TIDMW7L
RNS Number : 4456X
Warpaint London PLC
26 April 2023
26 April 2023
Warpaint London PLC
("Warpaint", the "Company" or the "Group")
Results for the year ended 31 December 2022
Record sales and significant profitability reflect strong full
year performance; positive start to 2023
Warpaint London plc (AIM: W7L), the specialist supplier of
colour cosmetics and owner of the W7 and Technic brands is pleased
to announce its audited results for the year ended 31 December
2022.
Financial Highlights
-- Strong growth in sales to reach a record level for the Group.
Significant profitability and cash generation during the year
reflecting the focus on growing sales of the Group's branded
products
-- In 2022 Group sales increased by 28% to GBP64.1 million (2021:
GBP50.0 million)
* UK revenue increased by 9% to GBP27.6 million (2021:
GBP25.3 million)
* International revenue increased by 48% to GBP36.5
million (2021: GBP24.7 million)
-- Gross profit margin increased to 36.4% (2021: 33.8%), despite
continued supply side price inflation
-- EBITDA increased 56% to GBP11.7 million (2021: GBP7.5 million)
-- Adjusted profit from operations of GBP10.3* million (2021:
7.0* million). Statutory profit from operations of GBP8.0
million (2021: GBP3.8 million)
-- Reported profit before tax of GBP7.7 million (2021: GBP3.7
million)
-- Adjusted earnings per share increased by 44% to 11.2p* (2021:
7.8p*)
-- Cash of GBP5.9 million at 31 December 2022 (31 December 2021:
GBP4.1 million), with no debt
-- Final dividend recommended of 4.5 pence per share (2021: 3.5
pence per share), bringing the total dividend for the year
to 7.1 pence per share (2021: 6.0 pence per share)
*Adjusted numbers are closer to the underlying cash flow
performance of the business which is regularly monitored and
measured by management, the adjustments made to the statutory
numbers are set out in the table below
Operational Highlights
-- European sales increased by 56% to GBP28.1 million (2021:
GBP18.0 million), making this the largest sales region for
the Group
-- Successful launch in Boots of 45 W7 products in an initial
80 stores
-- USA sales, in sterling terms, increased by 79% in 2022 to
GBP5.3 million (2021: GBP3.0 million) and grew by 55% in US
dollar terms
-- Direct online sales continue to accelerate, with an increase
of 106% in Group e-commerce sales in 2022 to account for 4.3%
of Group sales (2021: 2.7% of Group sales)
Post-Period End Highlights
* Continued strong trading in Q1 2023, with unaudited
Group sales for the three months to 31 March 2023 of
GBP18.5 million an increase of 40% on the same period
in 2022 (3 months to 31 March 2022: GBP13.2 million)
* Margins in Q1 were robust and better than those
achieved in the full year 2022
* Q1 2023 e-commerce sales of GBP0.83m, 188% ahead of
the same period in 2022 (Q1 2022 GBP0.29m)
* Record cash in bank of GBP8.6 million as at 31 March
2023 and no debt
* Continuing brand sales momentum being seen in 2023:
o In April 2023, a range of 158 Technic products will be launched
in an initial four Asda superstores on a trial basis with a view
to a wider inclusion in Asda's cosmetic range review in Q4 2023
o After an initial trial of W7 product in 20 New Look stores
in the UK, the Group is now rolling out W7 product to a further
200 New Look stores
o Significant further expansion in the US with H-E-B stores,
CVS BIRL stores, where initial sales have been ahead of expectations,
as well as launching in Sallys and Nordstrom Rack
Commenting, Clive Garston, Chairman, said: "I am very pleased
with Warpaint's strong performance in 2022, which reflects the
Group's consistent and focussed strategy. We have concentrated on
increasing our presence in larger retailers in all our major
markets, both through growing sales to existing customers and
entering into new relationships. This strategy of increasing sales
to larger customers and providing products that their customers
want is reflected in the Group's results and provides a strong
platform for the future. In addition, growing our online presence
is a prime objective of the Group.
"Trading has continued to be strong in the first quarter of
2023, with the Group enjoying record first quarter sales. I am
optimistic that the strong performance we have seen in 2022 and
into 2023 will continue and that we have the right offering and
strategy in place to continue to deliver profitable future growth,
despite the backdrop of macroeconomic uncertainty."
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 which is part of UK law
by virtue of the European Union (Withdrawal) Act 2018
Enquiries:
Warpaint London c/o IFC
Sam Bazini - Chief Executive Officer
Eoin Macleod - Managing Director
Neil Rodol - Chief Financial Officer
Shore Capital (Nominated Adviser & Broker)
Patrick Castle, Daniel Bush - Corporate Advisory
Fiona Conroy - Corporate Broking 020 7408 4090
IFC Advisory (Financial PR & IR)
Tim Metcalfe, Graham Herring, Florence Chandler 020 3934 6630
Warpaint London plc
Warpaint sells branded cosmetics under the lead brand names of
W7 and Technic. W7 is sold in the UK primarily to retailers and
internationally to local distributors or retail chains. The Technic
brand is sold in the UK and continental Europe with a significant
focus on the gifting market, principally for high street retailers
and supermarkets. In addition, Warpaint supplies own brand white
label cosmetics produced for several major high street retailers.
The Group also sells cosmetics using its other brand names of
Man'stuff, Body Collection and Chit Chat.
HEADLINE RESULTS FOR THE YEARED 31 DECEMBER 2022
Statutory Results Year ended 31 Dec Year ended 31 Dec
2022 2021
Revenue GBP64.1m GBP50.0m
------------------ ------------------
Profit from operations GBP8.0m GBP3.8m
------------------ ------------------
Profit margin from operations 12.4% 7.6%
------------------ ------------------
Profit before tax ("PBT") GBP7.7m GBP3.7m
------------------ ------------------
Earnings per share ("EPS") 8.1p 3.7p
------------------ ------------------
Cash and cash equivalents GBP5.9m GBP4.1m
------------------ ------------------
Adjusted Statutory Results Year ended 31 Dec Year ended 31 Dec
2022 2021
Revenue GBP64.1m GBP50.0m
------------------ ------------------
Adjusted profit from operations GBP10.3m* GBP7.0m*
------------------ ------------------
Adjusted profit margin from 16.1%* 13.9%*
operations
------------------ ------------------
Adjusted PBT GBP10.0m* GBP6.9m*
------------------ ------------------
Adjusted EPS 11.2p* 7.8p*
------------------ ------------------
Cash and cash equivalents GBP5.9m GBP4.1m
------------------ ------------------
Adjusted numbers are closer to the underlying cash flow
performance of the business which is regularly monitored and
measured by management, the adjustments made to the statutory
numbers are as follows:
2022 2021
Statutory profit from operations GBP7.97m GBP3.82m
---------------------- ---------------------
Exceptional items GBP0.15m GBP0.58m
---------------------- ---------------------
Amortisation GBP2.00m GBP2.39m
---------------------- ---------------------
Share based payments GBP0.19m GBP0.18m
---------------------- ---------------------
*Adjusted profit from operations GBP10.31m GBP6.97m
---------------------- ---------------------
*Adjusted profit margin from GBP10.31m / GBP64.06m GBP6.97m / GBP50.00m
operations = 16.09% = 13.94%
---------------------- ---------------------
Statutory PBT GBP7.69m GBP3.73m
---------------------- ---------------------
Exceptional items GBP0.15m GBP0.58m
---------------------- ---------------------
Amortisation GBP2.00m GBP2.39m
---------------------- ---------------------
Share based payments GBP0.19m GBP0.18m
---------------------- ---------------------
*Adjusted PBT GBP10.03m GBP6.88m
---------------------- ---------------------
Statutory profit attributable GBP6.25m GBP2.83m
to equity holders
---------------------- ---------------------
Exceptional items GBP0.15m GBP0.58m
---------------------- ---------------------
Amortisation GBP2.00m GBP2.39m
---------------------- ---------------------
Share based payments GBP0.19m GBP0.18m
---------------------- ---------------------
Adjusted profit attributable GBP8.59m GBP5.98m
to equity holders
---------------------- ---------------------
Weighted number of ordinary
shares 76,752,355 76,751,187
---------------------- ---------------------
*Adjusted EPS 11.19p 7.80p
---------------------- ---------------------
Exceptional items include GBPnil of staff restructuring and
voluntary redundancy costs (2021: GBP0.03 million), GBPnil of
non-recurring legal costs (2021: GBP0.18 million), and GBP0.15
million for content use and associated legal fees (2021: GBP0.37
million).
CHAIRMAN'S STATEMENT
Warpaint's business strategy and model has enabled it to
withstand the difficult business environment driven by rampant
inflation, the war in Ukraine and the aftermath of the Covid
epidemic to deliver a very good performance in 2022 and to be in a
position to grow further in all its markets. This is due to the
dedication of all the Warpaint team and I would like to thank them
very much for their energy, flexibility and exceptional efforts.
Relationships with our major customers and suppliers continue to be
very strong.
During the year we continued our strategy of focusing on
increasing our presence in larger retailers globally, through
growing sales through our existing relationships and entering into
new ones, together with growing our online presence. This focus on
larger customers and doing more business with them is reflected in
the Group's results and provides a strong platform for the
future.
Trading has continued to be strong in the first quarter of 2023,
with the Group enjoying record quarterly sales. We expect demand to
remain buoyant and for sales to continue to grow, despite the
macroeconomic headwinds.
Results
2022 was a year of significant achievement for the Group, with
record sales and profits being delivered.
Adjusted profit from operations was GBP10.3 million (2021:
GBP7.0 million) on revenue of GBP64.1 million (2021: GBP50.0
million) with basic earnings per share of 7.9p (2021: 3.7p) and
adjusted earnings per share of 11.0p (2021: 7.8p). Adjusted numbers
exclude exceptional costs (staff restructuring and voluntary
redundancy costs, certain non-recurring legal costs, stock
relocation costs and a provision for content use and associated
legal fees), amortisation in relation to acquisitions and share
based payments.
Whilst continuing to focus on quick stock turnover, the Group
ensured inventory levels were appropriate at the year end to
service the anticipated demand in the first quarter of 2023, with
inventory at 31 December 2022 increasing to GBP18.7 million (31
December 2022 GBP18.1 million). The balance sheet remains strong,
with cash at 31 December 2022 of GBP5.9 million (31 December 2021:
GBP4.1 million), and the Group remains debt free.
Dividend
In accordance with the Group's policy to continue to pay
appropriate dividends, the board is pleased to recommend an
increased final dividend of 4.5 pence per share which, if approved
by shareholders at the AGM, will be paid on 4 July 2023 to
shareholders on the register at 16 June 2023. The shares will go
ex-dividend on 15 June 2023.
Board
John Collier, an independent non-executive director of the
Company, left the board on 31 December 2022 to focus on his other
business interests. I would like to thank John for his contribution
to Warpaint and we wish him well in his future endeavours. It is
the board's intention to appoint an additional non-executive
director in the second half of 2023.
Annual General Meeting
The Company's annual general meeting will be held at the
Company's offices at Units B&C, Orbital Forty Six, The Ridgeway
Trading Estate, Iver, Bucks, SL0 9HW on 28 June 2023 at 10 a.m. and
we will be delighted to welcome those shareholders who are able to
attend in person.
Summary and Outlook
I am very pleased with the Group's strong performance in 2022
and that this has continued in the first quarter of 2023, with the
Group enjoying record quarterly sales. This reflects Warpaint's
consistent and focused strategy of increasing our presence in large
retailers globally, both by growing sales through our existing
relationships and entering into new ones, together with increasing
our online presence. This focus on larger customers, doing more
business with them and providing what their customers demand is
reflected in the Group's results and provides a strong platform for
the future. We also continue to develop relationships with other
large retailers, particularly in the UK, Europe and the US, where
they are seeing demand from their customers for quality, on trend,
but more value orientated brands, such as those produced by the
Group.
Notwithstanding the current situation in the Ukraine and current
levels of inflation I am optimistic that the strong performance we
have seen in 2022 and into 2023 will continue and that we have the
right offering and strategy in place to continue to deliver
profitable future growth, despite the macroeconomic headwinds.
Clive Garston
Chairman
25 April 2023
CHIEF EXECUTIVE'S STATEMENT
The Group achieved a record level of sales in 2022, reflecting
the success of the Group's strategy of focusing on growing sales of
its branded products. This was achieved at an improved gross
margin, despite a number of continuing operational challenges being
faced, particularly with regard to supply side price inflation.
In 2022, Group sales increased by 28% in 2022 to GBP64.1
million, reaching a record level for the Group. These sales were
achieved at an increased gross margin of 36.4% (2021: 33.8%)
despite continued cost pressures and resulted in a reported profit
before tax of GBP7.7 million (2021: GBP3.7 million). Gross margin
is being maintained in Q1 2023 despite the current economic
challenges.
Our strategy of producing a wide range of high-quality cosmetics
at an affordable price remains our key focus, growing sales through
our existing customers' outlets and winning new customers with
significant sales footprints, both in the UK and internationally,
together with continuing to grow our online sales. The global
cosmetics market is increasingly seeing customers transferring to
more value orientated brands, such as those produced by the Group,
and I believe we are very well placed with our high-quality focused
offering to capture further market share.
Following the rationalisation of our brand portfolio in 2020 the
Group has concentrated on its core W7, Technic, Body Collection,
Man'stuff and Chit Chat brands during the year. In 2022, sales of
the Group's branded products accounted for 90% of revenue (2021:
89%).
Warpaint has continued to reduce the focus on its close-out
business, although profitable close-out opportunities continue to
be taken where appropriate. In 2022 close-out sales accounted for
GBP3.8 million (2021: GBP4.5 million), 6% of Group sales. The
remainder of the Group's sales of GBP2.6 million (2021: GBP1.1
million) are white label products for major high street
retailers.
W7
The Group's lead brand remains W7, with sales in 2022 accounting
for 55% of total Group revenue (2021: 52%). Overall W7 sales
increased by 35% in 2022 to GBP35.0 million compared to GBP25.9
million in 2021.
In the UK, W7 revenues were up 7% in 2022 compared to 2021,
representing 37% of W7 sales in the year, down from 46% in 2021, as
stronger sales growth was experienced in regions outside of the UK
and higher than normal levels of inventory were held by certain UK
retailers at the start of the year. W7 revenues in the UK grew by
increased sales into Tesco, together with a growth in sales from
the Group's other larger customers in the UK. W7 sales in the UK
also received a further boost with Boots starting to stock a range
of approximately 45 W7 products in an initial 80 stores from
February 2022. Sales to date from Boots have been encouraging and
we anticipate an increased presence with Boots in due course.
The strongest growth in 2022 was seen in continental Europe,
with sales increasing by 77% compared to 2021, and continental
Europe became the largest sales region for W7 branded products in
the year, accounting for 45% of W7 sales. The Group has benefited
from its post Brexit fulfilment strategy, enabling products to
enter the EU without issues, and the growth in both the range of
European customers served and the expansion in the number of
outlets for certain larger customers.
In the US, W7 sales doubled in 2022 compared to 2021, and
accounted for 13% of overall W7 sales, with the Group benefiting
from the increased number of customers and outlets in the US.
In the rest of the world, W7 sales declined marginally, largely
reflective of the timing of certain large orders.
We believe that W7 has a compelling brand proposition and will
continue to benefit from consumers wanting a high quality, on
trend, but excellent value-for-money product.
Technic
Since the Company's acquisition of Retra Holdings Limited
("Retra") and its Technic, Body Collection and Man'stuff brands in
November 2017, the focus has been on growing the sales of all
year-round cosmetics in addition to continuing to grow its strong
and established gifting proposition. It was pleasing to see sales
of Technic and the other Retra brands, including Body Collection,
grow by 23% in 2022. As a result of the ongoing successful
execution of this strategy, t he proportion of gifting sales for
Retra reduced to 34% in 2022, from 37% in 2021 and 47% in 2020,
with single products sold under the Technic brands accounting for
66% of sales in 2022.
Sales of branded Technic product in 2022 was 36% of total Group
revenue (2021: 37%). Overall Technic brand sales grew by 23% in
2022 to GBP22.7 million compared to GBP18.5 million in 2021.
In 2022, UK revenues were 46% of Technic's total sales and they
increased by 24% over the year, aided by sales of Technic and Body
Collection branded products to the retailer, Bodycare. In April
2023, a range of 158 Technic products will be launched in an
initial four Asda superstores on a trial basis with a view to a
wider inclusion in Asda's cosmetic range review in Q4 2023.
As with W7, sales of the Technic brands grew strongly in
continental Europe during the year and accounted for 48% of
Technic's sales in 2022, an increase of 34% compared to 2021,
making continental Europe the largest sales region for the Technic
brands.
Sales for the Technic brands outside of the UK and Europe
accounted for 6% of Technic sales (2021: 6%). In the USA, sales
increased by 58% compared to 2021, and in the rest of the world
sales increased by 18% compared to 2021, albeit the sales were
small in these regions in the context of the Group as a whole being
under 3% of total Group revenues.
Building on the successful sales of W7 branded product through
Amazon, a Technic brand store was launched on Amazon in the UK in
January 2023 and a number of key Technic lines will be launched on
Amazon in the US in Q2 2023 and in continental Europe later in
2023.
The Technic business also produces and sells own brand white
label cosmetics for several major high street retailers, with such
sales more than doubling to be 4% of Group revenue (2021: 2%).
Despite the growth in white label sales in 2022, we continue to
assess private label opportunities on a case by case basis, based
on the return they can deliver.
Close-out
Close-out sales continue not to be a core focus for the Group,
although advantage is taken of profitable close-out opportunities
as they become available. The close-out division reduced as a
proportion of Group sales in 2022, compared to 2021, representing
6% of the overall revenue of the Group (2021: 9%). Whilst not a
core focus, this side of the business continues to provide a
significant and profitable source of intelligence in the colour
cosmetics market and access to new market trends.
e-Commerce
During 2022 we continued to focus on driving online sales. In
addition to growing sales through the W7 and Technic brands' own
bespoke e-commerce sites, the Group has continued to focus on
growing sales of our brands in the UK and the US on Amazon, and in
China through official W7 brand stores owned by the Group on Taobao
Mall (Tmall), the most visited B2C online retail platform in China
and Xiaohongshu (Red), one of China's foremost social media,
fashion and luxury shopping platforms. Additionally, W7 product was
launched on Amazon EU in Germany, Italy and Spain in 2022.
Direct online sales as a proportion of the Group's overall sales
increased to 4.3% in 2022 (2021: 2.7%), having grown from GBP0.5
million in 2020 to GBP1.3 million in 2021, to over GBP2.8 million
in 2022, an increase of 115% from 2021 to 2022.
Online sales have grown further in the current financial year,
up 188% in Q1 2023 compared to the same period in 2022, and the
focus remains on ensuring a similar margin to the Group's sales
through traditional physical outlets.
In 2023 the Group will launch online sales in Japan through
Amazon, a similar model to that successfully deployed in the US,
together with launches of the Technic brands on Amazon in the UK,
US and continental Europe.
New Product Development
New product development continues to be core to the Group's
proposition to provide new products that are on trend, fast to
market and that meet the consumer's quickly changing needs.
During 2022 our New Product Development Team continued to
develop a strong pipeline of new products, focused on the demands
of our customers. Our new product development strategy continues to
utilise a variety of manufacturing partners, predominantly in China
and Europe, that provide high quality products quickly, at very
competitive prices, and meet our legal and ethical compliance
requirements, together with ensuring continuity of delivery. This
process is supported by the Group's Hong Kong based subsidiary
sourcing office and its China subsidiary (Jinhua Badgequo Cosmetics
Trading Company Ltd), with local employees able to explore new
factories and oversee quality control and ethical sourcing.
The Group's cosmetic products are "cruelty free" and are not
tested on animals irrespective of where the products are being
supplied. We support cruelty free alternatives to animal testing to
become compulsory and animal testing overall to be ceased globally.
We will now be proudly displaying the PETA company logo on our
products for all new products and as packaging is updated. Our
commitment to the PETA "Beauty without Bunnies program" is Group
wide and covers all brands within the Group.
The Group is very focused on the environmental impact of its
products and the Group is committed to becoming an industry leader
for sustainable products and packaging. All unrecyclable plastics
have now been removed from the outer packaging of our gifting, and
we are progressing well with our journey of removing unrecyclable
plastics from our all year-round products. The Group's product
packaging therefore uses paper and cardboard wherever practicable,
which enables the Group, the wholesaler and end user to recycle the
waste effectively.
All new W7 brand products are being manufactured without
parabens and the Company is reformulating existing products where
feasible. No heavy metals such as TBTO (preservative) and other
ingredients of concern are added to our products and all raw
materials comply with the strict regulations applicable in the EU,
USA, Canada and other markets in which we operate.
Marketing and PR
We continue to ensure our marketing programmes are both fresh
and innovative, focused on both customer loyalty and showcasing our
products to new potential consumers, with a particular emphasis on
social media using brand ambassadors, influencers and make-up
artists. Our online loyalty programme, initiated in 2020, continues
to help retain customers and increase basket size.
Strategy
On an annual basis the board reviews and appropriately adapts
its three-year strategic plan for the business based on market
data, experience and the Group's aims. This is targeted by year,
measured monitored and reviewed as part of the board's on-going
business throughout the year. The strategic plan has been updated
for 2023, forming the basis of the Group's development through to
2025. The plan is designed to drive shareholder value and has
defined targets for sales, EBITDA, earnings per share and cash
generation with a particular emphasis on driving incremental EBITDA
growth.
The strategic plan comprises six key pillars:
-- Develop and build the Group's brands and provide new product
development that meets changing trend and consumer needs
The Group ensures that everybody within the business has crystal
clarity of the positioning of the Group's portfolio of brands; that
there is a clear brand hierarchy; non-core brands and products have
been eliminated; that close-out continues to reduce as a proportion
of sales; and the Group delivers quality new product development,
category extensions where appropriate to the brand and gifting sets
that are on-trend and meets the consumers changing needs.
-- Develop and nurture the current core business
A major objective of the Group is to continue to develop and
grow the presence of the Warpaint brands beyond their existing
customer base. There is still, however, significant potential to be
realised and further distribution gains in the current customer
base and the Group is committed to ensuring this potential is
maximised. The Group is focused on ensuring there is a clarity of
product offering to each customer segment and to supporting its
customers with relevant new products; by using appropriate
marketing and innovative merchandising solution to draw consumers
into customer stores; and by enhancing the customer offer by cross
selling the Group's brands and category extensions for example
accessories, body mists, gifting and skin care where
appropriate.
-- Grow market share in the UK
The business continues to focus on increasing the presence of
the Group's brands in channels that our consumers shop in, to
increase accessibility and drive profitable market share growth. As
a result of this strategy, the Group has successfully launched the
W7 brand into Tesco, where distribution gains across all store
formats continue to be driven, into Boots, and the Technic and Body
Collection brands into wilko. It continues to have active
discussions with other major retailers who are currently in
channels that the Group is yet to materially supply to and
expanding the UK customer base is a key focus of management. For
example a trail successfully activated in 20 New Look stores in the
fashion retail sector in Autumn 2022, will be rolled out to a
further 200 New Look stores in mid 2023. This is a particular focus
as the business continues to capitalise on consumers and retailers
across all sectors alike who are increasingly looking to provide
quality products to their customers at affordable prices.
-- Grow market share in the USA and China
The USA and China continue to provide a major growth opportunity
for the Group. In the USA, the Group has established distributor
and agency channels and is using employees to directly sell to
retailers. A compelling core product range for the USA has been
established with minimum margin requirements. The business is
focused on targeted customer initiatives that have gained both
gifting and all year around listings with major retailers across
key channels. In China the Group conducts business locally through
its Chinese subsidiary company. We are also continuing to register
products for sale in China in order to grow our total offering and
increase sales. This has led to the development of relationships
with distributors in the region who have the capability to drive
sales of the W7 brand via a W7 storefront on on-line
marketplaces.
-- Develop the online/e-commerce strategy for brand development and profitable sales
The Group aims to grow and maximise profitable sales across the
Group's on-line sales channels. As well as continuing to sell on
the businesses' own websites and developing its own consumer
community, plans continue to be executed to develop sales across
Amazon platforms. W7 stores have been launched in the UK, USA and
key European markets on Amazon and are fulfilled by Amazon. Further
on-line sales platforms and geographies continue to be evaluated
and, where profitable opportunities are identified, launched over
the course of the three year plan. The first of these is planned to
be Japan in 2023. The Group continues to develop and build its
brands by utilising brand ambassadors, influencers and make-up
artists to engage actively with its target audience. The Group
wants to ensure that consumers are adequately inspired and educated
on how the Group's products can be used to experiment and achieve
different looks. Developing the social media strategy also directly
impacts the Group's online sales strategy.
-- Develop and implement appropriate strategies that ensure
Warpaint reduces its impact on the environment
The Group recognises consumers', customers' and our own
requirement to reduce our environmental impact. The business has
already identified and implemented a number of initiatives to
reduce our environmental footprint via reduced shipping and road
mileage; removing plastics where possible from packaging and
improving recyclability; removing parabens from ingredients; and
ensuring all products are manufactured cruelty free. Further
initiatives have been identified and targeted with the aim of being
implemented across the course of the three year plan. Further
information is contained within the ESG section of this report.
Brands
In 2020 we undertook a review of all our brands, and since then
the Group has concentrated on its core W7, Technic, Body
Collection, Man'stuff and Chit Chat brands, being those with the
most compelling market position.
Customers & Geographies
The largest markets for sales of our Group brands are in the UK
and continental Europe. In 2022 our top ten customers represented
60% of revenues (2021: 57%). Group sales are made in 43 countries
(2021: 43).
UK
The UK accounted for 43% Group sales in 2022 (2021: 51%), with
UK sales increasing by 9% to GBP27.6 million (2021: GBP25.3
million). Sales growth in the UK was seen by both our lead brand
W7, which increased by 7%, and the Technic brands, which increased
by 24%. UK sales in Q1 2023 are 23% ahead of the same period in
2022.
The top ten UK Group customers accounted for 74% of UK sales in
2022 (2021: 71%). Particularly strong growth was seen during the
year with Asda and Bodycare. Additionally, after an initial trial
of W7 product in 20 New Look stores, the Group is now rolling out
W7 product to a further 200 New Look stores during 2023. We are
also in continued talks with Tesco to increase the W7 offering in
their stores and anticipate further expansion across their estate
this year.
Europe
In 2022 Group sales in Europe increased by 56% to GBP28.1
million, compared to GBP18.0 million in the same period in 2021,
making this the largest sales region for the Group, accounting for
46% of Group branded sales in 2022, and 44% of overall Group sales
in 2022 (2021: 36%). Sales for the Group's brands into Europe are
mainly to Denmark, Spain, France and Sweden and during the year
strong growth was seen particularly through increased sales to
certain existing European customers as the number of these
customers stores served by the Group was expanded. Group sales in
Europe in Q1 2023 continued to accelerate and were 41% ahead of the
same period in 2022.
USA
USA sales, in sterling terms, increased by 79% in 2022 to GBP5.3
million (2021: GBP3.0 million) and grew by 55% in US dollar terms.
This equated to 8% of overall 2022 Group sales (2021: 6%). In the
US 97% of sales in 2022 (2021 89%) were from the sale of the
Group's brands as minimal close-out activity was undertaken, in
line with the Group's strategy to focus on its own brands.
A good performance was seen from the Group's major customers in
the USA, including CVS, Five Below, Macys Backstage, Marshalls, and
TJ Maxx. Six significant new accounts were added in the US in 2022
, including with CVS, where a large Christmas 2022 order was
delivered, and with H-E-B stores, a Texas based supermarket group,
where an extensive range of nail polish was launched in 280 of
their stores in the last quarter of the year. From July 2023 it is
expected that a full range of 120 W7 colour cosmetics products will
be stocked in 80 of the H-E-B stores.
A further agreement was reached to launch a range of 60 W7
cosmetic products in 190 CVS BIRL stores, from January 2023, and
initial sales have been ahead of expectations. Additional orders
have also been received from Nordstrom Rack and Sallys in the US,
where a significant order has been received for delivery in July
2023. US sales in Q1 2023 are 61% ahead of the same period in
2022.
Rest of the World
Sales in the rest of the world decreased by 16% from GBP3.7
million in 2021 to GBP3.1 million in 2022 accounting for 5% of
overall Group sales (2021: 7%). The reduction in sales was
primarily as a result of the timing of sales orders in Australia,
which is a key country for Warpaint in the rest of the world
region. The focus in the rest of the world region continues to be
on Australia, China and other countries where profitable sales in
appropriate volumes can be made.
The Group has no suppliers in either Russia or Ukraine, and no
significant historic sales to either country.
People - Cost of Living Bonus
The board recognises that we are living in difficult times, with
inflationary pressures causing significant increases in the cost of
living. To provide some assistance with these increased living
costs and to acknowledge the exceptional efforts in a record period
for the Group, all of the Group's 122 employees (which excludes the
board members) were awarded a payment of GBP1,000 over and above
their normal remuneration in October 2022.
Summary and Outlook
I am delighted with the Group's performance in 2022. We have
enjoyed strong growth in sales and that these sales have been
achieved at a significantly improved gross margin, despite supply
side inflationary pressures, is a significant achievement. To date
the Group has been largely able to mitigate supply side inflation
with a price rise implemented in January 2022, sourcing product
from new factories, and new product development, all of which are
ongoing. In 2023, together with significantly reduced transport
costs, we remain confident that margins can be maintained.
Whilst we continue to experience good growth in the UK, I am
particularly pleased with the growth we are seeing in continental
Europe and the US. We have put in place a robust supply chain and
distribution network to ensure that we are able to supply our
retailer's outlets on time with the product that their customers
are demanding. The Group is also in active discussions with new
major retailers globally and with certain existing customers
regarding expansion of the range of the Group's products
stocked.
Online sales also continue to grow and the focus remains on
ensuring they can deliver a similar margin to the Group's sales
through traditional physical outlets. In 2023, the Group will
launch online sales in Japan through Amazon, a similar model to
that successfully deployed in the US.
Trading in 2023 has started strongly with a record first
quarter. Sales for the first three months of 2023 are approximately
40% ahead of the same period in 2022, with sales increases seen
across all of the Group's brands, both in stores and online, and at
an improved gross margin to that achieved in the full year
2022.
We will update further on our progress later in the year and
with significant opportunities for further growth, both already
secured with our existing retailers and in discussion with
additional major retailers globally , I am confident that the Group
will continue to perform well for the remainder of the year and
beyond.
Sam Bazini
Chief Executive Officer
25 April 2023
CHIEF FINANCIAL OFFICER'S REVIEW
2022 was a record year for the Group, with strong growth in
sales, margins and profit before tax. Group revenue increased in
the year by 28% and adjusted profit before tax increased by 46%.
Gross margin improved in the year by 2.6% to 36.4%. This is the
second year running that gross margin has improved despite some
increased costs in the supply chain. The Group continues its
strategy of building the W7 and Technic brands in the UK and
internationally, and we remain focused on margin, being debt free,
and generating cash.
The Group monitors its performance using a number of key
performance indicators which are agreed and monitored by the board.
Headline results, shown below, represent the performance
comparisons between the consolidated statements of income for the
years ended 31 December 2021 and 31 December 2022.
Revenue
Group revenue for the year increased by 28.1% from GBP50.0
million in 2021 to GBP64.1 million in 2022.
Company branded sales were GBP57.7 million in 2022 (2021:
GBP44.4 million). Our W7 brand had sales in the year of GBP35.0
million (2021: GBP25.9 million). Our Technic brand contributed
sales of GBP22.7 million (2021: GBP18.5 million).
Our Retra subsidiary business had sales of retailer own brand
white label cosmetics of GBP2.6 million in the year (2021: GBP1.1
million). The white label business is traditionally cost
competitive and Retra chooses which projects to undertake based on
commercial viability, in particular margin.
The close-out business revenue reduced by 15.8% from GBP4.5
million in 2021 to GBP3.8 million in 2022 as the Group, in line
with its strategy, continued to reduce its focus on close-out
opportunities.
In the UK sales increased by 8.8% to GBP27.6 million (2021:
GBP25.3 million). Internationally, revenue increased 47.8% from
GBP24.7 million in 2021, to GBP36.5 million 2022. In Europe Group
sales increased by 55.6% to GBP28.1 million (2021: GBP18.0
million). In the rest of the world Group sales decreased by 16.0%
to GBP3.1 million (2021: GBP3.7 million). In the US Group sales
increased by 78.8% to GBP5.3 million (2021: GBP3.0 million).
E-commerce sales continued to grow in the year and now represent
4.3% / GBP2.8 million of group revenue (2021: 2.7% / GBP1.3
million).
Product Gross Margin
Gross margin was 36.4% for the year compared to 33.8% in 2021.
Our management teams across the Group were swift to recognise and
navigate cost headwinds that started in 2021. New product
development, sourcing product from new factories , and an
inflationary price increase to customers at the start of the year,
have all helped achieve a significant gross margin improvement in
2022.
The cost of freight from the Far East is a significant cost of
goods throughout the Group. Container freight rates which increased
dramatically in 2021, started to slowly fall in 2022 by on average
20%. As we end Q1 2023 freight rates have fallen from record highs
in 2021 to now record lows in 2023, which are currently 80% lower
year on year and, if maintained, will help to improve our gross
margin in the current year.
We remain focused on improving gross margin where possible in
all our businesses and are making good use of our Hong Kong buying
office to ensure this happens. To counter currency pressure, we
continue to move production to new factories of equal quality to
retain or improve margin and have a natural hedge from our US
dollar revenue which is growing.
At 31 December 2021 options were in place for the purchase of
US$27 million at US$1.3849/GBP; this has helped to protect our
margin in the turbulent foreign exchange markets. Towards the end
of 2022 we purchased various options to help protect our gross
margin in 2023, these included traditional forward purchase foreign
exchange options for US$3 million at US$1.2146, and more complex
forward purchase foreign exchange options which will deliver a
minimum of $18 million to a maximum of $36 million at an average
rate for 2023 of $1.1984/GBP. Since the start of this year we have
purchased more forward options to help protect our gross margin in
2023.
The currency options we have for the current year, the falling
container rates, new product development, sourcing, and growing
sales in the USA, will all help to protect our margin in 2023.
Operating Expenses
Total operating expenses before exceptional items, amortisation
costs, depreciation, foreign exchange movements and share based
payments, grew more slowly than sales, increasing by 24.1% to
GBP11.4 million in the year (2021: GBP9.2 million). Operating costs
as a percentage of sales reduced from 18.4% to 17.8%.
The overall increase of GBP2.2 million in the year was necessary
to support the growth of the business.
Increased costs amounted to GBP2.3 million and were made up of
increases in wages and salaries, office costs, travel costs, the
spend on PR and marketing as e-commerce sales continue to grow,
professional fees and the cost of a larger sales team based in the
US.
Included in the increase to wages and salaries is a one off cost
of living crisis payment of GBP0.1 million to all of the Groups
employees excluding board members.
The increase in office costs includes an extra GBP0.06 million
of utility charges. At current rates utility costs are expected to
increase in 2023 by a further GBP0.08 million.
There was a decrease in the charge for bad debts of GBP0.1
million.
Warpaint remains a business with most operating expenses
relatively fixed and evenly spread across the whole year. We
continue to monitor and examine significant costs to ensure they
are controlled and strive to reduce them. In addition, the
increased scale of the business has given the Group increased
buying power.
Adjusted EBITDA
The board considers Adjusted EBITDA (adjusted for foreign
exchange movements, share based payments and exceptional items) a
key measure of the performance of the Group and one that is more
closely aligned to the success of the business. Adjusted EBITDA for
the year was GBP11.9 million (2021: GBP7.7 million).
Profit Before Tax
Group profit before tax for the year was GBP7.7 million (2021:
GBP3.7 million). The material changes in profitability between 2022
and 2021 were:
Effect on
Profit
Sales volume growth GBP4.7 million
-----------------
Margin growth GBP1.7 million
-----------------
Increase in operating expenses (GBP2.2) million
-----------------
FX gain in 2022 GBP0.1 million (2021: Gain (GBP0.5) million
GBP0.6 million)
-----------------
Increase in finance costs (GBP0.2) million
-----------------
Increase in depreciation and amortisation (GBP0.3) million
of right-of-use assets
-----------------
Decrease in the charge for amortisation costs GBP0.4 million
on acquisition*
-----------------
Decrease in exceptional costs GBP0.4 million
-----------------
*Acquisition costs are amortised over 5 years. The reduction in
2022 reflects the end of the write off period since the purchase of
Retra in November 2017.
Exceptional Items
Exceptional items include GBPnil of staff restructuring and
voluntary redundancy costs (2021: GBP0.03 million), GBPnil of
non-recurring legal costs (2021: GBP0.18 million), and GBP0.15
million for content use and associated legal fees (2021: GBP0.37
million).
During the year the Group agreed a settlement regarding a
dispute with a third party relating to the historic use of content
on the Group's social media platforms in the period from 2018
through to early 2021. The total settlement including associated
legal costs was GBP0.52 million, of which GBP0.37 million was
provided for in the year to 31 December 2021. The payment and the
restriction of content use will not affect the ongoing operations
of the Group's businesses.
Tax
The tax rate for the Group for 2022 was 19% compared to the UK
corporation tax standard rate of 19% for the year. Since the
acquisition of LMS, the Group is exposed to tax in the USA at an
effective rate of approximately 25% and in other jurisdictions the
Group operates cost centres, but these are not materially exposed
to changes in tax rates.
Earnings Per Share
The statutory basic and diluted earnings per share was 8.14p and
8.11p respectively in 2022 (2021: 3.69p and 3.68p).
The adjusted basic and diluted earnings per share before
exceptional items, amortisation costs and share based payments was
11.19p and 11.15p respectively in 2022 (2021: 7.80p and 7.79p).
Dividends
The board is recommending a final dividend for 2022 of 4.5 pence
per share, making a total dividend for the year of 7.1 pence per
share of which 2.6 pence per share was paid on 25 November 2022
(2021: total dividend of 6.0 pence per share, of which the interim
dividend was 2.5 pence per share and the final dividend was 3.5
pence per share). The dividend for the year was covered 1.6 times
by adjusted earnings per share.
Cash Flow and Cash Position
Net cash flow generated from operating activities was GBP8.4
million (2021: GBP5.1 million). The Group's cash balance increased
by GBP1.8 million to GBP5.9 million in 2022 (2021: GBP4.1 million).
The cash generated was principally used to make dividend payments
in the year.
We expect capital expenditure requirements of the Group to
remain low, however as part of our strategy to grow market share in
the UK and US there will be occasions where investment in store
furniture is required to secure that business.
In 2022 GBP0.29 million was spent on store furniture for Tesco,
Boots and wilko (2021: GBP0.49 million), GBP0.42 million was spent
on warehouse improvements, new forklifts and racking (2021: GBP0.04
million), GBP0.09 million was spent on new computer software and
equipment (2021: GBP0.02 million), and GBP0.03 million was spent on
other general office fixtures and fittings and plant upgrades
(2021: GBP0.04 million).
Given the growth of the Group in the last two years it is
necessary and prudent to have bank facilities available to it to
help fund day to day working capital requirements as the Group
continues to grow. Accordingly the Group maintains a GBP9.5 million
invoice and stock finance facility which is used to help fund
imports in our gifting business during the peak season. At the year
end no invoice and stock finance remained outstanding (2021: GBPnil
million). In addition, in February 2023 the Group added a new
"general purpose" facility of GBP3 million. These facilities,
together with the Groups positive cash generation and the growing
cash balance held, ensure that future growth can be funded.
LTIP, EMI & CSOP Share Options
On 17 October 2022 CSOP share options were granted over a total
of 20,000 ordinary shares of 25p each in the Company under the
Warpaint London plc Company Share Option Plan. The options provide
the right to acquire 20,000 ordinary shares at an exercise price of
132.5p per ordinary share.
On 2 March 2022 EMI (non-qualifying) share options were granted
over a total of 200,000 ordinary shares of 25p each in the Company
under the Warpaint London plc Enterprise Management Incentive
Scheme. The options provide the right to acquire 200,000 ordinary
shares at an exercise price of 127.5p per ordinary share.
The LTIP, EMI & CSOP share options had an immaterial
dilutive impact on earnings per share in the period. The
share-based payment charge of the LTIP, EMI and CSOP share options
for the year was GBP0.19 million (2021: GBP0.18 million) and has
been taken to the share option reserve.
Balance Sheet
Inventory was GBP0.6 million higher at the year end at GBP18.7
million (2021: GBP18.1 million). The rise in inventory is a
function of growth in the business and to ensure delivery
disruption is avoided for our customers. One of the Group's unique
selling propositions is that it can deliver a full range of colour
cosmetics to our customers, in good time all year round. Having
appropriate inventory levels is vital to providing that service.
The provision for old and slow inventory was GBP0.37 million, 1.9%
at the year end (2021: GBP0.52 million, 2.8%). Across the Group we
have worked hard in the year to sell through older stock lines,
allowing for our provision for old and slow inventory to fall 0.9%
in percentage terms. Our Group policy is to provide for 50% of the
cost of perishable items that are over two years old. However, we
remain comforted by the fact that many such items in the normal
course of business are eventually sold through our close-out
division without a loss to the Group.
Trade receivables are monitored by management to ensure
collection is made to terms, to reduce the risk of bad debt and to
control debtor days, which have improved on the prior year. At the
year end trade receivables, excluding other receivables, were
GBP9.9 million (2021: GBP8.8 million), the increase on 2021 due to
the rise in sales year on year. T he provision for bad and doubtful
debts carried forward at the year end was GBP0.07 million, 0.7% of
gross trade receivables (2021: GBP0.07 million, 0.8%).
The Group has no borrowings or lease liabilities outstanding at
the year end (2021: GBPnil), apart from those associated with
right-of-use assets as directed by IFRS 16 (see below). The Group
was therefore debt free at the year end.
Working capital increased by GBP4.1 million in the year, to
GBP30.3 million. The main components were an increase in inventory
of GBP0.6 million, an increase in trade and other receivables of
GBP1.4 million, an increase in cash at the year end of GBP1.8
million, and a decrease in trade and other payables of GBP0.3
million.
Free cash flow (cash from operating activities less capital
expenditure) remained strong at GBP7.6 million (2021: GBP4.5
million).
The Group's balance sheet remains in a very healthy position.
Net assets totalled GBP37.8 million at 31 December 2022 , an
increase of GBP1.7 million from 2021. Most of the balance sheet is
made up of liquid assets of inventory, trade receivables and cash.
Included in the balance sheet is GBP7.3 million of goodwill (2021:
GBP7.3 million) and GBP0.3 million of intangible fixed assets
(2021: GBP2.3 million) arising from acquisition accounting. As at
the year end cash totalled GBP5.9 million (31 December 2021: GBP4.1
million).
Goodwill represents the excess of consideration over the fair
value of the Group's share of the net identifiable assets of the
acquired business / cash generating units at the date of
acquisition. The carrying value at 31 December 2022 of GBP7.3
million included Treasured Scents Limited (Close-out business)
GBP0.5 million, Retra Holdings Limited GBP6.2 million and Marvin
Leeds Marketing Services, Inc. GBP0.6 million. Management have
performed the required annual impairment review at 31 December 2022
and have concluded that no impairment is indicated for Treasured
Scents Limited, Retra Holdings Limited or Marvin Leeds Marketing
Services, Inc. as the recoverable amount exceeds the carrying
value.
The balance sheet also includes GBP5.7 million of right-of-use
assets, this is the inclusion of the Group leasehold properties,
now recognised as right-of-use assets as directed by IFRS 16. An
equivalent lease liability is included of GBP5.9 million at the
balance sheet date.
Foreign Exchange
The Group imports most of its finished goods from China paid for
in US dollars, which are purchased throughout the year at spot as
needed, or by taking forward purchase foreign exchange options when
rates are deemed favourable, and with consideration for the budget
rate set by the board for the year. Similarly, foreign exchange
options are taken to sell forward our expected Euro income in the
year to ensure our sales margin is protected.
We started 2022 with options in place for the purchase of US$27
million at US$1.3849, and the sale of EUR3.9 million at EUR1.1558.
During 2022 when currency rates were favourable, we purchased
additional US dollar foreign exchange options and spot rate amounts
to cover our total US dollar requirement for the year.
In addition, t owards the end of 2022 we purchased various
options to help protect our gross margin in 2023, these included
traditional forward purchase foreign exchange options for US$3
million at US$1.2146, and more complex forward purchase foreign
exchange options known as Window Barrier Accruals and Counter TARFs
which will deliver a minimum of $18 million to a maximum of $36
million (depending on the dollar rate at maturity of each option)
at an average rate for 2023 of $1.1984/GBP. We also sold EUR3.8
million at EUR1.1340. A ll of these options were outstanding at 31
December 2022.
The Group has a natural hedge from sales to the US which are
entirely in US dollars, in 2022 these sales were $6.32 million
(2021: $4.08 million).
Together with sourcing product from new factories where it makes
commercial sense to do so, new product development, and by buying
US dollars when rates are favourable, we are able to mitigate the
effect of a strong US dollar against sterling.
Section 172(1) Statement
The directors are well aware of their duty under section 172 of
the Companies Act 2006 to act in the way which they consider, in
good faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole, and in doing so
have regard (amongst other matters) to:
-- the likely consequences of any decision in the long term;
-- the interests of the Company's employees;
-- the need to foster the Company's business relationships with suppliers, customers and others;
-- the impact of the Company's operations on the community and the environment;
-- the desirability of the Company maintaining a reputation for
high standards of business conduct, and
-- the need to act fairly as between members of the Company
(the "Section 172 (1) Matters").
Induction materials provided on appointment include an
explanation of directors' duties, and the board is regularly
reminded of the Section 172(1) Matters, as a board meeting agenda
item.
Further information on how the directors have had regard to the
Section 172(1) Matters can be found in the Stakeholder Engagement
and Section 172 Report. This information forms part of the
strategic report and has been approved for issue by the board on 25
April 2023.
Neil Rodol
Chief Financial Officer
25 April 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2022
Year ended 31 December
2022 2021
Note GBP'000 GBP'000
Revenue 2 64,058 50,003
Cost of sales 2 (40,724) (33,095)
Gross profit 23,334 16,908
Administrative expenses 3,4 (15,367) (13,095)
Analysed as:
Adjusted profit from operations(1) 10,307 6,970
Amortisation 3,9 (1,995) (2,394)
Exceptional items 3 (152) (586)
Share based payments 21 (193) (177)
------------------------------------------- ---- ----------- -----------
Profit from operations 7,967 3,813
Net finance cost 5 (277) (88)
Profit before tax 7,690 3,725
Tax expense 6 (1,440) (895)
Profit for the year attributable to equity
holders of the parent company 6,250 2,830
Other comprehensive loss:
Item that will or may be reclassified
to profit or loss:
Exchange loss on translation of foreign
subsidiary (135) (4)
Total comprehensive income attributable
to equity holders of the parent company
, net of tax 6,115 2,826
Basic earnings per share (pence) 26 8.14 3.69
Diluted earnings per share (pence) 26 8.11 3.68
Note 1 - Adjusted profit from operations is calculated as
earnings before interest, taxation, amortisation of intangible
assets, share based payments and exceptional items.
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
As at 31 December
2022 2021
Note GBP'000 GBP'000
Non-current assets
Goodwill 8 7,274 7,274
Intangibles 9 277 2,260
Property, plant, and equipment 10 1,432 1,385
Right-of-use assets 11 5,659 3,073
Deferred tax assets 17 429 500
Total non-current assets 15,071 14,492
Current assets
Inventories 12 18,715 18,139
Trade and other receivables 13 11,693 10,322
Cash and cash equivalents 14 5,865 4,072
Derivative financial instruments 23 8 545
Total current assets 36,281 33,078
Total assets 51,352 47,570
Current liabilities
Trade and other payables 15 (5,988) (6,293)
Borrowings and lease liabilities 16 (1,015) (610)
Corporation tax liability (943) (1,050)
Derivative financial instruments 23 (600) -
Provisions - (370)
Total current liabilities (8,546) (8,323)
Non-current liabilities
Borrowings and lease liabilities 16 (4,847) (2,537)
Deferred tax liabilities 17 (180) (557)
Total non-current liabilities (5,027) (3,094)
Total liabilities (13,573) (11,417)
NET ASSETS 37,779 36,153
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
GBP'000 GBP'000
Equities
Share capital 19 19,188 19,188
Share premium 19,360 19,360
Merger reserve (16,100) (16,100)
Foreign exchange reserve (50) 85
Share option reserves 20 2,003 1,810
Retained earnings 13,378 11,810
TOTAL EQUITY 37,779 36,153
The financial statements of Warpaint London plc were approved
and authorised for issue by the Board of Directors and were signed
on its behalf by:
Neil Rodol
Chief Financial Officer
Date: 25 April 2023
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
Share Share Merger Foreign Share Retained Total
Capital Premium Reserve exchange option Earnings Equity
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2021 19,187 19,359 (16,100) 89 1,633 13,202 37,370
Comprehensive income/(loss)
for the year
Equity shares issued 1 1 - - - - 2
On translation of
foreign subsidiary - - - (4) - - (4)
Profit for the year - - - - - 2,830 2,830
Total comprehensive
income for the year 1 1 - (4) - 2,830 2,828
Transactions with
owners
Share based payment
charge - - - - 177 - 177
Dividends paid - - - - - (4,222) (4,222)
Total transactions
with owners - - - - 177 (4,222) (4,045)
As at 31 December
2021 19,188 19,360 (16,100) 85 1,810 11,810 36,153
Comprehensive Income/(loss)
for the year
Equity shares issued - - - - - - -
On translation of
foreign subsidiary - - - (135) - - (135)
Profit for the year - - - - - 6,250 6,250
Total comprehensive
income for the year - - - (135) - 6,250 6,115
Transactions with
owners
Share based payment
charge - - - - 193 - 193
Dividends paid - - - - - (4,682) (4,682)
Total transactions
with owners - - - - 193 (4,682) (4,489)
As at 31 December
2022 19,188 19,360 (16,100) (50) 2,003 13,378 37,779
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
Year ended 31 December
2022 2021
Note GBP'000 GBP'000
Operating activities
Profit before tax 7,690 3,725
Finance expense 5 278 90
Amortisation of intangible assets 9 1,995 2,394
Depreciation of property, plant, and equipment 10 761 649
Depreciation on right of use assets 11 965 690
Loss on disposal of property, plant, and equipment 1 -
Share based payments 21 193 177
Increase in trade and other receivables (1,370) (1,135)
Increase in inventories 12 (576) (3,726)
(Decrease)/increase in trade and other payables (981) 3,541
Fair value loss/(gain) on derivative financial
instruments 1,139 (905)
Other non-cash adjustments 17 - (84)
Foreign exchange translation differences (117) (4)
Cash generated from operations 9,978 5,412
Tax paid (1,546) (325)
Net cash flows from operating activities 8,432 5,087
Investing activities
Purchase of intangible assets 9 (12) (3)
Purchase of property, plant, and equipment 10 (831) (596)
Net cash used in investing activities (843) (599)
Financing activities
Repayment of borrowings 16 - (48)
Lease payments 16 (836) (933)
Proceeds from issued share capital - 2
Interest paid 5 (278) (90)
Dividends 18 (4,682) (4,222)
Net cash used in financing activities (5,796) (5,291)
Net increase/(decrease) in cash and cash equivalents 1,793 (803)
Cash and cash equivalents at beginning of
period 4,072 4,875
Cash and cash equivalents at end of period 14 5,865 4,072
Cash and cash equivalents consist of:
Cash and cash equivalents 14 5,865 4,072
5,865 4,072
The notes on pages 70 to 121 form part of these financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS ATED 31 DECEMBER 2022
1. Significant accounting policies
Basis of preparation
The financial statements of Warpaint London PLCPLC (the
"Company" or "Warpaint") and its subsidiaries (together the
"Group") for the year ended 31 December 2022 were authorised for
issue by the board of directors on 25(th) April 2023.
Warpaint London PLCPLC is a public limited Company incorporated
and registered in England and Wales. Its registered office is Units
B&C, Orbital Forty-Six, The Ridgeway Trading Estate, Iver,
Buckinghamshire, SL0 9HW.
The Group's financial statements have been prepared in
accordance in accordance UK adopted international accounting
standards and in conformity with the requirements of the Companies
Act. The functional currency of the parent and its subsidiaries is
pounds sterling because that is the currency of the primary
economic environment in which the Group operates. The financial
statements are also presented in pounds sterling. All values are
rounded to the nearest thousand (GBP'000) except where otherwise
indicated.
The annual financial statements have been prepared on the
historical cost basis, except for certain financial assets and
liabilities which are carried at fair value or amortised cost as
appropriate.
The preparation of financial statements in accordance with UK
adopted international accounting standards requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Although these estimates are based on management's best
knowledge of current events and actions, actual results ultimately
may differ from those estimates. The principal accounting policies
adopted are set out below.
Basis of consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between group companies are
therefore eliminated in full. All subsidiaries have a reporting
date of December.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
On consolidation, the results of overseas operations are
translated into pounds sterling at rates approximating to those
ruling when the transactions took place. All assets and liabilities
of overseas operations, including goodwill arising on the
acquisition of those operations, are translated at the rate ruling
at the reporting date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas
operations at actual rate are recognised in other comprehensive
income and accumulated in the foreign exchange reserve.
Exchange differences recognised profit or loss in Group
entities' separate financial statements on the translation of
long-term monetary items forming part of the Group's net investment
in the overseas operation concerned are reclassified to other
comprehensive income and accumulated in the foreign exchange
reserve on consolidation.
On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating to
that operation up to the date of disposal are transferred to the
consolidated statement of comprehensive income as part of the
profit or loss on disposal.
Going concern
The Directors have concluded that it is reasonable to adopt a
going concern basis in preparing the financial statements. This is
based on a reasonable expectation that the Group has adequate
resources to continue in operational existence for at least twelve
months from the date of signing of these accounts. The Group made a
statutory profit of GBP6.1 million in the year to 31 December 2022
(2021: GBP2.8 million) and had net current assets of GBP27.7
million at 31 December 2022 (2021: GBP24.8 million).
The Group occasionally makes use in its Retra Holdings Limited
("Retra") subsidiary of a GBP6.0 million bank facility that can be
used for confidential invoice discounting, the facility renews each
year at the end of September. Retra also have a GBP3.5 million bank
facility that can be used for stock finance, which is used if
needed during the peak gift buying season, the facility renews each
year at the end of November. In addition, the Group have a GBP3.0
million general purpose bank facility in its Warpaint Cosmetics
(2014) Limited ("Warpaint Cosmetics") subsidiary which was agreed
in January 2023. This facility will renew annually and was put in
place to support the continued growth of the business. As at the
year end GBPnil of the bank facilities were utilised and the
Directors expect that in 2023 the facilities will only be used to
modest levels well within the facility limits, to support the day
to day working capital of the business. At the 31 March 2023 the
company had cash of GBP8.6 million, no debt and had used GBPnil of
its bank facilities.
The Directors have prepared forecasts covering the period to
December 2024, built from the detailed Board-approved budget for
2023. The forecasts include a number of assumptions in relation to
varying levels of sales revenue. Whilst the Group's trading and
cash flow forecasts have been prepared using current trading
assumptions, the operating environment presents a number of
challenges which could negatively impact the actual performance
achieved. These challenges include, but are not limited to,
achieving forecast levels of sales and order intake, the impact on
customer confidence as a result of general economic conditions and
leaving the European Union, achieving forecast margin improvements,
supply side price inflation, increases in freight costs, and the
director's ability to implement cost saving initiatives in areas of
discretionary spend where required.
The Group's cash flow forecasts and projections, taking account
of reasonable and possible changes in trading performance, offset
by mitigating actions within the control of management including
reductions in areas of discretionary spend, show that the Group
will be able to operate comfortably through to the end of December
2024, and in Retra and Warpaint Cosmetics within the level of their
own bank facility.
In preparing this analysis, a number of scenarios were modelled
with the benefit of experience. The scenarios modelled were all
based on varying levels of sales revenue, including one that
assumes no growth for 2023 and 2024 as a reasonable downside
scenario, and more extreme falls in revenue of up to 30% in both
years as a worst-case scenario. In each scenario, mitigating
actions within the control of management have been modelled. Under
each of the scenarios modelled, the Group has sufficient cash to
meet its liabilities as they fall due and consequently, the
directors believe that the Group has sufficient financial strength
to withstand the possible disruption to its activities.
Based on the above indications the directors believe that it
remains appropriate to prepare the financial statements on a going
concern basis.
Revenue Recognition
Performance obligations and timing of revenue recognition
The Group's revenue is derived from selling goods with revenue
recognised at a point in time when control of the goods has
transferred to the customer. This is generally when the goods are
delivered to the customer. However, for export sales, control might
also be transferred when delivered either to the port of departure
or port of arrival, depending on the specific terms of the contract
with a customer. There is limited judgement needed in identifying
the point control passes: once physical delivery of the products to
the agreed location has occurred, the group no longer has physical
possession, usually will have a present right to payment (as a
single payment on delivery) and retains none of the significant
risks and rewards of the goods in question.
UK sales are recognised and invoiced to the customer once the
goods have been delivered to the customer. Overseas sales are
recognised and invoiced to the customer once the goods have been
delivered to the customer or collected by the customer from the
Group's warehouse according to the terms of sale. Online sales are
recognised and invoiced to the customer once the goods have been
delivered to the customer.
Customer loyalty
The Group operates a loyalty reward scheme for 'digital'
customers where points are earned for products purchased online,
with 10 points equivalent to GBP1. The Group accounts for loyalty
points when redeemed as a sales discount on the sales transaction.
A sales discount provision is recognised in the accounts in
relation to points issued but not yet redeemed. When estimating
this provision, the Group considers the likelihood that the
customer will redeem the points. At the year-end there were 6.5
million points yet to be redeemed, leading to a provision of
GBP32,471 (2021: 2.8 million points leading to a provision of
GBP14,000).
Under IFRS 15, volume rebates and early settlement discounts
represent variable consideration and is estimated and recognised as
a reduction to revenue as performance obligations are satisfied.
Management recognises revenue based on the amount of estimated
rebate to the extent that revenue is highly probably of not
reversing. Management monitors this estimate at each reporting date
and adjusts it as necessary.
Determining the transaction price
Most of the group's revenue is derived from fixed price
contracts and therefore the amount of revenue to be earned from
each contract is determined by reference to those fixed prices.
Exceptions are as follows:
-- Some contracts provide customers with a limited right of return.
These relate predominantly, but not exclusively, to online
sales direct to consumers and sales made to certain large
retailers. Historical experience enables the group to estimate
reliably the value of goods that will be returned and restrict
the amount of revenue that is recognised such that it is highly
probable that there will not be a reversal of previously recognised
revenue when goods are returned.
-- Variable consideration relating to volume rebates has been
considered in estimating revenue in order that it is highly
probable that there will not be a future reversal in the amount
of revenue recognised when the amount of volume rebates has
been determined.
Allocating amounts to performance obligations
For most contracts, there is a fixed unit price for each product
sold, with reductions given for bulk orders placed at a specific
time. Therefore, there is no judgement involved in allocating the
contract price to each unit ordered in such contracts (it is the
total contract price divided by the number of units ordered). Where
a customer orders more than one product line, the Group is able to
determine the split of the total contract price between each
product line by reference to each product's standalone selling
prices (all product lines are capable of being, and are, sold
separately).
Practical Exemptions
The group has taken advantage of the practical exemptions:
-- not to account for significant financing components where
the time difference between receiving consideration and transferring
control of goods (or services) to its customer is one year
or less; and
-- expense the incremental costs of obtaining a contract when
the amortisation period of the asset otherwise recognised
would have been one year or less.
Expenditure and provisions
Expenditure is recognised in respect of goods and services
received when supplied in accordance with contractual terms.
Provision is made when an obligation exists relating to a past
event and where the amount of the obligation can be reliably
estimated.
Retirement Benefits: Defined contribution schemes
Contributions to defined contribution schemes are charged to the
consolidated statement of comprehensive income in the year to which
they relate.
Exceptional items and Alternative Performance Measures
Exceptional items which have been disclosed separately on the
face of the Consolidated Statement of Comprehensive Income in order
to summarise the underlying results. Exceptional items in the
current period relate to restructuring costs and legal and
professional fees. Neither 'underlying profit or loss' nor
'exceptional items' are defined by IFRS however the directors
believe that the disclosures presented in this manner provide a
clearer presentation of the underlying financial performance of the
Group.
Alternative performance measures (APM's) are used by the Board
to assess the Group's performance and are applied consistently from
one period to the next. They therefore provide additional useful
information for shareholders on the underlying performance and
position of the Group. Additionally, adjusted profit from
operations is used to determine adjusted EPS which is used as a key
performance indicator for the Long-Term Incentive Plan (LTIP) and
the Company Share Option Scheme (CSOP). These measures are not
defined by IFRS and are not intended to be a substitute for IFRS
measures. The Group presents underlying profit from operations,
profit before tax and EPS which are calculated as the statutory
measures stated before non-underlying items, including exceptional
items, amortisation of intangible assets and share-based payments
where applicable.
Underlying results are used in the day-to-day management of the
Group. They represent statutory measures adjusted for items which
could distort the understanding of performance and comparability
year on year. Non-underlying items include the amortisation of
intangible assets, exceptional items and share-based payments.
Exceptional items are those items which the group consider to be
significant in nature and not in the normal course of business or
are consistent with items that were treated as exceptional in prior
periods.
Intangible assets
Patents
Patents are used by the Group in order to generate future
economic value through normal business operations. Patents are
acquired separately and carried at cost less amortisation and
impairment. The underlying assets are amortised over the period
from which the Group expects to benefit, which is typically between
five to ten years.
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised on a
straight-line basis over their estimated useful lives. The
estimated useful life and amortisation method are reviewed at the
end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. Intangible
assets with indefinite useful lives that are acquired separately
are carried at cost less accumulated impairment losses.
Amortisation is provided on Licences and Website costs so as to
write off the carrying value over the expected useful economic life
of five years.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and
recognised separately from goodwill are initially recognised at
their fair value at the acquisition date (which is regarded as
their cost). Subsequent to initial recognition, intangible assets
acquired in a business combination are reported at cost less
accumulated amortisation and accumulated impairment losses, on the
same basis as intangible assets that are acquired separately.
Amortisation is provided on customer lists and brands so as to
write off the carrying value over the expected useful economic life
of five years. Other details of the acquisition are detailed in
note 9.
Goodwill
Goodwill represents the excess of the cost of a business
combination over the Group's interest in the fair value of
identifiable assets, liabilities and contingent liabilities
acquired.
Cost comprises the fair value of assets given, liabilities
assumed, and equity instruments issued, plus the amount of any
non-controlling interests in the acquiree. Contingent consideration
is included in cost at its acquisition date fair value and, in the
case of contingent consideration classified as a financial
liability, remeasured subsequently through profit or loss.
Goodwill is considered to have an indefinite useful economic
life and is capitalised as an intangible asset with any impairment
in carrying value being charged to the consolidated statement of
comprehensive income. Where the fair value of identifiable assets,
liabilities and contingent liabilities exceed the fair value of
consideration paid, the excess is credited in full to the
consolidated statement of comprehensive income on the acquisition
date.
Impairment of non-financial assets (excluding inventories and
deferred tax assets)
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount (i.e.
the higher of value in use and fair value less costs to sell), the
asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
('CGUs'). Goodwill is allocated on initial recognition to each of
the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for goodwill is
not reversed.
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no
future economic benefits are expected from use or disposal. Gains
or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognised in profit or loss
when the asset is derecognised.
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs.
Depreciation is provided on all items of property, plant and
equipment so as to write off their carrying value over the expected
useful economic lives. It is provided at the following rates:
Plant and machinery - 25% reducing balance or 20% straight line
Fixtures and fittings - 25% reducing balance or 20% straight line
Computer equipment - 25% reducing balance or 33.33% straight line
Motor vehicles - 20% straight line
Right-of-Use Assets
Right-of-use assets are measured at cost, which is made up of
the initial measurement of the lease liability adjusted for any
lease payments made at or before the commencement date, plus any
initial direct costs incurred and an estimate of costs to dismantle
and remove the asset at the end of the lease, less any lease
incentives received.
The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease
term.
The Group also assesses the right-of-use asset for impairment
when such indicators exist.
The right-of-use assets are included in a separate line within
non-current assets on the Consolidated Balance Sheet.
Financial assets
The Group classifies its financial assets into one of the
categories discussed below, depending on the purpose for which the
asset was acquired. Other than financial assets in a qualifying
hedging relationship, the Group's accounting policy for each
category is as follows:
Fair value through profit or loss
This category comprises in-the-money derivatives and
out-of-money derivatives where the time value offsets the negative
intrinsic value (see "Financial liabilities" section for
out-of-money derivatives classified as liabilities). They are
carried in the statement of financial position at fair value with
changes in fair value recognised in the consolidated statement of
comprehensive income in the finance income or expense line. Other
than derivative financial instruments which are not designated as
hedging instruments, the Group does not have any assets held for
trading nor does it voluntarily classify any financial assets as
being at fair value through profit or loss.
Amortised cost
These assets arise principally from the provision of goods and
services to customers (e.g. trade receivables), but also
incorporate other types of financial assets where the objective is
to hold these assets in order to collect contractual cash flows and
the contractual cash flows are solely payments of principal and
interest. They are initially recognised at fair value plus
transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost
using the effective interest rate method, less provision for
impairment.
Impairment requirements use an 'expected credit loss' ('ECL')
model to recognise an allowance. Impairment is measured using a 12-
month ECL method unless the credit risk on a financial instrument
has increased significantly since initial recognition in which case
the lifetime ECL method is adopted. For receivables, a simplified
approach to measuring expected credit losses using a lifetime
expected loss allowance is available and has been adopted by the
Group. During this process the probability of the non-payment of
the trade receivables is assessed. This probability is then
multiplied by the amount of the expected loss arising from default
to determine the lifetime expected credit loss for the trade
receivables. For trade receivables, which are reported net, such
provisions are recorded in a separate provision account with the
loss being recognised within administrative expenses in the
consolidated statement of comprehensive income. On confirmation
that the trade receivable will not be collectable, the gross
carrying value of the asset is written off against the associated
provision.
The Group's financial assets measured at amortised cost comprise
trade and other receivables, and cash and cash equivalents in the
consolidated statement of financial position.
Cash and cash equivalents include cash in hand, deposits held at
call with banks, other short term highly liquid investments with
original maturities of three months or less, and - for the purpose
of the statement of cash flows - bank overdrafts. Bank overdrafts
are shown within loans and borrowings in current liabilities on the
consolidated statement of financial position.
Financial liabilities
The Group classifies its financial liabilities into one of two
categories, depending on the purpose for which the liability was
acquired. The Group's accounting policy for each category is as
follows:
Fair value through profit or loss
This category comprises out-of-the-money derivatives where the
time value does not offset the negative intrinsic value (see
"Financial assets" for in-the-money derivatives and out-of-money
derivatives where the time value offsets the negative intrinsic
value). They are carried in the consolidated statement of financial
position at fair value with changes in fair value recognised in the
consolidated statement of comprehensive income. The Group does not
hold or issue derivative instruments for speculative purposes, but
for hedging purposes. Other than these derivative financial
instruments, the Group does not have any liabilities held for
trading nor has it designated any financial liabilities as being at
fair value through profit or loss.
Other financial liabilities
Other financial liabilities include the following items:
-- Bank loans which are initially recognised at fair value
net of any transaction costs directly attributable to the
issue of the instrument. Such interest-bearing liabilities
are subsequently measured at amortised cost ensuring the
interest element of the borrowing is expensed over the
repayment period at a constant rate.
-- Trade payables, other borrowings and other short-term monetary
liabilities, which are initially recognised at fair value
and subsequently carried at amortised cost using the effective
interest method.
Derivative financial instruments
The Group enters into a variety of derivative financial
instruments to manage its exposure to foreign exchange rate risk,
through the use of foreign exchange rate forward contracts.
Derivatives are initially recognised at fair value at the date
the derivative contracts are entered into and are subsequently
re-measured to their fair value at the end of each reporting
period. The resulting gain or loss is recognised in profit or loss
immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in
profit or loss depends on the nature of the hedge relationship.
Foreign currencies
Transactions entered into by Group entities in a currency other
than the currency of the primary economic environment in which they
operate (their "functional currency") are recorded at the rates
ruling when the transactions occur. Foreign currency monetary
assets and liabilities are translated at the rates ruling at the
reporting date. Exchange differences arising on the retranslation
of unsettled monetary assets and liabilities are recognised
immediately in profit or loss, except for foreign currency
borrowings qualifying as a hedge of a net investment in a foreign
operation, in which case exchange differences are recognised in
other comprehensive income and accumulated in the foreign exchange
reserve along with the exchange differences arising on the
retranslation of the foreign operation.
Leases
All leases are accounted for by recognising a right-of-use asset
and a lease liability except for:
-- leases of low value assets; and
-- leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease unless (as is typically the case) this is not readily
determinable, in which case the group's incremental borrowing rate
on commencement of the lease is used. Variable lease payments are
only included in the measurement of the lease liability if they
depend on an index or rate. In such cases, the initial measurement
of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments
are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value guarantee;
-- the exercise price of any purchase option granted in favour
of the group if it is reasonably certain to assess that option;
and
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination
option being exercised.
Right of use assets are initially measured at the amount of the
lease liability, reduced for any lease
incentives received, and increased for:
-- lease payments made at or before commencement of the lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the group is contractually
required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as
a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use
assets are amortised on a straight-line basis over the remaining
term of the lease or over the remaining economic life of the asset
if, rarely, this is judged to be shorter than the lease term.
When the group revises its estimate of the term of any lease
(because, for example, it re-assesses the probability of a lessee
extension or termination option being exercised), it adjusts the
carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted at the same
discount rate that applied on lease commencement. The carrying
value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is
revised. In both cases an equivalent adjustment is made to the
carrying value of the right-of-use asset, with the revised carrying
amount being amortised over the remaining (revised) lease term.
When the group renegotiates the contractual terms of a lease
with the lessor, the accounting depends
on the nature of the modification:
-- if the renegotiation results in one or more additional assets
being leased for an amount commensurate with the standalone
price for the additional rights-of-use obtained, the modification
is accounted for as a separate lease in accordance with the
above policy ;
-- in all other cases where the renegotiated increases the scope
of the lease (whether that is an extension to the lease term,
or one or more additional assets being leased), the lease
liability is remeasured using the discount rate applicable
on the modification date, with the right-of-use asset being
adjusted by the same amount ; and
-- if the renegotiation results in a decrease in the scope of
the lease, both the carrying amount of the lease liability
and right-of-use asset are reduced by the same proportion
to reflect the partial of full termination of the lease with
any difference recognised in profit or loss. The lease liability
is then further adjusted to ensure its carrying amount reflects
the amount of the renegotiated payments over the renegotiated
term, with the modified lease payments discounted at the rate
applicable on the modification date. The right-of-use asset
is adjusted by the same amount.
For contracts that both convey a right to the group to use an
identified asset and require services to be provided to the group
by the lessor, the group has elected to account for the entire
contract as a lease, i.e. it does allocate any amount of the
contractual payments to, and account separately for, any services
provided by the supplier as part of the contract.
Nature of leasing activities (in the capacity as lessee )
The group leases a number of properties in the jurisdictions
from which it operates with a fixed periodic rent over the lease
term. The group has a total of 7 property leases.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from 'profit before tax' as reported
in the consolidated statement of comprehensive income and other
comprehensive income because of items of income or expense that are
taxable or deductible in other years and items that are never
taxable or deductible.
The Group's current tax is calculated using tax rates that have
been enacted or substantively enacted by the end of the reporting
period.
Deferred taxation
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the combined statement
of financial position differs from its tax base, except for
differences arising on:
-- the initial recognition of goodwill;
-- the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the
transaction affects neither accounting or taxable profit;
and
-- investments in subsidiaries and jointly controlled entities
where the Group is able to control the timing of the reversal
of the difference and it is probable that the difference will
not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be
available against which the difference can be utilised.
The amount of the asset or liability is determined using tax
rates that have been enacted or substantively enacted by the end of
the reporting period and are expected to apply when the deferred
tax liabilities or assets are settled or recovered. Deferred tax
balances are not discounted.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority on either:
-- the same taxable group company; or
-- different company entities which intend either to settle current
tax assets and liabilities on a net basis, or to realise the
assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax
assets and liabilities are expected to be settled or recovered.
Inventories
Inventories are initially recognised at cost, and subsequently
at the lower of the cost and net realisable value. Cost comprises
all costs of purchase, costs of conversion and other costs incurred
in bringing the inventories to their present location and
condition.
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the
management team including the Chief Executive Officers, Managing
Director and the Chief Financial Officer.
The Board considers that the Group's project activity
constitutes the two operating and two reporting segments presented
in Note 2, as defined under IFRS 8. Management reviews the
performance of the Group by reference to total results against
budget.
The total profit measures are operating profit and profit for
the year, both disclosed on the face of the combined income
statement. No differences exist between the basis of preparation of
the performance measures used by management and the figures in the
Group financial information.
Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders of the parent by the weighted
average number of ordinary shares outstanding during the year,
excluding treasury shares and shares in employee benefit trusts,
determined in accordance with the provisions of IAS 33 earnings per
Share. Diluted earnings per share is calculated by dividing
earnings attributable to ordinary shareholders of the parent by the
weighted average number of ordinary shares outstanding during the
year adjusted for the potentially dilutive ordinary shares.
Share Capital
The Group's ordinary shares are classified as equity
instruments.
Share-based payments
Where equity settled share options are awarded to employees, the
fair value of the options at the date of grant is charged to the
consolidated statement of comprehensive income over the vesting
period. Non-market vesting conditions are considered by adjusting
the number of equity instruments expected to vest at each reporting
date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually
vest. Non-vesting conditions and market vesting conditions are
factored into the fair value of the options granted. As long as all
other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition or where a non-vesting condition
is not satisfied.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the consolidated statement of comprehensive income over the
remaining vesting period.
Where equity instruments are granted to persons other than
employees, the consolidated statement of comprehensive income is
charged with the fair value of goods and services received.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to equity shareholders, this is when
declared by the directors. In the case of final dividends, this is
when approved by the shareholders at the annual general
meeting.
Changes in accounting policies
New standards, interpretations and amendments that are effective
for the first time for the financial year beginning 31 December
2022
IFRS Amendments updating a reference to the conceptual
3 framework
IFRS Amendments resulting from the annual improvements
9 to IFRS Standards 2018-2020 (fees in the
'10 percent' test for derecognition of financial
liabilities)
--------------------------------------------------
IAS 16 Amendments prohibiting a Company from deducting
the cost of property, plant and equipment
amounts received from selling items while
the Company is preparing the asset for its
intended use.
--------------------------------------------------
IAS 37 Amendments regarding the costs to include
when assessing whether contracts are onerous
--------------------------------------------------
New standards, interpretations and amendments effective from 1
January 2023
At the date of authorisation of these financial statements,
certain new standards, amendments and interpretations to existing
standards have been published by the IASB and adopted by the EU but
are not yet effective and have not been adopted early by the Group.
Management anticipates that all of the relevant pronouncements will
be adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that
are expected to be relevant to the Group's financial statements is
provided below. Certain other new standards and interpretations
have been issued but are not expected to have a material impact on
the Group's financial statements.
Effect annual
periods beginning
before or after
IFRS Amendments regarding the expiry date of 1(st) January 2023
4 the deferral approach
--------------------------------------------------- -------------------
IFRS Insurance contracts 1(st) January 2023
17
--------------------------------------------------- -------------------
IFRS Amendments regarding comparative information 1(st) January 2023
17 for initial application of IFRS 17 and IFRS
9
--------------------------------------------------- -------------------
IAS 1 Amendments regarding disclosure of accounting 1(st) January 2023
policies
--------------------------------------------------- -------------------
IAS 1 Amendments regarding the classification
of covenants
--------------------------------------------------- -------------------
IAS 8 Amendments regarding the definition of accounting 1(st) January 2023
estimates
--------------------------------------------------- -------------------
IAS 12 Amendments resulting from deferred tax assets 1(st) January 2023
and liabilities arising from a simple transaction
--------------------------------------------------- -------------------
IFRS Amendments to clarify seller-lessee subsequently 1(st) January 2024
16 measured sale and leaseback transactions
--------------------------------------------------- -------------------
Critical accounting judgements and key sources of estimation
uncertainty
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
historical experience and other factors, including the expectations
of future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The estimates and assumptions that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
Key sources of estimation uncertainty
a) Inventories
Inventories are initially recognised at cost, and subsequently
at the lower of the cost and net realisable value. There is
judgement involved in assessing the level of inventory provision
required in respect of slow-moving inventory. Inventory is carried
at a value of GBP18.7 million at the year end.
The Group makes a 50% provision for perishable items of stock
that are greater than two years old. Should the Group increase the
provision to 100% of perishable items that are greater than two
years old, this would decrease profit by GBP303,327. The Group does
not provide any provision on its non-perishable goods that are
greater than two years old on the basis that the products have long
shelf life. Should the Group increase the provision to 100% of
non-perishable items that are greater than two years old, this
would decrease profit by GBP163,653.
b) Valuation of goodwill
The assessment of the recoverable amount of goodwill allocated
to Retra Holdings Limited, Marvin Leeds Marketing Services, Inc.
and Treasured Scents Limited, as detailed in note 9, was based on
fair value less costs to sell and value in use calculations which
involved judgements over the assumptions applied. For Retra
Holdings Limited, a 1% increase in the discount rate from 13.3% to
14.3% would reduce the value in use by approximately GBP5.1 million
leaving headroom of GBP44 million above the carrying value. For
Marvin Leeds Marketing Services, Inc., a 1% increase in the
discount rate from 10.4% to 11.4% would reduce the value in use by
approximately GBP0.8 million leaving headroom of GBP4.6 million
above the carrying value. For Treasured Scents Limited, a 1%
increase in the discount rate from 13.3% to 14.3% would reduce the
value in use by approximately GBP0.6 million leaving headroom of
GBP6.2 million above the carrying value. None of these scenarios
would therefore result in any impairment of the goodwill.
Critical accounting judgements
c) Deferred tax assets
Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. The carrying
amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part
of the assets to be recovered.
2. Segmental information
For management purposes, the Group is organised into two
operating segments; Branded and Close-out. The segment 'Branded'
relates to the sale of own branded products whereas 'Close-out'
relates to the purchase of third-party stock which is then
repackaged for sale. These segments are the basis on which the
Group reports internally to the Board. The executive directors Sam
Bazini, Eoin Macleod and Neil Rodol together with members from the
Groups senior management teams are the chief operating decision
makers of the whole business.
Year ended 31 December 2022 2022 2022 2021 2021 2021
Own Brand Close-out Total Own Brand Close-out Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 60,288 3,770 64,058 45,525 4,478 50,003
Cost of sales (38,327) (2,397) (40,724) (30,131) (2,964) (33,095)
Gross profit 21,961 1,373 23,334 15,394 1,514 16,908
Administrative expenses (14,319) (896) (15,215) (11,389) (1,120) (12,509)
Exceptional items (143) (9) (152) (586) - (586)
Segment result 7,499 468 7,967 3,419 394 3,813
Reconciliation of segment
result to profit before
tax:
Segment result 7,499 468 7,967 3,419 394 3,813
Finance expense (277) - (277) (88) - (88)
Profit before tax 7, 222 468 7,690 3,331 394 3,725
Analysis of total revenue
by geographical market:
UK 24,277 3,287 27,564 21,358 3,965 25,323
Europe - Other 6,942 13 6,955 5,627 41 5,668
Europe - Spain 8,005 194 8,199 5,484 138 5,622
Europe - Denmark 12,822 98 12,920 6,741 8 6,749
Rest of World - USA 5,163 178 5,341 2,650 326 2,976
Rest of World - Australia
and New Zealand 1,565 - 1,565 2,567 - 2,567
Rest of World - Other 1,514 - 1,514 1,098 - 1,098
Total 60,288 3,770 64,058 45,525 4,478 50,003
During the year ended 31 December 2022, revenues of
approximately GBP11.2 million (2021: GBP5.1 million) were derived
from a single external customer based in Denmark (17.5%; 2021:
10.2%).
The Directors are not able to attribute the Group's assets and
liabilities by reportable business segment.
Analysis of non-current
assets by geographical
market.
Year ended 31 December 2022 2022 2022 2021 2021 2021
UK USA Total UK USA Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Goodwill 6,720 554 7,274 6,720 554 7,274
Customer lists - 160 160 1,072 374 1,446
Brand - 3 3 683 - 683
Patents 105 - 105 127 - 127
Website 9 - 9 4 - 4
Property, plant and
equipment 1,427 5 1,432 1,379 6 1,385
Right of use assets 5,624 35 5,659 2,995 78 3,073
13,885 757 14,642 12,980 1,012 13,992
3. Operating profit
Operating profit for the period is stated after
charging/(crediting):
Year ended 31 December
2022 2021
GBP'000 GBP'000
Foreign exchange gain (133) (614)
Depreciation 761 648
Amortisation of right-of-use assets 965 690
Amortisation of intangible assets 1,995 2,394
Movement of inventories at net realisable value (151) (5)
Exceptional costs 152 586
The expenditure incurred within the table above falls wholly
within Administrative expenses.
Exceptional costs
Year ended 31 December
2022 2021
GBP'000 GBP'000
Non-recurring legal and professional fees - 187
Royalty claim and associated legal fees 152 370
Restructuring costs - 29
152 586
During the year the Group agreed a settlement regarding a
dispute with a third party relating to the historic use of content
on the Group's social media platforms in the period from 2018
through to early 2021. The total settlement including associated
legal costs was GBP0.52 million, of which GBP0.37 million was
provided for in the year to 31 December 2021. The payment and the
restriction of content use will not affect the ongoing operations
of the Group's businesses.
Auditor's Remuneration
Analysis of auditor's remuneration is as follows:
Year ended 31 December
2022 2021
GBP'000 GBP'000
Fees payable to the Company's auditor for the audit
of the Group's annual accounts 91 64
Fees payable to the Company's auditor for the audit
of subsidiary companies 106 101
197 165
Other services pursuant to legislation:
Tax advice 15 28
Other assurance 3 2
Total non-audit fees 18 30
4. Staff costs
Year ended 31 December
2022 2021
GBP'000 GBP'000
Wages and salaries 6,103 5,232
Social security costs 738 553
Pension costs (note 24) 101 88
6,942 5,873
The average monthly number of employees during the period was as
follows:
Year ended 31 December
2022 2021
No. No.
Directors 7 7
Administrative 24 27
Finance 9 8
Warehouse 58 48
Sales 13 11
New Product Development and PR 14 12
125 113
2022 2021
Directors' remuneration, included in staff costs GBP'000 GBP'000
Salaries 985 858
Share based payments (note 21) 125 117
Benefits 23 20
Pension contributions 2 4
1,135 999
Remuneration in respect of Directors was as follows:
Salary/ Share Benefits Pension 2022 Total Remuneration
fees and based payment contribution 2021
bonus
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Executive
Directors
S Bazini 260 27 13 - 300 281
E Macleod 260 27 10 - 297 279
N Rodol 212 50 - 1 263 223
S Craig 63 1 - 1 65 63
P Hagon* 40 20 - - 60 40
Non-executive
Directors
C Garston 66 - - - 66 60
K Sadler 44 - - - 44 40
J Collier** 40 - - - 40 13
985 125 23 2 1,135 999
* Shares granted to consultancy company Ward & Hagon
Management Consulting LLP, of which director Paul Hagon is a
member.
** Appointed 1 September 2021 and resigned 31 December 2022.
Directors' interests in share options for year ended 31 December
2022
As at 31 December 2022, the following Directors held the
following performance related share awards (Enterprise Management
Incentive Scheme Options, LTIPs or CSOPs) over ordinary shares of
25p each under the Warpaint London plc Enterprise Management
Incentive Scheme, the Long Term Incentive Plan and the Warpaint
London plc Company Share Option Plan. For details of the share
option schemes see Note 21 in the Financial Statements.
Type of Share Date of Number Exercise End of Performance Number of Shares
Award Grant of Shares Price Period/First at 31 December
at 31 December Exercise 2021 (or date
2022 Date of appointment
if later)
S Bazini LTIP 21.09.2018 1,534,986 254.5p 31.12.2022 1,534,986
E Macleod LTIP 21.09.2018 1,534,986 254.5p 31.12.2022 1,534,986
N Rodol EMI 29.06.2017 105,262 237.5p 29.06.2020 105,262
LTIP 21.09.2018 306,996 254.5p 31.12.2022 306,996
EMI (Non-Qualifying) 24.05.2021 225,410 122.0p 24.05.2024 225,410
CSOP 24.05.2021 24,590 122.0p 24.05.2024 24,590
S Craig EMI 29.06.2017 10,000 237.5p 29.06.2020 10,000
CSOP 20.05.2020 10,000 49.5P 20.05.2023 10,000
P Hagon EMI (Non-Qualifying) 01.03.2022 200,000* 127.5p 01.03.2025 -
C Garston - - - - - -
K Sadler - - - - - -
J Collier** - - - - - -
* Shares granted to consultancy company Ward & Hagon
Management Consulting LLP, of which director Paul Hagon is a
member.
** Appointed 1 September 2021 and resigned 31 December 2022.
The Directors of the Group are the only key management
personnel.
5. Net finance cost
Year ended 31 December
2022 2021
GBP'000 GBP'000
Interest received 4 2
Interest paid
Loan interest - (5)
Lease liability interest (note 16) (185) (84)
Other interest (96) (1)
(277) (88)
6. Income tax
Year ended 31 December
2022 2021
GBP'000 GBP'000
Current tax expense
Current tax on profits for the period 1,746 1,262
1,746 1,262
Deferred tax expense
Origination and reversal of temporary differences (377) (367)
Total tax expense 1,440 895
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to profit for the year as follows:
Year ended 31 December
2022 2021
GBP'000 GBP'000
Profit for the period before taxation 7,690 3,725
Expected tax charge based on corporation tax rate
of 19% (2021: 19%) 1,461 708
(Income)/expenses not (allowable)/deductible for
tax purposes (11) 74
Other adjustments (41) 1
Different tax rates applied in overseas jurisdiction 31 30
Adjustment to deferred tax to average rate - 82
Total tax expense 1,440 895
The UK corporation tax at the standard rate for the year is
19.0% (2021: 19.0%).
The Group's effective tax rate for the year is 18.73% (2021
24.03%).
7. Subsidiaries
At the period end, the Group has the following subsidiaries:
Subsidiary name Nature of business Place of incorporation Percentage
owned
Warpaint Cosmetics Group
Limited Holding company England and Wales 100%
Warpaint Cosmetics (2014)
Limited* Wholesaler England and Wales 100%
Treasured Scents (2014) Limited Holding company England and Wales 100%
Treasured Scents Limited* Dormant England and Wales 100%
Warpaint Cosmetics Inc. Holding company U.S.A. 100%
Retra Holdings Limited Holding company England and Wales 100%
Badgequo Limited* Wholesaler England and Wales 100%
Retra Own Label Limited* Dormant England and Wales 100%
Badgequo Hong Kong Limited* Supply chain management Hong Kong 100%
Jinhua Badgequo Cosmetics People's Republic
Trading Co., Ltd* Wholesaler of China 100%
Marvin Leeds Marketing Services,
Inc.* Wholesaler U.S.A. 100%
Warpaint Cosmetics (ROI)
Limited Wholesaler Republic of Ireland 100%
* indicates indirect interest
All entities detailed above have been in existence for the whole
of the reporting period.
The registered office for all UK incorporated subsidiaries is
Units B&C, Orbital Forty-Six, The Ridgeway Trading Estate,
Iver, Bucks. SL0 9HW.
The registered office for Warpaint Cosmetics Inc.is 445 Northern
Boulevard - Great Neck, New York 11021.
The registered office for Badgequo Hong Kong Limited is 12F, 3
Lockhart Road, Wanchai, Hong Kong.
The registered office for Jinhua Badgequo Cosmetics Trading Co.
Ltd is Room 1401, Gongyuan Building No. 307 South Shuanglong
Street, Wucheng District, Jinhua, Zhejiang, China 321000.
The registered office for Marvin Leeds Marketing Services, Inc.
is 34W. 33rd St. - Suite 301, New York NY 10001.
The registered office for Warpaint Cosmetics (ROI) Limited is
6(th) Floor, South Bank House, Barrow Street, Dublin 4, D04
TR29.
8. Goodwill
Cost GBP'000
At 1 January 2021 8,086
At 31 December 2021 8,086
At 1 January 2022 8,086
At 31 December 2022 8,086
Impairment
At 1 January 2021 812
Impairment during the year -
At 31 December 2021 812
At 1 January 2022 812
At 31 December 2022 812
Net book value
At 31 December 2022 7,274
At 31 December 2021 7,274
Goodwill represents the excess of consideration over the fair
value of the Group's share of the net identifiable assets of the
acquired business/CGU at the date of acquisition. The carrying
value at 31 December 2022 includes Treasured Scents (2014) Limited
("TS2014") (the Close-out business) of GBP513,000, Retra Holdings
Limited GBP6,207,000 and Marvin Leeds Marketing Services, Inc.
GBP554,000.
Impairment is calculated by comparing the carrying amounts to
the recoverable amount being the higher of value in use derived
from discounted cash flow projections or the fair value less costs
to sell. A CGU is deemed to be an individual division, and these
have been grouped together into similar classes for the purpose of
formulating operating segments as reported in Note 2. Value in use
calculations are based on a discounted cash flow model ("DCF") for
the subsidiary, which discounts expected cash flows over a
five-year period using a post-tax discount rate of 13.3% (2021:
10.0%) for Retra Holdings Limited and 10.4% (2021: 11.4%) for
Marvin Leeds Marketing Services, Inc. and 13.3% for TS2014 (2021:
10%). Cash flows beyond the five-year period are extrapolated using
a long-term average growth rate of 2.0% (2021: 2.0%). The average
growth rate beyond the five-year period is lower than current
growth rates and is in line with Management's expectations for the
business.
The fair value less costs to sell was based on a multiple of
earnings less estimated costs to sell. Management have performed
the annual impairment review as required by IAS 36 and have
concluded that no impairment is indicated for TS2014, Retra
Holdings Limited ("Retra") or Marvin Leeds Marketing Services, Inc.
("LMS") as the recoverable amounts exceeds the respective carrying
values.
Key assumptions and sensitivity to changes in assumptions
The key assumptions are based upon management's historical
experience. The calculation of VIU is most sensitive to the
following assumptions:
-- Sales and gross margin - for LMS this is based on forecasts
incorporating a compound annual growth rate of 15% revenue
over the next five years. For Retra, the compound annual growth
rate over the next five years is anticipated to be 15%. For
Treasured Scents the compound annual growth rate over the
next five years is anticipated to be 2.5% in the year ended
31 December 2022. The gross margins for LMS, Retra and Treasured
Scents are based on historical rates achieved.
-- Administrative expenses are expected to increase by 5% in
LMS, 15% in Retra and 5% in Treasured Scents in the year ending
31 December 2023 with 5% incremental increases annually thereafter.
-- Discount Rate - pre-tax discount rate of 13.3% for Retra Holdings
Limited, 10.4% for Marvin Leeds Marketing Services, Inc. and
13.3% for Treasured Scents reflects the Directors' estimate
of an appropriate rate of return, considering the relevant
risk factors.
-- Growth Rate - used to extrapolate beyond the budget period
and for terminal values based on a long-term average growth
rate of 2.0%.
Sensitivity to changes in assumptions
The impairment review of the Group is sensitive to changes in
the key assumptions, most notably the pre-tax discount rate, the
terminal growth rate, the projected operating cash flows.
Reasonable changes to these assumptions are considered to be:
-- 1.0% increase in the pre-tax discount rate;
-- reduction in the terminal growth rate to 1%; and
-- 10.0% reduction in projected operating cash flows.
Reasonable changes to the assumptions used, considered in
isolation, would not result in an impairment of goodwill for LMS,
Retra or TS2014.
9. Intangible assets
Brands Customer Patents Website Licences Total
lists
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2021 3,802 8,240 264 45 6 12,357
Additions - - 3 - - 3
At 31 December 2021 3,802 8,240 267 45 6 12,360
Additions - 1 3 8 - 12
At 31 December 2022 3,802 8,241 270 53 6 12,372
Accumulated amortisation
At 1 January 2021 2,350 5,198 116 37 5 7,706
Charge for the year 765 1,600 24 4 1 2,394
At 31 December 2021 3,115 6,798 140 41 6 10,100
Charge for the year 684 1,283 25 3 - 1,995
At 31 December 2022 3,799 8,081 165 44 6 12,095
Net book value
At 31 December 2022 3 160 105 9 - 277
At 31 December 2021 687 1,442 127 4 - 2,260
10. Property, plant and equipment
Plant and Fixtures Computer Motor vehicles Total
machinery and fittings equipment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Costs
At 1 January 2021 252 1,673 344 120 2,389
Reclassification to right-of-use
assets
Additions 15 558 23 - 596
Transfer from right-of-use
assets 760 - - - 760
At 31 December 2021 1,027 2,231 367 120 3,745
Additions 301 409 91 30 831
Disposals - (349) (3) (72) (424)
Foreign exchange gain/loss (37) - 16 - (21)
At 31 December 2022 1,291 2,291 471 78 4,131
Accumulated depreciation
At 1 January 2021 100 785 251 104 1,240
Charge for year 189 410 39 11 649
Transfer from right-of-use
assets 471 - - - 471
At 31 December 2021 760 1,195 290 115 2,360
Charge for year 181 538 37 5 761
Disposals - (349) (1) (72) (422)
At 31 December 2022 941 1,384 326 48 2,699
Net book value
At 31 December 2022 350 907 145 30 1,432
At 31 December 2021 267 1,036 77 5 1,385
Transferred from right of use assets category represents the
return of ROU assets at expiry of the lease and where title is
transferred to the Group.
11. Right-of-use assets
Leasehold Plant and Computer Total
property machinery equipment
GBP'000 GBP'000 GBP'000 GBP'000
Costs
At 1 January 2021 4,796 760 77 5,633
Additions 253 - - 253
Transfer to property, plant
and equipment - (760) - (760)
At 31 December 2021 5,049 - 77 5,126
Additions 3,551 - - 3,551
Transfer to property, plant - - - -
and equipment
At 31 December 2022 8,600 - 77 8,677
Accumulated amortisation
At 1 January 2021 1,286 471 77 1,834
Charge for the year 690 - - 690
Transfer to property, plant
and equipment - (471) - (471)
At 31 December 2021 1,976 - 77 2,053
Charge for the year 965 - - 965
Transfer to property, plant - - - -
and equipment
At 31 December 2022 2,941 - 77 3,018
Net Book Value
At 31 December 2022 5,659 - - 5,659
At 31 December 2021 3,073 - ,- 3,073
Transferred from right of use assets category represents the
return of ROU assets at expiry of the lease and where title is
transferred to the Group.
The weighted average incremental borrowing rate applied to
measure lease liabilities is 3.99% (2021: 3.73%) for leasehold
property.
12. Inventories
As at 31 December
2022 2021
GBP'000 GBP'000
Finished goods 19,080 18,655
Provision for impairment (365) (516)
18,715 18,139
The cost of inventories recognised as an expense and included in
'cost of sales' amounted to GBP35.09 million in the year ended 31
December 2022 (2021: GBP28.56 million).
13. Trade and other receivables
As at 31 December
2022 2021
GBP'000 GBP'000
Trade receivables - gross 9,935 8,755
Provision for impairment of trade receivables (70) (66)
Trade receivables - net 9,865 8,689
Other receivables 213 92
Prepayments and accrued income 1,615 1,541
Total 11,693 10,322
The directors consider that the carrying values of trade and
other receivables measured at book value and amortised cost
approximates to their fair value.
The individually impaired receivables relate to the supply of
goods to customers. A provision is recognised for amounts not
expected to be recovered. Movements in the accumulated impairment
losses on trade receivables were as follows:
As at 31 December
2022 2021
GBP'000 GBP'000
Accumulated impairment losses at 1 January 66 44
Additional impairment losses recognised during
the year, net 4 66
Amounts written off during the year as uncollectible - (44)
Accumulated impairment losses at 31 December 70 66
The impairment losses recognised during the year are net of a
credit of GBP9,000 (2021: Nil) relating to the recovery of amounts
previously written off as uncollectable.
Contract Liabilities
As at 31 December
2022 2021
GBP'000 GBP'000
At 1 January 219 292
Amounts included in contract liabilities that
was recognised as revenue during the period 525 530
Amounts settled during the period (501) (603)
At 31 December 243 219
Contract liabilities are included within "trade and other
receivables" in the face of the statement of financial position
being settled net of the trade debtor balances. They arise from the
group's own brand segment, which enter into contracts with
customers for early settlement discounts, marketing contributions
and volume rebates, because the invoiced amounts to customers at
each balance sheet date do not consider the amount or rebate and
discounts the customers are entitled to until settlement of the
debtor balance at a certain time.
14. Cash and cash equivalents
Cash and cash equivalents include the following for the purposes
of the cash flow statement:
As at 31 December
2022 2021
GBP'000 GBP'000
Cash at bank and in hand 5,865 4,072
5,865 4,072
15. Trade and other payables
As at 31 December
2022 2021
GBP'000 GBP'000
Current
Trade payables 1,368 1,847
Social security and other taxes 1,294 293
Other payables 101 66
Accruals and deferred income 3,225 4,087
Total 5,988 6,293
The directors consider that the carrying values of trade and
other payables measured at book value and amortised cost
approximates to their fair value.
16. Loans and borrowings
As at 31 December
2022 2021
GBP'000 GBP'000
Bank loans
Repayable within 1 year - -
Repayable within 2 - 5 years - -
- -
Lease liabilities
Repayable within 1 year 1,015 610
Repayable within 2 - 5 years 3,498 2,261
Repayable in more than 5 years 1,349 276
5,862 3,147
Total
Repayable within 1 year 1,015 610
Repayable within 2 - 5 years 3,498 2,261
Repayable in more than 5 years 1,349 276
5,862 3,147
Undiscounted lease payments
As at 31 December
2022 2021
GBP'000 GBP'000
Lease liabilities
Repayable within 1 year 1,200 684
Repayable within 2 - 5 years 4,027 2,390
Repayable in more than 5 years 1,465 281
Total 6,692 3,355
Lease liabilities
As at 31 December
Leasehold Plant and Computer Total
property machinery equipment
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2021 3,659 252 - 3,911
Lease additions 253 - - 253
Interest expense 84 - - 84
Lease payments (765) (252) - (1,017)
Prior period adjustment (84) - - (84)
As at 31 December 2021 3,147 - - 3,147
Lease additions 3,551 - - 3,551
Interest expense 185 - - 185
Lease payments (1,021) - - (1,021)
As at 31 December 2022 5,862 - - 5,862
Nature of lease liabilities
The group leases a number of properties in the United Kingdom
and United States of America.
An additional GBPNil (2021: GBP1,061) has been expensed to the
statement of comprehensive income in respect of low value operating
leases. Interest payments of GBPNil (2021: GBPNil) have also been
expensed in respect of leases that expired during the period.
The interest rates expected are as follows:
As at 31 December
2022 2021
% %
Finance loans - 7.0
Bank loans - 8.75
Invoice financing 5.49(1) 3.25
Note 1: Base rate + 1.99%
Secured loans
The borrowings of the subsidiary companies, Retra Holdings
Limited and Badgequo Limited, are secured by a debenture including
a fixed charge over the present leasehold property, a first fixed
charge over book and other debts and a first floating charge over
all assets of those companies.
Bank borrowings include stock and invoice financing facilities
amounting to GBPNil (2021: GBPNil). The carrying value of assets
pledged as collateral approximates to GBP10,259,284 (2021:
GBP8,205,000).
17. Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using tax rate of 19% - 25%.
The movement on the deferred tax account is as shown below:
Deferred tax liability Deferred tax asset
Year ended 31 December Year ended 31 December
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance (557) (1,000) 500 581
Foreign exchange adjustment - - (71) -
Recognised in profit
and loss:
Tax expense 377 443 - (81)
Closing balance (180) (557) 429 500
The deferred tax liability has arisen due to the timing
difference on accelerated capital allowances amounting to GBP65,000
(2021: GBP65,000) and on the intangible assets acquired in a
business combination amounting to GBP115,000 (2021:
GBP492,000).
Deferred tax asset has arisen from loss carry forward for LMS
amounting to GBP1,716,000 (2021: GBP1,995,000) and recognised at a
rate of 25%.
18. Dividends
Year to December 2022 Paid Amount per Total
share GBP'000
05 July
Final dividend - 2021 22 3.5p 2,686
Interim dividend - 2022 25 Nov 22 2.6p 1,996
4,682
Year to December 2021 Paid Amount per Total
share GBP'000
05 July
Final dividend - 2020 21 3.0p 2,303
Interim dividend - 2021 11 Nov 21 2.5p 1,919
4,222
The group has proposed a final dividend for the year ended 31
December 2022 of 4.5p per share.
19. Called up share capital
No. of
shares
'000 GBP'000
Allotted and issued
Ordinary shares of GBP0.25 each:
At 1 January 2021 76,749 19,187
Issued at 12 May 2021 3 1
At 31 December 2021 76,752 19,188
At 31 December 2022 76,752 19,188
All ordinary shares carry equal rights.
20. Reserves
Share premium
The share premium reserve contains the premium arising on the
issue of equity shares, net of issue expenses incurred by the
Company.
Retained earnings
Retained earnings represent cumulative profits or losses, net of
dividends and other adjustments.
Merger reserve
The merger reserve arose due to the group reconstruction in
2016. The effect of the application of merger accounting principles
on the merger reserve is that the share capital and other
distributable reserves that existed in Warpaint Cosmetics Group
Limited (the Company) as at the point Warpaint London PLC legally
acquired Warpaint Cosmetics Group Limited is accounted for as if it
had been in existence as at 31 December 2015 and as at 1 January
2015. The corresponding entry being the merger reserve so the
overall net assets as at the comparative dates are not
affected.
Share option reserves
'Share option reserves' have arisen from the share-based payment
charge. The shares over which the options were issued are that of
the parent company. 'Other reserves' have also arisen on
translation of foreign subsidiaries.
21. Share based payments
Movements in the number of options and their weighted average
exercise prices are as follows:
Weighted average Number Weighted average Number of
exercise price of options exercise price options
(pence) (pence)
2022 2022 2021 2021
Outstanding at the beginning
of the year 226.00 4,860,830 233.50 4,528,962
Granted during the year 127.95 220,000 122.00 400,000
Expired during the year 55.40 (26,842) 115.00 (68,132)
Other adjustments 80.09 15,526
Outstanding at the end
of the year 222.20 5,069,514 226.00 4,860,830
The weighted average remaining contractual life of the options
is 1.34 years (2021: 2.64 years).
The following options over ordinary shares have been granted by
the Company:
Exercise price Exercise period Number of options
Pence (years)
29 June 2017 237.50 3 255,051
24 September 2018 254.50 5 3,837,462
20 May 2020 49.50 3 454,686
25 May 2021 122.0 3 400,000
01 March 2022 127.50 3 200,000
17 October 2022 132.50 3 20,000
At the date of grant, the options were valued using the
Black-Scholes option pricing model. The fair value per options
granted and the assumptions used in the calculations were as
follows:
17 Oct 01 Mar 25 May 20 May 24 Sept 29 June
22 22 21 20 18 17
Expected volatility 48% 54% 78% 76% 78% 64%
Expected life (years) 3 3 3 3 2-4 3
Risk-free interest
rate 2.77% 0.99% 0.15% 0.01% 1.61% 0.38%
Expected dividend
yield 3.24% 4.94% 1.76% 2.08% 1.53% 2%
Fair value per option
(GBP) 0.383 0.354 0.552 0.213 0.422 0.963
On 29 June 2017, the Company granted in aggregate over 277,788
ordinary shares of 25 pence each in the Company under the
Enterprise Management Incentive Scheme to all staff members,
including the Company's Chief Financial Officer, Neil Rodol, but
excluding all other directors. The Options are exercisable for a
period of seven years from 29 June 2020 (three years after the
grant date), subject to certain performance conditions being met,
including that the compound annual growth rate in the Company's
earnings per share must exceed 8 per cent over the three financial
years commencing 1 January 2017, subject to the discretion of the
Company's remuneration committee.
On 24 September 2018, share options with an exercise price of
254.50p, equal to the closing mid-market value immediately prior to
the date of grant, and subject to the achievement of demanding
Earnings Per Share ("EPS") and Total Shareholder Return ("TSR")
performance conditions measured over a period of up to 5 years were
granted to certain directors.
The share options are exercisable up to 10 years from the date
of grant. Vesting is subject to the performance conditions set out
below:
-- 50% of the award is subject to an adjusted EPS growth performance
condition. One third of this portion of the award will be tested
and vest after three, four and five years. Vesting is based
on adjusted EPS in the years ending Dec 2020, 2021 and 2022.
Threshold vesting of 20% of the award is achieved at 12.5%
compound annual EPS growth and full vesting at 22.5% compound
annual EPS growth, measured from 31 December 2017.
-- 50% of the award is subject to an absolute TSR performance
condition tested following the announcement of results for
the years ending 31 December 2020, 2021 and 2022. Threshold
vesting of 20% of the award is achieved at 8% compound annual
TSR and straight line vesting up to 100% vesting at 18% compound
annual TSR, measured from 31 December 2017.
An additional grant of 460,494 share options with the same terms
was made on the same date to three senior management individuals of
the Company.
On 20 May 2020, the Company granted, in aggregate, 454,686 share
options with an exercise price of 49.50 pence per Ordinary share
under a Company Share Option Plan (CSOP). Key persons discharging
managerial responsibilities (PDMR's) were awarded a cumulative
112,106 share options as part of their annual remuneration and
incentivisation packages. The remaining 342,580 options granted
have been awarded to other members of the company's workforce. No
directors of the company were awarded options in relation to this
CSOP. The options are exercisable for a period of seven years from
20 May 2023, subject to the same performance conditions dictated by
the Enterprise Management Incentive Scheme detailed above.
On 25 May 2021, the Company granted, in aggregate, 400,000 share
options with an exercise price of 122.0 pence per Ordinary share
under a Company Share Option Plan (CSOP). Key persons discharging
managerial responsibilities (PDMR's) were awarded a cumulative
400,000 share options as part of their annual remuneration and
incentivisation packages. The options are exercisable for a period
of seven years from 24 May 2024 and are not subject to the
satisfaction of any performance criteria.
On 1 March 2022, the Company granted in aggregate 200,000
ordinary shares of 25 pence each at an exercise price of 127.5
pence each under an unapproved scheme. These were granted to a
consultancy company Ward & Hagon Management Consulting LLP
("Ward & Hagon") appointed to assist with the implementation of
the Company's strategic growth plan in recognition of the success
of the arrangements at the time and to incentivise the consultancy
company to align with the long-term interest of shareholders. The
options are exercisable between three and ten years from the date
of grant.
On 17 October 2022, the Company granted in aggregate 20,000
ordinary shares of 132.5 pence each under a Company Share Option
Plan (CSOP) scheme. The options are exercisable between three and
ten years from the date of grant, with the usual first exercise
date being the 3rd anniversary of the date of the grant.
The charge in the statement of comprehensive income for the
share-based payments during the year was GBP192,986 (2021:
GBP177,000).
22. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation.
Key management personnel are considered to be the directors.
Compensation of the directors is disclosed in note 4 with the
exception of dividends which are disclosed in note 18.
During 2022, Warpaint Cosmetics (2014) Limited paid rent in the
sum of GBP138,000 (2021: GBP120,000) to Direct Supplies (2014)
Group Limited, of which S Bazini is a director. At the year end the
amount due to Direct Supplies (2014) Group Limited was GBP34,500
(2021: GBP30,000).
During 2022, Warpaint Cosmetics (2014) Limited paid rent in the
sum of GBP138,000 (2021: GBP120,000) to Trading Scents Group
Limited, of which E Macleod is a director. At the year end the
amount due to Trading Scents Group Limited was GBP34,500 (2021:
GBP30,000).
During 2022, Warpaint Cosmetics (2014) Limited paid rent in the
sum of GBP138,000 (2021: GBP120,000) to Warpaint Cosmetics limited,
of which S Bazini and E Macleod are directors. At the year end the
amount due to Warpaint Cosmetics Limited was GBP34,500 (2021:
GBP30,000).
During 2022, Retra Holdings Limited paid rent in the sum of
GBP404,265 (2021: GBP340,000) to Warpaint Cosmetics Limited, of
which E Macleod and S Bazini are directors.
Paul Hagon, an executive director of Warpaint London plc
("Warpaint"), is a member of Ward & Hagon. Ward & Hagon
were paid GBP177,437 fees (2021: GBP200,0000), GBP169,172
commission (2021: GBP20,010) and expenses of GBP7,404 in 2022
(2021: GBP7,941) and were issued with 200,000 share options,
details of which are disclosed in note 21.
23. Financial instruments
Capital risk management
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's
competitiveness and flexibility. The Group reports in Sterling. All
funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors.
The Group manages its capital to ensure its ability to continue
as a going concern and to maintain an optimal capital structure to
reduce cost of capital. The capital structure of the Group
comprises equity attributable to equity holders of the Company
consisting of invested capital as disclosed in the Statement of
Changes in Equity and cash and cash equivalents.
The Group's invested capital is made up of share capital, share
premium and retained earnings totalling GBP51,926,000 as at 31
December 2022 (2021: GBP50,358,000) as shown in the statement of
changes in equity.
The Group maintains or adjusts its capital structure through the
payment of dividends to shareholders and issue of new shares.
Year ended 31 December
2022 2021
GBP'000 GBP'000
Financial assets
Financial assets at amortised cost:
Trade and other receivables 10,078 8,781
Financial assets measured at fair value through
the profit and loss:
Cash and cash equivalents 5,865 4,072
Derivative financial instruments 8 545
15,951 13,398
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables (1,469) (1,913)
Loan and borrowings (5,862) (3,147)
Financial liabilities measured at fair value
through the profit and loss:
Derivative financial instruments (600) -
(7,931) (5,060)
Net 8,020 8,338
Financial assets measured at fair value through the profit and
loss comprise cash and cash equivalents and derivative financial
instruments.
Financial assets measured at amortised cost comprise trade
receivables and other receivables.
Financial liabilities measured at amortised cost comprise trade
payables and other payables, and bank loans.
Cash and cash equivalents
This comprises cash and short-term deposits held by the Group.
The carrying amount of these assets approximates their fair
value.
General risk management principles
The Group's activities expose it to a variety of risks including
market risk (interest rate risk), credit risk and liquidity risk.
The Group manages these risks through an effective risk management
programme and through this programme, the Board seeks to minimise
potential adverse effects on the Group's financial performance. The
Directors have an overall responsibility for the establishment of
the Group's risk management framework. A formal risk assessment and
management framework for assessing, monitoring and managing the
strategic, operational and financial risks of the Group is in place
to ensure appropriate risk management of its operations.
The following represent the key financial risks that the Group
faces:
Market risk
The Group's activities expose it to the financial risk of
interest rates.
Interest rate risk
The Group's interest rate exposure arises mainly from its
interest-bearing borrowings. Contractual agreements entered into a
floating rate expose the entity to cash flow risk. Interest rate
risk also arises on
the Group's cash and cash equivalents. The Group does not enter
into derivative transactions in order to hedge against its exposure
to interest rate fluctuations. An increase in the rate of interest
by 100 basis points would decrease profits by GBP12,000 (2021:
GBP18,000) with an increase in profits by the same amount for a
decrease in the rate of interest by 100 basis points.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or a counterparty to a financial instrument fails to meet
its contractual obligations.
The Group's principal financial assets are trade and other
receivables and bank balances and cash. The credit risk on liquid
funds is limited because the counterparties are banks with high
credit-ratings assigned by international credit-rating
agencies.
The Group's credit risk is primarily attributable to trade
receivables. The Group has a policy of assessing credit worthiness
of potential and existing customers before entering into
transactions. There is ongoing credit evaluation on the financial
condition of accounts receivable using independent ratings where
available or by assessment of the customer's credit quality based
on its financial position, past experience and other factors. The
Group manages the collection of its receivables through its ongoing
contact with customers so as to ensure that any potential issues
that could result in non-payment of the amounts due are addressed
as soon as identified. The Group makes a provision in the financial
statements for expected credit losses based on an evaluation of
historical data and applies percentages based on the ageing of
trade receivables.
The maximum exposure to credit risk in respect of the above is
the carrying value of financial assets recorded in the financial
statements. At 31 December 2022, the Group has trade receivables of
GBP9,865,000 (2021: GBP8,689,000).
The following table provides an analysis of trade receivables
that were due, but not impaired, at each financial year end. The
Group believes that the balances are ultimately recoverable based
on a review of past impairment history and the current financial
status of customers.
As at 31 December
2022 2021
GBP'000 GBP'000
Current 5,502 4,811
1 - 30 days 2,680 2,006
31 - 60 days 1,164 1,516
61 - 90 days 375 183
91 + days 214 239
Provision for impairment of trade receivables (70) (66)
Total trade receivables - net 9,865 8,689
The Directors are unaware of any factors affecting the
recoverability of outstanding balances at 31 December 2022 and,
consequently, no further provisions have been made for bad and
doubtful debts.
The allowance for bad debts has been calculated using a 12-month
lifetime expected credit loss model, as set out below, in
accordance with IFRS 9.
As at 31 December As at 31 December
2022 2021
GBP'000 % GBP'000 GBP'000 % GBP'000
Current 5,432 0.135 8 4,811 0.135 6
1 - 30 days 2,680 0.405 11 2,006 0.405 8
31 - 60 days 1,164 1.215 14 1,516 1.215 18
61 - 90 days 375 3.645 14 183 3.645 8
91 + days 214 10.935 23 239 10.935 26
70 66
Credit quality of financial assets
As at 31 December
2022 2021
Trade receivables, gross (note 13): GBP'000 GBP'000
Receivable from large companies (see below
for definition) 5,115 2,600
Receivable from small or medium-sized companies 386 2,211
Total neither past due nor impaired 5,501 4,811
For the purpose of the Group's monitoring of credit quality,
large companies or groups are those that, based on information
available to management at the point of initially contracting with
the entity, have annual turnover in excess of GBP100,000 (2021:
GBP100,000).
As at 31 December
2022 2021
Past due but not impaired: GBP'000 GBP'000
Less than 30 days overdue 2,680 2,006
30 - 90 days overdue 1,684 1,872
Total past due but not impaired 4,364 3,878
Lifetime expected loss provision:
Less than 30 days overdue - -
30 - 90 days overdue 70 66
Total lifetime expected loss provision (gross) 70 66
Less: Impairment provision (70) (66)
Total trade receivables, net of provision
for impairment 9,865 8,689
Cash and cash equivalents, neither past due nor impaired
(Moody's ratings of respective counterparties):
As at 31 December
2022 2021
GBP'000 GBP'000
AAA rated - 6
AA rated - 1,723
A rated 5,862 -
BAA rated 3 2,343
Total cash and cash equivalents 5,865 4,072
Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due. To achieve
this aim, it closely monitors its access to bank and other credit
facilities in comparison to its outstanding commitments on a
regular basis to ensure that it has sufficient funds to meet the
obligations as they fall due.
The Board receives monthly cash balance updates and weekly sales
and margin reports marked against budget. At the start of each year
the Board approve and adopt a budget and cash flow for the next 24
months, the CFO monitors these and reports any material divergences
to the Board, so that management can ensure that sufficient funding
is in place as it is required. The budget and cash flow are updated
at the end of each year, for the following 24 months.
The tables below summarise the maturity profile of the combined
group's non-derivative financial liabilities at each financial year
end based on contractual undiscounted payments, including estimated
interest payments where applicable:
Year ended 31 December 2022
Less than Between Between Over 5 years Total
6 months 6 months 1 and 5 years
and 1 year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 1,368 - - - 1,368
Other payables 1,395 - - - 1,395
Accruals 3,225 - - - 3,225
Loans and borrowings 508 507 3,498 1,349 5,862
6,496 507 3,498 1,349 11,850
Year ended 31 December 2021
Less than Between 6 months Between Over 5 Total
6 months and 1 year 1 and 5 years
years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 1,079 - - - 1,079
Other payables 1,137 - - - 1,137
Accruals 4,077 - - - 4,077
Loans and borrowings 302 308 2,261 276 3,147
6,595 308 2,261 276 9,440
The borrowings of the subsidiary companies, Retra Holdings
Limited and Badgequo Limited, are secured by a debenture including
a fixed charge over the present leasehold property, a first fixed
charge over book and other debts and a first floating charge over
all assets of those companies.
Foreign exchange risk
The Group operates in a number of markets across the world and
is exposed to foreign exchange risk arising from various currency
exposure in respect of cash and cash equivalents, trade receivables
and trade payables, in particular with respect to the US dollar. At
December 2022, there were total sums of GBP1,828,145 (2021:
GBP939,000) held in foreign currency.
The Group is also exposed to currency risk as the assets one of
its subsidiary are denominated in US Dollars. At 31 December 2022,
the net foreign liability was GBP 0.6m (2021: GBP0.7m). Differences
that arise from the translation of these assets from US dollar to
sterling are recognised in other comprehensive income in the year
and the cumulative effect as a separate component in equity. The
Group does not hedge this translation exposure to its equity.
A 5% weakening of sterling would result in a GBP18,222 increase
in reported profits and equity, while a 5% strengthening of
sterling would result in GBP16,487 decrease in profits and
equity.
Marvin Leeds Marketing Services, Inc.
As at 31 December
2022 2022
USD GBP
$'000 GBP'000
Profit After Tax 416,845 346,217
5% weakening of US dollar 416,845 364,439
Increase profits 18,222
5% strengthening of US dollar 416,845 329,730
Decrease profits (16,487)
Foreign exchange risk
2022 2021
GBP'000 GBP'000
Derivatives carried at fair value:
Exchange (loss)/gain on forward foreign currency
contracts (592) 545
The Group, along with other businesses, will face the risk of
inflationary pressures through commodities cost increases.
Derivatives: Foreign currency forward contracts
The Group enters into forward foreign exchange contracts and
options to manage the risk associated with anticipated sale and
purchase transactions which are denominated in foreign
currencies.
Derivatives are recognised initially at their fair value at the
date the derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The
resulting gain or loss is recognised immediately in the profit or
loss unless the derivative is designed and effective as a hedging
instrument, in which event the timing and recognition in the profit
or loss depends on the nature of the hedging relationship.
As at 31 December 2022, the group has in total 34 (2021: 40)
forward foreign exchange contracts outstanding, made up of regular
forward foreign exchange contracts, and more complex forward
foreign exchange contracts known as Window Barrier Accruals and
Counter TARNs ( targeted accrual redemption note) . Derivative
financial instruments are carried at fair value.
Regular forward foreign exchange contracts:
At 31 December 2022, there were 30 (2021: 40) regular forward
foreign exchange contracts, to buy US dollars and sell Euros, for
an agreed amount of foreign currency on a specific future date. The
purchase or sale is made at a predetermined exchange rate. The
outcome is certain and will deliver a known fixed amount. The
following table details the regular forward foreign exchange
contracts outstanding as at the balance sheet date.
a) Contracted exchange rate 2022 2021 2022 2021
GBP/$ GBP/EUR
3 months or less 1.2707 1.3730 n/a n/a
3 to 6 months 1.1447 1.3866 1.1485 1.1645
6 to 12 months 1.1407 1.3813 1.1414 1.1491
12 months or more n/a n/a 1.1192 n/a
b) Contract value 2022 2021 2022 2021
GBP/$ GBP/EUR
GBP'000 GBP'000 GBP'000 GBP'000
3 months or less 1,448 728 0 0
3 to 6 months 699 13,159 849 1,072
6 to 12 months 438 5,447 1,095 2,259
12 months or more - - 1,385 -
2,585 19,334 3,329 3,331
c) Foreign currency 2022 2021 2022 2021
$'000 $'000 EUR'000 EUR'000
3 months or less 1,840 1,000 0 0
3 to 6 months 800 18,250 975 1,250
6 to 12 months 500 7,535 1,250 2,600
12 months or more 0 0 1,550 0
3,140 26,785 3,775 3,850
Window Barrier Accrual forward foreign exchange contracts:
At 31 December 2022, there were 3 Window Barrier Accrual forward
foreign exchange contracts to buy US dollars (2021: nil).
Window Barrier Accrual s have an agreed US dollar purchase
Forward Rate, a start date known as the Barrier date, an end date
known as the Expiration date, a rate below which the forward
foreign exchange contract becomes worthless known as the Knock Out
Rate, and a Notional Amount of currency to purchase at the Forward
Rate depending on the US dollar Spot Rate at the Expiration
Date.
Each Window Barrier Accrual contract has been designed to cover
the currency needs of the business throughout 2023 and includes 12
Barrier and Expiration dates, one in each calendar month, so that
the forward foreign exchange contract is split evenly across the
year.
If from month to month between the Barrier date and the
following Expiration date, the Spot Rate of the US dollar falls
below the Knock Out Rate, then there is no obligation, and no US
dollars can be purchased. Otherwise, if on the Expiration date Spot
Rate is below the Forward Rate, then the Notional Amount of US
dollars will be purchased at the Forward Rate, however if on the
Expiration date Spot Rate is above the Forward Rate, then double
the Notional Amount of US dollars will be purchased at the Forward
Rate.
The following table details the Window Barrier Accrual forward
foreign exchange contracts outstanding as at the balance sheet
date.
Window Forward Barrier dates Expiration Knock Notional Double
Barrier Rate (12 in total) dates Out Rate Amount the Notional
Accrual (12 in total) Amount
16 Dec 2022 17 Jan 2023
Contract through to through to
1 $1.1950 16 Nov 2023 15 Dec 2023 $1.0590 $500,000 $1,000,000
-------- --------------- --------------- ---------- ----------- --------------
15 Dec 2022 13 Jan 2023
Contract through to through to
2 $1.2020 14 Nov 2023 13 Dec 2023 $1.0590 $75,000 $150,000
-------- --------------- --------------- ---------- ----------- --------------
15 Dec 2022 13 Jan 2023
Contract through to through to
3 $1.2000 14 Nov 2023 13 Dec 2023 $1.0590 $425,000 $850,000
-------- --------------- --------------- ---------- ----------- --------------
Maximum
total per
month $1,000,000 $2,000,000
-------- --------------- --------------- ---------- ----------- --------------
As at 31 March 2023 the Group have purchased $6,000,000 at an
average rate of $1.1976 using the Window Barrier Accrual forward
foreign exchange contracts.
Counter TARN forward foreign exchange contracts:
At 31 December 2022, there was 1 Counter TARN forward foreign
exchange contract to buy US dollars (2021: nil).
Counter TARNs have an agreed US dollar purchase Forward Rate, an
end date known as the Expiration date, a Target which is the agreed
number of times the contract allows the purchase of dollars when
the Spot Rate is less than the Forward rate at the Expiration date,
a Fixing Count which increments by 1 each time the contract allows
the purchase of dollars when the Spot Rate is less than the Forward
rate, a Notional Amount of currency to purchase at the Forward Rate
depending on the US dollar Spot Rate at the Expiration Date, and a
Knock Out Event which is when the Fixing Count total has reached
the agreed Target and thereafter the forward foreign exchange
contract becomes worthless.
The Counter TARN contract has been designed to cover the
currency needs of the business throughout 2023 and includes 12
Expiration dates, one in each calendar month, so that the forward
foreign exchange contract is split evenly across the year.
If from month to month on the Expiration dates Spot Rate is
below the Forward Rate, then the Notional Amount of US dollars will
be purchased at the Forward Rate and the Fixing Count will
increment by 1, however if on the Expiration dates Spot Rate is
above the Forward Rate, then double the Notional Amount of US
dollars will be purchased at the Forward Rate and the Fixing Count
will not change. If at any time the Fixing Count reaches the Target
for the contract, then this triggers a Knock Out Event which ends
the contract and no further US dollars can be purchased.
The following table details the Counter TARN forward foreign
exchange contract outstanding as at the balance sheet date.
Counter TARN Forward Expiration Target Notional Double
Rate dates (12 in Amount the Notional
total) Amount
12 Jan 2023
through to 13
Contract 1 $1.2000 Dec 2023 5 $500,000 $1,000,000
-------- --------------- ------- --------- --------------
Maximum total
per month $500,000 $1,000,000
-------- --------------- ------- --------- --------------
As at 31 March 2023 the Group have purchased $3,000,000 at a
rate of $1.2000 using the Counter TARN forward foreign exchange
contract.
Management has applied a Monte Carlo model approach when
calculating the fair value of the Window Barrier Accrual and
Counter TARN foreign exchange hedging instruments at the year end.
This involved making assumptions and judgements around the future
likely value of the US dollar compared to the Forward Rate of the
exchange contracts, using statistical trials based around historic
data of the US dollar exchange rate versus pound sterling. The
Monte Carlo model predicted that the Window Barrier Accrual forward
foreign exchange contracts would in total allow the Group to
purchase $18 million, out of a possible maximum $24 million, and
the Counter TARN forward foreign exchange contract would in total
allow the Group to purchase $7.4 million, out of a possible maximum
$12 million.
Foreign currency forward contract assets and liabilities are
presented in the line 'Derivative financial instruments' (either as
asset or as liabilities) within the Statement of Financial
Position.
Fair value of financial assets and liabilities
Financial instruments are measured in accordance with the
accounting policy set out in Note 1. All financial instruments
carrying value approximates its fair value with the exception of
foreign currency forward contracts and options which are considered
Level 2. The Directors consider that there is no significant
difference between the book value and fair value of the Group's
financial assets and liabilities and is considered to be
immaterial.
24. Pension costs
The Group operates a defined contribution pension scheme.
Contributions payable to the company's pension scheme are charged
to the statement of comprehensive income in the period to which
they relate. The amount charged to profit in each period was
GBP101,003 (2021: GBP88,339).
25. Controlling party
In the opinion of the directors there is no ultimate controlling
party.
26. Earnings per share
Basic earnings per share are calculated by dividing profit or
loss attributable to ordinary equity holders by the weighted
average number of ordinary shares in issue during the period.
The weighted average number of shares for the current year
includes the shares issued as consideration for the acquisition of
Retra Holdings Limited on 30 November 2017.
2022 2021
Basic earnings per share (pence) 8.14 3.69
Diluted earnings per share (pence) 8.11 3.68
The calculation of basic and diluted earnings per
share is based on the following data:
2022 2021
Earnings GBP'000 GBP'000
Earnings for the purpose of basic earnings per
share, being the net profit 6,250 2,830
Number of shares 2022 2021
Weighted number of ordinary shares for the purpose
of basic earnings per share 76,752,355 76,751,187
Potentially dilutive shares awarded 296,256 62,699
Weighted number of ordinary shares for the purpose
of diluted earnings per share 77,048,611 76,813,886
4,063,881 share options (2021: 4,542,988) in issue have not been
included in the computation of diluted earnings per share, as per
IAS 33, the share options are not dilutive as they are not likely
to be exercised given that the exercise price is higher than the
average market price.
The additional 385,633 share options granted on 20 May 2020,
additional 400,000 share options granted 24 May 2021, 200,000 share
options granted 01 March 2022 and 20,000 share options granted 17
October 2022 have been included in the computation of diluted
earnings per share as the exercise prices of the options are below
the average annual market price of Ordinary shares.
27. Notes supporting statement of cash flows
Non-cash transactions from financing activities are shown in the
table below.
Non-current Current
loans and loans and
borrowings borrowings Total
GBP'000 GBP'000 GBP'000
At 1 January 2021 3,045 914 3,959
Non-cash flows - 169 169
Cash flows - (981) (981)
Reclassification from Non-current loans
and borrowings to current loans and
borrowings (508) 508 -
At 31 December 2021 2,537 610 3,147
Non-cash flows 3,551 - 3,551
Cash flows - (836) (836)
Reclassification from Non-current loans
and borrowings to current loans and
borrowings (1,241) 1,241 -
At 31 December 2022 4,847 1,015 5,862
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FR NKPBNOBKDOQB
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