TIDMREVB
RNS Number : 9402K
Revolution Beauty Group PLC
31 August 2023
T his announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the Company's obligations under Article 17 of MAR.
REVOLUTION BEAUTY GROUP PLC
("Revolution Beauty", the "Group" or the "Company")
AUDITED FINAL RESULTS FOR THE YEARED 28 FEBRUARY 2023
Improving trading performance during period of change
Suspension of shares traded on the London Stock Exchange
successfully lifted post period end
Revolution Beauty Group plc (AIM: REVB), the multi-channel mass
beauty innovator, today announces its Full Year Results for the
year ended 28 February 2023 ("FY23" or the "Period").
The Group delivered a resilient performance during the Period,
despite continuing to be impacted by previously flagged issues
Identified around stock, revenue and the carrying value of
Revolution Labs.
Nonetheless, trading improved as the year progressed, with the
return of top line revenue growth and positive EBITDA in H2; this
follows operational and commercial changes made by the new
management team.
Since the year end, this trend has continued, and the Group is
pleased to be performing ahead of internal expectations.
Key financials
Group results Year ended 28 Year ended 28
February 2023 February 2022
Restated Change YoY
GBP'M GBP'M GBP'M
Revenue 187.8 184.6 3.2
---------------- ---------------- --------------
Gross profit 75.9 71.0 4.9
---------------- ---------------- --------------
Gross profit
% 40.4% 38.5% 1.9%
---------------- ---------------- --------------
Adj EBITDA (7.5) (0.8) (6.7)
---------------- ---------------- --------------
Operating loss (30.6) (39.9) 9.3
---------------- ---------------- --------------
Net finance costs (3.3) (6.0) 2.7
---------------- ---------------- --------------
Loss before tax (33.9) (45.9) 12.0
---------------- ---------------- --------------
Income tax credit 0.2 1.6 (1.4)
---------------- ---------------- --------------
Loss for the
year (33.6) (44.3) 10.7
---------------- ---------------- --------------
Gross Cash 11.0 15.6 (4.6)
---------------- ---------------- --------------
Net Debt (21.0) (8.4) (12.6)
---------------- ---------------- --------------
Financial Highlights
-- Group revenue increased by 1.7% to GBP187.8m (2022:
GBP184.6m) primarily due to the reopening of physical stores. Store
revenue increased by 8.1%; Online sales were lower by 12.1%
-- Gross profit margin increased by 190bps to 40.4%, primarily
due to improved stock management and reduced freight costs
-- Adjusted EBITDA loss widened to GBP7.5m (FY22: GBP0.8m) due
to increased marketing expenses and higher staffing costs due
primarily to increased headcount, partly offset by improved margin;
loss after tax narrowed to GBP33.6m (FY22: GBP44.3m)
-- Significant improvement in year-on-year operating cash flow.
Cash balance at year end of GBP11m. Banking facility fully drawn at
GBP32.0m, GBP8.0m of which was drawn in the Period, resulting in
net debt balance of GBP21.0m at the year end
-- New inventory provisioning methodology adopted by the Group
in FY22, tight inventory control introduced during H2, resulting in
the reduction in the inventory provision for FY23 of GBP6.0m (FY22
increase: GBP11.3m)
Operational Highlights
-- Rigorous new internal controls and protocols introduced
across Group functions and departments; suspension of Group's
shares successfully lifted post period-end
-- Improving trading performance and maintained strong
stakeholder relationships during a period of significant and
well-publicised upheaval for the Group
-- Continued to successfully fulfil consumer demand for
Revolution Beauty's relevant, affordable and multichannel offer
-- Growth in store revenues driven by new distribution in Boots in UK and Walgreen in US
-- Rationalisation of product range, with focus redoubled on
successful core products and attractive 'Make Up Revolution'
brand
-- Appointment of the Group's first Chief Marketing Officer post
period end, demonstrating strategic intent to grow across core
markets of US, UK and Germany
-- The Group will be announcing imminently the appointment of a
new CEO. They will replace Bob Holt, who as previously announced,
stands down today. Alistair McGeorge will become the Non-Executive
Chair when the new CEO joins the business
-- On March 2023 the Group announced it secured an amended
facility agreement with its banking partners which runs through to
October 2024. The overall size of the facility was agreed at
GBP32m, reduced from GBP40m, and is fully drawn. Revised covenants
remain in place and the Group continues to enjoy the support of its
banking partners
Current Trading and Outlook
-- Post period-end, trading has continued to perform ahead of
expectations. As previously announced, sales in Q1 FY24 increased
by 60% on the prior year (Q1 FY23 sales were particularly weak due
to customers previously overstocking) with EBITDA at GBP3.5m (Q1
FY23: GBP7.4m loss)
-- While the Board is mindful of the external environment, it
remains confident in the future opportunities open to Revolution
Beauty, given its relevant, affordable and multichannel offer. As
previously disclosed, the current expectation for FY24 is high
single digit growth in revenue, and adjusted EBITDA in the high
single digit millions
-- The Group currently has a cash balance of GBP10.5m, and remains fully drawn on its facility
Alistair McGeorge, Executive Chairman, commented:
"This solid Group trading performance has been achieved during a
period of well-publicised upheaval for the business. To that end, I
would like to thank my predecessor Derek Zissman, Bob Holt and
Elizabeth Lake for their efforts over the past twelve months.
Firstly in maintaining the commercial performance of the Group
while also overseeing the implementation of new internal protocols
and the lifting of the suspension of the Group's shares which are
traded on AIM.
"While I have only been with Revolution Beauty for a short
period, it is clear to me that the business has the right
attributes in place. The expertise of colleagues, combined with the
relevance, affordability and strength of the Revolution brand gives
me confidence that we can achieve continued growth across our core
markets. .
"While there is still a lot of work to be done, I look forward
to supporting our new CEO, to build on recent momentum within the
business, and achieve long-term sustainable growth within what is a
large and attractive beauty market."
For further information please contact:
Investor Relations Investor.Relations@revolutionbeautyplc.com
Elizabeth Lake
Joint Corporate Brokers
Zeus (NOMAD): Nick Cowles /Jamie Tel: +44 (0) 161 831 1512
Peel /Jordan Warburton Tel: +44 (0) 203 100 2222
Liberum: Clayton Bush / Edward
Thomas / Miquela Bezuidenhoudt
Media enquiries Tel: +44 (0)20 3805 4822
Headland Consultancy Revolutionbeauty@headlandconsultancy.com
Matt Denham / Will Smith / Antonia
Pollock
About Revolution Beauty
Revolution Beauty is a global mass beauty and personal care
business which operates a multi brand, multi category strategy and
sells its products both direct-to-consumer (DTC) via its e-commerce
operations, and in physical and digital retailers through wholesale
relationships.
Today, the Group has a retail footprint of c.17,000 doors across
leading retail chains in the UK, USA and other international
markets. Revolution Beauty has access to a wide customer base,
predominantly aged between 16 and 35, through its digital partners
and own DTC platform. It has established and invested to streamline
its supply chain with its own manufacturing facility in the UK, and
third-party warehousing facilities across the UK, USA and
Australia. The Group has offices in the UK, USA, New Zealand and
Germany. Revolution Beauty currently employs 347 people.
The total mass beauty market was worth $218bn in 2022 and is
expected to grow to $255bn over the next 3 years (source:
Euromonitor). Revolution Beauty has been a leading innovator
building a significant global following across social channels,
enabling it to spot trends and respond quickly to consumer demand,
and translating this to mass market beauty retail.
CHAIR'S STATEMENT
I am delighted to present my first report as Executive Chair of
Revolution Beauty. This is an exciting time for the business as we
seek to capitalise on its undoubted strengths.
As has been well publicised, the business has suffered a number
of significant commercial and financial shortcomings. These have
been outlined in detail in the FY22 annual report. Most of these
are now behind us and this is due to the successful actions of my
predecessor as Chair, Derek Zissman, outgoing CEO Bob Holt and the
wider executive team. With a new Board now in place we can look
forward to driving sustainable profitable growth.
LIFTING OF SHARE SUSPENSION
Over the past year, the over-riding priority for the business,
its shareholders and stakeholders has been to lift the suspension
of trading in the Group's shares.
As set out in our FY22 annual report and accounts, the Company's
shares were suspended on 1 September 2022. The focus of the Board
from then was to work tirelessly to restore trading in the
Company's shares for the benefit of all stakeholders.
The hurdles to getting the suspension lifted were,
-- the completion of the FY22 audit (annual report and accounts published 26 May 2023).
-- the publication of the FY23 interims (published 2 June 2023).
-- completion of a report on the Group's working capital carried
out by KPMG and similarly a report on the updated Financial
Position and Prospects Procedures (FPPP).
-- a fully constituted Board with four independent non-executive directors (27 June 2023).
With the publication of the interim results on 2 June 2023, the
Company had met the conditions for re-listing, and it also gave
notice of the date of the AGM 27 June 2023.
Following considerable work from the whole Revolution Beauty
team, the Company's shares were restored to trading on AIM
(Alternative Investment Market) on 28 June 2023
CORPORATE GOVERNANCE, BOARD AND MANAGEMENT CHANGES
The Group has adopted the Quoted Companies Alliance Corporate
Governance Code 2018 (QCA Code) and the Board remains committed to
upholding the highest levels of corporate governance. The Board
acknowledges that in some areas this was not historically the case,
and has taken significant measures to address these historic and
complex matters which were the subject of an Independent
Investigation.
Between the start of FY23 and the request from boohoo Group Plc
for Board representation, there have been a number of significant
changes to the Board and management of the business:
Andrew Clark announced his intention to step down as a director
and CFO of the Company on 12 May 2022. On the same date, we
welcomed Elizabeth Lake as director and Chief Financial
Officer.
In November 2022, it was announced that due to the events since
IPO and the transition from a private company to a public company,
Chief Executive Officer Adam Minto resigned as a Director of the
Group and stepped down from the business with immediate effect. Bob
Holt had been appointed as Interim Chief Operating Officer in
October and was subsequently appointed Chief Executive Officer and
a Director on 28 November 2022.
In December 2022, Gita Samani and Edward Rumsey also resigned
from the Board.
On completion of the FY22 audit, Tom Allsworth resigned as a
Director of the Group on 24 May 2023.
Under the leadership of Bob Holt, two Non-Executive Directors
("NEDs") with significant listed company and commercial experience
(Rachel Maguire and Matthew Eatough) were appointed to strengthen
the Board and help stabilise it at a time of intense corporate
activity. Following the settlement announcement with boohoo Group
Plc, three further NEDs were appointed (Peter Hallett, Neil Catto
and Rachel Horsefield) to reflect the change in leadership,
bringing with them experience closely aligned to the direction of
the new leadership team.
Following these appointments, as at the date of this Report, the
Board has six NEDs and this will increase to seven imminently once
the new CEO is appointed and I become a non-executive Chair.
Since the board changes referred to above, the Board and the
Nominations Committee have been conducting a search for a new CEO
and for non executive Directors to replace Jeremy Schwartz, Rachel
Maguire and Matthew Eatough, who, having played their part in the
restoration of the Company's trading on AIM and the transition to
the new leadership team, have each decided that they will not put
themselves forward for election at the forthcoming AGM. This search
process is well progressed and we intend to announce a series of
appointments in the near future. I would like to thank each of
Jeremy, Rachel and Matthew for their responsive and professional
service and guidance during this transitional period.
REGULATOR ACTION
The Company informed the shareholders on 21 July that the
Financial Conduct Authority (the "FCA") had notified Revolution
Beauty that it had commenced an investigation into potential
breaches of the Market Abuse Regulation (EU) 596/2014 (as it forms
part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018) in relation to certain matters in the period
from July 2021 to September 2022. Revolution Beauty is cooperating
fully with the FCA and will provide updates in due course.
OUR PEOPLE
I would like to take this opportunity to express my thanks to
all the employees of Revolution Beauty for their efforts during
what has been a challenging and busy period.
LOOKING FORWARD
The business is well placed to move forward and continue to
deliver topline growth and improving profitability under the
leadership of its new CEO. The business operates within a growing
sector and is positioned to take advantage of the
opportunities.
Alistair McGeorge
Executive Chair
31 August 2023
CHIEF EXECUTIVES REVIEW
INTRODUCTION
The Company was listed on the AIM in July 2021 and was suspended
from trading in September 2022. I was appointed to the Board in
November 2022 to bring stability to the business following a period
of significant turmoil.
The results presented herewith recognise significant change in
the business, Elizabeth Lake the CFO was appointed in May 2022 and
was instrumental in bringing the Company out of suspension in July
2023.
As stated in the Chair's report I will be leaving the business
at the end of August 2023.
I am proud of what has been achieved under my short tenure and
take satisfaction from achieving what I was brought in to achieve,
the stabilisation of the business and the lifting of the share
suspension.
We are pleased to report the results for the year ended 28
February 2023. Turnover grew by 1.7% to GBP187.8m (FY22 GBP184.6m)
and losses before tax reducing to GBP33.9m (FY22 GBP45.9m).
Adjusted EBITDA for the period was a loss of GBP7.5m compared to
a loss of GBP0.8m in FY22. All of this loss was in H1 and was due
to lower sales and increasing overheads particularly within
marketing and people costs. In H2 cost saving measures were put in
place and revenue grew.
Both Elizabeth Lake our Chief Financial Officer and I were
appointed during the year being reported, and the results include
significant changes to those envisaged when the company was floated
in July 2021.
Underlying cashflows have improved, however during the period
exceptional legal and professional fees (c.GBP3.8m) and costs of
restructuring have been paid (c.GBP1.3m), impacting cash
generation. Without these one off costs the business would have
generated cash through its operating activities. The cash balance
at the end of the year is GBP11m, and the GBP32m facility is fully
drawn, resulting in a net debt balance of GBP21.0m. The cash
balance at 30 August was GBP10.5m.
UPDATE ON INDEPENT INVESTIGATION
As announced on 23 September 2022, the Company's auditor wrote
to the Board on 21 September 2022 to identify a number of serious
concerns that had arisen during the course of its work on the audit
of the Company's accounts for FY22. The detail of the findings can
be found in the FY22 Annual Report and Accounts.
The Board appointed independent external advisors to undertake
an Independent Investigation, Macfarlanes (lawyers) and FRA
(forensic accountants).
The delayed completion of the FY22 results subsequently had a
knock-on effect to the timetable for the publication of these FY23
results. In addition, these results also reflect the impact of the
issues previously identified, particularly around stock and revenue
and the carrying value of Revolution Labs.
The report highlighted a number of accounting irregularities and
control issues, which have now been dealt with.
FY23 PERFORMANCE
During the year, we achieved a small increase in Group sales, up
1.7%% to GBP187.5m as compared to the same 12-month period last
year. This is a solid performance given the turmoil within the
business during the year and the impact of certain customers being
overstocked and therefore reducing their buying, particularly in
the digital wholesale channel.
I want to highlight the future opportunities for the Group
rather than continuing to dwell on the control weaknesses of the
past. As part of the restructure we implemented, all global sales
heads reported into me and for the first time were accountable for
controlling the costs of their individual departments and
headcount. We feel more comfortable now with the ability of the
teams to forecast sales and costs attributable to them than at any
time since joining.
Due to the previous lack of control around new product
development, we typically produced over one thousand new products
each year into an already saturated product offering. Our sales
teams, in conjunction with our customers, are now working to a more
controlled product range. We have in the past been recognised as
being able to bring innovative products to market more efficiently
and speedier than our mass market competitors. We continue to
deliver that flexibility.
Our gross margin in the year improved to 40.4% from 38.5% in
FY22. The improvement was mainly driven by reducing freight costs
and reduced stock provision charges.
Since entering the US market, we have seen strong growth. Work
remains ongoing to further strengthen relationships, streamline the
product range and improve service levels on stock supply. These
measures will ensure continued focus on fulfilling the brand's full
potential in the US market.
Our trading throughout our other major markets, in the UK,
Germany, the Nordics and Australasia have performed well, and we
look forward to building further on those markets whilst opening
new territories which offer long term attractive opportunities for
profitable growth. The global cosmetics market continues to grow
and offers significant rewards for those brands with established
relationships and the ability to be innovative and proactive to
ever evolving market opportunities.
What became very evident during the early part of my appointment
was the underperformance of a number of newly developed brands and
sub brands. We have subsequently reduced significantly the product
ranges on Revolution Man, Tanning, BH cosmetics and Fragrance.
Again, our focus is on our core range of products and in the
categories we are successful in, with some variation by country or
individual customer need. To reiterate, we continue to provide a
flexible approach to give customers products that excite whilst
maintaining a commercially viable approach to future partnership
discussions.
POST-PERIOD AND CURRENT TRADING
The post year end trading has continued to perform ahead of our
internal expectations We are seeing increasing demand for our
products in our key markets, and our sales teams are confident of
hitting their forecast sales targets.
It would be remiss of me to fail to mention the significant
management effort which was needed to rescue the business from the
errors of the recent past. I would like to thank the slimmed down
management team for the successful turnaround in the business in
such a short period of time.
I also should like to thank all stakeholders for their support
in the period reported.
OUTLOOK
We are proud of the progress that has been made in the business
over the past year, and that we were able to secure the lifting of
the share suspension.
We have been focused on reinforcing internal controls and
processes to ensure that we are in a position to achieve consistent
operational excellence at a global scale, and in line with the
required standards. I know I am handing over to an experienced team
who will continue from here.
The business is poised for the next stage of its growth story,
and I wish Alistair and the rest of the team well as they take the
business to the next level.
Bob Holt OBE
Chief Executive Officer
31 August 2023
FINANCIAL REVIEW
Following the publication of the FY22 Annual Report and Accounts
and the H1 FY23 interims, the suspension on the Company's shares
was lifted and the shares have been trading as normal since 28 June
2023.
FY23 is a story of two halves, in H1 Group revenue decreased by
4.2% and adjusted EBITDA was a loss of GBP7.5m. The second half of
the year saw a return to top line revenue growth due to the changes
that were made by the new management team both operationally and
commercially.
REVENUE
Year ended Year ended
28 February 28 February
2023 2022
Change
GBP'M GBP'M GBP'M %
Revenue 187.8 184.6 3.2 1.7%
Gross margin 75.9 71.0 4.9 6.9%
Adjusted EBITDA (7.5) (0.8) (6.7) (834%)
================== ============ ============= ======== ========
Revenue in the year increased by GBP3.2m or 1.7%, with the
opening of stores following the closures during the pandemic,
consumers switched back very quickly from online to physical
stores. Overall we saw a rapid decline in online sales of 12% year
on year, whilst revenue from our own websites increased 2%, revenue
from digital partners fell 23% as they de-stocked following the
fall in demand.
Gross margin for the year ended 28 February 2023 improved
significantly to 40.4%/GBP75.9m (FY2022: 38.5%/GBP71.0m) as a
result of improved stock management, and reduced freight costs as
freight rates returned to near pre-pandemic levels.
Adjusted EBITDA loss increased from a loss of GBP0.8m in FY22 to
a loss of GBP7.5m in FY23. The main reason for this increased loss
was the marketing spend on stand updates which was significantly
higher than FY22 which had been impacted by lockdowns and low spend
in stores. In addition, the business had increased staffing levels
in FY22 in anticipation of significantly higher revenue and this
resulted in higher people costs, particularly in the first half of
FY23.
Year Year
ended ended
28 28 Change %
February February GBP'000
2023 2022
GBP'M GBP'M
========================
By business channel: 51.0 27% 58.0 31% (7.0) (12.1%)
Digital Stores 136.8 73% 126.6 69% 10.2 8.1%
======================== ==================== =============== ==================== =============== ========== ==================
Total revenue 187.8 100% 184.6 100% 3.2 1.7%
======================== ==================== =============== ==================== =============== ========== ==================
By region:
UK 67.0 36% 71.5 39% (4.5) (6.3%)
US 51.9 28% 48.0 26% 3.9 8.2%
ROW 68.9 36% 65.1 35% 3.8 5.9%
======================== ==================== =============== ==================== =============== ========== ==================
Total revenue 187.8 100% 184.6 100% 3.2 1.7%
======================== ==================== =============== ==================== =============== ========== ==================
As shown in the table above, Group revenue increased by GBP3.2m
to GBP187.8m in the year ended 28 February 2023 (2022: GBP184.6m).
This revenue growth was achieved during a year in which the
business went through significant change as a result of the issues
that arose from the Investigation as set out in the CEO report.
Store revenue increased by GBP10.2m or 8.1% to GBP136.8m (2022:
GBP126.6m), with both the US and UK store groups growing at 8% and
9% respectively, driven by new distribution in Boots in the UK and
new distribution in Walgreen in the US.
An increased number of customers returned to the stores when
Covid-19 related trading restrictions were lifted, and this
resulted in a decline in digital sales in the year of GBP7m
compared with the prior year. Within this we saw growth of 2% from
our own websites, however revenue from our digital partners
declined 23% as they implemented significant destocking measures
which resulted in a drop in order levels.
Most of the impact of the decline in revenue from our digital
partners was in the UK market which resulted in UK sales reducing
by GBP4.5m despite increased store distribution in Boots and a good
performance in Superdrug.
US revenue increased by GBP3.8m due to new distribution in
Walgreen, and the recovery of US retailer performance following the
pandemic.
In the Rest of the World (ROW) we saw 5.9% growth overall, which
included 14% growth in revenue from our distributers.
PROFITS
Year ended Year ended
28 February 28 February
2023 2022 Change
Restated
GBP'000 GBP'000 GBP'000
Gross profit 75,884 71,028 4,856
Marketing and distribution costs (57,469) (49,546) (7,923)
Administrative expenses (42,161) (35,038) (7,123)
Impairment losses on financial assets (204) (1,428) 1,224
Impairment of property, plant and equipment (2,177) (1,948) (229)
Impairment of goodwill (3,388) (13,000) 9,612
Provision for legal cases (1.066) (1,018) (48)
Exceptional item - IPO costs - (8,936) 8,936
Other income - 5 (5)
============================================== ============= ============= ================
Operating loss (30,581) (39,881) 9,300
Net finance costs (3,293) (6,034) 2,741
============================================== ============= ============= ================
Loss before taxation (33,874) (45,915) 12,041
Gross profit margin 40.4% 38.5% 1.9ppt
============================================== ============= ============= ================
Gross profit margin for the year ended 28 February 2022
increased from 38.5% to 40.4%. The improvement in margin was driven
primarily by the reduction in freight rates following their
historical highs due to the pandemic. The margin at H1 was higher
at 41.4% due to seasonality, with higher seasonal promotions in
H2.
Whilst there will be ongoing changes to the stock provision
based on New Product Development (NPD), Net Realisable Value (NRV)
and slow-moving stock, the movement between FY22 and FY23 has
reduced due to the actions taken by new management to manage stock
purchasing, establish exit routes for slow moving stock and focus
NPD on fewer better products.
Operating loss for the year ended 28 February 2023 of GBP30.6m
reduced by GBP9.3m (2022: GBP39.9m). This was due to a number of
factors:
Improvement in gross profit (GBP4.9m) driven by reduction in
stock provision charges and lower freight rates following record
levels during the pandemic.
-- Reduction in one off costs incurred in FY22, impairment of
assets (GBP10.6m, mostly from the acquisition of Medichem), IPO
costs (GBP8.9m)
-- Increase in spend on stand updates (GBP5m) catching up with
updates missed during the pandemic, and additional marketing and
distribution spend (GBP2.9m)
-- Increase in People costs (GBP2m), resulting from scaling up
for expected increase in revenue, loss on foreign exchange on
revaluation of US balances (GBP1.5m) and other overheads
(GBP2.9m)
Loss before taxation for the year reduced to GBP33.9m (2022:
Loss before taxation GBP45.9m), an improvement of GBP12.0m.
TAXATION
The Group's tax credit decreased year on year by GBP1.4m
primarily due to the prior year including tax refunds totalling
GBP1.6m arising from historic overpayments and loss carry back,
resulting in an overall credit of GBP1.6m in FY22 compared with a
credit of GBP0.2m in FY23.
LOSS AFTER TAXATION
Loss after taxation decreased to GBP33.6m (2022: Loss after
taxation GBP44.3m).
ADJUSTED PROFITS
The Group uses a number of Alternative Performance Measures
("APMs") in addition to those measures reported in accordance with
IFRS. Such APMs are not defined terms under IFRS and are not
intended to be a substitute for any IFRS measure. The Directors
believe that the APMs are important when assessing the underlying
financial and operating performance of the Group. Full details of
the exceptional charges incurred during the year are presented in
Note 5 to the financial statements.
The exceptional items identified as non-recurring in nature are
set out below and were considered in calculating the adjusted
profits. Exceptional Items are defined in Note 2
Year ended Year ended
28 February 28 February
2023 2022 Change
GBP'000 GBP'000 GBP'000
==========================================
(30,581) (39,881) 9,300
Operating loss 15,867 22,560 (6.693)
Depreciation, amortisation & impairment
Share-based payment 303 3,534 (3,231)
Loss on disposal of asset 62 -
Exceptional items: 62
========================================== =============== =============== ===========
IPO related costs - 8,936 (8,936)
Acquisition costs 262 621 (359)
Restructuring costs 1,310 261 1,049
Provision for legal cases 1,474 1,018 456
Legal and professional fees 3,528 3,528
Audit Fees 300 2,150 (1,850)
========================================== =============== =============== ===========
Total exceptional items added back 6,874 12,986 (6,112)
Adjusted EBITDA (7,475) (801) (6,674)
Adjusted EBITDA decreased by GBP6.7m to a loss of GBP7.5m during
the year (2022: GBP0.8m loss). The reduction in EBITDA was
primarily due to additional stand marketing costs and higher People
costs as the business had scaled up for high levels of growth at
the end of FY22 and the first half of FY23.
Depreciation, amortisation and impairment was significantly
lower as a result of the impairments to stands and goodwill made in
FY22. The remaining amount of goodwill and assets acquired for
Medichem were impaired in FY23, bringing the carrying value to
zero, as a result in changes to forecasts.
As part of the changes the new management team made, teams were
restructured which resulted in one off costs associated with the
restructure.
Significant one off legal and professional fees were incurred in
relation to the Independent Investigation and the work required to
enable the suspension on the Company's shares to be lifted.
FINANCIAL POSITION AND RESOURCES
As at As at
28 February 28 February
2023 2022 Restated Change
GBP'000 GBP'000 GBP'000
Intangible assets 5,728 9,837 (4,109)
Property, plant and equipment 7,928 8,215 (287)
Right of use asset 2,310 4,150 (1,840)
Reimbursement asset - 3,267 (3,267)
Non-current assets 15,966 25,469 (9,503)
Current assets excluding cash 104,393 101,401 2,992
Liabilities excluding borrowings (112,817) (98,507) (14,310)
================================== ============= =============== ==========
Cash and cash equivalents 11,044 15,619 (4,575)
Borrowings (31,721) (23,551) (8,170)
================================== ============= =============== ==========
Net debt (20,677) (7,932) (12,745)
================================== ============= =============== ==========
Net assets (13,135) 20,431 (33,566)
================================== ============= =============== ==========
NON-CURRENT ASSETS
The Group states property, plant and equipment at cost, less
depreciation or provision for impairment. Non-current assets as at
28 February 2023 reduced to GBP16.0m (2022: GBP25.5m), mainly due
to a further impairment of the acquisition of Medichem, resulting
in no residual carrying value and the movement of the reimbursement
asset to current assets due to Management's view that the legal
case will be settled within 12 months.
CURRENT ASSETS
Current assets increased to GBP104.4m as at 28 February 2023
(2022: GBP101.4m). The inventory balance was higher at GBP47.6m
(2022: GBP44.7m) which was due to business requirements. There was
an increase in Trade Receivables of GBP3.0m consistent with higher
sales. As the US business has grown, there is an impact on trade
debtor balances caused by typically longer payment terms. Other
receivables also increased by GBP3.2m representing the
reimbursement asset on a copyright infringement legal case (see
Note 4).
LIABILITIES
The increase in total liabilities excluding borrowings as at 28
February 2023 of GBP14.3m relates mainly to an increase in trade
payables of GBP9m due to stock purchases, impact of foreign
exchange, audit fees, and accruals and contract liabilities mainly
due to fixture accruals for Walmart and marketing deductions for
new and existing US retail customers.
LIQUIDITY
At 28 February 2023, the Group had GBP11.0m cash, with gross
borrowing of GBP32m fully drawn from the RCF.
The face value of the Group net debt is GBP21.0m. The reported
net debt of GBP20.7m is after deducting GBP0.3m of prepaid fees.
These figures exclude the deferred consideration.
BANKING FACILITIES
As at 28 February 2023 the Group had a GBP40.0m RCF in place. In
September 2022, the Group breached its facility agreement as a
result of not publishing its audited accounts by 31 August 2022.
Following on from this, there was uncertainty as to what the
adjusted EBITDA numbers would be for FY21 and FY22, until these
statements were finalised. Therefore, the Group was unable to
certify its results to the Banks. As a result, the banks agreed a
short-term liquidity covenant and the facilities operated under
this arrangement until a new suite of covenants was agreed on 29
March 2023 with the first quarterly test at the end of May 2023
which the Group cleared. As at the date of signing this report, the
Group has an amended and restated credit facility of GBP32.0m of
which the full GBP32.0m is drawn and has cash balances of
c.GBP11.0m as at the end of July which provides sufficient
liquidity to the Group for its current requirements.
Due to the qualifications in the audit report, the Group
received a waiver from its banking partners prior to the signing of
the financial statements for the provision in the RCF which
classifies a qualified audit opinion as an Event of Default.
Therefore, the Group remains within all the requirements of the
facility agreement, see note 2.
CASH FLOW
Year ended
Year ended 28 February
28 February Restated Change
2023 2022 GBP'000
GBP'000 GBP'000
================================================
Net cash (used in) generated from operations (1,959) (17,841) 15,882
Income tax 1,898 (890) 2,788
Net cash generated from operating activities (61) (18,731) 18,670
================================================ =============== =============== ===========
Purchase of intangible assets (1,018) (3,066) 2,048
Purchase of property, plant and equipment (7,496) (4,968) (2,528)
Purchase of subsidiary - (6,630) 6,630
Others 1 (509) 510
================================================ =============== =============== ===========
Net cash used in investing activities (8,513) (15,173) 6,660
================================================ =============== =============== ===========
Interest paid (1,175) (5,000) 3,825
Drawdown of borrowings 8,000 29,000 (21,000)
Repayment of borrowings - (78,665) 78,665
(Repayment)/Proceeds of debt instruments - (6,000) 6,000
Issue of new shares - 105,775 (105,775)
Others (2,127) (983) (1,144)
================================================ =============== =============== ===========
Net cash generated from financing activities 4,698 44,127 (39,429)
================================================ =============== =============== ===========
Net increase/(decrease) in cash during the
year (3,876) 10,223 (14,099)
================================================ =============== =============== ===========
Net cash used in operations improved in FY23 and reduced by
GBP15.9m. Without the level of exceptional costs incurred in the
year particularly relating to legal and professional fees
surrounding the Independent Investigation, and activities to secure
the lifting of the suspension on the Company's shares, together
with significant restructuring costs, the Group would have
generated significant operating cash inflows.
ISSUE OF NEW SHARES
In FY22, in conjunction with the Company's IPO, new shares with
a total value of GBP105.8m were issued at GBP1.60 per share during
the year. The IPO also involved the repayment of borrowings
amounting to GBP82.4m. No new shares were issued in FY23.
ACQUISITION OF MEDICHEM
In July 2021, the Revolution Beauty Group was granted a call
option to acquire 100% of the issued share capital of Medichem. The
Group exercised the call option in October 2021. Total purchase
consideration of GBP27.5m comprises an initial cash consideration
of GBP7.0m which was paid in October 2021, with the balance of
GBP20.5m to be paid in 4 equal instalments from October 2022 net of
the repayment of a GBP1.5m loan from Medichem to a company owned by
the seller of Medichem. As at the date of signing the Board are in
negotiations with the previous owner of Medichem to reach a revised
agreement on the amount of consideration due and the payment terms
for any further consideration payable.
Since the year end, a deed of variation to the original sale and
purchase agreement has been signed on 7 March 2023, confirming that
no consideration will be demanded until 21 October 2025. See Note
34 for details of the deferment schedule.
DIVID
No ordinary dividends were paid during the year under review.
The Directors do not recommend payment of a final ordinary dividend
for the year (2022: GBPnil). Consistent with the guidance provided
at IPO, the Group does not envisage paying dividends in the
foreseeable future and intends to re-invest surplus funds in the
development of the Group's business.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND ACCOUNTS
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that
law the Directors are required to prepare the Group financial
statements in accordance with UK adopted International Accounting
Standards ('IFRSs') and have elected to prepare the parent Company
financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards
and applicable law), including FRS 101 'Reduced Disclosure
Framework'. Under company law the Directors must not approve the
accounts unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss of the Group for that period.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Group's ability to continue as a
going concern.
-- In preparing the Parent Company financial statements, the
Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and accounting estimates that are reasonable
and prudent;
-- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Alistair McGeorge
Executive Chair
31 August 2023
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
For the year ended 28 February 2023
Year ended
Year ended 28 February
28 February 2022
Note 2023 Restated
GBP'000 GBP'000
=================================================
187,842 184,579
Revenue Cost of sales 7 (111,958) (113,551)
================================================= ======== ================= ===============
Gross profit 75,884 71,028
Marketing and distribution costs (57,469) (49,546)
Administrative expenses
- General administrative expenses (42,161) (35,038)
- Impairment losses on financial assets (204) (1,428)
- Impairment of property, plant and equipment
and right-of-use assets 17,18 (2,177) (1,948)
- Impairment of goodwill and other intangibles 16 (3,388) (13,000)
- Provision for legal cases 27 (1,066) (1,018)
- IPO related costs 5 - (8,936)
================================================= ======== ================= ===============
Total administrative expenses (48,996) (61,368)
Other operating income 10 - 5
================================================= ======== ================= ===============
Operating loss 10 (30,581) (39,881)
Finance income 12 1 76
Finance costs 13 (3,294) (6,110)
================================================= ======== ================= ===============
Loss before taxation (33,874) (45,915)
Income tax credit/(expense) 14 228 1,606
================================================= ======== ================= ===============
Loss for the year (33,646) (44,309)
================================================= ======== ================= ===============
Other comprehensive income net of taxation
Exchange differences on translation of foreign
operations - may be reclassified to profit
and loss (223) 158
================================================= ======== ================= ===============
Total comprehensive loss for the year (33,869) (44,151)
================================================= ======== ================= ===============
Earnings per share (p) 15 (10.9) (15.7)
Diluted earnings per share (p) 15 (10.9) (15.7)
Adjusted EBITDA* 5 (7,475) (801)
* Adjusted EBITDA is a non-GAAP measure and is defined as
Operating Loss adjusted for depreciation and amortisation,
impairments and reversals of impairment, profits and losses on the
disposal of assets, share based charges and releases and operating
exceptional items as disclosed in note 5.
The following notes are an integral part of these financial
statements.
Consolidated Statement of Financial Position
As at 28 February 2023
As at
As at 28 February
28 February 2022
2023 Restated
Note GBP'000 GBP'000
Non-current assets
Intangible assets 16 5,728 9,837
Property, plant and equipment 17 7,928 8,215
Right-of-use assets 18 2,310 4,150
Reimbursement asset - 3,267
Total non-current assets 15,966 25,469
======================================== ====== ============= =============
Current assets
Inventories 19 47,606 44,683
Trade and other receivables 20 52,708 55,334
Reimbursement asset 4,079 -
Corporation tax recoverable - 1,384
Cash and cash equivalents 21 11,044 15,619
======================================== ====== ============= =============
Total current assets 115,437 117,020
======================================== ====== ============= =============
Current liabilities
Lease liabilities 18 (2,060) (1,915)
Trade and other payables 22 (82,707) (69,924)
Deferred consideration 24 (10,910) (4,889)
Provisions 27 (7,060) -
Borrowings 23 (31,721) (23,551)
Corporation tax payable (28) (48)
======================================== ====== ============= =============
Total current liabilities (134,486) (100,327)
======================================== ====== ============= =============
Net current assets/(liabilities) (19,049) 16,693
======================================== ====== ============= =============
Total assets less current liabilities (3,083) 42,162
======================================== ====== ============= =============
Non-current liabilities
Lease liabilities 18 (954) (2,732)
Deferred consideration 24 (9,098) (13,504)
Deferred tax liabilities 26 - -
Provisions 27 - (5,495)
======================================== ====== ============= =============
Total non-current liabilities (10,052) (21,731)
======================================== ====== ============= =============
Net assets/(liabilities) (13,135) 20,431
======================================== ====== ============= =============
Equity
Share capital 29 3,097 3,097
Share premium 103,487 103,487
Warrant reserve 7,239 7,239
Merger reserve 14,860 14,860
Translation reserve 446 669
Retained earnings (142,264) (108,921)
======================================== ====== ============= =============
Total (deficit)/ equity (13,135) 20,431
======================================== ====== ============= =============
The following notes are an integral part of these financial
statements.
Refer to Note 4 for detailed information on the correction of
prior period errors.
These financial statements were approved and authorised for
issue by the Board of Directors on 31 August 2023 and were signed
on its behalf by:
Alistair McGeorge
Director
Consolidated Statement of Changes in Equity
For the year ended 28 February 2023
Share Share Warrant Merger Translation Retained Total
capital premium reserve reserve reserve earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
March
2021 - - - 14,860 511 (64,989) (49,618)
========
Loss for the
year -
as restated - - - - - (44,309) (44,309)
========
Other
comprehensive
income net of
taxation:
Foreign
operations
- foreign
currency
translation
differences - - - - 158 - 158
================= ======== =========== ============= ========= ========= ============= =========== ===========
Total
comprehensive
income/expense
for
the year - as
restated - - - - 158 (44,309) (44,151)
Transactions
with
owners in their
capacity
as owners:
Issue of
shares, net
of transaction
costs
of
GBP4,940,241 28 696 105,080 - - - - 105,776
Capital
reorganization 28 2,416 - - - - (2,416) -
Repurchase of
shares 28 (15) - - - - 15 -
Share-based
payments - - - - - 2,778 2,778
Issue of
warrants 29 - (1,593) 7,239 - - - 5,646
================= ======== =========== ============= ========= ========= ============= =========== ===========
Total
transactions
with owners 3,097 103,487 7,239 - - 377 114,200
================= ======== =========== ============= ========= ========= ============= =========== ===========
Balance at 28
February
2022 - as
restated 3,097 103,487 7,239 14,860 669 (108,921) 20,431
================= ======== =========== ============= ========= ========= ============= =========== ===========
Loss for the
year - - - - - (33,646) (33,646)
Other
comprehensive
income net of
taxation:
========
Foreign
operations
- foreign
currency
translation
differences - - - - (223) - (223)
================= ======== =========== ============= ========= ========= ============= =========== ===========
Total
comprehensive
income/expense
for
the year - - - - (223) (33,646) (33,869)
Transactions
with
owners in their
capacity
as owners:
Share-based
payments - - - - - 303 303
Total
transactions
with owners - - - - - 303 303
================= ======== =========== ============= ========= ========= ============= =========== ===========
Balance at 28
February
2023 3,097 103,487 7,239 14,860 446 (142,264) (13,135)
================= ======== =========== ============= ========= ========= ============= =========== ===========
The following notes are an integral part of these financial
statements.
Consolidated Statement of Cash Flows
For the year ended 28 February 2023
Year ended Year ended
28 February 28 February
2023 2022
Restated
Note GBP'000 GBP'000
Loss for the period (33,646) (44,309)
Adjustments for:
Taxation charge/(credit) 14 (228) (1,606)
Finance costs 13 3,294 6,110
Finance income 12 (1) (76)
Depreciation of property, plant and equipment
and right-of-use assets 17,18 8,369 6,310
Impairment of property, plant and equipment
and right-of-use assets 17,18 2,177 1,948
Amortisation of intangible assets 16 1,933 1,303
Impairment of intangible assets 16 3,388 13,000
Loss/(profit) on disposal of property, plant
and equipment - (34)
Loss on disposal of intangible assets 16 62 -
Equity settled share-based payment expense 303 2,778
Issue of warrants 30 - 5,645
Provisions movement 27 1,565 2,228
Movements in working capital:
Movement in inventories (2,923) (5,708)
Movement in receivables 1,814 (1,666)
Movement in payables 11,934 (3,764)
==================================================== ======= ============= =============
Cash used in operations (1,959) (17,841)
=======
Income taxes received/(paid) 1,898 (890)
==================================================== ======= ============= =============
Net cash used in operating activities (61) (18,731)
==================================================== ======= ============= =============
Cash flows from investing activities
=======
Purchase of intangible assets (1,018) (3,066)
=======
Purchase of property, plant and equipment (7,496) (4,968)
Proceeds on disposal of property, plant and - -
equipment
Finance income 1 1
Payment of financial derivatives - (510)
Purchase of subsidiaries (net of cash acquired) - (6,630)
==================================================== ======= ============= =============
Net cash generated by/(used in) investing
activities (8,513) (15,173)
==================================================== ======= ============= =============
Cash flows from financing activities
=======
Interest paid (1,175) (5,000)
=======
Proceeds from borrowings 8,000 29,000
Proceeds from issue of shares, net of transaction
costs - 105,775
Repayment of debt instruments - (6,000)
Repayment of borrowings - (78,665)
Payment of lease liabilities (1) (2,127) (534)
Loan issue fees - (449)
==================================================== ======= ============= =============
Net cash generated by financing activities 4,698 44,127
==================================================== ======= ============= =============
Consolidated Statement of Cash Flows
For the year ended 28 February 2023
Year ended Year ended
28 February 28 February
2023 2022
Note GBP'000 GBP'000
Cash and cash equivalents
===============
Net (decrease)/increase in the year (3,876) 10,223
At 1 March 15,619 5,581
Effects of exchange rate changes on cash
and cash equivalents (699) (185)
At 28 February 11,044 15,619
============================================================ ============= =============
(1) Payment of lease liabilities includes GBP115k (2022: GBP45k)
of interest payments and GBP2,012k (2022: GBP489k) of principal
lease payments.
(2) The share based payment charge for the year is GBP303k
(2022: GBP3,534k), of which GBPNil (2022: GBP756k) was paid in
cash.
The following notes are an integral part of these financial
statements.
Notes to the Consolidated Financial Statements
For the year ended 28 February 2023
1 GENERAL INFORMATION
Revolution Beauty Group plc ("the Company") is a company limited
by shares, and is registered, domiciled and incorporated in England
and Wales. The Company listed on the Alternative Investment Market
(AIM) on 19 July 2021. The address of the registered office is 201
Temple Chambers, 3-7 Temple Avenue, London, EC4Y 0DT.
The Group ("the Group") consists of Revolution Beauty Group plc
and all of its subsidiaries as listed in note 4 to the Company
financial statements.
The Group's principal activity, business activities and other
factors likely affecting the Groups performance are set out in the
Chief Executive Officers Review.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
T his consolidated financial information for the year ended 28
February 2023 comprises the Company and its subsidiaries. The
financial information presented has been prepared applying the
accounting policies and presentation applied in the preparation of
the Group's consolidated financial statements for the year ended 28
February 2023. These preliminary results do not constitute the
Group's statutory accounts for the years ended 28 February 2023 and
28 February 2022. The statutory accounts for the year ended 28
February 2022 have been reported on by the Company's auditors and
delivered to the Registrar of Companies. The statutory accounts for
the year ended 28 February 2023, which have been approved by the
Directors, will be sent to shareholders in September 2023 and
delivered to the Registrar of Companies.
The auditor has reported on the Group and Company statutory
accounts for the year ended 28 February 2023. The reports were
qualified, and included a material uncertainty related to Going
Concern and have been reproduced in notes 37 and 38 of this
announcement.
Prior period adjustments made to the amounts reported in the
Group's 2022 financial statements have been set out in note 4.
Measurement convention
The financial statements have been prepared under the historical
cost convention except for, where disclosed in the accounting
policies, certain items shown at fair value. Historical cost is
generally based on the fair value of the consideration given in
exchange for goods, services and assets.
The preparation of financial statements in conformity with IFRS
requires management to make estimates and assumptions that affect
the reported amounts of revenues, expenses, assets and liabilities,
and the disclosure of contingent liabilities at the reporting date.
If in the future, such estimates and assumptions which are based on
management's best judgement at the reporting date, deviate from the
actual circumstances, the original estimates and assumptions will
be modified as appropriate in the year in which the circumstances
change.
Critical accounting estimates and key sources of estimation
uncertainty in applying the accounting policies are disclosed in
note 3.
Basis of consolidation
The consolidated financial statements incorporate those of
Revolution Beauty Group plc and all of its subsidiaries.
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.
De-facto control exists in situations where the company has the
practical ability to direct the relevant activities of the investee
without holding the majority of the voting rights. In determining
whether de-facto control exists the company considers all relevant
facts and circumstances, including:
-- The size of the company's voting rights relative to both the
size and dispersion of other parties who hold voting rights
-- Substantive potential voting rights held by the company and by other parties
-- Other contractual arrangements
-- Historic patterns in voting attendance.
The consolidated financial statements present the results of the
company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by other members of the Group.
Business Combinations
The cost of a business combination is the fair value at
acquisition date of the assets given, equity instruments issued,
and liabilities incurred or assumed. The excess of the cost of a
business combination over the fair value of the identifiable
assets, liabilities and contingent liabilities acquired is
recognised as goodwill. Costs directly attributable to the business
combination are expensed to the profit or loss as incurred.
Going concern Base Case Forecast
Having achieved the lifting of the suspension of the Company's
shares on AIM on 28 June 2023 and performed above the previous
budget over recent months, the Group has updated its base case
forecast for the period through to August 2024 to reflect all
aspects of its current operational structure.
Following a comprehensive review and forecast exercise prior to
the lifting of the share suspension on AIM, the updated base case
forecast to August 2024 has evolved with the current FY24
performance to date, whilst largely consistent with expectations
earlier in the year upon release of the FY22 Financial Statements.
The current Board shares the more prudent outlook taken by the
previous Board in May 2023, whilst also planning for growth in
revenue and profitability. Immediately following the release of
these Financial Statements the Board intends to appoint a new CEO,
who will have time to develop and deliver a strategy intended to
grow from the current base, this process is not expected to result
in any significant change to plans or forecasts in the short
term.
Management have determined that the period to August 2024 is the
relevant period over which to consider the Groups performance for
the assessment of going concern and have therefore forecast
operational and financial performance over that period. Twelve
months has been selected as the going concern period because
forecasting over this period is the most accurate, the further out
the forecast is the greater likelihood of volatility. The five
months to 31 July 2023 have shown sales performing ahead of budget.
The updated base case to August 2024 forecasts that the Group will
generate cash as it builds sustainable growth from a solid core
business, growth is expected to be achieved through current sales
channels and some increased distribution, underpinned by marketing
and capital investment as set out in the Group's strategy.
In addition to sustainable growth in sales, the base case
forecasts that the management team's strategy will drive
improvements in working capital, with inventory and receivables
managed in line with trading volumes. Existing trading terms with
supplier and customers are forecast to be maintained under the base
case.
Cost reduction measures taken during FY23 have been adhered to
and the Group has demonstrated during the early months of FY24 that
it now has a more appropriate cost base from which it can achieve
its forecast revenue. The significant accounting changes made in
the prior year remain and form the basis of the Groups reporting
and forecast model.
The Groups gross inventory balance has reduced significantly,
resulting in a significant reduction in its inventory provision
since FY22. Inventory reductions have been driven by a more
rationalised purchasing program, which is more targeted to the
Group's demand forecast. In addition, significant amounts of older
inventory has been sold through the Groups outlet channels or
destroyed where no longer considered to be of any value.
Under the base case scenario, the lowest amount of headroom
against the minimum liquidity covenant is GBP4,632k in December
2023, the lowest test point in the EBITDA covenant is August 2023,
when there is GBP3,211k of headroom.
Lending Arrangements
On 30 March 2023 the Group announced that that it had secured an
amended facility agreement with its banking partners (the
"Lenders"). The amendment includes a waiver of breaches of the
terms of the original agreement. As part of the amended facility
agreement which runs through to October 2024, the overall size of
the facility was agreed at GBP32m, reduced from GBP40m, and is
fully drawn. The Directors are of the view that the reduced
facility provides the business with sufficient liquidity as it
continues delivering its strategy for the Going Concern period. The
facility matures in October 2024, it is the board's intention and
expectation that the facility will be refinanced during
FY24.Indeed, following the lifting of the share suspension, initial
discussions with the Group's banking partners have started
positively. The Group continues to enjoy the support of its banking
partners, management believe that recent progress in stabilising
net debt, generating cash, ensuring covenant compliance and
rationalising the cost base have positioned the Group well for
refinancing its debt facilities, and is confident of refinancing
beyond October 2024.
Revised covenants remain in place and include a minimum
liquidity threshold of GBP5.0 million and an Adjusted EBITDA
covenant. Certain non-financial covenants that applied following
the amendments of the agreement were complied with and are no
longer in place.
Adjusted EBITDA covenant is tested quarterly and the minimum
liquidity threshold is tested weekly.
The remaining non-financial covenants include a condition that
would result in an Event of Default occurring where the auditors
qualify the annual consolidated financial statements. The lenders
have provided a waiver in respect of the covenant relating to the
Auditors qualifications in their audit report for these financial
statements as was indicated in the FY22 financial statements.
The forecast results under the base case indicate that the Group
will remain in compliance with financial covenants throughout the
going concern period.
On 7 March 2023 the Group announced that it had reached an
agreement in respect of the timing of payments of deferred
consideration for its acquisition of Medichem Manufacturing
Limited. A Deed of Variation dated 6 March 2023 was signed which
amends the terms of the deferred consideration and completion net
asset adjustment, adjusting the timing of the payment, all of which
are now payable beyond the Going Concern assessment period.
Downside Scenarios
In addition to the base case scenario, the Group has considered
the potential impact of a severe but plausible downside scenario.
Under the severe but plausible scenario, a 10% reduction in total
sales from August 2023, driven by consumer demand in the beauty
market caused by wider economic factors has been modelled. Under
such circumstances the Group would need to take action to reduce
costs, which would include, but not be limited to, reducing capital
expenditure, marketing and general overheads including people
costs.
In such a scenario, if mitigating actions were taken, the Group
would remain in compliance with its covenants throughout the
forecast period. However, the sensitivity of the Adjusted EBITDA
performance under such circumstances suggests that there is a
realistic possibility that a prolonged reduction in sales of 10%
could result in the Group breaching its Adjusted EBITDA covenant.
Were the Group exposed to a similar scenario and no mitigating
actions taken, the Adjusted EBITDA covenant would be breached in
February 2024.
Under a scenario in which the Groups revenue reduced to 10%
below the forecast levels in the base case from September 2023
onward and no mitigating actions were taken, the Group would breach
its minimum liquidity threshold in February 2024. The Directors are
confident that under such a scenario, there would be sufficient
time for them to take actions within their control over the cost
base to prevent a breach occurring.
If the Group were to breach either of its covenants, it would be
reliant on the support of its lenders in order to be able to
continue to operate. The Group enjoys a good relationship with its
banking partners and is confident of their continued support. The
Group would have sufficient cash to continue operating under all
plausible scenarios modelled.
Conclusion
The Directors are pleased with the current performance of the
business particularly given the challenging economic outlook and
the disruption faced by the business in FY22 and FY23. Net sales
have increased since the balance sheet date, which reflects the
continued strength of the brand.
Steps taken with regard to the deferral and renegotiation of the
Medichem consideration and the amendment of the Groups lending
arrangements and reductions to the cost base are significant in
strengthening liquidity and providing a base from which to
grow.
Having considered the information available and recent changes
to the business, the Directors are satisfied that the base case
supports the application of the going concern assumption in
preparation of the financial statements.
However, the Directors also recognise the continuing challenges
the business has faced since its shares resumed trading on AIM,
including addressing legacy issues, as well as the underperformance
of sales versus previous expectations, as well as the uncertainty
in the wider economy. As noted above, the Directors have reset the
strategy with reductions in forecast expenditure and improvements
to the working capital cycle considered to be commensurate with the
level of revenues forecast. The current Board continue to believe
in this strategy and look to enhance the business further so that
it is well place to grow to deliver its full potential.
The Directors are confident that the adopted strategy and
actions taken to address the cost base and working capital cycle
can be successfully executed. In the event that revenue falls below
the level forecast in the base case scenario, the Directors are
also confident that they are able to take mitigating actions within
their control to reduce costs further on a timely basis, in order
to maintain compliance with the Adjusted EBITDA and minimum
liquidity covenant tests.
The Directors acknowledge that, in the event either a financial
or non-financial covenant were to be breached, due to either a
downturn in operational activity or the impact or timing of
settlement of any financial commitments, known or otherwise,
arising from legacy issues, the Group would be reliant on its
lenders not requiring immediate repayment of the outstanding loan
or obtaining alternative finance in order to continue to operate as
a going concern. The lenders have provided a waiver in respect of
the covenant relating to the Auditors qualifications of their audit
report on these financial statements. Notwithstanding that the
audit for the year ending 28 February 2024 had not yet commenced,
the Directors anticipate that certain qualifications will be
carried into the Auditors opinion on the FY24 financial statements.
The Lenders have also confirmed their present intention to waive
any further Event of Default which might occur as a result of the
audit report to be issued by the Parent's Auditor in respect of the
financial year of the Group ending 28 February 2024 containing
qualifications which are substantially the same as qualifications
on these financial statements.
These factors, in conjunction with the sensitivity identified in
the severe but plausible downside scenario with respect to the
Adjusted EBITDA covenant, represent material uncertainty which may
cast significant doubt over the Group's ability to continue to
operate as a going concern. The financial statements do not include
the adjustments that would be required should the going concern
basis of preparation no longer be appropriate.
New and revised standards in issue but not yet effective
The following standards and interpretations relevant to the
Group are in issue but are not yet effective and have not been
applied in the preparation of the financial statements.
Standard/amendment Effective
date
Amendments to IAS 1 - Classification of liabilities as 1 January
current or non-current 2023
Amendments to IAS 1 - Disclosure of accounting policies 1 January
2023
Amendments to IAS 8 - Definition of accounting estimates 1 January
2023
Amendments to IAS 12 - Deferred tax related to assets 1 January
and liabilities arising from a single transaction 2023
The above standards are not expected to impact the Group
materially.
Revenue recognition
Revenue represents invoiced sale of goods to customers net of
sales tax. Revenue is recognised when control of a good is
transferred to the customer, which is when the Group's performance
obligations are considered to have been met in line with its
contracts and is adjusted for returns and provisions for expected
returns, discounts, rebates and refunds.
Estimation is required in assessing concessions provided to the
customer such as refunds and returns. Such estimates are determined
using either the 'expected value' or 'most likely amount' method,
which are determined by assessing historic concessions made to
customers for refunds and returns. Provisions for refunds and
returns are recognised within trade and other payables. Returns are
an area of significant judgement, as set out below.
The Group sells its products via their own website and to third
party online retailers ("digital") and wholesale sales to retailers
and distributors ("store groups").
Digital
Revenue from the sale of goods sold through the Groups website
is recognised when the product is delivered to the customer.
Payment of the transaction price is due immediately when the
customer purchases the products. The Group's policy is to offer a
right of return if notified within a specified time period. The
Group therefore retains an insignificant risk of ownership through
a digital sale when a refund is offered or when return goods are
accepted if a customer is not satisfied. Revenue in such cases is
recognised at the point of delivery to the customer provided the
Group can reliably estimate future returns and the Group recognises
a liability for returns against revenue based on previous
accumulated experience and other factors.
Loyalty scheme
The Group operates a loyalty card scheme for 'digital' customers
where points are earned for products purchased online. The Group
accounts for loyalty points as a separately identifiable component
of the sales transaction in which they are granted. Deferred
revenue is recognised in relation to points issued but not yet
redeemed. Deferred revenue is subsequently recognised when the
loyalty points are redeemed or when they expire.
A portion of the transaction price is allocated to the loyalty
scheme points based on relative stand-alone selling price of the
points issued. When estimating relative stand-alone selling price,
the Group assesses the likelihood that the customer will redeem the
points based on historic redemption rates.
Store groups
Store group revenue is recognised when title has passed in
accordance with the terms of the contract. The timing of transfer
of control in wholesale transactions is either when the goods have
been collected by the customer or when the goods have been
delivered to the location specified in the contract and the
customer has accepted the products in accordance with the sales
contract.
Sales incentives, cash discounts and product returns are
deducted from net sales, such as commercial cooperation and
discounts. Incentives granted to customers are recorded as a
deduction from net sales.
Sales incentives, cash discounts, provisions for returns and
incentives granted to distributors and customers are recorded
simultaneously to the recognition of sales if it is highly probable
that the incentive will be utilised., The determination of whether
incentives will be utilised is based mainly on statistics compiled
from past experience and contractual conditions. Historical
experience enables the group to estimate reliably the value of
goods that will be returned, or the extent of utilisation of any
incentive given, 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.
In some cases, the Group can enter into arrangements with
customers where payments are made to compensate for certain
promotional actions or operational costs for which the Group will
be invoiced. As such payments cannot usually be separated from the
supply relationship, the compensation for promotional actions is
not deemed to be a distinct service and therefore the Group
recognises the consideration paid as a deduction of revenue.
Foreign currencies
The financial statements are presented in Sterling, this being
the currency of the primary economic environment of the Group.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured. Non-monetary
items are not retranslated. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
income statement.
On consolidation, assets and liabilities of foreign operations
are translated into sterling at year-end exchange rates. The
results of foreign operations are translated into sterling at
average rates of exchange for the year. Exchange differences
arising on translating net assets at opening rate and the results
of overseas operations at actual rate are recognised in other
comprehensive income and accumulated in the translation
reserve.
Finance income and costs
Finance costs comprise interest charged on liabilities and
finance costs accruing from lease liabilities.
Interest income and interest payable are recognised in the
statement of comprehensive, using the effective interest method.
Amounts included in finance income and finance costs are set out in
notes 11 and 12 respectively.
Exceptional Items
Exceptional items are those which are non-recurring and not
assessed to represent charges and credits incurred or gained in the
Group's normal course of business and are material by size or
nature. All items identified as exceptional are set out in note
4.
Segmental reporting
The Group has one operating segment; being its retail business.
The Chief Operating Decision Maker has been identified as the board
of directors of Revolution Beauty Group Plc, which receives regular
reporting on its retail business.
Property, plant and equipment
All property, plant and equipment is stated at historical cost
less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised.
All other repairs and maintenance are charged to the income
statement during the financial period in which they are
incurred.
Stands are provided to retail customers for displaying the
Group's products in store. The Group recognises stands as property,
plant and equipment as the Group are solely responsible for
providing, maintaining and disposing of the stands and therefore
the Group is considered to have control of these assets.
Depreciation is calculated using the straight-line method to
allocate assets' cost amounts to their residual values over their
estimated useful lives. The estimated useful lives are as
follows:
Leasehold improvements 5 years
Stands 2 to 10 years
Office equipment 3 years
Computer equipment 3 years
The assets' residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period. An
asset's carrying amount is written down immediately to its
recoverable amount if the asset's carrying amount is greater than
its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and are recognised within
'Administrative expenses' in the income statement.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is
not amortised. Instead, goodwill is tested annually for impairment,
or more frequently if events or changes in circumstances indicate
that it might be impaired and is carried at cost less accumulated
impairment losses. Impairment losses on goodwill are taken to
profit or loss and are not subsequently reversed.
Intangible assets other than goodwill
Intangible assets acquired separately from a business are
recognised at cost and are subsequently measured at cost less
accumulated amortisation and accumulated impairment losses.
Intangible assets acquired on business combinations are
recognised separately from goodwill at the acquisition date where
it is probable that the future economic benefits that are
attributable to the asset will flow to the entity and the fair
value of the asset can be measured reliably.
Amortisation is calculated on a straight-line basis, less its
estimated residual value, over its useful economic life. The
estimated useful lives are as follows:
Software 5 years
Website costs 3 years
Trademarks 5 years
Intellectual property 5 -10 years
Impairment of property, plant and equipment and of intangible
assets, including right-of-use assets
At each reporting period end date, the Group reviews the
carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss, if any. Where it is not possible to
estimate the recoverable amount of an individual asset, the Group
estimates the recoverable amount of the cash-generating unit to
which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately in
profit or loss, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (or cash-generating unit) prior years. A reversal of
an impairment loss is recognised immediately in profit or loss,
unless the relevant asset is carried in at a revalued amount, in
which case the reversal of the impairment loss is treated as a
revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable
value on a 'Weighted Average Cost' basis. Costs of purchased
inventory includes the purchase price, import duties, other taxes
and delivery costs and are determined after deducting rebates and
discounts received or receivable. Cost comprises of direct
materials and delivery costs, direct labour, import duties and
other taxes, an appropriate proportion of variable and fixed
overhead expenditure based on normal operating capacity, and, where
applicable, transfers from cash flow hedging reserves in equity
Inventory in transit is stated at the lower of cost and net
realisable value.
Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
Financial instruments
Financial assets and liabilities are recognised on the statement
of financial position when the Group has become party to the
contractual provisions of the instrument and derecognised when it
ceases to be a party to such provisions.
Trade and other receivables
Trade receivables are initially measured at their transaction
price. Other receivables are initially measured at fair value plus
any directly attributable transaction costs. Receivables are held
to collect the contractual cash flows which are solely payments of
principal and interest. Therefore, these receivables are
subsequently measured at amortised cost using the effective
interest rate method. The Group does not hold any receivables with
a significant financing component.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other
short-term investments held by the Group with maturities of less
than three months. These are highly liquid investments that are
readily convertible into known amounts of cash and are subject to
an insignificant risk of change in fair value.
Trade and other payables
Trade and other payables are initially recognised at fair value
less transaction costs and subsequently measured at amortised cost
using the effective interest rate method, with all movements being
recognised in the statement of comprehensive income. Cost is
considered to approximate fair value.
Deferred Consideration
Deferred consideration is initially recognised at fair value and
subsequently measured at amortised cost. Charges arising on
significant financing component of deferred consideration are
recognised in profit or loss over the life of the deferral
period.
Borrowings
Interest-bearing loans are initially measured at fair value, net
of direct transaction costs and are subsequently measured at
amortised cost. The effective interest method allocates interest
expense to each period at the rate which discounts estimated future
cash payments through the expected life of the debt to the net
carrying amount on initial recognition. Finance charges, including
fees and premiums payable on settlement or redemption, are
recognised in profit or loss over the term of the loan using an
effective rate of interest. Arrangement fees in relation to undrawn
facilities are recognised as a prepayment to reflect the right for
the Group to borrow in the future on pre-specified terms which may
be favourable. The prepayment is released to profit or loss on a
systematic basis, the timing of which depends on the probability of
further draw down of the facility. If further draw down is not
probable, the fee is recognised over the period of the facility to
which it relates, if it is probable, the prepayment is held at full
amount until draw down.
Classification and subsequent measurement of financial
liabilities
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements and
financial covenants entered into. An equity instrument is any
contract that evidences a residual interest in the assets of the
Group after deducting all its liabilities.
Derivatives
The Group enters into foreign exchange forward contracts and
swaps. These derivatives are initially recognised at fair value on
the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. Fair value
gains and losses are recognised in profit and loss.
Equity
Equity instruments issued are recorded at fair value on initial
recognition net of transaction costs.
Provisions
Provisions are recognised when the company has a present (legal
or constructive) obligation as a result of a past event, it is
probable the company will be required to settle the obligation, and
a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties
surrounding the obligation. If the time value of money is material,
provisions are discounted using a current pre-tax rate specific to
the liability. The increase in the provision resulting from the
passage of time is recognised as a finance cost.
Where the Group has contractual arrangements in place that are
expected to result in reimbursement of liabilities for which a
liability has been provided for, a reimbursement asset is
separately recognised. Such assets are only recognised where the
Group is virtually certain of that the reimbursement will be
received. The resulting recognition within the profit and loss, is
that the provision is recognised net of the reimbursement
asset.
Impairment of financial assets under IFRS 9
An impairment loss is recognised for the expected credit losses
on financial assets when there is an increased probability that the
counterparty will be unable to settle an instrument's contractual
cash flows on the contractual due dates, a reduction in the amounts
expected to be recovered, or both.
The probability of default and expected amounts recoverable are
assessed using reasonable and supportable past and forward-looking
information that is available without undue cost or effort. The
expected credit loss is a probability-weighted amount determined
from a range of outcomes and takes into account the time value of
money.
Trade receivables
For trade receivables, the simplified approach is used for
expected credit losses as there is no significant financing
component. The lifetime expected credit losses are measured by
applying an expected loss rate to the gross carrying amount. The
expected loss rate comprises the risk of a default occurring and
the expected cash flows on default based on the aging of the
receivable. The risk of a default occurring always takes into
consideration all possible default events over the expected life of
those receivables ("the lifetime expected credit losses").
Different provision rates and periods are used based on groupings
of historic credit loss experience by product type, customer type
and location.
Impairment of other receivables measured at amortised cost
The measurement of impairment losses depends on whether the
financial asset is 'performing', 'underperforming' or
'non-performing' based on the Group's assessment of increases in
the credit risk of the financial asset since its initial
recognition and any events that have occurred before the year-end
which have a detrimental impact on cash flows. The financial asset
moves from 'performing' to 'underperforming' when the increase in
credit risk since initial recognition becomes significant.
In assessing whether credit risk has increased significantly,
the Group compares the risk of default at the year-end with the
risk of a default when the receivable was originally recognised
using reasonable and supportable past and forward-looking
information that is available without undue cost. The risk of a
default occurring takes into consideration default events that are
possible within 12 months of the year- end ("the 12-month expected
credit losses") for 'performing' financial assets, and all possible
default events over the expected life of those receivables ("the
lifetime expected credit losses") for 'underperforming' financial
assets.
Impairment losses and any subsequent reversals of impairment
losses are adjusted against the carrying amount of the receivable
and are recognised in profit or loss.
Employee benefits
The costs of short-term employee benefits are recognised as a
liability and an expense unless those costs are required to be
recognised as part of the cost of other assets.
The cost of any unused holiday entitlement is recognised in the
period in which the employee's services are received. Termination
benefits are recognised immediately as an expense when the Group is
demonstrably committed to terminate the employment of an employee
or to provide termination benefits.
Defined contribution pension plans
Obligations for contributions to defined contribution pension
plans are recognised as an expense in the Consolidated Statement of
Profit or Loss in the periods which services are rendered by
employees.
Share-based payments
The company issues equity-settled share-based incentives to
certain employees in the form of share options and incentive shares
and recharges the cost of these to the relevant subsidiary company.
Equity-settled share-based payments are measured at fair value at
the date of grant. The fair value determined at the grant date is
expensed in the relevant subsidiary's financial statements on a
straight-line basis over the estimated vesting period, based on the
estimate of shares that will eventually vest. For share options
which vest in instalments over the vesting period, each instalment
is treated as a separate share option grant, each with a different
vesting period. A corresponding adjustment is made to equity.
The fair value of incentive shares and share options are
measured using the Monte Carlo model. The expected life used in the
model has been adjusted, based on management's best estimate, for
the effect of non-transferability, exercise restrictions and
behavioural conditions.
If the vesting conditions of incentive shares or share options
are modified in a manner that is beneficial to the employee and
this modification increases the fair value of the equity
instruments granted (or increases the number of equity instruments
granted) measured immediately before and after the modification,
the entity shall include the incremental fair value granted in the
measurement of the amount recognized for services received as
consideration for the equity instruments granted. The incremental
fair value granted is the difference between the fair value of the
modified equity instrument and that of the original equity
instrument, both estimated as at the date of modification. If the
modification occurs during the vesting period, the incremental fair
value granted is included in the measurement of the amount
recognised for services received over the period from the
modification date until the date when the modified equity
instruments vest, in addition to the amount based on the grant date
at fair value of the original equity instruments, which is
recognised over the remained of the original vesting period.
Cancellations or settlements are treated as an acceleration of
vesting and the amount that would have been recognised over the
remaining vesting period is recognised immediately.
Taxation
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the income statement, except to the
extent that it relates to items recognised in other comprehensive
income or directly in shareholders' funds. In this case, the tax is
also recognised in other comprehensive income or directly in
shareholders' funds, respectively.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Group operates and generates taxable
income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions
where appropriate on the basis of amounts expected to be paid to
the tax authorities.
Deferred income tax assets are recognised only to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilised. Deferred
income tax is recognised on temporary differences arising between
the tax basis of assets and liabilities and their carrying amounts
in the financial statements. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when
the related deferred income tax asset is released or the deferred
income tax liabilities is settled.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
Since the Group is able to control the timing of the reversal of
the temporary difference associated with interests in subsidiaries,
a deferred tax liability is recognised only when it is probable
that the temporary difference will reverse in the foreseeable
future mainly because of a dividend distribution.
At present, no provision is made for the additional tax that
would be payable if the subsidiaries in certain countries remitted
their profits because such remittances are not probable, as the
Group intends to retain the funds to finance organic growth
locally.
Leases
On commencement of a contract (or part of a contract) which
gives the Group the right to use an asset for a period of time in
exchange for consideration, the Group recognises a right-of-use
asset and a lease liability unless the lease qualifies as a
'short-term' lease or a 'low-value' lease.
Short-term leases
Where the lease term is twelve months or less and the lease does
not contain an option to purchase the leased asset, lease payments
are recognised as an expense on a straight-line basis over the
lease term.
Leases of low-value assets
For leases where the underlying asset is 'low-value', lease
payments are recognised as an expense on a straight-line basis over
the lease term.
Initial and subsequent measurement of the right-of-use asset
A right-of-use asset is recognised at commencement of the lease
and initially measured at the amount of the lease liability, plus
any incremental costs of obtaining the lease and any lease payments
made at or before the leased asset is available for use by the
Group.
The right-of-use asset is subsequently measured at cost less
accumulated depreciation and any accumulated impairment losses. The
depreciation methods applied are as follows:
Right-of-use on a straight-line basis over the shorter
assets of the lease term and the useful life
The right-of-use asset is adjusted for any re-measurement of the
lease liability and lease modifications.
Initial measurement of the lease liability
The lease liability is initially measured at the present value
of the lease payments during the lease term discounted using the
interest rate implicit in the lease, or the incremental borrowing
rate if the interest rate implicit in the lease cannot be readily
determined.
The lease term is the non-cancellable period of the lease plus
additional periods arising from extension options that the Group is
reasonably certain to exercise and termination options that the
Group is reasonably certain not to exercise.
Subsequent measurement of the lease liability
The lease liability is subsequently increased for a constant
periodic rate of interest on the remaining balance of the lease
liability and reduced for lease payments.
Interest on the lease liability is recognised in profit or loss,
unless interest is directly attributable to qualifying assets, in
which case it is capitalised in accordance with the Group's policy
on borrowing costs.
Remeasurement of the lease liability
The lease liability is adjusted for changes arising from the
original terms and conditions of the lease that change the lease
term, the Group's assessment of its option to purchase the leased
asset, the amount expected to be payable under a residual value
guarantee and/or changes in lease payments due to a change in an
index or rate. The adjustment to the lease liability is recognised
when the change takes effect and is adjusted against the
right-of-use asset, unless the carrying amount of the right-of-use
asset is reduced to nil, when any further adjustment is recognised
in profit or loss. On termination of leases, the right-of-use asset
and lease liability are derecognised, with any resulting gain or
loss being recognised in profit or loss.
Adjustments to the lease payments arising from a change in the
lease term or the lessee's assessment of its option to purchase the
leased asset are discounted using a revised discount rate. The
revised discount rate is calculated as the interest rate implicit
in the lease for the remainder of the lease term, or if that rate
cannot be readily determined, the lessee's incremental borrowing
rate at the date of reassessment.
Changes to the amounts expected to be payable under a residual
value guarantee and changes to lease payments due to a change in an
index or rate are recognised when the change takes effect and are
discounted at the original discount rate unless the change is due
to a change in floating interest rates, when the discount rate is
revised to reflect the changes in interest rate.
Lease modifications
A lease modification is a change that was not part of the
original terms and conditions of the lease and is accounted for as
a separate lease if it increases the scope of the lease by adding
the right to use one or more additional assets with a commensurate
adjustment to the payments under the lease.
For a lease modification not accounted for as a separate lease,
the lease liability is adjusted for the revised lease payments,
discounted using a revised discount rate. The revised discount rate
used is the interest rate implicit in the lease for the remainder
of the lease term, or if that rate cannot be readily determined,
the lessee company's incremental borrowing rate at the date of the
modification.
Where the lease modification decreases the scope of the lease,
the carrying amount of the right-of-use asset is reduced to reflect
the partial or full termination of the lease. Any difference
between the adjustment to the lease liability and the adjustment to
the right-of-use asset is recognised in profit or loss.
For all other lease modifications, the adjustment to the lease
liability is recognised as an adjustment to the right-of-use
asset.
Government grants
Government grants are recognised when there is reasonable
assurance that the grant conditions will be met, and the grants
will be received.
Government grants received in the year are towards staff wage
costs under the job retention scheme during Covid-19. The grant
income is recognised under other operating income over the period
necessary to match with the related wage expense.
Dividends
Dividends are recognised when declared and authorised during the
financial year and no longer at the discretion of the Group.
3 JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amount of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
Judgements
In the course of preparing the financial statements, judgements
have been made in the process of applying the accounting policies
that have had a significant effect in the amounts recognised in the
financial statements. The following are the areas requiring the use
of judgements that may significantly impact the financial
statements.
Expected Credit Losses
Impairment provisions for trade receivables are recognised based
on the simplified approach within IFRS 9 using a provision matrix
in the determination of the lifetime expected credit losses. During
this process the probability of the non-payment of the trade
debtors 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 debtors. For trade
receivables, which are reported net, such provisions are recorded
in a separate provision account with the loss being recognised
within cost of sales in the statement of comprehensive income. On
confirmation that the trade debtor will not be collectable, the
gross carrying value of the asset is written off against the
associated provision.
Reimbursement Assets
Reimbursement assets are recognised when it is determined to be
virtually certain that they will be recovered, in accordance with
IAS 37. Judgment is required in making this determination prior to
the receipt of cash flows, the Group considers strength and
validity of contractual arrangement in place as well as the
resources of the counterparty to any reimbursement. Where the
contractual arrangements are considered secure, the counterparty
has sufficient resources and there is no other plausible reason for
the asset not to be recovered, the reimbursement is recognised.
Estimates
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised where the revision
affects only that period, or in the period of the revision and
future periods where the revision affects both current and future
periods. Estimates include:
Returns
Some customers are able to return unsold stock. At the period
end, the Group makes a provision for returns based on historical
averages, or actual values that have been agreed with the
customer.
Measurement of inventory provision
The Group's inventory provision methodology is made up of a net
realisable value (NRV) component and a slow moving component. The
slow moving component includes a provision for inventory that has
recently been launched and therefore has limited sales history and
also for more mature inventory which is assessed based on its sales
cover, which gives rise to the key source of estimation
uncertainty.
The NRV provision is determined by assessing the latest sales
price of a Stock Keeping Unit ("SKU"), less the cost of selling it,
against the cost of purchasing it. There is judgment applied in
assessing the costs included in selling each SKU. The Group
determines cost to sell on an average basis across all SKUs. The
cost to sell includes the incremental costs of selling, such as
commissions, as well as non-incremental selling costs including
expected marketing costs and expected costs to hold the stock until
the anticipated time of sale.
Inventory consists of a large number of SKUs, with a range of
values. The slow-moving inventory provision is calculated for each
SKU, based on sales in a 12 month period, to calculate the number
of months cover held at the balance sheet date for each SKU held in
stock.
No provision is applied to SKUs where inventory cover is 12
months or less. Where a SKU has more than 12 months inventory cover
a provision of 50% is applied to inventory expected to sell in
months 13-24 and 100% to inventory expected to sell thereafter.
Inventory cover is determined by dividing the level of inventory on
hand at the balance sheet date by sales data for a 12 month period
including a period after the balance sheet date, at a SKU by SKU
level.
As recent sales data does not accurately reflect the expected
future sales of products developed in the 12 months prior to the
balance sheet date on an individual basis, historic sales
performance of all new products launched over the preceding three
years has been applied. Therefore, the Group has determined the
historic rate of sale of newly developed products and makes a
further slow moving provision of 25% of the value of new SKUs
launched in the 12 month period up to the reporting date.
The total provision at 28 February 2023 is GBP33.8m (2022:
GBP39.8m). The calculation of the inventory provision as at 28
February 2023 is based on a number of assumptions. These are set
out below, alongside a sensitivity to those assumptions considered
to be most subjective by management.
-- Provision rate of 50%. An increase or decrease in the
provision rate of 50% on inventory with inventory cover of greater
than 24 months but less than 36 months to the minimum of 0% or
maximum of 100% possible would increase or decrease the inventory
provision by GBP2.2m respectively.
-- Newly developed product provision. An increase or decrease in
the provision applied to products developed in the 12 months prior
to the reporting date by 5% would increase or decrease the overall
provision by GBP1.2m.
Impairment of goodwill
The Group determines whether goodwill is impaired when
indicators of impairment are identified or in the annual assessment
of impairment. The annual assessment requires an estimate of the
value in use of the CGUs to which the assets are allocated, which
is by business unit.
Estimating the value in use requires the Group to make an
estimate of the expected future cash flows from each business unit
and discount these to their net present value at a discount rate.
The resulting calculation is sensitive to the assumptions in
respect of future cash flows and the discount rate applied.
Forecasting expected cash flows and selecting an appropriate
discount rate inherently requires estimation. A sensitivity
analysis has been performed over the estimates (see Note 15). The
resulting calculation is sensitive to the assumptions in respect of
future cash flows and the discount rate applied. The Directors
consider that the key assumptions made within the cash flow
forecasts include sales levels. The Directors consider that the
assumptions made represent their best estimate of the future cash
flows generated by the CGUs, and that the discount rate used is
appropriate given the risks associated with the specific cash
flows.
Measurement, useful lives and impairment of property, plant and
equipment
The annual depreciation charge for property, plant and equipment
is sensitive to changes in the estimated useful economic lives and
residual values of the assets. The useful economic lives and
residual values are re-assessed annually. They are amended when
necessary to reflect current estimates, based on technological
advancement, future investments, economic utilisation and physical
condition of the assets. In the event of impairment, an estimate of
the asset's recoverable amount is made. The value of the assets are
tested whenever there are indications of impairment.
Impairment of property, plant and equipment
The Group determines whether property, plant and equipment,
predominantly related to stands used in stores to present the
Group's inventory for sale, are impaired or require reversal of
impairment when indicators of impairments or reversal of impairment
exist or based on the annual impairment assessment. The annual
assessment requires an estimate of the value in use of the CGUs to
which the assets are allocated, which is at a customer level.
Estimating the value in use requires the Group to make an
estimate of the expected future cash flows from each customer and
discount these to their net present value at a discount rate. The
resulting calculation is sensitive to the assumptions in respect of
future cash flows and the discount rate applied.
Forecasting expected cash flows and selecting an appropriate
discount rate inherently requires estimation. A sensitivity
analysis has been performed over the estimates (see Note 16). The
resulting calculation is sensitive to the assumptions in respect of
future cash flows and the discount rate applied. The Directors
consider that the key assumptions made within the cash flow
forecasts include sales levels. The Directors consider that the
assumptions made represent their best estimate of the future cash
flows generated by the CGUs, and that the discount rate used is
appropriate given the risks associated with the specific cash
flows.
Measurement of legal provisions
The Group recognises a provision when it has a present liability
for a past event, in accordance with IAS 37. With regard to legal
claims, management consider the status of any claims and all legal
advice available to determine that a liability exists. Where no
agreement has been reached for the value of a claim with the
claimant, estimation is required in assessing the quantum of the
liability. Estimating the liability also involves consideration of
all available advice from counsel, the legal stage of the claim,
any offers for settlement which have been made and whether or not
they have been accepted. The strength of the claims and the defence
is also considered. Management consider that the assessment made in
respect of legal claims provided for at the Balance Sheet date
represent their best possible estimate of the expected liability
using the available information.
4 CORRECTION OF PRIOR YEAR ERRORS
The Directors have determined that a provision which was
previously disclosed as a contingent liability should have been
recognised as a provision during the year ended 28 February 2022,
as the process of reaching a settlement of the case had reached a
stage whereby it had been established that a material settlement
was likely and a value could have been accurately estimated.
The Group has posted or reposted social media video clips which
contain sound recordings and musical compositions from the music
library of the relevant social media platform. A letter was
received in Autumn 2020 from two music owners, claiming copyright
infringement. Letters raising such allegations are common in other
business sectors involved in social media. The Group, funded by its
insurers, is robustly defending the allegations and, taking a
cautious approach, has sought to remove any allegedly offending
posts over which the Group has control. Despite the time that has
passed, no court proceedings have been brought by the music
owners.
The Directors have taken formal legal advice from specialist US
intellectual property attorneys and engaged in a mediation process
with the claimants. Based on that advice and the ongoing mediation
process and settlement offers made to date, the Group believes that
a liability of GBP4.3m should have been provided for at 28 February
2022.
In addition, it has been determined that reimbursement assets of
GBP3.3m should have been recognized in respect of insurances and
reimbursements the Group will received when a settlement is
ultimately paid. The reimbursement assets recognised relate to an
insurance policy and indemnities. GBP2.0m has been recognised in
respect of the indemnities. Further detail relating to the
indemnities has not been disclosed on the grounds that such
disclosure is considered to be seriously prejudicial.
The impact on the Statement of Profit or Loss is a net charge in
respect of legal case so GBP1,018k. In addition, GBP0.2m in legal
costs were settled on behalf of the Group by its insurance during
the year ended 28 February 2022. Deferred tax assets totalling
GBP432k should have been recognised as a result, with a
corresponding credit in the Statement of Profit or Loss.
In the prior year, disclosure of related party transactions with
close family members of Key Management Personnel were omitted.
These are now disclosed in Note 33.
Impact on the Statement of Profit or Loss and Other
Comprehensive Income
Year ended Year ended
28 February 28 February
2022 2022
Extract
Reported Adjustments Restated
GBP'000 GBP'000 GBP'000
Provision for legal cases - (1,018) (1,018)
Loss before taxation (44,897) (1,018) (45,915)
Income tax charge credit 1,174 432 1,606
Loss for the period (43,723) (586) (44,309)
Total comprehensive loss
for the period (43,565) (586) (44,151)
Earnings per share (p) (15.5) (0.2) (15.7)
Diluted earnings per share
(p) (15.5) (0.2) (15.7)
Impact on the Statement of Financial Position
28 February 28 February
Extract 2022 2022
Reported Adjustments Restated
GBP'000 GBP'000 GBP'000
Reimbursement Assets - 3,267 3,267
Net non-current assets 22,202 3,267 25,469
Provisions (non-current) (1,210) (4,285) (5,495)
Deferred tax liabilities (432) 432 -
Net assets 21,017 (586) 20,431
Retained earnings (108,335) (586) (108,921)
Total equity 21,017 (586) 20,431
5 ADJUSTED PERFORMANCE MEASURES
The Group uses a number of Alternative Performance Measures
("APMs") in addition to those measures reported in accordance with
IFRS. Such APMs are not defined terms under IFRS and are not
intended to be a substitute for any IFRS measure. The Directors
believe that the APMs are important when assessing the underlying
financial and operating performance of the Group.
The APMs are used internally in the management of the Group's
business performance, budgeting and forecasting, and for
determining Executive Directors' remuneration and that of other
management throughout the business. The APMs are also presented
externally to meet investors' requirements for further clarity and
transparency of the Group's financial performance. Where items of
profits or costs are being excluded in an APM, these are included
elsewhere in our reported financial information as they represent
actual income or costs of the Group.
The Group's Alternative Performance Measures are set out
below.
Adjusted EBITDA
Adjusted EBITDA is defined as Operating Profit adjusted for
depreciation and amortisation, impairments and reversals of
impairment, profits and losses on the disposal of assets, share
based charges and releases and exceptional items.
Year ended Year ended
28 February 28 February
2023 2022
Restated
GBP'000 GBP'000
Operating loss (30,581) (39,881)
Amortisation of intangible assets 1,933 1,303
Impairment of goodwill and other intangibles 3,388 13,000
Depreciation of property, plant and equipment and
right-of-use assets 8,369 6,309
Impairment of property, plant and equipment and right-of-use
assets 2,177 1,948
Loss of disposal of asset 62 -
Share-based payment expenses 303 3,534
Operating exceptional items:
IPO related costs - 8,936
Acquisition costs 262 621
Restructuring costs 1,310 261
Provision or settlement of legal cases 1,474 1,018
Exceptional legal fees 3,528 -
Exceptional audit fees 300 2,150
=============================================================== ============= =============
Adjusted EBITDA (7,475) (801)
=============================================================== ============= =============
Operating exceptional items
As announced on 23 September 2022, the Company's auditor wrote
to the Board on 21 September 2022 to identify a number of serious
concerns that had arisen during the course of its work on the audit
of the Company's accounts for the year ended 28 February 2022. The
Board appointed independent external advisors to undertake an
independent investigation, and the Company appointed Macfarlanes
(lawyers), Rosenblatt (lawyers) and FRA (forensic accountants) on
23 September 2022. As a result of issue identified through this
process, exceptional legal and professional fees were incurred at a
cost of GBP3.5m (which includes GBP0.4m paid on behalf of two
Directors). In addition, these concerns raised led to exceptional
audit fees to be incurred above the level usually required for the
Group's annual statutory audit at a further cost of GBP0.3m.
Further to the investigation outcomes a reorganisation of the
Groups operations and processes, included the restructure of senior
management positions. This reorganisation resulted in the Group
incurring exceptional redundancy and professional cost of
GBP1.3m.
In addition, the Group incurred GBP262k in further professional
fees and inventory costs in connection with the acquisitions
completed during 2022 which are considered to be outside the normal
course of business:
- the acquisition of Medichem Manufacturing Ltd
- the purchase of asset from BH Cosmetics Inc.
The Group incurred legal and professional costs of GBP0.1m and
GBP0.2m respectively, in the process of concluding the
above-mentioned acquisitions, which are considered to be
transaction related costs outside the normal course of
business.
During the current and prior year, the Group made provision of
GBP1.0m in respect of a legal claim in respect of copyright
infringement on music rights in the US., this amount had not been
settled by the balance sheet date and is included within
provisions. During the year, the Group reached a legal settlement
of GBP0.3m related to a one off trademark dispute.
Prior period operating exceptional items
Having listed on AIM in July 2021, the Group incurred certain
expenses connected with the listing through the course of the
period. These expenses included GBP2.9m related to legal and
professional fees associated with the IPO process, GBP0.5m in staff
bonuses associated with the IPO and GBP5.6m in connection with the
issue of warrants.
In addition, the Group incurred GBP621k in further professional
fees in connection with the acquisitions which are considered to be
outside the normal course of business:
- the acquisition of Medichem Manufacturing Ltd.
- the purchase of asset from BH Cosmetics Inc.
The Group incurred legal and professional costs of GBP0.3m and
GBP0.3m respectively, in the process of concluding the above
mentioned acquisitions, which are considered to be transaction
related costs outside the normal course of business.
- a reorganisation of the Groups US operations, including the
restructure of senior management positions and changes to certain
operational reporting process. This reorganisation resulted in the
Group incurring exceptional redundancy and professional cost of
GBP0.3m.
As an outcome of the financial investigations related to the
financial year ended 28 February 2022, exceptional audit fees were
incurred above the level usually required for the Group's annual
statutory audit, at a cost of GBP2.2m.
6 SEGMENTAL REPORTING
IFRS 8 Operating Segments requires that operating segments be
identified on the basis of internal reporting and decision-making.
The Group identifies operating segments based on internal
management reporting that is regularly reported to and reviewed by
the Board of directors, which is identified as the chief operating
decision maker. Management information is reported as one operating
segment, being revenue from sales of products.
7 REVENUE
2023 2022
An analysis of the Group's revenue is as follows: GBP'000 GBP'000
Revenue analysed by class of business
Digital 51,008 58,013
Store groups 136,834 126,566
====================================================== ========== ==========
187,842 184,579
====================================================== ========== ==========
Revenue analysed by geographical market
UK 66,974 71,456
United States of America 51,961 48,021
Rest of World 68,907 65,102
====================================================== ========== ==========
187,842 184,579
====================================================== ========== ==========
The Group generated revenue from one individual customer that
accounted for greater than 10% of total revenue in FY23 and FY22.
Total revenue from that one customer was GBP19.6m (2022:
GBP20.0m).The performance obligations are settled upon delivery of
the products to the specified customer location or upon collection
by the customer. Payment is typically due within 30 to 90 days from
delivery for online retailers and store groups.
8 EMPLOYEES
Year ended Year ended
28 February 28 February
2023 2022
An analysis of the Group's staff costs is as follows: GBP'000 GBP'000
Wages and salaries 17,774 14,076
Social security costs 2,292 1,378
Pension costs - defined contribution 323 226
Equity-settled share-based payments 303 3,534
========================================================== =============== ===============
Total employee benefit expense 20,692 19,214
========================================================== =============== ===============
Included in wages and salaries is an amount totalling GBPNil
(2022: GBP446k) relating to a staff bonus paid to staff in
connection with the Group's listing on AIM during 2021, this was a
one-off payment and as such has been included within operating
exceptional items, as set out in note 4. Included in wages and
salaries in the current year is GBPNil (2022: GBP2k) in respect of
furlough grants received.
The Group operates a defined contribution pension scheme for all
qualifying employees. The assets of the scheme are separately held
from those of the Group in an independently administered fund. At
the reporting date, contributions totalling GBP4k (2022: GBP34k)
were payable to the fund and are included within other
creditors.
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
================================
Average number of staff 279 228
Administration Cost of sales 137 141
================================ =============== ===============
416 369
================================ =============== ===============
9 DIRECTORS' REMUNERATION
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
==========================================================
An analysis of the Group's directors' remuneration
costs is as follows: Directors' remuneration excluding
pension 1,659 994
========================================================== =============== ===============
Remuneration disclosed above includes the following amounts paid
to the highest paid director:
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
Directors' remuneration 468 343
========================== ============= =============
Pension contributions of GBP550 (2022: GBP1,320) were made on
behalf of one director during the year. Full details of Directors
remuneration are set out on in the Renumeration Report in the
Groups' Annual Report and Accounts .
10 OPERATING LOSS
Year ended Year ended
28 February 28 February
2023 2022
Restated
GBP'000 GBP'000
The operating loss is arrived at after charging/(crediting):
In-store marketing and stands 26,166 20,325
Warehousing and logistics 13,681 12,639
Freight out 7,817 8,709
Commissions payable 5,106 5,082
Net foreign exchange (gains)/ losses (321) 252
Government grants - (5)
Amortisation of intangible assets 1,933 1,303
Impairment of goodwill and other intangibles 3,388 13,000
Depreciation of property, plant and equipment - owned 6,548 5,394
Depreciation of property, plant and equipment - right-of-use
assets 1,821 915
Impairment of property, plant and equipment - owned 1,811 1,948
Cost of stocks recognised as an expense 112,704 113,353
Provision utilised on cost of inventory (5,898) 11,262
Share-based payment charge 303 3,534
Operating lease rentals
- short-term leases 89 -
- low-value leases 18 4
=============================================================== ============= =============
11 AUDITORS REMUNERATION
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
Fees payable to the Group's auditor and its associates:
Audit of the financial statements 1,367 2,750
Subsidiary entity audit fees 150 150
All other non-audit services
- Half year review - 23
- Reporting accountant - 410
- Tax advisory - 129
========================================================== ============= =============
1,517 3,462
========================================================== ============= =============
12 FINANCE INCOME
2023 2022
GBP'000 GBP'000
==============================================================
Gain on movement of the fair value of financial derivatives - 76
Interest receivable 1 -
1 76
============================================================== ========== ==========
13 FINANCE COSTS
2023 2022
GBP'000 GBP'000
Interest on bank overdrafts and loans 1,379 230
Series A and B loan notes - 3,810
Interest on debt instruments - 617
Other loans - 548
Interest on lease liabilities 146 82
Other interest 1,769 823
======================================== ========= =========
3,294 6,110
======================================== ========= =========
14 INCOME TAX CREDIT/EXPENSE
2022
2023 Restated
GBP'000 GBP'000
Current tax:
UK corporation tax on profits for the current period - 204
Adjustments in respect of prior periods 7 (1,609)
========================================================= =========== ===========
7 (1,405)
Foreign current tax on profits for the current period (120) 201
Adjustments in respect of prior periods (72) (46)
========================================================= =========== ===========
Total current tax (185) (1,250)
========================================================= =========== ===========
Deferred tax
Origination and reversal of timing differences (180) 191
Previously unrecognised tax loss, tax credit or timing
difference 137 (115)
Effect of restatement - (432)
========================================================= =========== ===========
Total deferred tax (43) (356)
========================================================= =========== -----------
Total income tax credit (228) (1,606)
========================================================= =========== -----------
Factors affecting tax charge for the year
2022
2023 Restated
GBP'000 GBP'000
=====================================================
Loss before taxation (33,874) (45,915)
===================================================== =========== ===========
Expected tax credit based on the standard rate of
corporation tax in the UK of 19% (6,457) (8,530)
Tax effect of expenses that are not deductible in
determining taxable profit 184 5,319
Fixed Asset Differences (200) (202)
Adjustment in respect of prior years (64) (1,655)
Effect of overseas tax rates (5) 116
Deferred tax adjustments in respect of prior years 137 (547)
Deferred tax assets not recognised 6,219 3,893
Effect of change in deferred tax rate (42) -
Total income tax credit (228) (1,606)
===================================================== =========== ===========
The Group has tax losses totalling GBP54,773k (2022: GBP28,913k)
and other temporary differences of GBP24,182k (2022: GBP29,543k)
for which no deferred tax asset has been recognised due to
uncertainty over future recoverability.
Changes to UK corporation tax rates were substantively enacted
by the Finance Bill 2021 on 24 May 2021. These included an increase
of the corporation tax rate to 25% from 1 April 2023. As this
change was substantively enacted at the year end date, where
deferred tax is recognised, it is at a rate of 25% in the current
year (2022: 25%).
15 EARNINGS PER SHARE
The Group reports basic and diluted earnings per common share.
Basic earnings per share is calculated by dividing the profit
attributable to ordinary shareholders of the Company by the
weighted average number of common shares outstanding during the
period.
Diluted earnings per share is determined by adjusting the profit
attributable to common shareholders by the weighted average number
of common shares outstanding, taking into account the effects of
all potential dilutive common shares, including options.
2022
2023 Restated
GBP'000 GBP'000
Loss attributable to shareholders (33,646) (44,309)
Adjustments:
Weighted average number of shares 309,737,250 282,835,551
========================================================= ============= =============
Basic earnings per share (p) (10.9) (15.7)
========================================================= ============= =============
Total comprehensive expense attributable to the owners
of the company (33,646) (44,309)
Weighted average number of shares 309,737,250 282,835,551
Dilutive effect of share options and warrants - -
========================================================= ============= =============
Weighted average number of diluted shares 309,737,250 282,835,551
========================================================= ============= =============
Diluted earnings per share (p) (10.9) (15.7)
========================================================= ============= =============
Pursuant to IAS 33, options whose exercise price is higher than
the average price of the Company's shares in the year were not
taken into account in determining the effect of dilutive
instruments. The calculation of diluted earnings per share does not
assume conversion, exercise, or other issue of potential ordinary
shares that would have an antidilutive effect on earnings per
share.
16 INTANGIBLE ASSETS
Website Intellectual Acquired
Goodwill Software costs Trademarks property rights Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost:
As at 1 March
2021 2,017 1,843 1,757 358 723 532 7,230
Additions - business
combinations 15,786 - - - - 631 16,417
Additions - 288 - 178 2,600 - 3,066
Disposals - (70) - (65) (7) - (142)
Exchange adjustments - - - - - - -
====================== ========== ========== ========= ============ ============== ========== =========
As at 28 February
2022 17,803 2,061 1,757 471 3,316 1,163 26,571
Additions 679 - 113 226 - 1,018
Disposals (466) - (37) (591) - (1,095)
Exchange adjustments 450 (5) - - (134) - 311
====================== ========== ========== ========= ============ ============== ========== =========
As at 28 February
2023 18,253 2,269 1,757 547 2,817 1,163 26,806
====================== ========== ========== ========= ============ ============== ========== =========
Amortisation
and impairment:
As at 1 March
2021 - 673 877 154 366 503 2,573
Amortisation charge
for the period - 422 586 82 184 29 1,303
Impairment charge 13,000 - - - - - 13,000
Disposals - (70) - (65) (7) - (142)
Exchange adjustments - - - - - - -
====================== ========== ========== ========= ============ ============== ========== =========
As at 28 February
2022 13,000 1,025 1,463 171 543 532 16,734
Amortisation charge
for the year - 632 294 101 406 500 1,933
Impairment charge 2,786 245 - - 226 131 3,388
Disposals - (404) - (37) (591) - (1,032)
Exchange adjustments - 1 2 52 - 55
====================== ========== ========== ========= ============ ============== ========== =========
As at 28 February
2023 15,786 1,499 1,757 237 636 1,163 21,078
====================== ========== ========== ========= ============ ============== ========== =========
Carrying amount:
As at 28 February
2022 4,803 1,036 294 300 2,773 631 9,837
As at 28 February
2023 2,467 770 - 310 2,181 - 5,728
Amortisation and impairment of intangible assets is recognised
within administrative expenses in the Statement of Comprehensive
Income. Intangible assets are located across the Groups
geographical market as follows: UK GBP2,942k (2022: GBP5,220k), ROW
GBPNil (2022: GBPNil), US GBP2,786k (2022: GBP4,617k).
Impairment testing
Goodwill is tested for impairment at each reporting date and a
review undertaken for indicators of impairment.
For the purposes of impairment testing the Group assigns
goodwill to cash generating units (CGUs). Goodwill has been
assigned to the following two CGUs Revolution Beauty Inc of
GBP2,333k (2022: GBP2,017k) and Revolution Labs Ltd (formerly
Medichem Ltd) of GBP2,786k (2022: GBP15,786k).
In testing the goodwill of each CGU the Group aggregates all
identifiable assets, including all other intangible asset and
property, plant and equipment. The assets of the CGU are compared
to the value in use of the CGU in order to assess the recoverable
amount. The value in use is calculated by discounting future
cashflows forecast to be generated from the CGU over a five year
period using the Group's pre-tax weighted average cost of capital
(WACC), which is disclosed in note 16.
At 28 February 2023, the recoverable amount of the Revolution
Labs Ltd CGU was determined to be below the carrying amount, an
impairment of GBP2.8m (2022: GBP13.0m) was recognised to impair the
full goodwill balance. The most significant factors driving the
impairment charges were the reduction in forecast production and
sales of inventory produced by Revolution Labs Ltd, which were
determined based on the latest financial information available and
management forecasts.
Impairment reviews are sensitive to changes in key assumptions.
Management determined that the key assumption used in the cashflow
forecast is the sales and production of inventory produced by
Revolution Labs Ltd. As such, management prepared a sensitivity
analysis on the sales and production and calculated that an
increase of 10% would have also resulted in a full impairment
charge being required to goodwill.
17 PROPERTY, PLANT AND EQUIPMENT
Office
and
Leasehold Computer
improvements Stands equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost:
As at 1 March 2021 465 36,696 511 37,672
Additions - business combinations 17 215 122 354
Additions 13 4,774 205 4,992
Disposals - (6,682) (338) (7,020)
Exchange adjustments - 111 (1) 110
As at 28 February 2022 495 35,114 499 36,108
Additions 1 7,643 207 7,851
Disposals - (7,661) (184) (7,845)
Exchange adjustments - 66 27 93
=================================== ============== ========= =========== =========
As at 28 February 2023 496 35,162 549 36,207
=================================== ============== ========= =========== =========
Depreciation and impairment:
As at 1 March 2021 246 26,698 357 27,301
Charge for the year 99 5,131 164 5,394
Impairment charge - 1,948 - 1,948
Disposals - (6,661) (283) (6,944)
Exchange adjustments - 201 (7) 194
=================================== ============== ========= =========== =========
As at 28 February 2022 345 27,317 231 27,893
Charge for the year 103 6,251 194 6,548
Impairment charge 15 1,766 30 1,811
Disposals - (7,661) (184) (7,845)
Exchange adjustments - (130) 2 (128)
=================================== ============== ========= =========== =========
As at 28 February 2023 463 27,543 273 28,279
=================================== ============== ========= =========== =========
Carrying amount:
As at 28 February 2022 150 7,797 268 8,215
As at 28 February 2023 33 7,619 276 7,928
Depreciation and impairment of property, plant and equipment is
recognised within administrative expenses in the Statement of
Comprehensive Income. Property, plant and equipment is located
across the Group's geographical market as follows: UK GBP3,380k
(2022: GBP5,169k), ROW GBP1,720k, (2022: GBP2,337k), US GBP2,827k
(2022: GBP710k).
Impairment testing
The Group determines whether these assets are impaired when
indicators of impairment exist or at each reporting date. For
impairment testing purposes, stand assets are grouped by customer
into CGUs. Impairment testing is carried out by comparing the
carrying value of the assets held at a CGU with the recoverable
amount of the CGU.
The recoverable amount of a CGU is the higher of value in use or
fair value less cost of disposal. The Group determines the
recoverable amount with reference to its value in use. Value in use
is assessed by forecasting the cashflow generated from a CGU over
the remaining useful life of the asset of the CGU. A pre-tax
Weighted Average Cost of Capital (WACC) derived from externally
benchmarked data is then used to discount the cashflows to present
value. The WACC applied for 2023 was 26% (2022: 12%), this is
considered a key assumption for the impairment review and a
movement of 2% in the WACC rate used would result in a GBP0.1m
change to the impairment.
During the year, an impairment of stand assets of GBP1,766k
(2022: GBP1,948k) was recognised. This impairment was driven by
certain customers not reaching forecasted sales levels and related
to eight UK customers and one US customer (2022: four UK customer
and three US customers) where the value in use was assessed to be
below the carrying value. One UK customer accounted for the
majority of the impairment at GBP1,132k.
As disclosed in Note 15, management determined during the year
that the recoverable amount of Medichem CGU was below its carrying
value. This has resulted in an impairment of property plant and
equipment of GBP171k.
Impairment reviews are sensitive to changes in key assumptions.
Management have determined that the key assumption used in the
cashflow forecast is the gross profit for each customer. As such,
management have prepared sensitivity analysis on the gross profit
for each customer and calculated that a reduction in performance in
line with the severe but plausible scenario set out in note 1 would
result in an additional impairment of GBP0.4m.
18 LEASES
Land and Plant
and
Buildings machinery Other Total
GBP'000 GBP'000 GBP'000 GBP'000
Right-of-use assets
1 March 2021 939 111 15 1,065
Additions 3,208 - 55 3,263
Additions through business combinations 627 108 9 744
Disposals - - (7) (7)
Depreciation (832) (66) (17) (915)
============================================ =========== =========== ========= =========
28 February 2022 3,942 153 55 4,150
Additions 328 - - 328
Disposals - - - -
Depreciation (1,736) (74) (11) (1,821)
Impairment charge (366) - - (366)
Exchange Adjustment 19 - - 19
-------------------------------------------- ----------- ----------- --------- ---------
28 February 2023 2,187 79 44 2,310
============================================ =========== =========== ========= =========
Lease liabilities
1 March 2021 979 115 15 1,109
Additions 3,208 - 55 3,263
Additions through business combinations 615 110 9 734
Disposals - - (7) (7)
Interest expense related to lease
liabilities 77 5 - 82
Repayment of lease liabilities (including
interest) (446) (71) (17) (534)
============================================ =========== =========== ========= =========
28 February 2022 4,433 159 55 4,647
Additions 328 - - 328
Disposals - - - -
Interest expense related to lease
liabilities 140 4 2 146
Repayment of lease liabilities (including
interest) (2,040) (72) (15) (2,127)
Exchange Adjustment 20 20
-------------------------------------------- ----------- ----------- --------- ---------
28 February 2023 2,881 91 42 3,014
============================================ =========== =========== ========= =========
Current 2,002 47 11 2,060
Non-current 879 44 31 954
2023 2022
GBP'000 GBP'000
Maturity analysis:
Within 1 year 2,005 2,022
Between 1 and 5 years 1,105 2,676
Over 5 years - 137
======================== ========= =========
3,110 4,835
Less unearned interest (96) (188)
======================== ========= =========
Lease liability 3,014 4,647
======================== ========= =========
Analysed as:
Non-current 954 2,732
Current 2,060 1,915
======================== ========= =========
3,014 4,647
======================== ========= =========
The carrying value of right-of-use assets in respect of the
above lease liabilities is GBP2,678k (2022: GBP4,150k). Lease
assets are located across the Group's geographical market as
follows: UK GBP2,408k (2022: GBP4,143k), ROW GBPNil (2022: GBPNil),
US GBP270k (2022: GBPNil).
The Group's lease arrangements are in relation to property
leases, plant and office equipment. The leases have termination
dates ranging from 2023 to 2028.
The rates of interest implicit in the Group's lease arrangements
are not readily determinable and management have determined that
the incremental borrowing rate to be applied in calculating the
lease liability is 3.0%. The fair value of the Group's lease
obligations is approximately equal to their carrying amount.
2023 2022
GBP'000 GBP'000
Effects of leases on financial performance:
Depreciation charge on right-of-use assets included
within 'administrative expenses' 1,821 915
Interest expense on lease liabilities included within
'finance costs' 146 82
Expense relating to short-term leases included within 89 -
'administrative expenses'
Expense relating to low-value leases included within
'administrative expenses' 18 4
======================================================== =========== =========
2,074 1,001
======================================================== =========== =========
Effects of leases on cash flows:
Total cash outflow for right-of-use asset leases (2,127) (538)
======================================================== =========== =========
The Group has leases in respect of printers which have been
classified as low value in accordance with IFRS 16. In the year,
the Group had three property leases which have a term of 12 months
or less where it has elected to treat the lease as a short-term
lease in accordance with IFRS 16. The Group is committed to minimum
lease payments in respect of these leases as follows:
2023 2022
GBP'000 GBP'000
==============================
Short-term lease commitment 5 -
Low-value lease commitment 1 1
============================== ================= =================
6 1
============================== ================= =================
19 INVENTORIES
2023 2022
GBP'000 GBP'000
==================================================
Finished goods and goods for resale 47,606 44,683
================================================== ================= ==========
Stock written down/(written back) during period (5,986) 11,262
================================================== ================= ==========
The total cost of inventories recognised as an expense in cost
of sale in the year was GBP111,861k (2022: GBP113,353k). For
further details on inventory valuation, key assumptions and
sensitivities, see Note 3.
20 TRADE AND OTHER RECEIVABLES
2023 2022
GBP'000 GBP'000
Current assets
Trade receivables 50,715 47,611
Other receivables 452 4,209
Prepayments 1,541 3,514
52,708 55,334
==================== ========= =========
All of the trade receivables were non-interest bearing and
receivable under normal commercial terms. The fair value of the
Group's trade and other receivables is the same as their book value
stated above. The Group has assessed the credit risk of its
financial assets measured at amortised cost by reference to the
historic default experience of each debtor and the analysis of the
debtor's financial position. The Group has determined that the loss
allowance for expected credit losses of those assets is GBP2,151k
(2022: GBP1,983k).
21 CASH AND CASH EQUIVALENTS
2023 2022
GBP'000 GBP'000
Cash at bank and in hand 11,044 15,619
=========================== ========= =========
22 TRADE AND OTHER PAYABLES
2023 2022
GBP'000 GBP'000
Trade payables 56,233 47,145
Other taxation and social security 826 2,556
Other payables 51 2,159
Accruals and contract liabilities 25,597 18,064
===================================== ========= =========
82,707 69,924
===================================== ========= =========
23 BORROWINGS
2023 2022
GBP'000 GBP'000
Bank revolving credit facility 31,721 23,551
31,721 23,551
================================= ========= =========
Analysed as:
================================= ========= =========
Payable within one year 31,721 23,551
================================= ========= =========
The balance is shown net of loan arrangement fees of GBP279k
(2022: GBP449k). Interest is charged on the RCF based on the
Sterling Overnight Index Average plus an applicable margin. The RCF
has a maturity date of 19 October 2024 however the Group was in
breach of the covenants due to its shares being suspended from
trading, therefore the amount is presented within current
liabilities.
On 29 March 2023, the Group agreed an amendment to the revolving
credit facility (RCF) with its banking partners. The amendment
included a waiver of breaches of the terms of the original
agreement. As part of the amended facility agreement which runs
through to October 2024, the overall size of the facility was
agreed at GBP32m, reduced from GBP40m, and is fully drawn. Revised
covenants have been agreed, which include, a minimum liquidity
threshold of GBP5.0 million and an Adjusted EBITDA covenant, as
well as certain non-financial covenants. The Adjusted EBITDA
covenant is tested quarterly and the minimum liquidity threshold is
tested weekly. Interest accrues on the face value of the drawn down
loan amount at Sterling Overnight Index Average (SONIA) plus 3.5%
margin.
24 DEFERRED CONSIDERATION
2023 2022
GBP'000 GBP'000
Current 10,910 4,889
Non-current 9,098 13,504
============== ========= =========
During the previous financial year, Revolution Beauty Holdings
exercised its option to wholly acquire Revolution Beauty Labs
(Formerly Medichem Ltd) which was previously 100% owned and
controlled by a previous director and shareholder of Revolution
Beauty Group Plc, with a deferred consideration of GBP20,500,000 to
be paid evenly over a 4-year period, which accrues interest at 2.5%
per annum. Total interest accrued on this consideration is
GBP1,298,450.
On the 7(th) March 2023 the Group announced that it had reached
an agreement in respect of the timing of payments of deferred
consideration for its acquisition of Medichem Manufacturing
Limited, which has been disclosed within Note 34.
25 FINANCIAL RISK MANAGEMENT
The Group's financial instruments at the reporting dates mainly
comprise cash and various items arising directly from its
operations, such as trade and other receivables and trade and other
payables.
(a) Risk management policies
The Group's Directors are responsible for overviewing capital
resources and maintaining efficient capital flow, together with
managing the Group's cash flow risk, foreign exchange risk, credit
risk and liquidity risk.
(b) Financial assets and liabilities
Financial assets and liabilities analysed by the categories were
as follows:
2023
GBP'000 2022
GBP'000
=========================================================
Financial assets at amortised cost: 51,167 51,820
Trade and other receivables Cash and cash equivalents 11,044 15,619
========================================================= ================== ================
62,211 67,439
========================================================= ================== ================
Financial liabilities at amortised cost:
Borrowings 31,721 23,551
Trade and other payables Deferred consideration Lease
liabilities 81,881 67,368
20,008 18,393
3,014 4,647
========================================================= ================== ================
136,624 113,959
========================================================= ================== ================
The carrying value of all financial instruments is not
materially different from their fair value.
(c) Credit risk
Credit risk is the risk that the counterparty will default on
its contractual obligations resulting in financial loss to the
Group. Maximum credit risk at the reporting dates was as
follows:
2023 2022
GBP'000 GBP'000
Current trade and other receivables 51,167 51,820
====================================== ========= =========
The Group has adopted a policy of only dealing with creditworthy
counterparties as a means of mitigating the risk of financial loss
from
defaults the Group uses publicly available financial information
and its own trading records to rate its major customers. The
Group's exposure and the credit ratings and compliance with credit
limits of its counterparties are continuously monitored. Sales to
retail customers are required to be settled in cash or using major
credit cards, mitigating credit risk.
Trade receivables are regularly reviewed for impairment loss.
The Group has assessed the credit losses attributable to its
financial assets measured at amortised cost and has determined that
the loss allowance for expected credit losses of those assets is
immaterial to the financial statements.
(d) Liquidity risk
Liquidity risk is the risk that an entity will encounter
difficulty in meeting obligations associated with financial
liabilities. In order to maintain liquidity to ensure that
sufficient funds are available for ongoing operations and future
developments, the Group uses a mixture of long-term and short-term
loan notes together with short term intragroup borrowings.
Contractual cash flows relating to the Group's financial
liabilities are as follows:
Carrying Contractual Within More than
amount cashflows 1 year 1-2 years 2-5 years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
28 February 2023
Borrowings 31,721 32,000 32,000 - - -
Trade payables 56,233 56,233 56,233 - - -
Accruals and other
payables 25,648 25,648 25,648 - - -
Deferred consideration 20,008 21,798 11,163 5,382 5,253 -
Lease liabilities 3,014 2,918 2,005 394 519 -
========================= ========== ============= ================= ============= ============= ===========
Total 136,624 138,597 127,049 5,776 5,772 -
========================= ========== ============= ================= ============= ============= ===========
Carrying Contractual Within More than
amount cashflows 1 year 1-2 years 2-5 years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
28 February 2022
Borrowings 23,551 24,000 24,000 - - -
Trade payables 47,145 47,145 47,145 - - -
Accruals and other
payables 20,223 20,223 20,223 - - -
Deferred consideration 18,393 19,000 3,625 5,125 10,250 -
Lease liabilities 4,647 4,835 2,022 2,094 582 137
========================= ========== ============= ================= ============= ============= ===========
Total 113,959 115,203 97,015 7,219 10,832 137
========================= ========== ============= ================= ============= ============= ===========
(e) Interest rate risk
Interest rate risk is the risk that the future cash flows
associated with a financial instrument will fluctuate because of
changes in market interest rates.
Profit or loss is sensitive to higher/lower interest expense on
borrowings as a result of changes in interest rates. The risk of
movement within the interest rate for the RCF equates to
approximately GBP3,200 for each 100 basis point movement in
interest rates charged.
(f) Foreign exchange risk
Foreign exchange risk is mitigated by closely monitoring foreign
exchange movements, having natural hedges with the Group's overseas
operations, and having appropriate terms with non-GBP denominated
suppliers.
(g) Capital management
The Group's main objective when managing capital is to protect
returns to shareholders by ensuring the Group will continue to
trade for the foreseeable future. In order to maintain or adjust
the capital structure, the Group may adjust the dividends paid to
shareholders, return capital to shareholders or issue new
shares.
The Group considers its capital to include net cash (being the
aggregate of bank balances less borrowings), share capital,
share-based payment reserve, merger reserve and retained
earnings.
As at
28 February
2023 2022
GBP'000 As Restated
GBP'000
Cash and cash equivalents 11,044 15,619
Borrowings (31,721) (23,551)
============================ ================== ===============
Net debt (20,677) (7,932)
Total equity (14,197) 19,999
============================ ================== ===============
(34,874) 12,067
============================ ================== ===============
26 DEFERRED TAX
The deferred tax balances recognised in the consolidated
statement of financial position are as follows:
2022
2023 Restated
GBP'000 GBP'000
Deferred tax (liability)/asset
Accelerated capital allowances (525) (1,366)
Tax losses 1,126 2,030
Intangible fixed assets (601) (511)
Other timing differences - 152)
================================= ========= ===========
Net deferred tax liability - -
================================= ========= ===========
The net movement is explained as follows:
2023 2022
GBP'000 GBP'000
Opening deferred tax liability - 177
Charge/(credit) to profit or loss (43) 76
Acquisition of subsidiary - 167
Effects of exchange rate changes 43 11
Effect of restatement - (432)
==================================== ========= =========
Closing deferred tax liability - -
==================================== ========= =========
27 PROVISIONS
Dilapidations Legal On Hold Total
GBP'000 cases GBP'000 GBP'000
GBP' 000
Opening Provision 100 4,295 1,100 5,495
Charge/(credit) to profit or loss - 1,438 526 1,964
Reversal of unutilised amounts - - (829) (829)
Effects of exchange rate changes 430 430
Closing Provision 100 6,163 797 7,060
==================================== =============== ========== ========== =================
The dilapidations provision relates to the estimated costs to be
incurred by the Group in restoring the underlying assets to the
condition required by the terms and conditions of the Group's lease
arrangements.
The on hold provision relates to charges expected in respect of
supplier purchase orders which are expected to be cancelled and for
which no inventory is expected to be received, the full amount is
expected to be settled within the next 12 months.
The Directors have determined that a provision which was
previously disclosed as a contingent liability should have been
recognised as a provision during the year ended 28 February 2022,
as the process of reaching a settlement of the case had reached a
stage whereby it had been established that a material settlement
was likely and a value could have been accurately estimated.
The Group has posted or reposted social media video clips which
contain sound recordings and musical compositions from the music
library of the relevant social media platform. A letter was
received in Autumn 2020 from two music owners, claiming copyright
infringement. Letters raising such allegations are common in other
business sectors involved in social media. The Group, funded by its
insurers, is robustly defending the allegations and, taking a
cautious approach, has sought to remove any allegedly offending
posts over which the Group has control. Despite the time that has
passed, no court proceedings have been brought by the music
owners.
The Group has taken formal legal advice from specialist US
intellectual property attorneys and engaged in a mediation process
with the claimants. Based on that advice and the ongoing mediation
process and settlement offers made to date, the Group believes that
a liability of GBP4.3m should have been provided for at 28 February
2022. In addition, it has been determined that contingent assets of
GBP3.3m should have been recognized in respect of insurances and
reimbursements the Group will received when a settlement is
ultimately paid. This results in a total net additional liability
of GBP1.0m and a charge to the consolidated statement of profit or
Loss of GBP1.0m. Full details of the prior year adjustment
recognised are set out in note 4.
In addition to the reimbursement asset recognised in respect of
insurances and indemnities receivable against the liability for the
claim, there are further contingent assets which have not been
recognised. Whilst inflows are considered highly probable in
respect of these remaining indemnities, they are not virtually
certain and have therefore not been recognised as reimbursements.
Further detail relating to the indemnities are not provided on the
grounds that such disclosure would be considered seriously
prejudicial.
The Group expects to agree and settle the claim within the next
financial year.
28 SHARE-BASED PAYMENTS
Equity-settled schemes
C share / Nominee scheme
The Group has granted Nominee share options at the date of IPO
based on the unvested portion of their shares under the cancelled C
share scheme. The vesting period ranges between one and four years
depending on the remaining vesting period that was applicable to
each individual under the C share scheme. As the Nominee scheme
represents new equity instruments granted as replacement equity
instruments for the cancelled C share scheme, management has
determined that it represents a modification to the existing share
scheme. The equity-settled classification has not changed. As such,
the existing share-based payment charge of the C share scheme
continues to be recognised over the original vesting period. The
incremental increase in the total fair value of the Nominee share
options is recognised over the remaining vesting period.
New LTIP
The Group has granted options to certain employees under the New
LTIP scheme. There is a non-market based performance condition
attached to the New LTIP share options, which will impact the
number of shares which will eventually vest. The vesting condition
is based on the level of EBITDA achieved by the Group in the three
financial years following the grant. The vesting period ranges from
three to four years.
Legacy LTIP
The Legacy LTIP scheme rewards legacy employees who did not have
share options under the old C share scheme. The vesting period
ranges from three to four years.
Additional LTIP
The Group has granted options to one employee under the
Additional LTIP scheme. There is a market based performance
condition attached to the Additional LTIP share options, which will
impact the number of shares which will eventually vest. The vesting
condition is based on the market capitalisation of the Group in the
five years following the IPO. The vesting period is five years. The
probability of achieving the market capitalisation conditions has
been considered in determining the fair value of the share options
using the Monte Carlo option-pricing model.
SIP
The Group has granted options to each employee enrolled in the
SIP scheme. The vesting period is three years and there is a
service condition attached to the options.
A reconciliation of equity-settled share-based payment schemes
is presented below:
Balance Balance
at at
the start the end
of of
2023 the year Granted Exercised Forfeited the year
C share / Nominee scheme 2,398,308 (1,210,739) (713,594) 473,975
New LTIP 1,902,190 (862,391) 1,039,799
Legacy LTIP 801,650 (49,867) 751,783
Additional LTIP 5,000,000 (5,000,000) -
SIP 339,750 (27,000) 312,750
============================ ============ ========= ============= ============= ===========
10,441,898 - (1,210,739) (6,652,852) 2,578,307
============================ ============ ========= ============= ============= ===========
Weighted average exercise GBP0.01 GBP- GBP0.01 GBP0.01 GBP0.01
price
============================ ============ ========= ============= ============= ===========
Balance Effect Balance
at of at
the start capital the end
of of
2022 the year Granted Exercised Forfeited reorganisation the year
C share / Nominee
scheme 950,288 469,613 (975,237) (121,549) 2,075,193 2,398,308
D share scheme 176,795 - - - (176,795) -
E share scheme 165,745 - - - (165,745) -
New LTIP - 2,108,902 - (206,712) - 1,902,190
Legacy LTIP - 955,567 - (153,917) - 801,650
Additional LTIP - 5,000,000 - - - 5,000,000
SIP - 362,250 - (22,500) - 339,750
==================== =========== =========== =========== =========== ================ ============
1,292,828 8,896,332 (975,237) (504,678) 1,732,653 10,441,898
==================== =========== =========== =========== =========== ================ ============
Weighted average GBP2.47 GBP0.01 GBP- GBP0.01 GBP- GBP0.01
exercise price
==================== =========== =========== =========== =========== ================ ============
The weighted average remaining contractual life of the Group's
equity-settled share options outstanding at the reporting date was
1.0 years (2022: 3.9 years)
Cash-settled schemes
Phantom SIP
The Group has granted a Phantom Share Award to each overseas
employee enrolled in the Phantom SIP scheme. This entitles holders
to a right to receive a cash payment equal to the market value of
the Group's shares on the vesting date. The vesting period is three
years.
Balance Balance
at the at the
2023 start of Granted Exercised Forfeited Other end of
the year the year
Phantom SIP 31,500 (4,500) 27,000
Weighted average exercise -
price
============================ =========== =========== ============= ============= ========= ============
Balance Balance
at the at the
2022 start of Granted Exercised Forfeited Other end of
the year the year
Phantom SIP - 38,250 - (6,750) - 31,500
Weighted average exercise - - - - - -
price
============================ ============ =========== ============= ============= ========= ============
The weighted average remaining contractual life of the Group's
cash-settled share options outstanding at the reporting date was
1.5 years (2022: 2.5 years).
The expense recognised in the period for the share-based payment
transactions was GBP306k for equity settled schemes and a GBP3k
credit for cash settled schemes due to forfeitures (2022: GBP3,530k
equity settled schemes and GBP4k for cash settled schemes)
The fair value per option granted during the period covered by
the financial statements and the assumptions used in the
calculation are as follows:
Grant period
----------------------------
2023 2022
Share price at grant date GBP1.60 GBP1.60
- GBP1.63 - GBP1.63
Exercise price GBPnil GBPnil
- GBP0.01 - GBP0.01
Expected option life 3 - 5 years 3 - 5 years
Expected volatility 50.0% 50.0%
Expected dividends 0.0% 0.0%
Discount rate 0.2% 0.2%
Weighted average fair value per option GBP1.59 GBP1.59
======================================== ============= =============
29
2023 2022
No. ('000) No. ('000)
Class of share
Ordinary shares of 1p each 309,737 309,737
309,737 309,737
============================= ============= =============
SHARE CAPITAL
GBP'000 GBP'000
Class of share
Ordinary shares of 1p each 3,097 3,097
3,097 3,097
============================= ========= =========
There were no issuances of share capital during the year.
Ordinary share rights
Ordinary shares carry full voting rights and rights in respect
of dividends and capital distributions (including on winding
up).
During the prior period, 469,613 C Ordinary shares were issued
and 11,050 C Ordinary shares, 2,250,000 A1 Deferred shares and
228,000 A2 Deferred shares were bought back and cancelled.
As part of the company's admission to AIM on 13 July 2021, a
capital reorganisation occurred, pursuant to which the existing
shares were subdivided and redesignated into Ordinary shares and
Deferred shares, following which all such Deferred shares were
cancelled. On completion of the capital reorganisation, the share
capital comprised 240,180,313 Ordinary shares of GBP0.01 each. A
further 69,194,687 Ordinary shares of GBP0.01 each were issued as
part of the Placing on 19 July 2021. On 20 August 2021, the Company
issued a further 362,250 Ordinary shares of GBP0.01 each. Total
consideration for the shares issued in the period was
GBP110,716k.
30 RESERVES
Share capital
The called-up share capital records the nominal value of shares
issued and paid up.
Share premium reserve
Consideration received for shares issued above their nominal
value, net of transaction costs.
Warrant reserve
A warrant instrument dated 13 July 2021 was issued upon the
Groups admission to AIM. The Company granted Zeus Capital, a right
to subscribe in cash for 9,281,250 Shares at GBP1.60 per Share
during the period commencing on the date of admission and expiring
on the date which is the tenth anniversary of admission.
The Group valued the warrant using the Black-Scholes model,
applying a risk-free interest rate, expected term and an estimated
share price and volatility.
The warrant reserve represents the fair value of warrants
outstanding at the date of issue. Each warrant confers the right to
subscribe in cash for one ordinary share at the placing price of
160 pence per share. The warrants are only exercisable during the
period from 20 July 2022 to 19 July 2031.
Merger reserve
The merger reserve has arisen due to a group reorganisation,
under the merger method of accounting.
Translation reserve
The translation reserve represents foreign exchange gains and
losses on the retranslation of the results and net assets of the
foreign operations of the Group.
Retained earnings
Cumulative profit and loss net of distributions to owners.
31 NET DEBT
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
As at As at
1 March Non-cash 28 February
2022 Cash flows movements 2023
GBP'000 GBP'000 GBP'000 GBP'000
=======================================
15,619 (3,876) (699) 11,044
Cash and cash equivalents Borrowings (23,551) (8,000) (170) (31,721)
Lease liabilities (4,647) 2,127 (494) (3,014)
======================================= ================= ============== ================ ======================
Net debt (12,579) (9,749) (1,363) (23,691)
======================================= ================= ============== ================ ======================
As at As at
1 March Cash flows Non-cash 28 February
2021 As restated movements 2022
GBP'000 GBP'000 GBP'000 GBP'000
=======================================
5,581 10,223 (185) 15,619
Cash and cash equivalents Borrowings (79,605) 61,115 (5,061) (23,551)
Lease liabilities (1,109) 534 (4,072) (4,647)
======================================= ================== =============== ================ ===============
Net debt (75,133) 71,872 (9,318) (12,579)
======================================= ================== =============== ================ ===============
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
==========================
Amortised cost (31,721) (23,551)
Prepaid financing fees (279) (449)
========================== ====================== ======================
Gross borrowings (31,721) (24,000)
========================== ====================== ======================
32 CAPITAL COMMITMENTS
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
=================================================
Amounts contracted for but not provided in the
financial statements:
Acquisition of tangible fixed assets 106 3,000
================================================= =============== ===============
33 RELATED PARTY TRANSACTIONS
Interests in subsidiaries are set out in note 4 to the Company
financial statements.
Transactions with related parties
Transactions between the Group and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
The Group entered into the following transactions with companies
under the control of one of the Directors:
Year ended Year ended
28 February 28 February
2023 2022
Other related parties GBP'000 GBP'000
Sales 3 12
Purchases - 11,928
Rent paid 236 140
========================== =============== ===============
The following amounts were outstanding at the reporting
date:
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
=================================
Other related parties 1 -
Amounts due to related parties
================================= =============== ===============
Included within deferred consideration is a loan to Walbrook
Investments Limited, a company under the control of T Allsworth, of
GBP1,500k (2022:
GBP1,500k). The amount is offset against the Groups' liability
to T Allsworth in respect of the acquisition of Medichem and will
be settled through the payment of the deferred consideration.
Medichem Properties Limited (Formerly Walbrook Investments
Limited), is a company under the control of one of the former
directors. During the period the company provided rental premises
to the group for cash payments of GBP235k (2022: GBP140k). As at
the period end there is a rent liability of GBP370k (2022: GBP592k)
outstanding.
Astound Commerce Ltd, a company in which one of the former
Non-Executive Directors is employed, sold services to the group for
a total of
GBP278k (2022: GBP449k), of which GBP23k (2022: GBP23k) remains
outstanding in trade creditors as of the period end.
During the financial year, the Group employed a number of
individuals which are considered close family members of the
Directors, and paid salaries of GBP472k (2022: GBP407k).
The Group entered into the following transactions with boohoo
Group Plc, an entity considered to have significant influence over
the group.
Year ended Year ended
28 February 28 February
2023 2022
Other related parties GBP' 000 GBP'000
Sales 987 647
Purchases 57 38
========================== ============== ===============
The receivable amount outstanding at the balance sheet date was
GBP223k (2022: GBP305k).
For the purposes of IAS 24 "Related Party Disclosure", the Group
consider key management personnel to be the Directors of Revolution
Beauty Group plc, executives below the level of the Company's Board
are not regarded as key management personnel. Remuneration for the
board of directors is set out in note 8.
DIRECTORS' TRANSACTIONS
At 28 February 2023 the Directors owed GBPNil (2022: GBP215k) to
the Group in respect of excess interest paid during the period,
these amounts were repaid during the year.
During the prior year, Revolution Beauty Holdings exercised its
option to wholly acquire Revolution Beauty Labs (Formerly Medichem
Ltd), from a director who had a controlling interest, for an
initial consideration of GBP7,000,000, with a deferred
consideration of GBP16,000,000 to be paid evenly over a 4-year
period. An agreement was reached with the director to amend the
terms of the deferred consideration, details of the amendment and
outstanding liability are set out in note 24.
34 SUBSEQUENT EVENTS
On 7 March 2023 the Group announced that it had reached an
agreement in respect of the timing of payments of deferred
consideration for its acquisition of Medichem Manufacturing
Limited.
A Deed of Variation dated 6 March 2023 was signed which amends
the terms of the deferred consideration and completion net asset
adjustment, adjusting the timing of the payments as outlined
below:
-- GBP3.625 million payable on 21 October 2025 (being the
GBP5.125 million consideration reduced by the GBP1.5 million loan
due from one of the Sellers companies, Walbrook)
-- GBP5.125 million payable on 21 October 2026
-- GBP5.125 million payable on 21 October 2027
-- GBP5.125 million payable on 21 October 2028 Interest accrues
on outstanding balances at a rate of 2.5% per annum
On 30 March 2023 the Group announced that that it had secured an
amended facility agreement with its banking partners. The amendment
includes a waiver of breaches of the terms of the original
agreement. As part of the amended facility agreement which runs
through to October 2024, the overall size of the facility was
agreed at GBP32m, reduced from GBP40m, and is fully drawn. Revised
covenants remain in place and include a minimum liquidity threshold
of GBP5.0 million and an Adjusted EBITDA covenant. Certain
non-financial covenants that applied following the amendments of
the agreement were complied with and are no longer in place.
On 28 June 2023 on the lifting of the Company's share suspension
from AIM, 5,684,210 nominal cost options were awarded to Bob Holt
and 2,842,105 nominal cost options were awarded to Elizabeth Lake.
On the 19 July 2023, Bob Holt and Elizabeth Lake, both respectively
exercised their combined 8,526,315 nominal cost options of GBP0.01
in the capital of the Company.
35 ULTIMATE CONTROLLING PARTY
The Directors do not consider there to be one ultimate
controlling party.
Subsequent to the reporting date, three directors have been
appointed on the instigation of boohoo Group Plc, an entity
considered to have significant influence over the Group by virtue
of its shareholding.
36 COMPANY STATEMENT OF FINANCIAL POSITION
2023 2022
Note GBP'000 GBP'000
ASSETS
Non-current assets
Investments 4 - -
Other receivables 5 14,543 44,202
======================================== ======== ================== ==================
Total non-current assets 14,543 44,202
======================================== ======== ================== ==================
Current assets
Other receivables 5 354 603
Cash and cash equivalents 6 648 7,263
======================================== ======== ================== ==================
Total current assets 1,002 7,866
======================================== ======== ================== ==================
Current liabilities
Trade and other payables 7 (6,079) (896)
Borrowings 8 (31,721) (23,551)
======================================== ======== ================== ==================
Total current liabilities (37,800) (24,447)
======================================== ======== ================== ==================
Net current assets/(liabilities) (36,798) (16,581)
======================================== ======== ================== ==================
Total assets less current liabilities (22,255) 27,621
======================================== ======== ================== ==================
Net assets (22,255) 27,621
======================================== ======== ================== ==================
Equity
========
Share capital 3,097 3,097
Share premium 103,487 103,487
Share-based payment reserve 4,712 4,409
Warrant reserve 7,239 7,239
Retained earnings 9 (140,790) (90,611)
======================================== ======== ================== ==================
Total equity (22,255) 27,621
======================================== ======== ================== ==================
37 AUDIT OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
Independent auditor's report to the members of Revolution Beauty
Group Plc
Qualified opinion on the Group financial statements
In our opinion, except for the possible effects of the matters
described in the Basis for qualified opinion section of our report,
the Group financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 28 February 2023 and of the Group's loss for the year then
ended;
-- have been properly prepared in accordance with UK-adopted
international accounting standards; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Group financial statements of Revolution
Beauty Group plc (the 'Company') and its subsidiaries (the 'Group')
for the year ended 28 February 2023 which comprise the Consolidated
Statement of Profit or Loss and Other Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated
Statement of Changes in Equity, the Consolidated Statement of Cash
Flows and Notes to the Consolidated 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
UK-adopted international accounting standards.
Basis for qualified opinion
As announced on 23 September 2022, we wrote to the Board on 21
September 2022 setting out a number of serious concerns with
respect to certain governance and control arrangements in place
over a number of key financial and business transactions that took
place during the prior year to 28 February 2022 and which impacted
the Group financial statements for the year ended 28 February 2022
and which may also have had a consequential impact on the Group
financial statements for the year ended 28 February 2023. We
communicated to the Board a number of findings and issues and we
recommended that the Board appoint external advisers to undertake
an independent Investigation (the "Investigation").
The Company announced on 13 January 2023 the completion of that
Investigation and its findings. . A number of the matters
identified in our letter and by the investigation led us to
undertake additional audit procedures and resulted in
qualifications to our opinion in respect of the Group financial
statements for the year ended 28 February 2022. We have therefore
considered the impact of those qualifications in determining the
qualifications to our opinion on the Group financial statements for
the year ended 28 February 2023. Each matter set out below
represents a separate qualification to our opinion:
Potential liabilities and contingent liabilities
The Investigation report identified a number of matters and
actions which could potentially lead to liabilities and contingent
liabilities. Management advised us that that they fully
investigated these matters and have not identified any further
specific liabilities that may arise and as such no further
provision or disclosure has been considered necessary by the Board.
However, given the nature of these findings, we continue to be
unable to determine whether further liabilities or contingent
liabilities, such as claims, tax assessments or irregularities may
subsequently materialise and we have therefore been unable to
determine the impact that such further potential liabilities or
losses may have on the financial position of the Group as at 28
February 2023, and/or whether any further contingent liabilities
need to be disclosed in the notes to the Group financial
statements.
Cancelled purchase orders
Management had placed deferred purchase orders prior to and
during the pandemic. As a result of the trading terms with its
suppliers, this resulted in the Group having to negotiate a
settlement for these unfulfilled orders. A liability of GBP1.1m was
recorded as at 28 February 2022 as Management's best estimate of
the unavoidable cost in meeting these commitments. We were unable
to obtain sufficient appropriate audit evidence to support the
recognition of these commitments at the 28 February 2022 or whether
the commitments should have been recognised in a prior period or
constitute a non-adjusting post balance sheet event. . Given that
we were unable to conclude on the opening provision and the timing
of the recognition of the associated expense, we are therefore
unable to determine whether the income statement for the year ended
28 February 2023 is materially correct and/or whether the amount
expensed previously for cancelled orders has been recorded in the
correct period and consequently whether any adjustment to the Group
financial statements for the year ended 28 February 2023 is
required.
Carrying value of goodwill of Revolution Beauty Labs Limited
(previously called Medichem Manufacturing Limited ("Medichem"))
In October 2021, the Group exercised an option to purchase the
entire share capital of Medichem which was wholly owned by Tom
Allsworth (former Executive Chairman and co-founder of the Group).
The option was exercised following completion of an independent
valuation of Medichem. The Investigation identified a number of
issues, which related to factors which were not considered as part
of the assessment of the acquisition price, which could have a
material impact on the valuation reported and the associated
goodwill arising from the acquisition.
As a result of these issues, we were unable to obtain sufficient
appropriate audit evidence to support the carrying value of
goodwill arising on the acquisition of Medichem as at 28 February
2022 included in the balance sheet at that date as GBP2.8m. We were
therefore unable to determine whether the subsequent impairment of
goodwill of GBP2.8m included in the Group financial statements for
year ended 28 February 2023 is materially correct and/or whether
the impairment included in the Group financial statements has been
recorded in the correct period, and consequently whether any
adjustment to the Group financial statements for the year ended 28
February 2023 is required.
Related party disclosures
The Investigation identified a number of related party
transactions of members of the Board and management which had not
been disclosed to all members of the Board nor to us as the
auditors. Management have set out in note 35 to the Group financial
statements those related party transactions that have been
identified through the Investigation as well as those that have
been captured during the ordinary course of business. We also refer
to note 33 to the Group financial statements where the Board has
assessed and disclosed in the Group financial statements that Key
Management is limited to the Board of Directors.
There are a number of limitations in us being able to conclude
that related party transactions and key management disclosures are
complete. The key reasons giving rise to these limitations are as
follows:
- the findings from the Investigation as to actions and
involvement of certain individuals in the business and engagement
with key trading partners may suggest that Management may not have
identified all individuals required to be considered as Key
Management. However, it has not been possible for us to be
conclusive in this respect;
- certain of the Directors that were members of the Board and
other senior individuals are no longer with the Group and we are
therefore limited as to enquiries that can be made of Management
who were present throughout the year being audited; and
- there was an absence of appropriate processes and records in
the year to capture all related parties and transactions that may
have taken place with those parties.
Should there be further relationships which by their nature
would be disclosed as related parties, then transactions made with
those parties may have been made outside normal commercial terms
which may result in revisions being required to the recording of
such transactions. We have therefore been unable to conclude that
the Group financial statements are free from material misstatement
arising from the omission of related party transactions being fully
disclosed and we are unable to determine whether the disclosures in
respect of related party transactions in the Group financial
statements are complete and accurate.
Further, we have been unable to determine whether the
disclosures in respect of Directors' remuneration are complete and
accurate.
In addition, and without further modifying our opinion, a number
of other matters highlighted by the Investigation have been
included within the key audit matters section of this report.
Our opinion on the current period's Group financial statements
is also modified because of the possible effect of these matters on
the comparability of the current period's figures and the
corresponding figures.
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 Group 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 qualified
opinion.
Independence
We remain independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the Group
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.
Material uncertainty related to going concern
We draw attention to note 2 to the Group financial statements,
which indicates the following:
-- under the terms of the amended facility agreement, an Event
of Default arises where a qualified audit report is issued on the
consolidated financial statements. The Lenders previously issued a
waiver in respect of this clause relating to the year ended 28
February 2022 and have issued a further waiver in respect of this
clause relating to the financial statements for the year ended 28
February 2023. The Lenders have confirmed their present intention
to issue a similar waiver relating to the financial statements for
the year ending 28 February 2024 provided that any qualifications
in respect of that year are substantially the same as those set out
in the Basis for qualified opinion section of our report on the
financial statements for the year ended 28 February 2023. In the
event that such a waiver is not forthcoming the Group would be in
breach of the amended facility agreement; and
-- if the Group was unable to achieve its forecasts, due to
either a downturn in operational activity or the impact or timing
of settlement of any financial commitments, known or otherwise,
arising from legacy issues, and be unable to implement mitigating
actions within the Group's control on a timely basis, it may breach
covenants or the minimum liquidity threshold set out in its amended
facility agreement.
In respect of any or all of the above breaches of the amended
facility agreement, the Group is reliant on the support of its
Lenders to waive any or all of the above breaches of the facility
or the Group would need to seek alternative sources of funding to
repay all amounts due under the amended facility agreement and
provide the Group with sufficient ongoing finance to continue as a
going concern.
As stated in note 2 to the Group financial statements, these
events or conditions, along with other matters as set out in note 2
to the Group financial statements, indicate that a material
uncertainty exists that may cast significant doubt on the Group's
ability to continue as a going concern. The Group financial
statements do not include any adjustments that may be necessary if
the Group is not a going concern. Our opinion is not modified in
respect of this matter.
We considered going concern to be a Key Audit Matter because of
the significance of this issue. The scope of our audit addressed
this Key Audit Matter through performing the following
procedures:
-- we assessed the Directors' forecasts with the assistance of
business restructuring specialists to test the application and
completeness of assumptions approved by the Directors within the
forecasts and checked the model mechanics including the
mathematical accuracy;
-- we evaluated the reasonableness of the assumptions and future
plans modelled within the Directors' base case forecasts and the
Directors' severe but plausible downside scenario including whether
such plans and assumptions are consistent when compared to past
performance and align with expectations within the wider retail
industry and adjusted for the Group's specific circumstances;
-- we inspected the Group's revised covenant terms included in
the amended facility agreement to gain evidence that the scenarios
modelled had appropriately considered these revised covenant
terms;
-- we further considered the Directors' assessment of their
anticipated compliance with the non-financial covenants included in
the amended facility agreement to determine whether these result in
a material uncertainty or not;
-- we considered the Directors' assessment of the adequacy of
headroom on the financial covenants under both the base case and
the severe but plausible downside scenario;
-- we also considered the severe but plausible downside scenario
and the extent to which the likelihood of this scenario was
sufficiently low to support the Directors' conclusion that events
and conditions identified result in material uncertainty in
relation to the adoption of the going concern basis in the
preparation of the Group financial statements as opposed to the
going concern basis not being appropriate and the Group financial
statements being required to be prepared on an alternative basis;
and
-- we considered the adequacy of the disclosures in the Group
financial statements against the requirements of accounting
standards and consistency of the disclosures against the Directors'
base case forecasts and the Directors' severe but plausible
downside scenario.
In auditing the Group financial statements, we have concluded
that the Directors' use of the going concern basis of accounting in
the preparation of the Group financial statements is
appropriate.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview - for the year ended 28 February 2023
Coverage 83% (2022:80%) of Group loss before tax
([1]) 100% (2022:100%) of Group revenue
99 % (2022:94%) of Group total assets
2023 2022
Material uncertainty related to ü ü
going concern
Revenue recognition ü ü
Key audit Management override of controls ü ü
matters Inventory Provision ü ü
Legal dispute ü x
Existence & valuation of trade x ü
receivables
x ü
Business acquisition of Revolution
Beauty Labs Ltd and Limited and x ü
associated
deferred consideration
Carrying value of non-current stand
assets
Three KAM's included on our audit report
in respect of the financial statements
for the year ended 28 February 2022
are no longer considered to be a key
audit matters this year, as indicated
above, because:
-- Business acquisition of Revolution
Beauty Labs Ltd and associated deferred
consideration related to the acquisition
that took place in 2022 and is therefore
not relevant to the current period;
-- Existence and valuation of trade
receivables was identified as a key
audit matter in 2022 as a result of
the inter-relationship with revenue
and significant balances which were
outstanding that were found to relate
to revenue that was subsequently reversed.
Similar issues have not been identified
in 2023; and
-- Carrying value of non-current stand
assets was considered to be a KAM in
2022 due to the loss making position
and the revised inventory provisioning
policy in 2022 that had a material
impact on cashflows which led to a
need to reassess impairment indicators
for stands in respect of prior years.
---------------------------------------------------------------------------------------------------------------------------
Group financial statements as a whole
Materiality
GBP0.93m (2022: GBP0.9m) based on 0.5% (2022:
0.5%) of revenue.
---------------------------------------------------------------------------------------------------------------------------
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.
As a result, we identified two significant components, namely:
Revolution Beauty Limited in the UK and Revolution Beauty Inc. in
the US. The Group audit team completed full scope audits on the
Parent Company and the two significant components.
Non-significant components were subject to either audit
procedures on specified balances and/or desktop review procedures,
which were performed by the Group audit team. Desktop review
procedures comprised Group level analytical procedures of each
non-significant component.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the Group
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 Group financial statements as a whole, and in forming our
qualified opinion thereon, and we do not provide a separate opinion
on these matters.
In addition to the matters included in the Basis for qualified
opinion and the Material uncertainty related to going concern
sections above, we determined the matters described below to be
additional key audit matters to be communicated in our report. This
is not a complete list of all risks identified by our audit.
Key audit matter How the scope of our audit
addressed the key audit matter
Revenue The Group generates The following
recognition revenue through the procedures were
supply to retail store carried out in response
Note 2 - groups and distributors to the
sets out (Business to Business risks identified:
the accounting - B2B), sales directly
policy per to the consumer via -- Business to Business
revenue stream the Group's own website revenue
for the recognition (Business to customer (B2B)
of revenue - B2C) and supplies We performed the
and the measurement inventory on a following procedures:
of that revenue consignment -- for a sample of
including basis. customer
consideration contracts with
of all deductions Revenue is recognised significant retail
to gross in line with the store groups and
revenue initially requirements consignment
recognised. set out in IFRS 15 customers, we read the
- Revenue from terms
Note 3 - Contracts of business to check
sets out with Customers ("IFRS that the
the key sources 15") taking into appropriate application
of estimation consideration of IFRS
uncertainty contracts in place, 15 had been applied,
included identification of and we
in the process the relevant agreed those terms back
of determining performance to the
the level obligations and recognition of revenue
of returns determination where
expected of the transaction appropriate; and
in order price. -- for a sample of
to arrive revenue items
at a provision Revenue is recognised recorded in the general
for returns on a net basis where ledger,
and resultant applicable taking we agreed the revenue
reduction into consideration recorded
to revenue. the relevant to supporting
performance documentary evidence
Note 7 - obligations in respect and the receipt of
sets out of the contracts with cash.
the analysis the retail store
of the Group's groups. As part of our response
revenue by There are various to the
class of deductions processed risk of fraud due to
business against payments made management
as well as by customers which override of controls,
by geographical are offset against we performed
market. revenue as appropriate. the following
Given the extent of procedures relevant
deductions taken by to revenue with the
the retail store assistance
groups, of our IT specialists:
there is a risk that -- we performed data
not all deductions analytics
are appropriately to identify entries
recognised in the posted in
correct accounting the general ledgers to
period and offset revenue
correctly as a via journals processed
reduction which
to revenue. were of audit interest,
such
Revenue is only to as those considered to
be recognised when be unusual;
the performance -- we identified who
obligation posted
is settled. The the journal to agree
recognition that it
of revenue is aligned to their role;
identified and
as a significant risk -- where we considered
with a particular this
focus around the to require further
year-end investigation,
for the B2B revenue we challenged
stream. Therefore, management to
the significant risk understand the nature
of fraud associated or reason
with revenue was for the journal and
concentrated sought to
on the appropriate obtain further evidence
recognition of revenue to support
and any manual the validity of the
adjustments journal
made directly to entry.
revenue.
We also reviewed the
Group financial
statements to confirm
that the
disclosures with
respect to
revenue were
appropriate and
sufficient with
reference to
the requirements of
IFRS 15.
Key observations:
Based on the work
performed,
we are satisfied that
revenue
reflected in the
financial statements
has been recognised
appropriately
in accordance with the
Group's
accounting policies and
the
accounting standards.
--------------------------------------- ---------------------------------------
Key audit matter How the scope of our audit
addressed the key audit matter
Management The findings from We involved our forensic specialists
override the Investigation in our response to, and our
of controls together with our audit of, the findings of the
assessment of the Investigation.
Refer to control environment
pages 35 identified evidence We evaluated the terms of engagement
to 38 (Audit that senior management and credentials and independence
and Risk were able to override of the Group's appointed external
Committee the controls that advisors. We critically assessed
Report) were in place during the detailed findings and using
the prior year and our forensic experts considered
that this situation if the approach taken was reasonable
continued in FY23. and whether any additional procedures
Our audit also identified were considered necessary. We
a number of misstatements also considered the nature of
in the prior period the findings and undertook additional
which also impact procedures and testing to satisfy
the FY23. ourselves where we considered
it was necessary.
As a result, there
is a risk that controls Based on the prior period
may not have prevented misstatements
or detected and corrected noted, as well as the results
material misstatements of the Investigation, we ensured
on a timely basis our planned audit approach
more broadly in the appropriately
Group financial statements addressed the matters that had
for the year ended been raised through the
28 February 2023. Investigation.
We also considered the impact
on the level of our materiality
used in testing to ensure appropriate
consideration of the level of
expected errors. Our audit approach
was entirely substantive, with
no reliance on internal controls,
and management explanations
were assessed against the available
evidence that was considered
to be reliable.
In light of the findings from
the Investigation we performed
an extended analysis of work
on the IT systems relevant to
the audit, with a specific focus
on access rights to those systems
and the risks related to access
gained to and activity within
those systems in the year. An
extended analysis was also carried
out over journal entries considered
to have higher risk criteria
and which we agreed back to
supporting documentation which
we considered appropriate.
We planned the scope of our
work throughout the audit to
include in depth challenge of
management and those charged
with governance, and applied
increased and scepticism in
all areas.
We sought alternative representations
and required additional procedures
to be performed to support those
representations where in our
judgement, we considered to
be necessary.
Key observations:
From the evidence obtained,
we considered the risk of management
override of control to have
been reduced to an acceptable
level for the reported financial
position as at 28 February 2023,
and for the financial results
of the year then ended.
------------------------------------------- -----------------------------------------------------
Key audit matter How the scope of our audit
addressed the key audit matter
Inventory The Group has significant We performed the following audit
provision inventory holdings. procedures to address the risks
With the changes in identified:
GBP47.6m fashion and trends,
(2022: GBP44.7m) demand for these products -- obtained an understanding
after provision results in limited of the stock provision
of GBP33.9m life cycles and the methodology
(2022: GBP39.8m) Group has been continuously and policies, together with
of inventory launching new products how estimates and assumptions
held at the to stay on trend. were determined by management;
balance sheet This heightens the -- confirmed that the
date. risk of impairment provisioning
Note 2 sets of inventory where methodology adopted by management
out the accounting such new launches remains appropriate and prepared
policies (with minimum order on a consistent basis to the
for inventory. quantities) are not prior year;
successful. -- assessed the accuracy and
Note 3 sets completeness of the information
out judgements Inventories are carried used by management in calculating
and key sources at the lower of cost the provision by performing
of estimation and net realisable tests over the data used in
uncertainty value. Determining both the calculation of the
within inventory. net realisable value inventory provision and the
requires significant analysis of the sell through
Note 19 sets estimates to be made of inventory in previous years
out the components in relation to: prepared by management to support
of inventory the provision;
and amounts - future selling prices -- challenged and assessed the
recognised and volumes; and key assumptions applied by
as an expense - the future costs management
in the period. associated with selling in estimating the provision
the inventory. by the use of historical
evidence,
Management have extracted post year end actual sales and
extensive data to knowledge of the industry,
enable them to analyse including
historical trends the percentages used to calculate
to support the sale the forecast rate of sales and
through volumes of the percentages used to determine
inventory, both for excess stock; and
existing lines of -- considered the adequacy of
stock and new products the disclosures in the Group
launched in the year, financial statements against
and subsequently prepared the requirements of the relevant
an inventory provision accounting standards.
using the same methodology
as that adopted for Key observations:
the first time for We are satisfied that the
the preparation of inventory
the 2022 financial provision has been calculated
statements. appropriately and that inventory
is recorded at the lower of
cost and net realisable value.
-------------------------------------------- -------------------------------------------------
Key audit matter How the scope of our audit
addressed the key audit matter
Legal Dispute
The Group has a number We completed the following audit
Provision of legal cases. The procedures to address the risks
of GBP6.2m Group is required identified:
(2022: GBP4.3m) to assess whether
and reimbursement it is probable that we evaluated Management's assessment
assets of there will be a financial of the accounting required for
GBP4.1m (2022: outflow related to the legal case, which includes
GBP3.3m) these cases and, if internal and external legal
recognised so, recognise a provision counsel's assessment of the
at the balance based on their best case, and performed procedures
sheet date estimate. to reach an independent assessment
and related of the conclusions reached.
disclosures The most significant These included:
of contingent of these cases is - obtained and read external
assets (note the claim into the counsel's assessment of the
27). historic unlicensed likely outcome of the case and
use of music used assessed the accuracy and completeness
Note 2 sets in the Group's social of the information used by Management
out the accounting media posts. To date in calculating the provision,
policies there have been two which included having direct
for provisions rounds of mediation discussions with internal and
and contingent in relation to this external legal counsel on the
assets. case and the Group facts, circumstances and timeline
has made settlement of events in respect to the
Note 3 sets offers. case;
out judgements - obtained and inspected relevant
and key sources In addition the Group supporting documentation, which
of estimation has an insurance policy included legal risk assessments,
uncertainty and indemnities provided communication with claimants,
within provisions by the pre-IPO shareholders written settlement offers made
and contingent of Revolution Beauty and counter offers received;
assets. Group Plc. When a - challenged Management where
provision is recognised, appropriate to ensure all relevant
Note 27 sets the Group will be information was considered in
out the details required to assess the determination of the provision
of the legal if receiving reimbursement based on the information available
dispute and is virtually certain at each reporting period;
the unrecognised to recognise an asset. - reviewed Management's assessment
contingent in respect to the potential
asset. reimbursement assets to the
Due to the significance Group if the provision were
of the amounts involved, to be settled and considered
and level of judgement the assessment against the requirements
required in this matter of IAS 37: Provisions, Contingent
we determined this Liabilities and Contingent Assets,
to be a key audit for the recognition of reimbursement
matter. assets or disclosure of contingent
assets;
- considered the associated
taxation impacts of the recognition
of the provision and corresponding
reimbursement assets. We challenged
Management on the relevant jurisdiction
to ensure that the provision
and reimbursement assets (which
are recognised in different
jurisdictions and hence for
tax purposes are to be considered
independently) are considered
appropriately in respect to
the different tax laws and requirements
for tax purposes; and
- considered the adequacy of
the disclosures in the Group
financial statements against
the requirements of the relevant
accounting standards.
Key observations:
We are satisfied that the provision
for the expected settlement
of the legal dispute has been
determined appropriately and
that the evidence to support
the virtually certain basis
for recognition of the reimbursement
assets is appropriate. We are
also satisfied that the disclosures
in respect of the provision
and reimbursement assets relating
to the legal dispute, and the
unrecognised contingent asset,
are in accordance with the Group's
accounting policies and the
accounting standards.
--------------------------------------------- -----------------------------------------------
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
Group 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 Group financial statements as a whole.
Based on our professional judgement, we determined materiality
for the Group financial statements as a whole and performance
materiality as follows:
2023 2022
Materiality GBP0.93 million GBP0.9 million
----------------------------------- -----------------------------------
Basis for determining 0.5% of revenue
materiality
------------------------------------------------------------------------
Rationale for Revenue represents the most appropriate
the benchmark benchmark of trading for the Group given
applied the volatility in performance caused by
significant growth in the Group but also
the findings and issues highlighted by the
Investigation.
------------------------------------------------------------------------
Performance GBP0.56 million GBP0.54 million
materiality
----------------------------------- -----------------------------------
Basis for determining 60% of materiality
performance
materiality We considered a number of factors including
the expected level of known and likely misstatements,
our knowledge of the group's internal controls
and management's attitude towards proposed
adjustments
------------------------------------------------------------------------
Component materiality
We set materiality for each significant component of the Group
based on a percentage of between 48% and 86% (2022: between 39% and
90%) of Group materiality dependent on the size and our assessment
of the risk of material misstatement of that component. Component
materiality ranged from GBP450,000 to GBP800,000 (2022: ranged from
GBP350,000 to GBP810,000). In the audit of each component, we
further applied performance materiality levels of 60% (2022: 60%)
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 GBP27,900 (2022:
GBP27,000). 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 Accounts other than the Group and Company financial
statements and our auditor's reports thereon. Our qualified opinion
on the Group 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 Group 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 Group
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.
As described in the Basis for our qualified opinion section
above, the scope of our audit was limited in several areas as set
out in that section. We have concluded that where the other
information refers to any of the balances covered by the limitation
of scope the other information may be materially misstated for the
same reasons.
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 Except for the possible effects of the matters
Report and described in the Basis for qualified opinion
Directors' section of our report, in our opinion, based
report on the work undertaken in the course of the audit:
-- the information given in the Strategic Report
and the Directors' report for the financial year
for which the Group financial statements are
prepared is consistent with the Group financial
statements; and
-- the Strategic Report and the Directors' report
have been prepared in accordance with applicable
legal requirements.
Except for the possible effects of the matters
described in the Basis for qualified opinion
section of our report above, in the light of
the knowledge and understanding of the Group
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 Arising from the limitation on the scope of our
on which work as set out in the "Basis of the qualified
we are required opinion" section above, we have not obtained
to report all the information and explanations that we
by exception considered necessary for the purpose of our audit.
We have also been unable to determine whether
certain disclosures of directors' remuneration
specified by law have been made and are complete.
-------------------------------------------------------------------------
Responsibilities of the Directors
As explained more fully in the Directors' responsibilities
statement, the Directors are responsible for the preparation of the
Group 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 Group financial statements, the Directors are
responsible for assessing the Group'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 to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the Group financial
statements
Our objectives are to obtain reasonable assurance about whether
the Group 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 Group
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 gained an understanding of the legal and regulatory
framework applicable to the Group and the industry in which it
operates, through discussion with management and the Audit
Committee and our knowledge of the industry. We focused on
significant laws and regulations that could give rise to a material
misstatement in the Group financial statements, including, but not
limited to, the Companies Act 2006, the AIM Rules, relevant
accounting standards and UK tax legislation; and
-- we considered the risks of potential non-compliance with
these laws and regulations in our initial planning and risk
assessment work and communicated these risks to the engagement team
to consider in planning and executing their work.
We considered the fraud risk areas to be management override of
controls and revenue recognition, specifically the mis-statement of
revenue for the financial year, valuation of inventory through
using inappropriate assumptions to determine the provision,
completeness of related party transactions which impact the
commercial terms of transactions and an appropriate recognition and
disclosure of provisions in respect of the ongoing legal case on
copyright infringement claims..
The specific work we have undertaken to address the risk of
fraud in the Group financial statements has included:
-- considering whether there are undisclosed related party
transactions. Due to the evidence in the Investigation Report of
potential related parties which were not previously disclosed to
the Board, and inherent limitations of our work and the
Investigation in this area, we have considered it necessary to
qualify our opinion in this area, as set out in the Basis for
qualified opinion above;
-- testing the cut-off of revenue and the validity of revenue
transactions recorded in the records of the Group (see the keys
audit matters section above);
-- working with our IT specialists to identify journal entries
with characteristics of audit interest based on our fraud risks
assessment and then assessing whether these were appropriate by
obtaining evidence to support these journals;
-- assessing the key assumptions used in the determination of
the inventory provision and challenging these by reference to data
on historic and post year-end sales (see the key audit matters
section above).
-- considering the appropriateness of alternative performance
measures and testing their calculation and rationale for inclusion
as alternative performance measures;
-- challenging management on the ongoing legal case for the
copyright infringement claims and confirming that the accounting
treatment of the Boards best estimate of the provision and
accounting thereof is appropriate and sufficiently disclosed (see
the key audit matters section above):
-- considering whether there are potential additional
liabilities arising as a result of matters identified through the
Investigation Report. Due to the inherent limitations in assessing
these we have qualified our audit work in this respect as set out
in the Basis for qualified opinion above; and
-- involving our forensic specialists in our audit of the
findings of the Investigation and allocating further senior team
members to the audit team.
Our audit procedures were designed to respond to risks of
material misstatement in the Group 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. In addition, the
extent to which the audit was capable of detecting irregularities,
including fraud was limited by the matter described in the Basis
for qualified opinion section of our report.
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.
Other matter
We have reported separately on the Company financial statements
of Revolution Beauty Group Plc for the year ended 28 February 2023.
The opinion in that report is a qualified opinion and included a
material uncertainty related to going concern .
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Sophia Michael (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
31 August 2023
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
38 AUDIT OPINION ON THE COMPANY FINANCIAL STATEMENTS
Independent auditor's report to the members of Revolution Beauty
Group Plc
Qualified Opinion on the Company financial statements
In our opinion, except for the possible effects of the matters
described in the Basis for qualified opinion section of our
report:
-- the financial statements give a true and fair view of the
state of the Parent Company's affairs as at 28 February 2023;
-- the financial statements have been properly prepared in
accordance with the 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 Revolution Beauty
Group Plc ("the Company") for the year ended 28 February 2023 which
comprise the Company Statement of Financial Position, the Company
Statement of Changes in Equity, and the Notes to the Company
Financial Statements, including a summary of the significant
accounting policies. The financial reporting framework that has
been applied in the preparation of the Company financial statements
is applicable law and United Kingdom Accounting Standards,
including Financial Reporting Standard 101 'Reduced Disclosure
Framework' (United Kingdom Generally Accepted Accounting
Practice).
Basis for qualified opinion
In respect of the year ended 28 February 2022, Revolution Beauty
Group Plc had loans receivable of GBP142m from subsidiary
undertakings at the year-end before recognising expected credit
losses of GBP97.6m resulting in a carrying value of GBP44.2m. Under
IFRS 9 - Financial Instruments, entities are required to recognise
expected credit losses for all financial assets held at amortised
cost, including intercompany loans receivable. The recoverability
of these financial assets is reliant on the future cashflows of
those subsidiaries and the Board had accordingly prepared their
assessment for recoverability based on forecast future cash flows
which resulted in an expected credit loss of GBP97.6m on the
intercompany loans receivable as at 28 February 2022.
The forecasts used to derive the expected credit loss should be
based on conditions prevailing as at each balance sheet date. Due
to significant changes to senior management and the executive
Board, Management were unable to provide forecasts that would have
existed as at 28 February 2022. We therefore were unable to obtain
sufficient appropriate audit evidence that the expected credit loss
calculations provided in respect of the prior period income
statement and the resultant carrying value as at 28 February 2022,
were prepared on a reasonable and informed basis and therefore were
unable to conclude that the carrying value of the financial asset
as at that date was free from material misstatement. As a result,
we did not express an opinion on the Company financial statements
for the year ended 28 February 2022.
Our opinion on the financial statements for the year ended 28
February 2023 is modified because we have been unable to determine
whether there was any consequential effect of this disclaimer of
opinion on the figures included in the Company Statement of Changes
in Equity, and related notes to the financial statements, in
respect of the year ended 28 February 2023.
During the course of our audit for the year ended 28 February
2023, we also identified a number of additional matters where we
were unable to obtain sufficient appropriate audit evidence and
which result in a qualified opinion on the Company financial
statements.
As announced on 23 September 2022, we wrote to the Board on 21
September 2022 setting out a number of serious concerns with
respect to certain governance and control arrangements in place
over a number of key financial and business transactions that took
place during the prior year to 28 February 2022 and which may have
had an impact also on the financial statements for the year ended
28 February 2023. We communicated to the Board of Directors a
number of findings and issues and we recommended that the Board
appoint external advisers to undertake an independent Investigation
(the "Investigation"). The Company announced on 13 January 2023 the
completion of that Investigation and its findings. A number of the
matters identified in our letter and by the investigation have led
us to undertake additional audit procedures and have resulted in
qualifications to our opinion. Each matter set out below represents
a separate qualification to our opinion:
Potential liabilities and contingent liabilities
The Investigation report identified a number of matters and
actions which could potentially lead to liabilities and contingent
liabilities. Management have advised us that that they have fully
investigated these matters and have not identified any further
specific liabilities that may arise and as such no further
provision or disclosure has been considered necessary by the Board.
However, given the nature of these findings, we have been unable to
determine whether further liabilities or contingent liabilities,
such as claims, tax assessments or irregularities may subsequently
materialise and we have therefore been unable to determine the
impact that such further potential liabilities or losses may have
on the financial position of the Company as at 28 February 2023,
and/or whether any further contingent liabilities need to be
disclosed in the notes to the Company financial statements.
Related party disclosures
The Investigation identified a number of related party
transactions of members of the Board and management which had not
been disclosed to all members of the Board nor to us as the
auditors. Management have set out in note 33 to the Group financial
statements those related party transactions that have been
identified through the Investigation as well as those that have
been captured during the ordinary course of business. We also refer
to note 33 to the Group financial statements where the Board has
assessed and disclosed in the Group financial statements that Key
Management is limited to the Board of Directors.
There are a number of limitations in us being able to conclude
that related party transactions and key management disclosures are
complete. The key reasons giving rise to these limitations are as
follows:
- the findings from the Investigation as to actions and
involvement of certain individuals in the business and engagement
with key trading partners may suggest that Management may not have
identified all individuals required to be considered as Key
Management. However, it has not been possible for us to be
conclusive in this respect;
- certain of the Directors that were members of the Board and
other senior individuals are no longer with the Group and we are
therefore limited as to enquiries that can be made of Management
who were present throughout the year being audited; and
- there was an absence of appropriate processes and records in
the year to capture all related parties and transactions that may
have taken place with those parties.
Should there be further relationships which by their nature
would be disclosed as related parties, then transactions made with
those parties may have been made outside normal commercial terms
which may result in revisions being required to the recording of
such transactions. We have therefore been unable to conclude that
the Company financial statements are free from material
misstatement arising from the omission of related party
transactions being fully disclosed and we are unable to determine
whether the disclosures in respect of related party transactions in
the Company financial statements are complete and accurate.
Further, we have been unable to determine whether the
disclosures in respect of Directors' remuneration are complete and
accurate.
Our opinion on the financial statements for the year ended 28
February 2023 is further modified because of the possible effect of
all of these matters set out above on the comparability of the
current period's figures and the corresponding figures. In
addition, were any adjustments to be required to any of the
balances impacted, the strategic report and the directors report
would also need to be amended.
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 qualified opinion.
Independence
We are independent of the Group and the 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, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
Material uncertainty related to going concern
We draw attention to the matters set out in note 2 to the
Company financial statements, where the Directors indicate the
following:
-- under the terms of the amended facility agreement, an Event
of Default arises where a qualified audit report is issued on the
consolidated financial statements. The Lenders previously issued a
waiver in respect of this clause relating to the year ended 28
February 2022 and have issued a further waiver in respect of this
clause relating to the financial statements for the year ended 28
February 2023. The Lenders have confirmed their present intention
to issue a similar waiver relating to the financial statements for
the year ending 28 February 2024 provided that any qualifications
in respect of that year are substantially the same as those set out
in the Basis for qualified opinion section of our report on the
financial statements for the year ended 28 February 2023. In the
event that such a waiver is not forthcoming the Company would be in
breach of the amended facility agreement; and
-- if the Group was unable to achieve its forecasts, due to
either a downturn in operational activity or the impact or timing
of settlement of any financial commitments, known or otherwise,
arising from legacy issues, and be unable to implement mitigating
actions within the Group's control on a timely basis, it may breach
covenants or the minimum liquidity threshold set out in its amended
facility agreement.
In respect of any or all of the above breaches of the amended
facility agreement, the Company is reliant on the support of its
Lenders to waive any or all of the above breaches of the facility
or the Company would need to seek alternative sources of funding to
repay all amounts due under the amended facility agreement and
provide the Company with sufficient ongoing finance to continue as
a going concern.
As stated in note 2 to the Company financial statements, these
events or conditions, along with other matters as set out in note 2
to the Company financial statements, indicate that a material
uncertainty exists that may cast significant doubt on the Company's
ability to continue as a going concern. The Company financial
statements do not include any adjustments that may be necessary if
the Company is not a going concern. Our opinion is not modified in
respect of this matter.
We considered going concern to be a Key Audit Matter because of
the significance of this issue. The scope of our audit addressed
this Key Audit Matter through performing the following
procedures:
-- we assessed the Directors' forecasts with the assistance of
business restructuring specialists to test the application and
completeness of assumptions approved by the Directors within the
forecasts and checked the model mechanics including the
mathematical accuracy;
-- we evaluated the reasonableness of the assumptions and future
plans modelled within the Directors' base case forecasts and the
Directors' severe but plausible downside scenario including whether
such plans and assumptions are consistent when compared to past
performance and align with expectations within the wider retail
industry and adjusted for the Group's specific circumstances;
-- we inspected the Company's revised covenant terms included in
the amended facility agreement to gain evidence that the scenarios
modelled had appropriately considered these revised covenant
terms;
-- we further considered the Directors' assessment of their
anticipated compliance with the non-financial covenants included in
the amended facility agreement to determine whether these result in
a material uncertainty or not;
-- we considered the Directors' assessment of the adequacy of
headroom on the financial covenants under both the base case and
the severe but plausible downside scenario;
-- we also considered the severe but plausible downside scenario
and the extent to which the likelihood of this scenario was
sufficiently low to support the Directors' conclusion that events
and conditions identified result in material uncertainty in
relation to the adoption of the going concern basis in the
preparation of the Company financial statements as opposed to the
going concern basis not being appropriate and the Company financial
statements being required to be prepared on an alternative basis;
and
-- we considered the adequacy of the disclosures in the Company
financial statements against the requirements of accounting
standards and consistency of the disclosures against the Directors'
base case forecasts and the Directors' severe but plausible
downside scenario.
In auditing the Company financial statements, we have concluded
that the Directors' use of the going concern basis of accounting in
the preparation of the Company financial statements is
appropriate.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
An overview of the scope of our audit
Our audit of the Company financial statements was scoped by
obtaining an understanding of the Company and its environment,
including the Company'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. We performed a full scope audit on the Company
financial statements.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the Company
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 Company financial statements as a whole, and in forming our
qualified opinion thereon, and we do not provide a separate opinion
on these matters.
In addition to the matters included in the Basis for qualified
opinion and the Material uncertainty related to going concern
sections above, we determined the matter described below to be an
additional key audit matter to be communicated in our report. This
is not a complete list of all risks identified by our audit.
Key audit matter How the scope of our audit
addressed the key audit matter
Revolution Revolution Beauty Group We assessed the accuracy of
Beauty Group Plc has Loans receivable the forecast models used to
Plc (Parent of GBP152m from subsidiary determine anticipated future
Company) Loans undertakings as at 28th cash flows in the Directors'
Receivable February 2023 before recognizing recoverability assessment.
from subsidiaries expected credit losses. To do this we challenged management
on the underlying assumptions,
GBP14.5m (2022: In the absence of contractual including the growth rates
GBP44.2m) agreements between the applied to future months and
carrying value parties these loans are whether such plans align with
of parent treated as loans payable expectations within the wider
company loan on demand by the subsidiary retail industry as adjusted
receivable undertakings with 0% effective for the Group's specific circumstances.
as at 28 (th) interest rate.
February 2023 Management prepared three different
after recognizing IFRS 9 requires entities scenarios and weighted the
expected credit to recognise expected credit probable outcome of each scenario.
loss of GBP39.9m losses for all financial We assessed Management's expectations
(2022: 97.6). assets held at amortised applied to each scenario to
cost, including intercompany consider how actual results
Note 2 of loans from the perspective that may differ from forecast
the company of the lender. The recoverability results could impact the asset's
financial of these financial assets carrying value. We assessed
statements is reliant on the future whether the disclosures in
sets out the cashflows of those subsidiaries the financial statements detail
accounting and the Board of Directors the key judgements within the
policy for have accordingly prepared recoverability assessment and
initial recognition their assessment for recoverability sources of estimation uncertainty
and subsequent based on forecast future
assessment cash flows for the period We challenged management on
of expected out to the end of the banking their ability to generate reasonable
credit losses facility term which is cash flow forecasts in line
on the above October 2024. These forecasts with the circumstances prevailing
financial have resulted in an expected as of 28 (th) Feb 2023 by performing
assets. credit loss of GBP39.9m a comparison to performance
on the intercompany loans in recent months compared to
receivable as at 28 (th) previous cashflows set and
February 2023. we also considered the material
uncertainties that are inherent
The Directors are required in the performance of the business,
to present disclosures particularly at 28 (th) February
in a manner that helps 2023.
users of financial statements
to understand the judgements We reviewed the Company financial
that directors make about statements to assess whether
the future and about other the disclosures in the Company
sources of estimation uncertainty. financial statements appropriately
Due to the degree of estimation reflect the key judgements
uncertainty inherent in within the expected credit
this assessment this was loss calculation and sources
considered to be a key of estimation uncertainty.
audit matter.
Key observations:
We are satisfied that the judgements
made by management in the determination
of expected credit loss on
intercompany receivable are
reasonable.
-------------------------------------- ------------------------------------------
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
Company 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 Company financial statements as a whole.
Based on our professional judgement, we determined materiality
for the Company financial statements as a whole and performance
materiality as follows:
2023 2022
------------------------------ --------------------------
Materiality GBP651,000 GBP630,000
----------------------- ------------------------------ --------------------------
Basis for determining 5% of Loss before tax 1% of Total assets
materiality
----------------------- ------------------------------ --------------------------
Rationale for For our 2023 audit the benchmark used was
the benchmark the loss before tax which was a change from
applied the 2022 audit when Total Assets was used.
In FY22 the inter-company receivable represented
a majority of the Total Assets and we concluded
that it was the appropriate benchmark to
determine materiality last year, but in FY23,
the impairment of the inter-company receivable
and the significant costs incurred relating
to the Investigation led us to conclude that
loss before tax was the most appropriate
benchmark to determine materiality this year.
----------------------- ----------------------------------------------------------
Performance GBP358,000 GBP378,000
materiality
----------------------- ------------------------------ --------------------------
Basis for determining 60% of overall materiality.
performance
materiality We considered a number of factors including
the expected level of known and likely misstatements,
our knowledge of the Company's internal controls
and management's attitude towards proposed
adjustments.
----------------------- ----------------------------------------------------------
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP19,530 (2022:
GBP18,900). 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 Accounts other than the Group and Company financial
statements and our auditor's reports thereon. Our qualified opinion
on the Company 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 Company 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 Company
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.
As described in the Basis for our qualified opinion section
above, the scope of our audit for the year ended 28 February 2023
was limited in several areas as set out in that section. We have
concluded that where the other information refers to any of the
balances covered by the limitation of scope the other information
may be materially misstated for the same reasons.
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 Except for the possible effects of the matters
Report and described in the Basis for qualified opinion
Directors' section of our report, in our opinion, based
report on the work undertaken in the course of the audit:
* the information given in the Strategic Report and the
Directors' report for the financial year for which
the Company financial statements are prepared is
consistent with the Company financial statements; and
* the Strategic Report and the Directors' report have
been prepared in accordance with applicable legal
requirements.
Except for the possible effects of the matters
described in the Basis for qualified opinion
section of our report above, in the light of
the knowledge and understanding of the 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 Arising from the limitation on the scope of our
on which work as set out in the "Basis of the qualified
we are required opinion" section above:
to report
by exception * we have not obtained all the information and
explanations that we considered necessary for the
purpose of our audit;
* we were unable to determine whether adequate
accounting records have been kept; and
* we were unable to determine whether certain
disclosures of directors' remuneration specified by
law have been made and are complete.
We have nothing to report in respect of the following
matters in relation to which the Companies Act
2006 requires us to report to you if, in our
opinion:
* returns adequate for our audit have not been received
from branches not visited by us; or
* the Company financial statements are not in agreement
with the accounting records and returns.
-------------------------------------------------------------------------------
Responsibilities of Directors
As explained more fully in the Statement of Directors'
Responsibilities in respect of the Annual Report and Accounts, the
Directors are responsible for the preparation of the Company
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 Company financial statements, the Directors are
responsible for assessing the 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 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 Company 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 Company
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 gained an understanding of the legal and regulatory
framework applicable to the Company and the industry in which it
operates, through discussion with management and the Audit
Committee and our knowledge of the industry. We focused on
significant laws and regulations that could give rise to a material
misstatement in the Company financial statements, including, but
not limited to, the Companies Act 2006, the AIM Rules, relevant
accounting standards and UK tax legislation;
-- we considered the risks of potential non-compliance with
these laws and regulations in our initial planning and risk
assessment work and communicated these risks to the engagement team
to consider in planning and executing their work; and
-- following the identification of relevant findings and
concerns from our audit work, and the subsequent investigation by
the Investigation Committee, we re-considered our planning and risk
assessment and identified potential additional fraud risks.
We considered the fraud risk areas of the Company to be
management override of controls, completeness of related party
transactions which impact the commercial terms of transactions and
the existence and valuation of loans receivable from
subsidiaries.
The specific work we have undertaken to address the risk of
fraud in the Company financial statements has included:
-- considering whether there are undisclosed related party
transactions. Due to the evidence in the Investigation Report of
potential related parties which were not previously disclosed to
the Board, and inherent limitations of our work and the
investigation in this area, we have considered it necessary to
qualify our opinion in this area, as set out in the Basis for
qualified opinion above;
-- working with our IT specialists to identify journal entries
with characteristics of audit interest based on our fraud risks
assessment and then assessing whether these were appropriate by
obtaining evidence to support these journals;
-- challenging assumptions and judgements made by Management in
their significant accounting estimates and judgements in other
areas also, including in particular, in relation to the impairment
assessment for the carrying value of the expected credit loss on
the company receivable from subsidiaries;
-- considering whether there are potential additional
liabilities arising as a result of matters identified through the
Investigation Report. Due to the inherent limitations in assessing
these we have qualified our audit work in this respect as set out
in the Basis for qualified opinion above; and
-- involving our forensic specialists in our audit of the
findings of the Investigation and allocating further senior team
members to the audit team.
Our audit procedures were designed to respond to risks of
material misstatement in the Company 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 Company financial
statements, the less likely we are to become aware of it. In
addition, the extent to which the audit was capable of detecting
irregularities, including fraud was limited by the matters
described in the Basis for qualified opinion section of our
report.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities . This description
forms part of our auditor's report .
Other matter
We have reported separately on the Group financial statements of
Revolution Beauty Group Plc for the year ended 28 February 2023.
The opinion in that report is qualified and included a material
uncertainty related to going concern.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Sophia Michael (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
31 August 2023
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
[1] These are areas which have been subject to a full scope
audit by the group engagement team
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END
FR EAXPFDFSDEEA
(END) Dow Jones Newswires
August 31, 2023 03:30 ET (07:30 GMT)
Revolution Beauty (LSE:REVB)
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