TIDMW7L
RNS Number : 7908Z
Warpaint London PLC
23 September 2020
23 September 2020
Warpaint London PLC
("Warpaint", the "Company" or the "Group")
Interim Results for the six months ended 30 June 2020
Warpaint London plc (AIM: W7L), the specialist supplier of
colour cosmetics and owner of the W7 and Technic brands is pleased
to announce its unaudited interim results for the six months ended
30 June 2020.
Financial Highlights
-- Sales reduced 29% to GBP13.5 million in H1 2020 (H1 2019:
GBP18.9 million) as a result of the Covid-19 restrictions in the UK
and internationally
Ø UK revenue decreased by 12% to GBP6.8 million (H1 2019: GBP7.7
million)
Ø International revenue decreased by 40% to GBP6.7 million (H1
2019: GBP11.2 million)
-- Gross profit margin increased to 35.1% (H1 2019: 34.9%)
-- Adjusted profit from operations of GBP0.4* million (H1 2019:
GBP1.3* million). The majority of this movement can be attributed
to:
Ø Overall reduction in gross profit of GBP1.9 million due to
lost sales from the Covid-19 pandemic;
Ø Reduction in overheads of GBP0.2 million; and
Ø FX gain of GBP0.6 million (H1 2019: FX loss GBP0.1
million)
-- Cash generated from operating activities of GBP2.3 million (H1 2019: GBP1.3 million)
-- Cash of GBP3.8 million at 30 June 2020 (30 June 2019: GBP3.7 million)
-- The board is declaring an interim dividend of 2.8p per share,
maintaining the prior year interim dividend of 1.5p per share,
together with a one off additional 1.3p per share, to reflect that
no final dividend was declared for 2019. This dividend is being
declared against a background of good cash control and continued
cash generation, along with the robust response of the business
through the Covid-19 pandemic
* Adjusted for GBP0.2 million of exceptional costs (2019: Nil),
GBP1.2 million of amortisation of intangible assets (2019: GBP1.2
million), and share based payments of GBP0.3 million (2019: GBP0.1
million). Adjusted numbers are close to the underlying cash flow
performance of the business which is regularly monitored and
measured by management.
Operational Highlights
-- A core range of 100+ W7 products was initially displayed in
56 Tesco Extra stores across the UK and this has now increased to
190 products. Additionally, an impulse range has been developed and
is now on display in 41 Tesco Express stores, taking the total
number of Tesco stores selling our product to [97]. Sales in Tesco
stores have exceeded the directors' expectations
-- Approximately 100 exclusive Body Collection branded products,
designed in partnership with wilko, are now stocked in 355 wilko
stores and over 115 different Technic branded products are stocked
in 189 wilko stores. The Group's products are displayed on bespoke
display stands in prime in-store locations and are also sold by
wilko.com. In addition, a range of Technic and Body Collection gift
sets will be stocked in wilko stores from October 2020 for the
Christmas shopping period
-- Despite Covid-19, Retra has a significant Christmas order
book underpinning H2 outlook. Retra's order book was GBP8.4 million
at 30 June 2020 (30 June 2019: GBP10.1 million)
-- Action taken in the US at LMS to reduce cost base, improve
margin and provide a full range of Group products and brands
-- The Group's expansion strategy continues with active
discussions being held with additional major retailers in the UK
and overseas
-- Online strategy accelerated in the UK and the US in response to the Covid-19 pandemic
-- The Group reacted swiftly to the Covid-19 crisis, quickly
formulating a plan of action, and then executing it
successfully
Post-Period End Highlights and Outlook
-- Sales for H2 2020 have recovered well after the Covid-19
lockdown and are steadily approaching the Company's monthly budget
levels set for 2020 prior to the Covid-19 pandemic
-- For the eight months to 31 August 2020 the Company had
unaudited sales of GBP22.8 million and adjusted profit from
operations** of GBP0.7 million
-- In response to the pandemic, at each board meeting various
scenarios have been modelled based on sales for the full year being
down against our internal budget for 2020. Each of these scenarios
forecasts a positive EBITDA for the year
-- The board's current expectation is that sales for the year
ending 31 December 2020 will be approximately GBP37 million, which
should generate adjusted profit from operations** in excess of
GBP2.0 million, on the assumption that there is no material decline
in trading conditions as a result of additional Covid-19 related
lockdown measures nor any adverse exchange rate movements
** Adjusted for exceptional costs, amortisation of intangible
assets, and share based payments. Adjusted numbers are close to the
underlying cash flow performance of the business which is regularly
monitored and measured by management.
Commenting, Sam Bazini Chief Executive, said: "The first half of
2020 has been a difficult period for everyone, but we believe that
with the actions taken along with 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 the business was trading well, with
higher sales, stronger margins, reduced overheads and higher net
profit than budgeted, demonstrating that our business model is
strong and that our brands are resonating with customers and
consumers. In the short term, Covid-19 has had an impact on our
financial performance, resulting in lower than budgeted sales and
profits. However, as we start the second half of 2020, sales are
beginning to return towards budgeted levels set prior to the
Covid-19 pandemic and we are well positioned to take advantage of
improving 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 and going forward remains on the delivery of
our strategic plan which, the board has reviewed and considered in
light of Covid-19 and believe remains appropriate and correct.
"With our strong balance sheet (including net cash of GBP3.8
million) and a positive cashflow outlook for H2 2020, prospects
remain encouraging notwithstanding the effects of the Covid-19
pandemic. We have seen a strong sales recovery in the UK since the
easing of the Covid-19 lockdowns, with recent sales approaching the
Company's budget set at the beginning of the year. This has been
helped by the growing exposure and sales from our W7 brand launch
into Tesco in 2020, and the recent launch in September into wilko
of Technic and Body Collection."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Enquiries:
Warpaint London c/o IFC
Sam Bazini - Chief Executive Officer
Eoin Macleod - Managing Director
Neil Rodol - Chief Financial Officer
N+1 Singer (Nominated Adviser & Joint
Broker)
Shaun Dobson, Alex Bond - Corporate Finance
Tom Salvesen - Corporate Broking 020 7496 3000
Shore Capital (Joint Broker)
Patrick Castle, Daniel Bush - Corporate
Advisory
Fiona Conroy - Corporate Broking 020 7408 4090
IFC Advisory (Financial PR & IR)
Tim Metcalfe
Graham Herring
Florence Chandler 020 3934 6630
Warpaint London plc
Warpaint is made up of two divisions.
The largest division sells branded 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.
Chief Executive's Review
In the first half of 2020 sales of our branded colour cosmetics
accounted for 82% of revenue (H1 2019: 82%). The sale of colour
cosmetics by the Group under its own brands remains its primary
strategic focus, with significant sales of Christmas gifting
expected to be delivered in the second half of the year. As in
2019, we expect overall Group earnings to be weighted to the second
half of this financial year, and even more so this year as the
business recovers strongly from the Covid-19 lockdowns.
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
at the start of this year, for both our W7 and Technic own
brands.
W7
The Group's lead brand remains W7, with sales in H1 2020
accounting for 50% of total revenue (H1 2019: 55%). In the UK, W7
revenues were down 18% in H1 2020 compared to H1 2019. This was due
to the tough trading conditions on the UK high street, driven
primarily by the Covid-19 pandemic, with certain retailers
struggling to survive in their present form, particularly given the
lockdown in Q2 2020. We have implemented a strategy in the UK which
we believe will increase sales of the W7 brand in the medium term
and are seeing the fruits of this strategy with the recent
successful launch of the W7 brand into Tesco.
Internationally W7 sales were down in all reported regions due
to the strict lockdowns imposed because of the Covid-19 pandemic.
In Europe sales fell by 43% compared to H1 2019, in the US sales
fell by 61% compared to H1 2019, and in the rest of the world sales
fell by 36% compared to H1 2019.
However, we have seen a strong recovery for W7 in the UK, Europe
and the rest of the world since the easing of Covid-19 lockdowns,
with sales in recent months in line with the board's budget for the
year, set prior to the Covid-19 pandemic. In the US, some of our
customers remain closed or partially open from state to state, and
some are in distress. As a consequence we have accelerated our
online sales strategy for the US via Amazon FBA (Fulfilment by
Amazon).
Technic
Since the acquisition of Retra Holdings Limited ("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 H1 2020 were 30% of total Group revenue (H1
2019: 25%). In H1 2020, UK revenues of Technic were down 30% for
similar reasons to those experienced across other Group brands.
Implementing our strategy in the UK to grow sales in the medium
term has led to the successful launch in September of a range of
Technic and Body Collection branded products in wilko, with
Christmas gifting to be delivered to wilko in October 2020.
In Europe sales fell by 17% compared to H1 2019 and in the rest
of the world sales also fell by 17% compared to H1 2019. As with
W7, sales fell in these regions due to the strict lockdowns In the
US, sales increased by 46% compared to H1 2019, albeit the sales
were small in the context of the Group as a whole.
The Retra business also produces and sells own brand white label
cosmetics for several major high street retailers, with such sales
being 2% of Group revenue (H1 2019: 2%).
As with W7 we have seen a strong sales recovery for Technic in
the UK, Europe and the rest of the world since the easing of the
Covid-19 lockdowns, with recent sales in line with the board's
budget set at the beginning of 2020.
Close-out
The close-out division in the first half of 2020 represented 18%
of the overall revenue of the Group (H1 2019: 18%). Whilst not a
core focus, this side of the business provides a significant and
profitable 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 Group's
activity. For a brand like W7, it is essential to provide new
products that are on trend, fast to market and meets the consumer's
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,
something our customers demand and expect from us. For example, the
Group launched in the first half of this year its W7 skincare range
which has been extremely well received, with many positive online
reviews.
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.
This process is supported by 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.
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.
More recently we have listed our brands in the UK and the US on
Amazon FBA which has helped accelerate our online sales. To date
this has been a soft launch with little marketing spend applied.
The strategy is to gradually increase the marketing spend in order
to generate further sales momentum. In H1 2020 online sales were
GBP0.15 million (H1 2019: GBP0.08 million).
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.
Since the acquisition the focus has been more on own brands and
leveraging the marketing and other synergies contributed at a Group
level. The US is the largest colour cosmetics market in the world
and developing sales there is a strategic goal for the growth of
our brands. As reported in our Annual Report for 2019, we
implemented a number of measures to improve margins in the US
business, including changing our third party warehousing
arrangements to reduce costs and by restructuring the staff levels
in the US, saving US$0.4 million in 2020. Nevertheless, despite
these actions, the impact of the Covid-19 lockdown on the US
business has been significant, and therefore we are re-evaluating
our strategy for the US and stepping up our online presence.
Marketing and PR
In 2019 we launched several 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 and in
the US earlier this year. Social media engagement continues to grow
across all platforms and we have also invested in a new peer to
peer review system and a loyalty programme.
The Covid-19 Pandemic
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. When the UK went
into lockdown, China had already started to return to normal
operating levels and we have experienced no impact to our inventory
levels in H1 2020, thereby maintaining full availability of our
product.
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 had 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 apart from the US, with
performance returning to our pre-Covid-19 expectations.
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. At the start of the
pandemic we reduced discretionary spend, those staff not working
because of the decrease in business activity were furloughed and
with the approval from our landlords we deferred rental payments.
Those staff still working to maintain operations did so wherever
possible from home, and for those staff working in our offices and
warehouses social distancing practices were put in place to ensure
their safety. More recently, as sales and orders have returned to
expected levels discretionary spend (apart from PR, exhibitions and
travel) has returned to budgeted levels, nearly all staff have
returned to work full time and rental payments have recommenced. In
addition, all taxation in the Group is paid and up to date (PAYE,
VAT and Corporation Tax). The Group has utilised no government
Covid-19 related support other than the UK Government's furlough
scheme, which was used for a short period of time and where
effected staff continued to be paid in full, and a small amount of
temporary support in the US covering three employees.
Strategy
In early 2018, the board adopted a three-year strategic plan for
the business. This is measured, monitored and reviewed annually and
updated 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 six key pillars:
1. Develop and build the Group's brands and provide new product
development that meets changing trend and consumer needs
2. Develop and nurture the current core business
3. Grow market share in the UK
4. Grow market share in the US and China
5. Develop the online/e-commerce strategy for brand development and sales
6. Develop the appropriate organisational structure, people
strategy and organisational efficiency
A more detailed breakout of the strategic plan is available in
the Company's Annual Report for the year ended 31 December 2019:
https://www.warpaintlondonplc.com/investors/reports-and-results
.
Brands
In the first half of 2020 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, for
the Retra sales team to acquire listings for the Technic brands in
accounts, particularly overseas, where the W7 brands were already
listed. This has helped the Technic brands in H1 2020 to gain a
larger proportion of Group brand sales compared to H1 2019,
although the fall in sales due to Covid-19 for W7 in the US, where
Technic has little sales activity has exaggerated the comparative
percentage change.
Brand percentage share excluding sales of close-out and own brand white label
H1 2020 H1 2019
% %
-------- --------
W7 brands 63% 68% Including sales of W7 and Very Vegan
Technic brands 37% 32% Including sales of Technic, Body Collection and Man'stuff
---------------- -------- --------
100% 100%
---------------- -------- --------
Products
The largest selling product categories across all the Group
sales are eye products, face make-up, nail products and lip
products, which together represented approximately 84% of revenue
in H1 2020 (H1 2019: 83%).
In the six months to 30 June 2020 the split of product sales is
shown below:
Eyes 33%
Face 25%
Nails 17%
Lip 9%
Gift 4%
Skin Care 4%
Brushes 3%
Others 2%
Accessories
& Sets 2%
Men 1%
Customers & Geographies
The largest customers for sales of our Group brands are in the
UK, Australia and Europe. In H1 2020 our top ten customers
represented 50% of revenues (H1 2019: 56%). Year on year US
customers previously in the top ten have dropped out because of the
Covid-19 lockdowns, this has exaggerated the percentage change.
Group sales are now made in 46 countries (H1 2019: 51
countries).
US
Since the lockdowns started in March 2020, Covid-19 has impacted
our business most of all in the US. Sales in US dollars in H1 2020
are down 62% to US$1.1 million (H1 2019: US$2.8 million). There is
some encouragement from the percentage of sales in the US being
from Group brands, which has risen to 80%, as close-out becomes
less important to our LMS business in the US. Current customers
include Macys Backstage, Marshalls, and TJ Maxx. We have recently
renegotiated the lease of our showroom in New York to a smaller
unit as part of an ongoing effort to reduce costs, this is over and
above the US$0.4 million of cost savings announced in the 2019
Annual Report.
Europe
Continental Europe has for some time been an area of excellent
growth for the Group, however the Covid-19 pandemic impacted this
region severely once country wide lockdowns started in March 2020.
Group sales overall in Europe decreased in H1 2020 by 35% compared
to the same period in 2019. However, in France sales have increased
19% in H1 2020 to GBP0.3 million, as have sales in Turkey up 97% to
GBP0.1 million, and we have seen a strong sales recovery for our
brands in Europe since the easing of the Covid-19 lockdowns. Sales
for the Groups brands into Europe are mainly to Spain, Denmark,
Sweden and Germany.
Plans have been made, as far as possible, to ensure business
continuity whatever the nature of the UK's future trading
relationship with the EU. These plans include the utilisation of
the Company's wholly owned subsidiary Warpaint Cosmetics (ROI)
Limited in the Republic of Ireland, which was formed specifically
for this purpose and to help protect against any UK/EU cross-border
disruption.
Rest of the World
Sales in the rest of the world for the Group were down by 34% to
GBP0.8 million in the period, compared to the corresponding period
last year. As with our other international regions, overall sales
were down due to the Covid-19 pandemic. However, in Australia which
is a key country in the rest of the world region sales increased
slightly by 1% in H1 2020 to GBP0.4 million, and whilst still small
there was growth in Japan and South Korea in H1 2020. Since the
easing of the Covid-19 lockdowns in the rest of the world region we
have seen a steady sales recovery for our brands, though some
countries remain closed for business.
UK
Trading conditions in the UK were challenging in H1 2020 because
of the Covid-19 related UK high street slow down and the subsequent
lockdown in Q2 2020. Group sales in the UK were down by 12% in H1
2020 compared to H1 2019. In the UK the Group performed better
through the Covid-19 crisis than in our international regions
because the imposed lockdown was not as severe and some of our UK
customers were deemed "essential", so they remained open for
business. The top ten UK Group customers accounted for 66% of UK
sales in H1 2020 (H1 2019: 73%). Those customers that remained open
through Covid-19 performed well in H1 2020, they include B&M
Retail (up 37%) and The Range (up 101%).
As of 30 June 2020, Retra had an order book for Christmas
gifting of GBP8.4 million already secured (30 June 2019: GBP10.1
million) which will be delivered during H2 2020. This will be the
primary driver of revenues being weighted to the second half of the
year, and most of it will be in the UK. The order book has been
built and signed off with customers through the Covid-19 lockdown
period with all the usual face to face work and sampling having to
be done remotely online, this is testament to our longstanding
customer relationships and our reputation. We have continued to
take further significant orders post the period end as the market
has recovered.
Summary and Outlook
The first half of 2020 has been a difficult period for everyone,
but we believe that with the actions taken along with 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 the business was trading well, with
higher sales, stronger margins, reduced overheads and higher net
profit than budgeted, demonstrating that our business model is
strong and that our brands are resonating with customers and
consumers. In the short term, Covid-19 has had an impact on our
financial performance, resulting in lower than budgeted sales and
profits. However, as we start the second half of 2020, sales have
returned towards budgeted levels set prior to the pandemic and we
are well positioned to take advantage of improving market
conditions.
We continue to monitor the impact of the 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.
With our strong balance sheet (including net cash of GBP3.8
million) and a positive cash outlook for H2 2020, prospects remain
encouraging as we emerge from the worst effects of the Covid-19
pandemic. We have seen a strong sales recovery in the UK since the
easing of the Covid-19 lockdowns, with recent sales approaching the
Company's budget set at the beginning of the year, helped by the
growing exposure and sales from our W7 brand launch into Tesco in
2020, and the recent launch in September into wilko of Technic and
Body Collection.
For the eight months to 31 August 2020 the Company had unaudited
sales of GBP22.8 million and adjusted profit from operations** of
GBP0.7 million. In response to the pandemic, at each board meeting
we have modelled various scenarios based on sales for the full year
being down against our internal budget for 2020. Each of these
scenarios forecasts a positive EBITDA for the year. The board's
current expectation is that sales for the year ending 31 December
2020 will be approximately GBP37 million, which should generate
adjusted profit from operations** in excess of GBP2.0 million, on
the assumption that there is no material decline in trading
conditions as a result of additional Covid-19 related lockdown
measures nor any adverse exchange rate movements.
Sam Bazini
Chief Executive Officer
23 September 2020
Chief Financial Officer's Review
The Group financial performance in the first half of 2020
started well with the first two months of the year trading at the
upper end of the board's expectations, however the Covid-19
pandemic had a material impact on our financial performance for the
rest of the first half, resulting in lower than budgeted sales and
profits. The actions we took as a business in response to Covid-19
in the first half, enabled us to remain focused on margin, being
net debt free, generating cash and safeguarding the business and
the jobs of our employees.
Headline results, shown below, represent the performance
comparisons between the consolidated statements of income for the
half years ended 30 June 2020 and 30 June 2019.
Revenue
Total revenue reduced by 29% from GBP18.9 million in H1 2019 to
GBP13.5 million in H1 2020. The directors believe the fall in sales
year on year is due to the Covid-19 lockdowns in the UK and
internationally.
Company branded sales were GBP10.5 million in the first half of
the year (H1 2019: GBP15.2 million). Our W7 brand had sales in the
first half of the year of GBP6.6 million (H1 2019: GBP10.3
million). Our Technic brand contributed sales of GBP3.9 million in
the first half of the year (H1 2019: GBP4.9 million).
The close-out business had sales in the first half of the year
of GBP2.4 million (H1 2019: GBP3.3 million).
Internationally, revenue reduced 40.0% from GBP11.2 million in
H1 2019, to GBP6.7 million in H1 2020. In Europe Group sales
reduced by 35.0% to GBP5.1 million (H1 2019: GBP7.8 million). In
the rest of the world Group sales fell by 34.0% to GBP0.8 million
(H1 2019: GBP1.2 million). In the US Group sales fell by 61.4% to
GBP0.8 million (H1 2019: GBP2.2 million).
Our Retra business had sales of retailer own brand white label
cosmetics of GBP0.3 million in the first half of the year (H1 2019:
GBP0.4 million). The white label business is traditionally cost
competitive and Retra chooses which projects to undertake based on
commercial viability, in particular margin.
Other income of GBP0.3 million was received from the UK
Government's furlough scheme in H1 2020.
Product Gross Margin
Gross margin was 35.1% for the half year compared to 34.9% in H1
2019. Gross margin has increased due to the geographic mix of
sales, lower manufacturing costs and improved foreign exchange
rates.
Sales in the UK decreased 12% to GBP6.8 million in the first
half of the year, whereas internationally sales decreased 40% to
GBP6.7 million in the same period. International sales are
typically made at a slightly lower margin than our domestic
sales.
We are not experiencing pressure on the cost of inventory and
are making good use of our Hong Kong buying office to ensure this
continues. Any currency pressure 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 provide a natural hedge. There was 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 in 2020. We remain focused on improving
gross margin in all our businesses.
At 31 December 2019 options were in place for the purchase of
US$15 million at US$1.3142/GBP and this has greatly helped to
protect and improve our margin through a turbulent period in the
foreign exchange markets, in which the US dollar strengthened to
US$1.16/GBP during the peak of the Covid-19 pandemic.
Operating Expenses
Total operating expenses decreased by GBP0.6 million from H1
2019 to H1 2020. Excluding amortisation of intangibles,
depreciation charges, exceptional items, share based payments,
foreign exchange movements, and finance costs operating expenses
decreased by GBP0.2 million from H1 2019 to H1 2020. This decrease
was made up of a reduction in discretionary spend on travel, PR and
marketing totalling GBP0.5 million in response to Covid-19, an
increase cost in trading online of GBP0.1 million as sales online
increased sharply in response to Coivd-19, and an increase in the
provision for bad debts of GBP0.2 million.
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
Group loss before tax for the half year to 30 June 2020 was
GBP1.5 million (H1 2019: GBP0.2 million). The material changes in
the losses between 30 June 2019 and 2020 were:
Effect on
Profit
(GBP1.9)
* Gross margin on decrease in sales in H1 2020 million
GBP0.2 million
* Decrease in operating expenses (see above heading)
GBP0.7 million
* FX gain in H1 2020 GBP0.6 million (H1 2019: FX loss
GBP0.1 million)
(GBP0.2)
* Increase in the cost of share option schemes million
(GBP0.2)
* Increase in exceptional costs million
Exceptional Items
Exceptional costs in H1 2020 included GBP0.13 million of staff
restructuring costs and GBP0.06 million of legal costs (H1 2019:
Nil).
Earnings Per Share
The statutory interim basic and diluted loss per share was 1.68p
in H1 2020 (0.22p in H1 2019).
The adjusted interim earnings per share before exceptional items
and amortisation costs was 0.16p in H1 2020 (1.37p in H1 2019).
LTIP, EMI & CSOP Share Options
On the 21 May 2020 CSOP share options were granted over a total
of 454,686 ordinary shares of 25p each in the Company under the
Warpaint London PLC Company Share Option Plan. The options provide
the right to acquire 454,686 ordinary shares at an exercise price
of 49.5p per ordinary share.
The LTIP, EMI & CSOP share options had no dilutive impact on
earnings per share in the period. The share-based payment charge of
the LTIP, EMI and CSOP share options for the half year to 30 June
2020 was GBP0.33 million (H1 2019: GBP0.13 million) and has been
taken to the share option reserve.
Cash Flow and Cash Position
Net cash flow generated from operating activities was GBP2.3
million compared to GBP1.3 million in H1 2019. The Group's cash
balance increased by GBP0.17 million to GBP3.8 million as at 30
June 2020 (30 June 2019: GBP3.7 million).
We expect capital expenditure requirements of the Group to
remain low, with a small initial uplift to fund the cost of display
units in Tesco and wilko. In H1 2020, GBP0.5 million (H1 2019:
GBP0.2 million) was spent on new computer software and equipment,
office fixtures and fittings, and sales display units for use in
store by customers.
Balance Sheet
The Group's balance sheet remains in a very healthy position.
Net assets totalled GBP38.9 million at 30 June 2020, with the
majority made up of liquid assets of inventory, trade receivables
and cash. Included in the balance sheet is GBP7.3 million of
goodwill and GBP5.9 million of intangible fixed assets arising from
acquisition accounting.
The balance sheet also includes GBP4.2 million of right-of-use
assets. GBP3.9 million is the inclusion of the Group leasehold
properties, now recognised as right-of-use assets as directed by
IFRS 16. An equivalent lease liability is included of GBP4.0
million at the balance sheet date.
Trade receivables, excluding other receivables, at 30 June 2020
were GBP5.6 million (30 June 2019: GBP7.6 million). Collection
times remain in line with the prior half year, however some
customers are still in distress because of Covid-19, therefore, to
be prudent we have increased our provision for bad and doubtful
debts to GBP0.26 million, 4.4% of gross trade receivables (30 June
2019: GBP0.03 million, 0.4%).
Inventory at 30 June 2020 were GBP18.9 million (30 June 2019:
GBP18.7 million). Year on year inventory in the US has fallen
GBP0.8 million as we have reduced close-out sales opportunities and
focused the US inventory range on our best-selling brand lines. At
the same time UK inventory has increased by GBP1.0 million. The
rise in inventory in the UK was due to several factors including
the increase in range offering across the Group, delayed deliveries
due to Covid-19, and inventory necessary for the supply to Tesco
and wilko. The provision for old and slow inventory was GBP0.5
million, 2.7% at 30 June 2020 (30 June 2019: GBP0.2 million, 0.9%).
The increase in provision is prudent given the growth in
inventory.
Borrowings and lease liabilities includes GBP1.0 million (30
June 2019: GBP1.0 million) of invoice and stock finance outstanding
of Retra, which was used to help fund the import of its gifting
business.
Working capital decreased by GBP1.7 million from 30 June 2019 to
30 June 2020. The main components were an increase in inventory of
GBP0.2 million, a decrease in trade and other receivables of GBP2.4
million, an increase in cash of GBP0.17 million, and a decrease in
trade and other payables of GBP0.3 million.
Foreign Exchange
The Group imports most of its finished goods from China paid for
in US dollars. We have a natural hedge from sales to the US which
are entirely in US dollars, in H1 2020 these sales were US$1.1
million (H1 2019: US$2.8 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. We started 2020 with options
in place for the purchase of US$15 million @ US$1.3142/GBP, and the
sale of EUR4.4 million @ EUR1.1402/GBP (1 January 2019: US$Nil, and
EUR1.1 million @ EUR1.1289/GBP).
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 US dollars when rates are
favourable, we have been able to mitigate the effect of the strong
US dollar against sterling in H1 2020.
Dividend
As announced in our results for 2019 the board decided in the
interests of prudence given the considerable on-going uncertainty
due to Covid-19, and in order to further preserve the Company's
cash resources, not to recommend a final dividend for 2019.
However, we are confident in our prospects for the rest of the year
and consequently dividends can be resumed against a background of
good control of cash and continued cash generation, plus a
testament to the response of the business through Covid-19.
The board therefore is pleased to have declared an interim
dividend of 2.8p per share, maintaining the prior year interim
dividend of 1.5p per share, together with a one off additional 1.3p
per share, to reflect that no final dividend was declared for
2019.
The dividend payment of 2.8p per share will be paid on 20
November 2020 to shareholders on the register at close of business
on 6 November 2020. The ordinary shares will be marked ex-dividend
on 5 November 2020.
Neil Rodol
Chief Financial Officer
23 September 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 Months 6 Months Year ended
ended ended 31 December
Notes 30 June 2020 30 June 2019 2019
GBP'000 GBP'000 GBP'000
-------------------------------- -------- ---------------------------- ------------------- -----------------------
Revenue 13,531 18,943 49,282
Cost of sales (8,780) (12,325) (32,780)
-------------------------------- -------- ---------------------------- ------------------- -----------------------
Gross profit 4,751 6,618 16,502
Administrative expenses 3 (6,120) (6,675) (14,355)
Analysed as:
Adjusted profit from
operations(1) 380 1,293 5,580
Amortisation (1,221) (1,221) (2,439)
Exceptional items 3 (193) - (178)
Share based payments (335) (129) (816)
-------------------------------- -------- ---------------------------- ------------------- -----------------------
(Loss)/profit from operations (1,369) (57) 2,147
-------------------------------- --------
Finance expenses 4 (107) (153) (370)
-------------------------------- -------- ---------------------------- ------------------- -----------------------
(Loss)/profit before tax 3 (1,476) (210) 1,777
Tax expense 5 189 44 (409)
-------------------------------- -------- ---------------------------- ------------------- -----------------------
(Loss)/profit for the period
attributable to equity holders
of the parent company (1,287) (166) 1,368
Other comprehensive income
(net of tax):
Exchange gain on translation
of foreign subsidiary (4) - (12)
Total comprehensive
(loss)/income
for the period attributable
to equity holders of the
parent company (1,291) (166) 1,356
============================ =================== =======================
(Loss)/earnings per share
- Basic and diluted 6 (1.68) (0.22) 1.78
---------------------------- ------------------- -----------------------
Note 1 - Adjusted profit from operations is calculated as
earnings before interest, taxation, amortisation, impairment costs,
share based payments and exceptional items.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
As at 30 June As at 30 June As at 31
2020 2019 December
2019
GBP'000 GBP'000 GBP'000
----------------------------- ----------------- ----------------- ----------
ASSETS
Non-current assets
Goodwill 7,274 7,051 7,274
Intangible assets 5,871 8,289 7,082
Property, plant and
equipment 1,006 1,277 684
Right-of-use assets 4,197 4,943 4,685
Deferred tax assets 396 - 374
----------------- ----------------- ----------
18,744 21,560 20,099
Current assets
Inventories 18,853 18,667 16,194
Trade and other receivables 8,895 11,290 12,624
Cash and cash equivalents 3,819 3,654 2,731
Derivative financial
instruments 251 - 39
31,818 33,611 31,588
----------------- ----------------- ----------
Total assets 50,562 55,171 51,687
----------------- ----------------- ----------
LIABILITIES
Current liabilities
Trade and other payables 4,957 5,275 3,933
Borrowings and lease
liabilities 1,989 6,357 2,206
Dividends payable - 2,256 -
Corporation tax payable 255 582 548
7,201 14,470 6,687
Non-current liabilities
Borrowings and lease
liabilities 3,409 422 3,863
Deferred tax liabilities 1,095 1,554 1,324
4,504 1,976 5,187
----------------- ----------------- ----------
Total liabilities 11,705 16,446 11,874
----------------- ----------------- ----------
NET ASSETS 38,857 38,725 39,813
================= ================= ==========
EQUITY
Share capital 19,187 19,187 19,187
Share premium 19,359 19,359 19,359
Merger reserve (16,100) (16,100) (16,100)
Foreign exchange reserve 32 48 36
Share option reserve 1,312 290 977
Retained earnings 15,067 15,941 16,354
Total equity attributable
to
shareholders 38,857 38,725 39, 813
================= ================= ==========
CONSOLIDATED STATEMENT OF CASH FLOW
Unaudited Unaudited Audited
6 Months ended 6 Months ended Year ended
30 June 2020 30 June 2019 31 December
Notes 2019
GBP'000 GBP'000 GBP'000
------------------------------------- ------- --------------- --------------- ------------
(Loss)/profit before tax
for the period (1,476) (210) 1,777
Adjusted by:
Interest paid 4 107 153 370
Depreciation of property,
plant and equipment 628 726 1,194
Amortisation of intangible
assets 1,221 1,221 2,439
Loss on disposal of property,
plant and equipment and intangible
assets - - 39
Share based payment 335 129 816
Movement in inventories (2,659) (3,305) (832)
Movement in trade and other
receivables 3,729 1,471 (327)
Movement in trade and other
payables 1,002 1,780 444
Movement in derivative financial
instruments (212) - (39)
Foreign exchange translation
differences (4) - (13)
--------------- --------------- ------------
Cash inflow generated from
operations 2,671 1,965 5,868
Income tax paid (333) (644) (1,499)
Cash flows from operating
activities 2,338 1,321 4,369
Purchase of property, plant
and equipment (462) (196) (284)
Purchase of intangible assets (10) (24) (35)
Cash flows used by investing
activities (472) (220) (319)
Principal elements of lease
payments (424) (401) (811)
Repayment of borrowings (45) (129) (83)
(Decrease)/increase in stock
and invoice finance facilities (202) (903) (719)
Interest paid (107) (55) (370)
Dividends - - (3,377)
--------------- --------------- ------------
Cash flows used by financing
activities (778) (1,488) (5,360)
Net change in cash and cash
equivalents 1,088 (387) (1,310)
Cash and cash equivalents
at beginning of period 2,731 4,041 4,041
--------------- --------------- ------------
Cash and cash equivalents
at end of period 3,819 3,654 2,731
=============== =============== ============
Cash and cash equivalents
consists of:
Cash and cash equivalents 3,819 3,654 2,731
--------------- --------------- ------------
3,819 3,654 2,731
=============== =============== ============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Merger Foreign Share Retained
capital Premium reserve exchange option earnings Total
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- -------- --------- -------- --------- -------
As at 1 January 2019 19,187 19,359 (16,100) 48 161 18,363 41,018
Profit for the period - - - - - (166) (166)
-------------------------------- -------- -------- -------- --------- -------- --------- -------
Total comprehensive income
for the period - - - - - (166) (166)
-------------------------------- -------- -------- -------- --------- -------- --------- -------
Transactions with owners
Share based payments - - - - 129 - 129
Dividends paid - - - - - (2,256) (2,256)
Total transactions with owners - - - - 129 (2,256) (2,127)
-------------------------------- -------- -------- -------- --------- -------- --------- -------
As at 30 June 2019 19,187 19,359 (16,100) 48 290 15,941 38,725
-------------------------------- -------- -------- -------- --------- -------- --------- -------
As at 1 January 2019 19,187 19,359 (16,100) 48 161 18,363 41,018
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 payments - - - - 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
-------------------------------- -------- -------- -------- --------- -------- --------- -------
As at 1 January 2020 19,187 19,359 (16,100) 36 977 16,354 39,813
On translation of foreign
subsidiary - - - (4) - - (4)
Loss for the period - - - - - (1,287) (1,287)
Total comprehensive income
for the period - - - - - 15,067 38,522
-------------------------------- -------- -------- -------- --------- -------- --------- -------
Transactions with owners
Share based payments - - - - 335 - 335
Total transactions with owners - - - - 335 - 335
-------------------------------- -------- -------- -------- --------- -------- --------- -------
As at 30 June 2020 19,187 19,359 (16,100) 32 1,312 15,067 38,857
================================ ======== ======== ======== ========= ======== ========= =======
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The consolidated interim financial information has been prepared
in accordance with International Financial Reporting Standards,
International Accounting Standards and Interpretations
(collectively IFRSs), as adopted by the European Union.
The accounts have been prepared in accordance with accounting
policies that are consistent with the Group's Annual Report and
Accounts for the year ended 31 December 2019 and that are expected
to be applied in the Group's Annual Report and Accounts for the
year ended 31 December 2020.
The comparative financial information for the year ended 31
December 2019 in this interim report does not constitute statutory
accounts for that period under 435 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2019 have been
delivered to the Registrar of Companies.
The auditors' report on the accounts for 31 December 2019 was
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.
2. Changes in significant accounting policies
The accounting policies applied in these interim financial
statements are the same as those applied in the Group's
consolidated financial statements as at and for the year ended 31
December 2019.
3. Profit from operations
Profit from operations is arrived at after charging/
(crediting):
Unaudited Unaudited Audited
6 Months ended 6 Months Year ended
30 June 2020 ended 31 December
30 June 2019 2019
GBP'000 GBP'000 GBP'000
------------------------------ ---------------- -------------- -------------
Depreciation of property,
plant and equipment 176 205 326
Amortisation of right-of-use
assets 451 538 868
Amortisation of intangible
assets 1,221 1,221 2,439
Write down inventories at
net realisable value - - 83
Exchange differences (641) 62 227
Exceptional costs 193 - 178
Exceptional costs for the period ended 30 June 2020 include
GBP0.13m of staff restructuring costs and GBP0.06m of legal costs.
(6 months ended 30 June 2019; GBPNil) (31 December 2019 included
GBP0.15m of restructuring costs in the United States and GBP0.02m
of non-recurring legal and professional fees.)
4. Finance expenses
Unaudited Unaudited Audited
6 Months ended 6 Months Year ended
30 June 2020 ended 31 December
30 June 2019 2019
GBP'000 GBP'000 GBP'000
-------------------------- ---------------- -------------- -------------
Interest on loans 10 25 26
Lease liability interest 87 30 225
Other interest 10 98 119
---------------- -------------- -------------
Finance expenses 107 153 370
================ ============== =============
5. Tax expenses
Unaudited Unaudited Audited
6 Months ended 6 Months Year ended
30 June 2020 ended 31 December
30 June 2016 2019
GBP'000 GBP'000 GBP'000
------------------------------------ ---------------- -------------- -------------
Current tax expense
Current income tax charge 40 192 1,102
Adjustment in respect of
previous periods - - (75)
---------------- -------------- -------------
40 192 1,027
Deferred tax expense
Relating to original and
reversal of temporary differences (229) (236) (618)
---------------- -------------- -------------
Total tax in income statement (189) (44) 409
================ ============== =============
6. (Loss)/earnings per share
(Loss)/profit for the period used in the calculation of the
basic and diluted earnings per share:
Unaudited Unaudited Audited
6 Months ended 6 Months ended Year ended
30 June 2020 30 June 2019 31 December
2019
GBP'000 GBP'000 GBP'000
-------------------------- ---------------- ---------------- -------------
Profit after tax for the
period (1,287) (166) 1,368
================ ================ =============
The share options in issue at each period end have 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.
The weighted average number of shares for the purposes of
diluted earnings per share reconciles to the weighted average
number of shares used in the calculation of basic earnings per
share as follows:
Unaudited Unaudited Audited
6 Months ended 6 Months ended Year ended
30 June 2020 30 June 2019 31 December
2019
------------------------------ ---------------- ---------------- -------------
Weighted average number of
shares
Weighted number of ordinary
shares for the purpose of
basic earnings per share 76,749,125 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 76,749,125
---------------- ---------------- -------------
(Loss)/earnings per share
(pence) - Basic and Diluted (1.68) (0.22) 1.78
================ ================ =============
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END
IR DLLFLBKLZBBQ
(END) Dow Jones Newswires
September 23, 2020 02:00 ET (06:00 GMT)
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