TIDMBAR
RNS Number : 5879F
Brand Architekts Group PLC
08 November 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION 2014/596/EU (WHICH FORMS PART OF
DOMESTIC UK LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT
2018 (THE "EUWA")) ("UK MAR"). UPON THE PUBLICATION OF THIS
ANNOUNCEMENT, THIS INSIDE INFORMATION (AS DEFINED IN UK MAR) IS NOW
CONSIDERED TO BE IN THE PUBLIC DOMAIN.
Brand Architekts Group plc
("Brand Architekts" or the "Group")
Final Results
Brand Architekts Group plc, a market leader in the development
and supply of beauty and personal care brands, announces its Full
Year results to 30 June 2022.
The year under review reflects one of the most turbulent and
testing for our business, as we have been faced with the ongoing
impact of COVID related supply chain issues affecting retailers'
buying patterns, freight costs, labour inflation and therefore
margin. Despite this, good progress has been made in several key
areas.
Business highlights:
-- Transitioned the business strategy to focus on profitability and
our Invest & Nurture brands.
-- Successful relaunch of seven brands in September & October 2021
(Dr Salts; Root Perfect; Argan +; SenSpa; Kind Natured; Happy Naturals;
Beautopia).
-- The relaunch of Root Perfect resulted in strong distribution gains
in 300+ Normal stores across Europe and Morrisons UK.
-- An increase in International sales driven by Dirty Works distribution
gains (Peru, Chile, USA).
-- Continued UK distribution gains for Super Facialist (Tesco, Morrisons;
Look Fantastic)
-- Successfully completed the acquisition of Innovaderma PLC in May
2022 and subsequent integration of brands and team is on track
Financial highlights:
-- Group statutory revenue of GBP14.3 million (FY 2021: GBP15.9m),
a decrease of 10% as the Group navigated the challenging external
environment and the impact of reduced consumer confidence on demand.
-- Excluding the contribution from Innovaderma, which was successfully
acquired on 31 May 2022 and which delivered GBP0.8m of sales in
June, organic sales decreased 15% on the prior year.
-- Underlying gross profit margin, which excludes exceptional adjustments
(in the comparative period), was significantly impacted and declined
to 33.5% (2021: 36.9%). This reflects a wide range of cost pressures
felt throughout our supply chain, that we could not pass onto retailers
due to previously agreed pricing commitments.
-- Given the challenging trading environment the Group generated an
underlying operating loss of GBP1.8m, GBP1.5m higher than the prior
year (2021: GBP0.3m).
-- The Group retains a net cash position of GBP11.3m at the year end
(after the payment of the GBP2.0m cash consideration to acquire
Innovaderma and the majority of the associated transaction costs
(GBP0.8m).
2022 2021
--------------------------------------------- --------- ---------
Reported results from continuing operations
Revenue (Note 2 of the financial statements) GBP14.3m GBP15.9m
--------- ---------
Underlying operating loss(1) GBP(1.8)m GBP(0.3)m
--------- ---------
Loss before taxation GBP(4.1)m GBP(1.9)m
--------------------------------------------- --------- ---------
Basic loss per share (23.9)p (13.1)p
--------------------------------------------- --------- ---------
Net cash GBP11.3m GBP19.0m
--------------------------------------------- --------- ---------
(1) Underlying operating loss is calculated before exceptional
items, share-based payments and amortisation of acquisition-related
intangibles.
Quentin Higham, Chief Executive, commented:
"The past year has been set against a backdrop of exceptional
macroeconomic headwinds. The Group has faced unprecedented
challenges as a result and we have had to show agility in order to
continue to deliver for our customers. I would like to thank all of
our colleagues who have worked tirelessly throughout the period and
continue to show their commitment to Brand Architekts.
The acquisition of Innovaderma was a significant milestone for
the Group. We now have an improved portfolio of core brands that we
can scale, as well as realising the benefits of a number of cost
synergies. We are focused on successfully delivering our
integration plan, growing our international presence and
implementing strategies that focus on profitability, whilst
capitalising on the Group's new online presence, as well as its
retailer customer base.
Whilst we recognise that the future is difficult to predict with
any certainty as the true impact of the inflationary environment
remains unknown, we remain confident in our long-term strategy. The
past few years have not been easy, but NPD continues at pace, and
we have diversified products, channels and markets which stand us
in good stead. This gives us confidence for our future and in our
ability to deliver value for our shareholders."
For further information please contact:
Brand Architekts Group PLC via Alma
Quentin Higham / Tom Carter
Singer Capital Markets
Shaun Dobson / Jen Boorer / (Nominated adviser and
Dan Dearden-Williams broker) 0207496 3000
Alma PR
Josh Royston / Sam Modlin 0203 405 0205
Chairman's Statement
The period under review has been one of the most turbulent and
testing for our business, as we have been faced with the ongoing
impact of COVID related supply chain issues, affecting retailers'
buying patterns, freight costs, labour inflation and therefore
margin. Whilst we are very disappointed with our financial
performance, good progress has been made in several key areas. My
executive colleagues have worked hard to better position the
business, by initiating a deep dive review of our brand portfolio,
so that we focus on driving profitability by focussing on our
brands that are margin accretive and provide problem-solving
solutions. The acquisition of Innovaderma plc towards the end of
the financial year was an important step forward for the business,
bringing a strong brand, Skinny Tan, to our portfolio as well as
accelerating our digital skills.
The Group delivered turnover of GBP14.3 million (FY 2021:
GBP15.9m), a decrease of 10%. Excluding the contribution from
Innovaderma, which was successfully acquired on 31 May 2022 and
which delivered GBP0.8m of sales in June, Group sales decreased 15%
on the prior year. The Group retains a net cash position of
GBP11.3m at the year end (after the payment of the cash
consideration to acquire Innovaderma and the majority of the
associated transaction costs). Given the exacting trading
environment the Group generated an underlying operating loss of
GBP1.8m, GBP1.5m higher than the prior year (2021: GBP0.3m).
Despite these challenges, we have focused on implementing and
making progress against our brand development and brand reach
strategic pillars. Our goal to reach GBP50m of revenue by 2025 has
been significantly affected by the wider external environment,
therefore it is difficult to predict when we will achieve this
milestone. We have taken the decision to refocus the strategy, with
an emphasis on a return to profitability.
Notwithstanding the external factors, good progress has been
made during the period and post period-end, including:
-- transition of the business strategy to focus on profitability
and our Invest and Nurture brands
-- successful relaunch of seven brands in September and October
2021 (Dr Salts; Root Perfect; Argan +; SenSpa; Kind Natured; Happy
Naturals; Beautopia).
-- the relaunch of Root Perfect resulted in strong distribution
gains in 300+ Normal stores across Europe and Morrisons UK.
-- an increase in International sales driven by Dirty Works
distribution gains (Peru, Chile, USA)
-- continued UK distribution gains for Super Facialist (Tesco, Morrisons; Look Fantastic)
-- successful integration of the Innovaderma brands and team
Further information of the development of our strategic pillars
into next year can be found in the CEO's Statement.
Across the Group, we have gained significant experience
throughout the year as we emerge into a new marketplace that has
come through COVID and is now battling unprecedented external
challenges. We are still on our journey, but it is imperative that
we reflect and adapt in order to ensure that we are well placed to
realise our ambitions.
On 31 May 2022, we completed the acquisition of Innovaderma plc.
The combined Group is now of greater scale with strong financial
foundations, has a portfolio of problem-solving challenger brands
and several complementary competencies. The management team are
focused upon realising both the strategic and financial benefits of
the newly transformed Group. The immediate priorities that lie
ahead are successfully delivering our integration plan, growing our
international presence and implementing strategies that focus on
profitability, whilst capitalising on the Group's new online
presence, as well as its retailer customer base.
Following the completion of the acquisition of Innovaderma, we
were pleased to appoint Simon Pyper as an independent Non-Executive
Director. Simon's first-hand knowledge of Innovaderma is proving to
be invaluable in ensuring a smooth integration of the business. He
also brings financial governance expertise, extensive experience
from the retail sector, broad development and implementation of
M&A strategies and an excellent track record in delivering
revenue and earnings growth.
As previously announced, it is intended that Edward Beale will
retire as a Non-Executive Director following the publication of
these results. Following Edward's retirement, Simon will take the
role of Chairman of the Audit Committee.
Outlook
We face a very challenging marketplace with headwinds including
inflation, reduction of consumer discretionary spend, retailer
intransigence and a more challenging DTC environment. Our long-term
goals remain in place, but our short-term objectives demand an
early return to profitability and cash generation whilst preserving
our balance sheet strength. We will look to build on the
combination with Innovaderma and all the good repositioning work
already done by the executive team. We will be focussing on
improving DTC profitability and working hard with our suppliers to
mitigate cost price increases. The immediate outlook, however, is
challenging but we remain positive for our future development and
we are alive to opportunities.
On behalf of the Board, I would like to thank our staff for
their hard work and commitment throughout a period of challenges
and of change.
CEO Statement
As the Chairman has outlined, 2022 proved to be a particularly
exacting and disappointing year, given how the residual impact of
COVID-19 and the well documented socio-economic and geopolitical
issues adversely affected supply chains, costs, logistics and
consumer confidence. Despite these challenges the team continued to
embody our corporate values of collaboration, passion, agility and
innovation and remained focused on developing and implementing the
transformational strategies that will enable the Group to be better
equipped to manage any economic turbulence and accelerate our
growth aspirations. The notable success of the year has been the
acquisition of Innovaderma plc. Bringing together two great teams,
a complementary portfolio of brands and cross functional skills,
the acquisition will help address the inherent issues of scale and
unbalanced trading patterns, as well as bringing in greater DTC
expertise.
Two years ago, we launched our Project 50 vision, which we
stated would be driven by organic growth and through M&A. Since
the completion of the acquisition, our focus has been on realising
the strategic and financial benefits of the deal to help transform
the Group. Immediate priorities have been implementing an effective
integration plan, focussing on an omni-channel sales approach
(domestic and internationally) and delivering both operations'
strategies. The acquisition has allowed us to review our strategic
goals and adapt them to reflect the needs of the enlarged business
and the change in global trading conditions, in particular the
effect of increased costs on our gross margins. The effects on the
supply chain and our manufacturing costs, has meant that our
overall group strategy must evolve, so that we make delivering
profit our highest priority. Although net sales growth remains an
important financial deliverable, given our issue of scale, our
number one focus is improving group margin and therefore profit.
Over the next few years, we will focus our resources on developing
brands and categories that can command higher retail prices,
engender strong consumer loyalty and stronger margins by delivering
highly efficacious problem-solving solutions.
As we transition it is vital that we learn and adapt our
strategy, but remain focused on developing our brand development,
brand reach and environmental strategic pillars. Brand Architekts'
business proposition and ultimately its point of difference, will
be to develop and market brands that address specific consumer
needs through the development of performance led products that
utilise either proprietary technology or bespoke formulations,
whilst at the same time "exceeding the expectations of everyday
beauty".
1. Brand Development
Over the next three years we will look to evolve away from
fragrance led, indulgent and gift brands categories and focus our
resources on developing profitable solution-led brands. Despite the
obvious benefits of an enlarged group, we now have a portfolio of
18 brands, some of which are subscale and do not contribute an
appropriate level of return relative to the ongoing investment
required. We have taken time to review and question the role that
each brand and category can, and should play, in the group. This
will help the business prioritise and focus.
The portfolio is now split into 3 brand categories: Invest;
Nurture and Harvest.
Invest Brands are those that have omnichannel distribution,
including their own DTC platform. These brands, such as Skinny Tan
and Super Facialist, have a masstige positioning and provide
existing scale, but also have significant potential. In line with
consumer trends and behaviour we will be focusing our effort on
categories such as skincare and self tan, but also on high margin
subcategories, such as body & hair treatments. These brands are
expected to deliver strong gross margins, which will allow the
business to put in place comprehensive growth plans. Growth will be
accelerated by medium to high A&P investment into 360-degree
marketing plans, predominantly with a digital focus.
Nurture brands encompass those brands within the portfolio that
have exciting potential to broaden from both a brand development
and brand reach perspective. Alternatively, they could be
high-performance propositions, with a clear point of difference,
answering the needs of the consumer.
Whilst we undergo this business transition, it is important that
we continue to manage a portfolio of low investment Harvest Brands.
These brands require minimal investment, competing on price and
providing us with a stronger category share of voice. These brands
can be either niche or channel exclusive and play a role in
offsetting corporate overheads, so that we can fund New Business
Development.
The following strategic Brand Development tenets will be applied
to our Invest and Nurture brands:
-- Profitability:
Over the mid-term we will be looking to improve our
profitability by increasing the share of higher margin
brands/products within the portfolio (i.e. Super Facialist and
Skinny Tan). We will also aim to improve the profitability of our
brands with cost efficiency initiatives.
-- NPD/Consumer Insights
As a business we continuously review market data to understand
our performance in relation to our competitors, whilst also
monitoring consumer trends and working closely with our
manufacturers' R&D departments. The marketing team have been
working on several new brand initiatives for the forthcoming year.
In September 2022 we launched Clear Skin, a new sub-brand of Super
Facialist, specifically targeted at spot prone women, as well as
several brand extensions (Super Facialist Salicylic Acid). By
January 2023 we will have launched several exciting Skinny Tan
extensions (Coconut Water and new Tanning Whips) and by Spring 2023
we will have relaunched the Super Facialist for Men range and the
MR Haircare brand, alongside some channel exclusive brand
extensions.
-- Digital 1(st)
Digital is transforming how consumers live, learn and shop and
how brands and retailers plan, promote, sell and deliver. We now
live in a world consisting of a multiple digital channels, devices
and platforms, providing ever more choice. Ecommerce channels, such
as Amazon are now becoming media channels, where brand awareness is
built, whilst social channels, like Tik Tok, are becoming
increasingly more commercial. The lines are being blurred and the
quest for consumers requires greater creativity, agility, testing
and learning. Although Brand Architekts only recently started out
on its digital transformation journey, the Innovaderma acquisition
has accelerated this, so that we are more digitally savvy. Over the
next 24 months, the digital first mantra must permeate throughout
all touch points of the business.
Primarily an omnichannel brand, Skinny Tan is positioned and
marketed as a digital first brand. New products are launched onto
the DTC site, supported with comprehensive marketing activity, so
as to engage with its consumers and grow its digital footprint. We
will now be applying this approach to all our Invest brands,
whether we launch initially on The Unexpekted Store, Amazon or
potentially onto new DTC websites. To engage with today's consumer,
it is vitally important to build each brand's digital footprint,
whether this is through online or offline marketing; paid online
advertising or through social engagement (Facebook, Instagram, Tik
Tok). For brands to be considered by consumers and customers alike,
it is important that we invest in digital initiatives.
-- Advertising & promotions (A&P)
A&P budgets are prioritised to support our Invest and
Nurture brands, with the objective of raising awareness and
stimulating trial to drive distribution gains. Firstly, we support
these brands with well-developed promotional and PR campaigns;
secondly with the creation of digital assets which initiate social
engagement; thirdly with specific digital campaigns and always on
digital activity.
-- Portfolio management and Mergers & Acquisitions (M&A)
In addition to the repositioning of the Group's brand portfolio,
we continue to evaluate new acquisition opportunities. Our
immediate priority is to fully integrate the Innovaderma brands and
people into our operation, but we believe that we have the right
structure and solid foundations to readily add additional brands
into the group.
2. Brand Reach
-- UK
Super Facialist's success in the retail channel was further
improved in June 2022, when we expanded the distribution by
launching 14 products into 500 Tesco stores. As Super Facialist now
has strong distribution, the focus will now be on ensuring that
Super Facialist has the right level of support and A&P
investment, to merit improvements in shelf position and sterling
weighted distribution.
Skinny Tan's strategy is to initially launch all products on its
DTC channel, supporting it with extensive online and offline
marketing initiatives. This helps drive overall omnichannel sales
and build brand awareness. Over the last 12 months we've seen a
strong open and click rate, significantly higher than industry
average, that is driving high repeat purchase and customer
retention. The brand has shown good growth in Boots and will be
launching into Sainsbury's in September 2022.
We believe that Amazon will continue to grow and become one of
the most important beauty retailers in the UK. It is also becoming
more important as a shop window that retail buyers monitor.
Therefore, we will be increasing our investment into Amazon to
maximize the revenue of our omnichannel brands and build our Invest
and Nurture brands. This will be done by ensuring that all products
benefit from Amazon A star content and profitable paid advertising.
We will also use Amazon as a strategic channel for launching
brands. The main focus will continue to be problem-solving
categories, but we will also explore developing products to meet
the specific needs of Amazon.
-- DTC
Skinny Tan has a sophisticated DTC platform and marketing
framework, and work will continue over the coming year to further
improve its key performance metrics and reduce the reliance on Meta
advertising. New influencer, affiliation, email and conversion
campaigns and initiatives will continue to be explored to optimise
return on advertising spend (ROAS); recruit new consumers to the
brand; cross-promote sister brands and drive engagement.
As we put more effort and investments behind our Invest brands,
we will explore the feasibility of creating stand-alone DTC sites
for these brands, such as Super Facialist.
-- International
Our international business benefitted in the year from gains in
TK Maxx across Europe and TJ Maxx in North America; the roll out of
Root Perfect as a permanent listing in 300+ Normal stores across
Europe, as well as a 200-store trial for Kind Natured. Dirty Works
bath & body launched in Peru, whilst Dirty Works Skincare
launched in Chile. There were encouraging signs of success for The
Solution in DM, the pan European drugstore, particularly across
Eastern Europe and Argan+ launched in Qatar (Carrefour &
Monoprix). Our brands and products are sold in 34 countries and our
infrastructure and network should position us well to accelerate
our growth post COVID and launch Skinny Tan into multiple North
European countries.
3. Environmental & Societal Responsibility
-- Sustainability pledge - packaging and ingredients environmental footprint
In line with our sustainability pledge, we continue to work
towards ensuring that all our plastic and packaging is 100%
recyclable, reusable or bio-sourced by 2025. Last year the number
of products using a minimum of 30% PCR (post-consumer recycled
material) increased to 76%. We have made good progress in moving
our brands to PCR, with further information given in the separate
sustainability section.
-- Employee development
Morale & inclusivity: We host and encourage fortnightly
"Townhall" meetings, which allows all employees (irrespective of
location) to participate and benefit from transparent and regular
updates, presentations and Q&A.
Diversity: We strive to have an inclusive culture where all
genders have equal standing and people from all walks of life and
ethnicities are welcome - 77% of employees are female; 72% are
under 45 and 22% are from a minority ethnic background.
Work-life-balance: All employee contracts reflect a hybrid way
of working, so that employees can tailor their office attendance to
maximize productivity and communication. Sales and Marketing
personnel are actively encouraged to regularly come to the office
as we believe this promotes creativity, collaboration and
development.
Personal Development: All employees benefit from bi-annual PDRs
(Performance & Development Review), PDPs (Personal Development
Plan) as well as onsite and offsite training.
Challenger culture: It is our strategic intent to implement and
embed a transformative culture and a way of working into the
business, so that we can act and be seen as a true challenger brand
business.
Outlook
We continue to face a very challenging operating and economic
environment. We anticipate high inflation and continued supply
chain pressures, as well as an adverse effect in consumer
confidence and a softening in the online and offline marketplace.
Given the squeeze on operating margin, it was vital that we adapted
our growth strategies to focus on delivering profit. In the short
term we will transition and focus our resources on developing
brands and categories that can command higher retail prices,
engender strong consumer loyalty and stronger margins by delivering
highly efficacious problem-solving solutions, whilst also focusing
on DTC promotional effectiveness and efficiency. We are taking a
cautious view of the year, as we consolidate and fully integrate
the Innovaderma Plc. brands into our portfolio. However, our
mid-term objective is to return to profitability in 23/24 and we
remain positive for our future development and in our ability to
deliver for all shareholders.
Financial Review
Key performance indicators
To measure and monitor our progress against our growth strategy,
we track our performance against a set of ambitious targets and
milestones. The goals we set are closely assessed to ensure we
focus our efforts to deliver both in the short term and long term.
A summary of the financial measures used are:
2022 2021
--------------------------------------------- --------- ---------
Reported results from continuing operations
Revenue (Note 2 of the financial statements) GBP14.3m GBP15.9m
--------- ---------
Underlying operating (loss)/profit(1) GBP(1.8)m GBP(0.3)m
--------- ---------
Loss before taxation GBP(4.1)m GBP(1.9)m
--------------------------------------------- --------- ---------
Basic (loss)/earnings per share (23.9)p (13.1)p
--------------------------------------------- --------- ---------
Net cash GBP11.3m GBP19.0m
--------------------------------------------- --------- ---------
1 Underlying operating (loss)/profit is calculated before
exceptional items, share-based payments and amortisation of
acquisition-related intangibles.
A reconciliation of underlying operating profit to operating is
shown below:
2022 2021
Total Total
------------------------------------- ------- -------
Underlying (loss)/profit from
operations (1,811) (273)
------- -------
Exceptional cost of sales - 488
Amortisation of acquisition-related
intangibles (240) (240)
Charge for share-based payments (39) (38)
Other exceptional items (1,850) (1,600)
-------------------------------------
Operating (loss)/profit (3,940) (1,663)
------- -------
The Group implements a number of non-statutory measures which
are summarised in the tables above and in more detail within the
segmental income statement (Note 2 of the financial statements).
Exceptional items are also explained further in Note 3 of the
financial statements. These measures are used to illustrate the
impact of non-recurring and non-trading items on the Group's
financial results.
In addition to the financial key performance measures, a range
of operational non-financial key performance indicators are also
monitored at a management level covering, amongst others, new
product development and innovation. The Board receives an overview
of these as part of its Board management report.
Statement of comprehensive income
Group statutory revenue for the year was GBP14.3 million (FY
2021: GBP15.9m), a decrease of 10% as the Group navigated the
challenging external environment and the impact of reduced consumer
confidence on demand. Excluding the contribution from Innovaderma,
which was successfully acquired on 31 May 2022 and which delivered
GBP0.8m of sales in June, organic sales decreased 15% on the prior
year. The FY performance was particularly affected by H1 sales
which declined by 19% on the prior year to GBP7.4m (H1 2021:
GBP9.0m). This decline was as a result of two factors; firstly key
retailers delaying the implementation of our brand relaunches,
caused by the COVID pandemic and secondly planned rationalisation
of our product ranges by 25% to optimise our productivity. With
many of our brands needing to be relaunched and product ranges
rationalised to reflect consumer demand and improve productivity,
this delay meant that sales for the first three months were
affected, as stocks of the previous ranges were run down. The
impact of these delays was felt across both the high street and
grocer retailers, which remain our dominant revenue generators.
This impact could not be offset on a FY basis as H2 organic sales
of GBP6.1m were affected by a reduction in consumer demand, down
12% vs the prior year (H2 2021: GBP6.9m).
The underlying gross profit margin, which excludes exceptional
adjustments was significantly impacted and declined to 33.5% (2021:
36.9%). This reflects a wide range of cost pressures felt
throughout our supply chain, that we could not pass onto retailers
due to previously agreed pricing commitments. The main impact was
the significant increase in shipping container costs for goods from
overseas (principally Christmas Gift Sets and bath salts), which at
the time of shipping were 500% higher than historical prices.
Alongside this we have had to contend with other significant cost
increases throughout the supply chain, notably in raw materials,
componentry and energy.
Given the challenging trading environment, the Group generated
an operating loss in the second half in line with that reported in
the first half but was also impacted by lower revenue in the
period.
The Group made a loss before tax of GBP4.1m which included other
exceptional items of GBP1.8m from the partial impairment of the
intangible values of male styling brand, Fish (GBP0.5m), the write
down of development costs relating to The Unexpekted Store
(GBP0.3m), impairment of equipment and other restructuring costs
(GBP0.3m) as well as professional fees relating to the acquisition
of Innovaderma plc (GBP0.7m). The intangibles were subject to
impairment reviews, under IAS 36. The Fish impairment reflected the
impact of a reduction in consumer usage and habits that have
affected the Male Grooming category in the UK and margins
deteriorating through product cost inflation.The Unexpekted Store
impairment was a result of the acquisition of Innovaderma, as the
Group now plans to focus its DTC activities on key brand Skinny
Tan.
Financing costs were GBP0.2m (2021: GBP0.2m) relating to the
defined benefit pension plan notional finance charge.
The effective tax rate for the period was negative 3% (2021:
negative 17%) of pre-tax profits. The effective rate is below the
statutory rate of 19% due to the losses in the period.
Financial position and cash flow
The Group retains a net cash position of GBP11.3m, a reduction
of GBP7.7m versus the prior year (2021: GBP19.0m). The cash outflow
was due to the GBP2.0m cash consideration paid to Innovaderma
shareholders and the GBP0.7m settlement of related transactional
costs. There was also a GBP2.3m net increase in working capital
following a planned investment in key product line inventory
holdings to offset the Supply Chain delays, uncertainty and cost
inflation. The company also made a one-off contribution of GBP1.0m
to its defined benefit pension scheme as outlined below, in
addition to GBP0.3m annual payment commitment.
Acquisition of Innovaderma Plc
On 31 May 2022, the Group completed the acquisition of
Innovaderma Plc. The purchase was effected by a Scheme of
Arrangement, whereby Innovaderma shareholders received for each
Innovaderma share 7 pence in cash and 0.3818 of new Brand Architekt
Group plc shares. This consideration equated to GBP9.1m in total,
of which GBP2m was paid in cash and GBP7.1m satisfied in shares,
based on the Brand Architekts Group plc share price on completion.
As the total purchase consideration exceeded the net GBP0.4m fair
value of assets acquired, an exercise was undertaken to allocate
the remaining purchase consideration into other intangibles and
goodwill. As a result, GBP3.9m has been recognised as trade name
and customer relationships intangible assets with a useful economic
life of 5 years, a related deferred tax provision of GBP1.0m, with
the remaining GBP5.7m as Goodwill.
Defined benefit pension plan
The defined benefit pension plan underwent its last triennial
valuation on 5 April 2020. The actuarial deficit, taking into
account market conditions up to 31 March 2021, was GBP15.1m. The
Group entered a revised deficit recovery plan and schedule of
contributions in July 2021. Under this there was a commitment to
make a one-off deficit reduction payment of GBP1m by 31 July 2021,
GBP318k payment per annum for four years followed by GBP791k for a
further thirteen years, and to pay certain administration costs and
the PPF levy for the life of the plan. This commitment will be
reassessed at the next triennial valuation at 5 April 2023.
The April 2020 timing of the last triennial valuation increased
the pension deficit significantly, as the start of the pandemic
depressed the valuation of scheme assets while lower discount rates
linked to bond yields increased estimated scheme liabilities.
Extensive reviews were held with the Trustee to balance the
assurance needed by the pension scheme in light of the increased
deficit, while aligning with Group's objective of investing cash
reserves in the business to the long-term benefit of all
stakeholders, including the pension scheme.
Accounting standards require the discount rate used for
valuations under IAS 19 'Employee Benefits' to be based on yields
on high quality (usually AA-rated) corporate bonds of appropriate
currency, taking into account the term of the relevant pension
plan's liabilities. Corporate bond indices are used as a proxy to
determine the discount rate. At the reporting date, the yields on
bonds of all types were higher than they were at 30 June 2021. This
has resulted in higher discount rates being adopted for accounting
purposes compared to last year. This has decreased the fair value
of the plan liabilities as measured under IAS 19, which combined
with an improvement in the fair value of the scheme's assets, has
translated into a decreased liability under the IAS 19 methodology.
For accounting purposes at 30 June 2022, the Group recognised under
IAS 19, a net liability of GBP2.4m (2021: GBP10.4m).
Going concern
As part of its normal business practice, the Group prepares
annual and longer-term plans and, in reviewing this information the
directors have a reasonable expectation that the Company and Group
have adequate resources to continue in operational existence for
the foreseeable future. The Group has significant cash reserves of
GBP11.3m. Accordingly, we continue to adopt the going concern basis
in preparing the Annual Report and Accounts.
Group Statement of Comprehensive Income
For the year ended 30 June 2022 and the period ended 30 June
2021
2022 2021
Notes GBP'000 GBP'000
Revenue 2 14,296 15,875
Cost of sales (including Exceptional credits) 3 (9,506) (9,530)
--------------------------------------------------------------------- ------ -------- --------
Gross profit 4,790 6,345
Commercial and administrative costs (6,880) (6,408)
--------------------------------------------------------------------- ------ -------- --------
Operating loss before other exceptional items (2,090) (63)
Other exceptional items 3 (1,850) (1,600)
--------------------------------------------------------------------- ------ -------- --------
Operating loss (3,940) (1,663)
--------------------------------------------------------------------- ------ -------- --------
Finance income 20 2
Finance expense (196) (224)
--------------------------------------------------------------------- ------ -------- --------
Loss before taxation 4 (4,116) (1,885)
Taxation 5 (130) (314)
--------------------------------------------------------------------- ------ -------- --------
Loss for the year (4,246) (2,199)
--------------------------------------------------------------------- ------ -------- --------
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Re-measurement of defined benefit liability 5,143 2,786
Items that will be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations - -
Other comprehensive income for the year 5,143 2,786
--------------------------------------------------------------------- ------ -------- --------
Total comprehensive income for the year 897 587
===================================================================== ====== ======== ========
(Loss) / profit attributable to:
--------------------------------------------------------------------- ------ -------- --------
Equity shareholders (4,322) (2,253)
--------------------------------------------------------------------- ------ -------- --------
Non-controlling interests 76 54
Total comprehensive income attributable to:
--------------------------------------------------------------------- ------ -------- --------
Equity shareholders 821 533
--------------------------------------------------------------------- ------ -------- --------
Non-controlling interests 76 54
Earnings per share 6
- basic (23.9)p (13.1)p
- diluted (23.9)p (13.1)p
Dividends
Paid in year (GBP'000) Nil Nil
Paid in year (pence per share) Nil Nil
Proposed (GBP'000) Nil Nil
Proposed (pence per share) Nil Nil
Group Statement of Financial Position
As at 30 June 2022
2022 2021
Notes GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment including right of use assets 53 67
Intangible assets 7 18,870 10,118
Deferred tax assets 730 2,605
Total non-current assets 19,653 12,790
Current assets
Inventories 7,375 2,299
Trade and other receivables 5,099 3,651
Cash and cash equivalents 11,347 19,018
Current tax receivable - 432
------------------------------------------------------------- ------ -------- --------
Total current assets 23,821 25,400
------------------------------------------------------------- ------ -------- --------
Total assets 43,474 38,190
------------------------------------------------------------- ------ -------- --------
LIABILITIES
Current liabilities
Trade and other payables 6,844 2,602
Current Tax Payable 9 -
Total current liabilities 6,853 2,602
------------------------------------------------------------- ------ -------- --------
Non-current liabilities
Post-retirement benefit obligations 2,439 10,418
Deferred tax liabilities 2,428 1,475
Total non-current liabilities 4,867 11,893
------------------------------------------------------------- ------ -------- --------
Total liabilities 11,720 14,495
------------------------------------------------------------- ------ -------- --------
Net assets 31,754 23,695
------------------------------------------------------------- ------ -------- --------
EQUITY
Share capital 1,397 862
Share premium 11,987 11,987
Merger reserve 6,588 -
Pension re-measurement reserve (2,659) (7,802)
Retained earnings 14,213 18,496
------------------------------------------------------------- ------ -------- --------
Equity attributable to holders of the parent 31,526 23,543
------------------------------------------------------------- ------ -------- --------
Non-controlling interest 228 152
------------------------------------------------------------- ------ -------- --------
Total equity 31,754 23,695
------------------------------------------------------------- ------ -------- --------
Group Statement of Changes in Equity
For the year ended 30 June 2022 and the period 30 June 2021
Share Capital Share Merger Pension Retained Non-controlling Total
Premium Reserve re-measurement Earnings interest Equity
reserve
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------------------- --------- --------- --------------- --------- ---------------- ----------
Balance as at
June 2021 862 11,987 - (7,802) 18,496 152 23,695
----------------- ------------------- --------- --------- --------------- --------- ---------------- ----------
Issue of new
shares 535 - 6,588 - - - 7,123
Non-controlling
interest - - - - - 76 76
Share based
payments - - - - 39 - 39
Transactions
with owners 535 - 6,588 - 39 76 7,238
----------------- ------------------- --------- --------- --------------- --------- ---------------- ----------
Loss for the
year
attributable to
equity
shareholders - - - - (4,322) - (4,322)
Other
comprehensive
income:
Re-measurement
of defined
benefit
liability - - - 5,143 - - 5,143
Total
comprehensive
income for the
year - - - 5,143 (4,322) - 821
----------------- ------------------- --------- --------- --------------- --------- ---------------- ----------
Balance as at
June 2022 1,397 11,987 6,588 (2,659) 14,213 228 31,754
----------------- ------------------- --------- --------- --------------- --------- ---------------- ----------
Share Share Merger Pension Retained Non-controlling Total
Capital Premium Reserve re-measurement Earnings interest Equity
reserve
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ----------- ----------- ----------- --------------- ----------- ---------------- ------------
Balance as at
June 2020 862 11,987 - (10,588) 20,711 98 23,070
----------------- ----------- ----------- ----------- --------------- ----------- ---------------- ------------
Non-controlling
interest - - - - - 54 54
Share based
payments - - - - 38 - 38
Transactions
with owners - - - - 38 54 92
----------------- ----------- ----------- ----------- --------------- ----------- ---------------- ------------
Loss for the
year
attributable to
equity
shareholders - - - - (2,253) - (2,253)
Other
comprehensive
income:
Re-measurement
of defined
benefit
liability - - - 2,786 - - 2,786
Total
comprehensive
income for the
year - - - 2,786 (2,253) - 533
----------------- ----------- ----------- ----------- --------------- ----------- ---------------- ------------
Balance as at
June 2021 862 11,987 - (7,802) 18,496 152 23,695
----------------- ----------- ----------- ----------- --------------- ----------- ---------------- ------------
Cash Flow Statement
For the year ended 30 June 2022 and the period 30 June 2021
Group Company
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Cash flow from operating activities
(Loss) before taxation (4,116) (1,885) (2,581) (3,116)
Depreciation 29 7 - -
Amortisation 388 1,880 78 1,678
Impairment of intangible assets and PPE 936 - 500 -
Finance income (20) (2) (10) (2)
Finance cost 196 224 190 221
(Increase)/ Decrease in inventories (3,084) 1,425 - -
Decrease /(Increase) in trade and other receivables 101 318 (1,266) 227
Increase / (Decrease) / in trade and other payables 641 (687) (559) (799)
Share based payment expense 39 38 42 36
Contributions to defined benefit plans (1,318) (318) (1,318) (318)
Cash (outflow) / generated from operations (6,208) 1,000 (4,924) (2,073)
---------------------------------------------------------- -------- -------- -------- --------
Finance costs paid - (28) - (25)
Taxation received 432 381 - 373
---------------------------------------------------------- -------- -------- -------- --------
Net cash (outflow) / inflow from operating activities (5,776) 1,353 (4,924) (1,725)
---------------------------------------------------------- -------- -------- -------- --------
Cash flow from investing activities
Purchase of property, plant and equipment (15) (66) - -
Purchase of intangible assets (237) (284) - -
Cash consideration paid for acquisitions (1,965) - (1,965) -
Cash acquired on acquisition 1,510 - - -
Net cash flow from investing activities (707) (350) (1,965) -
---------------------------------------------------------- -------- -------- -------- --------
Cash flow from financing activities
Repayment of / Movements in invoice discounting facility - (1,132) - -
Finance income received 20 2 10 2
Repayment of loans (1,208) (2,095) - (2,095)
Net cash flow from financing activities (1,188) (3,225) 10 (2,093)
---------------------------------------------------------- -------- -------- -------- --------
Net decrease in cash and cash equivalents (7,671) (2,222) (6,879) (3,818)
Cash and cash equivalents at beginning of year 19,018 21,240 16,681 20,499
---------------------------------------------------------- -------- -------- -------- --------
Cash and cash equivalents at end of year 11,347 19,018 9,802 16,681
---------------------------------------------------------- -------- -------- -------- --------
Notes to the Accounts
Note 1 Significant accounting policies
The financial information does not constitute statutory accounts
as defined in section 435 of the Companies Act 2006,
but has been extracted from the statutory accounts for the
period ended June 2022 on which an unqualified audit
report has been issued and which will be delivered to the
Registrar following their adoption at the Annual General
Meeting. The statutory accounts for the period ended June 2021
have been delivered to the Registrar of
Companies with an unqualified audit report and did not contain a
statement under section 498 of the Companies Act
2006. Copies of the 2022 Annual Report and Accounts with the
notice of Annual General Meeting will be sent to
shareholders via their elected channel. Further copies may be
obtained by contacting the Company Secretary at
Brand Architekts Group plc, 8 Waldegrave Rd, Teddington, TW11
8GT. An electronic copy will be available on the
Group's web site (www.brandarchitektsplc.com)
General Information
Brand Architekts Group plc is a Company incorporated in the
United Kingdom under the Companies Act 2006. The address of the
registered office is given at the end of the financial report. The
nature of the Group's operations and its principal activities are
set out in the Strategic Report. The Group moved to a traditional
12 month calendar year for the period ended 30 June 2021. The
results for the current period have been drawn up for a traditional
12 month calendar year.
Basis of preparation
The Group has prepared its consolidated financial statements in
accordance with UK adopted International Accounting Standards (UK
adopted IAS) in conformity with the requirements of the Companies
Act 2006. These financial statements have been prepared under the
historical cost convention, modified to include the revaluation of
certain non-current assets and financial instruments.
The Directors have considered trading and cash flow forecasts
prepared for the Group, and based on these, and the level of cash
held, are satisfied that the Group will continue to be able to meet
its liabilities as they fall due for at least one year from the
date of signing of these accounts. On this basis, they consider it
appropriate to adopt the going concern basis in the preparation of
these accounts.
The consolidated financial statements are presented in sterling
and all values are rounded to the nearest thousand (GBP'000) except
where otherwise indicated.
Basis of consolidation
The Group financial statements consolidate the financial
statements of the Company and its subsidiary undertakings. The
results and net assets of undertakings acquired or disposed of
during a financial year are included in the Group Statement of
Comprehensive Income and Group Statement of Financial Position from
the effective date of acquisition or to the effective date of
disposal. Subsidiary undertakings have been consolidated using the
purchase method of accounting. In accordance with the exemptions
given by section 408 of the Companies Act 2006, the Company has not
presented its own Statement of Comprehensive Income. The Company's
loss after tax for the year to June 2022 was GBP2.742m (2021: loss
after tax GBP2.852m).
The Group financial statements consolidate those of the parent
company and all of its subsidiaries as of 30 June 2022. The parent
controls a subsidiary if it is exposed, or has rights, to variable
returns from its involvement with the subsidiary and has the
ability to affect those returns through its power over the
subsidiary. All subsidiaries have a reporting date of 30 June.
All transactions and balances between Group companies are
eliminated on consolidation, including unrealised gains and losses
on transactions between Group companies. Amounts reported in the
financial statements of subsidiaries have been adjusted where
necessary to ensure consistency with the accounting policies
adopted by the Group.
Profit or loss and other comprehensive income of subsidiaries
acquired or disposed of during the year are recognised from the
effective date of acquisition, or up to the effective date of
disposal, as applicable.
Note 2 Segmental Analysis
During the year and following the acquisition of Innovaderma
Limited, there were three reportable segments of the Group (two in
the comparative period), the reportable segments of the Group were
aggregated as follows:
-- Brand Architekts Brands - These include those brands
organically developed plus the acquisitions of the portfolio of
Brands included in The Brand Architekts acquisition (in 2016) and
the Fish brand acquired during 2018.
-- Innovaderma Brands - This segment includes those brands
acquired as part of the Innovaderma business combination. The
results of Innovaderma brands are currently reported separately
from other brands to the directors.
-- Eliminations and Central Costs. Other Group-wide activities
and expenses, including defined benefit pension costs, share-based
payment expenses / (credits), amortisation of acquisition-related
intangibles, interest, taxation and eliminations of intersegment
items, are presented within 'Eliminations and central costs'.
This is the basis on which the Group presents its operating
results to the Directors, which is considered to be the Chief
Operating Decision Maker (CODM) for the purposes of IFRS 8.
Comparative full year numbers have been presented on the same
basis.
IFRS15 requires the disaggregation of revenue into categories
that depict how the nature, timing, amount and uncertainty of
revenue and cash flows are affected by economic factors. The
Directors have considered how the Group's revenue might be
disaggregated in order to meet the requirements of IFRS15 and has
concluded that the activity and geographical segmentation
disclosures set out below represent the most appropriate categories
of disaggregation.
a) Principal measures of profit and loss - Income Statement
segmental information for year ended 30 June 2022 and period ended
30 June 2021:
Year ended 30 June Brand Architekt Eliminations Total 2021
2022 Brands Innovaderma and Central
Brands Costs
Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
UK revenue 10,910 741 - 11,651 13,447
International revenue 2,558 87 - 2,645 2,428
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Revenue - External 13,468 828 - 14,296 15,875
Revenue - Internal - 26 (26) - -
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Total Revenue 13,468 854 (26) 14,296 15,875
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Underlying loss from
operations (667) (87) (1,057) (1,811) (273)
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Credit / (charge) for
share-based payments 3 - (42) (39) (38)
Amortisation of
acquisition-related
intangibles - - (240) (240) (240)
Exceptional items included
in cost of sales (Note
3) - - - - 488
Other Exceptional items
(Note 3) (281) (341) (1,228) (1,850) (1,600)
Net borrowing income
/ (expense) 4 - (180) (176) (222)
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Loss before taxation (941) (428) (2,747) (4,116) (1,885)
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Tax charge - - (130) (130) (314)
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Loss for the period (941) (428) (2,877) (4,246) (2,199)
---------------------------- ---------------- -------------- ------------- -------- -----------------------------
Year ended 30 June Brand Architekt Innovaderma Eliminations Total
2021 Brands Brands and Central
Costs
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------------------- ------------ ----------------------- -------------------------------
UK revenue 13,447 - - 13,447
International
revenue 2,428 - - 2,428
--------------------- ------------------------- ------------ ----------------------- -------------------------------
Revenue - External 15,875 - - 15,875
Revenue - Internal - - - -
--------------------- ------------------------- ------------ ----------------------- -------------------------------
Total Revenue 15,875 - - 15,875
--------------------- ------------------------- ------------ ----------------------- -------------------------------
Underlying profit
/ (loss) from
operations* 917 - (1,190) (273)
--------------------- ------------------------- ------------ ----------------------- -------------------------------
Charge for
share-based
payments (6) - (32) (38)
Amortisation of
acquisition-related
intangibles - - (240) (240)
Exceptional items
included
in cost of sales
(Note
3) 488 - - 488
Other Exceptional
items
(Note 3) - - (1,600) (1,600)
Net borrowing costs (4) - (218) (222)
--------------------- ------------------------- ------------ ----------------------- -------------------------------
Profit / (loss)
before
taxation 1,395 - (3,280) (1,885)
Tax charge (259) - (55) (314)
--------------------- ------------------------- ------------ ----------------------- -------------------------------
Profit /(loss) for
the period 1,136 - (3,355) (2,199)
--------------------- ------------------------- ------------ ----------------------- -------------------------------
The segmental Income Statement disclosures are measured in
accordance with the Group's accounting policies as set out in note
1.
All defined benefit pension costs and an element of the
share-based payment expenses are recognised for internal reporting
to the CODM as part of Group-wide activities and are included
within 'Eliminations and central costs' above. Other costs, such as
Group insurance and auditors' remuneration which are incurred on a
Group-wide basis are recharged by the head office to segments on a
reasonable and consistent basis for all periods presented, and are
included within segment results above.
b) Other Income Statement segmental information
Year ended 30 June 2022 Innovaderma Eliminations and Central
Brand Architekt Brands Brands Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------------------- ------------------ ------------------------- -------------
Depreciation /
impairment of PPE 29 166 - 195
Amortisation /
impairment of
intangibles * 418 - 740 1,158
Period ended 30 June Innovaderma Eliminations and Central
2021 Brand Architekt Brands Brands Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------------------- ------------------ ------------------------- -------------
Depreciation 7 - - 7
Amortisation/
impairment* 280 - 1,600 1,880
* Impairment losses of GBP0.5m (2021: GBP1.6m) in Central Costs is included in Exceptional
Items
c) Principal measures of assets and liabilities
The Groups assets and liabilities are managed centrally by the
CODM and consequently there is no reconciliation between the
Group's assets per the statement of financial position and the
segment assets.
d) Additional entity-wide disclosures
The distribution of the Group's external revenue by destination
is shown below:
Geographical segments Year ended Period ended
30 June 2022 30 June 2021
GBP'000 GBP'000
------------- -------------
UK 11,651 13,447
Other European Union countries 982 970
Rest of the World 1,663 1,458
------------- -------------
14,296 15,875
------------- -------------
In the year ended 30 June 2022, the Group had three customers
from that exceeded 10% of total revenues, being 15.5%, 11.8% and
10.3% respectively. In the period ended 30 June 2021, the Group had
1 customer that exceeded 10% of total revenues, being 24%. All of
these customers are reported within the Brand Architekts Brands
segment.
Note 3 Exceptional Items
Exceptional charges / (credits) from Continuing Operations: Period ended Period ended
30 June 2021 30 June 2021
GBP'000 GBP'000
------------- -------------
Included within Cost of sales:
Inventory related - (488)
------------- -------------
Other exceptional items:
Impairment of intangible assets and property, plant and equipment 936 1,600
Acquisition costs 728 -
Restructuring costs 186 -
1,850 1,600
------------- -------------
Total exceptional items 1,850 1,112
------------- -------------
Exceptional impairments of intangible assets and property, plant
and equipment includes a GBP0.50m impairment of the Fish brand,
GBP0.27m for The Unexpekted Store and GBP0.17m of equipment
acquired with Innovaderma which has since been replaced.
The group incurred costs of GBP0.73m in relation to the
acquisition of Innovaderma which have been expensed in the
period.
Restructuring costs of GBP0.19m have been incurred following the
acquisition of Innovderma.
The comparative period exceptional items includes a partial
write back of prior year provision relating to inventory (GBP0.5m),
where the corresponding cost in the comparative period was treated
as exceptional. Other Exceptional items include GBP1.6m impairment
of the Fish brand.
Note 4 Loss before taxation
2022 2021
GBP'000 GBP'000
(a) This is stated after charging/ (crediting)
Depreciation of property, plant and equipment of purchased assets 29 7
Amortisation of intangible assets 388 280
Impairment of intangible assets and property, plant and equipment (classified as exceptional
- Note 3) 936 1,600
Foreign exchange (gains) / losses (5) 21
Amounts expensed for short term and low value leases 56 59
(b) Auditors' remuneration
Audit services:
Audit of the Company financial statements 53 28
Audit of subsidiary undertakings 14 12
Audit related services:
Interim review 3 2
Non audit services:
Corporate finance - acquisition related services 45 -
Note 5 Taxation
2022 2021
(a) Analysis of tax charge in the year GBP'000 GBP'000
UK corporation tax:
- on profit for the year - -
- adjustment in respect of previous years - (1)
Total current tax credit - (1)
-------- --------
Deferred tax: -
-current year charge / (credit) 130 (36)
-effect of tax rate change on opening balance - 351
Total deferred tax charge 130 315
-------- --------
Tax charge 130 314
-------- --------
(b) Factors affecting total tax charge for the year
The tax assessed on the profit before taxation for the year is
at the standard rate of UK corporation tax of 19.00% (2020:
19.00%). The differences are reconciled below:
2022 2021
GBP'000 GBP'000
Loss before taxation (4,116) (1,885)
-------- --------
Tax at the applicable rate of 19.00% (2020: 19.00%) (782) (358)
Effect of:
Adjustment in respect of previous years - (1)
Expenses not deductible for tax purposes 138 6
Income not taxable for tax purposes (3)
Deferred tax asset not recognised on taxable losses 774 319
Remeasurement of deferred tax for changes in tax rates 351
Actual tax charge 130 314
-------- --------
The group has tax losses of GBP8.2m (2021: GBP4.9m) which have
not been recognised as there is no certainty that they can be
utilised.
Note 6 Earnings per share
2022 2021
Basic and Diluted
Loss for the year attributable to equity holders (GBP'000) (4,322) (2,253)
Basic weighted average number of ordinary shares in issue during the year 18,111,180 17,230,702
Diluted number of shares 18,200,180 17,319,702
----------- -----------
Basic loss per share (23.9)p (13.1)p
----------- -----------
Diluted loss per share (23.9)p (13.1)p
----------- -----------
Basic earnings per share has been calculated by dividing the
profit for each financial year by the weighted average number of
ordinary shares in issue at 30 June 2022 and 30 June 2021
respectively.
Note 7 Intangible assets
Trade
Software Brand Names Customer Relationships Goodwill marks Total
GROUP GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost:
At June 2020 101 8,715 2,126 2,618 - 13,560
Additions 284 - - - - 284
--------- ------------ ----------------------- --------- -------- --------
At June 2021 385 8,715 2,126 2,618 - 13,844
Additions 218 - - - 19 237
--------- ------------ ----------------------- --------- -------- --------
Acquired through business
combinations (note 9) - 1,608 2,329 5,736 - 9,673
At June 2022 603 10,323 4,455 8,354 19 23,754
--------- ------------ ----------------------- --------- -------- --------
Amortisation:
--------- ------------ ----------------------- --------- -------- --------
At June 2020 16 924 906 - - 1,846
Provided during the year 40 - 240 - - 280
Impairment charge during the year - 1,600 - - - 1,600
At June 2021 56 2,524 1,146 - - 3,726
--------- ------------ ----------------------- --------- -------- --------
Provided during the year 145 - 240 - 3 388
Impairment charge during the year 270 500 - - - 770
Disposals - - - - - -
--------- ------------ ----------------------- --------- -------- --------
At June 2022 471 3,024 1,386 - 3 4,884
--------- ------------ ----------------------- --------- -------- --------
Net book value:
At June 2022 132 7,299 3,069 8,354 16 18,870
At June 2021 329 6,191 980 2,618 - 10,118
--------- ------------ ----------------------- --------- -------- --------
Brand Names Customer Relationships Total
COMPANY GBP'000 GBP'000 GBP'000
Cost:
------------ ----------------------- --------
At June 2020 3,624 480 4,104
------------ ----------------------- --------
At June 2021 3,624 480 4,104
------------ ----------------------- --------
At June 2022 3,624 480 4,104
------------ ----------------------- --------
Amortisation:
------------ ----------------------- --------
At June 2020 924 231 1,155
Provided during the year - 78 78
Impairment charge during the year 1,600 - 1,600
------------ ----------------------- --------
At June 2021 2,524 309 2,833
Provided during the year - 74 74
Impairment charge during the year 500 - 500
At June 2022 3,024 383 3,407
------------ ----------------------- --------
Net book value:
At June 2022 600 97 697
------------ ----------------------- --------
At June 2021 1,100 171 1,271
------------ ----------------------- --------
Impairment testing
Two Brands (Brand Architekts and Fish) and associated goodwill
have been tested for impairment as they have indefinite useful
lives. Goodwill acquired as part of the Innovaderma acquisition has
not been tested for impairment given the business combination
completed a month before the year end. Brand Architekts gave a
valuation in excess of its carrying values, however Fish was
partially impaired by GBP0.5m given the decline in revenue for the
brand, reflecting the pressures on the male grooming category in
the UK and the high-street retail channel. No impairment review of
the intangibles from the Innovaderma acquisition was performed,
given it was acquired on 31 May 2022.
The recoverable amount of each brand was determined based on the
higher of value-in-use calculations or fair value less costs to
sell. The value-in-use calculations covered underlying 1-2 year
forecasts, followed by an extrapolation of expected cash flows for
the remaining useful life using growth assumptions of 1-2%. Fair
value less costs to sell was determined by a review of historic
acquisitions in the consumer goods market of similar size to
identify multiples that have been paid.
The present value of the expected cash flows is determined by
applying a suitable discount rate for current market assessments of
the time value of money and risks specific to the brand. The
discount rate applied is a pre-tax 8% in line with the prior year,
reflecting expected returns for AIM listed businesses as well as
the debt free capital structure of the Group.
Growth assumptions
Management have assumed a base case growth rate of 1-2%, in line
with wider industry forecasts, in the calculations including into
perpetuity. For Fish, the assumed growth rate was nil.
Discount rates
The discount rates reflect appropriate adjustments relating to
market risk and specific risk factors.
Cash flow assumptions
Management's key assumptions include profit margins, based on
past experience in this market. The Group's management believes
that this is the best available input for forecasting this mature
sector.
Apart from the considerations in determining the value-in-use of
the brand described above, management is not currently aware of any
other probable changes that would necessitate changes in its key
estimates. The values of the intangibles with indefinite useful
lives for Brand Architekts remains at GBP7,709,000 (comprising
Goodwill of GBP2,618,000 and Brands of GBP5,091,000), while the
Fish brand net carry value, after the partial, impairment is
GBP600,000. Goodwill acquired held in relation to Innovaderma was
GBP5,736,000 which is considered to have an indefinite useful
life.
Sensitivity analysis
If the discount rate were to increase by 2% a further impairment
of GBP140,000 would have been recognised in the year. If forecasts
growth rates decreased by 2% a further impairment of GBP76,000
would have been recognised in the year.
Note 8 Notes to Cash Flow Statement
GROUP
2022 2021
GBP'000 GBP'000
Decrease in cash and cash equivalents (9,181) (2,222)
Net cash outflow from decrease in borrowings 1,208 3,227
-------- --------
Change in net cash (7,973) 1,005
Opening net cash 19,018 18,013
-------- --------
Net cash acquired on business combinations 302 -
-------- --------
Closing net cash 11,347 19,018
-------- --------
Acquired in business combinations
(b) Analysis of net cash: Closing 2021 Cash Flow Closing 2022
GBP'000 GBP'000 GBP'000
Cash at bank and in hand 19,018 1,510 (9,181) 11,347
Borrowings due within one year - (1,208) 1,208 -
19,018 302 (7,973) 11,347
------------- ---------------------------------- ---------- -------------
(b) Analysis of net cash: Closing 2021 Cash Flow Closing 2022
GBP'000 GBP'000 GBP'000
Cash at bank and in hand 16,681 (6,879) 9,802
16,681 (6,879) 9,802
------------- ---------- -------------
Note 9 Acquisition of Innovaderma plc
On 31 May 2022, the Group acquired the entire issued share
capital of Innovaderma Plc, including its subsidiary undertakings.
The fair value of the consideration was GBP9.1m, satisfied by GBP2m
in cash and GBP7.1m in Brand Architekts shares (being the fair
value of the shares issued on the acquisition date). The fair value
of the assets acquired was GBP0.4m resulting in goodwill and other
intangible assets of GBP9.7m and deferred tax liability of GBP1m on
the other intangible assets. Goodwill arises on consolidation and
is not tax-deductible. Management carried out a review to assess
whether any other intangible assets were acquired as part of the
transaction. Management concluded that both a brand name (GBP1.6m)
and customer relationships (GBP2.3m) were acquired and attributed a
value to each of these by applying commonly accepted valuation
methodologies. No contingent liabilities were recognised on
acquisition.
Book Value Fair Value Fair Value
Adjustments
Net Assets acquired:
Investments 225 (225) -
Intangible assets and PPE 341 (175) 166
Trade and other receivables 1,868 - 1,868
Cash and cash equivalents 1,510 - 1,510
Inventory 1,786 (115) 1,671
Trade and other payables (4,587) (229) (4,816)
----------- ------------- -----------
1,143 (744) 399
Customer relationships - 2,329 2,329
Brand names - 1,608 1,608
Deferred tax liability adjustment - (984) (984)
----------- ------------- -----------
1,142 2,209 3,352
Goodwill 5,736
-----------
Total consideration 9,088
Satisfied by:
Cash 1,965
Brand Architekts shares 7,123
-----------
Total consideration 9,088
Fair value adjustments
The net book value of assets acquired were reduced by GBP0.7m by
fair adjustments made. As part of the acquisition, the directors
considered the value of the investment in the associate undertaking
of Ergon Medical Limited in line with the requirements of IAS36. As
a result, this investment was written down to zero. The directors
could not identify revenue streams being generated from certain
intangible assets acquired, as a result they were fair value
adjusted down by GBP0.2m. An additional inventory provision was
identified on acquisition, decreasing the value of the inventory by
GBP0.1m. Additional liabilities were also identified on acquisition
in relation to tax compliance matters in foreign jurisdictions and
other previously unrecognised payables to suppliers of GBP0.2m in
total.
Impact of acquisition
For the month that Innovaderma were part of the group it
generated revenue of GBP828,000, a loss from underlying operations
of GBP87,000, and a loss after tax of GBP428,000.
Had the acquisition been effective from 1 July 2021 the group
would have had increased revenue of GBP8,324,000, an increased loss
from underlying operations of GBP754,000 and an increased loss
after tax of GBP1,417,000.
Note 10 Contingent liabilities
The company is subject to a legal claim brought by its joint
venture counterparty/co-shareholder, in Mr. Haircare Ltd, alleging
breach of shareholders' agreement between the parties.
In the opinion of the directors, after taking appropriate legal
advice, the outcome of these legal claims is not expected to give
rise to any, or any significant, loss. The claim is likely to be
determined in early 2024, if it does not conclude earlier.
The directors consider that disclosure of further details of
these claims would seriously prejudice Group's position and
accordingly further information on the nature of the claim has not
been provided.
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END
FR FSIFWWEESEEF
(END) Dow Jones Newswires
November 08, 2022 02:00 ET (07:00 GMT)
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