MS Galleon GmbH (“MSG”), an investment management firm headquartered in Vienna, has urged shareholders of Topps Tiles PLC to support its Requisition Resolutions, which will be voted on at the Topps AGM which is taking place in Leicester on 18 January 2023.
MSG believes that Darren Shapland, who became a director and non-executive Chairman of the board of Topps Tiles PLC on 19 March 2015, should be removed from both roles immediately.
Seven years where Topps Tiles deteriorated
During Shapland’s leadership, Topps Tiles’ financial performance has declined significantly. The company has failed to transition to an omnichannel model and to compete effectively against omnichannel or pure-play retailers. The company is ill prepared to deal with an increasingly competitive UK market.
In particular MSG notes that:
- Topps Tiles’ earnings per share have reduced 43% in the past six years and 31% in the past five years.
- When compared to the total of tiles sold in the UK, Topps Tiles represent only about 8% of the volumes (Ceramic World 2022). This compares with the 19% value market share Topps Tiles claims, including all adjacent products in their calculations.
- Profit before tax at Topps Tiles grew by 6.5% CAGR between 2010 and 2015. Following 2016, and after Darren Shapland’s appointment as non-executive Chairman, profit before tax at Topps Tiles has declined to -9.6% CARG.
- Topps Tiles’ gross margin grew from 58.7% in 2010 to 61.9% in 2016. Following 2016, and after Darren Shapland’s appointment as non-executive Chairman, Topps Tiles’ gross margin has reduced to 54.8% in 2022.
- Between 2016 and 2022, Topps Tiles’ revenues increased by just 2.4% CAGR (from £215m to £247m), whereas in the same period the benchmark set by Victorian Plumbing is 13.8% CAGR (from £124.4m to £269m)
During Darren Shapland’s tenure, Topps Tiles has failed to create a substantial e-commerce offering; at present online sales only account for between 6-8% of the company’s total sales. However, the benchmark set by Kingfisher Plc is 18%. Several retailers could in a short time build significant market share online. For example, Tile Mountain, which was only incorporated in 2012, currently has an estimated 34% e-commerce share and £24.5m sales online. In response, Topps Tiles launched an e-commerce only platform Tile Warehouse in May 2022. The launch has been unremarkable with the firm itself conceding that Tile Warehouse was likely to lose money in the next few years.
Shapland’s ‘overboarding’
Darren Shapland is currently a director at five companies, including two Chairmanships – at both Topps Tiles and Moo Group. He is a company director at Aerofil and the Change Management Group and is a director with significant control at Backhurst.
In MSG’s view this constitutes, what the Financial Times has described as, “overboarding” by Shapland. During his short tenure as CEO of Carpetright between 2012 and 2013 Shapland presided over a 53% drop in profits and was quickly dismissed. Topps Tiles shareholders deserve better. They deserve a Chairman with a proven track record in modern retailing, someone with a deep knowledge of e-commerce, and a corporate leader who can commit their time to focus on the company’s growth.
Cersanit has always been driven by market conditions in its dealings with Topps Tiles
Topps Tiles currently buy 1% of its entire cost of goods from Cersanit, and 100% of new product introductions are always decided unilaterally by Topps Tiles.
By selling Cersanit’s products, Topps Tiles has been benefiting from margins above its average gross margin. An increase in the sales of Cersanit’s products would help Topps Tiles gain customers in the main price segment of tiles costing under £32 and improve Topps Tiles’ declining margin.
Cersanit, as Europe’s third largest producer of tiles, sells to Topps Tiles competitively priced, high quality, exclusive products for the UK market manufactured in Europe. All product introductions to Topps Tiles from Cersanit are based on price competitiveness.
Nexterio is an opportunity not a threat to Topps Tiles
As part of its portfolio, MSG owns Nexterio – a successful and fast developing chain of stores selling tiles, bathroom equipment and flooring. MSG proposed a Joint Venture to Rob Parker, the CEO of Topps Tiles on 3 August 2022. This offer was turned down, based on the assumption expressed by Rob Parker, that Nexterio will be a competitor to Topps Tiles.
Nexterio is not a competitor to Topps Tiles. Nexterio is focused on the consumer and not trader/ installer, it offers complete bathroom solutions, and it competes against the online pure-play and DIY stores and not specialists such as Topps Tiles. Nexterio has a high share of online sales (+40%) and attracts a younger demographic than Topps Tiles.
Nexterio has an effective logistics capability. Therefore, Rob Parker asked MSG on 24 November 2022 to invest into a distribution in the UK of the large, on trend tiles and heavy outdoor tiles. Topps Tiles’ own warehouses are too small and insufficiently equipped to service this growing part of the market.
Piotr Lipko, a Managing Director at MS Galleon said: “Topps Tiles should focus on turning around the company from seven dire years of deterioration. Rather than attacking its major shareholder, Topps Tiles should concentrate on reversing the declining margin, growing its market share and improving falling profits. The objective of MS Galleon’s requisitions is simply to improve the performance of Topps Tiles, increase its market value, and maximise returns for all shareholders.”
