TIDMW7L
RNS Number : 7006M
Warpaint London PLC
13 May 2020
13 May 2020
Warpaint London PLC
("Warpaint", the "Company" or the "Group")
Final Results for the year ended 31 December 2019
Warpaint London plc (AIM: W7L), the specialist supplier of
colour cosmetics and owner of the W7 and Technic brands is pleased
to announce its audited results for the year ended 31 December
2019.
Post-Period End Highlights - Covid-19 Pandemic
-- As announced in February 2020, a core range of 100+ W7
products are being displayed in 56 Tesco stores across
the UK
-- Prior to March 2020, current year trading was at the upper
end of the board's expectations, however many of the Group's
retail customers in the UK and internationally have since
been impacted by the lockdown caused by the Covid-19 pandemic
-- The 2020 Christmas order book has continued to build despite
the Covid-19 pandemic (April 2020: GBP6.9 million, April
2019: GBP7.8 million)
-- The focus is on the wellbeing of staff and protection of
the business. Remote working has been introduced for staff
and for those staff working in our offices and warehouses
social distancing practices have been put in place to ensure
their safety
-- Cash preservation measures have been implemented and discretionary
spend reduction initiatives have been introduced:
* Those staff not working, representing over 70% of UK
staff, have been furloughed
* With the approval from our landlords we have deferred
rental payments
* To preserve cash resources the board has decided not
to recommend the payment of a final dividend for the
year ended 31 December 2019 (2018: 2.9p per share).
The total dividend for the year is therefore 1.5p per
share (2018: 4.4p per share)
-- Having modelled a number of scenarios, the board confirms
that the Group has sufficient financial strength to withstand
ongoing disruption to its activities for at least the next
twelve months without the need to seek additional funds
even if the current lockdown measures were to remain in
place
-- At 30 April 2020, the Company had cash of GBP3.7 million,
hire purchase and term debt of GBP0.5 million, and had
made use of GBP0.3 million of its Bank trade finance facility
2019 Financial Highlights
-- Group revenue increased by 1.6% to GBP49.3 million (2018:
GBP48.5 million)
* International revenue increased by 8.3% to GBP26.6
million (2018: GBP24.5 million)
* UK revenue was 46% of total (2018: 49%) as sales to
the EU continued to grow
* Close-out revenue for 2019 of GBP7.7 million (2018:
GBP7.6 million)
-- W7 and Technic brands delivered continued export sales
growth of 8.6% year on year, particularly in the EU (growth
of 26.5%)
-- Cash at the year end of GBP2.7 million (31 December 2018:
GBP4.0 million)
-- Cash generated from operating activities of GBP4.4 million
(2018: 4.4 million)
-- Gross profit margin reduced to 33.5% (2018: 35.5%) due
to impact of lower margin US sales and adverse exchange
rates year on year
* Excluding US business and on a constant currency
basis, gross profit margin improved to 39.0% (2018:
36.9%)
-- Adjusted profit from operations of GBP5.6*(1) million (2018:
GBP8.4*(1) million). The majority of the movement in adjusted
profit is due to:
* Inclusion of Marvin Leeds Marketing Services, Inc
("LMS") GBP0.6 million operating costs for the whole
of 2019;
* Overall reduction in gross profit margin
contribution;
* Increased PR and marketing spend of GBP0.6 million to
support sales initiatives; and
* FX charge in the year GBP0.2 million (2018: FX gain
GBP0.4 million).
-- Reported profit before tax of GBP1.8 million (2018: GBP4.7
million)
* Excluding US business and on a constant currency
basis, plus adding back the effect of IFRS16,
reported profit before tax for 2019 was GBP3.7
million (2018: GBP3.9 million)
-- Adjusted earnings per share of 6.3p*(1) (2018: 9.3p*(1)
)
*(1) Adjusted for GBP0.2 million of exceptional costs (2018:
GBP0.3 million), GBP2.4 million of amortisation of intangible
assets (2018: GBP2.3 million), impairment costs of GBPnil (2018:
GBP0.8 million), and share based payments of GBP0.8 million (2018:
GBP0.1 million). Adjusted numbers are closer to the underlying cash
flow performance of the business which is regularly monitored and
measured by management.
2019 Operational Highlights
-- International growth strategy in place and delivering
-- Action taken at Retra Holdings Limited ("Retra") to improve
new product development and increase all year round sales
to complement seasonal gift sales
-- Action taken at LMS to reduce cost base, improve margin
and provide full range of Group product and brands
-- Active discussions with other major retailers in the UK
and overseas
Commenting, Clive Garston, Chairman of Warpaint, said: " The
Group had a satisfactory trading performance in 2019 and there was
a positive start to the current trading year. Since the year end
the W7 range has been successfully launched into Tesco, and early
results are encouraging. Active discussions are taking place with
other major retailers.
"However, currently the Covid-19 pandemic is casting a giant
shadow over world economies and Warpaint is not immune to it. As
was stated in our update in April, trading for the first two months
of the current year was at the upper end of the board's
expectations, but since then there has been a substantial reduction
in Group sales as a result of lockdowns, which have caused the
closure of many of our customer's retail outlets in the UK and in
our other markets.
"The directors have prepared forecasts for the period to
December 2021, which are based on assumptions which the directors
believe are conservative, although the unknown impact of Covid-19
could impact them negatively or positively. In preparing these
forecasts a number of different scenarios were modelled, including
a complete lockdown in all our markets to the end of 2020. In this
unlikely event the directors believe that Warpaint has sufficient
financial strength to withstand such disruption for at least the
next 12 months.
"The directors believe that the Company's business model remains
robust and It is the board's opinion that without the impact of the
corona virus pandemic, 2020 would have been a year of recovery and
improvement in financial performance for the Group. There are
exciting opportunities for Warpaint and we continually review and
refresh our product offerings and are well-placed to grow.
"Whilst the Covid-19 outbreak will inevitably have a negative
impact on the business, I do believe that the Company is
well-placed for the future. The uncertainty caused by the pandemic
cannot be underestimated, but the important thing is that the Group
is financially sound and in a position to deal with all current
uncertainties and implement its strategy."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Enquires:
Warpaint London c/o IFC
Sam Bazini - Chief Executive Officer
Eoin Macleod - Managing Director
Neil Rodol - Chief Financial Officer
Shore Capital (Nominated Adviser and Joint
Broker)
Antonio Bossi - Corporate Advisory
Daniel Bush - Corporate Advisory
Fiona Conroy - Corporate Broking 020 7408 4090
N+1 Singer (Joint Broker)
Shaun Dobson - Corporate Finance
Alex Bond - Corporate Finance 020 7496 3000
IFC Advisory (Financial PR & IR)
Tim Metcalfe
Graham Herring
Florence Chandler 020 3934 6630
Headline results for the year to 31 December 2019
Warpaint is made up of two divisions.
The largest division sells own brand cosmetics under the lead
brand names of W7 and Technic. W7 is sold in the UK primarily to
retailers and internationally to local distributors or retail
chains. The Technic brand is sold in the UK and continental Europe
with a significant focus on the gifting market, principally for
high street retailers and supermarkets. In addition, this division
supplies own brand white label cosmetics produced for several major
high street retailers. The Group also sells cosmetics using our
other own brand names of Man'stuff, Body Collection, Vintage, Very
Vegan, and Chit Chat.
The other division trades in close-out and excess inventory of
branded cosmetics and fragrances from around the world.
Statutory Results
Year ended 31 Dec Year ended 31 Dec % Change
2019 2018
------------------------------- ------------------ ---------
Revenue GBP49.3m GBP48.5m 1.6
------------------ ------------------ ---------
Profit from operations GBP2.1m GBP4.9m -56.0
------------------ ------------------ ---------
Profit from operations margin 4.3% 10.1%
------------------ ------------------ ---------
PBT GBP1.8m GBP4.7m -62.5
------------------ ------------------ ---------
EPS 1.8p 4.7p -61.8
------------------ ------------------ ---------
Cash GBP2.7m GBP4.0m
------------------ ------------------ ---------
Adjusted Statutory Results
Year ended 31 Dec Year ended 31 Dec % Change
2019 2018
--------------------------------- ------------------- ---------
Revenue GBP49.3m GBP48.5m 1.6
------------------- ------------------- ---------
Adjusted profit from operations GBP5.6m* GBP8.4m* -33.3
------------------- ------------------- ---------
Adjusted profit from operations 11.4%* 17.3%*
margin
------------------- ------------------- ---------
Adjusted PBT GBP5.2m* GBP8.3m* -37.3
------------------- ------------------- ---------
Adjusted EPS 6.3p* 9.3p* -32.4
------------------- ------------------- ---------
Cash GBP2.7m GBP4.0m
------------------- ------------------- ---------
*Adjusted for GBP0.2 million of exceptional costs (2018: GBP0.3
million), GBP2.4 million of amortisation of intangible assets
(2018: GBP2.3 million), impairment costs of GBPnil (2018: GBP0.8
million), and share based payments of GBP0.8 million (2018: GBP0.1
million).
Chairman's Statement
I am pleased to report on the Warpaint Group's trading
performance in the year ended 31 December 2019 and the positive
start to the current trading year. However, currently the corona
virus pandemic is casting a giant shadow over world economies and
Warpaint is not immune to it. As was stated in our update to the
market on 9 April trading for the first two months of the current
year was at the upper end of the board's expectations, but since
then there has been a substantial reduction in Group sales as a
result of lockdowns, which have caused the closure of many of our
retail outlets in the UK and in our other markets.
The directors have prepared forecasts for the period to December
2021, which are based on assumptions of sales, margin and cost
savings, which the directors believe are conservative, although the
unknown impact of Covid-19 could impact them negatively or
positively. In preparing these forecasts a number of different
scenarios were modelled, including a complete lockdown in all our
markets to the end of 2020. In this unlikely event the directors
believe that Warpaint has sufficient financial strength to
withstand such disruption for at least the next 12 months. The
directors believe that the Company's business model remains
robust.
Results
Like for like numbers and adjusted numbers will be quoted where
appropriate in the annual report in order to give shareholders
clarity in understanding the results for the year. Like for like
numbers are comparisons year on year of the US business LMS as if
it had been part of the Group throughout 2018. Adjusted numbers
exclude exceptional costs (made up of acquisition costs, staff
restructuring costs, inventory relocation costs in the US, and
certain legal costs), amortisation in relation to acquisitions,
impairment costs and share based payments.
Adjusted profit before tax was GBP5.2 million (2018 GBP8.3
million) on revenue of GBP49.3 million (2018 GBP48.5 million) with
basic earnings per share of 1.8p (2018 4.7p) and adjusted earnings
per share of 6.3p (2018 9.3p). Cash at 31 December 2019 was GBP2.7
million (31 December 2018 GBP4.0 million). Although revenue
increased in 2019, profit decreased mostly due to a reduction in
gross margin. This was primarily caused by lower margin sales in
the US and adverse exchange rates compared to 2018.
Our international growth strategy is now in place and action has
been taken at LMS to reduce the cost base, improve margin and
provide a full range of Group products and brands. The proportion
of turnover generated in the US in 2019 was 10% compared to 11% in
2018. Action has been taken at Retra to improve new product
development and increase all year round sales to compliment
seasonal gift sales. The Group also continued to invest in PR and
marketing activities during the period, to support sales activity.
I am pleased to report that since the year end the W7 range has
been successfully launched into Tesco, and early results are
encouraging. Active discussions are taking place with other major
retailers. These are exciting opportunities for Warpaint and we
continually review and refresh our product offerings and are
well-placed to grow.
It is the board's opinion that without the impact of the corona
virus pandemic 2020 would have been a year of recovery and
improvement in financial performance for the Group. However, as I
have said above it is difficult to say with any certainty what the
impact will be. The outbreak will inevitably have a negative impact
on the business, but it is too early to determine the level of this
impact on the Company's results for the current financial year. I
should emphasise that to date, there has been no material issue
with the Company's supply chain and the Company maintains healthy
levels of stock.
Dividend
Due to the uncertainty in trading conditions created by the
corona virus pandemic and as previously announced the Board has
decided not to recommend a final dividend for the year ended 31
December 2019. The payment of dividends will be reconsidered when
trading conditions return to normal and in the light of the Group's
cash resources and forward orders at that time.
Board and People
As always, I would like to thank my fellow board members and the
Group's employees for their dedication and commitment to the
Company. The Company has had a challenging period in 2019 but it
remains progressive, energetic and dynamic and is driven by the
commitment of its employees. During 2019, the board was
restructured so that Sam Bazini became the sole chief executive and
Eoin Macleod became managing director. This enables Eoin to
concentrate on sales and to drive future profitability of the
Group.
Annual General Meeting
The annual general meeting will be held on 26 June 2020 at 9am.
In the light of the continuing public health restrictions
associated with the corona virus pandemic, further details of the
annual general meeting arrangements will be provided when the
notice of annual general meeting is sent to shareholders.
Outlook
Despite the challenges of 2019 and the current corona virus
pandemic, I do believe that the Company is well-placed for the
future. The uncertainty caused by the corona virus pandemic cannot
be underestimated, but the important thing is that the Group is
financially sound and in a position to deal with all current
uncertainties and implement its strategy.
Clive Garston
Chairman
13 May 2020
Chief Executive's Statement
2019 was a difficult year for Warpaint against a backdrop of
continued Brexit and political uncertainty, a falling US$ exchange
rate and a challenging retail market, particularly in the UK.
However, the business has shown resilience and adapted to the
changing market conditions, managing to increase international
sales by 8% and seeing an improvement in the performance of Retra,
through which our Technic brand sales are made .
Our strategy of producing a wide range of high quality cosmetics
at an affordable price has remained our key focus and we are very
pleased with the reaction that our expanding product range received
during the year, for both our W7 and Technic own brands.
Sales of our branded colour cosmetics accounted for 80% of
revenue (2018: 79%). The sale of colour cosmetics by the Group
under its own brands remains its primary strategic focus.
W7
The Group's lead brand remains W7 with sales in 2019 being 46%
of total revenue (2018: 49%). As reported in 2018, tough trading
conditions in the UK high street persist and certain retailers are
struggling to survive in their present form. As a consequence of
this UK revenue of W7 was down 5%. The ongoing Brexit uncertainty
and a winter election adversely affected spending patterns,
shopping behaviour and consumer attitudes. We have implemented a
strategy in the UK which we believe will increase sales of the W7
brand in the medium term, we are seeing the green shoots of this
strategy with the recent successful launch of the W7 brand into
Tesco. However, this has now been impacted by the effect of the
corona virus pandemic. Whilst the UK was challenging, the W7 brand
continued to grow in Europe increasing sales by 21%. In the US
sales were down 11% on a like for like US$ basis, partly due to the
collapse of a customer, Forever 21 in September 2019. In the rest
of the world sales were down 18%, with falls in Puerto Rico, China
and New Zealand, but there were increased sales in other markets,
notably Australia, Peru and South Korea.
Technic
Since the acquisition of Retra and its Technic brand in November
2017, we have taken steps to improve the sales of the all year
round cosmetics sold under the Technic brand, and to make the Retra
business profitable throughout the whole year, not only in the
second half when Christmas gifting is delivered. Sales of Technic
in 2019 were 34% of total Group revenue (2018: 30%), with gifting
(including own brand white label) now accounting for 48% of Retra
sales (2018: 55%) as the improved all year round range gains a
larger share of the sales mix. In 2019 the UK revenue of Technic
was down 3% for similar reasons to the fall in sales of W7. The
Technic brand continued to grow in Europe with sales up 35%
compared to 2018. In 2019 the US sales of the Technic brand were
material for the first time at GBP0.5 million and in the rest of
the world sales were up 54%. Retra delivered break-even EBITDA for
the first half of the year compared to a loss of GBP0.5 million in
the same period last year, entirely through sales of the improved
Technic all year round cosmetics. The Retra business also produces
and sells own brand white label cosmetics for several major high
street retailers, with sales being 5% of Group revenue (2018:
5%).
Close-out
The close-out division represented 15% of the overall revenue of
the Group (2018: 16%). Whilst not a core focus, this side of the
business provides a significant source of intelligence in the
colour cosmetics market and access to new market trends.
New Product Development
New Product Development remains a crucial part of the Groups's
activity, For a brand like W7, it is essential to provide great new
product development that is on trend, fast to market and meets the
consumers quickly changing needs. A healthy pipeline of new
products is the continual focus of our growing New Product
Development Team. It ensures great products are launched quickly
into the market, this is something our customers demand and expect
from us. For example, the Group launched Socialite, an eye colour
palette under the W7 brand in May 2019 and it became the Groups
biggest selling line in the year. Using manufacturing partners in
China and Europe for our Group branded products, gives us the
flexibility to choose those manufacturers we feel deliver the best
product quickly, for the best price, and meet our legal and ethical
compliance requirements. Helping in this process is the Group's
Hong Kong based subsidiary sourcing office (acquired as part of the
Retra transaction) and its China subsidiary (Jinhua Badgequo
Cosmetics Trading Company Ltd), with local employees able to
explore new factories and oversee quality control and ethical
sourcing. The Group's China subsidiary also invoiced GBP0.12
million of locally made sales (2018: GBP0.03 million).
e-Commerce
The W7 brand is supported by an informed customer base, driven
by the success of beauty blogs, celebrity endorsement and social
media. We have applied the same approach during the year to the
Retra brands with Technic and Man'stuff now having their own
bespoke e-commerce sites. A similar marketing strategy has been
deployed for our US e-commerce site, with sales made in local
currency and with local fulfilment in place.
US Operations
The Group's US distributor, LMS is now fully integrated into the
Group. Prior to its acquisition in August 2018 two thirds of LMS
revenue was from distributing W7 products, the remainder being the
sale of other branded cosmetics through its close-out activities.
The US is the largest colour cosmetics market in the world and
developing sales into the region is a strategic goal for the growth
of our brands. During the year we increased our marketing spend in
the US to drive brand awareness and to help support sales
initiatives. We implemented a number of measures to improve the
margin in the US business, including changing our third party
warehousing arrangements to reduce costs. As a result we have seen
an improvement in margin. Nevertheless, the performance of LMS in
2019 was disappointing, and as a result at the start of this year
we took further action by restructuring the staff levels in the US
to save $0.4 million in 2020.
Marketing and PR
In 2019 we launched some ground breaking campaigns in both the
traditional and social media environment. Our award winning "Here
Come the Boys" campaign gained enormous social media coverage and
was also featured by the Daily Mail, Good Morning America and ABC
News. The W7 brand was also a key part of the "Being Reuben"
television documentary airing on Quest Red in December 2019. Social
media engagement continues to grow across all platforms and in
addition we have invested in a new peer to peer review system and a
B2C loyalty programme.
Covid-19 update and planning
Covid-19 has had a significant impact on people, societies and
of course businesses and customers, and Warpaint is no exception.
At the beginning of the outbreak in China, our initial focus was
around the supply of our colour cosmetic products sourced in China,
this being the main region of supply to the Group. This has since
returned to normal operating levels and we do not expect a material
impact on our inventory.
As countries began to lock down first in Europe, then the UK and
US, consumer demand switched to essential items and food, and away
from colour cosmetics. At the same time many of our customers who
are not in the essential services sector have closed down
temporarily, resulting in the cancellation, reduction or deferment
of their orders. More recently we have seen a gradual improvement
in orders from customers in all regions, however, overall
performance is still well below our pre-Covid-19 expectations, and
it remains too early to provide guidance on the impact of an
extended period of lock down on our customer base and any reaction
to a sustained period of economic contraction.
The wellbeing of Warpaint staff remains our primary concern,
whilst also continuing to trade to support the durability of our
business for stakeholders. We have taken significant preventative
measures across our business, both to protect the health of our
staff and to minimise operational disruption. We have reduced
discretionary spend, those staff not working because of the
decrease in business activity have been furloughed and with the
approval from our landlords we have deferred rental payments. Those
staff still working to maintain operations have done so wherever
possible from home, and for those staff working in our offices and
warehouses social distancing practices have been put in place to
ensure their safety.
Our online platforms continue to do business and our products in
the UK are distributed from our own facility, and in the US through
a third party aggregator. Whilst encouraging that online sales
continue they are not significant when compared to the normal level
of Group sales. Whilst the Covid-19 crisis continues online sales
are increasing significantly in the UK, this allows us to remain
engaged through online activities with our consumers.
This is a difficult period for everyone, but we believe that
with the actions we have taken and the Group's current financial
resources, we are well placed to weather the Covid-19 crisis. We
have a global business and the capacity, expertise and strategy to
drive our future growth. Before the Covid-19 crisis trading to the
end of February 2020 was at the upper end of the board's
expectations, with higher sales, better margin, reduced overheads
and higher PBT than budget, demonstrating that our business model
is strong and that our brands are resonating with customers and
consumers. In the short term, Covid-19 will certainly have an
impact on our financial performance, however we are well positioned
to take advantage of any improvement in market conditions.
We continue to monitor the impact of the Covid-19 pandemic,
ensuring that we look after customers and staff and take any
additional steps if required. Covid-19 will undoubtedly influence
our short-term business decisions, however our focus for the
remainder of the year remains on the delivery of our strategic plan
which the board have reviewed and considered in light of Covid-19
and believe remains appropriate and correct.
Strategy
In early 2018, the board adopted a three-year strategic plan for
the business. This is measured, monitored and reviewed annually and
reset using market insight and trend information in line with the
budget process. The plan is designed to drive shareholder value and
has defined targets for sales, EBITDA, earnings per share and cash
generation, these targets are currently under review whilst we work
through the Covid-19 pandemic. The strategic plan was amended by
the board in 2020 and comprises of six key pillars:
1. Develop and build the Group's brands and provide new product
development that meets changing trend and consumer needs
The Group continues to review, evaluate and develop the Groups
brands which also provides the opportunity to give bespoke and
exclusive solutions to both current and potential new customers. We
continue to focus on developing new products that enhance the
offering of the Brand in the current categories that they
participate, whilst at the same time launch the Brand into new
Categories. We have launched, for example, a range of W7 Skin Care
products in 2020 into the fast growing Skin Care Sector, that is
already being well received by customers and consumers alike.
2. Develop and nurture the current core business
A major objective of the business will be to continue to develop
and grow the presence of the Warpaint brands beyond their existing
worldwide customer base. There is still however, significant
potential to be realised in the current customer base. The Group
intends to do this by supporting our customers with relevant new
products; by using social media to draw consumers into partner
stores; and by cross selling the Group's brands where appropriate.
Utilising this collaborative model has proven to be successful in a
number of countries and will be further driven over the life of the
three-year plan.
3. Grow Market Share in the U.K.
The business continues to focus on developing the presence of
the Group's brands in channels that our consumers shop in. This
will increase accessibility and drive profitable market share
growth. As a result of this strategy, the Group has successfully
launched the W7 brand into Tesco and continues to have active
discussions with other major retailers who are currently in
channels that the Group is yet to materially supply to. Over 75% of
the U.K. Market remains largely unexploited and expanding the U.K.
customer base is a key focus of Management. This is particularly
opportune currently as retailers across all sectors increasingly
seek to provide great value to their customers at affordable
prices.
4. Grow market share in the U.S. and China
The U.S. and China continue to provide a major growth
opportunity for the Group. In the US, the Group continues to
investigate the optimal route to market through established agency
channels and/ or direct to retailers. In China the Group are
conducting business locally through our Chinese subsidiary Company.
We are also continuing to register products for sale in China in
order to grow our total offering and increase sales. This has led
to the development of relationships with distributors in the region
who have the capability to drive sales of the W7 brand there.
5. Develop the online/ e-commerce strategy for brand development and sales
We continue to develop and build our major brands by utilising
brand ambassadors, influencers and make-up artists to engage
actively with our target audience. The Group wants to ensure that
consumers are adequately inspired and educated on how the Group's
products can be used to experiment and achieve different looks. The
aim of these activities is to create an interactive community of
consumers and drive recommendation. Developing the social media
strategy also directly impacts the Groups online sales strategy. As
an example, 45% of W7's target customers are buying cosmetics
online. Opportunities exist to make one of the Group's brands
exclusively available online.
6. Develop the appropriate organisational structure, people
strategy and organisational efficiency
We continue to review the businesses' structures, resources and
capabilities with the objective of delivering the three-year
strategic plan, communicating the plan to ensure that all employees
are engaged, and rewarding employees suitably for doing a good
job.
Brands
During 2019 the Group continued to focus on the development of
its brands. Since acquiring Retra in November 2017 the focus has
been on assisting the Retra product development team to make an
improved, all year round, cosmetics offering and, the Retra sales
team to get listings for the Technic brands in accounts that the W7
brands were already listed with, particularly overseas. This has
helped the Technic brands in 2019 to gain a larger proportion of
Group brand sales compared to 2018.
Brand % share excluding the sales of close-out and own brand white
label
2019 2018
% %
----- -----
W7 brands 57% 62% Including sales of W7 and Very Vegan
Technic brands 43% 38% Including sales of Technic, Body Collection,
Man'stuff, Vintage and Chit Chat
---------------- ----- -----
100% 100%
---------------- ----- -----
Products
The largest selling product categories across all the Group
sales, are eye products, face make-up, gift sets, nail products and
lip products, which together represented approximately 90% of
revenue in 2019 (2018: 85%).
The 12 months to 31 December 2019 product sales split is shown
below:
Eyes 27%
Face 23%
Gift 21%
Nails 10%
Lip 9%
Accessories
& Sets 4%
Men 4%
Brushes 2%
Group sales of gifting decreased by 5% to GBP10.5 million for
the year compared to 2019. Technic gifting decreased by 3% to
GBP9.1 million (2018: GBP9.4 million) and W7 gifting decreased by
16% to GBP1.3 million (2018: GBP1.6 million).
Customers & Geographies
The largest customers for sales of our Group brands are in the
UK, US, Australia and Europe. In 2019 our top ten customers
represented 49% of revenues (2018: 49%). Group sales are now made
in 58 countries (2018: 67 countries).
US
We achieved modest sales growth in the US through LMS. Group
sales in the US were up in the year to $6.3 million, increasing 1%
compared to 2018 on a like for like basis. Sales of our W7 and
Technic brands into the US were up 4% in the year to $3.9 million,
compared to 2018 on a like for like basis despite the collapse of
Forever 21. Current customers include Macys Backstage, Marshalls,
Bealls and TJ Maxx.
Europe
Group sales in continental Europe increased by 17% to GBP18.8
million compared to 2018. The W7 brands have seen excellent
European growth of 21% in 2019, with sales of GBP9.6 million. The
Technic brands have seen significant European growth of 35% in
2019, with sales of GBP7.0 million, through the introduction to
existing W7 customers. Sales for the Groups brands into Europe are
mainly to Spain, Denmark, Sweden and Germany.
Rest of the World
Sales in the rest of the world for the Group were down by 11% to
GBP2.8 million in the year compared to 2018. The second half of the
year saw an improvement, as rest of the world sales at the half
year point were down 30%. However, within this we saw revenue
growth in certain countries. Australia is a key country in the rest
of the world region with sales 17% ahead of 2018. During the year
we changed our distributor in China and Hong Kong causing a loss in
sales whilst the switchover was in progress.
UK
Trading conditions in the UK were challenging because of the UK
high street slow down and ongoing Brexit anxiety, with Group sales
in the UK down by 5% to GBP22.7 million, compared to 2018. Our
Group brands only sales in the UK were down 4% to GBP16.9 million
for 2019 compared to 2018 (this excludes close-out and own brand
white label cosmetics), most of which was due to the loss of
customers that have gone into liquidation or closed their
businesses, customers that have restructured with less outlets, or
customers that have ongoing credit issues. We are, however,
addressing this through targeting a number of new UK retailers for
the Group, starting with a successful launch in 56 Tesco stores in
February 2020.
The top ten UK customers for the Group accounted for 64% of UK
sales in 2019 (2018: 57%). Sales to these customers grew by 6% in
2019, compared to 2018.
Summary
We are extremely grateful to our employees for their continued
loyalty, commitment and hard work during 2019, a year that was
difficult because of Brexit, falling US$ rate and challenging
retail markets.
Our resolve is now further tested in 2020 by the outbreak of
Covid-19 and resulting lockdowns affecting retail outlets. Again,
we thank the team across the Group in the UK, EU, US, Hong Kong and
China who remain committed to the Group's strategy, and where
possible, and in safety are still working to keep our business
operational.
Sam Bazini
Chief Executive Officer
13 May 2020
Financial Review
Group revenue improved in the year by 2%, whilst adjusted profit
before tax decreased in the year by 37%. We remain focused on
margin, being net debt free, and generating cash.
On 2 August 2018, the Group acquired LMS. This annual report has
been prepared in accordance with IFRS as adopted by the European
Union, which requires use of acquisition method for business
combinations. The reported figures for 2018 included the results of
LMS for five months post acquisition, therefore in order to aid
shareholders' understanding of the underlying performance of the
business we have focused our comments on the consolidated statement
of comprehensive income for the year ended 31 December 2019
compared with the consolidated statement of comprehensive income
for the year ended 31 December 2018, with reference where
appropriate to "like for like" numbers which include the LMS
business for the whole of 2018. LMS was a customer of the Group
prior to acquisition and distributed the W7 brand and close-out
branded cosmetics throughout the period 1 January 2018 to 1 August
2018. Like for like numbers exclude the sales made to LMS as a
customer of the Group and instead includes the business conducted
by LMS prior to acquisition.
Headline results, shown below, represent the performance
comparisons between the consolidated statements of income for the
years ended 31 December 2018 and 31 December 2019, that include the
trade of the existing own brand and close-out divisions for the
whole of each year, plus the trade of LMS from the date of its
acquisition.
KPIs
Covid-19 Stress Testing and Liquidity
The uncertainty about the size, time periods and effect of the
coronavirus pandemic means it is not possible with any degree of
precision to determine the impact on the Groups results in 2020.
Consequently, we have modelled a range of scenarios, including a 3
month shut down of the business, and for the next twelve months as
a worst case scenario. In each scenario, mitigating actions within
the control of management, including reductions in areas of
discretionary spend, have been modelled, as well as the furlough of
the majority of the staff and deferment of rents. Under the
scenarios modelled, there are sufficient cash balances to meet
liabilities as they fall due and so the board is confident that the
Group has sufficient financial strength to withstand the current
disruption to its activities. The board therefore believe that it
remains appropriate to prepare the financial statements on a going
concern basis. (see Note 1 to the financial statements)
Revenue
Group revenue for the year grew by 1.7% from GBP48.5 million in
2018 to GBP49.3 million in 2019.
Internationally, Group revenue grew 8.3% from GBP24.5 million in
2018, to GBP26.6 million in 2019. In Europe Group sales increased
by 16.7% to GBP18.8 million (2018: GBP16.1 million). In the rest of
the world Group sales fell by 10.5% to GBP2.8 million (2018: GBP3.1
million). In the US Group sales fell by 6.0% to GBP5.0 million
(2018: GBP5.3 million), however on a like for like US$ basis US
sales increased by 0.9% to $6.32 million (2018: $6.26 million).
Our strategy for growth includes continuing to develop and build
our Group brands, and provide new product development that meets
changing trends and consumer needs, to develop and nurture the
current core business, to grow market share in the UK, US and
China, to develop an online strategy for brand development and
sales and, to put in place appropriate organisational structure,
people and efficiencies in the business. A detailed commentary on
our sales growth strategy and trading performance is included in
the CEO report.
Own brand sales were GBP39.2 million in the year (2018: GBP38.1
million). Our W7 brand had sales in the year of GBP22.5 million
(2018: GBP23.7 million). Our Technic brand contributed sales of
GBP16.7 million in the year (2018: GBP14.4 million).
Our Retra business had sales of retailer own brand white label
goods of GBP2.5 million in the year (2018: GBP2.7 million). The
white label business is traditionally cost competitive and Retra
chooses which projects to undertake based on commercial viability,
in particular margin. In 2019 it was decided not to tender for
certain projects when the margin went below the minimum
requirement.
The close-out business revenue grew by 1.3% from GBP7.6 million
in 2018 to GBP7.7 million in 2019.
Product Gross Margin
Gross margin for the Group decreased by 2.0% from 35.5% to
33.5%.
Gross margin has reduced largely due to:
-- The geographic mix of sales;
-- The mix of our brands sold;
-- Sales made by LMS in the US at low margin; and
-- The impact of a falling US$ year on year.
Sales in the UK fell 5.2% in the year, whereas internationally
sales grew 8.3% and these international sales are typically made at
a slightly lower margin than our domestic sales.
Historically, the W7 brand achieves the highest gross margin on
sales, particularly in the UK, followed by the Technic brands, with
close-out sales being the lowest margin across the Group. Sales of
our lead brand W7 fell 4.9% in the year, however our Technic brands
grew 15.5% and close-out sales remained flat.
LMS sales in the US in the year were GBP5.0 million at a margin
of 12.1% (from the date of acquisition in August 2018: GBP2.4mil at
3.2%). Whilst the margin achieved by LMS in the US since our
acquisition has been increasing month by month the impact on gross
margin in the year has been detrimental. Since the start of 2020 we
have seen margin at LMS continue to improve (before the impact of
Covid-19).
The average US$ rate in 2019 was $1.2763 compared to $1.3410 in
2018, a fall of 4.8%. For most of 2019 the dollar was below $1.30,
making it impossible to cover our purchasing costs at a similar
dollar rate to 2018, indeed as the buying season reached its peak
(being July through to September) the US$ was closer to $1.20. The
impact of the falling dollar rate on gross margin was a reduction
of 2.8%, equivalent to GBP1.4 million.
When examining the Group gross margin without sales in the US
for 2019 and 2018 pre and post-acquisition of LMS, it decreases
year on year by 1.0%, to 35.9%. On further analysis and rebasing
the dollar cost of goods in 2019 at the same purchase rate as
achieved in 2018, and removing sales in the US for 2019 and 2018
pre and post-acquisition of LMS, gross margin improves by 2.1%, to
39.0%.
We are not experiencing cost pressure on our manufactured
pricing and making good use of our Hong Kong buying office to
ensure this continues. Currency pressure due to Brexit is mitigated
with a discount mechanism linked to the US dollar exchange rate
from our key supplier in China, by moving production to new
factories of equal quality to retain or improve margin, and from US
dollar revenue which continues to provide a natural hedge. There
has been a lot of hard work carried out in 2019 to move a
significant proportion of Group buying to new factories in China
that have now delivered an improved margin for the same quality of
product. We remain focused on improving gross margin in both our
own brand and close-out businesses.
The Group brands segment had sales of GBP41.6 million at a
margin of 34.9% (2018: GBP40.9 million at a margin of 35.9%).
Margin has reduced largely due to the geographic mix of sales, the
mix of our brands sold, sales made by LMS in the US at low margin,
and the impact of a falling US$ year on year.
The close-out segment of the Group had sales of GBP7.7 million
at a margin of 25.7% (2018: GBP7.6 million at a margin of 33.2%).
Margin has reduced partly due to the increased amount of close-out
sales made by LMS in the US at low margin, as we decided to clear
locally purchased close-out parcels to focus LMS on the Group
brands. In addition, margin reduced from the impact of a falling
US$ year on year.
Operating Expenses
Total operating expenses before exceptional items, amortisation
and impairment costs, depreciation, foreign exchange movements and
share based payments, and the effect of reclassifying rent in 2019
for IFRS16 as depreciation and finance costs, increased by GBP1.7
million to GBP10.3 million in the year. The majority of the
movement in operating expenses is due to:
-- An increase in PR and marketing spend of GBP0.6 million to support sales initiatives;
-- The inclusion of a full year of operating costs for LMS in
the US, an additional GBP0.6 million;
-- Additional staff costs in the year of GBP0.1 million;
-- A full years rent charge for an extra warehouse at Retra, an additional GBP0.1 million; and
-- An increase in other overheads of GBP0.3 million.
The most significant costs in the Group are wages and salaries
of GBP5.5 million (2018: GBP5.1 million), rent and rates (before
the reclassification for IFRS16) of GBP1.2 million (2018: GBP1.1
million) and PR and marketing for our brands of GBP1.2 million
(2018: GBP0.6 million). The increase in wages is part inflationary,
although mainly the inclusion of wages at LMS for a full year in
2019. The increase in rent and rates is in our Retra business which
leased an extra warehouse facility part way through 2018 rather
than using third party logistics to fulfil orders, with now a full
year's charge in 2019. The increase in PR and marketing is from
activity for the first time in the US to promote our W7 brand,
increased domestic spend on all our Group brands and continued
support for customer initiatives, particularly in Europe where we
have seen good growth in 2019.
Warpaint remains a business with most operating expenses
relatively fixed and evenly spread across the whole year. We
continue to monitor and examine significant costs to ensure they
are controlled and strive to reduce them. In addition, the
increased scale of the business has given the Group increased
buying power.
Profit Before Tax
In 2019 Group profit before tax was GBP1.8 million compared to
GBP4.7 million in 2018, a fall of 62.5%.
The material changes in profitability between 2019 and 2018
were:
Effect on
Profit
(GBP1.0)
* Reduction in Group gross margin of 2.0% for 2019 million
GBP0.3 million
* Gross margin on increase in sales for 2019 at 33.5%
(GBP1.7)
* Increase in operating expenses (see above heading) million
(GBP0.1)
* Impact of IFRS16 Leases on the 2019 numbers only million
GBP0.8 million
* No impairment charge in 2019
GBP0.1 million
* Decrease in exceptional costs in the year
(GBP0.6)
* FX charge in the year GBP0.2 million (2018: FX gain million
GBP0.4 million)
(GBP0.7)
* Increase in the cost of the LTIP and EMI share option million
schemes
When examining the Group profit before tax without the LMS
business in the US for 2019 and 2018 pre and post-acquisition,
rebasing the dollar cost of goods in 2019 at the same purchase rate
as achieved in 2018, plus adding back the effect of IFRS16 Leases
in 2019, profit before tax for the year was GBP3.7 million compared
to GBP3.9 million in 2018.
Exceptional Items
Exceptional costs in 2019 included GBP0.15 million of LMS staff
restructuring plus inventory relocation costs, and GBP0.03 million
of Retra legal costs. (2018: GBP0.16 million of acquisition costs
as they were one off legal and professional fees incurred in
acquiring LMS on 2 August 2018, plus GBP0.10 million of
professional fees relating to the acquisition of Retra in 2017,
plus GBP0.08 million of staff restructuring costs at Retra).
Tax
The tax rate for the Group for 2019 was 23.0% compared to the UK
corporation tax standard rate of 19.0% for the year. Some of the
costs of the acquisition of Retra and LMS have been disallowed for
tax purposes which has increased the effective tax rate. Since the
acquisition of LMS, the Group is exposed to tax in the US at an
effective rate of approximately 25% and in other jurisdictions the
Group operates cost centres, but these are not materially exposed
to changes in tax rates.
Earnings Per Share
The statutory basic earnings per share was 1.78p in 2019, a
decrease of 61.8% on the 4.66p achieved in 2018.
Adjusted earnings per share before exceptional items,
amortisation costs, impairment charges and share based payment
costs was 6.26p in 2019, a decrease of 32.4% on the 9.26p achieved
in 2018.
Dividends
The board in the interests of prudence given the considerable
on-going uncertainty, and in order to further preserve the
Company's cash resources, has resolved not to recommend a final
dividend for 2019, making the interim dividend of 1.5 pence per
share paid on 15 November 2019 in effect the only dividend declared
in respect of 2019 (2018: Total dividend of 4.4 pence per share, of
which the interim dividend was 1.5 pence per share and the final
dividend was 2.9 pence per share). The dividend for the year was
covered 4.2 times by adjusted earnings per share.
Cash Flow and Cash Position
Net cash flow generated from operating activities was GBP4.4
million (2018: GBP4.4 million), after payment of the GBP0.2 million
(2018: GBP0.3 million) exceptional items previously referred to.
The Group's cash balance decreased by GBP1.3 million to GBP2.7
million in 2019 (2018: GBP4.0 million). The cash generated was
principally used to make dividend payments in the year.
We expect capital expenditure requirements of the Group to
remain low, with a small uplift to fund the cost of display units
in Tesco. In 2019 GBP0.28 million (2018: GBP0.39 million) was spent
on new computer software and equipment, warehouse improvements and
plant for additional warehouse storage at the Retra location, sales
display units for use in store by customers, and other general
fixtures and plant upgrades.
IFRS 16 Leases
The Group has adopted IFRS 16 from 1 January 2019, but has not
restated comparatives.
From 1 January 2019, in place of rent of GBP0.8 million for the
year charged to the consolidated statement of comprehensive income,
there were lease finance costs of GBP0.2 million and depreciation
of right-of-use assets of GBP0.7 million. The impact of IFRS 16 on
the consolidated statement of comprehensive income for the year is
an additional charge of GBP0.1 million (see Note 1 to the financial
statements).
Balance Sheet
Management are continually monitoring trade receivables and
inventory levels to avoid working capital lock up as the business
continues to grow.
Trade receivables are monitored by management to ensure
collection is made to terms, to reduce the risk of bad debt and to
control debtor days. At the year end trade receivables were GBP10.3
million (2018: GBP10.9 million), the decrease on 2018 is mainly due
to faster collections from our larger customers in the UK and
overseas that represent a greater proportion of our business in
2019. The provision at the year end for bad and doubtful debts
carried forward is GBP0.04 million, 0.4% of gross trade receivables
(2018: GBP0.11 million, 1.0%).
Inventory was higher at the year end at GBP16.4 million (2018:
GBP15.5 million). The rise in inventory was due to the increase in
range offering across the Group and LMS who now hold a full range
of our brands locally in the US. The provision for old and slow
inventory was GBP0.19 million, 1.2% at the year end (2018: GBP0.11
million, 0.7%). The increase in provision is prudent given the
growth in inventory. During the year we have refrained from selling
off some older and slower product lines to concentrate on good
margin sales, comforted by the fact that in reality any such items
are eventually sold through our close-out division without a loss
to the business.
On acquiring Retra in 2017 the Group took on their debt of
GBP8.7 million being GBP7.6 million of invoice and trade finance
facilities, term loans of GBP0.3 million and HP contracts of GBP0.8
million. At 31 December 2017, after repaying some of these amounts
through cash flow, GBP1.4 million of debt remained outstanding of
which GBP1.1 million related to term loans and HP contracts. In
2019 a further GBP0.3 million of the term loans and HP contracts
has been repaid leaving GBP0.5 million outstanding at the year end.
The remaining loans and HP contracts are being repaid in line with
their terms in order to avoid unnecessary early settlement charges.
At the year end GBP1.2 million of invoice finance remained
outstanding which was repaid in full in February 2020.
Working capital decreased by GBP0.6 million in the year. The
main components were an increase in inventory of GBP0.8 million, an
increase in trade and other receivables of GBP0.3 million, a
decrease in cash at the year end of GBP1.3 million, and an increase
in trade and other payables of GBP0.4 million.
Free cash flow remained strong at GBP4.1 million (2018: GBP4.0
million).
The Group's balance sheet remains in a very healthy position.
Net assets totalled GBP39.8 million at 31 December 2019, a decrease
of GBP1.2 million from 2018. The majority of the balance sheet is
made up of liquid assets of inventory, trade receivables and cash.
Included in the balance sheet is GBP7.3 million of goodwill (2018:
GBP7.3 million) and GBP7.1 million of intangible fixed assets
(2018: GBP9.5 million) arising from acquisition accounting.
The balance sheet also includes GBP4.7 million of right-of-use
assets, GBP0.5 million of which has been reclassified from
property, plant and equipment in the year. GBP4.1 million is the
inclusion for the first time of the Group leasehold properties, now
recognised as right-of-use assets as directed by IFRS 16. An
equivalent lease liability is included of GBP4.3 million at the
balance sheet date.
Foreign Exchange
The Group imports most of its finished goods from China paid for
in US dollars, which this year strengthened on average against
Sterling by 4.8% compared to 2018 ($1.2763 v $1.3410). This is the
third year following the Brexit referendum of a strong dollar. The
dollar spent most of 2019 below $1.30 making it impossible to cover
our purchasing costs at a similar dollar rate to 2018. Our average
cost rate of US dollars in 2019 was $1.2670 (2018: $1.3457). The
impact of the falling dollar rate on the cost of goods in the year
was to increase them by GBP1.4 million.
US dollars are purchased throughout the year at spot as needed,
or by taking forward purchase foreign exchange options when rates
are deemed favourable, and with consideration for the budget rate
set by the board for the year. Similarly, foreign exchange options
are taken to sell forward our expected Euro income in the year to
ensure our sales margin is protected. Around the time of the
general election in 2019 when currency rates were favourable we
purchased 33 foreign exchange options which were outstanding at 31
December 2019 (31 December 2018: 4). In total at 31 December 2019
options were in place for the purchase of $15 million @ $1.3142,
and the sale of EUR4.4 million @ EUR1.1402 (31 December 2018: $nil,
and EUR1.1 million @ EUR1.1289).
The Group has a natural hedge from sales to the US which are
entirely in US dollars, in 2019 these sales were $6.32 million
(2018: $6.26 million on a like for like basis). Together with the
discount mechanism from our main supplier in China, sourcing
product from new factories where it makes commercial sense to do so
and by buying dollars when rates are favourable, we have been able
to mitigate the effect of the strong US dollar against
Sterling.
Section 172(1) Statement
The directors are well aware of their duty under section 172 of
the Companies Act 2006 to act in the way which they consider, in
good faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole, and in doing so
have regard (amongst other matters) to:
-- the likely consequences of any decision in the long term;
-- the interests of the Company's employees;
-- the need to foster the Company's business relationships
with suppliers, customers and others;
-- the impact of the Company's operations on the community
and the environment;
-- the desirability of the Company maintaining a reputation
for high standards of business conduct, and
-- the need to act fairly as between members of the Company
(the "Section 172 (1) Matters").
Induction materials provided on appointment include an
explanation of directors' duties, and the board is regularly
reminded of the Section.172(1) Matters, including as a rolling
agenda item at
every main board meeting.
Further information on how the directors have had regard to the
Section.172(1) Matters can be found in the Annual Report.
Risk Management
Warpaint is exposed to a variety of risks that can have
financial, operational and regulatory impacts on our business
performance. The board recognises that creating shareholder returns
is the reward for taking and accepting risk. The effective
management of risk is therefore critical to supporting the delivery
of the Group's strategic objectives.
Currency / Foreign Exchange
Due to the Group's goods being manufactured overseas and its
extensive export business, it both generates revenues and incurs
manufacturing costs in foreign currencies. As a result, the Group
is exposed to the risk that adverse exchange rate movements cause
the value (relative to its reporting currency) of its revenues to
decrease, or costs to increase, resulting in reduced profitability.
We have improved our processes in the year within our hedging
policy to ensure it remains robust while we continue to increase
our international business.
Reliance on Key Suppliers
In 2019 one key supplier from China was responsible for
approximately 20% (2018: 24%) of the Group's own brand ranges of
colour cosmetics. If there were some catastrophic event that
reduced or stopped the supply from this key supplier then the
Directors are able to place orders with other existing suppliers.
However, this would take several months to implement and such an
event would therefore have a material adverse effect on the Group's
financial position, results of operations and future prospects.
Our supply base in China was temporarily effected by the
Covid-19 virus at the start of 2020 with all our suppliers closed
for a month. Whilst causing some initial delays to deliveries
normal operating levels were soon resumed and there was no material
impact on our inventory levels. We have started to look at sourcing
product from other countries if the quality, speed to market and
pricing can be matched.
Product Liability
All products are manufactured in facilities approved by relevant
authorities. The ingredients in each product are compliant with and
meet the relevant standards required by the markets to which the
products will be sold into. There is however always the risk that
an end user could have an allergic or other reaction to an
individual product leading to the possibility of compensation
claims and potentially damaging the good reputation of the Group's
brands. The directors have every colour cosmetic item independently
checked by a qualified chemist for compliance with EU legislation
and maintain adequate product and public liability insurance so as
to ensure that any claims have little impact on the Group's
profitability.
Significant Customers
The Group has one customer in Spain with over 90 stores. In 2019
this customer represented 10.7% (2018: 9.7%) of own brand and
close-out revenues, we currently have an excellent working
relationship with this customer. Significant goodwill in our own
brands has been built up by this customer. The directors believe
that, should the customer decide not to sell our brands, a large
amount (if not all) of the existing business will be taken up by
other retailers in Spain.
Spain has been badly affected by the Covid-19 outbreak and has
been in a long period of lockdown. Our large customer in Spain
remains closed awaiting permission to reopen, in the meantime they
have an active online business that we continue to supply. As
stated above if this customer were to fail as a consequence of
Covid-19 the business will be taken up by other retailers in
Spain.
Location
The Group, half of its operations and assets are at one location
in Iver, with the other half based in Silsden; if a fire were to
befall either of the premises occupied by the Group, half of its
assets might be destroyed or damaged and - although the Group has
insurance cover in place - the Group's business, financial results
and prospects might be negatively affected by such an event.
Brexit
The UK Brexit referendum decision to leave the EU has led to a
period of economic and political uncertainty, which is likely to
continue until the exit process has concluded and possibly
thereafter. Brexit may continue to dampen consumer demand and
impact Group customers on the UK High Street. The Group is closely
watching developments in the Brexit process and adapting its
strategy as the effect of Brexit becomes clearer. In particular, we
are planning to have the ability to serve our European customers
from a Euro Hub and have formed in the year a wholly owned
subsidiary Warpaint Cosmetics (ROI) Limited in the Republic of
Ireland specifically for this purpose and to help protect us
against potential UK/EU cross-border disruption. We have external
expert advisers who provide us with additional support when
needed.
Cyber Attacks
There is an increasing risk that cybercrime will cause business
interruption, loss of key systems, loss of online sales, theft of
data or damage to reputation. The Group regularly review and invest
in the development and maintenance of our IT infrastructure,
systems and security. We have in place disaster recovery and
business continuity plans that are tested annually.
Covid-19 Pandemic
Covid-19 or another similar virus pandemic will cause major
disruption to the business. Staff will be absent either through
illness or from isolation measures, the business strategy will be
affected, delayed and perhaps will require reassessment, capital
markets and foreign exchange markets will become volatile, and the
supply chain and our customer base may temporarily close down. In a
pandemic situation we will follow Government guidelines and enable
staff to work remotely where possible, until such time that they
can return to work with new workplace safety measures in place, we
will explore and examine liquidity continuity measures and
implement business continuity plans. The business protects against
foreign exchange and credit risk through various financial
instruments such as the forward purchase of foreign exchange and
credit insurance of certain customer receivable balances,
particularly those deemed higher risk. Our initial response to
Covid-19 was to enhance our review of risks facing the group and
focus on cash spend and ensure there was sufficient cash resource
to secure the long term finances of the Group.
This Strategic Report was approved by the board on 13 May 2020
and signed on its behalf.
Neil Rodol
Chief Financial Officer
13 May 2020
Independent Auditor's Report to The Members Of Warpaint London
Plc
Opinion
We have audited the financial statements of Warpaint London Plc
(the 'parent company') and its subsidiaries (the 'group') for the
year ended 31 December 2019 which comprise the consolidated
statement of comprehensive income, the consolidated and company
statements of changes in equity, the consolidated and company
statements of financial position, the consolidated statement of
cash flows and notes to the financial statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework that has been
applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 102 The Financial
Reporting Standard in the United Kingdom and Republic of Ireland
(United Kingdom Generally Accepted Accounting Practice).
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
December 2019 and of the group's profit for the year then
ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the Directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the Directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group's or the Parent Company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
The following areas were identified by us as the key audit
matters relevant to our audit of the financial statements:
Impairment of intangible assets and goodwill
See accounting policy and critical estimates and judgements
section of note 1 as well as notes 9 and 10 to the financial
statements.
Description of matter and risk - The estimated recoverable
amount of these balances is subjective due to the inherent
uncertainty involved in forecasting and discounting future
cashflows, which form the basis of the Group's value in use
calculation and assessment of the carrying value of goodwill and
intangible asset values.
We have determined as part of our risk assessment that the value
in use calculation used in the assessment of carrying value of
goodwill and intangible assets has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes greater
than our materiality for the financial statements as a whole. The
financial statements disclose the sensitivities estimated by the
Group.
How we addressed the matter in our audit - We considered whether
the revenue, and where relevant associated costs, used in the value
in use calculations was reasonable in light of historic performance
and industry projections. This included using our own sector
experience in challenging the key assumptions made and performing
sensitivity analysis on these assumptions. These areas included the
projected economic growth and cost inflation, margin achievable and
known or probably changes in the business environment.
We used our own valuation specialists to challenge the value in
use and the fair value less cost to sell model. We assessed the
competence, independence and expertise of the third party expert
used by management in formulating the value in use model. We also
challenged management and their third party experts regarding the
assumptions made in the model including the cash flow forecast,
weighted average cost of capital and discount rate used. We
benchmarked the key assumptions applied against a variety of
similar businesses and considered whether these fell within our
acceptable ranges. We assessed whether the selected price index
were reasonable by comparing them to other data sources, including
price index from a number of similar businesses.
Key observations - no issues arose from our work that suggested
goodwill and intangible assets are materially misstated.
Carrying value of inventory
See accounting policy and critical estimates and judgments
section of note 1 as well as note 13 to the financial
statements.
Description of matter - The group has significant levels of
inventory and estimates are made in the valuation of slow moving
and obsolete inventories, some of which have a limited shelf life.
There is uncertainty over changes in consumer preferences and
spending patterns, which are primarily driven by wider trends in
the fashion industry as well as seasonality, which could impact the
saleability of inventory.
There is a recoverability risk associated with new product
launches and judgement required in forecasting demand which can
lead to obsolete inventory. Given the level of judgement and
estimation involved, the carrying value of inventory is considered
to be a key audit matter.
How we addressed the matter in our audit - Our procedures
included assessing the holding value of inventory as being
appropriate at the lower of cost of net realisable value. This was
done through testing a sample of items to their unit cost and then
to the average sale price in the period leading up to the year end.
Where there were indicators of negative margin or at cost sales, we
ensured that these balances were recorded appropriately in the
inventory provision balance. In addition, we considered the
principles and appropriateness of the Group's inventory
provisioning policies based on our understanding of the business
and the accuracy of previous provisioning estimates. We considered
the inventory write off figure during the year and compared this to
the
Group's expected recoveries brought forward and to the position
at the year end date. Further, we tested the unprovided inventory
balance by reviewing sales volumes and values after the balance
sheet date by testing a sample of items.
Key observations - no issues arose from our work that suggested
inventory is materially misstated.
Going concern
See basis of preparation in note 1
The issue - The unprecedented impact of COVID-19 on the business
and the wider world economies has resulted in uncertainties on
ability of companies to continue as operating as going concern and
raised additional audit risks.
The directors have considered the impact of the recent COVID-19
outbreak as part of the Group's going concern analysis and have
modelled a range of reasonably possible outcomes as a result of the
COVID-19 pandemic, including an extreme stress test scenario.
How we addressed the matter in our audit - we reviewed
management's modelled scenarios including the stress test scenario
which was based on an extended lockdown and therefore, minimal
trading for a period of 12 months. We assessed the mitigating
options that management had at their disposal to manage and
conserve cash and challenged management on the key assumptions
included and confirmed management's mitigating actions are within
their control.
We considered the potential impact on the balance sheet,
specifically around inventory and receivables and assessed
management's judgement around the recoverability of these balances.
This included reviewing post year end, post lockdown sales values,
order book values, cash receipts post year end and the adequacy and
sufficiency of credit insurance.
We reviewed management's disclosures in relation to the COVID-19
pandemic and its potential impact and concluded that these are
consistent with management's stress test scenario and the Board's
view of the current market conditions.
Key observations - these are set out in the conclusions relating
to going concern section of our audit report.
Our application of materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality
which, together with qualitative considerations, help us to
determine the nature, timing and extent of our audit procedures on
the individual financial statement areas and disclosures and in
evaluating the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
We determined materiality for the financial statements as a
whole to be GBP248,000 (2018: GBP405,000) which is based on profit
before interest, tax, amortisation, impairment and exceptional
items. This is consistent with the prior year.
We used profit before interest, tax, amortisation, impairment
and exceptional items as a benchmark given the importance of
underlying trading profit as a measure for users of the financial
statements in assessing the performance of the Group.
Each component of the Group was audited to a lower level of
materiality. Component materiality ranged from GBP100,000 to
GBP223,000 (2018: GBP100,000 to GBP330,000).
Performance materiality is t he application of materiality at
the individual account or balance level set at an amount to reduce
to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for
the financial statements as a whole. Performance materiality was
set at GBP186,000 (2018: GBP303,750) which represents 75% (2018:
75%) of the above materiality levels.
We agreed with the audit committee that we would report to them
misstatements identified during our audit above GBP12,400 (2018:
GBP20,250). We also agreed to report differences below these
thresholds that, in our view, warranted reporting on qualitative
grounds.
Materiality of the company was set at GBP100,000 (2018:
GBP105,000) with performance materiality set at GBP75,000 (2018:
GBP78,750) based on 75% (2018: 75%) of materiality. The level of
materiality was based on 40% of group materiality (2018: 26% of
group materiality)
An overview of the scope of our audit
The group consists of four trading subgroups, all of which are
run from the UK except for Marvin Leeds Marketing Services Inc.
which is based on the United States of America. In establishing the
overall approach to the group audit, we completed full scope audits
on the underlying subgroups and the parent company, except for
Marvin Leeds Marketing Services Inc, on which we tested specific
account balances. Marvin Leeds Marketing Services Inc Is not deemed
to be a significant component and so our work was tailored to focus
on the significant risk areas. All audit work was carried out by
BDO LLP
Other information
The directors are responsible for the other information. The
other information comprises the information included in the Annual
Report and Financial Statements, other than the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out in the Directors' report, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities .
This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Mark RA Edwards (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
13 May 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated Statement of Comprehensive Income
For the Year Ended 31 December 2019
Year ended 31 December
2019 2018
------- ------------ -----------
Note GBP'000 GBP'000
------- ------------ -----------
Revenue 1,2 49,282 48,477
------- ------------ -----------
Cost of sales (32,780) (31,263)
------- ------------ -----------
Gross profit 16,502 17,214
------- ------------ -----------
Administrative expenses 3,4 (14,355) (12,330)
------- ------------ -----------
Analysed as:
Adjusted profit from operations(1) 5,580 8,419
-------------------------------------------- ------- ------------ -----------
Amortisation 3,10 (2,439) (2,272)
-------------------------------------------- ------- ------------ -----------
Impairment losses 3,9,10 - (812)
-------------------------------------------- ------- ------------ -----------
Exceptional items 3 (178) (335)
-------------------------------------------- ------- ------------ -----------
Share based payment (816) (116)
-------------------------------------------- ------- ------------ -----------
Profit from operations 3 2,147 4,884
------- ------------ -----------
Finance expense 5 (370) (150)
------- ------------ -----------
Profit before tax 1,777 4,734
------- ------------ -----------
Tax expense 6 (409) (1,159)
------- ------------ -----------
Profit for the year attributable to equity
holders of the parent company 1,368 3,575
------- ------------ -----------
Other comprehensive income:
------- ------------ -----------
Item that will or maybe reclassified
to profit or loss:
------- ------------ -----------
Exchange (loss)/gain on translation of
foreign subsidiary (12) 48
------- ------------ -----------
Total comprehensive income attributable
to equity holders of the parent company 1,356 3,623
------- ------------ -----------
Basic earnings per share (pence) 28 1.78 4.66
------- ------------ -----------
Diluted earnings per share (pence) 28 1.78 4.66
------- ------------ -----------
Consolidated Statement of Financial Position
For the Year Ended 31 December 2019
Year ended 31 December
2019 2018
----- ------------------- --------------
(as restated)
----- ------------------- --------------
Note GBP'000 GBP'000
----- ------------------- --------------
Non-current assets
----- ------------------- --------------
Goodwill 9 7,274 7,274
----- ------------------- --------------
Intangibles 10 7,082 9,486
----- ------------------- --------------
Property, plant and equipment 11 684 1,358
----- ------------------- --------------
Right-of-use assets 12 4,685 -
----- ------------------- --------------
Deferred tax assets 18 374 241
----- ------------------- --------------
Total non-current assets 20,099 18,359
----- ------------------- --------------
Current assets
----- ------------------- --------------
Inventories 13 16,194 15,362
----- ------------------- --------------
Trade and other receivables 14 12,624 12,297
----- ------------------- --------------
Cash and cash equivalents 15 2,731 4,041
----- ------------------- --------------
Derivatives financial Instruments 24 39 -
----- ------------------- --------------
Total current assets 31,588 31,700
----- ------------------- --------------
Total assets 51,687 50,059
----- ------------------- --------------
Current liabilities
----- ------------------- --------------
Trade and other payables 16 (3,933) (3,489)
----- ------------------- --------------
Borrowings and lease liabilities 17 (2,206) (2,169)
----- ------------------- --------------
Corporation tax liability (548) (1,034)
----- ------------------- --------------
Total current liabilities (6,687) (6,692)
----- ------------------- --------------
Non-current liabilities
----- ------------------- --------------
Borrowings and lease liabilities 17 (3,863) (553)
----- ------------------- --------------
Deferred tax liability 18 (1,324) (1,796)
----- ------------------- --------------
Total non-current liabilities (5,187) (2,349)
----- ------------------- --------------
Total liabilities (11,874) (9,041)
----- ------------------- --------------
NET ASSETS 39,813 41,018
----- ------------------- --------------
Consolidated Statement of Financial Position
For the Year Ended 31 December 2019
The notes form part of these financial statements.
2019 2018
GBP'000 GBP'000
--- --------- ---------
Equities
--- --------- ---------
Share capital 20 19,187 19,187
--- --------- ---------
Share premium 19,359 19,359
--- --------- ---------
Merger reserve (16,100) (16,100)
--- --------- ---------
Foreign exchange reserve 36 48
--- --------- ---------
Share option reserves 21 977 161
--- --------- ---------
Retained earnings 16,354 18,363
--- --------- ---------
TOTAL EQUITY 39,813 41,018
--- --------- ---------
The financial statements of Warpaint London PLC were approved
and authorised for issue by the Board of Directors and were signed
on its behalf by:
Neil Rodol
Chief Financial Officer
Date: 13 May 2020
Consolidated Statement of Changes In Equity
For the Year Ended 31 December 2019
Share Share Merger Foreign Share Retained Total
Capital Premium Reserve exchange option Earnings Equity
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------- --------- ---------- --------
At 1 January 2018 19,187 19,359 (16,100) - 45 17,933 40,424
--------- --------- --------- ---------- --------- ---------- --------
Comprehensive Income
for the year
--------- --------- --------- ---------- --------- ---------- --------
On translation of
foreign subsidiary - - - 48 - - 48
--------- --------- --------- ---------- --------- ---------- --------
Profit for the year - - - - - 3,575 3,575
--------- --------- --------- ---------- --------- ---------- --------
Total comprehensive
income for the year - - - 48 - 3,575 3,623
--------- --------- --------- ---------- --------- ---------- --------
Transactions with
owners
--------- --------- --------- ---------- --------- ---------- --------
Share based payment
charge - - - 116 - 116
--------- --------- --------- ---------- --------- ---------- --------
Dividends paid - - - - - (3,145) (3,145)
--------- --------- --------- ---------- --------- ---------- --------
Total transactions
with owners - - - - 116 (3,145) (3,029)
--------- --------- --------- ---------- --------- ---------- --------
As at 31 December
2018 19,187 19,359 (16,100) 48 161 18,363 41,018
--------- --------- --------- ---------- --------- ---------- --------
Comprehensive Income
for the year
--------- --------- --------- ---------- --------- ---------- --------
On translation of
foreign subsidiary - - - (12) - - (12)
--------- --------- --------- ---------- --------- ---------- --------
Profit for the year - - - - - 1,368 1,368
--------- --------- --------- ---------- --------- ---------- --------
Total comprehensive
income for the year - - - (12) - 1,368 1,356
--------- --------- --------- ---------- --------- ---------- --------
Transactions with
owners
--------- --------- --------- ---------- --------- ---------- --------
Share based payment
charge - - - - 816 - 816
--------- --------- --------- ---------- --------- ---------- --------
Dividends paid - - - - - (3,377) (3,377)
--------- --------- --------- ---------- --------- ---------- --------
Total transactions
with owners - - - - 816 (3,377) (2,561)
--------- --------- --------- ---------- --------- ---------- --------
As at 31 December
2019 19,187 19,359 (16,100) 36 977 16,354 39,813
--------- --------- --------- ---------- --------- ---------- --------
The notes form part of these financial statements.
Consolidated Statement of Cash Flows
For the Year Ended 31 December 2019
Year ended 31 December
2019 2018
------ ------------ -----------
Note GBP'000 GBP'000
------ ------------ -----------
Operating activities
------ ------------ -----------
Profit before tax 1,777 4,734
------ ------------ -----------
Interest paid 5 370 150
------ ------------ -----------
Impairment of goodwill 9 - 812
------ ------------ -----------
Amortisation of intangible assets 10 2,439 2,272
------ ------------ -----------
Depreciation of property, plant and equipment 11/12 1,194 529
------ ------------ -----------
Loss on disposal of property, plant and equipment 39 7
------ ------------ -----------
Share based payment 816 116
------ ------------ -----------
(Increase)/decrease in trade and other receivables (327) 1,574
------ ------------ -----------
Increase in inventories (832) (2,524)
------ ------------ -----------
Increase/(decrease) in trade and other payables 444 (1,753)
------ ------------ -----------
Fair value gain on derivative financial instruments (39) -
------ ------------ -----------
Foreign exchange translation differences (13) 48
------ ------------ -----------
Cash generated from operations 5,868 5,965
------ ------------ -----------
Tax paid (1,499) (1,565)
------ ------------ -----------
Net cash flows from operating activities 4,369 4,400
------ ------------ -----------
Investing activities
------ ------------ -----------
Purchase of intangible assets 10 (35) (48)
------ ------------ -----------
Purchase of property, plant and equipment 11 (284) (392)
------ ------------ -----------
Acquisition of business, net of bank balances
acquired 8 - (1,319)
------ ------------ -----------
Net cash used in by investing activities (319) (1,759)
------ ------------ -----------
Financing activities
------ ------------ -----------
Repayment of borrowings (83) (261)
------ ------------ -----------
Lease payments (811) -
------ ------------ -----------
(Decrease)/increase in stock and invoice
finance facilities (719) 1,587
------ ------------ -----------
Interest paid (370) (150)
------ ------------ -----------
Dividends 19 (3,377) (3,145)
------ ------------ -----------
Net cash used in financing activities (5,360) (1,969)
------ ------------ -----------
Net (decrease)/increase in cash and cash
equivalents (1,310) 672
------ ------------ -----------
Cash and cash equivalents at beginning of
period 4,041 3,369
------ ------------ -----------
Cash and cash equivalents at end of period 2,731 4,041
------ ------------ -----------
Cash and cash equivalents consist:
------ ------------ -----------
Cash and cash equivalents 15 2,731 4,041
------ ------------ -----------
2,731 4,041
------ ------------ -----------
The notes form part of these financial statements.
Notes to The Consolidated Financial Statements
For the Year Ended 31 December 2019
1. Significant accounting policies
Basis of preparation
The financial statements of Warpaint London PLC (the "Company"
or "Warpaint") and its subsidiaries (together the "Group") for the
year ended 31 December 2019 were authorised for issue by the board
of directors on 13 May 2020 and the statement of financial position
was signed on the board's behalf by Neil Rodol.
Warpaint London PLC is a public limited Company incorporated and
registered in England and Wales. Its registered office is Units
B&C, Orbital Forty-Six, The Ridgeway Trading Estate, Iver,
Buckinghamshire, SL0 9HW.
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements are presented in pounds sterling because
that is the currency of the primary economic environment in which
the Group operates. All values are rounded to the nearest thousand
(GBP'000) except where otherwise indicated.
The annual financial statements have been prepared on the
historical cost basis, except for certain financial assets and
liabilities which are carried at fair value or amortised cost as
appropriate.
The preparation of financial statements in conformity with
International Financial Reporting Standards adopted by the European
Union requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reported period. Although these estimates are based on
management's best knowledge of current events and actions, actual
results ultimately may differ from those estimates. The principal
accounting policies adopted are set out below.
The financial information presented for the year ended 31
December 2019 and the year ended 31 December 2018 does not
constitute the company's statutory accounts for those years.
Statutory accounts for the year ended 31 December 2018 have been
delivered to the Registrar of Companies. The statutory accounts for
the year ended 31 December 2019 will be delivered to the Registrar
of Companies following the Company's Annual General Meeting.
The auditors' reports on the accounts for 31 December 2019 and
31 December 2018 were unqualified, did not draw attention to any
matters by way of emphasis, and did not contain a statement under
498(2) or 498(3) of the Companies Act 2006.
Basis of consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between group companies are
therefore eliminated in full. All subsidiaries have a reporting
date of December.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
On consolidation, the results of overseas operations are
translated into pound sterling at rates approximating to those
ruling when the transactions took place. All assets and liabilities
of overseas operations, including goodwill arising on the
acquisition of those operations, are translated at the rate ruling
at the reporting date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas
operations at actual rate are recognised in other comprehensive
income and accumulated in the foreign exchange reserve.
Exchange differences recognised profit or loss in Group
entities' separate financial statements on the translation of
long-term monetary items forming part of the Group's net investment
in the overseas operation concerned are reclassified to other
comprehensive income and accumulated in the foreign exchange
reserve on consolidation.
On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating to
that operation up to the date of disposal are transferred to the
consolidated statement of comprehensive income as part of the
profit or loss on disposal.
Going concern
The Group made a statutory profit of GBP1.4 million in the year
to 31 December 2019 (2018: GBP3.6 million and had net current
assets of GBP24.9 million at 31 December 2019 (2018: GBP25.0
million). The Group occasionally makes use in its Retra subsidiary
of a GBP10 million facility that can be used for confidential
invoice discounting and stock finance, the facility renews each
year at the end of June, and contains certain covenants, including
a minimum EBITDA for Retra to be tested on a cumulative quarterly
basis. As at 31 December 2019, GBP1.2 million of the GBP10 million
facility was utilised and fully repaid by the end of February 2020.
At 30 April 2020, the Company had cash of GBP3.7 million, hire
purchase and term debt of GBP0.5 million, and had made use of
GBP0.3 million of its Bank trade finance facility
The Directors have prepared forecasts covering the period to
December 2021, built from the detailed Board approved budget for
2020. The forecasts include a number of assumptions in relation to
sales volume and margin improvements , and cost savings. Whilst the
Group's trading and cash flow forecasts have been prepared using
current trading assumptions, the operating environment presents a
number of challenges which could negatively impact the actual
performance achieved. Excluding the potential impact of COVID-19
which is considered below, these risks include, but are not limited
to, achieving forecast levels of sales and order intake, the impact
on customer confidence as a result of general economic conditions
and Brexit, achieving forecast margin improvements and the
director's ability to implement cost saving initiatives in areas of
discretionary spend where required.
The Group's cash flow forecasts and projections, taking account
of reasonabl e and possible changes in trading performance
excluding the potential impact of COVID-19 (which is considered
below), offset by mitigating actions within the control of
management including reductions in areas of discretionary spend,
show that the Group will be able to operate comfortably through to
the end of December 2021, and in Retra within the level of its
facility and associated covenants.
The uncertainty as to the future impact on the Group of the
recent COVID-19 outbreak has been separately considered as part of
the directors' consideration of the going concern basis of
preparation. Thus far, the Group has experienced a material impact
in trading performance due to COVID-19, with many but not all
customers closed throughout the UK and overseas. In the downside
scenario analysis performed, the directors have considered the
reasonably plausible impact of the COVID-19 outbreak on the Group's
trading and cash flow forecasts.
In preparing this analysis, a number of scenarios were modelled
ranging from a 3 month shut down of the business, and for the next
twelve months as a worst case scenario. In each scenario,
mitigating actions within the control of management, including
reductions in areas of discretionary spend, have been modelled, as
well as the furlough of the majority of the staff and deferment of
rents. It is difficult to predict the overall outcome and impact of
COVID-19 at this stage and the duration of disruption to sales
activity could be longer than anticipated, although the directors
believe the worst case scenario for the next twelve months to be
extreme. Under each of the scenarios modelled, the Group has
sufficient cash to meet its liabilities as they fall due and
consequently, the directors believe that the Group has sufficient
financial strength to withstand the current disruption to its
activities.
Based on the above indications the directors believe that it
remains appropriate to prepare the financial statements on a going
concern basis.
Revenue Recognition
The Group has adopted IFRS 15 from 1 January 2018. The standard
provides a single comprehensive model for revenue recognition.
Performance obligations and timing of revenue recognition
The Group's revenue is derived from selling goods with revenue
recognised at a point in time when control of the goods has
transferred to the customer. This is generally when the goods are
delivered to the customer. However, for export sales, control might
also be transferred when delivered either to the port of departure
or port of arrival, depending on the specific terms of the contract
with a customer. There is limited judgement needed in identifying
the point control passes: once physical delivery of the products to
the agreed location has occurred, the group no longer has physical
possession, usually will have a present right to payment (as a
single payment on delivery) and retains none of the significant
risks and rewards of the goods in question.
UK sales are recognised and invoiced to the customer once the
goods have been delivered to the customer. Overseas sales are
recognised and invoiced to the customer once the goods have been
delivered to the customer or collected by the customer from the
Group's warehouse according to the terms of sale.
Where the Group has entered into distributor arrangements the
satisfaction of performance obligation and transfer of control to
the distributor is from the date of dispatch from either the
Group's overseas supplier or from the Company's UK warehouse.
Revenue is therefore recognised on the date of dispatch.
Under IFRS 15, volume rebates and early settlement discounts
represent variable consideration and is estimated and recognised as
a reduction to revenue as performance obligations are satisfied.
Management recognises revenue based on the amount of estimated
rebate to the extent that revenue is highly probably of not
reversing. Management monitors this estimate at each reporting date
and adjusts it as necessary.
Determining the transaction price
Most of the group's revenue is derived from fixed price
contracts and therefore the amount of revenue to be earned from
each contract is determined by reference to those fixed prices.
Exceptions are as follows:
-- Some contracts provide customers with a limited right of
return. These relate predominantly, but not exclusively, to online
sales direct to consumers and retailers. Historical experience
enables the group to estimate reliably the value of goods that will
be returned and restrict the amount of revenue that is recognised
such that it is highly probable that there will not be a reversal
of previously recognised revenue when goods are returned.
-- Variable consideration relating to volume rebates has been
considered in estimating revenue in order that it is highly
probable that there will not be a future reversal in the amount of
revenue recognised when the amount of volume rebates has been
determined.
Allocating amounts to performance obligations
For most contracts, there is a fixed unit price for each product
sold, with reductions given for bulk orders placed at a specific
time. Therefore, there is no judgement involved in allocating the
contract price to each unit ordered in such contracts (it is the
total contract price divided by the number of units ordered). Where
a customer orders more than one product line, the Group is able to
determine the split of the total contract price between each
product line by reference to each product's standalone selling
prices (all product lines are capable of being, and are, sold
separately).
Practical Exemptions
The group has taken advantage of the practical exemptions:
-- not to account for significant financing components where the
time difference between receiving consideration and transferring
control of goods (or services) to its customer is one year or less;
and
-- expense the incremental costs of obtaining a contract when
the amortisation period of the asset otherwise recognised would
have been one year or less.
Expenditure and provisions
Expenditure is recognised in respect of goods and services
received when supplied in accordance with contractual terms.
Provision is made when an obligation exists relating to a past
event and where the amount of the obligation can be reliably
estimated.
Retirement Benefits: Defined contribution schemes
Contributions to defined contribution schemes are charged to the
consolidated statement of comprehensive income in the year to which
they relate.
Exceptional items
Exceptional items which have been disclosed separately on the
face of the income statement in order to summarise the underlying
results. Exceptional items relate to legal and professional fees
incurred on the acquisition of Marvin Leeds Marketing Services Inc
and Retra Holdings Limited in prior periods. Neither 'underlying
profit or loss' nor 'exceptional items' are defined by IFRS however
the directors believe that the disclosures presented in this manner
provide clear presentation of the financial performance of the
Group.
Intangible assets
Patents
Patents are used by the Group in order to generate future
economic value through normal business operations. Patents are
acquired separately and carried at cost less amortisation and
impairment. The underlying assets are amortised over the period
from which the Group expects to benefit, which is typically between
five to ten years.
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised on a
straight-line basis over their estimated useful lives. The
estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. Intangible
assets with indefinite useful lives that are acquired separately
are carried at cost less accumulated impairment losses.
Amortisation is provided on Licences and Website costs so as to
write off the carrying value over the expected useful economic life
of five years.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and
recognised separately from goodwill are initially recognised at
their fair value at the acquisition date (which is regarded as
their cost). Subsequent to initial recognition, intangible assets
acquired in a business combination are reported at cost less
accumulated amortisation and accumulated impairment losses, on the
same basis as intangible assets that are acquired separately.
Amortisation is provided on customer lists and brands so as to
write off the carrying value over the expected useful economic life
of five years. Other details of the acquisition are detailed in
note 8.
Goodwill
Goodwill represents the excess of the cost of a business
combination over the Group's interest in the fair value of
identifiable assets, liabilities and contingent liabilities
acquired.
Cost comprises the fair value of assets given, liabilities
assumed, and equity instruments issued, plus the amount of any
non-controlling interests in the acquiree. Contingent consideration
is included in cost at its acquisition date fair value and, in the
case of contingent consideration classified as a financial
liability, remeasured subsequently through profit or loss.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income. Where the fair value of
identifiable assets, liabilities and
contingent liabilities exceed the fair value of consideration
paid, the excess is credited in full to the consolidated statement
of comprehensive income on the acquisition date.
Impairment of non-financial assets (excluding inventories and
deferred tax assets)
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (i.e.
the higher of value in use and fair value less costs to sell), the
asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
('CGUs'). Goodwill is allocated on initial recognition to each of
the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for goodwill is
not reversed.
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no
future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognised in profit or loss
when the asset is derecognised.
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs.
Depreciation is provided on all items of property, plant and
equipment so as to write off their carrying value over the expected
useful economic lives. It is provided at the following rates:
Plant and machinery - 25% reducing balance and 20% straight
line
Fixtures and fittings - 25% reducing balance and 20% straight
line
Computer equipment - 25% reducing balance and 33.33% straight
line
Motor vehicles - 20% straight line
Right-of-Use Assets
In the previous period, the Group only recognised lease assets
and lease liabilities in relation to leases that were classified as
"finance leases" under IAS 17 "Leases". The assets were presented
in property, plant and equipment and the liabilities as part of the
Group's borrowings. For adjustments recognised on adoption of IFRS
16 on 1 January 2019, please refer to note 12.
Right-of-use assets are measured at cost, which is made up of
the initial measurement of the lease liability adjusted for any
lease payments made at or before the commencement date, plus any
initial direct costs incurred and an estimate of costs to dismantle
and remove the asset at the end of the lease, less any lease
incentives received.
The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease
term.
The Group also assesses the right-of-use asset for impairment
when such indicators exist.
The right-of-use assets are included in a separate line within
non-current assets on the Consolidated Balance Sheet.
Financial assets
The Group has adopted IFRS 9 from 1 January 2018. The standard
introduced new classification and measurement models for financial
assets.
The Group classifies its financial assets into one of the
categories discussed below, depending on the purpose for which the
asset was acquired. Other than financial assets in a qualifying
hedging relationship, the Group's accounting policy for each
category is as follows:
Fair value through profit or loss
This category comprises in-the-money derivatives and
out-of-money derivatives where the time value offsets the negative
intrinsic value (see "Financial liabilities" section for
out-of-money derivatives classified as liabilities). They are
carried in the statement of financial position at fair value with
changes in fair value recognised in the consolidated statement of
comprehensive income in the finance income or expense line. Other
than derivative financial instruments which are not designated as
hedging instruments, the Group does not have any assets held for
trading nor does it voluntarily classify any financial assets as
being at fair value through profit or loss.
Amortised cost
These assets arise principally from the provision of goods and
services to customers (e.g. trade receivables), but also
incorporate other types of financial assets where the objective is
to hold these assets in order to collect contractual cash flows and
the contractual cash flows are solely payments of principal and
interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost
using the effective interest rate method, less provision for
impairment.
New impairment requirements use an 'expected credit loss'
('ECL') model to recognise an allowance. Impairment is measured
using a 12- month ECL method unless the credit risk on a financial
instrument has increased significantly since initial recognition in
which case the lifetime ECL method is adopted. For receivables, a
simplified approach to measuring expected credit losses using a
lifetime expected loss allowance is available and has been adopted
by the Group. During this process the probability of the
non-payment of the trade receivables is assessed. This probability
is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the
trade receivables. For trade receivables, which are reported net,
such provisions are recorded in a separate provision account with
the loss being recognised within administrative expenses in the
consolidated statement of comprehensive income. On confirmation
that the trade receivable will not be collectable, the gross
carrying value of the asset is written off against the associated
provision.
The Group's financial assets measured at amortised cost comprise
trade and other receivables, and cash and cash equivalents in the
consolidated statement of financial position.
Cash and cash equivalents include cash in hand, deposits held at
call with banks, other short term highly liquid investments with
original maturities of three months or less, and - for the purpose
of the statement of cash flows - bank overdrafts. Bank overdrafts
are shown within loans and borrowings in current liabilities on the
consolidated statement of financial position.
Financial liabilities
The Group classifies its financial liabilities into one of two
categories, depending on the purpose for which the liability was
acquired. The Group's accounting policy for each category is as
follows:
Fair value through profit or loss
This category comprises out-of-the-money derivatives where the
time value does not offset the negative intrinsic value (see
"Financial assets" for in-the-money derivatives and out-of-money
derivatives where the time value offsets the negative intrinsic
value). They are carried in the consolidated statement of financial
position at fair value with changes in fair value recognised in the
consolidated statement of comprehensive income. The Group does not
hold or issue derivative instruments for speculative purposes, but
for hedging purposes. Other than these derivative financial
instruments, the Group does not have any liabilities held for
trading nor has it designated any financial liabilities as being at
fair value through profit or loss.
Other financial liabilities
Other financial liabilities include the following items:
-- Bank loans which are initially recognised at fair value net
of any transaction costs directly attributable to the issue of the
instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost ensuring the interest element of the
borrowing is expensed over the repayment period at a constant
rate.
-- Trade payables, other borrowings and other short-term
monetary liabilities, which are initially recognised at fair value
and subsequently carried at amortised cost using the effective
interest method.
Derivative financial instruments
The Group enters into a variety of derivative financial
instruments to manage its exposure to foreign exchange rate risk,
through the use of foreign exchange rate forward contracts.
Derivatives are initially recognised at fair value at the date
the derivative contracts are entered into and are subsequently
re-measured to their fair value at the end of each reporting
period. The resulting gain or loss is recognised in profit or loss
immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in
profit or loss depends on the nature of the hedge relationship.
Foreign currencies
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (their "functional currency") are recorded at the rates
ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
reporting date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised
immediately in profit or loss, except for foreign currency
borrowings qualifying as a hedge of a net investment in a foreign
operation, in which case exchange differences are recognised in
other comprehensive income and accumulated in the foreign exchange
reserve along with the exchange differences arising on the
retranslation of the foreign operation.
Leases
All leases are accounted for by recognising a right-of-use asset
and a lease liability except for:
-- Leases of low value assets; and
-- Leases with a duration of 12 months or less.
IFRS 16 was adopted 1 January 2019 without restatement of
comparative figures. For an explanation of the transitional
requirements that were applied as at 1 January 2019. The following
policies apply subsequent to the date of initial application, 1
January 2019.
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease unless (as is typically the case) this is not readily
determinable, in which case the group's incremental borrowing rate
on commencement of the lease is used. Variable lease payments are
only included in the measurement of the lease liability if they
depend on an index or rate. In such cases, the initial measurement
of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments
are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value guarantee;
-- the exercise price of any purchase option granted in favour
of the group if it is reasonable certain to assess that option;
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination option
being exercised.
Right of use assets are initially measured at the amount of the
lease liability, reduced for any lease
incentives received, and increased for:
-- lease payments made at or before commencement of the lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the group is
contractually required to dismantle, remove or restore the leased
asset.
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortised on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset
if, rarely, this is judged to be shorter than the lease term.
When the group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted at the same
discount rate that applied on lease commencement. The carrying
value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is
revised. In both cases an equivalent adjustment is made to the
carrying value of the right-of-use asset, with the revised carrying
amount being amortised over the remaining (revised) lease term.
When the group renegotiates the contractual terms of a lease
with the lessor, the accounting depends
on the nature of the modification:
-- if the renegotiation results in one or more additional assets
being leased for an amount commensurate with the standalone price
for the additional rights-of-use obtained, the modification is
accounted for as a separate lease in accordance with the above
policy
-- in all other cases where the renegotiated increases the scope
of the lease (whether that is an extension to the lease term, or
one or more additional assets being leased), the lease liability is
remeasured using the discount rate applicable on the modification
date, with the right-of-use asset being adjusted by the same
amount
-- if the renegotiation results in a decrease in the scope of
the lease, both the carrying amount of the lease liability and
right-of-use asset are reduced by the same proportion to reflect
the partial of full termination of the lease with any difference
recognised in profit or loss. The lease liability is then further
adjusted to ensure its carrying amount reflects the amount of the
renegotiated payments over the renegotiated term, with the modified
lease payments discounted at the rate applicable on the
modification date. The right-of-use asset is adjusted by the same
amount.
For contracts that both convey a right to the group to use an
identified asset and require services to be provided to the group
by the lessor, the group has elected to account for the entire
contract as a lease, i.e. it does allocate any amount of the
contractual payments to, and account separately for, any services
provided by the supplier as part of the contract.
Nature of leasing activities (in the capacity as lessee )
The group leases a number of property, plant and equipment in
the jurisdictions from which it operates with a fixed periodic rent
over the lease term. The group has a total of 6 property leases, 1
plant and machinery, and 3 equipment leases.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from 'profit before tax' as reported
in the consolidated statement of comprehensive income and other
comprehensive income because of items of income or expense that are
taxable or deductible in other years and items that are never
taxable or deductible.
The Group's current tax is calculated using tax rates that have
been enacted or substantively enacted by the end of the reporting
period.
Deferred taxation
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the combined statement
of financial position differs from its tax base, except for
differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a
transaction which is not a business combination and at the time of
the transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries and jointly controlled entities
where the Group is able to control the timing of the reversal of
the difference and it is probable that the difference will not
reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the end of
the reporting period and are expected to apply when the deferred
tax liabilities or assets are settled or recovered. Deferred tax
balances are not discounted.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable group company; or
-- different company entities which intend either to settle
current tax assets and liabilities on a net basis, or to realise
the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets
and liabilities are expected to be settled or recovered.
Inventories
Inventories are initially recognised at cost, and subsequently
at the lower of the cost and net realisable value. Cost comprises
all costs of purchase, costs of conversion and other costs incurred
in bringing the inventories to their present location and
condition.
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the
management team including the Chief Executive Officers and the
Chief Financial Officer.
The Board considers that the Group's project activity
constitutes two operating and two reporting segments, as defined
under IFRS 8. Management reviews the performance of the Group by
reference to total results against budget.
The total profit measures are operating profit and profit for
the year, both disclosed on the face of the combined income
statement. No differences exist between the basis of preparation of
the performance measures used by management and the figures in the
Group financial information.
Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders of the parent by the weighted
average number of ordinary shares outstanding during the year,
excluding treasury shares and shares in employee benefit trusts,
determined in accordance with the provisions of IAS 33 earnings per
Share. Diluted earnings per share is calculated by dividing
earnings attributable to ordinary shareholders of the parent by the
weighted average number of ordinary shares outstanding during the
year adjusted for the potentially dilutive ordinary shares.
Share Capital
The Group's ordinary shares are classified as equity
instruments.
Share-based payments
Where equity settled share options are awarded to employees, the
fair value of the options at the date of grant is charged to the
consolidated statement of comprehensive income over the vesting
period. Non-market vesting conditions are taken into account by
adjusting the number of equity instruments expected to vest at each
reporting date so that, ultimately, the cumulative amount
recognised over the vesting period is based on the number of
options that eventually vest. Non-vesting conditions and market
vesting conditions are factored into the fair value of the options
granted. As long as all other vesting conditions are satisfied, a
charge is made irrespective of whether the market vesting
conditions are satisfied. The cumulative expense is not adjusted
for failure to achieve a market vesting condition or where a
non-vesting condition is not satisfied.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the consolidated statement of comprehensive income over the
remaining vesting period.
Where equity instruments are granted to persons other than
employees, the consolidated statement of comprehensive income is
charged with the fair value of goods and services received.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
declared by the directors. In the case of final dividends, this is
when approved by the shareholders at the annual general
meeting.
Changes in accounting policies
a) New standards, interpretations and amendments effective from
1 January 2019
New standards impacting the Group that will be adopted in the
annual financial statements for the year ended 31 December 2019,
and which have given rise to changes in the Group's accounting
policies are:
IFRS 16 Leases
Details of the impact this standard has had is given below.
Other new and amended standards and Interpretations issued by IASB
and adopted by the EU that will apply for the first time in the
next annual financial statements are not expected to impact the
Group as they are either not relevant to the Group's activities or
require accounting which is consistent with the Group's current
accounting policies.
b) At the date of authorisation of these financial statements,
certain new standards, amendments and interpretations to existing
standards have been published by the IASB and adopted by the EU but
are not yet effective and have not been adopted early by the Group.
Management anticipates that all of the relevant pronouncements will
be adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that
are expected to be relevant to the Group's financial statements is
provided below. Certain other new standards and interpretations
have been issued but are not expected to have a material impact on
the Group's financial statements.
Effect annual periods
beginning before
or after
IFRS Financial instruments - amendments regarding 1(st) January 2020
9 pre-replacement issues into the context
of LIBOR reform.
----------------------------------------------- ----------------------
IAS Accounting policies - changes in in accounting 1(st) January 2020
8 estimates and errors. Amendments regarding
depreciation at undervaluation.
----------------------------------------------- ----------------------
Effect of changes in accounting policies
Initial adoption of IFRS 16 "Leases"
Effective 1 January 2019, IFRS 16 "Leases" replaced IAS 17
"Leases" and IFRIC 4 "Determining whether an Arrangement Contains a
Lease". The standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires
lessees to account for all leases under a single lease accounting
model.
IFRS 16 has been applied using the modified retrospective
approach requiring the recognition of assets and liabilities for
all leases, together with options to exclude leases where the lease
term is 12 months or less, or where the underlying asset is of low
value. IFRS 16 substantially carries forward the lessor accounting
in IAS 17, with the distinction between operating leases and
finance leases being retained. The Group does not have significant
leasing activities acting as a lessor.
Transition Method and Practical Expedients Utilised
On adoption of IFRS 16 the Group has recognised lease
liabilities in relation to leases which had previously been
classified as operating leases. These liabilities were measured at
the present values of the remaining lease payments, discounted
using the incremental borrowing rates at 1 January 2019.
For leases previously classified as finance leases, the
right-of-use assets and lease liabilities are measured at the date
of initial application at the same amounts as under IAS 17
immediately before the date of initial application.
The Group has used the following practical expedients (modified
retrospective approach) when applying IFRS 16 to leases previously
classified as operating leases:
-- Apply a single discount rate to a portfolio of leases with
reasonably similar characteristics;
-- Exclude initial direct costs from the measurement of
right-of-use assets at the date of initial application for leases
where the right-of-use asset was determined as if IFRS 16 had been
applied since the commencement date;
-- Reliance on previous assessments on whether leases are
onerous as opposed to preparing an impairment review under IAS 36
as at the date of initial application; and
-- Applied the exemption not to recognise right-of-use assets
and liabilities for leases with less than 12 months of lease term
remaining as of the date of initial application.
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Group recognizes right-of-use assets
and lease liabilities for most leases. However, the Group has
elected not to recognise right-of-use assets and lease liabilities
for some leases of low value assets based on the value of the
underlying asset when new or for short-term leases with a lease
term of 12 months or less.
On adoption of IFRS 16, the Group recognised right-of-use assets
and lease liabilities as follows:
Classification Right-of-use assets Lease liabilities
under
IAS 17
All other operating Leasehold property: Measured at the present value
leases Right-of-use assets of the remaining lease payments,
are measured at an discounted using the Group's
amount equal to the incremental borrowing rate
lease liability, adjusted as at 1 January 2019.
for any prepaid or The Group's incremental borrowing
accrued lease payments rate is the rate at which
that existed at the a similar borrowing could
date of transition, be obtained from an independent
including unamortised creditor under comparable
lease incentives. terms and conditions. The
incremental borrowing rate
All other: the carrying applied differs depending
value that would have on jurisdiction of the leases,
resulted from IFRS term, currency and economic
16 being applied from environment ranging from 1.98%
the commencement date to 2.95%.
of the leases, subject
to the practical expedients
noted above.
----------------------------- -----------------------------------
Finance leases Measured based on the carrying values for the lease
assets and liabilities immediately before the date
of initial application (i.e. carrying values brought
forward, unadjusted).
------------------------------------------------------------------
Lease liabilities
The following is a reconciliation of total operating lease
commitments disclosed at 31 December 2018 with the lease
liabilities recognised at 1 January 2019:
GBP'000
Total operating lease commitments disclosed under
IAS 17 at 1 January 2019 5,845
Contracts reassessed as non-lease contracts -
--------
Undiscounted lease payments 5,845
Less: effect of discounting using the incremental
borrowing rate as at the date of initial application (885)
--------
Operating lease liabilities after discounting 4,960
Finance lease liabilities recognised under IAS 17
at 1 January 2019 591
--------
Total lease liabilities recognised under IFRS 16
at 1 January 2019 5,551
--------
Represented by:
Current lease liabilities 865
Non - current lease liabilities 4,686
--------
5,551
--------
Adjustments Recognised on the Balance Sheet on 1 January
2019
The following is a reconciliation of the financial statement
line items from IAS 17 to IFRS 16 at 31 December 2018:
IFRS 16
Carrying amount IFRS 16 amount
at 31 December at 1 January
2018 Reclassification Initial adoption 2019
Note GBP'000 GBP'000 GBP'000 GBP'000
Property, plant
and equipment 11 1,358 (591) - 767
Right of use
assets 12 591 4,960 5,551
Lease liabilities 17 (591) - (4,960) (5,551)
---------------- ----------------- ----------------- ---------------
Total 767 - - 767
================ ================= ================= ===============
The application of IFRS 16 to leases previously classified as
operating leases under IAS 17 resulted in the recognition of
right-of-use assets and lease liabilities of GBP4,960 thousand.
Assets under finance lease arrangements of GBP591 thousand
previously presented within property, plant and equipment were
reclassified to right-of-use assets.
There was no net effect on retained earnings at 1 January
2019.
IFRS 16 requires entities to make certain judgements and
estimations. Management has exercised judgement around the use of
extension and break options for leases. Where the Group has the
option to extend or terminate a lease early, management has used
its judgement to determine whether or not the option is reasonably
certain to be exercised. Management has considered all facts and
circumstances including past practice and current and future
business strategy and any costs that could be incurred on use of
the option in exercising its judgement. Post transition the Group
would use optional exemptions for low value items and short-term
leases.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including the expectations
of future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The estimates and assumptions 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.
Judgements and accounting estimates and assumptions
a) Inventories
Inventories are initially recognised at cost, and subsequently
at the lower of the cost and net realisable value. There is
judgement involved in assessing the level of inventory provision
required in respect of slow-moving inventory.
The Group makes a 50% provision for perishable items of stock
that are greater than two years old. Should the Group increase the
provision to 100% of perishable items that are greater than two
years old, this would decrease profit by GBP209,395. The Group does
not provide any provision on its non-perishable goods that are
greater than two years old on the basis that the products have long
shelf life. Should the Group increase the provision to 100% of non-
perishable items that are greater than two years old, this would
decrease profit by GBP363,282.
b) Impairment of goodwill
The assessment of the recoverable amount of goodwill allocated
to Retra Holdings Limited and Leeds Marketing Services, Inc., as
detailed in note 9, was based on a value in use calculation which
involved judgement in assessing the projected future cashflows
arising from the CGU and a suitable discount rate to be used to
measure the future cash flows to present value. A one per cent
increase in the pre-tax discount rate for Retra Holdings Limited
from 15.4% to 16.4% would reduce the recoverable amount by
approximately GBP1.73 million and will still not result to any
impairment, while a one percent increase in the pre-tax discount
rate for Leeds Marketing Services, Inc. from 18.8% to 19.8% would
reduce the recoverable amount by approximately GBP0.01 million and
will still not result to any impairment.
The requirement, in accordance with IAS 10 Events after the
Reporting Period, is to account for the significant changes in
business and economic conditions as non-adjusting events because
the significant development and spread of the Coronavirus did not
take place until January 2020. As at 31 December 2019, only certain
events and associated actions had taken place such as the Wuhan
Municipal Health Committee's issue on 30 December 2019 of an urgent
notice in respect of the virus. However, although cases were
reported to the World Health Organisation on 31 December 2019, its
announcement of Coronavirus as a global health emergency was not
made until 31 January 2020 (following which national governments
took action). In addition, significant measures taken by the
Chinese government and by private sector organisations did not take
place until early 2020.
On this basis, it is expected that forecasts, projections and
associated assumptions used for the purposes of impairment testing
would reflect either little or no change as a result of the
Coronavirus Outbreak, if the impact of COVID-19 was considered in
the judgements and estimates made in preparing the projected future
cash flows, this may have had resulted to an impairment.
2. Segmental information
For management purposes, the Group is organised into two
operating segments; Branded and Close-out. The segment 'Branded'
relates to the sale of own branded products whereas 'close-out'
relates to the purchase of third-party stock which is then
repackaged for sale. These segments are the basis on which the
Group reports internally to the Board.
Year ended 31 December 2019 2019 2019 2018 2018 2018
Own Brand Close-out Total Own Brand Close-out Total
---------- ---------- --------- ---------- ---------- ---------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- --------- ---------- ---------- ---------
Revenue 41,619 7,663 49,282 40,875 7,602 48,477
---------- ---------- --------- ---------- ---------- ---------
Cost of sales (27,086) (5,694) (32,780) (26,188) (5,075) (31,263)
---------- ---------- --------- ---------- ---------- ---------
Gross profit 14,533 1,969 16,502 14,687 2,527 17,214
---------- ---------- --------- ---------- ---------- ---------
Administrative expenses (13,110) (1,067) (14,177) (10,213) (970) (11,183)
---------- ---------- --------- ---------- ---------- ---------
Exceptional items (155) (23) (178) (327) (8) (335)
---------- ---------- --------- ---------- ---------- ---------
Impairment losses - - - (812) - (812)
---------- ---------- --------- ---------- ---------- ---------
Segment result 1,268 879 2,147 3,335 1,549 4,884
---------- ---------- --------- ---------- ---------- ---------
Reconciliation of segment
result to profit before
tax:
---------- ---------- --------- ---------- ---------- ---------
Segment result 1,268 879 2,147 3,335 1,549 4,884
---------- ---------- --------- ---------- ---------- ---------
Finance expense (370) - (370) (150) - (150)
---------- ---------- --------- ---------- ---------- ---------
Profit before tax 898 879 1,777 3,185 1,549 4,734
---------- ---------- --------- ---------- ---------- ---------
Analysis of total revenue
by geographical market:
---------- ---------- --------- ---------- ---------- ---------
UK 17,863 4,838 22,701 18,430 4,954 23,384
---------- ---------- --------- ---------- ---------- ---------
Europe 6,289 680 6,969 6,317 1,557 7,874
---------- ---------- --------- ---------- ---------- ---------
Spain 7,268 - 7,268 5,495 - 5,495
---------- ---------- --------- ---------- ---------- ---------
Denmark 4,580 - 4,580 3,309 - 3,309
---------- ---------- --------- ---------- ---------- ---------
USA 2,825 2,131 4,956 4,227 1,069 5,296
---------- ---------- --------- ---------- ---------- ---------
Australia and New Zealand 1,408 2 1,410 1,282 20 1,302
---------- ---------- --------- ---------- ---------- ---------
Rest of World 1,386 12 1,398 1,815 2 1,817
---------- ---------- --------- ---------- ---------- ---------
Total 41,619 7,663 49,282 40,875 7,602 48,477
---------- ---------- --------- ---------- ---------- ---------
Revenues of approximately GBP5,269,000 are derived from a single
external customer based in Spain and GBP3,797,000 are derived from
a single external customer based in Denmark.
During the year ended 31 December 2018, the Group had no
customer that exceeded 10% of total revenue.
The Directors are not able to attribute the Group's assets and
liabilities by reportable business segment.
Analysis of non -current
assets by geographical
market.
Year ended 31 December 2019 2019 2019 2018 2018 2018
UK USA Total UK USA Total
Goodwill 6,720 554 7,274 6,720 554 7,274
Intangibles 6,286 796 7,082 8,479 1,007 9,486
Property, plant and
equipment 675 9 684 1,348 10 1,358
Right of use assets 4,399 286 4,685 - - -
18,080 1,645 19,725 16,547 1,571 18,118
3. Operating profit
Operating profit for the period is stated after charging/
(crediting):
Year ended 31 December
2019 2018
------------ -----------
GBP'000 GBP'000
------------ -----------
Foreign exchange loss/(gain) 227 (359)
------------ -----------
Depreciation 326 529
------------ -----------
Amortisation of right of use assets 868 -
------------ -----------
Amortisation of intangible assets 2,439 2,272
------------ -----------
Impairment - 812
------------ -----------
Loss on disposal of fixed asset - 7
------------ -----------
Operating lease costs
------------ -----------
* Land and buildings - 557
------------ -----------
* Equipment - 71
------------ -----------
Write-down inventories at net realisable value 83 114
------------ -----------
Exceptional costs 178 335
------------ -----------
The expenditure incurred within the table above falls wholly
within Administrative expenses.
Exceptional costs
Exceptional costs in 2019 included GBP0.15 million of
restructuring costs in the United States and GBP0.02 million of
non-recurring legal and professional fees.
Exceptional costs in 2018 included GBP0.16 million of
acquisition costs as they were one off legal and professional fees
incurred in acquiring LMS USA on 2 August 2018, plus GBP0.10
million of professional fees relating to the acquisition of Retra
in 2017, plus GBP0.08 million of staff restructuring costs at Retra
(2017: GBP0.40 million of acquisition costs as they were legal and
professional fees and commissions incurred in acquiring Retra on 30
November 2017. Total acquisition costs were GBP1.2 million of which
GBP0.8 million related to the issue of new shares to fund the
purchase of Retra and these were charged against the share premium
account).
Auditor's Remuneration
Analysis of auditor's remuneration is as follows:
Year ended 31 December
2019 2018
------------ -----------
GBP'000 GBP'000
------------ -----------
Fees payable to the Company's auditor for the
audit of the Group's annual accounts 49 36
------------ -----------
Fees payable to the Company's auditor for the
audit of subsidiary companies 102 78
------------ -----------
151 114
------------ -----------
Other services pursuant to legislation:
------------ -----------
Tax advice 12 7
------------ -----------
Other assurance 3 3
------------ -----------
Total non-audit fees 15 10
------------ -----------
4. Staff costs
Year ended 31 December
2019 2018
------------ -----------
GBP'000 GBP'000
------------ -----------
Wages and salaries 4,576 4,252
------------ -----------
Social security costs 449 521
------------ -----------
Pension costs 81 68
------------ -----------
5,106 4,841
------------ -----------
The average monthly number of employees during the period was as
follows:
Year ended 31 December
2019 2018
----------------- -----------------
No. No.
----------------- -----------------
Directors 7 6
----------------- -----------------
Administrative 25 40
----------------- -----------------
Finance 5 3
----------------- -----------------
Warehouse 45 45
----------------- -----------------
Sales 3 6
----------------- -----------------
Other 26 12
----------------- -----------------
111 112
----------------- -----------------
2019 2018
----------------- -----------------
Directors' remuneration, included in staff costs GBP'000 GBP'000
----------------- -----------------
Salaries 740 719
----------------- -----------------
Share based payments 674 69
----------------- -----------------
Benefits 16 14
----------------- -----------------
Pension contributions 2 3
----------------- -----------------
1,432 805
----------------- -----------------
Remuneration in respect of Directors was as follows:
Salary/fees Share based Benefits Pension 2019 2018
payment contribution
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ------------ --------- -------------- -------- --------
Executive Directors
------------ ------------ --------- -------------- -------- --------
S Bazini 200 284 9 - 493 224
------------ ------------ --------- -------------- -------- --------
E Macleod 200 284 7 - 491 222
------------ ------------ --------- -------------- -------- --------
N Rodol 150 102 - 1 253 185
------------ ------------ --------- -------------- -------- --------
S Craig 50 4 - 1 55 33
------------ ------------ --------- -------------- -------- --------
Non-executive Directors
------------ ------------ --------- -------------- -------- --------
C Garston 60 - - 60 60
------------ ------------ --------- -------------- -------- --------
K Sadler 40 - - 40 41
------------ ------------ --------- -------------- -------- --------
P Hagon 40 - - 40 40
------------ ------------ --------- -------------- -------- --------
740 674 16 2 1,432 805
------------ ------------ --------- -------------- -------- --------
Number Number Number Number Exercise Earliest Exercise
of Share of Share of Share of Share Price Exercise Expiry
options options options options Date Date
at January awarded lapsed at December
2019 in the in the 2019
year year
105,262
@237.59p 29/06/2020 29/06/2027
306,996
N Rodol 412,258 - - 412,258 @254.5p 21/09/2021 21/09/2028
------------ ---------- ---------- ------------- ---------- ------------ ------------
S Bazini 1,534,986 - - 1,534,986 254.5p 21/09/2021 21/09/2028
------------ ---------- ---------- ------------- ---------- ------------ ------------
E Macleod 1,534,986 - - 1,534,986 254.5p 21/09/2021 21/09/2028
------------ ---------- ---------- ------------- ---------- ------------ ------------
S Craig 10,000 - - 10,000 237.59p 29/06/2020 29/06/2027
------------ ---------- ---------- ------------- ---------- ------------ ------------
Total share
options 3,492,230 - - 3,492,230
------------ ---------- ---------- ------------- ---------- ------------ ------------
The directors of the Group are the only key management
personnel.
5. Finance expense
Year ended 31 December
2019 2018
------------ -----------
GBP'000 GBP'000
------------ -----------
Loan interest 26 28
------------ -----------
Lease liability interest 225 59
------------ -----------
Other interest 119 63
------------ -----------
370 150
------------ -----------
6. Income tax
Year ended 31 December
2019 2018
------------ -----------
GBP'000 GBP'000
------------ -----------
Current tax expense
------------ -----------
Current tax on profits for the period 1,102 1,660
------------ -----------
Adjustment in respect of previous periods (75) -
------------ -----------
1,027 1,660
------------ -----------
Deferred tax expense
------------ -----------
Origination and reversal of temporary differences (618) (501)
------------ -----------
Total tax expense 409 1,159
------------ -----------
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to profit for the year as follows:
Year ended 31 December
2019 2018
------------ -----------
GBP'000 GBP'000
------------ -----------
Profit for the period before taxation 1,777 4,734
------------ -----------
Expected tax charge based on corporation tax
rate of 19% (2018: 19%) 337 899
------------ -----------
Expenses not deductible for tax purposes 170 47
------------ -----------
Other adjustments 5 12
------------ -----------
Different tax rates applied in overseas jurisdiction 86 20
------------ -----------
Adjustments in relation to prior year (75) -
------------ -----------
Adjustment to deferred tax to average rate (114) 181
------------ -----------
Total tax expense 409 1,159
------------ -----------
The UK corporation tax at the standard rate for the year is
19.0% (2018: 19.0%).
In the Finance Act 2016 the UK government announced its
intention to reduce the standard corporation tax rate to 17% by
2020. The measure to reduce the rate to 17% for the financial year
beginning 1 April 2020 was substantively enacted on 6 September
2016 and has, where applicable, been reflected in the financial
statements. However, the UK government announced that the
corporation tax rate will remain at 19% but was not substantively
enacted until after the balance sheet date.
The Group's effective tax rate for the year is 25.19% (2018:
24.5%).
7. Subsidiaries
At the period end, the Group has the following subsidiaries:
Subsidiary name Nature of business Place of incorporation Percentage
owned
Warpaint Cosmetic Group
Limited Holding company England and Wales 100%
------------------------- ------------------------ -----------
Warpaint Cosmetics (2014)
Limited* Wholesaler England and Wales 100%
------------------------- ------------------------ -----------
Treasured Scents (2014)
Limited Wholesaler England and Wales 100%
------------------------- ------------------------ -----------
Treasured Scents Limited* Holding company England and Wales 100%
------------------------- ------------------------ -----------
Warpaint Cosmetics Inc. Dormant U.S.A. 100%
------------------------- ------------------------ -----------
Retra Holdings Limited Holding company England and Wales 100%
------------------------- ------------------------ -----------
Badgequo Limited* Wholesaler England and Wales 100%
------------------------- ------------------------ -----------
Retra Own Label Limited* Dormant England and Wales 100%
------------------------- ------------------------ -----------
Badgequo Deutschland GmbH* Supply chain management Germany 100%
------------------------- ------------------------ -----------
Badgequo Hong Kong Limited* Supply chain management Hong Kong 100%
------------------------- ------------------------ -----------
Jinhua Badgequo Cosmetics People's Republic
Trading Co., Ltd Wholesaler of China 100%
------------------------- ------------------------ -----------
Marvin Leeds Marketing Services,
Inc. Wholesaler U.S.A. 100%
------------------------- ------------------------ -----------
Warpaint Cosmetics (ROI)
Limited Dormant Republic of Ireland 100%
------------------------- ------------------------ -----------
* indicates indirect interest
All entities detailed above have been in existence for the whole
of the reporting period.
The registered office for all UK incorporated subsidiaries is
Units B&C, Orbital Forty-Six, The Ridgeway Trading Estate,
Iver, Bucks. SL0 9HW.
The registered office for Warpaint Cosmetics Inc.is 445 Northern
Boulevard - Great Neck, New York 11021.
The registered office for Badgequo Deutschland GmbH is
Robert-Bosch-Straße 10, Haus 1, 56410 Montabaur, Germany .
The registered office for Badgequo Hong Kong Limited is 12F, 3
Lockhart Road, Wanchai, Hong Kong.
The registered office for Jinhua Badgequo Cosmetics Trading Co.
Ltd is Room 1401, Gongyuan Building No. 307 South Shuanglong
Street, Wucheng District, Jinhua, Zhejiang, China 321000.
The registered office for Marvin Leeds Marketing Services, Inc.
is 34W. 33rd St. - Suite 1015, New York NY 10001.
The registered office for Warpaint Cosmetics (ROI) Limited is
6(th) Floor, South Bank House, Barrow Street, Dublin 4, D04
TR29.
8. Prior year acquisitions
Marvin Leeds Marketing Services, Inc.
On 2 August 2018, the Group acquired the entire share capital of
Marvin Leeds Marketing Services, Inc. ("LMS"), the Group's USA
distributor. The principal reason for acquiring LMS was to provide
direct access to the Warpaint brand to some key existing customers
and to open a number of new opportunities in the USA and the
Americas more widely. LMS has contributed GBP2,356,000 to revenue
for the period between the date of acquisition and 31 December
2018, the balance sheet date. Had LMS been consolidated from 1
January 2018, the consolidated income statement for the year ended
31 December 2018 would show additional revenue of $5,500,000
(GBP4,093,000) and a loss before tax of $198,000 (GBP148,000).
The fair value of the Book Fair Total Book Fair Total
net assets recognised value value (as restated) value value (as restated)
in USD and their GBP adjust-ment adjust-ment
equivalent at the acquisition
date is as follows:
$'000 $'000 $'000 GBP'000 GBP'000 GBP'000
-------- ------------- --------------- -------- ------------- ---------------
Customer lists - 1,381 1,381 - 1,057 1,057
-------- ------------- --------------- -------- ------------- ---------------
Property, plant and
equipment 11 - 11 8 - 8
-------- ------------- --------------- -------- ------------- ---------------
Stock 1,708 - 1,708 1,307 - 1,307
-------- ------------- --------------- -------- ------------- ---------------
Trade and other receivables 255 - 255 195 - 195
-------- ------------- --------------- -------- ------------- ---------------
Cash and cash equivalents 356 - 356 272 - 272
-------- ------------- --------------- -------- ------------- ---------------
Trade and other payables (2,228) - (2,228) (1,705) - (1,705)
-------- ------------- --------------- -------- ------------- ---------------
Deferred tax asset 219 - 219 168 168
-------- ------------- --------------- -------- ------------- ---------------
Deferred tax liability - (346) (346) - (265) (265)
-------- ------------- --------------- -------- ------------- ---------------
Net assets acquired 321 1,035 1,356 245 792 1,037
-------- ------------- --------------- -------- ------------- ---------------
Goodwill arising on
acquisition 724 554
-------- ------------- --------------- -------- ------------- ---------------
Consideration 2,080 1,591
-------- ------------- --------------- -------- ------------- ---------------
The gross contractual amount of trade receivables is equal to
the fair value. The fair value adjustment is based on level 3
inputs.
During the year ended 31 December 2019, fair values of assets
acquired were finalised and it was discovered that the fair value
of Trade and other receivables were overstated by GBP223,000
($291,000). An adjustment was made this year, restating the
comparative figures, resulting in a decrease in Trade and other
receivables to GBP195,000 and an increase in Goodwill to GBP554,000
from GBP331,000.
Goodwill comprises the value of expected synergies and other
opportunities arising from the acquisition, management know how,
the skilled work force employed by LMS and other intangible assets
that do not qualify for separate recognition. None of the goodwill
recognised is expected to be deductible for tax purposes.
The fair value of consideration paid is as follows: $'000 GBP'000
Cash consideration 2,080 1,591
------ --------
2,080 1,591
------ --------
Costs associated with the acquisition of LMS are GBP160,000 and
are disclosed within exceptional costs in note 3.
The profit and loss for LMS from the date of acquisition to 31
December 2018 is as follows:
$'000 GBP'000
Revenue 3,029 2,356
-------- --------
Cost of sales (2,935) (2,284)
-------- --------
Gross profit 94 72
-------- --------
Administrative expenses (442) (344)
-------- --------
Loss before taxation (348) (272)
-------- --------
Tax expense 75 58
-------- --------
Total comprehensive loss for the period (273) (214)
-------- --------
9. Goodwill
Cost GBP'000
At 1 January 2018 7,532
--------
Arising on acquisition of Marvin Leeds Marketing Services,
Inc. 554
--------
At 31 December 2018 and 31 December 2019 8,086
--------
Impairment
--------
At 31 December 2018 812
--------
Impairment during the year -
--------
At 31 December 2019 812
--------
Net book value
--------
At 31 December 2019 7,274
--------
At 31 December 2018 (as restated) 7,274
--------
Goodwill represents the excess of consideration over the fair
value of the Group's share of the net identifiable assets of the
acquired subsidiary at the date of acquisition. The carrying value
at 31 December 2019 includes Treasured Scents Limited GBP513,000,
Retra Holdings Limited GBP6,207,000 and Marvin Leeds Marketing
Services, Inc. GBP554,000.
During the year ended 31 December 2018, the consideration for
the acquisition of Retra Holdings Limited was finalised. The
previously disclosed purchase price of GBP18.36 million was reduced
by GBP450,000 resulting in a reduction in the goodwill figure
arising on acquisition from GBP7,469,000 to GBP7,019,000. Goodwill
arising on acquisition in the year ended 31 December 2018 relates
to the Group's acquisition of Marvin Leeds Marketing Services,
Inc.. During the year ended 31 December 2019, the net assets
acquired were reduced by GBP233,000 resulting in an increase in the
previously disclosed goodwill figure. The comparative figures at 31
December 2018 have been adjusted retrospectively.
Impairment is calculated by comparing the carrying amounts to
the recoverable amount being the higher of value in use derived
from discounted cash flow projections or the fair value less costs
to sell. A CGU is deemed to be an individual division, and these
have been grouped together into similar classes for the purpose of
formulating operating segments as reported in note 2. Value in use
calculations are based on a discounted cash flow model ("DCF") for
the subsidiary, which discounts expected cash flows over a
five-year period using a pre-tax discount rate of 15.55% (2018:
16.7%) for Retra Holdings Limited and 14.1% (2018: 20.1%) for
Marvin Leeds Marketing Services, Inc.. Cash flows beyond the
five-year period are extrapolated using a long-term average growth
rate of 2.0% (2018: 2.0%). The average growth rate beyond the
five-year period is lower than current growth rates and is in line
with Management's expectations for the business.
The fair value less costs to sell was based on a multiple of
earnings less estimated costs to sell. Management have performed
the annual impairment review as required by IAS 36 and have
concluded that no impairment is indicated for Treasured Scents
Limited, Retra Holdings Limited or Marvin Leeds Marketing Services,
Inc. as the recoverable amount exceeds the carrying value.
Key Assumptions and sensitivity to changes in assumptions
The key assumptions are based upon management's historical
experience. The calculation of VIU is most sensitive to the
following assumptions:
-- Sales and EBITDA - for LMS this is based on forecasts
incorporating growth of 10.0% in revenue over the next five years.
For Retra, the growth rate over the next year is anticipated to be
10.0% reducing to approximately 7.0% in years 2 to 5. EBITDA
percentages for both LMS and Retra are based on historical rates
achieved.
-- Discount Rate - pre-tax discount rate of 15.4% for Retra
Holdings Limited and 18.8% for Marvin Leeds Marketing Services,
Inc. reflects the Directors' estimate of an appropriate rate of
return, taking into account the relevant risk factors
-- Growth Rate - used to extrapolate beyond the budget period
and for terminal values based on a long-term average growth rate of
2.0% for LMS and Retra.
Sensitivity to changes in assumptions
The impairment review of the Group is sensitive to changes in
the key assumptions, most notably the pre-tax discount rate, the
terminal growth rate, the projected operating cash flows and the
multiple applied in the fair value less cost to sell calculation.
Reasonable changes to these assumptions are considered to be:
-- 1.0% increase in the pre-tax discount rate.
-- 1.0% reduction in the terminal growth rate.
-- 10.0% reduction in projected operating cash flows.
-- 10.0% reduction in valuation multiple.
Reasonable changes to the assumptions used, considered in
isolation, would not result in an impairment of goodwill for LMS or
Retra.
10. Intangible assets
Brands Customer Patents Website Licences Total
lists
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- -------- -------- --------- --------
Cost
-------- --------- -------- -------- --------- --------
At 1 January 2018 3,802 7,183 174 40 6 11,205
-------- --------- -------- -------- --------- --------
On acquisition of
subsidiaries - 1,057 - - - 1,057
-------- --------- -------- -------- --------- --------
Additions - - 43 5 - 48
-------- --------- -------- -------- --------- --------
At 31 December 2018 3,802 8,240 217 45 6 12,310
-------- --------- -------- -------- --------- --------
Additions - - 35 - - 35
-------- --------- -------- -------- --------- --------
At 31 December 2019 3,802 8,240 252 45 6 12,345
-------- --------- -------- -------- --------- --------
Accumulated amortisation
-------- --------- -------- -------- --------- --------
At 1 January 2018 63 426 50 11 2 552
-------- --------- -------- -------- --------- --------
Charge for the year 761 1,482 20 8 1 2,272
-------- --------- -------- -------- --------- --------
At 31 December 2018 824 1,908 70 19 3 2,824
-------- --------- -------- -------- --------- --------
Charge for the year 761 1,646 22 9 1 2,439
-------- --------- -------- -------- --------- --------
At 31 December 2019 1,585 3,554 92 28 4 5,263
-------- --------- -------- -------- --------- --------
Net book value
-------- --------- -------- -------- --------- --------
At 31 December 2019 2,217 4,686 160 17 2 7,082
-------- --------- -------- -------- --------- --------
At 31 December 2018 2,978 6,332 147 26 3 9,486
-------- --------- -------- -------- --------- --------
At 1 January 2018 3,739 6,757 124 29 4 10,653
-------- --------- -------- -------- --------- --------
11. Property, plant and equipment
Plant Fixtures Computer Motor Total
and machinery and fittings equipment vehicles
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------------- ----------- ---------- --------
Costs
--------------- -------------- ----------- ---------- --------
At 1 January 2018 827 573 227 128 1,755
--------------- -------------- ----------- ---------- --------
Additions 73 192 114 13 392
--------------- -------------- ----------- ---------- --------
On acquisition of subsidiary - 6 2 - 8
--------------- -------------- ----------- ---------- --------
Disposals (3) - (12) - (15)
--------------- -------------- ----------- ---------- --------
At 31 December 2018 897 771 331 141 2,140
--------------- -------------- ----------- ---------- --------
Reclassification to Right
of use assets (760) - (77) - (837)
--------------- -------------- ----------- ---------- --------
Additions 116 119 49 - 284
--------------- -------------- ----------- ---------- --------
Disposals (3) (42) (1) - (46)
--------------- -------------- ----------- ---------- --------
At 31 December 2019 250 848 302 141 1,541
--------------- -------------- ----------- ---------- --------
Accumulated depreciation
--------------- -------------- ----------- ---------- --------
At 1 January 2018 65 134 28 31 258
--------------- -------------- ----------- ---------- --------
Charge for year 170 194 137 28 529
--------------- -------------- ----------- ---------- --------
On disposals (2) - (3) - (5)
--------------- -------------- ----------- ---------- --------
At 31 December 2018 233 328 162 59 782
--------------- -------------- ----------- ---------- --------
Reclassification to Right
of use assets (208) - (36) - (244)
--------------- -------------- ----------- ---------- --------
Charge for year 35 205 56 30 326
--------------- -------------- ----------- ---------- --------
On disposals (1) (5) (1) - (7)
--------------- -------------- ----------- ---------- --------
At 31 December 2019 59 528 181 89 857
--------------- -------------- ----------- ---------- --------
Net book value
--------------- -------------- ----------- ---------- --------
At 31 December 2019 191 320 121 52 684
--------------- -------------- ----------- ---------- --------
At 31 December 2018 664 443 169 82 1,358
--------------- -------------- ----------- ---------- --------
At 1 January 2018 762 439 199 97 1,497
--------------- -------------- ----------- ---------- --------
The net book value of assets held under finance leases or hire
purchase contracts, included above are as follows:
As at 31 December
2019 2018
---------- ---------
GBP'000 GBP'000
---------- ---------
Plant and machinery - 12
---------- ---------
Computer equipment - 41
---------- ---------
- 53
-------------------------------- ---------
12. Right-of-use assets
Leasehold Plant and Computer Total
property machinery equipment
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ----------- --------
Costs
---------- ----------- ----------- --------
At 1 January 2019 - - - -
---------- ----------- ----------- --------
Reclassified from property,
plant and equipment - 760 77 837
---------- ----------- ----------- --------
Recognised on adoption
of IFRS 16 4,960 - 4,960
---------- ----------- ----------- --------
At 31 December 2019 4,960 760 77 5,797
---------- ----------- ----------- --------
Accumulated amortisation
---------- ----------- ----------- --------
At 1 January 2019 - - - -
---------- ----------- ----------- --------
Reclassified from property,
plant and equipment - 208 36 244
---------- ----------- ----------- --------
Charge for year 729 113 26 868
---------- ----------- ----------- --------
At 31 December 2019 729 321 62 1,112
---------- ----------- ----------- --------
Net Book Value
---------- ----------- ----------- --------
At 31 December 2019 4,231 439 15 4,685
---------- ----------- ----------- --------
At 31 December 2018 - - - -
---------- ----------- ----------- --------
13. Inventories
As at 31 December
2019 2018
--------- ---------
GBP'000 GBP'000
--------- ---------
Finished goods 16,387 15,472
--------- ---------
Provision (193) (110)
--------- ---------
16,194 15,362
--------- ---------
The cost of inventories recognised as an expense and included in
'cost of sales' amounted to GBP37.20 million in the year ended 31
December 2019 (2018: GBP28.30 million).
14. Trade and other receivables
As at 31 December
2019 2018
(as restated)
-------- ---------------
GBP'000 GBP'000
-------- ---------------
Trade receivables - gross 10,310 10,916
-------- ---------------
Provision for impairment of trade receivables (44) (114)
-------- ---------------
Trade receivables - net 10,266 10,802
-------- ---------------
Other receivables 1,237 485
-------- ---------------
Prepayments and accrued income 1,121 1,010
-------- ---------------
Total 12,624 12,297
-------- ---------------
The directors consider that the carrying value of trade and
other receivables measured at book value and amortised cost
approximates to fair value.
Trade receivables amounting to GBP506,000 (2018: GBP1,909,000)
are pledged as collateral against an invoice financing
facility.
The individually impaired receivables relate to the supply of
goods to customers. A provision is recognised for amounts not
expected to be recovered. Movements in the accumulated impairment
losses on trade receivables were as follows:
As at 31 December
2019 2018
--------- ---------
GBP'000 GBP'000
--------- ---------
Accumulated impairment losses at 1 January 114 173
--------- ---------
Additional impairment losses recognised/(released)
during the year, net (10) (14)
--------- ---------
Amounts written off during the year as uncollectible (60) (45)
--------- ---------
Accumulated impairment losses at 31 December 44 114
--------- ---------
The impairment losses recognised during the year are net of a
credit of GBP10,000 (2018: GBP14,000) relating to the recovery of
amounts previously written off as uncollectable.
Contract Liabilities
As at 31 December
2019 2018
--------- ---------
GBP'000 GBP'000
--------- ---------
At 1 January 305 382
--------- ---------
Amounts included in contract liabilities that
was recognised as revenue during the period 660 635
--------- ---------
Amounts settled during the period (644) (712)
--------- ---------
At 31 December 321 305
--------- ---------
Contract liabilities are included within "trade and other
receivables" in the face of the statement of financial position
being settled net of the trade debtor balances. They arise from the
group's own brand segment, which enter into contracts with
customers for early settlement discounts, marketing contributions
and volume rebates, because the invoiced amounts to customers at
each balance sheet date do not consider the amount or rebate and
discounts the customers are entitled to until settlement of the
debtor balance at a certain time.
15. Cash and cash equivalents
Cash and cash equivalents include the following for the purposes
of the cash flow statement:
As at 31 December
2019 2018
--------- ---------
GBP'000 GBP'000
--------- ---------
Cash at bank and in hand 2,731 4,041
--------- ---------
2,731 4,041
--------- ---------
16. Trade and other payables
As at 31 December
2019 2018
--------- ---------
GBP'000 GBP'000
--------- ---------
Current
--------- ---------
Trade payables 957 1,435
--------- ---------
Social security and other taxes 546 476
--------- ---------
Other payables 58 847
--------- ---------
Accruals and deferred income 2,372 731
--------- ---------
Total 3,933 3,489
--------- ---------
The directors consider that the carrying value of trade and
other payables measured at book value and amortised cost
approximates to fair value.
17. Loans and borrowings
As at 31 December
2019 2018
--------- ---------
GBP'000 GBP'000
--------- ---------
Bank loans
--------- ---------
Repayable within 1 year 1,281 1,992
--------- ---------
Repayable within 2 - 5 years 48 139
--------- ---------
1,329 2,131
--------- ---------
Hire purchase finance
--------- ---------
Repayable within 1 year - 177
--------- ---------
Repayable within 2 - 5 years - 414
--------- ---------
- 591
--------- ---------
Lease liabilities
--------- ---------
Repayable within 1 year 925 -
--------- ---------
Repayable within 2 - 5 years 2,584 -
--------- ---------
Repayable in more than 5 years 1,231 -
--------- ---------
4,740 -
--------- ---------
Total
--------- ---------
Repayable within 1 year 2,206 2,169
--------- ---------
Repayable within 2 - 5 years 2,632 553
--------- ---------
Repayable in more than 5 years 1,231 -
--------- ---------
6,069 2,722
--------- ---------
Lease liabilities
As at 31 December 2019
Leasehold Plant and Computer Total
property machinery equipment
---------- ----------- ----------- --------
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ----------- --------
At 1 January 2019 4,960 550 41 5,551
---------- ----------- ----------- --------
Interest expense 168 53 4 225
---------- ----------- ----------- --------
Lease payments (802) (205) (29) (1,036)
---------- ----------- ----------- --------
At 31 December 2019 4,326 398 16 4,740
---------- ----------- ----------- --------
Nature of lease liabilities
The group leases a number of properties in the United Kingdom
and United States of America as well as certain items of plant and
equipment.
An additional GBP11,730 has been expensed to the statement of
comprehensive income in respect of low value operating leases.
Interest payments of GBP9,717 have also been expenses in respect of
leases that expired during the period.
The interest rates expected are as follows:
As at 31 December
2019 2018
--------- ---------
% %
--------- ---------
Finance loans 7.0 7.0
--------- ---------
Bank loans 8.75 8.75
--------- ---------
Invoice financing 3.25 3.25
--------- ---------
Secured loans
The borrowings of the subsidiary companies, Retra Holdings
Limited and Badgequo Limited, are secured by a debenture including
a fixed charge over the present leasehold property, a first fixed
charge over book and other debts and a first floating charge over
all assets of those companies.
Bank borrowings include stock and invoice financing facilities
amounting to GBP1,086,000 (2018: GBP1,909,000 invoice financing).
The carrying value of assets pledged as collateral approximates to
GBP1,086,000 (2018: GBP1,909,000).
18. Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rate of 17% - 25%.
The movement on the deferred tax account is as shown below:
Deferred tax liability Deferred tax asset
Year ended 31 December Year ended 31 December
------------------------- -------------------------
2019 2018 2019 2018
------------ ----------- ------------ -----------
GBP'000 GBP'000 GBP'000 GBP'000
------------ ----------- ------------ -----------
Opening balance (1,796) (1,959) 241 -
------------ ----------- ------------ -----------
On acquisition of subsidiary (265) 168
------------ ----------- ------------ -----------
Foreign exchange adjustment (13) -
------------ ----------- ------------ -----------
Recognised in profit
and loss:
------------ ----------- ------------ -----------
Tax expense 472 428 146 73
------------ ----------- ------------ -----------
Closing balance (1,324) (1,796) 374 241
------------ ----------- ------------ -----------
The deferred tax liability has arisen due to the timing
difference on accelerated capital allowances amounting to GBP37,000
(2018: GBP51,000) and on the intangible assets acquired in a
business combination amounting to GBP1,057,000 (2018:
GBP1,057,000).
In the Finance Act 2016 the UK government announced its
intention to reduce the standard corporation tax rate to 17% by
2020. The measure to reduce the rate to 17% for the financial year
beginning 1 April 2020 was substantively enacted on 6 September
2016 and has, where applicable, been reflected in the financial
statements.
Deferred tax asset has arisen from loss carry forward for LMS
amounting to GBP1,497,000 (2018: GBP964,000) and recognised at a
rate of 25%.
19. Dividends
Year to December 2019 Paid Amount per Total
share GBP'000
11 July
Final dividend - 2018 19 2.9p 2,226
----------- ----------- ---------
Interim dividend - 2019 12 Nov 19 1.5p 1,151
----------- ----------- ---------
3,377
------------------------------------- ----------- ---------
Year to December 2018 Paid Amount per Total
share GBP'000
----------- ----------- ---------
Final dividend - 2017 10 Jul 18 2.6p 1,995
----------- ----------- ---------
Interim dividend - 2018 13 Nov 18 1.5p 1,150
----------- ----------- ---------
3,145
------------------------------------- ----------- ---------
20. Called up share capital
No of shares
'000 GBP'000
------- --------
Allotted and issued
------- --------
Ordinary shares of GBP0.25 each:
------- --------
At 1 January 2018 and 2019 76,749 19,187
------- --------
At 31 December 2018 and 2019 76,749 19,187
------- --------
All ordinary shares carry equal rights.
21. Reserves
Share premium
The share premium reserve contains the premium arising on the
issue of equity shares, net of issue expenses incurred by the
Company.
Retained earnings
Retained earnings represent cumulative profits or losses, net of
dividends and other adjustments.
Merger reserve
The merger reserve arose due to the group reconstruction in
2016. The effect of the application of merger accounting principles
on the merger reserve is that the share capital and other
distributable reserves that existed in Warpaint Cosmetics Group
Limited (the Company) as at the point Warpaint London PLC legally
acquired Warpaint Cosmetics Group Limited is accounted for as if it
had been in existence as at 31 December 2015 and as at the 1
January 2015. The corresponding entry being the merger reserve so
the overall net assets as at the comparative dates are not
affected.
The 2016 movement on the merger reserve arose due to the
acquisition of Treasured Scent (2014) Limited on 11 November 2016.
The shareholders of Treasured Scent (2014) Limited transferred
their shares to Warpaint London PLC in exchange for shares in
Warpaint London PLC, the difference in fair value of the
consideration was GBP2,005,233. This is adjusted through the merger
reserve as it is considered part of the consideration paid by
Warpaint London PLC to acquire Treasured Scents (2014) Limited.
The 2017 movement in merger reserve represents the difference
between the issue price and the nominal value of shares issued as
consideration for the acquisition of subsidiary undertaking.
Share option reserves
'Share option reserves' have arisen from the share-based payment
charge. The shares over which the options were issued are that of
the parent company. 'Other reserves' have also arisen on
translation of foreign subsidiaries.
22. Share based payments
Movements in the number of options and their weighted average
exercise prices are as follows:
Weighted Number Weighted Number of
average exercise of options average exercise options
price (pence) price (pence)
2019 2019 2018 2018
------------------ ------------ ------------------ ----------
Outstanding at the beginning
of the year 253.52 4,070,617 237.50 255,892
------------------ ------------ ------------------ ----------
Granted during the year - - 254.50 3,837,462
------------------ ------------ ------------------ ----------
Expired during the year 237.50 (3,368) 237.50 (22,737)
------------------ ------------ ------------------ ----------
Period adjustments 237.50 21,053
------------------ ------------ ------------------ ----------
Outstanding at the end
of the year 253.45 4,088,302 253.53 4,070,617
------------------ ------------ ------------------ ----------
The weighted average remaining contractual life of the options
is 4.0 years (2018: 5.0 years).
The following options over ordinary shares have been granted by
the Company:
Exercise Exercise Number
price period of options
Pence (years)
--------- --------- ------------
29 June 2017 237.50 3 255,051
--------- --------- ------------
24 September 2018 254.50 5 3,837,462
--------- --------- ------------
At the date of grant, the options were valued using the
Black-Scholes option pricing model. The fair value per options
granted and the assumptions used in the calculations were as
follows:
24 Sept 18 29 June
17
Expected volatility 78% 64%
----------- --------
Expected life (years) 2-4 3
----------- --------
Risk-free interest rate 1.61% 0.38%
----------- --------
Expected dividend yield 1.53% 2%
----------- --------
Fair value per option (GBP) 0.422 0.963
----------- --------
On 21 September 2018, share options with an exercise price of
254.50p, equal to the closing mid-market value immediately prior to
the date of grant, and subject to the achievement of demanding
Earnings Per Share ("EPS") and Total Shareholder Return ("TSR")
performance conditions measured over a period of up to 5 years were
granted to certain directors.
The share options are exercisable up to 10 years from the date
of grant. Vesting is subject to the performance conditions set out
below:
-- 50% of the award is subject to an adjusted EPS growth
performance condition. One third of this portion of the award will
be tested and vest after three, four and five years. Vesting is
based on adjusted EPS in the years ending Dec 2020, 2021 and 2022.
Threshold vesting of 20% of the award is achieved at 12.5% compound
annual EPS growth and full vesting at 22.5% compound annual EPS
growth, measured from 31 December 2017.
-- 50% of the award is subject to an absolute TSR performance
condition tested following the announcement of results for the
years ending 31 December 2020, 2021 and 2022. Threshold vesting of
20% of the award is achieved at 8% compound annual TSR and straight
line vesting up to 100% vesting at 18% compound annual TSR,
measured from 31 December 2017.
An additional grant of 460,494 share options with the same terms
was made on the same date to three senior management individuals of
the Company.
On 29 June 2017, the Company granted in aggregate over 277,788
ordinary shares of 25 pence each in the Company under the
Enterprise Management Incentive Scheme to all staff members,
including the Company's Chief Financial Officer, Neil Rodol, but
excluding all other directors. The Options are exercisable for a
period of seven years from 29 June 2020, subject to certain
performance conditions being met, including that the compound
annual growth rate in the Company's earnings per share must exceed
8 per cent over the three financial years commencing 1 January
2017, subject to the discretion of the Company's remuneration
committee.
The charge in the statement of comprehensive income for the
share-based payments during the year was GBP835,000 (2018:
GBP116,000).
23. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation. Related
party transactions are considered to be conducted at arm's
length.
Key management personnel are considered to be the directors.
Compensation of the directors is disclosed in note 4 with the
exception of dividends and drawings which are disclosed in note
19.
During 2019, Warpaint Cosmetics (2014) Limited paid rent in the
sum of GBP120,000 (2018: GBP120,000) to Direct Supplies (2014)
Group Limited, of which S Bazini is a director. At the year end the
amount due to Direct Supplies (2014) Group Limited was GBPNil
(2018: GBPNil).
During 2019, Warpaint Cosmetics (2014) Limited paid rent in the
sum of GBP120,000 (2018: GBP120,000) to Trading Scents Group
Limited, of which E Macleod is a director. At the year end the
amount due to Trading Scents Group Limited was GBPNil (2018:
GBP39,518).
During 2019, Retra Holdings Limited paid rent in the sum of
GBP340,000 (2018: GBP197,083) to Warpaint Cosmetics Limited, of
which E Macleod and S Bazini are directors.
During the year, the Company advanced GBPNil (2018: GBPNil) to S
Bazini, a director of the Company. During the year, the director
repaid GBP100 (2018: GBP100). At the year end the Company owed the
sums of GBPNil (2018: GBP100) to S Bazini.
During the year, the Company advanced GBPNil (2018: GBPNil) to E
Macleod, a director of the Company. During the year, the director
repaid GBP100 (2018: GBP100). At the year end the Company owed the
sums of GBPNil (2018: GBP100) to E MacLeod.
24. Financial instruments
Capital risk management
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's
competitiveness and flexibility. The Group reports in Sterling. All
funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors.
The Group manages its capital to ensure its ability to continue
as a going concern and to maintain an optimal capital structure to
reduce cost of capital. The capital structure of the Group
comprises equity attributable to equity holders of the Company
consisting of invested capital as disclosed in the Statement of
Changes in Equity and cash and cash equivalents.
The Group's invested capital is made up of share capital and
retained earnings totalling GBP35,541,000 as at 31 December 2019
(2018: GBP37,550,000) as shown in the statement of changes in
equity.
The Group maintains or adjusts its capital structure through the
payment of dividends to shareholders and issue of new shares.
Year ended 31 December
2019 2018
----------------------- -----------------
GBP'000 GBP'000
----------------------- -----------------
Financial assets
----------------------- -----------------
Financial assets at amortised cost including
cash and cash equivalents:
----------------------- -----------------
Cash and cash equivalents 2,731 4,041
----------------------- -----------------
Trade and other receivables 11,503 11,287
----------------------- -----------------
14,234 15,328
----------------------- -----------------
Financial liabilities
----------------------- -----------------
Financial liabilities at amortised cost:
----------------------- -----------------
Trade and other payables (3,387) (3,013)
----------------------- -----------------
Bank loan (6,069) (2,722)
----------------------- -----------------
(9,456) (5,735)
----------------------- -----------------
Net 4,778 9,593
----------------------- -----------------
Financial assets measured at fair value through the income
statement comprise cash and cash equivalents.
Financial assets measured at amortised cost comprise trade
receivables and other receivables.
Financial liabilities measured at amortised cost comprise trade
payables and other payables, and bank loans.
Cash and cash equivalents
This comprises cash and short-term deposits held by the Group.
The carrying amount of these assets approximates their fair
value.
General risk management principles
The Group's activities expose it to a variety of risks including
market risk (interest rate risk), credit risk and liquidity risk.
The Group manages these risks through an effective risk management
programme and through this programme, the Board seeks to minimise
potential adverse effects on the Group's financial performance. The
Directors have an overall responsibility for the establishment of
the Group's risk management framework. A formal risk assessment and
management framework for assessing, monitoring and managing the
strategic, operational and financial risks of the Group is in place
to ensure appropriate risk management of its operations.
The following represent the key financial risks that the Group
faces:
Market risk
The Group's activities expose it to the financial risk of
interest rates.
Interest rate risk
The Group's interest rate exposure arises mainly from its
interest-bearing borrowings. Contractual agreements entered into a
floating rate expose the entity to cash flow risk. Interest rate
risk also arises on
the Group's cash and cash equivalents. The Group does not enter
into derivative transactions in order to hedge against its exposure
to interest rate fluctuations. An increase in the rate of interest
by 100 basis points would decrease profits by GBP21,000 (2018:
GBP18,000) with an increase in profits by the same amount for a
decrease in the rate of interest by 100 basis points.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or a counterparty to a financial instrument fails to meet
its contractual obligations.
The Group's principal financial assets are trade and other
receivables and bank balances and cash. The credit risk on liquid
funds is limited because the counterparties are banks with high
credit-ratings assigned by international credit-rating
agencies.
The Group's credit risk is primarily attributable to trade
receivables. The Group has a policy of assessing credit worthiness
of potential and existing customers before entering into
transactions. There is ongoing credit evaluation on the financial
condition of accounts receivable using independent ratings where
available or by assessment of the customer's credit quality based
on its financial position, past experience and other factors. The
Group manages the collection of its receivables through its ongoing
contact with customers so as to ensure that any potential issues
that could result in non-payment of the amounts due are addressed
as soon as identified. The Group makes a provision in the financial
statements for expected credit losses based on an evaluation of
historical data and applies percentages based on the ageing of
trade receivables.
The maximum exposure to credit risk in respect of the above is
the carrying value of financial assets recorded in the financial
statements. At 31 December 2019, the Group has trade receivables of
GBP10,266,000 (2018: GBP10,802,000 as restated).
The following table provides an analysis of trade receivables
that were due, but not impaired, at each financial year end. The
Group believes that the balances are ultimately recoverable based
on a review of past impairment history and the current financial
status of customers.
As at 31 December
2019 2018
(as restated)
-------- ----------------
GBP'000 GBP'000
-------- ----------------
Current 7,416 3,983
-------- ----------------
1 - 30 days 1,981 3,014
-------- ----------------
31 - 60 days 456 2,597
-------- ----------------
61 - 90 days 155 924
-------- ----------------
91 + days 302 398
-------- ----------------
Provision for impairment of trade receivables (44) (114)
-------- ----------------
Total trade receivables - net 10,266 10,802
-------- ----------------
The Directors are unaware of any factors affecting the
recoverability of outstanding balances at 31 December 2019 and,
consequently, no further provisions have been made for bad and
doubtful debts.
The allowance for bad debts has been calculated using a 12-month
lifetime expected credit loss model, as set out below, in
accordance with IFRS 9.
As at 31 December As at 31 December
2019 2018
-------------------------- --------------------------
GBP'000 % GBP'000 GBP'000 % GBP'000
-------- ------ -------- -------- ------ --------
Current 7,416 0.096 7 4,206 0.122 5
-------- ------ -------- -------- ------ --------
1 - 30 days 1,981 0.288 6 3,014 0.366 11
-------- ------ -------- -------- ------ --------
31 - 60 days 456 0.864 4 2,597 1.098 29
-------- ------ -------- -------- ------ --------
61 - 90 days 155 2.592 4 924 3.294 30
-------- ------ -------- -------- ------ --------
91 + days 302 7.776 23 398 9.882 39
-------- ------ -------- -------- ------ --------
44 114
-------- ------ -------- -------- ------ --------
Credit quality of financial assets
As at 31 December
2019 2018
--------- ---------
Trade receivables, gross (note 14): GBP'000 GBP'000
--------- ---------
Receivable from large companies 6,561 3,617
--------- ---------
Receivable from small or medium-sized companies 855 589
--------- ---------
Total neither past due nor impaired 7,416 4,206
--------- ---------
As at 31 December
2019 2018
(as restated)
-------- ---------------
Past due but not impaired: GBP'000 GBP'000
-------- ---------------
Less than 30 days overdue 1,981 2,791
-------- ---------------
30 - 90 days overdue 869 3,805
-------- ---------------
Total past due but not impaired 2,850 6,596
-------- ---------------
Lifetime expected loss provision:
Less than 30 days overdue 13 16
------- -------
30 - 90 days overdue 31 98
------- -------
Total lifetime expected loss provision (gross) 44 114
------- -------
Less: Impairment provision (44) (114)
------- -------
Total trade receivables, net of provision
for impairment 10,266 10,802
------- -------
Cash and cash equivalents, neither past due nor impaired
(Moody's ratings of respective counterparties):
As at 31 December
2019 2018
--------- ---------
GBP'000 GBP'000
--------- ---------
A rated - 434
--------- ---------
AA rated 786 1,086
--------- ---------
AAA rated 7 -
--------- ---------
BAA rated 1,938 2,521
--------- ---------
Total cash and cash equivalents 2,731 4,041
--------- ---------
For the purpose of the groups monitoring of credit quality,
large companies or groups are those that, based on information
available to management at the point of initially contracting with
the entity, have annual turnover in excess of GBP100,000 (2018:
GBP100,000).
Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. To achieve
this aim, it closely monitors its access to bank and other credit
facilities in comparison to its outstanding commitments on a
regular basis to ensure that it has sufficient funds to meet the
obligations as they fall due.
The Board receives regular forecasts which estimate cash flows
over the next eighteen months, so that management can ensure that
sufficient funding is in place as it is required.
The tables below summarise the maturity profile of the combined
group's non-derivative financial liabilities at each financial year
end based on contractual undiscounted payments, including estimated
interest payments where applicable:
Year ended 31 December 2019
Less than Between 6 Between Over 5 Total
6 months months and 1 and 5 years
1 year years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ------------ --------- -------- --------
Trade payables 957 - - - 957
---------- ------------ --------- -------- --------
Other payables 58 - - - 58
---------- ------------ --------- -------- --------
Accruals 2,372 - - - 2,372
---------- ------------ --------- -------- --------
Loans and borrowings 1,667 477 2,755 1,271 6,170
---------- ------------ --------- -------- --------
5,054 477 2,755 1,271 9,557
---------- ------------ --------- -------- --------
Year ended 31 December 2018
Less than Between Between Total
6 months 6 months 1 and 5
and 1 year years
GBP'000 GBP'000 GBP'000 GBP'000
---------- ------------ --------- --------
Trade payables 1,435 - - 1,435
---------- ------------ --------- --------
Other payables 847 - - 847
---------- ------------ --------- --------
Accruals 731 - - 731
---------- ------------ --------- --------
Loans and borrowings 1,910 259 553 2,722
---------- ------------ --------- --------
4,973 259 553 5,735
---------- ------------ --------- --------
The borrowings of the group are secured by a debenture including
a fixed charge over all present freehold and leasehold property, a
first fixed charge over book and other debts and a first floating
charge over all assets.
Foreign exchange risk
The Group operates in a number of markets across the world and
is exposed to foreign exchange risk arising from various currency
exposure in respect of cash and cash equivalents, trade receivables
and trade payables, in particular with respect to the US dollar.
The Group mitigates its foreign exchange risk by negotiating
contracts with key suppliers that offer a flexible discount
structure to offset any adverse foreign exchange movements and
through the use of forward currency contracts. At December 2019,
there were total sums of GBP254,701 (2018: GBP72,345) held in
foreign currency.
The Group is also exposed to currency risk as the assets of its
subsidiary are denominated in US Dollars. At 31 December 2019 the
net foreign liability were GBP0.3m (2018: net foreign asset were
GBP0.3m). Differences that arise from the translation of these
assets from US dollar to sterling are recognised in other
comprehensive income in the year and the cumulative effect as a
separate component in equity. The Group does not hedge this
translation exposure to its equity.
A 5% weakening of sterling would result in a GBP4,000 increase
in reported profits and equity, while a 5% strengthening of
sterling would result in GBP3,000 decrease in profits and
equity.
2019 2018
GBP'000 GBP'000
-------- --------
Derivatives carried at fair value:
-------- --------
Exchange gain on forward foreign currency contracts 39 -
-------- --------
The Group, along with other businesses, will face the risk of
inflationary pressures through commodities cost increases, further
driven by currency weakness post Brexit.
Forward contracts and options
The Group enters into forward foreign exchange contracts and
options to manage the risk associated with anticipated sale and
purchase transactions which are denominated in foreign
currencies.
As at 31 December 2019, the group has 33 (2018: 4) forward
foreign exchange contracts outstanding. Derivative financial
instruments are carried at fair value.
The following table details the foreign currency contracts
outstanding as at the balance sheet date.
a) Contracted exchange rate 2019 2018 2019 2018
GBP/$ GBP/EUR
-------------- ----------------
3 months or less 1.2953 - 1.1394 1.1293
------- ----- ------- -------
3 to 6 months 1.3280 - 1.1405 1.1275
------- ----- ------- -------
b) Contract value 2019 2018 2019 2018
GBP/$ GBP/EUR
------------------ ------------------
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
3 months or less 4,723 - 904 779
-------- -------- -------- --------
3 to 6 months 6,408 - 2,899 195
-------- -------- -------- --------
11,131 - 3,803 974
-------- -------- -------- --------
c) Foreign currency 2019 2018 2019 2018
$'000 $'000 EUR'000 EUR'000
------- ------ -------- --------
3 months or less 6,175 - 1,030 880
------- ------ -------- --------
3 to 6 months 8,500 - 3,335 220
------- ------ -------- --------
14,675 - 4,365 1,100
------- ------ -------- --------
Fair value of financial assets and liabilities
Financial instruments are measured in accordance with the
accounting policy set out in Note 1. All financial instruments
carrying value approximates its fair value with the exception of
foreign currency forward contracts and options which are considered
Level 2. The Directors consider that there is no significant
difference between the book value and fair value of the Group's
financial assets and liabilities and is considered to be
immaterial.
25. Pension costs
The Group operates a defined contribution pension scheme.
Contributions payable to the company's pension scheme are charged
to the statement of comprehensive income in the period to which
they relate. The amount charged to profit in each period was
GBP80,210 (2018: GBP68,000).
26. Operating lease commitments - Group company as lessee
The group leases offices and warehouses under non-cancellable
operating lease agreements. The lease terms are between 5 and 10
years and are renewable at the end of the lease period at market
rate.
The future aggregate minimum lease payments under
non-cancellable operating leases are as follows:
Land and buildings 2018
GBP'000
--------
Not later than 1 year 700
--------
Later than 1 year and not later than 5 years 2,800
--------
Later than 5 years 2,345
--------
Total 5,845
--------
27. Controlling party
In the opinion of the directors there is no ultimate controlling
party.
28. Earnings per share
Basic earnings per share are calculated by dividing profit or
loss attributable to ordinary equity holders by the weighted
average number of ordinary shares in issue during the period.
The weighted average number of shares for the current year
includes the shares issued as consideration for the acquisition of
Retra Holdings Limited on 30 November 2017.
2019 2018
Basic earnings per share (pence) 1.78 4.66
-------- --------
Diluted earnings per share (pence) 1.78 4.66
-------- --------
The calculation of basic and diluted earnings
per share is based on the following data:
-------- --------
2019 2018
-------- --------
Earnings GBP'000 GBP'000
-------- --------
Earnings for the purpose of basic earnings per
share, being the net profit 1,368 3,575
-------- --------
Number of shares 2019 2018
Weighted number of ordinary shares for the purpose
of basic earnings per share 76,749,125 76,749,125
----------- -----------
Potentially dilutive shares awarded - -
----------- -----------
Weighted number of ordinary shares for the purpose
of diluted earnings per share 76,749,125 76,749,125
----------- -----------
The 4,088,302 share options (2018: 4,092,513) in issue during
the year has not been included in the computation of diluted
earnings per share, as per IAS 33, the share options are not
dilutive as they are not likely to be exercised given that the
exercise price is higher than the average market price.
29. Notes supporting statement of cash flows
The non-cash transactions arising on the acquisition of LMS
during the year ended 31 December 2018 are as follows:
2018
Total
GBP'000
--------
Property, plant and equipment 8
--------
Stock 1,307
--------
Trade and other receivables 417
--------
Deferred tax 168
--------
Cash and cash equivalents 272
--------
Trade and other payables (1,704)
--------
Corporation tax -
--------
Loans -
--------
468
------------------------------- --------
Non-cash transactions from financing activities are shown in the
table below.
Non-current Current
loans and loans and
borrowings borrowings Total
GBP'000 GBP'000 GBP'000
------------ ------------ --------
At 1 January 2018 814 582 1,396
------------ ------------ --------
Non-cash flows:
------------ ------------ --------
Amounts recognised on business combinations (261) 261 -
------------ ------------ --------
Cash flows - 1,326 1,326
------------ ------------ --------
At 31 December 2018 553 2,169 2,722
------------ ------------ --------
Non-cash flows:
------------ ------------ --------
Amount recognised in respect of lease
liabilities on adoption of IFRS 16. 4,271 688 4,959
------------ ------------ --------
Cash flows - (1,612) (1,612)
------------ ------------ --------
Reclassification from Non -current
loans and borrowings to current loans
and borrowings (960) 960 -
------------ ------------ --------
At 31 December 2019 3,864 2,205 6,069
------------ ------------ --------
30. Post balance sheet events
The uncertainty as to the future impact on the Group of the
recent COVID-19 outbreak has been separately considered as part of
the directors' consideration of the going concern basis of
preparation. Thus far, the Group has experienced a material impact
in trading performance due to COVID-19, with many but not all
customers closed throughout the UK and overseas.
Whilst it is difficult to predict the overall outcome and impact
of COVID-19, the directors have performed an initial assessment of
the impact on the carrying value of intangible assets,
recoverability of trade receivables and inventory. Although there
is likely to be a reduced level of trading activity in the future,
the amortisation which will be charged on the intangible assets is
anticipated to be sufficient to reduce the carrying value to a
level whereby further impairment is not required. For trade
receivables, although certain customers are experiencing cash flow
pressure, at this stage we do not expect any material bad debt
charges. In relation to inventory, the Directors are confident that
although sales orders have been delayed, delivery of stock to
customers will still occur at some point and no additional
provisions are anticipated due to the long shelf life of our
products and that they sell all year round. Should any adjustments
arise due to the impact of COVID-19, they will be non-adjusting
post balance sheet events.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAASAFFXEEAA
(END) Dow Jones Newswires
May 13, 2020 02:00 ET (06:00 GMT)
Warpaint London (LSE:W7L)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Warpaint London (LSE:W7L)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
