TIDMW7L
RNS Number : 7932W
Warpaint London PLC
28 April 2021
28 April 2021
Warpaint London PLC
("Warpaint", the "Company" or the "Group")
Results for the year ended 31 December 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 audited results for the year ended 31 December 2020 .
2020 Financial Highlights
-- Group revenue of GBP40.3 million (2019: GBP49.3 million)
in light of the Covid-19 pandemic and the impact of temporary
closures of a number of customers' retail outlets
-- Cash generated from operating activities increased by 70.7%
to GBP7.5 million (2019: GBP4.4 million)
-- Adjusted profit from operations of GBP2.5* million (2019:
GBP5.6* million)
-- Reported loss before tax of GBP1.1 million (2019: profit
before tax GBP1.8 million)
-- Adjusted earnings per share of 3.1p* (2019: 6.3p*)
-- The Group continued to generate significant cash and cash
at the year end increased by 81.5% to GBP4.9 million (31
December 2019: GBP2.7 million)
-- Final dividend recommended of 3.0 pence per share, bringing
the total dividend for the year to 5.8 pence per share,
including a special dividend of 1.3 pence per share paid
in November 2020 to reflect that no final dividend was
declared for 2019
* Adjusted for GBP0.3 million of exceptional costs (2019 GBP0.2
million),GBP2.4 million of amortisation of intangible assets (2019:
GBP2.4 million) and share based payments of GBP0.7 million (2019:
GBP0.8 million). Adjusted numbers are closer to the underlying cash
flow performance of the business which is regularly monitored and
measured by management.
2020 Operational Highlights
-- Swift reaction to the impact of Covid-19 with a plan quickly
formulated and successfully executed
-- Repositioned business to increase focus on mainstream high
street stores and online
-- Commencement of sales of:
* W7 products in Tesco stores
* Technic and Body Collection products in wilko stores
-- Launch of Amazon FBA and e-Commerce revenue significantly
accelerated in the UK and the USA
-- Rationalisation of brand and product range in line with
focused strategy
Post-Period End Highlights
-- Improved trading experienced in the first quarter of 2021
- sales for the first three months of 2021 9% ahead of the
same period in 2020, a period that was only impacted by
Covid-19 related lockdowns in its last few weeks, with sales
increases seen in all the Group's geographic regions
-- Product gross margin improved in the first quarter of 2021
versus the same period in 2020.
-- Further expansion in the number of Tesco stores stocking
the Group's products and the stocking of additional W7 product
lines
-- Further product expansion in USA with W7 products now being
stocked in over 1,000 Five Below stores
-- The Company is now debt free with the remaining loans and
HP contracts totalling GBP0.3 million being repaid in full
in April 2021. As at 27 April 2021 the Company had cash
balances of GBP5.8 million
Commenting, Clive Garston, Chairman, said: "2020 was a year
dominated by the Covid-19 pandemic. These were unprecedented
trading conditions, with the economy and industry facing some of
its most significant challenges ever. Warpaint entered the pandemic
in robust health, with a strong balance sheet and an agile
management team capable of dealing with the challenges. I believe
the Group has weathered the pandemic storm well and has proved its
flexibility and resilience in dealing with an unprecedented and
unforeseeable situation.
"During the year we took the opportunity to reposition the
business to increase our focus on mainstream high street stores and
to build our online presence. We also worked to ensure that our
product range, pricing and customer base gives us the best possible
opportunity for future growth as the world recovers.
"I am particularly pleased to note the progress we have made
with the expansion of the number and type of UK retailers stocking
the Group's products and the growth of our online presence during
2020, together with the more recent roll out with Five Below in the
USA.
"Trading improved in the second half of 2020 and we are pleased
to report this trend has continued into the first quarter of 2021.
I am optimistic that these encouraging trends will continue and
that we have the right strategy in place to deliver profitable
future growth."
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 which is part of UK law
by virtue of the European Union (Withdrawal) Act 2018
Investor Webinar
Warpaint's management will be hosting an online presentation and
Q&A session later today at 5.30 p.m. BST. This session is open
to all existing and prospective shareholders. Those who wish to
attend should register via the following link and they will be
provided with access details:
https://us02web.zoom.us/webinar/register/WN_PV_VdWVcQJWjoEyrdf8cyQ
Participants will have the opportunity to submit questions
during the session, but questions are welcomed in advance and may
be submitted to: warpaint@investor-focus.co.uk.
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) 020 7496 3000
Shaun Dobson, Jen Boorer, Alex Bond
- Corporate Finance
Tom Salvesen - Corporate Broking
Shore Capital (Joint Broker) 020 7408 4090
Patrick Castle, Daniel Bush - Corporate
Advisory
Fiona Conroy - Corporate Broking
IFC Advisory (Financial PR & IR) 020 3934 6630
Tim Metcalfe
Graham Herring
Florence Chandler
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.
HEADLINE RESULTS FOR THE YEARED 31 DECEMBER 2020
Statutory Results
Year ended 31 Dec Year ended 31 Dec
2020 2019
--------------------------------- ------------------
Revenue GBP40.3m GBP49.3m
------------------ ------------------
Profit / (loss) from operations GBP(0.9)m GBP2.1m
------------------ ------------------
Profit margin from operations na 4.3%
------------------ ------------------
PBT / (LBT) GBP(1.1)m GBP1.8m
------------------ ------------------
EPS / (LPS) (1.3)p 1.8p
------------------ ------------------
Cash GBP4.9m GBP2.7m
------------------ ------------------
Adjusted Statutory Results
Year ended 31 Dec 2020 Year ended 31 Dec
2019
----------------------- ------------------
Revenue GBP40.3m GBP49.3m
----------------------- ------------------
Adjusted profit from GBP2.5m* GBP5.6m*
operations
----------------------- ------------------
Adjusted profit margin 6.2%* 11.4%*
from operations
----------------------- ------------------
Adjusted PBT GBP2.3m* GBP5.2m*
----------------------- ------------------
Adjusted EPS 3.1p* 6.3p*
----------------------- ------------------
Cash GBP4.9m GBP2.7m
----------------------- ------------------
* Adjusted for GBP0.24 million of staff restructuring and
voluntary redundancy costs (2019: GBP0.07 million), and inventory
relocation costs in the US of GBPnil (2019: GBP0.08 million) and
GBP0.08 million of legal costs (2019: GBP0.03 million) and GBP2.4
million of amortisation of intangible assets (2019: GBP2.4 million)
and share based payments of GBP0.7 million (2019: GBP0.8 million).
Adjusted numbers are closer to the underlying cash flow performance
of the business which is regularly monitored and measured by
management.
CHAIRMAN'S STATEMENT
2020 was a year dominated by the the Covid-19 pandemic. Prior to
the onset of the pandemic, trading in the first two months of the
year was strong. However, with global lockdowns commencing in March
the picture changed dramatically and the Group witnessed a
significant reduction in sales as many of our customers' retail
outlets in the UK which were regarded as non-essential and in other
markets were forced to close, in particular in the EU and the USA.
These were unprecedented trading conditions, with the economy and
industry facing some of its most significant challenges ever.
Warpaint entered the pandemic in robust health, with a strong
balance sheet and an agile management team capable of dealing with
the challenges presented by the pandemic. During the year we took
the opportunity to reposition the business to increase our focus on
mainstream high street stores and to build our online presence. We
also reviewed our brands and product lines with a subsequent
reduction in the number of products. This enabled us to remove
those that do not fit with our strategic goals and worked to ensure
that our product range, pricing and customer base gives us the best
possible opportunity for future growth as the world recovers.
I believe the Group has weathered the pandemic well and has
proved its flexibility and resilience in dealing with an
unprecedented and unforeseeable situation. I am particularly
pleased to note the progress we have made with the expansion of the
number and type of UK retailers stocking the Group's products and
the growth of our online presence during 2020. Trading improved in
the second half of the year and we are pleased to report this trend
has continued into the first quarter of 2021.
Results
Revenue was significantly impacted as a consequence of the
pandemic, with a corresponding impact on Group profitability. It is
the board's opinion that without the impact of the coronavirus
pandemic 2020 would have been a year of recovery and improvement in
financial performance for the Group, a statement which is supported
by the robust trading we saw in the first two months of 2020.
Adjusted profit from operations was GBP2.5 million (2019 GBP5.6
million) on revenue of GBP40.3 million (2019 GBP49.3 million) with
basic earnings per share of (1.3)p (2019 1.8p) and adjusted
earnings per share of 3.1p (2019 6.3p). Adjusted numbers exclude
exceptional costs (staff restructuring and voluntary redundancy
costs, certain legal costs and stock relocation costs),
amortisation in relation to acquisitions and share based
payments.
During 2020, the Group took the opportunity to streamline and
reduce stock levels, with cash generated from operations increasing
by 70.7% . The balance sheet remains strong, with cash at 31
December 2020 of GBP4.9 million (31 December 2019 GBP2.7 million),
and management are confident Warpaint entered 2021 as a more
efficient business with an improved focus.
Dividend
As announced in our results for 2019 the board decided in the
interests of prudence given the considerable on-going uncertainty
caused by Covid-19 at the time, and in order to further preserve
its cash resources, not to recommend a final dividend for 2019.
However, as the business adapted to the issues presented by
Covid-19 and the outlook improved the Group resumed dividend
payments at the time of the 2020 interim results with an interim
dividend declared 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.
In accordance with the Group's policy to continue to pay
appropriate dividends, the board is pleased to recommend a final
dividend of 3.0p per share which, if approved by shareholders at
the AGM, will be paid on 5 July 2021 to shareholders on the
register at 18 June 2021. The shares will go ex-dividend on 17 June
2021.
Board and People
The pandemic has dramatically impacted the personal and working
lives of everyone. For the team at Warpaint this has required
significant changes to working practices and personal uncertainties
to be overcome. I am delighted with the way in which everyone has
met these challenges and I would like to offer my particular thanks
this year to my fellow board members and the Group's employees for
their exceptional efforts, good humour and resilience in these
difficult times.
As announced in November 2020 the Company has commenced a search
for an additional non-executive director following Paul Hagon's
move to an executive role and I anticipate that we will be able to
make an appointment during the first half of 2021.
Annual General Meeting
The Company's annual general meeting will be held on 11 June
2021 at 10.00 a.m. In light of the continuing public health
restrictions associated with the Covid-19 pandemic, further details
of the annual general meeting arrangements will be provided when
the notice of annual general meeting is sent to shareholders.
Outlook
I was pleased that despite much of the world having some level
of lockdown during the first three months of 2021 and the continued
enforced temporary closure of a number of the Group's customers'
retail outlets, sales for the first three months of 2021 in all the
Group's geographic regions were ahead of the same period in 2020, a
period that was only impacted by Covid-19 related lockdowns in its
last few weeks. Product gross margin has also improved in the first
quarter of 2021 versus the same period in 2020.
We are growing sales in the UK, and the launch of our products
in over 1,000 Five Below stores in the USA is a significant step
for the Group. We anticipate adding further retailers in due course
and with our growing online sales we are well positioned for the
future.
I am optimistic that these encouraging trends will continue and
that we have the right strategy in place to deliver profitable
future growth.
Clive Garston
Chairman
27 April 2021
CHIEF EXECUTIVE'S STATEMENT
The Covid-19 pandemic has had and is still having, a significant
impact on people's lives and businesses. Warpaint was not immune to
its effects and whilst we continued to perform well with retailers
that stayed open, the temporary closure of many retail outlets had
a significant impact on our business.
At the beginning of the outbreak, and before the impact was felt
in the UK, 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 and I am pleased to report we experienced no
impact on the availability of our product.
As the pandemic hit the UK the wellbeing of the Warpaint staff
was our primary concern, whilst also continuing to ensure we traded
to support the durability of our business for stakeholders. We took
significant preventative measures across our business, both to
protect the health of our staff and to minimise operational
disruption.
As countries began to lock down first in Europe, then in the UK
and USA, consumer demand switched to essential items and food, and
away from colour cosmetics, particularly as their social
interactions were curtailed. In response we reduced discretionary
spend, those staff not working because of the decrease in business
activity were furloughed and we temporarily 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 quickly put
in place to ensure their safety.
In the second half of the year, as the world adapted and some
retail outlets reopened, demand returned for Warpaint's products.
As sales and orders returned nearer to expected levels, so too did
our discretionary spend (with the exception of PR, exhibitions and
travel costs), nearly all staff returned to work full time and
rental payments were bought up to date and recommenced. The Group
utilised minimal government Covid-19 related support other than the
UK Government's furlough scheme, which was used for a short period
of time during the first lockdown and where affected staff
continued to be paid in full, and a small amount of temporary
support in the USA covering three employees.
We also took the opportunity in 2020 to review our overall
strategy, rationalise our product range and increase our focus on
online sales. I believe this strategy is already bearing fruit and
I am particularly pleased with the trends in the UK, highlighted by
the commencement of sales in Tesco and wilko stores.
W7
The Group's most significant brand remains W7, with sales in
2020 accounting for 45% of total Group revenue (2019: 46%). Overall
W7 sales reduced by 19% in 2020 compared to 2019.
However, in the UK, W7 revenues in 2020 increased by 8%, despite
the impact of the pandemic and an 18% reduction in H1 2020 sales
compared to H1 2019. The UK is the most important market for W7,
having grown in importance to account for 47% of sales in 2020,
compared to 35% in 2019. We have implemented a strategy in the UK
which we believe will increase sales of the W7 brand further and
are seeing the fruits of this with the successful launch of the W7
brand into Tesco, including a further increase in both the number
of Tesco stores stocking W7, and the number of W7 products being
stocked, in the first quarter of 2021. We are in discussions with
other major retailers in the UK with a view to them stocking W7
products.
Internationally W7 sales were down in all reported regions due
to the strict lockdowns imposed due to the Covid-19 pandemic,
particularly in the first half of the year. In Europe sales fell by
29% compared to 2019, in the USA sales fell by 53% compared to
2019, and in the rest of the world sales fell by 34% compared to
2019.
Towards the end of the year, as Covid-19 lockdowns eased, we saw
a strong recovery for W7 in the UK, Europe and the rest of the
world, with sales in the later months of the year in line with the
board's budget for the year, set prior to the Covid-19 pandemic.
This trend has continued through the first quarter of 2021, with an
especially positive performance for W7 in the UK, despite the
reintroduction of lockdowns in the UK and elsewhere.
We believe that W7 has a compelling brand proposition and will
continue to benefit from consumers wanting a high quality but cost
effective product.
Technic
The Technic brands comprise Technic, Body Collection and
Man'stuff. Since the acquisition of the Technic brands, through the
acquisition of Retra Holdings in November 2017, we have taken steps
to improve the sales of the all year round cosmetics sold under the
brands, and to make the business profitable throughout the whole
year, not only in the second half when Christmas gifting is
delivered. The split of gifting at 48% and single products at 52%
remained the same as in 2019, although there was a shift to more
all year round from specific Christmas focussed gifting
product.
Sales of branded Technic product in 2020 was 36% of total Group
revenue (2019: 34%). Overall Technic sales only declined by 10%
despite the Covid-19 impact, as the brands have a strong presence
in essential retailers, although the largest customer for the
Technic brands was closed for significant parts of the year.
In 2020, UK revenues were 49% of Technic's sales and they
decreased by 11% over the year, despite being down 30% in the first
half. The improved second half performance was predominantly a
reflection of the successful launch in September of a range of
Technic and Body Collection branded products in wilko, with
Christmas gifting delivered to wilko from October. We anticipate
sales will continue to grow through wilko, particularly as store
footfall increases following the opening of non-essential retail on
the high street.
In Europe, Technic's largest market in 2019, sales fell by 9%
compared to 2019. As with W7, sales fell in Europe due to the
strict lockdowns in the key countries.
In the USA, sales increased by 11% compared to 2019, and in the
rest of the world sales fell by 34% compared to 2019, albeit the
sales were small in these regions in the context of the Group as a
whole.
The business encompassing the Technic brands also produces and
sells own brand white label cosmetics for several major high street
retailers, with such sales being 7% of Group revenue (2019: 5%).
These sales grew by 7% in 2020, compared to 2019. We continue to
assess private label opportunities on a case by case basis, based
on the return they can deliver.
As with W7 we saw a strong recovery in sales for Technic in the
UK, Europe and the rest of the world since the easing of the
Covid-19 lockdowns in the later part of 2020, with this trend
continuing into 2021, despite the reintroduction of lockdowns in
some territories.
Close-out
Whilst the Group's close-out division continues to provide a
good source of intelligence in the colour cosmetics market the
focus on these activities further reduced in 2020, particularly
with the decision taken to significantly reduce close-out sales in
the USA, as the Group concentrated on selling its own brands there.
Consequently, the close-out division represented 12% of Group
revenue in 2020, down from 15% in 2019 and 16% in 2018. Close-out
sales have been intentionally reduced further in the first quarter
of 2021, as the Group focuses on sales of its brands.
New Product Development
New product development remained a key focus of the Group's
activity in 2020, despite the pandemic, and will continue to be
core to the Group's proposition to provide new products that are on
trend, fast to market and that meet the consumer's quickly changing
needs.
Our New Product Development Team continues to develop a strong
pipeline of new products, focussed on the demands of our customers.
New products introduced in 2020 included the W7 skincare range,
which has been extremely well received, with many positive online
reviews, together with a revamping of the vegan range.
Our new product development strategy continues to utilise
manufacturing partners, predominantly in China and Europe, that
provide 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
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 is also focussed on the environmental impact of its
products and has removed all plastics from the outer packaging of
its gifting and all year-round products, and has virtually
eliminated the use of single use packaging in its products
completely. The Group's product packaging therefore uses paper and
cardboard wherever practicable, which enables the Group, the
wholesaler and end user to recycle the waste effectively. In terms
of the Group's product casings, the use of plastic is sometimes
practically unavoidable but recyclable packaging is used wherever
possible.
All new W7 brand products are being manufactured without
parabens and the Company is reformulating existing products where
feasible. The Group aims to be paraben free for all products in the
next 24 to 36 months.
e-Commerce
During 2020 we placed an increased emphasis on driving online
sales and ensuring that our online pricing was closely matched to
that of our larger retailers. Whilst direct online sales remain a
modest proportion of the Group's overall sales, they more than
doubled from GBP0.2 million in 2019 to over GBP0.5 million in 2020,
and we anticipate further significant progress in 2021. In Q1 2021
the Group's e-commerce sales were GBP0.24 million.
In 2020 we listed our brands in the UK, in May, and the USA, in
August, on Amazon FBA (Fulfilment by Amazon), in addition to using
our own websites, which has helped accelerate our online sales. The
strategy is to appropriately apply marketing spend in order to
generate further sales momentum and a further launch on Amazon EU
is planned to be implemented in the near future.
Marketing and PR
In 2020 we continued our focus on ensuring our marketing
programmes were both fresh and innovative, in both the traditional
and social media environment. In particular we instituted a loyalty
programme and specific social media programme targeted at driving
website visit conversions into sales and increasing basket
size.
Strategy
As previously outlined, in early 2018, the board adopted a
three-year strategic plan for the business. This is measured,
monitored and reviewed regularly and was updated by the board in
2021 with a view to it forming the basis of the Group's development
through to the end of 2024. The plan is designed to drive
shareholder value and has defined targets for sales, EBITDA,
earnings per share and cash generation, with a particular emphasis
on driving incremental EBITDA growth. The strategic plan comprises
six key pillars:
-- 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 Group's
portfolio of brands to ensure there is a clear brand hierarchy; a
clear proposition by brand; non-core brands and product stock are
eliminated; and that the Group delivers new product development and
gifting sets that meet customer needs.
-- Develop and nurture the current core business
A major objective of the Group is 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 and the Group
is committed to ensuring this potential is maximised. The Group is
focused on ensuring there is a clarity of product offering to each
customer segment and to supporting its customers with relevant new
products; by using appropriate marketing to draw consumers into
customer stores; and by cross selling the Group's brands where
appropriate.
-- Grow Market Share in the UK
The business continues to focus on increasing the presence of
the Group's brands in channels that our consumers shop in, to
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 the Technic brands into wilko. It continues
to have active discussions with other major retailers who are
currently in channels that the Group is yet to materially supply to
and expanding the UK customer base is a key focus of management.
This is particularly opportune as retailers across all sectors are
increasingly looking to provide quality products to their customers
at affordable prices.
-- Grow market share in the USA and China
The USA and China continue to provide a major growth opportunity
for the Group. In the USA, the Group continues to investigate the
optimal route to market through established agency channels and/or
direct to retailers, and is establishing a core product range for
the USA with minimum margin requirements. In China the Group
conducts business locally through its 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.
-- Develop the online/e-commerce strategy for brand development and profitable sales
The Group aims to grow its profitable sales across the Group's
online sales channels, ensuring the process is optimised and
efficient. The Group continues to develop and build its brands by
utilising brand ambassadors, influencers and make-up artists to
engage actively with its 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 Group has launched a loyalty programme that creates a W7
community of customers to drive sales conversion on the Company's
website. 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 Group's online
sales strategy. As an example, 45% of W7's target customers are
buying cosmetics online.
-- Develop the appropriate organisational structure, people
strategy and organisational efficiency
Warpaint continues to review the businesses' structures,
resources and capabilities with the objective of delivering the
strategic plan, communicating the plan to ensure that all employees
are engaged, and rewarding employees suitably for doing a good
job.
Brands
During 2020 we undertook a review of all our brands, removing
from sale those small number of brands that were sub-scale and did
not have a compelling market position. This exercise has enabled
the Group to focus on its core W7, Technic, Body Collection,
Man'stuff, Chit Chat and Very Vegan brands. We are also developing
Body Collection as a key brand, which we believe has untapped
potential given it is currently sold in only one UK retailer.
Customers & Geographies
UK
The UK accounted for 52.5% of Group sales in 2020 (2019: 46.1%),
with UK sales reducing by only 6.9% to GBP21.1 million (2019:
GBP22.7 million) despite the effects of Covid-19 forcing temporary
UK high street store closures. 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 63% of UK sales in
2020 (2019: 64%). Those customers that remained open through
Covid-19 performed well in 2020. Additionally the Group benefited
in the second half of the year from the sales of W7 product in
Tesco and the Technic brands in wilko, both of which were new
retailers for the Group.
Europe
Europe has for some time been an area of excellent growth for
the Group and accounted for 37.5% of Group sales in 2020 (2019:
38.2%). However the Covid-19 pandemic impacted sales severely once
country wide lockdowns started in March 2020 and stores were forced
to close. Sales for the Group's brands into Europe are mainly to
Spain, Denmark, Sweden and Germany.
European sales for 2020 reduced 19.7% to GBP15.1 million (2019:
GBP18.8 million). However, with Group sales overall in Europe
decreasing in H1 2020 by 35% compared to the same period in 2019,
there was a significant recovery in the second half of the year as
the Covid-19 lockdowns were eased.
Advance plans were made to ensure business continuity, as far as
possible, whilst the nature of the UK's future trading relationship
with the EU remained uncertain. Following the UK trade deal with
the EU at the end of the year there has been some disruption in
early 2021, however, this has now largely been overcome. The Group
is utilising the Company's wholly owned subsidiary, Warpaint
Cosmetics (ROI) Limited, in the Republic of Ireland, which was
formed specifically to facilitate the Group's EU trading and to
help mitigate against UK/EU cross-border disruption.
USA
The USA was the hardest hit of any of the Group's markets by the
impact of Covid-19. USA sales, in sterling terms, reduced by 56.7%
in 2020 to GBP2.1 million (2019: GBP5.0 million) and equated to
5.3% of overall 2020 Group sales. Current customers in the USA
include Macys Backstage, Marshalls, and TJ Maxx, all of whom have
been required to shut stores for periods during 2020. Post year
end, following a successful trial with store group Five Below, W7
products are now being stocked in over 1,000 of their stores in the
USA.
The Group's USA subsidiary, 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 USA is the largest colour cosmetics market in
the world and developing sales there is a strategic goal for the
Group. As previously reported, we implemented a number of measures
to improve margins in the USA business, including changing our
third party warehousing arrangements to reduce costs and by
restructuring the staff levels in the USA, saving US$0.4 million in
2020.
Nevertheless, despite these actions, the impact of the Covid-19
lockdown on the USA business has been significant, and therefore we
have re-evaluated our strategy for the USA and we have accelerated
our online sales strategy via Amazon FBA, and reduced the locally
sourced close-out.
Rest of the World
Sales in the rest of the world reduced from GBP2.8 million in
2019 to GBP1.9 million in 2020, accounting for 4.7% of overall
Group sales. As with our other international regions, overall sales
were down due to the Covid-19 pandemic. However, sales did recover
in the later part of the year as Covid-19 lockdowns eased, although
some countries retain significant restrictions. In Australia which
is a key country in the rest of the world region sales increased
slightly.
Summary and Outlook
Whilst 2020 was undoubtably a challenging year and the pandemic
had a significant impact on the Warpaint business, I am pleased
with the progress that we were able to make and I believe Warpaint
has emerged as stronger business. In particular, we made
substantial advances with our retail presence in the UK, commencing
significant sales through Tesco and wilko for the first time. Our
W7 products are selling well at Tesco and we have further expanded
the number of Tesco stores that are stocking our products, and the
number of products being stocked, post period end. Likewise our
Body Collection and Technic ranges have been very well received by
wilko customers. We intend to further expand our UK retail presence
in 2021.
We have also taken the opportunity to review all elements of our
strategy in 2020 and I believe that we have a compelling product
proposition that is attractive to our global customer base. The
late Brexit trade deal led to unexpected issues in the early part
of 2021 for our sales into the EU, but I am pleased to say that
these are now largely overcome.
The USA remains a challenging market, but I believe we now have
an appropriate strategy for profitable growth in this region,
including accelerating our online proposition. In the USA I am
particularly pleased to see our W7 products now being stocked in
over 1000 Five Below stores following a successful trial.
Trading in 2021 has started strongly with sales for the first
three months of 2021 9% ahead of the same period in 2020, with
sales increasing in all our geographic regions, despite the
continuing lockdowns and enforced temporary customer store closures
in many of our markets. I am encouraged by the outlook for the rest
of the year and beyond as we seek to increase our high street
penetration and online sales, together with looking to grow our
sales through our existing customer outlets.
In closing, I would like to thank all our staff for their
efforts in 2020 and helping us to overcome the challenges of the
pandemic.
Sam Bazini
Chief Executive Officer
27 April 2021
FINANCIAL REVIEW
The Covid-19 pandemic had a material impact on our financial
performance in the year, resulting in lower than budgeted sales and
profits. Group revenue decreased in the year by 18%, and adjusted
profit before tax decreased in the year by 56%.
The actions we took as a business in response to Covid-19
enabled us to remain focused on margin, being net debt free,
generating cash and safeguarding the business and the jobs of our
employees.
Covid-19 Stress Testing and Liquidity
The lockdowns in 2020 throughout the world in response to
Covid-19 meant the Group traded in a very uncertain and difficult
time. In response, the board reacted swiftly and decisively with a
plan to protect our staff, the business and to put in place
measures to conserve cash, including not recommending a final
dividend for 2019.
In the second half of the year trade across the Group returned
to near normal levels and consequently dividends were 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 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 was paid on 20 November 2020.
With Covid-19 still causing economic uncertainty in 2021 we have
modelled a range of scenarios based on varying levels of annual
sales revenue, through to the end of 2022. In each scenario,
mitigating actions within the control of management have been
modelled, each showing 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.
Revenue
Group revenue for the year reduced by 18.3% from GBP49.3 million
in 2019 to GBP40.3 million in 2020. The fall in sales year on year
was due to the Covid-19 lockdowns in the UK and
internationally.
Company branded sales were GBP32.8 million in the year (2019:
GBP39.2 million). Our W7 brand had sales in the year of GBP18.2
million (2019: GBP22.5 million). Our Technic brand contributed
sales of GBP14.5 million in the year (2019: GBP16.7 million).
In the UK Group sales reduced 6.9% from 22.7 million in 2019, to
GBP21.1 million in 2020, with a strong recovery in the second half
of the year. Internationally, Group revenue reduced 28.0% from
GBP26.6 million in 2019, to GBP19.1 million in 2020. In Europe
Group sales reduced by 19.7% to GBP15.1 million (2019: GBP18.8
million). In the rest of the world Group sales fell by 32.6% to
GBP1.9 million (2019: GBP2.8 million). In the USA Group sales fell
by 56.7% to GBP2.1 million (2019: GBP5.0 million), in part because
of the decision to concentrate on the sale of our Group brands
ahead of locally sourced close-out opportunities, and from the
disruption caused by Covid-19.
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, USA 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 Chief Executive Officer's statement.
Our Retra business had sales of retailer own brand white label
cosmetics of GBP2.6 million in the year (2019: GBP2.5 million). The
white label business is traditionally cost competitive and Retra
chooses which projects to undertake based on commercial viability,
and in particular margin.
The close-out business revenue reduced by 36.2% from GBP7.7
million in 2019 to GBP4.9 million in 2020.
Other income of GBP0.4 million was received from the UK
Government's furlough scheme in the year.
Product Gross Margin
Gross margin for the Group decreased by 2.4% from 33.5% to
31.1%.
Gross margin reduced largely due to sales of inventory at lower
than normal margin across the Group. This was in response to
Covid-19 in order to maximise cash generated in the business and
reduce overall inventory holding by the year end in the UK and USA.
In the USA this was an acceleration of our strategy to exit sales
of locally sourced close-out brands and to focus on the sale of our
Group brands.
A thorough review of inventory was carried out considering stock
turn, margin, and stock age, so that those with the worst scores in
each category and combined could be identified and sold off. In
total GBP1.5 million of inventory identified in this process was
sold in the year for GBP0.9 million. Without this action gross
margin for the year would have been in line with 2019 at 33.4%.
During the year we did not experience pressure on the cost of
inventory and made good use of our Hong Kong buying office to
ensure this continued. However, since the start of 2021 we have
noticed slight price increases coming from our supply base in China
and container freight rates have increased dramatically before
falling back steadily, both these cost increases have been offset
by a weakening dollar.
To counter currency pressure we have in place a discount
mechanism linked to the US dollar exchange rate from one of our key
suppliers in China, although in 2020 this did not apply as buying
volumes were greatly reduced because of Covid-19. When business
levels return to normal, we expect to be making use of this US
dollar discount mechanism again. We also continue to move
production to new factories of equal quality to retain or improve
margin and have a natural hedge from our US dollar revenue. We
remain focused on improving gross margin in all our businesses.
The Group brands segment had sales of GBP35.4 million at a
margin of 31.1% (2019: GBP41.6 million at a margin of 34.9%).
Margin reduced because of the inventory reduction plan implemented
in response to Covid-19.
The close-out segment of the Group had sales of GBP4.9 million
at a margin of 31.2% (2019: GBP7.7 million at a margin of 25.7%).
The inventory reduction plan also applied to close-out, however any
negative effect on close-out margin was more than offset by the
availability in the year of some high margin close-out parcels and
consequently close-out margin improved in the year.
At 31 December 2019 options were in place for the purchase of
US$15 million at US$1.3142/GBP and this helped to protect our
margin through a turbulent period in the foreign exchange markets,
in which the US dollar strengthened to US$1.15/GBP during the peak
of the Covid-19 pandemic. Similarly, at 31 December 2020 options
were in place for the purchase of US$18 million at
US$1.3260/GBP.
Operating Expenses
Total operating expenses before exceptional items, amortisation
costs, depreciation, foreign exchange movements and share based
payments, decreased by GBP0.8 million to GBP8.7 million in the
year. This decrease was made up of a reduction in discretionary
spend on travel, planned events and exhibitions totalling GBP0.9
million in response to Covid-19, an increase in cost in trading
online of GBP0.1 million as sales online increased sharply in
response to Coivd-19, an increase in the charge for bad debts of
GBP0.2 million in the USA from a large retail customer entering
Chapter 11 bankruptcy as a result of the pandemic, and a decrease
in other overheads of GBP0.2 million.
The most significant operating costs in the Group are wages and
salaries of GBP5.5 million (2019: GBP5.5 million) and planned
events and exhibitions for our brands of GBP0.6 million (2019:
GBP1.2 million).
Wages and salaries remained unchanged year on year. During the
first Covid-19 lockdown in 2020 use was made of the government job
retention scheme (and a similar grant scheme in the USA) giving
rise to other operating income of GBP0.36 million. All staff were
paid 100% of their salaries whilst furloughed. The reduction in
planned events and exhibitions was in response to the Covid-19
pandemic, exhibitions were cancelled across the world and planned
events and promotional activity had to be postponed or
cancelled.
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 2020 Group loss before tax was GBP1.1 million compared to a
profit before tax of GBP1.8 million in 2019.
The material changes in profitability between 2020 and 2019
were:
Effect on
Profit
(GBP1.0)
* Reduction in Group gross margin of 2.4% for 2020 million
(GBP3.0)
* Gross margin on decrease in sales for 2020 at 33.5% million
GBP0.4 million
* Increase in other operating income in 2020 (job GBP0.8 million
retention scheme)
* Decrease in operating expenses (see above heading)
(GBP0.1)
* Increase in exceptional costs in the year million
(GBP0.2)
* FX charge in the year GBP0.4 million (2019: GBP0.2 million
million)
GBP0.2 million
* Decrease in the cost of the LTIP and EMI share option
schemes
Adjusted profit before tax (before exceptional items,
amortisation costs, and share based payments) was GBP2.3 million
compared to GBP5.2 million in 2019, a fall of 55.8%.
Exceptional Items
Exceptional costs in 2020 included GBP0.24 million of staff
restructuring and voluntary redundancy costs and GBP0.08 million of
legal costs (2019: GBP0.15 million of staff restructuring plus
inventory relocation costs, and GBP0.03 million of legal
costs).
Tax
The tax rate for the Group for 2020 was 10% compared to the UK
corporation tax standard rate of 19% for the year. Since the
acquisition of LMS, the Group is exposed to tax in the USA 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 a loss of 1.31p in
2020, compared to the 1.78p achieved in 2019.
Adjusted earnings per share before exceptional items,
amortisation costs and share based payment costs was 3.11p in 2020,
a decrease of 50.3% on the 6.26p achieved in 2019.
Dividends
The board is recommending a final dividend for 2020 of 3.0 pence
per share, making a total dividend for the year of 5.8 pence per
share of which 2.8 pence per share, including a special dividend of
1.3 pence per share to reflect that no final dividend was declared
for 2019, was paid on 20 November 2020 (2019: The board 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, resolved not to recommend a final dividend for
2019, making the interim dividend of 1.5 pence per share in effect
the only dividend declared in respect of 2019). The dividend for
the year was covered 0.5 times by adjusted earnings per share.
Cash Flow and Cash Position
Net cash flow generated from operating activities was GBP7.5
million (2019: GBP4.4 million), after payment of the GBP0.3 million
(2019: GBP0.2 million) exceptional items previously referred to.
The Group's cash balance increased by GBP2.2 million to GBP4.9
million in 2019 (2019: GBP2.7 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, however as part of our strategy to grow market share in
the UK and USA there will be occasions where investment in store
furniture is required to secure that business. In 2020 GBP0.66
million was spent on store furniture for Tesco and wilko (2019:
GBP0.05 million), and GBP0.18 million was spent on new computer
software and equipment, and other general office fixtures and
fittings and plant upgrades (2019: 0.23 million).
LTIP, EMI & CSOP Share Options
On 20 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 year was GBP0.66
million (2019: GBP0.82 million) and has been taken to the share
option reserve.
Balance Sheet
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, excluding
other receivables, were GBP7.7 million (2019: GBP10.3 million), the
decrease on 2019 is mainly due to the fall in sales year on year
because of the Covid-19 lockdowns. Apart from writing off a bad
debt in the USA of GBP0.2 million, collection of cash was excellent
in the year including payments from those customers that were in
some distress because of the pandemic lockdowns in 2020. The
provision at the year end for bad and doubtful debts carried
forward is GBP0.04 million, 0.6% of gross trade receivables (2019:
GBP0.04 million, 0.4%).
Inventory was lower at the year end at GBP14.9 million (2019:
GBP16.4 million). The fall in inventory was due to the action taken
to reduce inventory across the group in response to Covid-19, and
our strategy of exiting the sale of locally sourced close-out
brands in the USA. The provision for old and slow inventory was
GBP0.52 million, 3.5% at the year end (2019: GBP0.19 million,
1.2%). The increase in provision arises from the Group policy of
providing for 50% of the cost of perishable items that are over two
years old, and mainly from providing for inventory in our USA
business, LMS, that has aged to over two years old, without the
chance of a sale because of the Covid-19 crisis. However, we remain
comforted by the fact that in reality many such items in the normal
course of business are eventually sold through our close-out
division without a loss to the Group.
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, and GBP1.1 million of term loans and HP contracts. At
the year end GBP0.3 million of invoice finance remained outstanding
which was repaid in full by March 2021 (2019: GBP1.2 million). The
balance outstanding on the term loans and HP contracts at the year
end totalled GBP0.3 million (2019: GBP0.6 million). The remaining
loans and HP contracts totalling GBP0.3 million were repaid in full
in April 2021.
Working capital decreased by GBP2.3 million in the year, to
GBP25.4 million. The main components were a decrease in inventory
of GBP1.8 million, a decrease in trade and other receivables of
GBP0.2 million, an increase in cash at the year end of GBP2.1
million, and an increase in trade and other payables of GBP0.6
million.
Free cash flow remained strong at GBP6.6 million (2019: GBP4.1
million).
The Group's balance sheet remains in a very healthy position.
Net assets totalled GBP37.4 million at 31 December 2020, a decrease
of GBP2.4 million from 2019. 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 (2019:
GBP7.3 million) and GBP4.7 million of intangible fixed assets
(2019: GBP7.1 million) arising from acquisition accounting. As at
the year end cash totalled GBP4.9 million (31 December 2019: GBP2.7
million).
The balance sheet also includes GBP3.8 million of right-of-use
assets. GBP3.5 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 GBP3.7
million at the balance sheet date.
Foreign Exchange
The Group imports most of its finished goods from China paid for
in US dollars, which 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, this allowed us to purchase goods in the first
half of the year at contracted dollar rates well above the spot
rate which at one time fell as low as $1.1492.
Around the time of Brexit being finalised in 2020 when currency
rates were favourable, we purchased 42 foreign exchange options
which were outstanding at 31 December 2020 (31 December 2019: 33).
In total at 31 December 2020 options were in place for the purchase
of US$18 million at US$1.3260, and the sale of EUR5.1 million @
EUR1.1077 (31 December 2019: $15 million @ $1.3142nil, and EUR4.4
million @ EUR1.1402).
The Group has a natural hedge from sales to the US which are
entirely in US dollars, in 2020 these sales were $2.74 million
(2019: $6.32 million). Together with the discount mechanism
available from one of our main suppliers in China, sourcing product
from new factories where it makes commercial sense to do so and by
buying dollars when rates are favourable, we are able to mitigate
the effect of a strong US dollar against sterling.
Neil Rodol
Chief Financial Officer
27 April 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF WARPAINT LONDON
PLC
Opinion on the financial statements
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 2020 and of the Group's loss for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
-- 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.
We have audited the financial statements of Warpaint London Plc
(the 'Parent Company') and its subsidiaries (the 'Group') for the
year ended 31 December 2020 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 accounting standards in conformity with the
requirements of the Companies Act 2006. 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).
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 believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remain 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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Group and the Parent
Company's ability to continue to adopt the going concern basis of
accounting included:
- A critical evaluation of the Directors' assessment of the
entity's ability to continue as a going concern, covering the
period of at least 12 months from the date of approval of the
financial statements by;
-- Evaluating the process the Directors followed to make their
assessment, including confirming the assessment and underlying
projections were prepared by appropriate individuals with
sufficient knowledge of the detailed figures as well as an
understanding of the entities markets, strategies and risks.
Understanding, challenging and corroborating the key assumptions
included in their cash flow forecasts against prior year, our
knowledge of the business and industry, and other areas of the
audit.
-- We considered the potential impact on the statement of
financial position, specifically around trade receivables and
assessed Director's judgement around the recoverability of these
balances. This included reviewing post year end, post lockdown
sales values and cash receipts post year end.
-- Searching through enquiry with the Directors, review of board
minutes and review of external resources for any key future events
that may have been omitted from cash flow forecasts and assessing
the impact these could have on future cash flows and cash
reserves.
-- Assessing stress test scenarios, including those in respect
of COVID-19 considerations, and challenging whether other
reasonably possible scenarios could occur and including these where
appropriate.
-- Considering the adequacy of the disclosures relating to going
concern included within the annual report against the requirements
of the accounting standards and consistency of the disclosures
against the forecasts and going concern assessment.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group and company's ability to continue as a going concern for a
period of at least twelve months from when the financial statements
are authorised for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
The directors' assessment of going concern involves a number of
highly subjective judgements, therefore, this was accordingly
identified as a Key Audit Matter.
Overview
Coverage 87% (2019: 93%) of Group profit before tax
(1) 94% (2019: 100%) of Group revenue
98% (2019: 99%) of Group total assets
Key audit 2020 2019
matters Impairment of intangible assets P P
and goodwill
Carrying value of inventory P P
Going concern P P
-----------------------------------------------------------
Materiality Group financial statements as a whole
GBP245,000 (2019: GBP248,000) based on capped 5% (2019:
5%) of average profit before interest, tax, amortisation,
and exceptional items.
-----------------------------------------------------------
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group's system of internal
control, and assessing the risks of material misstatement in the
financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there
was evidence of bias by the Directors that may have represented a
risk of material misstatement.
The group consists of three 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 as significant
components, except for Marvin Leeds Marketing Services Inc, on
which we performed specific audit procedures on certain account
balances. Marvin Leeds Marketing Services Inc. Is not deemed to be
a significant component and so our work was tailored to focus on
specific risk areas. All audit work was carried out by BDO LLP.
(1) These are areas which have been subject to a full scope
audit or specific procedures by the group engagement team
Key audit matters
Key audit matters are those matters that, in our professional
judgement, 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) that 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.
Aside from the going concern key audit matter identified above,
we identified the following areas as the key audit matters relevant
to our audit of the financial statements.
Key audit matter How the scope of our audit
addressed the key audit matter
Impairment The Directors perform annual We assessed management's allocation
of intangibles impairment reviews of goodwill of assets for each CGU based
assets and for all cash generating units on our knowledge of the Group
goodwill (CGUs). and its operations.
(with reference This review also covers the We challenged management's
to notes carrying value of other intangible assumptions and assessed the
1, 9 and assets, property plant and achievability of the forecasts
10) equipment, and other assets included in the impairment
of the CGUs. model using a number of techniques
The estimated recoverable including assessing accuracy
amount of these balances is of historic forecasting, post
subjective due to the inherent year-end performance and industry
uncertainty involved in forecasting trends, including the impact
and discounting future cash of COVID-19 on each CGU.
flows, which form the basis We considered whether the
of the Group's value in use revenue, and where relevant
calculation and assessment associated costs, used in
of the carrying value of goodwill the value in use calculations
and intangible asset values. was reasonable in light of
Due to the impact of Covid-19 historic performance and industry
on the Group there is increased projections. This included
uncertainty surrounding management's using our own sector experience
trading assumptions. in challenging the key assumptions
We have determined as part made and performing sensitivity
of our risk assessment that analysis on these assumptions.
the value in use calculation These areas included the projected
used in the assessment of economic growth and cost inflation,
carrying value of goodwill margin and known or probable
and intangible assets has changes in the business environment.
a high degree of estimation We used our own valuation
uncertainty, with a potential specialists to challenge the
range of reasonable outcomes value in use and the fair
greater than our materiality value less cost to sell model.
for the financial statements We assessed the competence,
as a whole. The financial independence and expertise
statements disclose the sensitivities of the third-party expert
estimated by the Group. used by management in formulating
Key assumptions include revenue, the value in use model. We
gross margin, and cash flow also challenged management
forecast assumptions. and their third-party experts
The impairment test is also regarding the assumptions
based on key assumptions in made in the model including
respect of the appropriate the cash flow forecast, weighted
discount rates and longer-term average cost of capital and
growth rates. discount rate used. We benchmarked
As a result of the review, the key assumptions applied
management did not identify against a variety of similar
any impairments. businesses and considered
whether these fell within
our acceptable ranges. We
assessed whether the selected
price index was reasonable
by comparing this to other
data sources, including from
a number of similar businesses.
Key observations:
Based on the procedures we
performed, no issues arose
from our work that suggested
goodwill and intangible assets
are materially misstated.
--------------------------------------- ---------------------------------------
Net realisable The Group has significant Our procedures included assessing
value of levels of inventory and estimates the carrying value of inventory
inventory are made in the valuation as being appropriate at the
(with reference of slow moving and obsolete lower of cost of net realisable
to notes inventories, some of which value. This was done through
1 and 13) have a limited shelf life. testing a sample of items
There is also some uncertainty to their unit cost and then
over changes in consumer preferences to the average sale price
and spending patterns, which in the period leading up to
are primarily driven by wider and around the year end. Where
trends in the fashion industry there were indicators of negative
as well as seasonality, which margin or zero margin, we
could impact the saleability determined whether these balances
of inventory. were considered appropriately
There is a recoverability in the inventory provision
risk associated with new product balance.
launches and judgement is In addition, we considered
required in forecasting demand the principles and appropriateness
which can lead to obsolete of the Group's inventory provisioning
inventory. Given the level policies based on our understanding
of judgement and estimation of the business and the accuracy
involved by management, the of previous provisioning estimates.
carrying value of inventory We considered the inventory
is considered to be a key write off figure during the
audit matter. year and compared this to
the Group's expected recoveries
brought forward and to the
position at the yearend 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:
Based on the procedures we
performed, no issues arose
from our work that suggested
net realisable value of inventories
are materially misstated.
--------------------------------------- ---------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Group financial statements Parent company financial
statements
2020 2019 2020 2019
GBP GBP GBP GBP
---------------- --------------- --------------- ---------------
Materiality 245,000 248,000 150,000 100,000
---------------- --------------- --------------- ---------------
Basis for determining 5% of adjusted profit before 1.5% of Total assets capped
materiality tax (2020: capped to lower to address aggregation risk.
than previous year).
--------------------------------- --------------------------------
Rationale for We considered adjusted profit We considered total assets
the benchmark before tax (profit before to be the most appropriate
applied interest, tax, amortisation, measure for the basis of
and exceptional items) to materiality as the Parent
be the most Company is primarily an
appropriate measure for investment holding company.
the basis of materiality
given it is a key performance
indicator of the Group and
management.
Adjustments are included
in the consolidated statement
of comprehensive income
and note 4 to the financial
statements.
Adjusted measures have been
used 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.
For 2020, the benchmark
used is the average 3 years
adjusted profit before tax
to alleviate the fluctuations
caused by Covid-19.
--------------------------------- --------------------------------
Our application of materiality (continued)
Performance
materiality 183,750 186,000 112,500 75,000
Basis for determining 75% of Group materiality, 75% of Company materiality,
performance based on our overall risk based on our overall risk
materiality assessment. In setting the assessment. In setting the
level of performance materiality, level of performance materiality,
we considered a number of we considered a number of
factors including the control factors including the control
environment, our testing environment, our testing
strategy, the expected total strategy, the expected total
value of known and likely value of known and likely
misstatements (based on misstatements (based on
past experience and other past experience and other
factors) and management's factors) and management's
attitude towards proposed attitude towards proposed
adjustments. adjustments.
------------------------------------- -------------------------------------
Component materiality
We set materiality for each component of the Group based on a
percentage of between 47% and 90% (2019: 40% to 90%) of Group
materiality dependent on the size and our assessment of the risk of
material misstatement of that component. Component materiality
ranged from GBP116,000 to GBP221,000 (2019: GBP100,000 to
GBP223,000). In the audit of each component, we further applied
performance materiality levels of 75% of the component materiality
to our testing to ensure that the risk of errors exceeding
component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP12,250 (2019:
GBP12,400). We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
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. 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 course of 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 this gives rise to a material
misstatement in the financial statements themselves. 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.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic In our opinion, based on the work undertaken in the course
report and of the audit:
Directors' * the information given in the Strategic report and the
report 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.
In the light of the knowledge and understanding of the
Group and 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.
Matters on We have nothing to report in respect of the following
which we matters in relation to which the Companies Act 2006 requires
are required us to report to you if, in our opinion:
to report
by exception * adequate accounting records have not been kept by the
Parent Company, 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, 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.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
-- We obtained an understanding of the legal and regulatory
frameworks that are applicable to the group and the industry in
which it operates. We determined that the most significant laws and
regulations which are directly relevant to specific assertions in
the financial statements are those related to the reporting
framework, including international accounting standards in
conformity with the requirements of the Companies Act 2006, and
significant regulations relating to the sector in which the group
operates are employment and taxation laws and regulations in the
jurisdictions in which the Group operates.
-- We understood how the company is complying with those legal
and regulatory frameworks, including those under industry
regulation, by making enquiries of management and those responsible
for legal and compliance procedures. We corroborated our enquiries
through our review of board minutes and reviewing summary of
claims, litigations and regulatory inquiries that we have obtained
from the Group's Compliance Officer.
-- We assessed the susceptibility of the Group's financial
statements to material misstatement, including how fraud might
occur, by meeting with management from across the Group to
understand where they considered there was a susceptibility to
fraud.
-- Our audit planning identified fraud risks in relation to
management override and revenue recognition. We considered the
processes and controls that the Group has established to address
risks identified, or that otherwise prevent, deter and detect
fraud; and how management monitors that processes and controls.
-- We designed our audit procedures to detect irregularities,
including fraud. Our procedures included journal entry testing,
with a focus on large or unusual transactions based on our
knowledge of the business; existence of revenue, enquiries with the
Compliance Officer, the Group management; and focussed testing as
referred to in the Key Audit Matters section above.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available 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 Parent 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 Parent 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 Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Kieran Storan (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
27 April 2021
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
Year ended 31 December
2020 2019
----- ------------ -----------
Note GBP'000 GBP'000
----- ------------ -----------
Revenue 2 40,286 49,282
----- ------------ -----------
Cost of sales 2 (27,742) (32,780)
----- ------------ -----------
Gross profit 12,544 16,502
----- ------------ -----------
Administrative expenses 4,5 (13,807) (14,355)
----- ------------ -----------
Other operating income 3 361
----- ------------ -----------
Analysed as:
Adjusted profit from operations(1) 2,514 5,580
------------------------------------------ ----- ------------ -----------
Amortisation 4,10 (2,443) (2,439)
------------------------------------------ ----- ------------ -----------
Exceptional items 4 (317) (178)
------------------------------------------ ----- ------------ -----------
Share based payment 22 (656) (816)
------------------------------------------ ----- ------------ -----------
(Loss)/profit from operations (902) 2,147
----- ------------ -----------
Finance expense 6 (212) (370)
----- ------------ -----------
(Loss)/profit before tax (1,114) 1,777
----- ------------ -----------
Tax expense 7 111 (409)
----- ------------ -----------
(Loss)/profit for the year attributable
to equity holders of the parent company (1,003) 1,368
----- ------------ -----------
Other comprehensive income:
----- ------------ -----------
Item that will or maybe reclassified
to profit or loss:
----- ------------ -----------
Exchange gain/(loss) on translation of
foreign subsidiary 53 (12)
----- ------------ -----------
Total comprehensive income attributable
to equity holders of the parent company (950) 1,356
----- ------------ -----------
Basic earnings per share (pence) 27 (1.31) 1.78
----- ------------ -----------
Diluted earnings per share (pence) 27 (1.31) 1.78
----- ------------ -----------
Note 1 - Adjusted profit from operations is calculated as
earnings before interest, taxation, amortisation of intangible
assets, any impairment costs, share based payments and exceptional
items.
The notes on form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
As at 31 December
2020 2019
----- --------- ---------
Note GBP'000 GBP'000
----- --------- ---------
Non-current assets
----- --------- ---------
Goodwill 9 7,274 7,274
----- --------- ---------
Intangibles 10 4,651 7,082
----- --------- ---------
Property, plant, and equipment 11 1,149 684
----- --------- ---------
Right-of-use assets 12 3,799 4,685
----- --------- ---------
Deferred tax assets 18 581 374
----- --------- ---------
Total non-current assets 17,454 20,099
----- --------- ---------
Current assets
----- --------- ---------
Inventories 13 14,413 16,194
----- --------- ---------
Trade and other receivables 14 9,187 12,624
----- --------- ---------
Cash and cash equivalents 15 4,875 2,731
----- --------- ---------
Derivative financial instruments 24 40 39
----- --------- ---------
Total current assets 28,515 31,588
----- --------- ---------
Total assets 45,969 51,687
----- --------- ---------
Current liabilities
----- --------- ---------
Trade and other payables 16 (3,121) (3,933)
----- --------- ---------
Borrowings and lease liabilities 17 (914) (2,206)
----- --------- ---------
Derivative financial instruments 24 (400) -
----- --------- ---------
Corporation tax liability (119) (548)
----- --------- ---------
Total current liabilities (4,554) (6,687)
----- --------- ---------
Non-current liabilities
----- --------- ---------
Borrowings and lease liabilities 17 (3,045) (3,863)
----- --------- ---------
Deferred tax liability 18 (1,000) (1,324)
----- --------- ---------
Total non-current liabilities (4,093) (5,187)
----- --------- ---------
Total liabilities (8,599) (11,874)
----- --------- ---------
NET ASSETS 37,370 39,813
----- --------- ---------
2020 2019
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 89 36
--- --------- ---------
Share option reserves 21 1,633 977
--- --------- ---------
Retained earnings 13,202 16,354
--- --------- ---------
TOTAL EQUITY 37,370 39,813
--- --------- ---------
The notes form part of these financial statements.
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
27 April 2021
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
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 2019 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
--------- --------- --------- ---------- --------- ---------- --------
Comprehensive Income
for the year
--------- --------- --------- ---------- --------- ---------- --------
On translation of
foreign subsidiary - - - 53 - - 53
--------- --------- --------- ---------- --------- ---------- --------
Loss for the year - - - - - (1,003) (1,003)
--------- --------- --------- ---------- --------- ---------- --------
Total comprehensive
income for the year 53 (1,003) (950)
--------- --------- --------- ---------- --------- ---------- --------
Transactions with
owners
--------- --------- --------- ---------- --------- ---------- --------
Share based payment
charge - - - - 656 - 656
--------- --------- --------- ---------- --------- ---------- --------
Dividends paid - - - - - (2,149) (2,149)
--------- --------- --------- ---------- --------- ---------- --------
Total transactions
with owners 656 (2,149) (1,493)
--------- --------- --------- ---------- --------- ---------- --------
As at 31 December
2020 19,187 19,359 (16,100) 89 1,633 13,202 37,370
--------- --------- --------- ---------- --------- ---------- --------
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
Year ended 31 December
2020 2019
------ ------------ -----------
Note GBP'000 GBP'000
------ ------------ -----------
Operating activities
------ ------------ -----------
(Loss)/profit before tax (1,114) 1,777
------ ------------ -----------
Interest paid 6 212 370
------ ------------ -----------
Amortisation of intangible assets 10 2,443 2,439
------ ------------ -----------
Depreciation of property, plant, and equipment 11/12 1,252 1,194
------ ------------ -----------
Loss on disposal of property, plant, and
equipment 2 39
------ ------------ -----------
Share based payment 22 656 816
------ ------------ -----------
Decrease/(increase) in trade and other receivables 3,437 (327)
------ ------------ -----------
Decrease/(increase) in inventories 13 1,781 (832)
------ ------------ -----------
(Decrease)/increase in trade and other payables (812) 444
------ ------------ -----------
Fair value loss/(gain) on derivative financial
instruments 399 (39)
------ ------------ -----------
Foreign exchange translation differences 53 (13)
------ ------------ -----------
Cash generated from operations 8,309 5,868
------ ------------ -----------
Tax paid (853) (1,499)
------ ------------ -----------
Net cash flows from operating activities 7,456 4,369
------ ------------ -----------
Investing activities
------ ------------ -----------
Purchase of intangible assets 10 (12) (35)
------ ------------ -----------
Purchase of property, plant, and equipment 11 (869) (284)
------ ------------ -----------
Sale of property, plant, and equipment proceeds 21 -
------ ------------ -----------
Net cash used in by investing activities (860) (319)
------ ------------ -----------
Financing activities
------ ------------ -----------
Repayment of borrowings 17 (90) (83)
------ ------------ -----------
Lease payments (810) (811)
------ ------------ -----------
Decrease in stock and invoice finance facilities (1,191) (719)
------ ------------ -----------
Interest paid 6 (212) (370)
------ ------------ -----------
Dividends 19 (2,149) (3,377)
------ ------------ -----------
Net cash used in financing activities (4,452) (5,360)
------ ------------ -----------
Net increase/(decrease) in cash and cash
equivalents 2,144 (1,310)
------ ------------ -----------
Cash and cash equivalents at beginning of
period 2,731 4,041
------ ------------ -----------
Cash and cash equivalents at end of period 15 4,875 2,731
------ ------------ -----------
Cash and cash equivalents consist of:
------ ------------ -----------
Cash and cash equivalents 15 4,875 2,731
------ ------------ -----------
4,875 2,731
------ ------------ -----------
The notes form part of these financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS ATED 31 DECEMBER 2020
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 2020 were authorised for issue by the board
of directors 27 April 2021.
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 in accordance with international accounting standards
and in conformity with the requirements of the Companies Act. 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 accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 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.
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 pounds 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 Directors have concluded that it is reasonable to adopt a
going concern basis in preparing the financial statements. This is
based on a reasonable expectation that the Group has adequate
resources to continue in operational existence for at least twelve
months from the date of signing of these accounts. The Group made a
statutory loss of GBP1.0 million in the year to 31 December 2020
(2019: GBP1.4 million profit) and had net current assets of GBP24.0
million at 31 December 2020 (2019: GBP24.9 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.
The Directors have prepared forecasts covering the period to
December 2022, built from the detailed Board approved budget for
2021. The forecasts include a number of assumptions in relation to
varying levels of sales revenue. 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
leaving the European Union, 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 reasonable 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 2022, and in Retra within the level of its facility and
associated covenants.
The uncertainty as to the future impact on the Group of the
COVID-19 outbreak has been separately considered as part of the
directors' consideration of the going concern basis of preparation.
The Group experienced a material impact in trading performance due
to COVID-19 in 2020 and this has to a lesser extent continued into
2021 with many but not all customers closed at times in the UK and
overseas. In the downside scenario analysis performed, the
directors have considered the reasonably plausible impact of the
ongoing COVID-19 outbreak on the Group's trading and cash flow
forecasts.
In preparing this analysis, a number of scenarios were modelled
with the benefit of experience having come through the three
lockdowns in the UK in 2020. The scenarios modelled were all based
on varying levels of sales revenue, including no growth for 2021
and 2022, and more extreme falls in revenue of up to 30% in both
years as a worst-case scenario. In each scenario, mitigating
actions within the control of management have been modelled. 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 possible 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
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 obligations 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 and Alternative performance measures
Exceptional items which have been disclosed separately on the
face of the income statement in order to summarise the underlying
results. Exceptional items in the current period relate to
restructuring costs and legal and professional fees. Neither
'underlying profit or loss' nor 'exceptional items' are defined by
IFRS however the directors believe that the disclosures presented
in this manner provide a clearer presentation of the underlying
financial performance of the Group.
Alternative performance measures (APM's) are used by the Board
to assess the Group's performance and are applied consistently from
one period to the next. They therefore provide additional useful
information for shareholders on the underlying performance and
position of the Group. Additionally, adjusted profit from
operations is used to determine adjusted EPS which is used as a key
performance indicator for the Long-Term Incentive Plan (LTIP) and
the Company Share Option Scheme (CSOP). These measures are not
defined by IFRS and are not intended to be a substitute for IFRS
measures. The Group presents underlying operating profit, profit
before tax and EPS which are calculated as the statutory measures
stated before non-underlying items, including exceptional items,
amortisation of intangible assets and share-based payments where
applicable.
Underlying results are used in the day-to-day management of the
Group. They represent statutory measures adjusted for items which
could distort the understanding of performance and comparability
year on year. Non-underlying items include the amortisation of
intangible assets, exceptional items and share-based payments.
Exceptional items are those items which the group consider to be
significant in nature and not in the normal course of business or
are consistent with items that were treated as exceptional in prior
periods.
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 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.
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 reasonably 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 and
1 plant and machinery lease.
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 considered 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
New standards, interpretations and amendments effective from 1
January 2020.
There were no new standards or interpretations impacting the
Group that will be adopted in the annual financial statements for
the year ended 31 December 2020, and which have given rise to
changes in the Group's accounting policies.
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 amendments updating a reference to the Conceptual 1(st) January 2022
3 Framework
--------------------------------------------------- ----------------------
IFRS amendments regarding replacement issues in 1(st) January 2021
4, 7,9,16 the context of the IBOR reform
IAS
39
--------------------------------------------------- ----------------------
IFRS Amendments resulting from the annual improvements 1(st) January 2022
9 to IDRS Standards 2018-2020 (fees in the
'10 per cent' test for derecognition of financial
liabilities)
--------------------------------------------------- ----------------------
IFRS Amendments to address concerns and implementation 1(st) January 2023
17 challenges that were identified after IFRS
17 was published
--------------------------------------------------- ----------------------
IAS Amendments to defer the effective date of 1(st) January 2023
1 January 2020 amendments
Amendments regarding the disclosure of accounting
policies
--------------------------------------------------- ----------------------
IAS amendments regarding the definition of accounting 1(st) January 2023
8 estimates
--------------------------------------------------- ----------------------
IAS Amendments prohibiting a company from deducting 1(st) January 2022
16 from the cost of property, plant and equipment
amounts received from selling items while
the company is preparing the asset for its
intended use
--------------------------------------------------- ----------------------
IAS Amendments regarding the costs to include 1(st) January 2022
37 when assessing whether a contract is onerous
--------------------------------------------------- ----------------------
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.
Government Grants
Grants from the government are recognised at their fair value
where there is reasonable assurance that the grant will be received
and the group will comply with all attached conditions. Government
grants which are revenue in nature are recognised on a systematic
basis within Other operating income in the Statement of
Comprehensive income over the period in which the group recognises
as expenses the related costs for which the grants are intended to
compensate.
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 GBP251,000. 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 GBP137,000.
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 10, 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 8.03% to 9.03% would reduce the recoverable amount by
approximately GBP1.6 million and will still not result in any
impairment, while a one percent increase in the pre-tax discount
rate for Leeds Marketing Services, Inc. from 7.62% to 8.62% would
reduce the recoverable amount by approximately GBP1.3 million and
will still not result in any impairment.
c) Deferred tax assets
Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. The carrying
amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part
of the assets to be recovered.
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 2020 2020 2020 2019 2019 2019
Own Brand Close-out Total Own Brand Close-out Total
---------- ---------- --------- ---------- ---------- ---------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- --------- ---------- ---------- ---------
Revenue 35,397 4,889 40,286 41,619 7,663 49,282
---------- ---------- --------- ---------- ---------- ---------
Cost of sales (24,375) (3,367) (27,742) (27,086) (5,694) (32,780)
---------- ---------- --------- ---------- ---------- ---------
Gross profit 11,022 1,522 12,544 14,533 1,969 16,502
---------- ---------- --------- ---------- ---------- ---------
Administrative expenses (11,853) (1,637) (13,490) (13,110) (1,067) (14,177)
---------- ---------- --------- ---------- ---------- ---------
Exceptional items (279) (38) (317) (155) (23) (178)
---------- ---------- --------- ---------- ---------- ---------
Other operating income 317 44 361 - - -
---------- ---------- --------- ---------- ---------- ---------
Segment result (793) (109) (902) 1,268 879 2,147
---------- ---------- --------- ---------- ---------- ---------
Reconciliation of segment
result to profit before
tax:
---------- ---------- --------- ---------- ---------- ---------
Segment result (793) (109) (902) 1,268 879 2,147
---------- ---------- --------- ---------- ---------- ---------
Finance expense (212) - (212) (370) - (370)
---------- ---------- --------- ---------- ---------- ---------
Profit before tax (1,005) (109) (1,114) 898 879 1,777
---------- ---------- --------- ---------- ---------- ---------
Analysis of total revenue
by geographical market:
---------- ---------- --------- ---------- ---------- ---------
UK 16,909 4,233 21,142 17,863 4,838 22,701
---------- ---------- --------- ---------- ---------- ---------
Europe 5,271 48 5,319 6,289 680 6,969
---------- ---------- --------- ---------- ---------- ---------
Spain 4,555 72 4,627 7,268 - 7,268
---------- ---------- --------- ---------- ---------- ---------
Denmark 4,987 171 5,158 4,580 - 4,580
---------- ---------- --------- ---------- ---------- ---------
USA 1,790 358 2,148 2,825 2,131 4,956
---------- ---------- --------- ---------- ---------- ---------
Australia and New Zealand 1,206 - 1,206 1,408 2 1,410
---------- ---------- --------- ---------- ---------- ---------
Rest of World 679 7 686 1,386 12 1,398
---------- ---------- --------- ---------- ---------- ---------
Total 35,397 4,889 40,286 41,619 7,663 49,282
---------- ---------- --------- ---------- ---------- ---------
During the year ended 31 December 2020, there was no single
material external customer from which revenues were derived
exceeding 10% of annual sales. During the year ended 31 December
2019, revenues of approximately GBP5,269,000 were derived from a
single external customer based in Spain and GBP3,797,000 were
derived from a single external customer based in Denmark.
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 2020 2020 2020 2019 2019 2019
UK USA Total UK USA Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Goodwill 6,720 554 7,274 6,720 554 7,274
Intangibles 4,066 585 4,651 6,286 796 7,082
Property, plant and
equipment 1,142 7 1,149 675 9 684
Right of use assets 3,684 115 3,799 4,399 286 4,685
15,612 1,261 16,873 18,080 1,645 19,725
3. Other operating income
Year ended 31 December
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
Government grants receivable 361 -
------------ -----------
361 -
------------ -----------
The group applied for various government support Programs
introduced in response to the global pandemic.
Included within the consolidated statement of comprehensive
income is GBP361,000 of government grants obtained relating to
supporting the payroll of the Group's employees. The Group has
elected to present this government grant separately, rather than
reducing the related expense. The Group had to commit to spending
the assistance on payroll expenses, and not reduce employee
headcount below prescribed levels for a specified period of time.
The Group does not have any unfulfilled obligations relating to
this program.
4. Operating (loss)/profit
Operating (loss)/profit for the period is stated after
charging:
Year ended 31 December
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
Foreign exchange loss 420 227
------------ -----------
Depreciation 385 326
------------ -----------
Amortisation of right of use assets 867 868
------------ -----------
Amortisation of intangible assets 2,443 2,439
------------ -----------
Write-down inventories at net realisable value 312 83
------------ -----------
Exceptional costs 317 178
------------ -----------
The expenditure incurred within the table above falls wholly
within Administrative expenses.
Exceptional costs
Year ended 31 December
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
Non-recurring legal and professional fees 76 16
------------ -----------
Restructuring costs 241 162
------------ -----------
317 178
------------ -----------
Auditor's Remuneration
Analysis of auditor's remuneration is as follows:
Year ended 31 December
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
Fees payable to the Company's auditor for the
audit of the Group's annual accounts 60 49
------------ -----------
Fees payable to the Company's auditor for the
audit of subsidiary companies 89 102
------------ -----------
149 151
------------ -----------
Other services pursuant to legislation:
------------ -----------
Tax advice 26 12
------------ -----------
Other assurance 3 3
------------ -----------
Total non-audit fees 29 15
------------ -----------
5. Staff costs
Year ended 31 December
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
Wages and salaries 4,889 4,576
------------ -----------
Social security costs 407 449
------------ -----------
Pension costs 83 81
------------ -----------
5,379 5,106
------------ -----------
The average monthly number of employees during the period was as
follows:
Year ended 31 December
2020 2019
------------ -----------
No. No.
------------ -----------
Directors 6 7
------------ -----------
Administrative 27 40
------------ -----------
Finance 7 5
------------ -----------
Warehouse 53 45
------------ -----------
Sales 8 3
------------ -----------
Other 12 11
------------ -----------
113 111
------------ -----------
2020 2019
------------ -----------
Directors' remuneration, included in staff costs GBP'000 GBP'000
------------ -----------
Salaries 838 740
------------ -----------
Share based payments 545 674
------------ -----------
Benefits 18 16
------------ -----------
Pension contributions 3 2
------------ -----------
1,404 1,432
------------ -----------
Remuneration in respect of Directors was as follows:
Salary/fees Share based Benefits Pension 2020 2019
payment contribution
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ------------ --------- -------------- -------- --------
Executive Directors
------------ ------------ --------- -------------- -------- --------
S Bazini 230 240 10 - 480 493
------------ ------------ --------- -------------- -------- --------
E Macleod 230 240 8 - 478 491
------------ ------------ --------- -------------- -------- --------
N Rodol 180 63 - 1 244 253
------------ ------------ --------- -------------- -------- --------
S Craig 58 2 - 1 61 55
------------ ------------ --------- -------------- -------- --------
Non-executive Directors
------------ ------------ --------- -------------- -------- --------
C Garston 60 - - - 60 60
------------ ------------ --------- -------------- -------- --------
K Sadler 40 - - - 40 40
------------ ------------ --------- -------------- -------- --------
P Hagon 40 - - - 40 40
------------ ------------ --------- -------------- -------- --------
838 545 18 2 1,403 1,432
------------ ------------ --------- -------------- -------- --------
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
2020 in the in the 2020
year year
105,262
@237.5p 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
------------ ---------- ---------- ------------- --------- ------------ ------------
10,000@
237.5p 29/06/2020 29/06/2027
10,000@
S Craig 10,000 10,000 - 20,000 49.5p 20/05/2023 20/05/2030
------------ ---------- ---------- ------------- --------- ------------ ------------
Total share
options 3,492,230 10,000 - 3,502,230
------------ ---------- ---------- ------------- --------- ------------ ------------
The directors of the Group are the only key management
personnel.
6. Financial Expense
Year ended 31 December
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
Loan interest 18 26
------------ -----------
Lease liability interest 143 225
------------ -----------
Other interest 51 119
------------ -----------
212 370
------------ -----------
7. Income tax
Year ended 31 December
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
Current tax expense
------------ -----------
Current tax on profits for the period 429 1,102
------------ -----------
Adjustment in respect of previous periods - (75)
------------ -----------
429 1,027
------------ -----------
Deferred tax expense
------------ -----------
Origination and reversal of temporary differences (544) (618)
------------ -----------
Total tax expense (111) 409
------------ -----------
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
2020 2019
------------ -----------
GBP'000 GBP'000
------------ -----------
(Loss)/Profit for the period before taxation (1,114) 1,777
------------ -----------
Expected tax charge based on corporation tax
rate of 19% (2019: 19%) (212) 337
------------ -----------
Expenses not deductible for tax purposes 29 170
------------ -----------
Other adjustments 2 5
------------ -----------
Different tax rates applied in overseas jurisdiction (69) 86
------------ -----------
Adjustments in relation to prior year - (75)
------------ -----------
Adjustment to deferred tax to average rate 139 (114)
------------ -----------
Total tax expense (111) 409
------------ -----------
The UK corporation tax at the standard rate for the year is
19.0% (2019: 19.0%).
The Group's effective tax rate for the year is 19.30% (2019:
25.19%).
8. 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 Dormant 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.
9. Goodwill
Cost GBP'000
At 1 January 2020 8,086
--------
At 31 December 2020 8,086
--------
Impairment
--------
At 31 December 2019 812
--------
Impairment during the year -
--------
At 31 December 2020 812
--------
Net book value
--------
At 31 December 2020 7,274
--------
At 31 December 2019 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 business/CGU at the date of acquisition. The carrying
value at 31 December 2020 includes Treasured Scents Limited
(Close-out business) of GBP513,000, Retra Holdings Limited
GBP6,207,000 and Marvin Leeds Marketing Services, Inc.
GBP554,000.
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 10.1% (2019:
15.6%) for Retra Holdings Limited and 8.0% (2019: 14.1%) 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% (2019: 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 15.6% in revenue over the next five years.
For Retra, the growth rate over the next year is anticipated to be
9.8% increasing to approximately 10.0% 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 10.1% for Retra
Holdings Limited and 8.0% for Marvin Leeds Marketing Services, Inc.
reflects the Directors' estimate of an appropriate rate of return,
considering 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 2019 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
-------- --------- -------- -------- --------- --------
Additions - - 12 - - 12
-------- --------- -------- -------- --------- --------
At 31 December 2020 3,802 8,240 264 45 6 12,357
-------- --------- -------- -------- --------- --------
Accumulated amortisation
-------- --------- -------- -------- --------- --------
At 1 January 2019 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
-------- --------- -------- -------- --------- --------
Charge for the year 765 1,644 24 9 1 2,443
-------- --------- -------- -------- --------- --------
At 31 December 2020 2,350 5,198 116 37 5 7,706
-------- --------- -------- -------- --------- --------
Net book value
-------- --------- -------- -------- --------- --------
At 31 December 2020 1,452 3,042 148 8 1 4,651
-------- --------- -------- -------- --------- --------
At 31 December 2019 2,217 4,686 160 17 2 7,082
-------- --------- -------- -------- --------- --------
At 1 January 2019 2,978 6,332 147 26 3 9,486
-------- --------- -------- -------- --------- --------
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 2019 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
--------------- -------------- ----------- ---------- --------
Additions 2 825 42 - 869
--------------- -------------- ----------- ---------- --------
Disposals - - - (21) (21)
--------------- -------------- ----------- ---------- --------
At 31 December 2020 252 1,673 344 120 2,389
--------------- -------------- ----------- ---------- --------
Accumulated depreciation
--------------- -------------- ----------- ---------- --------
At 1 January 2019 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
--------------- -------------- ----------- ---------- --------
Charge for year 41 257 70 17 385
--------------- -------------- ----------- ---------- --------
On disposals - - - (2) (2)
--------------- -------------- ----------- ---------- --------
At 31 December 2020 100 785 251 104 1,240
--------------- -------------- ----------- ---------- --------
Net book value
--------------- -------------- ----------- ---------- --------
At 31 December 2020 152 888 93 16 1,149
--------------- -------------- ----------- ---------- --------
At 31 December 2019 191 320 121 52 684
--------------- -------------- ----------- ---------- --------
At 1 January 2019 664 443 169 82 1,358
--------------- -------------- ----------- ---------- --------
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
---------- ----------- ----------- --------
Additions 139 - - 139
---------- ----------- ----------- --------
Disposals (303) - - (303)
---------- ----------- ----------- --------
At 31 December 2020 4,796 760 77 5,633
---------- ----------- ----------- --------
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
---------- ----------- ----------- --------
Charge for the year 702 150 15 867
---------- ----------- ----------- --------
Disposals (145) - - (145)
---------- ----------- ----------- --------
At 31 December 2020 1,286 471 77 1,834
---------- ----------- ----------- --------
Net Book Value
---------- ----------- ----------- --------
At 31 December 2020 3,510 289 - 3,799
---------- ----------- ----------- --------
At 31 December 2019 4,231 439 15 4,685
---------- ----------- ----------- --------
13. Inventories
As at 31 December
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
Finished goods 14,934 16,387
--------- ---------
Provision (521) (193)
--------- ---------
14,413 16,194
--------- ---------
The cost of inventories recognised as an expense and included in
'cost of sales' amounted to GBP24.30 million in the year ended 31
December 2020 (2019: GBP29.11 million).
14. Trade and other receivables
As at 31 December
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
Trade receivables - gross 7,750 10,310
--------- ---------
Provision for impairment of trade receivables (44) (44)
--------- ---------
Trade receivables - net 7,706 10,266
--------- ---------
Other receivables 600 1,237
--------- ---------
Prepayments and accrued income 881 1,121
--------- ---------
Total 9,187 12,624
--------- ---------
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 GBPNil (2019: GBP506,000) 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
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
Accumulated impairment losses at 1 January 44 114
--------- ---------
Additional impairment losses recognised/(released)
during the year, net 256 (10)
--------- ---------
Amounts written off during the year as uncollectible (256) (60)
--------- ---------
Accumulated impairment losses at 31 December 44 44
--------- ---------
The impairment losses recognised during the year of GBP256,000
(2019: credit of GBP10,000 relating to the recovery of amounts
previously written off as uncollectable).
Contract Liabilities
As at 31 December
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
At 1 January 321 305
--------- ---------
Amounts included in contract liabilities that
was recognised as revenue during the period 611 660
--------- ---------
Amounts settled during the period (640) (644)
--------- ---------
At 31 December 292 321
--------- ---------
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
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
Cash at bank and in hand 4,875 2,731
--------- ---------
4,875 2,731
--------- ---------
16. Trade and other payables
As at 31 December
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
Current
--------- ---------
Trade payables 1,439 957
--------- ---------
Social security and other taxes 523 546
--------- ---------
Other payables 32 58
--------- ---------
Accruals and deferred income 1,127 2,372
--------- ---------
Total 3,121 3,933
--------- ---------
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
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
Bank loans
--------- ---------
Repayable within 1 year 48 1,281
--------- ---------
Repayable within 2 - 5 years - 48
--------- ---------
48 1,329
--------- ---------
Lease liabilities
--------- ---------
Repayable within 1 year 866 925
--------- ---------
Repayable within 2 - 5 years 2,375 2,584
--------- ---------
Repayable in more than 5 years 670 1,231
--------- ---------
3,911 4,740
--------- ---------
Total
--------- ---------
Repayable within 1 year 914 2,206
--------- ---------
Repayable within 2 - 5 years 2,375 2,632
--------- ---------
Repayable in more than 5 years 670 1,231
--------- ---------
3,959 6,069
--------- ---------
Lease liabilities
As at 31 December
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)
---------- ----------- ----------- --------
As at 31 December 2019 4,326 398 16 4,740
---------- ----------- ----------- --------
Lease additions 139 - - 139
---------- ----------- ----------- --------
Lease disposals (158) - - (158)
---------- ----------- ----------- --------
Interest expense 97 44 2 143
---------- ----------- ----------- --------
Lease payments (745) (190) (18) (953)
---------- ----------- ----------- --------
As at 31 December 2020 3,659 252 - 3,911
---------- ----------- ----------- --------
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 GBP2,617 has been expensed to the statement of
comprehensive income in respect of low value operating leases.
Interest payments of GBP4,501 have also been expensed in respect of
leases that expired during the period.
The interest rates expected are as follows:
As at 31 December
2020 2019
--------- ---------
% %
--------- ---------
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 GBPNil (2019: GBP1,086,000 invoice financing). The
carrying value of assets pledged as collateral approximates to
GBPNil (2019: GBP1,086,000).
18. Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rate of 19% - 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
------------------------- -------------------------
2020 2019 2020 2019
------------- ---------- ------------ -----------
GBP'000 GBP'000 GBP'000 GBP'000
------------- ---------- ------------ -----------
Opening balance (1,324) (1,796) 374 241
------------- ---------- ------------ -----------
Foreign exchange adjustment 3 - (16) (13)
------------- ---------- ------------ -----------
Recognised in profit
and loss:
------------- ---------- ------------ -----------
Tax expense 321 472 223 146
------------- ---------- ------------ -----------
Closing balance (1,000) (1,324) 581 374
------------- ---------- ------------ -----------
The deferred tax liability has arisen due to the timing
difference on accelerated capital allowances amounting to GBP42,000
(2019: GBP37,000) and on the intangible assets acquired in a
business combination amounting to GBP1,057,000 (2019:
GBP1,057,000).
Deferred tax asset has arisen from loss carry forward for LMS
amounting to GBP2,323,000 (2019: GBP1,497,000) and recognised at a
rate of 25%.
19. Dividends
Year to December 2020 Paid Amount per Total
share GBP'000
Final dividend - 2019 - - -
----------- ----------- ---------
Interim dividend - 2020 20 Nov 20 2.8p 2,149
----------- ----------- ---------
2,149
------------------------------------- ----------- ---------
Year to December 2019 Paid Amount per Total
share GBP'000
----------- ----------- ---------
Final dividend - 2018 11 Jul 19 2.9p 2,226
----------- ----------- ---------
Interim dividend - 2019 12 Nov 19 1.5p 1,151
----------- ----------- ---------
3,377
------------------------------------- ----------- ---------
20. Called up share capital
No of shares
'000 GBP'000
------- --------
Allotted and issued
------- --------
Ordinary shares of GBP0.25 each:
------- --------
At 1 January 2019 and 2020 76,749 19,187
------- --------
At 31 December 2019 and 2020 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 Scents (2014) Limited on 11 November 2016.
The shareholders of Treasured Scents (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)
2020 2020 2019 2019
------------------ ------------ ------------------ ----------
Outstanding at the beginning
of the year 253.45 4,088,302 253.52 4,070,617
------------------ ------------ ------------------ ----------
Granted during the year 49.50 454,686 - -
------------------ ------------ ------------------ ----------
Expired during the year 83.36 (14,026) 237.50 (3,368)
------------------ ------------ ------------------ ----------
Period adjustments - - 237.50 21,053
------------------ ------------ ------------------ ----------
Outstanding at the end
of the year 233.50 4,528,962 253.45 4,088,302
------------------ ------------ ------------------ ----------
The weighted average remaining contractual life of the options
is 3.0 years (2019: 4.0 years).
The following options over ordinary shares have been granted by
the Company:
Exercise price Exercise period Number of
options
Pence (years)
--------------- ---------------- ----------
29 June 2017 237.50 3 255,051
--------------- ---------------- ----------
24 September 2018 254.50 5 3,837,462
--------------- ---------------- ----------
20 May 2020 49.50 3 454,686
--------------- ---------------- ----------
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:
20 May 2020 24 Sept 18 29 June 17
Expected volatility 76% 78% 64%
------------ ----------- -----------
Expected life (years) 3 2-4 3
------------ ----------- -----------
Risk-free interest rate 0.01% 1.61% 0.38%
------------ ----------- -----------
Expected dividend yield 2.08% 1.53% 2%
------------ ----------- -----------
Fair value per option (GBP) 0.213 0.422 0.963
------------ ----------- -----------
On 20 May 2020, the Company granted, in aggregate, 454,686 share
options with an exercise price of 49.50 pence per Ordinary share
under a Company Share Option Plan (CSOP). Key persons discharging
managerial responsibilities (PDMR's) were awarded a cumulative
112,106 share options as part of their annual remuneration and
incentivisation packages. The remaining 342,580 options granted
have been awarded to other members of the company's workforce. No
directors of the company were awarded options in relation to this
CSOP. The options are exercisable for a period of seven years from
20 May 2023, subject to the same performance conditions dictated by
the Enterprise Management Incentive Scheme detailed below.
On 24 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 GBP656,000 (2019:
GBP816,000).
23. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation.
Key management personnel are considered to be the directors.
Compensation of the directors is disclosed in note 5 with the
exception of dividends and drawings which are disclosed in note
19.
During 2020, Warpaint Cosmetics (2014) Limited paid rent in the
sum of GBP120,000 (2019: 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
(2019: GBPNil).
During 2020, Warpaint Cosmetics (2014) Limited paid rent in the
sum of GBP120,000 (2019: GBP120,000) to Trading Scents Group
Limited, of which E Macleod is a director. At the year end the
amount due from Trading Scents Group Limited was GBP1,000 (2019:
GBPNil).
During 2020, Retra Holdings Limited paid rent in the sum of
GBP340,000 (2019: GBP340,000) to Warpaint Cosmetics Limited, of
which E Macleod and S Bazini are directors.
During 2020, the Group renewed its contract with Ward &
Hagon Management Consulting LLP for a further 12 months ("Ward
& Hagon"). Ward & Hagon, a provider of practical business
solutions, were initially appointed in February 2020 to assist the
Group in implementing its strategic growth plan. The Contract has a
total annual value of GBP210,000, and includes the services of Paul
Hagon, an executive director of the Group and Martyn Ward, amongst
other members of the Ward & Hagon team. During 2020, the Group
paid GBP200,000 in consultancy fees and GBP7,299 in expenses. At
the year end the amount due from Ward & Hagon was GBPNil. In
addition, Ward & Hagon will be paid a commission of 3% on all
sales generated from their introductions in the 12-month period
from the point of first sale, and 4% on all sales generated from
their introductions in the 12-month period thereafter. Paul Hagon,
an executive director of Warpaint London Plc, is a member of Ward
& Hagon and therefore the contract renewal constitutes a
related party transaction under the AIM Rules for Companies.
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 GBP32,389,000 as at 31 December 2020
(2019: GBP35,541,000) 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
2020 2019
----------------------- -----------------
GBP'000 GBP'000
----------------------- -----------------
Financial assets
----------------------- -----------------
Financial assets at amortised cost:
----------------------- -----------------
Trade and other receivables 8,306 11,503
----------------------- -----------------
Financial assets measured at fair value
through the profit and loss:
----------------------- -----------------
Cash and cash equivalents 4,875 2,731
----------------------- -----------------
Derivative financial instruments 40 39
----------------------- -----------------
13,221 14,279
----------------------- -----------------
Financial liabilities
----------------------- -----------------
Financial liabilities at amortised cost:
----------------------- -----------------
Trade and other payables (2,598) (3,387)
----------------------- -----------------
Loan and borrowings (3,959) (6,069)
----------------------- -----------------
Financial liabilities measured at fair value
through the profit and loss:
----------------------- -----------------
Derivative financial instruments (400) -
----------------------- -----------------
(6,957) (9,456)
----------------------- -----------------
Net 6,264 4,823
----------------------- -----------------
Financial assets measured at fair value through the profit and
loss comprise cash and cash equivalents and derivative financial
instruments.
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 GBP7,000 (2019:
GBP21,000) 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 2020, the Group has trade receivables of
GBP7,706,000 (2019: GBP10,266,000).
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
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
Current 4,682 7,416
--------- ---------
1 - 30 days 1,801 1,981
--------- ---------
31 - 60 days 944 456
--------- ---------
61 - 90 days 220 155
--------- ---------
91 + days 103 302
--------- ---------
Provision for impairment of trade receivables (44) (44)
--------- ---------
Total trade receivables - net 7,706 10,266
--------- ---------
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
2020 2019
--------------------------- --------------------------
GBP'000 % GBP'000 GBP'000 % GBP'000
-------- ------- -------- -------- ------ --------
Current 4,682 0.135 6 7,416 0.096 7
-------- ------- -------- -------- ------ --------
1 - 30 days 1,801 0.405 7 1,981 0.288 6
-------- ------- -------- -------- ------ --------
31 - 60 days 944 1.215 11 456 0.864 4
-------- ------- -------- -------- ------ --------
61 - 90 days 220 3.645 8 155 2.592 4
-------- ------- -------- -------- ------ --------
91 + days 103 10.935 12 302 7.776 23
-------- ------- -------- -------- ------ --------
44 44
-------- ------- -------- -------- ------ --------
Credit quality of financial assets
As at 31 December
2020 2019
--------- ---------
Trade receivables, gross (note 14): GBP'000 GBP'000
--------- ---------
Receivable from large companies 4,270 6,561
--------- ---------
Receivable from small or medium-sized companies 412 855
--------- ---------
Total neither past due nor impaired 4,682 7,416
--------- ---------
As at 31 December
2020 2019
--------- ---------
Past due but not impaired: GBP'000 GBP'000
--------- ---------
Less than 30 days overdue 1,801 1,981
--------- ---------
30 - 90 days overdue 1,223 869
--------- ---------
Total past due but not impaired 3,024 2,850
--------- ---------
Lifetime expected loss provision:
Less than 30 days overdue - 13
------ -------
30 - 90 days overdue 44 31
------ -------
Total lifetime expected loss provision (gross) 44 44
------ -------
Less: Impairment provision (44) (44)
------ -------
Total trade receivables, net of provision
for impairment 7,706 10,266
------ -------
Cash and cash equivalents, neither past due nor impaired
(Moody's ratings of respective counterparties):
As at 31 December
2020 2019
--------- ---------
GBP'000 GBP'000
--------- ---------
AAA rated 10 7
--------- ---------
AA rated 303 786
--------- ---------
A rated 1,115 -
--------- ---------
BAA rated 3,447 1,938
--------- ---------
Total cash and cash equivalents 4,875 2,731
--------- ---------
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 (2019:
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 2020
Less than Between Between Over 5 years Total
6 months 6 months 1 and 5
and 1 year years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ------------ --------- ------------- --------
Trade payables 1,439 - - - 1,439
---------- ------------ --------- ------------- --------
Other payables 32 - - - 32
---------- ------------ --------- ------------- --------
Accruals 1,127 - - - 1,127
---------- ------------ --------- ------------- --------
Loans and borrowings 491 444 2,526 686 4,147
---------- ------------ --------- ------------- --------
3,089 444 2,526 686 6,745
---------- ------------ --------- ------------- --------
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
---------- ------------ --------- -------- --------
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 2020,
there were total sums of GBP375,000 (2019: GBP255,000) 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 2020, the
net foreign liability was GBP0.4m (2019: 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.
2020 2019
GBP'000 GBP'000
-------- --------
Derivatives carried at fair value:
-------- --------
Exchange (loss)/gain on forward foreign currency
contracts (360) 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 2020, the group has 42 (2019: 33) 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 2020 2019 2020 2019
GBP/$ GBP/EUR
---------------- ----------------
3 months or less 1.3353 1.2953 1.1082 1.1394
------- ------- ------- -------
3 to 6 months 1.3222 1.3280 1.1099 1.1405
------- ------- ------- -------
6 to 12 months 1.3265 - 1.1024 -
------- ------- ------- -------
b) Contract value 2020 2019 2020 2019
GBP/$ GBP/EUR
------------------ ------------------
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
3 months or less 2,620 4,723 947 904
-------- -------- -------- --------
3 to 6 months 7,008 6,408 2,479 2,899
-------- -------- -------- --------
6 to 12 months 3,766 - 1,133 -
-------- -------- -------- --------
13,394 11,131 4,559 3,803
-------- -------- -------- --------
c) Foreign currency 2020 2019 2020 2019
$'000 $'000 EUR'000 EUR'000
------- ------- -------- --------
3 months or less 3,500 6,175 1,050 1,030
------- ------- -------- --------
3 to 6 months 9,254 8,500 2,750 3,335
------- ------- -------- --------
6 to 12 months 5,000 - 1,250 -
------- ------- -------- --------
17,754 14,675 5,050 4,365
------- ------- -------- --------
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
GBP91,019 (2019: GBP80,210).
26. Controlling party
In the opinion of the directors there is no ultimate controlling
party.
27. Earnings/(loss) 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.
2020 2019
Basic earnings/(loss) per share (pence) (1.31) 1.78
-------- --------
Diluted earnings per/(loss) share (pence) (1.31) 1.78
-------- --------
The calculation of basic and diluted earnings/(loss)
per share is based on the following data:
-------- --------
2020 2019
-------- --------
Earnings GBP'000 GBP'000
-------- --------
Earnings for the purpose of basic earnings per
share, being the net (loss)/profit (1,098) 1,368
-------- --------
Number of shares 2020 2019
Weighted number of ordinary shares for the purpose
of basic earnings per share 76,749,125 76,749,125
----------- -----------
Potentially dilutive shares awarded 67,040 -
----------- -----------
Weighted number of ordinary shares for the purpose
of diluted earnings per share 76,816,165 76,749,125
----------- -----------
The 4,088,302 share options (2019: 4,088,302) in issue
throughout the year 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 additional 454,686 share options granted 20 May 2020 have
been included in the computation of diluted earnings per share as
the exercise price of the options is below the average annual
market price of Ordinary shares.
28. Notes supporting statement of cash flows
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 2019 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
------------ ------------ --------
Non-cash flows: (19) (19)
------------ ------------ --------
Cash flows - (2,091) (2,091)
------------ ------------ --------
Reclassification from Non-current loans
and borrowings to current loans and
borrowings (819) 819 -
------------ ------------ --------
At 31 December 2020 3,045 914 3,959
------------ ------------ --------
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April 28, 2021 02:00 ET (06:00 GMT)
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