Topps Tiles' Largest Shareholder Seeks To Oust Chairman

Topps Tiles Plc, the UK's leading tile specialist, announces that on 6 December 2022 it received requisition notices pursuant to section 338 of the Companies Act 2006  requiring that the board of directors of the Company include resolutions in the notice of the Company's annual general meeting proposed to be held on 18 January 2023 as follows:

• that Darren Shapland be removed from office as a director of the Company, and from the position of Non-Executive Chairman of the Company, with immediate effect;
• that Lidia Wolfinger, having consented to act, be appointed as a non-executive director of the Company with immediate effect; and
• that Michael Bartusiak, having consented to act, be appointed as a non-executive director of the Company with immediate effect.

The Requisition Notices have been served by Lynchwood Nominees Limited on behalf of MS Galleon GmbH ("MSG") which currently holds approximately 29.9 per cent. of the Company's voting share capital.

The Requisition Notices include a request that the Company circulate an explanatory statement in respect of each of the Requisitioned Resolutions in accordance with section 314 of the Act.

The Board does not consider the Requisitioned Resolutions to be in the best interests of the Company and its shareholders as a whole and, therefore, intends to recommend that shareholders vote AGAINST the Requisitioned Resolutions at the AGM. 

Background to the Requisition Notices

MSG owns Cersanit, a major European producer of tiles, in addition to having a range of home improvement and tile retailing interests, primarily in the Polish market.

Topps first received a notification of shareholding from MSG in May 2020, stating that MSG had a 4.1 per cent. beneficial interest in the voting share capital of Topps.  By November 2020, MSG had built its shareholding to 20 per cent.  During this period, the Company engaged in regular dialogue with MSG, in line with its stewardship practice with its other major shareholders.  In this initial phase, Cersanit was a minor supplier to Topps.

During 2021, MSG approached Topps regarding (i) the potential appointment of an MSG representative to the Board, and (ii) a proposal that Topps should purchase a greater proportion of its tiles from Cersanit.  MSG has consistently set out its belief that the proportion of Topps’ tile supply purchased from Cersanit and its representation on the Topps Board should directly reflect its shareholding in Topps, which at that point was approximately 20 per cent.

Topps did not consider this to be in the interests of shareholders as a whole and sought to engage with MSG to explain that the Company’s expertise in ranging, sourcing and procurement of tiles from a wide range of suppliers on a global basis is a core part of its competitive advantage and its iterative programme to develop and produce differentiated products that are innovative, of high quality and exclusive to Topps Group is a key strength of the Group.

In addition, Topps’ sourcing policy does not allow for greater than 10 per cent. of tile purchases to come from any one supplier in order to avoid concentration risk.  Any purchases from Cersanit would also need to comply with Chapter 11 of the UK Financial Conduct Authority’s Listing Rules on related party transactions.  In the financial year ending 2 October 2021, Topps sourced 0.5 per cent. of its cost of goods sold (by value) from Cersanit on commercial arm’s length terms.

In order to consider the merits of appointing a representative of MSG to the Board, the Board requested that MSG should set out in writing its rationale for a Board seat, including why an MSG appointed non-executive director would be additive to the already well-qualified Board, why the appointment would be in the interests of all Topps shareholders, and how conflicts of interest would be managed.  No proposal was received.

Subsequently, MSG, through its nominee, voted against the re-appointment of Darren Shapland as Chairman of Topps, as well as a number of other customary resolutions, at the 2022 annual general meeting.  Since July 2022, MSG has increased its beneficial shareholding in Topps to 29.9 per cent. of the Company’s voting share capital.

More recently on 25 November 2022, MSG requested, via Lidia Wolfinger (who is one of the proposed MSG non-executive directors as set out above), that Topps should source 29.9 per cent. of its tile purchases from Cersanit in line with MSG’s shareholding in Topps, with interim stage gates for achieving a 5 per cent. and then 10 per cent. share over the short term.

Board’s rejection of the proposals

The Board unanimously rejects these proposals, which it believes present a clear conflict of interest between MSG’s objective for Cersanit to be a major supplier of Topps and the interests of all Topps shareholders.  In particular, the Board believes it is incompatible for the proposed non-executive directors to have the target of increasing tile purchases from Cersanit to 29.9 per cent., whilst at the same time acting in the best interests of all shareholders of Topps.

The Board is currently compliant with the UK Corporate Governance Code’s requirements in relation to board composition, is well qualified and experienced, and has helped the executive team steer the business through the COVID-19 pandemic to a position which is stronger than pre-pandemic, as evidenced by the Topps’ recent FY22 results, which announced a second consecutive record year of revenue and significant market share gains¹.

The Board believes that the proposed appointment of MSG’s non-executive directors has the primary objective of aligning Topps’ business and its strategy to MSG’s commercial objectives as owner of Cersanit and is therefore not in the best interests of the Company and its shareholders as a whole.

In the light of the Requisition Notices, the Board has consulted certain other major shareholders of Topps representing 39.1 per cent. of the Company’s voting share capital, and has received confirmation of their intention to vote against the Requisitioned Resolutions.  These confirmations have been received from the Company’s three largest shareholders other than MSG – Aberforth Partners LLP (acting in its capacity as discretionary fund manager for clients), Mr Stuart Williams and Invesco Asset Management Limited – as well as Axa Investment Managers UK Limited and others. 

Accordingly, the Board does not consider the Requisitioned Resolutions to be in the best interests of the Company and its shareholders as a whole and, therefore, intends to recommend that shareholders vote AGAINST the Requisitioned Resolutions at the AGM.

Darren Shapland, Non-Executive Chairman of Topps, said: 

“The Board strongly rejects these proposals, which it believes expose a clear conflict of interest between MSG’s objectives for Cersanit and the interests of all Topps shareholders.  The Board welcomes the support received from our other largest shareholders, who have confirmed their intention to vote against the Requisitioned Resolutions at the AGM.”

Keith Down, Senior Independent Director of Topps, said: 

“The Board unanimously rejects these resolutions which it does not consider to be in the best interests of the Company and its shareholders as a whole.  In proposing a resolution to remove the Chairman, who has led communications with MSG on behalf of the Board, MSG is seeking simply to strengthen its own position.”  

A further announcement will be made in due course.

Source : Topps Tiles

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