Brand Architekts Grp - Final Results
08/11/2022 07:00
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RNS Number : 5879F Brand Architekts Group PLC 08 November 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
REGULATION 2014/596/EU (WHICH FORMS PART OF DOMESTIC UK LAW PURSUANT TO THE
EUROPEAN UNION (WITHDRAWAL) ACT 2018 (THE "EUWA")) ("UK MAR"). UPON THE
PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION (AS DEFINED IN UK
MAR) IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
Brand Architekts Group plc
("Brand Architekts" or the "Group")
Final Results
Brand Architekts Group plc, a market leader in the development and supply of
beauty and personal care brands, announces its Full Year results to 30 June
2022.
The year under review reflects one of the most turbulent and testing for our
business, as we have been faced with the ongoing impact of COVID related
supply chain issues affecting retailers' buying patterns, freight costs,
labour inflation and therefore margin. Despite this, good progress has been
made in several key areas.
Business highlights:
· Transitioned the business strategy to focus on profitability and our Invest
& Nurture brands.
· Successful relaunch of seven brands in September & October 2021 (Dr Salts;
Root Perfect; Argan +; SenSpa; Kind Natured; Happy Naturals; Beautopia).
· The relaunch of Root Perfect resulted in strong distribution gains in 300+
Normal stores across Europe and Morrisons UK.
· An increase in International sales driven by Dirty Works distribution gains
(Peru, Chile, USA).
· Continued UK distribution gains for Super Facialist (Tesco, Morrisons; Look
Fantastic)
· Successfully completed the acquisition of Innovaderma PLC in May 2022 and
subsequent integration of brands and team is on track
Financial highlights:
· Group statutory revenue of £14.3 million (FY 2021: £15.9m), a decrease of
10% as the Group navigated the challenging external environment and the impact
of reduced consumer confidence on demand.
· Excluding the contribution from Innovaderma, which was successfully acquired
on 31 May 2022 and which delivered £0.8m of sales in June, organic sales
decreased 15% on the prior year.
· Underlying gross profit margin, which excludes exceptional adjustments (in the
comparative period), was significantly impacted and declined to 33.5% (2021:
36.9%). This reflects a wide range of cost pressures felt throughout our
supply chain, that we could not pass onto retailers due to previously agreed
pricing commitments.
· Given the challenging trading environment the Group generated an underlying
operating loss of £1.8m, £1.5m higher than the prior year (2021: £0.3m).
· The Group retains a net cash position of £11.3m at the year end (after the
payment of the £2.0m cash consideration to acquire Innovaderma and the
majority of the associated transaction costs (£0.8m).
2022 2021
Reported results from continuing operations
Revenue (Note 2 of the financial statements) £14.3m £15.9m
Underlying operating loss(1) £(1.8)m £(0.3)m
Loss before taxation £(4.1)m £(1.9)m
Basic loss per share (23.9)p (13.1)p
Net cash £11.3m £19.0m
¹Underlying operating loss is calculated before exceptional items,
share-based payments and amortisation of acquisition-related
intangibles.
Quentin Higham, Chief Executive, commented:
"The past year has been set against a backdrop of exceptional macroeconomic
headwinds. The Group has faced unprecedented challenges as a result and we
have had to show agility in order to continue to deliver for our customers. I
would like to thank all of our colleagues who have worked tirelessly
throughout the period and continue to show their commitment to Brand
Architekts.
The acquisition of Innovaderma was a significant milestone for the Group. We
now have an improved portfolio of core brands that we can scale, as well as
realising the benefits of a number of cost synergies. We are focused on
successfully delivering our integration plan, growing our international
presence and implementing strategies that focus on profitability, whilst
capitalising on the Group's new online presence, as well as its retailer
customer base.
Whilst we recognise that the future is difficult to predict with any certainty
as the true impact of the inflationary environment remains unknown, we remain
confident in our long-term strategy. The past few years have not been easy,
but NPD continues at pace, and we have diversified products, channels and
markets which stand us in good stead. This gives us confidence for our future
and in our ability to deliver value for our shareholders."
For further information please contact:
Brand Architekts Group PLC via Alma
Quentin Higham / Tom Carter
Singer Capital Markets (Nominated adviser and broker) 0207496 3000
Shaun Dobson / Jen Boorer / Dan Dearden-Williams
Alma PR 0203 405 0205
Josh Royston / Sam Modlin
Chairman's Statement
The period under review has been one of the most turbulent and testing for our
business, as we have been faced with the ongoing impact of COVID related
supply chain issues, affecting retailers' buying patterns, freight costs,
labour inflation and therefore margin. Whilst we are very disappointed with
our financial performance, good progress has been made in several key areas.
My executive colleagues have worked hard to better position the business, by
initiating a deep dive review of our brand portfolio, so that we focus on
driving profitability by focussing on our brands that are margin accretive and
provide problem-solving solutions. The acquisition of Innovaderma plc towards
the end of the financial year was an important step forward for the business,
bringing a strong brand, Skinny Tan, to our portfolio as well as accelerating
our digital skills.
The Group delivered turnover of £14.3 million (FY 2021: £15.9m), a decrease
of 10%. Excluding the contribution from Innovaderma, which was successfully
acquired on 31 May 2022 and which delivered £0.8m of sales in June, Group
sales decreased 15% on the prior year. The Group retains a net cash position
of £11.3m at the year end (after the payment of the cash consideration to
acquire Innovaderma and the majority of the associated transaction costs).
Given the exacting trading environment the Group generated an underlying
operating loss of £1.8m, £1.5m higher than the prior year (2021: £0.3m).
Despite these challenges, we have focused on implementing and making progress
against our brand development and brand reach strategic pillars. Our goal to
reach £50m of revenue by 2025 has been significantly affected by the wider
external environment, therefore it is difficult to predict when we will
achieve this milestone. We have taken the decision to refocus the strategy,
with an emphasis on a return to profitability.
Notwithstanding the external factors, good progress has been made during the
period and post period-end, including:
· transition of the business strategy to focus on profitability and
our Invest and Nurture brands
· successful relaunch of seven brands in September and October 2021
(Dr Salts; Root Perfect; Argan +; SenSpa; Kind Natured; Happy Naturals;
Beautopia).
· the relaunch of Root Perfect resulted in strong distribution
gains in 300+ Normal stores across Europe and Morrisons UK.
· an increase in International sales driven by Dirty Works
distribution gains (Peru, Chile, USA)
· continued UK distribution gains for Super Facialist (Tesco,
Morrisons; Look Fantastic)
· successful integration of the Innovaderma brands and team
Further information of the development of our strategic pillars into next year
can be found in the CEO's Statement.
Across the Group, we have gained significant experience throughout the year as
we emerge into a new marketplace that has come through COVID and is now
battling unprecedented external challenges. We are still on our journey, but
it is imperative that we reflect and adapt in order to ensure that we are well
placed to realise our ambitions.
On 31 May 2022, we completed the acquisition of Innovaderma plc. The combined
Group is now of greater scale with strong financial foundations, has a
portfolio of problem-solving challenger brands and several complementary
competencies. The management team are focused upon realising both the
strategic and financial benefits of the newly transformed Group. The immediate
priorities that lie ahead are successfully delivering our integration plan,
growing our international presence and implementing strategies that focus on
profitability, whilst capitalising on the Group's new online presence, as well
as its retailer customer base.
Following the completion of the acquisition of Innovaderma, we were pleased to
appoint Simon Pyper as an independent Non-Executive Director. Simon's
first-hand knowledge of Innovaderma is proving to be invaluable in ensuring a
smooth integration of the business. He also brings financial governance
expertise, extensive experience from the retail sector, broad development and
implementation of M&A strategies and an excellent track record in
delivering revenue and earnings growth.
As previously announced, it is intended that Edward Beale will retire as a
Non-Executive Director following the publication of these results. Following
Edward's retirement, Simon will take the role of Chairman of the Audit
Committee.
Outlook
We face a very challenging marketplace with headwinds including inflation,
reduction of consumer discretionary spend, retailer intransigence and a more
challenging DTC environment. Our long-term goals remain in place, but our
short-term objectives demand an early return to profitability and cash
generation whilst preserving our balance sheet strength. We will look to build
on the combination with Innovaderma and all the good repositioning work
already done by the executive team. We will be focussing on improving DTC
profitability and working hard with our suppliers to mitigate cost price
increases. The immediate outlook, however, is challenging but we remain
positive for our future development and we are alive to opportunities.
On behalf of the Board, I would like to thank our staff for their hard work
and commitment throughout a period of challenges and of change.
CEO Statement
As the Chairman has outlined, 2022 proved to be a particularly exacting and
disappointing year, given how the residual impact of COVID-19 and the well
documented socio-economic and geopolitical issues adversely affected supply
chains, costs, logistics and consumer confidence. Despite these challenges the
team continued to embody our corporate values of collaboration, passion,
agility and innovation and remained focused on developing and implementing the
transformational strategies that will enable the Group to be better equipped
to manage any economic turbulence and accelerate our growth aspirations. The
notable success of the year has been the acquisition of Innovaderma plc.
Bringing together two great teams, a complementary portfolio of brands and
cross functional skills, the acquisition will help address the inherent issues
of scale and unbalanced trading patterns, as well as bringing in greater DTC
expertise.
Two years ago, we launched our Project 50 vision, which we stated would be
driven by organic growth and through M&A. Since the completion of the
acquisition, our focus has been on realising the strategic and financial
benefits of the deal to help transform the Group. Immediate priorities have
been implementing an effective integration plan, focussing on an omni-channel
sales approach (domestic and internationally) and delivering both operations'
strategies. The acquisition has allowed us to review our strategic goals and
adapt them to reflect the needs of the enlarged business and the change in
global trading conditions, in particular the effect of increased costs on our
gross margins. The effects on the supply chain and our manufacturing costs,
has meant that our overall group strategy must evolve, so that we make
delivering profit our highest priority. Although net sales growth remains an
important financial deliverable, given our issue of scale, our number one
focus is improving group margin and therefore profit. Over the next few years,
we will focus our resources on developing brands and categories that can
command higher retail prices, engender strong consumer loyalty and stronger
margins by delivering highly efficacious problem-solving solutions.
As we transition it is vital that we learn and adapt our strategy, but remain
focused on developing our brand development, brand reach and environmental
strategic pillars. Brand Architekts' business proposition and ultimately its
point of difference, will be to develop and market brands that address
specific consumer needs through the development of performance led products
that utilise either proprietary technology or bespoke formulations, whilst at
the same time "exceeding the expectations of everyday beauty".
1. Brand Development
Over the next three years we will look to evolve away from fragrance led,
indulgent and gift brands categories and focus our resources on developing
profitable solution-led brands. Despite the obvious benefits of an enlarged
group, we now have a portfolio of 18 brands, some of which are subscale and do
not contribute an appropriate level of return relative to the ongoing
investment required. We have taken time to review and question the role that
each brand and category can, and should play, in the group. This will help the
business prioritise and focus.
The portfolio is now split into 3 brand categories: Invest; Nurture and
Harvest.
Invest Brands are those that have omnichannel distribution, including their
own DTC platform. These brands, such as Skinny Tan and Super Facialist, have a
masstige positioning and provide existing scale, but also have significant
potential. In line with consumer trends and behaviour we will be focusing our
effort on categories such as skincare and self tan, but also on high margin
subcategories, such as body & hair treatments. These brands are expected
to deliver strong gross margins, which will allow the business to put in place
comprehensive growth plans. Growth will be accelerated by medium to high
A&P investment into 360-degree marketing plans, predominantly with a
digital focus.
Nurture brands encompass those brands within the portfolio that have exciting
potential to broaden from both a brand development and brand reach
perspective. Alternatively, they could be high-performance propositions, with
a clear point of difference, answering the needs of the consumer.
Whilst we undergo this business transition, it is important that we continue
to manage a portfolio of low investment Harvest Brands. These brands require
minimal investment, competing on price and providing us with a stronger
category share of voice. These brands can be either niche or channel exclusive
and play a role in offsetting corporate overheads, so that we can fund New
Business Development.
The following strategic Brand Development tenets will be applied to our Invest
and Nurture brands:
· Profitability:
Over the mid-term we will be looking to improve our profitability by
increasing the share of higher margin brands/products within the portfolio
(i.e. Super Facialist and Skinny Tan). We will also aim to improve the
profitability of our brands with cost efficiency initiatives.
· NPD/Consumer Insights
As a business we continuously review market data to understand our performance
in relation to our competitors, whilst also monitoring consumer trends and
working closely with our manufacturers' R&D departments. The marketing
team have been working on several new brand initiatives for the forthcoming
year. In September 2022 we launched Clear Skin, a new sub-brand of Super
Facialist, specifically targeted at spot prone women, as well as several brand
extensions (Super Facialist Salicylic Acid). By January 2023 we will have
launched several exciting Skinny Tan extensions (Coconut Water and new Tanning
Whips) and by Spring 2023 we will have relaunched the Super Facialist for Men
range and the MR Haircare brand, alongside some channel exclusive brand
extensions.
· Digital 1(st)
Digital is transforming how consumers live, learn and shop and how brands and
retailers plan, promote, sell and deliver. We now live in a world consisting
of a multiple digital channels, devices and platforms, providing ever more
choice. Ecommerce channels, such as Amazon are now becoming media channels,
where brand awareness is built, whilst social channels, like Tik Tok, are
becoming increasingly more commercial. The lines are being blurred and the
quest for consumers requires greater creativity, agility, testing and
learning. Although Brand Architekts only recently started out on its digital
transformation journey, the Innovaderma acquisition has accelerated this, so
that we are more digitally savvy. Over the next 24 months, the digital first
mantra must permeate throughout all touch points of the business.
Primarily an omnichannel brand, Skinny Tan is positioned and marketed as a
digital first brand. New products are launched onto the DTC site, supported
with comprehensive marketing activity, so as to engage with its consumers and
grow its digital footprint. We will now be applying this approach to all our
Invest brands, whether we launch initially on The Unexpekted Store, Amazon or
potentially onto new DTC websites. To engage with today's consumer, it is
vitally important to build each brand's digital footprint, whether this is
through online or offline marketing; paid online advertising or through social
engagement (Facebook, Instagram, Tik Tok). For brands to be considered by
consumers and customers alike, it is important that we invest in digital
initiatives.
· Advertising & promotions (A&P)
A&P budgets are prioritised to support our Invest and Nurture brands, with
the objective of raising awareness and stimulating trial to drive distribution
gains. Firstly, we support these brands with well-developed promotional and PR
campaigns; secondly with the creation of digital assets which initiate social
engagement; thirdly with specific digital campaigns and always on digital
activity.
· Portfolio management and Mergers & Acquisitions (M&A)
In addition to the repositioning of the Group's brand portfolio, we continue
to evaluate new acquisition opportunities. Our immediate priority is to fully
integrate the Innovaderma brands and people into our operation, but we believe
that we have the right structure and solid foundations to readily add
additional brands into the group.
2. Brand Reach
· UK
Super Facialist's success in the retail channel was further improved in June
2022, when we expanded the distribution by launching 14 products into 500
Tesco stores. As Super Facialist now has strong distribution, the focus will
now be on ensuring that Super Facialist has the right level of support and
A&P investment, to merit improvements in shelf position and sterling
weighted distribution.
Skinny Tan's strategy is to initially launch all products on its DTC channel,
supporting it with extensive online and offline marketing initiatives. This
helps drive overall omnichannel sales and build brand awareness. Over the last
12 months we've seen a strong open and click rate, significantly higher than
industry average, that is driving high repeat purchase and customer retention.
The brand has shown good growth in Boots and will be launching into
Sainsbury's in September 2022.
We believe that Amazon will continue to grow and become one of the most
important beauty retailers in the UK. It is also becoming more important as a
shop window that retail buyers monitor. Therefore, we will be increasing our
investment into Amazon to maximize the revenue of our omnichannel brands and
build our Invest and Nurture brands. This will be done by ensuring that all
products benefit from Amazon A star content and profitable paid advertising.
We will also use Amazon as a strategic channel for launching brands. The main
focus will continue to be problem-solving categories, but we will also explore
developing products to meet the specific needs of Amazon.
· DTC
Skinny Tan has a sophisticated DTC platform and marketing framework, and work
will continue over the coming year to further improve its key performance
metrics and reduce the reliance on Meta advertising. New influencer,
affiliation, email and conversion campaigns and initiatives will continue to
be explored to optimise return on advertising spend (ROAS); recruit new
consumers to the brand; cross-promote sister brands and drive engagement.
As we put more effort and investments behind our Invest brands, we will
explore the feasibility of creating stand-alone DTC sites for these brands,
such as Super Facialist.
· International
Our international business benefitted in the year from gains in TK Maxx across
Europe and TJ Maxx in North America; the roll out of Root Perfect as a
permanent listing in 300+ Normal stores across Europe, as well as a 200-store
trial for Kind Natured. Dirty Works bath & body launched in Peru, whilst
Dirty Works Skincare launched in Chile. There were encouraging signs of
success for The Solution in DM, the pan European drugstore, particularly
across Eastern Europe and Argan+ launched in Qatar (Carrefour & Monoprix).
Our brands and products are sold in 34 countries and our infrastructure and
network should position us well to accelerate our growth post COVID and launch
Skinny Tan into multiple North European countries.
3. Environmental & Societal Responsibility
· Sustainability pledge - packaging and ingredients environmental
footprint
In line with our sustainability pledge, we continue to work towards ensuring
that all our plastic and packaging is 100% recyclable, reusable or bio-sourced
by 2025. Last year the number of products using a minimum of 30% PCR
(post-consumer recycled material) increased to 76%. We have made good progress
in moving our brands to PCR, with further information given in the separate
sustainability section.
· Employee development
Morale & inclusivity: We host and encourage fortnightly "Townhall"
meetings, which allows all employees (irrespective of location) to participate
and benefit from transparent and regular updates, presentations and Q&A.
Diversity: We strive to have an inclusive culture where all genders have equal
standing and people from all walks of life and ethnicities are welcome - 77%
of employees are female; 72% are under 45 and 22% are from a minority ethnic
background.
Work-life-balance: All employee contracts reflect a hybrid way of working, so
that employees can tailor their office attendance to maximize productivity and
communication. Sales and Marketing personnel are actively encouraged to
regularly come to the office as we believe this promotes creativity,
collaboration and development.
Personal Development: All employees benefit from bi-annual PDRs (Performance
& Development Review), PDPs (Personal Development Plan) as well as onsite
and offsite training.
Challenger culture: It is our strategic intent to implement and embed a
transformative culture and a way of working into the business, so that we can
act and be seen as a true challenger brand business.
Outlook
We continue to face a very challenging operating and economic environment. We
anticipate high inflation and continued supply chain pressures, as well as an
adverse effect in consumer confidence and a softening in the online and
offline marketplace. Given the squeeze on operating margin, it was vital that
we adapted our growth strategies to focus on delivering profit. In the short
term we will transition and focus our resources on developing brands and
categories that can command higher retail prices, engender strong consumer
loyalty and stronger margins by delivering highly efficacious problem-solving
solutions, whilst also focusing on DTC promotional effectiveness and
efficiency. We are taking a cautious view of the year, as we consolidate and
fully integrate the Innovaderma Plc. brands into our portfolio. However, our
mid-term objective is to return to profitability in 23/24 and we remain
positive for our future development and in our ability to deliver for all
shareholders.
Financial Review
Key performance indicators
To measure and monitor our progress against our growth strategy, we track our
performance against a set of ambitious targets and milestones. The goals we
set are closely assessed to ensure we focus our efforts to deliver both in the
short term and long term. A summary of the financial measures used are:
2022 2021
Reported results from continuing operations
Revenue (Note 2 of the financial statements) £14.3m £15.9m
Underlying operating (loss)/profit(1) £(1.8)m £(0.3)m
Loss before taxation £(4.1)m £(1.9)m
Basic (loss)/earnings per share (23.9)p (13.1)p
Net cash £11.3m £19.0m
1 Underlying operating (loss)/profit is calculated before exceptional items,
share-based payments and amortisation of acquisition-related intangibles.
A reconciliation of underlying operating profit to operating is shown below:
2022 2021
Total Total
Underlying (loss)/profit from operations (1,811) (273)
Exceptional cost of sales - 488
Amortisation of acquisition-related intangibles (240) (240)
Charge for share-based payments (39) (38)
Other exceptional items (1,850) (1,600)
Operating (loss)/profit (3,940) (1,663)
The Group implements a number of non-statutory measures which are summarised
in the tables above and in more detail within the segmental income statement
(Note 2 of the financial statements). Exceptional items are also explained
further in Note 3 of the financial statements. These measures are used to
illustrate the impact of non-recurring and non-trading items on the Group's
financial results.
In addition to the financial key performance measures, a range of operational
non-financial key performance indicators are also monitored at a management
level covering, amongst others, new product development and innovation. The
Board receives an overview of these as part of its Board management report.
Statement of comprehensive income
Group statutory revenue for the year was £14.3 million (FY 2021: £15.9m), a
decrease of 10% as the Group navigated the challenging external environment
and the impact of reduced consumer confidence on demand. Excluding the
contribution from Innovaderma, which was successfully acquired on 31 May 2022
and which delivered £0.8m of sales in June, organic sales decreased 15% on
the prior year. The FY performance was particularly affected by H1 sales which
declined by 19% on the prior year to £7.4m (H1 2021: £9.0m). This decline
was as a result of two factors; firstly key retailers delaying the
implementation of our brand relaunches, caused by the COVID pandemic and
secondly planned rationalisation of our product ranges by 25% to optimise our
productivity. With many of our brands needing to be relaunched and product
ranges rationalised to reflect consumer demand and improve productivity, this
delay meant that sales for the first three months were affected, as stocks of
the previous ranges were run down. The impact of these delays was felt across
both the high street and grocer retailers, which remain our dominant revenue
generators. This impact could not be offset on a FY basis as H2 organic sales
of £6.1m were affected by a reduction in consumer demand, down 12% vs the
prior year (H2 2021: £6.9m).
The underlying gross profit margin, which excludes exceptional adjustments was
significantly impacted and declined to 33.5% (2021: 36.9%). This reflects a
wide range of cost pressures felt throughout our supply chain, that we could
not pass onto retailers due to previously agreed pricing commitments. The main
impact was the significant increase in shipping container costs for goods from
overseas (principally Christmas Gift Sets and bath salts), which at the time
of shipping were 500% higher than historical prices. Alongside this we have
had to contend with other significant cost increases throughout the supply
chain, notably in raw materials, componentry and energy.
Given the challenging trading environment, the Group generated an operating
loss in the second half in line with that reported in the first half but was
also impacted by lower revenue in the period.
The Group made a loss before tax of £4.1m which included other exceptional
items of £1.8m from the partial impairment of the intangible values of male
styling brand, Fish (£0.5m), the write down of development costs relating to
The Unexpekted Store (£0.3m), impairment of equipment and other restructuring
costs (£0.3m) as well as professional fees relating to the acquisition of
Innovaderma plc (£0.7m). The intangibles were subject to impairment reviews,
under IAS 36. The Fish impairment reflected the impact of a reduction in
consumer usage and habits that have affected the Male Grooming category in the
UK and margins deteriorating through product cost inflation.The Unexpekted
Store impairment was a result of the acquisition of Innovaderma, as the Group
now plans to focus its DTC activities on key brand Skinny Tan.
Financing costs were £0.2m (2021: £0.2m) relating to the defined benefit
pension plan notional finance charge.
The effective tax rate for the period was negative 3% (2021: negative 17%) of
pre-tax profits. The effective rate is below the statutory rate of 19% due to
the losses in the period.
Financial position and cash flow
The Group retains a net cash position of £11.3m, a reduction of £7.7m versus
the prior year (2021: £19.0m). The cash outflow was due to the £2.0m cash
consideration paid to Innovaderma shareholders and the £0.7m settlement of
related transactional costs. There was also a £2.3m net increase in working
capital following a planned investment in key product line inventory holdings
to offset the Supply Chain delays, uncertainty and cost inflation. The company
also made a one-off contribution of £1.0m to its defined benefit pension
scheme as outlined below, in addition to £0.3m annual payment commitment.
Acquisition of Innovaderma Plc
On 31 May 2022, the Group completed the acquisition of Innovaderma Plc. The
purchase was effected by a Scheme of Arrangement, whereby Innovaderma
shareholders received for each Innovaderma share 7 pence in cash and 0.3818 of
new Brand Architekt Group plc shares. This consideration equated to £9.1m in
total, of which £2m was paid in cash and £7.1m satisfied in shares, based on
the Brand Architekts Group plc share price on completion. As the total
purchase consideration exceeded the net £0.4m fair value of assets acquired,
an exercise was undertaken to allocate the remaining purchase consideration
into other intangibles and goodwill. As a result, £3.9m has been recognised
as trade name and customer relationships intangible assets with a useful
economic life of 5 years, a related deferred tax provision of £1.0m, with the
remaining £5.7m as Goodwill.
Defined benefit pension plan
The defined benefit pension plan underwent its last triennial valuation on 5
April 2020. The actuarial deficit, taking into account market conditions up to
31 March 2021, was £15.1m. The Group entered a revised deficit recovery plan
and schedule of contributions in July 2021. Under this there was a commitment
to make a one-off deficit reduction payment of £1m by 31 July 2021, £318k
payment per annum for four years followed by £791k for a further thirteen
years, and to pay certain administration costs and the PPF levy for the life
of the plan. This commitment will be reassessed at the next triennial
valuation at 5 April 2023.
The April 2020 timing of the last triennial valuation increased the pension
deficit significantly, as the start of the pandemic depressed the valuation of
scheme assets while lower discount rates linked to bond yields increased
estimated scheme liabilities. Extensive reviews were held with the Trustee to
balance the assurance needed by the pension scheme in light of the increased
deficit, while aligning with Group's objective of investing cash reserves in
the business to the long-term benefit of all stakeholders, including the
pension scheme.
Accounting standards require the discount rate used for valuations under IAS
19 'Employee Benefits' to be based on yields on high quality (usually
AA-rated) corporate bonds of appropriate currency, taking into account the
term of the relevant pension plan's liabilities. Corporate bond indices are
used as a proxy to determine the discount rate. At the reporting date, the
yields on bonds of all types were higher than they were at 30 June 2021. This
has resulted in higher discount rates being adopted for accounting purposes
compared to last year. This has decreased the fair value of the plan
liabilities as measured under IAS 19, which combined with an improvement in
the fair value of the scheme's assets, has translated into a decreased
liability under the IAS 19 methodology. For accounting purposes at 30 June
2022, the Group recognised under IAS 19, a net liability of £2.4m (2021:
£10.4m).
Going concern
As part of its normal business practice, the Group prepares annual and
longer-term plans and, in reviewing this information the directors have a
reasonable expectation that the Company and Group have adequate resources to
continue in operational existence for the foreseeable future. The Group has
significant cash reserves of £11.3m. Accordingly, we continue to adopt the
going concern basis in preparing the Annual Report and Accounts.
Group Statement of Comprehensive Income
For the year ended 30 June 2022 and the period ended 30 June 2021
2022 2021
Notes £'000 £'000
Revenue 2 14,296 15,875
Cost of sales (including Exceptional credits) 3 (9,506) (9,530)
Gross profit 4,790 6,345
Commercial and administrative costs (6,880) (6,408)
Operating loss before other exceptional items (2,090) (63)
Other exceptional items 3 (1,850) (1,600)
Operating loss (3,940) (1,663)
Finance income 20 2
Finance expense (196) (224)
Loss before taxation 4 (4,116) (1,885)
Taxation 5 (130) (314)
Loss for the year (4,246) (2,199)
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Re-measurement of defined benefit liability 5,143 2,786
Items that will be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations - -
Other comprehensive income for the year 5,143 2,786
Total comprehensive income for the year 897 587
(Loss) / profit attributable to:
Equity shareholders (4,322) (2,253)
Non-controlling interests 76 54
Total comprehensive income attributable to:
Equity shareholders 821 533
Non-controlling interests 76 54
Earnings per share 6
- basic (23.9)p (13.1)p
- diluted (23.9)p (13.1)p
Dividends
Paid in year (£'000) Nil Nil
Paid in year (pence per share) Nil Nil
Proposed (£'000) Nil Nil
Proposed (pence per share) Nil Nil
Group Statement of Financial Position
As at 30 June 2022
2022 2021
Notes £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment including right of use assets 53 67
Intangible assets 7 18,870 10,118
Deferred tax assets 730 2,605
Total non-current assets 19,653 12,790
Current assets
Inventories 7,375 2,299
Trade and other receivables 5,099 3,651
Cash and cash equivalents 11,347 19,018
Current tax receivable - 432
Total current assets 23,821 25,400
Total assets 43,474 38,190
LIABILITIES
Current liabilities
Trade and other payables 6,844 2,602
Current Tax Payable 9 -
Total current liabilities 6,853 2,602
Non-current liabilities
Post-retirement benefit obligations 2,439 10,418
Deferred tax liabilities 2,428 1,475
Total non-current liabilities 4,867 11,893
Total liabilities 11,720 14,495
Net assets 31,754 23,695
EQUITY
Share capital 1,397 862
Share premium 11,987 11,987
Merger reserve 6,588 -
Pension re-measurement reserve (2,659) (7,802)
Retained earnings 14,213 18,496
Equity attributable to holders of the parent 31,526 23,543
Non-controlling interest 228 152
Total equity 31,754 23,695
Group Statement of Changes in Equity
For the year ended 30 June 2022 and the period 30 June 2021
Share Capital Share Premium Merger Reserve Pension re-measurement reserve Retained Earnings Non-controlling interest Total Equity
Group £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at June 2021 862 11,987 - (7,802) 18,496 152 23,695
Issue of new shares 535 - 6,588 - - - 7,123
Non-controlling interest - - - - - 76 76
Share based payments - - - - 39 - 39
Transactions with owners 535 - 6,588 - 39 76 7,238
Loss for the year attributable to equity shareholders - - - - (4,322) - (4,322)
Other comprehensive income:
Re-measurement of defined benefit liability - - - 5,143 - - 5,143
Total comprehensive income for the year - - - 5,143 (4,322) - 821
Balance as at June 2022 1,397 11,987 6,588 (2,659) 14,213 228 31,754
Share Capital Share Premium Merger Reserve Pension re-measurement reserve Retained Earnings Non-controlling interest Total Equity
Group £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance as at June 2020 862 11,987 - (10,588) 20,711 98 23,070
Non-controlling interest - - - - - 54 54
Share based payments - - - - 38 - 38
Transactions with owners - - - - 38 54 92
Loss for the year attributable to equity shareholders - - - - (2,253) - (2,253)
Other comprehensive income:
Re-measurement of defined benefit liability - - - 2,786 - - 2,786
Total comprehensive income for the year - - - 2,786 (2,253) - 533
Balance as at June 2021 862 11,987 - (7,802) 18,496 152 23,695
Cash Flow Statement
For the year ended 30 June 2022 and the period 30 June 2021
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Cash flow from operating activities
(Loss) before taxation (4,116) (1,885) (2,581) (3,116)
Depreciation 29 7 - -
Amortisation 388 1,880 78 1,678
Impairment of intangible assets and PPE 936 - 500 -
Finance income (20) (2) (10) (2)
Finance cost 196 224 190 221
(Increase)/ Decrease in inventories (3,084) 1,425 - -
Decrease /(Increase) in trade and other receivables 101 318 (1,266) 227
Increase / (Decrease) / in trade and other payables 641 (687) (559) (799)
Share based payment expense 39 38 42 36
Contributions to defined benefit plans (1,318) (318) (1,318) (318)
Cash (outflow) / generated from operations (6,208) 1,000 (4,924) (2,073)
Finance costs paid - (28) - (25)
Taxation received 432 381 - 373
Net cash (outflow) / inflow from operating activities (5,776) 1,353 (4,924) (1,725)
Cash flow from investing activities
Purchase of property, plant and equipment (15) (66) - -
Purchase of intangible assets (237) (284) - -
Cash consideration paid for acquisitions (1,965) - (1,965) -
Cash acquired on acquisition 1,510 - - -
Net cash flow from investing activities (707) (350) (1,965) -
Cash flow from financing activities
Repayment of / Movements in invoice discounting facility - (1,132) - -
Finance income received 20 2 10 2
Repayment of loans (1,208) (2,095) - (2,095)
Net cash flow from financing activities (1,188) (3,225) 10 (2,093)
Net decrease in cash and cash equivalents (7,671) (2,222) (6,879) (3,818)
Cash and cash equivalents at beginning of year 19,018 21,240 16,681 20,499
Cash and cash equivalents at end of year 11,347 19,018 9,802 16,681
Notes to the Accounts
Note 1 Significant accounting policies
The financial information does not constitute statutory accounts as defined in
section 435 of the Companies Act 2006,
but has been extracted from the statutory accounts for the period ended June
2022 on which an unqualified audit
report has been issued and which will be delivered to the Registrar following
their adoption at the Annual General
Meeting. The statutory accounts for the period ended June 2021 have been
delivered to the Registrar of
Companies with an unqualified audit report and did not contain a statement
under section 498 of the Companies Act
2006. Copies of the 2022 Annual Report and Accounts with the notice of Annual
General Meeting will be sent to
shareholders via their elected channel. Further copies may be obtained by
contacting the Company Secretary at
Brand Architekts Group plc, 8 Waldegrave Rd, Teddington, TW11 8GT. An
electronic copy will be available on the
Group's web site (www.brandarchitektsplc.com)
General Information
Brand Architekts Group plc is a Company incorporated in the United Kingdom
under the Companies Act 2006. The address of the registered office is given
at the end of the financial report. The nature of the Group's operations and
its principal activities are set out in the Strategic Report. The Group moved
to a traditional 12 month calendar year for the period ended 30 June 2021. The
results for the current period have been drawn up for a traditional 12 month
calendar year.
Basis of preparation
The Group has prepared its consolidated financial statements in accordance
with UK adopted International Accounting Standards (UK adopted IAS) in
conformity with the requirements of the Companies Act 2006. These financial
statements have been prepared under the historical cost convention, modified
to include the revaluation of certain non-current assets and financial
instruments.
The Directors have considered trading and cash flow forecasts prepared for the
Group, and based on these, and the level of cash held, are satisfied that the
Group will continue to be able to meet its liabilities as they fall due for at
least one year from the date of signing of these accounts. On this basis,
they consider it appropriate to adopt the going concern basis in the
preparation of these accounts.
The consolidated financial statements are presented in sterling and all values
are rounded to the nearest thousand (£'000) except where otherwise indicated.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings. The results and net assets of
undertakings acquired or disposed of during a financial year are included in
the Group Statement of Comprehensive Income and Group Statement of Financial
Position from the effective date of acquisition or to the effective date of
disposal. Subsidiary undertakings have been consolidated using the purchase
method of accounting. In accordance with the exemptions given by section 408
of the Companies Act 2006, the Company has not presented its own Statement of
Comprehensive Income. The Company's loss after tax for the year to June 2022
was £2.742m (2021: loss after tax £2.852m).
The Group financial statements consolidate those of the parent company and all
of its subsidiaries as of 30 June 2022. The parent controls a subsidiary if it
is exposed, or has rights, to variable returns from its involvement with the
subsidiary and has the ability to affect those returns through its power over
the subsidiary. All subsidiaries have a reporting date of 30 June.
All transactions and balances between Group companies are eliminated on
consolidation, including unrealised gains and losses on transactions between
Group companies. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure consistency with the
accounting policies adopted by the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or
disposed of during the year are recognised from the effective date of
acquisition, or up to the effective date of disposal, as applicable.
Note 2 Segmental Analysis
During the year and following the acquisition of Innovaderma Limited, there
were three reportable segments of the Group (two in the comparative period),
the reportable segments of the Group were aggregated as follows:
· Brand Architekts Brands - These include those brands organically
developed plus the acquisitions of the portfolio of Brands included in The
Brand Architekts acquisition (in 2016) and the Fish brand acquired during
2018.
· Innovaderma Brands - This segment includes those brands acquired
as part of the Innovaderma business combination. The results of Innovaderma
brands are currently reported separately from other brands to the directors.
· Eliminations and Central Costs. Other Group-wide activities and
expenses, including defined benefit pension costs, share-based payment
expenses / (credits), amortisation of acquisition-related intangibles,
interest, taxation and eliminations of intersegment items, are presented
within 'Eliminations and central costs'.
This is the basis on which the Group presents its operating results to the
Directors, which is considered to be the Chief Operating Decision Maker (CODM)
for the purposes of IFRS 8. Comparative full year numbers have been presented
on the same basis.
IFRS15 requires the disaggregation of revenue into categories that depict how
the nature, timing, amount and uncertainty of revenue and cash flows are
affected by economic factors. The Directors have considered how the Group's
revenue might be disaggregated in order to meet the requirements of IFRS15 and
has concluded that the activity and geographical segmentation disclosures set
out below represent the most appropriate categories of disaggregation.
a) Principal measures of profit and loss - Income Statement segmental
information for year ended 30 June 2022 and period ended 30 June 2021:
Year ended 30 June 2022 Brand Architekt Brands Eliminations and Central Costs Total 2021
Innovaderma Brands
Total
£'000 £'000 £'000 £'000 £'000
UK revenue 10,910 741 - 11,651 13,447
International revenue 2,558 87 - 2,645 2,428
Revenue - External 13,468 828 - 14,296 15,875
Revenue - Internal - 26 (26) - -
Total Revenue 13,468 854 (26) 14,296 15,875
Underlying loss from operations (667) (87) (1,057) (1,811) (273)
Credit / (charge) for share-based payments 3 - (42) (39) (38)
Amortisation of acquisition-related intangibles - - (240) (240) (240)
Exceptional items included in cost of sales (Note 3) - - - - 488
Other Exceptional items (Note 3) (281) (341) (1,228) (1,850) (1,600)
Net borrowing income / (expense) 4 - (180) (176) (222)
Loss before taxation (941) (428) (2,747) (4,116) (1,885)
Tax charge - - (130) (130) (314)
Loss for the period (941) (428) (2,877) (4,246) (2,199)
Year ended 30 June 2021 Brand Architekt Brands Eliminations and Central Costs
Innovaderma Total
Brands
£'000 £'000 £'000 £'000
UK revenue 13,447 - - 13,447
International revenue 2,428 - - 2,428
Revenue - External 15,875 - - 15,875
Revenue - Internal - - - -
Total Revenue 15,875 - - 15,875
Underlying profit / (loss) from operations* 917 - (1,190) (273)
Charge for share-based payments (6) - (32) (38)
Amortisation of acquisition-related intangibles - - (240) (240)
Exceptional items included in cost of sales (Note 3) 488 - - 488
Other Exceptional items (Note 3) - - (1,600) (1,600)
Net borrowing costs (4) - (218) (222)
Profit / (loss) before taxation 1,395 - (3,280) (1,885)
Tax charge (259) - (55) (314)
Profit /(loss) for the period 1,136 - (3,355) (2,199)
The segmental Income Statement disclosures are measured in accordance with the
Group's accounting policies as set out in note 1.
All defined benefit pension costs and an element of the share-based payment
expenses are recognised for internal reporting to the CODM as part of
Group-wide activities and are included within 'Eliminations and central costs'
above. Other costs, such as Group insurance and auditors' remuneration which
are incurred on a Group-wide basis are recharged by the head office to
segments on a reasonable and consistent basis for all periods presented, and
are included within segment results above.
b) Other Income Statement segmental information
Year ended 30 June 2022 Brand Architekt Brands Innovaderma Eliminations and Central Costs Total
Brands
£'000 £'000 £'000 £'000
Depreciation / impairment of PPE 29 166 - 195
Amortisation / impairment of intangibles * 418 - 740 1,158
Period ended 30 June 2021 Brand Architekt Brands Innovaderma Eliminations and Central Costs Total
Brands
£'000 £'000 £'000 £'000
Depreciation 7 - - 7
Amortisation/ impairment* 280 - 1,600 1,880
* Impairment losses of £0.5m (2021: £1.6m) in Central Costs is included in
Exceptional Items
c) Principal measures of assets and
liabilities
The Groups assets and liabilities are managed centrally by the CODM and
consequently there is no reconciliation between the Group's assets per the
statement of financial position and the segment assets.
d) Additional entity-wide disclosures
The distribution of the Group's external revenue by destination is shown
below:
Geographical segments Year ended Period ended
30 June 2022 30 June 2021
£'000 £'000
UK 11,651 13,447
Other European Union countries 982 970
Rest of the World 1,663 1,458
14,296 15,875
In the year ended 30 June 2022, the Group had three customers from that
exceeded 10% of total revenues, being 15.5%, 11.8% and 10.3% respectively. In
the period ended 30 June 2021, the Group had 1 customer that exceeded 10% of
total revenues, being 24%. All of these customers are reported within the
Brand Architekts Brands segment.
Note 3 Exceptional Items
Exceptional charges / (credits) from Continuing Operations: Period ended Period ended
30 June 2021 30 June 2021
£'000 £'000
Included within Cost of sales:
Inventory related - (488)
Other exceptional items:
Impairment of intangible assets and property, plant and equipment 936 1,600
Acquisition costs 728 -
Restructuring costs 186 -
1,850 1,600
Total exceptional items 1,850 1,112
Exceptional impairments of intangible assets and property, plant and equipment
includes a £0.50m impairment of the Fish brand, £0.27m for The Unexpekted
Store and £0.17m of equipment acquired with Innovaderma which has since been
replaced.
The group incurred costs of £0.73m in relation to the acquisition of
Innovaderma which have been expensed in the period.
Restructuring costs of £0.19m have been incurred following the acquisition of
Innovderma.
The comparative period exceptional items includes a partial write back of
prior year provision relating to inventory (£0.5m), where the corresponding
cost in the comparative period was treated as exceptional. Other Exceptional
items include £1.6m impairment of the Fish brand.
Note 4 Loss before taxation
2022 2021
£'000 £'000
(a) This is stated after charging/ (crediting)
Depreciation of property, plant and equipment of purchased assets 29 7
Amortisation of intangible assets 388 280
Impairment of intangible assets and property, plant and equipment (classified 936 1,600
as exceptional - Note 3)
Foreign exchange (gains) / losses (5) 21
Amounts expensed for short term and low value leases 56 59
(b) Auditors' remuneration
Audit services:
Audit of the Company financial statements 53 28
Audit of subsidiary undertakings 14 12
Audit related services:
Interim review 3 2
Non audit services:
Corporate finance - acquisition related services 45 -
Note 5 Taxation
2022 2021
(a) Analysis of tax charge in the year £'000 £'000
UK corporation tax:
- on profit for the year - -
- adjustment in respect of previous years - (1)
Total current tax credit - (1)
Deferred tax: -
-current year charge / (credit) 130 (36)
-effect of tax rate change on opening balance - 351
Total deferred tax charge 130 315
Tax charge 130 314
(b) Factors affecting total tax charge for the year
The tax assessed on the profit before taxation for the year is at the standard
rate of UK corporation tax of 19.00% (2020: 19.00%). The differences are
reconciled below:
2022 2021
£'000 £'000
Loss before taxation (4,116) (1,885)
Tax at the applicable rate of 19.00% (2020: 19.00%) (782) (358)
Effect of:
Adjustment in respect of previous years - (1)
Expenses not deductible for tax purposes 138 6
Income not taxable for tax purposes (3)
Deferred tax asset not recognised on taxable losses 774 319
Remeasurement of deferred tax for changes in tax rates 351
Actual tax charge 130 314
The group has tax losses of £8.2m (2021: £4.9m) which have not been
recognised as there is no certainty that they can be utilised.
Note 6 Earnings per share
2022 2021
Basic and Diluted
Loss for the year attributable to equity holders (£'000) (4,322) (2,253)
Basic weighted average number of ordinary shares in issue during the year 18,111,180 17,230,702
Diluted number of shares 18,200,180 17,319,702
Basic loss per share (23.9)p (13.1)p
Diluted loss per share (23.9)p (13.1)p
Basic earnings per share has been calculated by dividing the profit for each
financial year by the weighted average number of ordinary shares in issue at
30 June 2022 and 30 June 2021 respectively.
Note 7 Intangible assets
Software Brand Names Customer Relationships Goodwill Trade Total
marks
GROUP £'000 £'000 £'000 £'000 £'000 £'000
Cost:
At June 2020 101 8,715 2,126 2,618 - 13,560
Additions 284 - - - - 284
At June 2021 385 8,715 2,126 2,618 - 13,844
Additions 218 - - - 19 237
Acquired through business combinations (note 9) - 1,608 2,329 5,736 - 9,673
At June 2022 603 10,323 4,455 8,354 19 23,754
Amortisation:
At June 2020 16 924 906 - - 1,846
Provided during the year 40 - 240 - - 280
Impairment charge during the year - 1,600 - - - 1,600
At June 2021 56 2,524 1,146 - - 3,726
Provided during the year 145 - 240 - 3 388
Impairment charge during the year 270 500 - - - 770
Disposals - - - - - -
At June 2022 471 3,024 1,386 - 3 4,884
Net book value:
At June 2022 132 7,299 3,069 8,354 16 18,870
At June 2021 329 6,191 980 2,618 - 10,118
Brand Names Customer Relationships Total
COMPANY £'000 £'000 £'000
Cost:
At June 2020 3,624 480 4,104
At June 2021 3,624 480 4,104
At June 2022 3,624 480 4,104
Amortisation:
At June 2020 924 231 1,155
Provided during the year - 78 78
Impairment charge during the year 1,600 - 1,600
At June 2021 2,524 309 2,833
Provided during the year - 74 74
Impairment charge during the year 500 - 500
At June 2022 3,024 383 3,407
Net book value:
At June 2022 600 97 697
At June 2021 1,100 171 1,271
Impairment testing
Two Brands (Brand Architekts and Fish) and associated goodwill have been
tested for impairment as they have indefinite useful lives. Goodwill acquired
as part of the Innovaderma acquisition has not been tested for impairment
given the business combination completed a month before the year end. Brand
Architekts gave a valuation in excess of its carrying values, however Fish was
partially impaired by £0.5m given the decline in revenue for the brand,
reflecting the pressures on the male grooming category in the UK and the
high-street retail channel. No impairment review of the intangibles from the
Innovaderma acquisition was performed, given it was acquired on 31 May 2022.
The recoverable amount of each brand was determined based on the higher of
value-in-use calculations or fair value less costs to sell. The value-in-use
calculations covered underlying 1-2 year forecasts, followed by an
extrapolation of expected cash flows for the remaining useful life using
growth assumptions of 1-2%. Fair value less costs to sell was determined by a
review of historic acquisitions in the consumer goods market of similar size
to identify multiples that have been paid.
The present value of the expected cash flows is determined by applying a
suitable discount rate for current market assessments of the time value of
money and risks specific to the brand. The discount rate applied is a pre-tax
8% in line with the prior year, reflecting expected returns for AIM listed
businesses as well as the debt free capital structure of the Group.
Growth assumptions
Management have assumed a base case growth rate of 1-2%, in line with wider
industry forecasts, in the calculations including into perpetuity. For Fish,
the assumed growth rate was nil.
Discount rates
The discount rates reflect appropriate adjustments relating to market risk and
specific risk factors.
Cash flow assumptions
Management's key assumptions include profit margins, based on past experience
in this market. The Group's management believes that this is the best
available input for forecasting this mature sector.
Apart from the considerations in determining the value-in-use of the brand
described above, management is not currently aware of any other probable
changes that would necessitate changes in its key estimates. The values of the
intangibles with indefinite useful lives for Brand Architekts remains at
£7,709,000 (comprising Goodwill of £2,618,000 and Brands of £5,091,000),
while the Fish brand net carry value, after the partial, impairment is
£600,000. Goodwill acquired held in relation to Innovaderma was £5,736,000
which is considered to have an indefinite useful life.
Sensitivity analysis
If the discount rate were to increase by 2% a further impairment of £140,000
would have been recognised in the year. If forecasts growth rates decreased by
2% a further impairment of £76,000 would have been recognised in the year.
Note 8 Notes to Cash Flow Statement
GROUP
2022 2021
£'000 £'000
Decrease in cash and cash equivalents (9,181) (2,222)
Net cash outflow from decrease in borrowings 1,208 3,227
Change in net cash (7,973) 1,005
Opening net cash 19,018 18,013
Net cash acquired on business combinations 302 -
Closing net cash 11,347 19,018
Closing 2021 Acquired in business combinations Cash Flow Closing 2022
(b) Analysis of net cash:
£'000 £'000 £'000
Cash at bank and in hand 19,018 1,510 (9,181) 11,347
Borrowings due within one year - (1,208) 1,208 -
19,018 302 (7,973) 11,347
(b) Analysis of net cash: Closing 2021 Cash Flow Closing 2022
£'000 £'000 £'000
Cash at bank and in hand 16,681 (6,879) 9,802
16,681 (6,879) 9,802
Note 9 Acquisition of Innovaderma plc
On 31 May 2022, the Group acquired the entire issued share capital of
Innovaderma Plc, including its subsidiary undertakings. The fair value of the
consideration was £9.1m, satisfied by £2m in cash and £7.1m in Brand
Architekts shares (being the fair value of the shares issued on the
acquisition date). The fair value of the assets acquired was £0.4m resulting
in goodwill and other intangible assets of £9.7m and deferred tax liability
of £1m on the other intangible assets. Goodwill arises on consolidation and
is not tax-deductible. Management carried out a review to assess whether any
other intangible assets were acquired as part of the transaction. Management
concluded that both a brand name (£1.6m) and customer relationships (£2.3m)
were acquired and attributed a value to each of these by applying commonly
accepted valuation methodologies. No contingent liabilities were recognised on
acquisition.
Book Value Fair Value Adjustments Fair Value
Net Assets acquired:
Investments 225 (225) -
Intangible assets and PPE 341 (175) 166
Trade and other receivables 1,868 - 1,868
Cash and cash equivalents 1,510 - 1,510
Inventory 1,786 (115) 1,671
Trade and other payables (4,587) (229) (4,816)
1,143 (744) 399
Customer relationships - 2,329 2,329
Brand names - 1,608 1,608
Deferred tax liability adjustment - (984) (984)
1,142 2,209 3,352
Goodwill 5,736
Total consideration 9,088
Satisfied by:
Cash 1,965
Brand Architekts shares 7,123
Total consideration 9,088
Fair value adjustments
The net book value of assets acquired were reduced by £0.7m by fair
adjustments made. As part of the acquisition, the directors considered the
value of the investment in the associate undertaking of Ergon Medical Limited
in line with the requirements of IAS36. As a result, this investment was
written down to zero. The directors could not identify revenue streams being
generated from certain intangible assets acquired, as a result they were fair
value adjusted down by £0.2m. An additional inventory provision was
identified on acquisition, decreasing the value of the inventory by £0.1m.
Additional liabilities were also identified on acquisition in relation to tax
compliance matters in foreign jurisdictions and other previously unrecognised
payables to suppliers of £0.2m in total.
Impact of acquisition
For the month that Innovaderma were part of the group it generated revenue
of £828,000, a loss from underlying operations of £87,000, and a loss after
tax of £428,000.
Had the acquisition been effective from 1 July 2021 the group would have had
increased revenue of £8,324,000, an increased loss from underlying operations
of £754,000 and an increased loss after tax of £1,417,000.
Note 10 Contingent liabilities
The company is subject to a legal claim brought by its joint venture
counterparty/co-shareholder, in Mr. Haircare Ltd, alleging breach of
shareholders' agreement between the parties.
In the opinion of the directors, after taking appropriate legal advice, the
outcome of these legal claims is not expected to give rise to any, or any
significant, loss. The claim is likely to be determined in early 2024, if it
does not conclude earlier.
The directors consider that disclosure of further details of these claims
would seriously prejudice Group's position and accordingly further information
on the nature of the claim has not been provided.
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