gross margin secondly, we saw positive growth actually in our gross margins this year. On an adjusted basis, so again excluding CTD, gross margins were up 30 basis points from 53.0 percent to 53.3 percent and within this, talking you through the component parts, the top tiles brands saw positive gains from price, cogs and volume mix and what I'm getting at there specifically is reduced cost of sales because in the previous years people will remember we saw extremely high shipping costs and also we've talked to you in the past about the prices of tiles being quite heavily affected by very high gas prices in previous years. Those factors have now primarily normalized and so therefore we saw year on year benefits on that in FY 'twenty four. I mentioned on the previous slide that the group's sales to trade customers were particularly strong in FY24. Trade customers benefit from lower pricing than homeowner customers because they shop with us a lot and they spend some money with us and so they have sort of benefits associated with that which is common in the sector.

Speaker 2

So the increased mix of sales to trade customers had a negative impact on our gross margin percentage by about half a point and then there was also a further reduction in gross margin due to the high growth in the online pure play business. These businesses, particularly Proton Tools, which as I said have been very, very fast, operates at lower gross margins than the group as a whole, but actually on a net margin, so a profit before tax margin basis, they operate within actually the target range for the group, sort of 8% to 10% PBT range. So as the sales in that profit business grow, it reduces our gross margin which is the minus 1.2 percent you can see on the chart but actually is positive as a net margin basis. Then the other bar primarily represents operational gains, in particular lower stock losses here which is a pleasing thing. Adjusted gross margins were 53.3%.

Speaker 2

The impact of CTD on gross margins which as I mentioned is excluded from adjusted margins but on a total basis, the impact from CTD is slightly accretive, so 0.1% accretive and that was largely due to some one off gains as we started to sell through stock that was acquired on potential title planes and that took the reported gross margin to 54.4 percent in the year. If I move on now to our cost base and starting with operating expenses and other income, On an adjusted basis, the I'll comment on the statutory basis in a second, but on an adjusted basis, the cost base was actually lower year on year by £1,100,000 at 121,500,000 and that's despite almost £5,000,000 of inflationary costs this year. Inflationary costs were largely in people costs, reflecting the impact of national wage increases primarily from April 2024 flowing into the and L. So that's increasing cost. The other increasing cost was an increasing on 1 peer play part of the business.

Speaker 2

As I mentioned, sales were up over 30% and we invested another £1,200,000 in that part of the business to drive that strong sales growth. Parksides costs were actually lower by £1,200,000 year on year and that was largely due to the reduction in the cost base of Parksides that we did in FY23. This is the annualization of that cost reduction. Therefore, if you add up the cost reduction over the 2 year period in FY 'twenty three and 'twenty four, total costs in the parts of that business are down over £2,000,000 which actually represents about 40% of that business' cost base. As a result of that and despite the sales decline in Parkside that I spoke to 2 slides ago, Parkside actually moved into a modest level of profit for the first time this year despite the sales decline.

Speaker 2

The next big bar in terms of cost reduction is titled profit share. Now everyone in Topps Group has an element of variable pay in their jobs and that is no matter whether you're a service specialist working in one of our top sales stores where you will earn commission on the sales that you meant or whether you work in our warehouse and distribution centers or whether you're a colleague in our support office. Given the year on year financial performance of the group, which Rob's already mentioned, was down about 50%, The profit share clearly also dropped substantially as well year on year. The other savings bar on the right hand side of the page includes some savings in supply chain and in store costs based on those lower volumes. And that is a relatively modest saving and it's true to say that the business's cost base is relatively fixed overall.

Speaker 2

So as sales drop, our cost base don't particularly drop as fast as the sales. That's also true the other way around as costs rise, our sales rise and our cost don't rise as much as well. We describe that as high operational gearing, which is inherent to the as well. We describe that as high operation gearing, which is inherent

Speaker 1

in the group.

Speaker 2

So therefore, in summary, adjusted costs were down at 121,500,000 despite the 5,000,000 or so inflationary costs in business. Now the difference between adjusted operating costs and statutory operating costs this year is very large, which I've presented on the table on the right hand side, so adjusted costs are 121,500,000 but if you just look at the front page of the P and L, you'll see that our statutory operating costs and other income were £145,700,000 and the most significant item, as you can see on that table by some stretch, is called store impairments and lease gains and losses which was a cost of £18,800,000 on an aggregate basis. That includes a large impairment or right of use assets and fixtures and fittings which is a non cash item and I'll come back to explain that shortly. The other material item on the right hand side of the page is the Protiler share purchase expense of £3,200,000 and we've discussed that in previous results presentations and it relates to building up a provision essentially to buy up the remaining shares in Protaglia which we did in May 2024. That's now complete as the transaction has been done in 2024.

Speaker 2

And then the CTD costs of £1,900,000 I've already said a couple of times that we've adjusted out all of CTD. The net impact of CTD on the business' profit was £0.2000000. This £1,900,000 obviously just represent the costs associated with CTD, but that's what we explained. We also backed out the gross margin as well, so that explains the statutory profit movement statutory cost movement in the end of the year. So combining everything now to look at our P and L accounts on an adjusted basis, I have explained a fair chunk of this already so I'll go through it relatively quickly.

Speaker 2

Sales were down 5.4%, Gross margins were up slightly in 30 basis points as I've mentioned and OpEx was down by £1,100,000 Interest was up £0.6 million reflecting higher IFRS 16 interest charges. I should make clear to investors that that interest charge does relate to IFRS 16 interest costs on leases that isn't to do with bank interest payments which basically 0% of the year and all of that led to profit before tax reducing from £12,500,000 to £6,300,000 in the year. It hopefully is fairly clear looking at the NL, but all of that profit movement therefore is down to the sales decline given that gross margins were up and operating costs were down. The tax rate for the business was slightly lower than the UK headline rate of corporation tax and therefore earnings per share were down 47%, which is a slightly lower rate than profit before tax movement of 50% down and that led to 2.4p of earnings per share and we have proposed a full year dividend of 2.4p per share, which is therefore 100% of EPS and down from 3.6p loss share and again, I'll come back to dividends shortly. If we turn to the budget and the cash flow statement then, so net cash over the course of the year reduced by £14,700,000 from £23,400,000 at the start of the year to £8,700,000 at the end of the year and that includes, as Rob mentioned in his opening remarks, that includes £19,000,000 of cash relating to the 2 acquisitions completed on the period which are the 2 box on the right hand side of the chart.

Speaker 2

Excluding those 2 acquisitions, our net cash actually increased slightly over the course of the year. If I walk through the slide, operational cash flows before leases and that excludes CTD were £34,900,000 which is £6,200,000 lower than last year's equivalent number which therefore follows exactly the year on year movement in adjusted profit as I've spoken about already. We saw a working capital inflow again excluding CTD of £6,400,000 in the year but that did include a £9,000,000 timing benefit which is simply because our year end this year in the end of September moved to the 28th September which fell just before the September payroll VAT and supplier payments which will went out Monday, 30th September, the 1st day of the new financial year. So that gave us a benefit of £9,000,000 from timing. We will retain that working capital timing benefit until we have a 50 3 week year which will be in a few weeks' time so it will remain in the numbers until it reverses out and we'll have 53 a year.

Speaker 2

Lease payments were £21,800,000 which are £1,200,000 lower than last year. Again, some cash payments moved just into the start of 2025 which explains that difference. CapEx continues to be relatively low, up £4,500,000 in the year and then there was a dividend to CHEM in SoftSoft PLC of £7,100,000 on a cash basis and that consists of the final dividend from last year and then the interim dividend of 1.2p that we paid and offered through this year. So before acquisitions but including those dividend payments, net cash grew from £23,400,000 to 27,600,000 and then I think as we've explained already, we've got CTD for £9,000,000 and the final 40% of shares in Proteller and the 2 of those in total related to £19,000,000 leaving the group at the end of the year with £8,700,000 of net cash. The group has a committed banking facility which is committed to October 2027 and that banking facility is the value of £30,000,000 and so if you add the £30,000,000 to the £8,700,000 of cash that we have, that gives you headroom to the banking facilities or £38,700,000 of fee.

Speaker 2

Looking at the balance sheet, capital allocation and dividends then on this slide, I wanted to come back to this specifically. On the left hand side is a reminder of the group's capital allocation policy which we launched in May 2022. It's not changed from there. I just thought it would be useful to show a recap to investors on the left hand side of the elements of our capital allocation policy. And then on the I suppose the context for launch of that capital allocation policy was the improving strength of the group's balance sheet.

Speaker 2

And on the right hand side of the chart, you can see the year end's net debt or net cash position of the group over the last, what, 13, 14 years or so. And I should be clear that that excludes lease liability, so that is sort of the back debts or cash sitting in our bank. You can see that the context there is that over a decade, the group swung from a position of having £51,000,000 of net debt in FY11 at the end of FY11 £28,000,000 of net cash in 2021, excluding leases. This year, that cash balance has reduced to £9,000,000 As I explained, that includes the 2 acquisitions that we've made and so we finished here at £9,000,000 If you want to include leases, we have £86,000,000 of lease liabilities sitting on the company's unachieved and therefore our net debt to EBITDA post leases at year end is 2.3 times. If you combine that with our £13,000,000 bank facility, I would still describe it as a very robust balance sheet despite the year on year decline in cash.

Speaker 2

When it comes to dividend, our policy was also described as part of that dividend and capital allocation policy in 2022 and our core policy on dividends is to pay out 2 thirds of our adjusted earnings per share as a dividend but the policy very clearly gives us some flexibility around that. We don't pursue it here to that slavishly. In particular, it gives us some flexibility to pay out up to 100% of our adjusted earnings per share in a year, particularly if we feel there's a sort of relatively short term period of weaker trading and so this year we have taken advantage of the flexibility that that policy gives us and we've decided to pay out the maximum that the policy allows us to which is to pay out 100% of our earnings and therefore we are proposing a full year dividend of 2.4p which consists of the interim of 4.2p for what we paid plus another proposed final dividend of 4.2p which will obviously be subject to shareholder approval at the AGM in January next year. I mentioned earlier on that within our cost base, our statutory cost base, there was a large non cash impairment of store assets so I thought it might be helpful to show investors a little bit more detail on that which I've done in this slide.

Speaker 2

You can read for yourselves on the right hand side some of the processes that the company goes through and then on the left hand side there's 2 snips of some of the notes to the accounts, so the lease note which explains our right of lease assets and then the snip from the property, plants and equipment to the fixed asset notes as well. I've highlighted with the box hand it the impairment which you can see exactly in the back of the accounts the 2 things that I'm talking here. There's a process that companies have to go through under an accounts standard called IAS 36 where we're required to look at assets in the company's balance sheet and see if there's any what they call trigger for impairment across business which I think the poor state of the market and the decline in the company's profit year on year was in our view a trigger to do a full impairment review which we completed and in particular, we look at the largest asset on the company's budget, which are the right of use assets which started the year at £81,000,000 Those assets represent the company's rights to use leased assets.

Speaker 2

Almost all our stores are held on leases but under the accounting standards, those are viewed as assets because we have the right to use those. They have a value associated with them normally on the balance sheet and these are the assets that we're talking about. The way we do it is you look at future cash flows generated by stores on a fully absorption costing basis and then where the future cash flows can't support the assets on a store by store basis, we're required to impair it and the outcome was that we posted a non cash impairment of £17,100,000 against the rights of use assets and £2,300,000 against the fixtures and fittings within those assets. The FNF process follows exactly the same process as the rights of these assets. That impairment gets posted against our statutory profits this year but as I mentioned, it's a non cash accounting item and so we removed it from our adjusted profits.

Speaker 2

In future years, it will also have no impact on our adjusted profits moving forward which hopefully makes you only a comparison to profit much more easy to understand for investors as we move forward. The adjusted profit won't change as a result of this. Then my final slide before I hand back to Rob, just looking forward slightly, so again, there's a fair bit of the slide off the camera, just a few points of the presentation. Looking at macroeconomic indicators, I think we've characterized them as being mixed at the moment. There are some positives, so in particular things like mortgage approvals are up quite substantially year on year which is a good sign and that hasn't yet led to increased levels of housing transactions.

Speaker 2

Logic says it should but there's a lag factor until that happens so that hasn't happened yet. We would hope that after housing transactions start to pick up, then maybe people will start to spend a bit more on their phones again, but that has yet to come through yet. Consumer confidence is something we look at quite a lot and it was on a positive trend but then it took a little hit in recent months in sort of September and October. We didn't know that consumer confidence improved slightly last week but it is still relatively low. And then inflation is trending down but I think it's fair to say there are upward pressures on inflation as well which we think might come through in future months.

Speaker 2

So a mixed set of macroeconomic events, I think. Although our own trading is back into slight growth in the 1st 8 weeks of the year, which we are pleased with, I think we've been very clear not to call that a recovery in the market. We don't think that there's been a recovery in consumer spending yet, which I think Rob will touch on in his presentation shortly. And then we as a business also face our own set of inflationary challenges. So in total, we're guiding investors to think about £5,000,000 of inflationary costs hitting the business in FY25 which includes the impact from national income wage increases in April and also the changes that the giants announced to National Insurance, both the rates of National Insurance but also importantly the threshold at which that insurance payment kicks in.

Speaker 2

It's been reduced from £9,100 to £5,000 which will incur the business for sure. In total, we think we have about £5,000,000 inflationary and cost of 2024. There's a few other slides well, a few other points which you aren't necessarily picking out on the slides and just 2 more quick ones. H1 to H2 phasing, you should continue to expect H1 to be impacted by holiday pay accruals which reverse out in the second half and obviously we have high heating costs in the first half as well. And then also one final thing, we've mentioned already the fact that we've acquired a new distribution center or signed a lease in a new distribution center to support Protilot.

Speaker 2

We will be paying the CapEx cost to fit that out and so we're guiding CapEx to step up next year to £8,000,000 to £9,000,000 including the cost of the fitting that. Overall, the environment does remain quite tough. The good news is that we do have a large list of self help measures that we're in the process of implementing which we think will really drive the business forward which is what I'll hand back to Rob to talk to you

Speaker 1

about now. Thanks, Steven. Very good. Thank you. So, yeah, Craig, thank you.

Speaker 1

Moving on to strategy then and operational run through. So the goal in the addressable market, so I've already covered in as we announced the interim tab. New exciting goal we think is all about Mission 365 is about getting the business to £365,000,000 of brand new heights of sales and that's also combined a really clear target for profitability. So we believe every part of our business, every operational element can generate at least 8% of net margins. The profile of the business is already generating that level of profitability today.

Speaker 1

And historically, prior to the pandemic period and various points of disruption, the top styles business consistently achieved that level of profitability. Operational gearing will be key, as Steven highlighted, to get top styles right there, but we believe every part of the business can generate at least 8% of their margins. And the addressable market for the business has been really materially expanded as well from about 1,200,000,000 previously, which was just focused on tiles and closely associated products to 2,100,000 now. And we've achieved that by broadening our reach into more of the half floor and wall surface covering sector and related products. So whilst titles remain our core and it's really important, it's the name of our door, it's what we do.

Speaker 1

We've also started to extend our reach in risk of years actually into adjacent categories and we feel there's much more we can achieve in that space. Things like wood laminate, shower panels, double XL tiles, super large tiles that are now coming out of factories and also splashbacks and I'll talk to some of those in terms of the issues. So the strategy for the business has therefore been enhanced and refreshed to reflect that increased scope for our mission and also the fact that we want to ensure we really are market leaders or as we've got here first of all in each of our chosen areas of focus. The only exception for actually is hard surfaces where we recognize that we need to build and grow. Our immediate focus is ensuring the customers know that we actually sell in both categories, hence we're going to be famous for hard surfaces, but first for everything else.

Speaker 1

So the way this schematic works is the 4 boxes across the top are all about focus on growing. So that's really, really important. The first 2, therefore very much about our customer offer and our product and are therefore product focused and then our consumer our consumer and then consumer and trade are the customers that we serve on the right hand side. So noting actually the trade is also a very, very broad definition and I'll talk about it in a couple

Speaker 2

of slides' time.

Speaker 1

And those 4 boxes focused on growing sales and then underpinned by 3 what we call supporting pillars. So those 3 are environmental leadership. We want to make sure we really are leading our market in terms of environmental credentials. It's a reasonably important area for our customers. Our people focus agenda is all about top people, top service and that applies to all areas of our operations and then operational excellence actually reflects some of the investments that we want to make, which will be approved to be key enablers of strategy over time.

Speaker 1

The other thing I would say on the slide that is we've got 5 trading brands across the bottom of the page and investors may or may not be familiar with these to varying extents, but very quickly, top sales is I think will be familiar to most certain UK based investors. That remains bulk of our sales. Sometimes 8.5% of our sales go to top styles. That's very much our consumer focused and trade, but that's sort of our sort of store based omni channel retail business. Parkside is in our business that focuses on the architect and design community.

Speaker 1

It's very much about direct selling into larger commercial type projects, corporate clients, those kind of areas, very much b2b. The Pro Tile business is an online only essentials business, so they sell everything you need to do a tiling job with the exception of tiles themselves, very much focused on a professional installer covering both a wide range of customers and applications. Tile Warehouse is the newest model business, which we started a couple of years ago, is very much home owner focused and designed to cater for a slightly more value orientated customer online only. And then CTD tiles is the newest part of the group we acquired as we mentioned earlier in August. And we'll talk about a little bit more as we go through the slides.

Speaker 1

In terms of those sources of incremental growth, I talked about top 20s at the start. We covered them at the interim transaction. Our 5 key areas of growth in the piloting where we think we can produce a meaningful change and meaningful as we work towards our delivery of Mission 365. We haven't changed any of these at all since the update we gave to investors 6 months ago, but I thought it was quite helpful just to reorientate investors around how these fit into that refresh strategy I shared on the previous slide. So category expansion, I think, really is all about on our services or as we're starting to go internally more of a house.

Speaker 1

Tile warehouses then part of our first consumer focus, one top tile, top tiles obviously. And then the other areas of focus is actually all about trading in different forms. So we've been really, really clear. We want to be the 1st for trade in all of our markets across the UK and each of those things, profile, the trading industry experience and needs to be growth, we need to be really key areas of focus to help get us there. So on this slide, then we talk about the road to 365.

Speaker 1

Again, this is almost the same chart that we shared with investors for the half year. And of those 5 key areas of growth, we've tried to lay out as best we can with a range against each of the numbers what we think that journey to Mission 365 will look like.

Speaker 2

I suppose a couple

Speaker 1

of points to underpin here. One is we've included a block of growth for the market. Our assumptions around market growth are very modest. This is not a market recovery goal. This is a self help goal.

Speaker 1

As Stephen mentioned earlier, any growth we see in the market probably go on a normalized basis, somewhere in region 2% a year. If there's any acceleration of that, that will be helpful in getting us to our gold price stuff. In addition of CTV then, which we've added into the left hand side here, which again are the things we covered earlier, we believe is a £30,000,000 to £40,000,000 sales opportunity. The way we're seeing that currently is that should be a significant accelerator of our journey to Mission 365. I do think that will have some interrelationship into our B2B area of focus.

Speaker 1

A lot of CTV businesses is around B2B and that's an area we need to consider more fully. At the moment, our focus on CTV is supporting, as I said, the CMO, the Competition Markets Authority with their review. And in the meantime, we'll continue with our focus in terms of strategic areas of growth. So in terms of the blocks on the page, you just sort of quickly give people a bit more orientation. Tops tiles therefore will be a major part of us to look at our goal of Mission 365.

Speaker 1

This actually remains one of the areas of business I'm most excited about despite our existing scale in this space and I think the trade and digital experience and growth in new categories are almost all likely to come through the top half. Business is very important to us. We've got really strong ambitions as I mentioned in the commercial trade space at B2B. That will be across top styles, palm side and protile and now also CTD as we move forward. And then the protile business, we've already touched on at the start.

Speaker 1

We are very confident back at least a £50,000,000 turnover business. We've already grown very, very rapidly. We bought the business two and a half years ago. We've done about 12,000,000 sales at the time. It's now annualizing very close to £30,000,000 We're really confident that's £50,000,000 business.

Speaker 1

That will give us another net worth at least £20,000,000 of the growth from where we are. And then the tile warehouse business, again, we're relatively small but probably now doing something in the region of £2,500,000 a year run rate. We think that's within that 10 to 15 opportunity from work builds on that as well. So to then first, the tiles and what that really means and where we're focused on here. So tiles, of course, are our hard line.

Speaker 1

It's really, really important to the group. A lot of that doesn't change. It absolutely is our key area of strength and advantage. We are the leading specialist we source from all over the world. Vast majority of sales are either exclusive or own brand, exclusive in some way or own brand.

Speaker 1

We work very hard to ensure that we continue to have the best and newest and most innovative top offer in the market. Much of our focus here in the first results of action surely we continue to strengthen that competitive advantage in adding all of our markets and that because that does support the majority of our sales today. So we're focusing harder on in the year ahead, we're focusing on a harder range hierarchy and particularly in making it easier for both customers and colleagues actually to navigate the range. Now we often find we have a number of products that might look quite similar but actually they'll be at different price points and you don't necessarily feel we always do a good enough job explaining our range to our customers. So I think reality is sort of a simple kind of best hierarchy that really exists in the business but actually making much more.

Speaker 1

We might not focus on sort of features and benefits, particularly in how we explain those customers. We think it'd be a really good step on for business, but we also know that the center of brands can be really important, including having brands, particularly more for our trade customer base. And as

Speaker 2

a group, actually, we're in

Speaker 1

the best position we've been in for a long, long time and we'll continue to focus really there to develop really clear range hierarchies in our central range products as well. So then I'll next to being famous for hard surfaces. So as I mentioned, we introduced a greater focus on hard surfaces at the interims. It's an important step for the group that allows us to materially expand that across the market as I've explained, but ultimately it's about us getting a greater share of the hard surface coverings across the home. We've made really good progress over the second half of the year.

Speaker 1

We feel I'll actually try that on the next slide and we've updated all our website content ready. We have a number of changes planned to review your experience all coming in 25 for people that are shopping digitally. And we've gone to market websites much harder as well. We have done particularly allocate specific spend to some of these new areas of some of these new areas of probably these new categories and invest somewhere in the region of additional £500,000 on digital category expansion marketing for the year. So on to the expanded addressable market, you can see here illustrated large areas of home now increasingly utilizing hard surface coverings.

Speaker 1

We see that as a really key opportunity for the business. So progress we've made, outdoor and, everything, luxury vinyl tile has actually been in the business for a little while now, may not represent some of the reason £10,000,000 of sales ready to base on a random basis, obviously. So double XL, the sort of super large tiles, these are tiles that can be 4.2 meter square, 2.4 meter long in some cases and shower panels are actually ready in stores. They are being and have been rolled out as we talk. Wood and laminate, we now have an offer which has been trialed in 42 stores across the UK and starting to performance with plans involved.

Speaker 1

I'm gonna offer out in 2025 as well. I mean, doing more in terms of the online offer as well. So it's a really effective low risk way for us to move new categories. Things like acoustic panels, which are a new trend in the market and splashbacks are now available online and we plan to bring displays and ranges of those into stores as we get you across the So first, the consumer, well, consumer, I've mentioned is really all about total warehouse and of course, top tiles, total warehouse still quite new to us and perhaps a good progress. I've touched on the first slide.

Speaker 1

So I've said sales have roughly tripled here, run rate roughly tripled. We're now seeing regularly about £50,000 a week of sales go through to our warehouse and we remain really confident that can be a scale partner operation over time on ambition of the of 5. Topstars remains the leading specialist brand in the UK. Market research very much supports that. So I'm prompted awareness for Topstars.

Speaker 1

If you ask, you know, the typical person on the street, where might you think about going to buy your tiles? Topstiles actually achieves 33% of our content awareness as a place to go to buy time, the only the only other business that customers will prompt more than that is actually being Q themselves. Being Q, obviously, you know, the market leader for all things DIY and home improvement in the UK. So we think that's a very, very credible score for the Topps Tiles business. We actually represent around 25% of all tile related search traffic online and pretty amazing, I think, works Topps Tiles are actually more searched for than customers than the tiles itself, the tile itself.

Speaker 1

So a very strong brand under top styles and we want to make sure we continue to nurture and grow that brand. So we see lots of exciting opportunities here. We want to make sure we continue to ensure we have world class levels of customer service. We achieved 92% overall satisfaction in the year just gone. That's brilliant.

Speaker 1

We want to make sure we keep keep it in room for our customers. We launched a new service brochure actually in stores, which provides a template really for customers and colleagues to enjoy sort of really high quality engagement when the customer is in the store. It crucially gives them something to take them away as well. We'll talk about the kind of project they're involved in and the times they've looked at in store, the colleague that helped them on the day, and it gives them an opportunity to follow-up with lots of clear detail. We're also working on bringing technology into the sale.

Speaker 1

We plan to start bringing tablets into stores, which will allow colleagues to to do more, particularly things like features and benefits. I mentioned earlier, it will make that process much simpler. The colleagues as well and provide customers with a richer experience. And then range on hierarchy, I touched on earlier again features and benefits for us when they're selling as an important part of where we're focused moving forward. And we also plan to invest in digital marketing in the year ahead.

Speaker 1

We still think it's an opportunity to market business hard, particularly for customers doing initial periods of research online, which is inevitably what most of our customers started doing. So in terms of first the trade, trade for us initially splits down to 2 areas. We'll talk about domestic trade and then commercial trade. Domestic trade is really about jobs going in the same as they tend to be smaller, maybe a little bit less complex. Commercial trade can be more complex projects.

Speaker 1

They tend to be larger. They may involve contractors. They may also be linked to the AMD architect and design sector or customers such as National House Builders, those kind of areas. Top tiles as a brand is mainly more focused on domestic trade. We do have some crossover into commercial as well, particularly smaller localized commercial projects will often end up in open top star store.

Speaker 1

I'll cover that in the next slide, but we've seen some really strong results coming to the top star trade channel for this year. Protilot, as I said, a couple of slides ago, very much trade focused. They will cover domestic and commercial sectors in Protilot very regularly and the business has delivered exceptional growth as we've gone through. I'll touch on the new warehouse in the coming slide of time. And then commercial trade, we see absolutely remains as a key opportunity.

Speaker 1

Parkside is now a profitable partner operation. We restructured that business in 2023. So our business is now running at a small but importantly a positive contribution to group. Then the acquisition of CTD Tiles may well change our approach, but as I've said, that remains subject to us supporting the CMA with their inquiries. So in terms of the top styles trading digital experience, trades have been really key to the business, particularly in top styles and we've indicated there was more to do in the digital space.

Speaker 1

I'm pleased to say we've made some really good progress, particularly over the last final quarter of the year, we actually re launched the trade website. And at the half year, the interim results about sort of various points of friction in the journey for the trade customer. We thought we could do a better job of them at least. So we really have stepped on here. So things like trade pricing are now available in some of the you come on to the trade website and you can register as you can see those prices.

Speaker 1

And as a trader, you can now register and set up an account online in a matter of minutes. Previously, you have to start registration online and trying to sort of be validated by the local teams. You can now do all that in a sort of self serve fashion online. And we've seen some really, really impressive results coming through, actually. Some from quite a low base, but registration online are running at double.

Speaker 1

That's encouraging traffic is actually up about 4 fold online and trade spend is up about 60% now from a low base as we said, but the group that the top size businesses are quite significantly in the current trading period, which is very encouraging. In 2025 and the year ahead, we plan to launch our new customer engagement platform, a modern day version of a car and marketing system. So that will really take us forward and really, really enhance our direct marketing capabilities and allow us to really engage with those, particularly the trade customers who will obviously repeat purchases from us all the time. We plan to relaunch our trade loyalty scheme as well. We will increase our marketing spend.

Speaker 1

So historically, trade marketing has been very, very modest. That will be a mix of things. It will be more digital spend, but it will be more traditional mechanics of trader campaigns, these companies. And we're planning to launch an app, which will actually bring the whole of our trade offer together. That will be later on in 2025, but that's the point where effectively we hope to put top sales on every traders' mobile device, which will give us opportunities to engage with them wherever and whenever we need to do so.

Speaker 1

Updates on loyalty points, latest promotion offers, those sorts of things provides a real sort of immediate voice for customers. And CTD Tiles, we've already touched on a couple of times. So I think probably just useful for investors to understand what we've acquired and why. So CCT tiles was involved back in August 2024. We've bought the business out of administration.

Speaker 1

In essence, we've acquired 3 things here actually. We see them as fairly distinct treatment. There were around 50 stores, CCT tiles was 86 stores in total and a number of stores went to a couple of other players in the market, some stores remain closed. We took 30 best stores, 30 best performing stores that we considered we could have the best chance to make them some profit from. They accounted for in the year to June 2024, they accounted for about £20,000,000 worth of sales.

Speaker 1

We also then acquired the CCD Architecture business, which is an A and D architect and designer focused operation quite similar to Parkside in its nature actually, we should think of it in those terms. And then CTG HouseBuilder business, which at the time has grown £16,000,000 in sales, actually is serving national house builders and that's a part of the market that TOPS Group weren't involved in at all, so that's new to us. So quite an exciting opportunity for the business. We do see the brand positioning as complementary to our operations. Citi is slightly more attractive focused than TOPS and in particular those commercial items both AMD and elsewhere that they are we are on a very small role in those markets.

Speaker 1

So that's generally the incremental growth for us. We do see this as a 30, £40,000,000 opportunity. Nothing has changed our minds on that so far. But as I mentioned a couple of times, our media focuses on supporting the CMA and then we will start to focus on how we build that business back and make sure that business back and meet profitability. So moving next on to now, I talked about once we go past the support areas of strategy, which are really about growing growth.

Speaker 1

We've then got 3 supporting pillars. The first of those 3 supporting pillars then is operational excellence. 2 key areas we're really focusing on and keen to apply investors on today. So we have now signed the lease and are currently fitting out a new distribution center at Northampton, it's 140,000 square feet. That will be our single biggest facility across the group, which is very exciting.

Speaker 1

Currently, about half that space will be allocated to the Proteller business, literally outgrown their existing facilities in Northampton. So that's a really exciting step on. The Proteller section that will be operational by January 2025. So we're currently phasing out. We've gone pretty busy down there in Northampton.

Speaker 1

That will be online planning for investment. The systems upgrade has now been approved. We're starting that very soon. Business will migrate to it's currently on a Microsoft Dynamics platform, it will migrate to, in essence, the newest version of that, which now is in Central 365. And project, as I said, will start in January.

Speaker 1

We expect to complete this project somewhere around Q3 FY 'twenty six. So these are big things to do, take a chunk of time and that will cost us, we estimate, somewhere in region 1.2. And then our people focus obviously remains absolutely key to the business. I've already talked about world class levels of customer service. We absolutely have to have great people.

Speaker 1

We have got the best people in the market to deliver access to that world class service and we're very focused on this and have been for a long period of time. I'm delighted to say again, we achieved that in 2024 with overall satisfaction ratings of 92% for our customers and we're also getting much more focused on Google views as well. So I'm great at least to say we've now achieved 30,005 star Google views during the course of 2024, and that will be a bigger focus for us as we go into 2025. It's absolutely key for customers that can get that reassurance. Most people go to Google now for initial search and recommendations.

Speaker 1

That's that provides a really useful confidence build to customers. They know they'll get a great experience when they come to us. Product turnover has fallen again, I'm really pleased to say so down to 26.3% in the year and particularly manager turnover significantly lower than that as well. That's also a really fair focus for us. We have small teams in stores that manage it with a key sort of critical role in terms of onboarding, recruiting, onboarding, training new starters.

Speaker 1

So we need to manage and restate on what we achieved that this year. And we've launched our most year, we've seen inclusion program this year. So called 1 TOPS, We're starting as most people, I think, have done most important for this new groups. We're really trying to work and listen very carefully to our colleagues on Telstra business and and how we make tops even greater play and even greater place to work and a very efficient employer as well. And then charities are really important part of what we do.

Speaker 1

Colleagues and customers both love our charity campaigns. We're currently partnering with the Outsider Society, great charity, really good cause. We have a target to raise £1,000,000 for the outsiders across 5 years and I'm really pleased to say we've reached that halfway market that ships are actually on track for £1,000,000 and £5,000,000 already delivered. Environmental leadership is really focused on 2 things. It's focused on carbon reductions and it's focused on circularity.

Speaker 1

So in terms of carbon reduction, we've had a pretty clear goal here for a couple of years now actually, which is across scope 1 and scope 2. We want to be carbon neutral by 2030 banks earlier than most other companies have committed to. We've got really clear targets. We've got really clear programs in place. Our focus, we know we're the 5,000, so we currently need about 5,000 tons of carbon as a business.

Speaker 1

We know where, what that's as a result of and it's pretty easily split between 2 things. So it's fuel for our commercial delivery vehicles and lorries and then it's also energy used to heat our stores. But everything else is really very, very small and bigger, too big areas of focus and we've got on our way to achieving that by 2,030. Scope 3, we've actually measured, so hopefully viewers will understand. Scope 3 is in essence that we can have in sort of upstream, downstream of our supply chain.

Speaker 1

So these are directly accounted for. We're doing this to be very mindful of these and focused on them. So Scope 3 measured the first time, we expected it to be significantly higher than the scope on to our own sort of direct exhibitions. It's actually in the region of 177,000 times, about 35 times. So we're starting to focus on how we reduce those over time, working with our partners, manufacturers, etcetera, and what that would look like.

Speaker 1

And so Claris has been part of our agenda as well. So we've had a couple of areas of focus this year. We've been reducing waste, better cost pallets and tiles, made really good progress there. And we've also had some really good innovation initiatives as well. So tiles with high levels of recycled content and some of our adhesive product where we're taking sand out and replacing it with alternative sand equivalents which are environmentally sustainable.

Speaker 1

And then Mission 365, the addictive financial outcomes. We had this slide in the half year presentation. We thought it was useful to have it back even for investors. Just remind ourselves what Mission 365 would look like. So GB365 million of sales, obviously, we believe we can generate sustainable gross margins, 51% to 52% across the business and we are very confident we can derive at least 8% net margins.

Speaker 1

As I said, every part of our business, that will take us to £13,000,000 of adjusted pre tax profit and we also expect that will fall through to substantial improvements in internal capital over time. And then the final slide, just to summarize, bring it all together. So Mission 365, we think it's a really exciting new goal for the business. We've got really clear ambitions about how we want to get there. We've laid out our journey for investors as best we can.

Speaker 1

We have significantly expanded our rest of the market to allow us to do that and we see the business now being very much focused on hard and wound floor surface coverings and we've refreshed our strategy to help us achieve that as well as we go on this page. We've got 5 areas of focus where we're confident that we've been

Speaker 2

able to meet the

Speaker 1

meaningful progress to help us achieve in that goal. So that concludes the formal presentation. Thank you. Back to Jake

Speaker 2

for a second.

Operator

Perfect. Rob, Stephen, if I may just jump back in there. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation, along with the copy of the slides and the published Q and A can all be accessed via your investor dashboard.

Operator

Rob, Stephen, as you can see there, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But guys, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that would be great. Thank you.

Speaker 2

Yeah. Thank you very much, Jay. That's great. And thanks for the questions from our viewers. One of the things I'll read them out and I think in most cases they're probably focused on Rob's answers.

Speaker 2

I'll pass him to pick him up in response. Rob, the first question is from Alan. Thank you, Alan, for the question. Alan's question is that he understands that we have around about 22% of the entire market in the UK, so that's our best of our market share and I'm always going to be the other main players. Yes, thanks.

Speaker 1

Yes, thank you. Yes, thanks, Alan. Good question. So we look at the market for competition in the UK, pretty wide and diverse. So if we think about the sort of domestic market, firstly, you know, all of the sort of DIY shares, the usual rise and rise, BNQ, Wix, etcetera, would have a good range of bar for customers and all the accessory products as well.

Speaker 1

Merchants, we've got Cellco, will do a good job of selling tiles, you know, a good good range of tiles as well. Then you've got, I guess, the specialist chains after that. So a number of still specialist chains across the UK. People like Almirall, people like Tile Giant and some regional players in there. And you've got online only specialists as well.

Speaker 1

So a number of people, now sort of decent sized businesses actually, who've got our awesome floors, who've got our mountain, who've got awesome superstore. You've got, some other higher end chains, so people are Mandarin Stone, a number of centers around the UK and some strong web presence. And you're actually the bathroom retailers as well. So most bathroom retailers will also sell a range of tiles, easy bathrooms and ours are a big player in the UK, over a 120 stores. I think Victorian Plumbing Online only also now getting into the tile market.

Speaker 1

So, yeah, there's a really healthy market

Speaker 2

for tile competition. That's the

Speaker 1

sort of domestic market. And then in the commercial market, that tends to be competing for 1 a national basis as well direct selling teams in and out of architects and designers and some contractors offices. But there are a few sort of larger scale players in that market, well people like Domus, people like Solent Stars etcetera. So lots of competition across the UK.

Speaker 2

Thank you, Rob. Next question is about CTD and it says that a large number of CTD stores have closed, those which you didn't take on. Have we seen any evidence of us picking up sales in the markets where we traded against CTB previously but they're now closed?

Speaker 1

Yeah, yeah, okay thank you. So yes, there's some evidence of that but I guess I'd also refer back to our previous question which is lots of competition across the UK. I mean, firstly, just to recap, our 86 CTB task force training, we we took 30 we took the 30 that had the best chance of profitability and therefore the 30 that like which have been the highest turnover stores. Other competitors have taken somewhere

Speaker 2

I think 23 were taken by other players. That sort

Speaker 1

of gets shot to about 53 something like that and leads in the end therefore about 30 probably that are generally closed. We're seeing some benefit as others will have done in each of those localities as well.

Speaker 2

Thank you. Next one is about trade and digital, actually which of course we covered on that slide of the presentation, but you referenced the relaunch of the trade websites and enhancement to the digital experience as key growth drivers. And what measurable impact have those initiatives had so far and then what additional features are planned to further enhance customer engagement? I don't even cover a bit on that specific slide on trade.

Speaker 1

Yes, I think we probably have covered quite a lot of that. I mean, ultimately, trade remains an omni channel partly offer as well as what we would say. So having more traders come online is great. But ultimately, we see a lot of those people coming to stores as well. So it's very difficult to say exactly how much has been delivered in any part of this because it's an omni channel model.

Speaker 1

In terms of other things we're focused on, I'm referring back to Slide 24 in the presentation, I think, where we sort of went through the areas of focus.

Speaker 2

Thank you, Rob. I think the next one is for me. This is from someone called Rob. Thanks for the question and the question is despite weaker trading, the dividend policy remains intact. Can you clarify the rationale for maintaining dividends at this level given the cash outflow and investment requirements.

Speaker 2

So few things within that statement and question to unpack. So first of all, clearly the dividend did actually drop 7p3.6p in FY24 3, excuse me, and reduced it to 2.4p. I suppose how do we think about that? Well, first of all, in the cash flow slide, I was quite keen to point out that the cash generation business does actually remain strong and actually we grew our net cash over the course of the year apart from the fact we did these 2 acquisitions. So the business remains very cash generative.

Speaker 2

So it is I think the strength of the group actually. And I think from our perspective, we regard 2024 as a very tough year where profits have come down a lot, but we're very confident about the future ability of the business to grow both profits and cash actually, which is hence the whole sort of focus of the Mission 365 goal. So we would keen to signal to investors our confidence by pushing our dividends to the top of the policy and we think it's affordable. We think the company's balance sheet can sustain it. As a reminder, we do still have cash on the balance sheet.

Speaker 2

Most companies have debt and we have cash on the balance sheet of about 9.4 £900 at the end of the year. That's the sort of rationale, a really clear signal of the business confidence but also recognition that trading has been a bit weaker which is why the absolute value came down this year. I hope that answers your question, Rob. And that actually is it for questions at the moment. So J.

Speaker 2

Cole, how about you, Frisar?

Operator

Absolutely, Rob, Stephen, that's great. Thank you very much indeed for addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so. But Rob, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Speaker 1

Yeah, great. Thanks, Jake, and thank you, Stephen, for supporting the presentation. Thank you for joining us. Thank you to all of our viewers and hopefully investors hope you found the update useful. And investors are excited about Mission 365 as we are.

Speaker 1

Thank you.

Operator

Perfect, Rob. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company.

Operator

On behalf of the management team of Topstiles Plc, we would like to thank you for attending today's presentation. That now concludes today's session.

Remove Ads
Powered by Quartr
Earnings Conference Call
Xponential Fitness H2 2024
00:00 / 00:00
Remove Ads