- MS Galleon wants change at the top
- CTD deal ‘detrimental’ to shareholders
- Topps outperforming weak market
MS Galleon, the major shareholder in Topps Tiles (TPT), has called for the tile retailer to overhaul its senior management and strategy following what it describes as a series of ‘costly blunders’.
Shares in Topps Tiles cheapened 2.25% to 39.1p on the news, with investors concerned a boardroom battle is a distraction management can do without as Topps wrestles with weak bigger ticket spending and the additional costs coming down the line following the Autumn Budget.
According to The Times, Austrian investment firm MS Galleon, which has a 29.9% stake in Topps Tiles, has written to chairman Paul Forman highlighting the ‘complete failure’ of management to adapt to the changing retail landscape.
MS Galleon also slammed Topps Tiles for overpaying for CTD Tiles, recently acquired out of administration for £9 million in a deal it dubbed ‘unequivocally irrational’ and ‘highly detrimental’ to the company’s interests.
MS Galleon also claimed that the home improvement retailer failed to carry out sufficient due diligence on the acquired business.
TOPPS HITS BACK
Hitting back in a statement to the stock market, the UK’s leading tile specialist stressed it continues to take market share in a ‘difficult trading environment’ for RMI (repair, maintenance and improvement) and bigger-ticket spending.
Bossed by chief executive Rob Parker, Topps Tiles also called out strong initial progress with its ‘Mission 365’ strategy to grow group sales to £365 million and adjusted pre-tax margins to between 8% to 10% over the medium term.
As outlined in Topps Tiles’ full year results (26 November), while the company’s sales slipped 5.4% to £248.5 million in the year ended 28 September 2024 amid weaker consumer confidence, this represented ‘substantial’ outperformance of a wider market estimated to have shrunk between 10% and 15%.
Adjusted pre-tax profit almost halved to £6.3 million due to the operational gearing in the business, but Topps also pointed out that sales returned to growth in the first eight weeks of full year 2025, rising 1.2% excluding CTD.
The Leicestershire-based retailer rebutted MS Galleon’s criticisms of the acquisition of the trade-focused CTD, a deal it argues is ‘strategically compelling’ and will significantly accelerate Topps’ growth in the commercial market.
Topps also insisted the acquisition, which it believes has the potential to add £30 million to £40 million of profitable sales to the group over the medium term, was completed after appropriate due diligence with advisors.
Forman said: ‘We engage with all our larger shareholders on a regular basis and listen closely to their views. Our strategy was reviewed in April and presented to shareholders in May, with further updates given last week. Further expansion of our digital capabilities is at the heart of many of these growth initiatives. Our latest results show that we continue to take market share, consistently outperforming the wider tile market despite very challenging trading conditions. We believe this demonstrates the effectiveness of our strategy, which has the full support of the board.’
THE EXPERT’S VIEW
Dan Coatsworth, investment analyst at AJ Bell, said Topps Tiles may have delivered a defence of its strategy in the face of brickbats from MS Galleon, but with the share price close to decade lows, ‘there are cracks in the facade of the company’s argument. Among the criticisms was that Topps had failed to develop a larger e-commerce operation - it points to 18% of its revenue being online but that is a relatively modest proportion.’
Coatsworth added: ‘The deal to acquire rival outfit CTD from administration may have felt like an opportunistic move but it also drew fire from MS Galleon for a lack of due diligence and suggestions that Topps overpaid. It is also now mired in a probe by the competition authorities.
‘Topps refutes these criticisms of the deal and the acquisition could ultimately prove to be a successful one. However, it could take time to demonstrate its merits. MS Galleon previously tried to oust chair Darren Shapland in 2022, and while he survived the vote, he stood down the following year.
‘The current management argue they are taking share in a difficult market. However, doing less badly than the competition is not the most compelling argument to make, even if it is a valid one.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
