REG - Brand Architekts Grp - Final Results
31/10/2023 07:00
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RNS Number : 7605R Brand Architekts Group PLC 31 October 2023
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
2023.
Business highlights:
· Successfully integrated Innovaderma into the Group and delivered
£1.4m of ongoing Opex savings.
· Continued implementation of the strategy to invest and support
problem-solving solution led Invest & Nurture brands, which command higher
retail prices, engender strong consumer loyalty and deliver stronger margins.
Brand Reach:
· 49% growth vs the prior year in international channel sales
driven by post COVID-19 rebound in volumes from General Merchandise stores
across North America and Europe, benefitting Dirty Works.
· Confirmed Dirty Works distribution roll out to AS Watson stores
in 2023 & 2024 across the Middle East and Asia (Thailand - 200 stores,
Vietnam - 7, The Gulf - 16, Philippines - 100, Malaysia - 66, Taiwan - 200,
Singapore - 40, Turkey -100).
Brand Development:
· New Super Facialist Clear Skin, targeting problematic teenage
skin care needs, launched on Amazon in September and in Boots in June 23. New
Super Facialist D2C site launched in March 23. Branded Super Facialist instore
merchandising trays rolled out to Boots and Morrisons.
· New Skinny Tan Wonder Serum brand awareness and customer
acquisition campaigns launched in July 2023 to capitalise on the second half
of the tanning season.
· The Solution Menopause range to launch in 2024.
· Good sales growth from key historical Brand Architekts' Nurture
and Harvest brands including Fish, MR, The Solution, Argan, SenSpa and Root
Perfect.
Financial Highlights:
· Group sales of £20.1m (2022: £14.3m) up 41% primarily due to
the full year effect of the acquisition of InnovaDerma Plc, which completed at
the end of May 2022.
· Excluding InnovaDerma (IDP), revenue increased by 7% due to
strong international sales offset by challenging trading conditions in UK
channels.
· Underlying gross profit margins increased by 6.2% to 39.7% (2022:
33.5%) driven by a full year of sales from the InnovaDerma portfolio, chiefly
Skinny Tan. Margins in the Brand Architekts business are similar year on year.
· Despite the challenging trading environment, the Group generated
a reduced underlying operating loss of £1.2m, £0.6m lower than the prior
year (2022: £1.8m), primarily as a result of better targeted advertising
& promotions.
· The Group retains a strong net cash position of £8.2m at the
year-end (31 December 2022: £8.1m).
· The increased loss before taxation of £6.8m (2022: £4.1m) is
driven by a £3.5m impairment in the goodwill associated with the Innovaderma
business.
2023 2022
Reported results from continuing operations
Revenue (Note 2) £20.1m £14.3m
Underlying operating (loss) (1) £(1.2)m £(1.8)m
Loss before taxation £(6.8)m £(4.1)m
Basic (loss)per share (23.5)p (23.9)p
Net cash £8.2m £11.3m
¹Underlying operating loss is calculated before exceptional items,
share-based payments and amortisation of acquisition-related
intangibles.
Quentin Higham, Chief Executive, commented:
"Despite the challenging global and domestic macro-economic factors, we have
made good progress, successfully integrating InnovaDerma and delivering £1.4m
of ongoing Opex savings. The immediate priorities remain driving brand
awareness of key invest and nurture brands, delivering revenue synergies
through international and domestic expansion, a laser focus on brand
contribution and releasing working capital tied up in harvest brands. We
remain confident that our brand development and brand reach strategic pillars
will enable us to return to profitability and achieve our medium and long-term
goals."
For further information please contact:
Brand Architekts Group PLC
Quentin Higham / Geoff Ellis
Singer Capital Markets (Nominated adviser and broker) 020 7496 3000
Shaun Dobson / Jen Boorer
Chairman's Statement
Whilst we are disappointed with our overall financial performance, we have
made good progress in the year under review and on successfully integrating
Innovaderma into the Group and consolidating the business. We have delivered
£1.4m of ongoing Opex savings, which are in line with our annualised synergy
target of £1.5m and have advanced the opportunities to generate revenue
synergies. We expect to be in a position to announce global omnichannel
distribution gains for Skinny Tan in time for the 2024 tanning season.
Group sales for FY23 were £20.1m (FY22: £14.2m) an increase of 41% on the
prior year due primarily to the full year effect of the acquisition of
InnovaDerma Plc, which completed at the end of May 2022. Excluding
InnovaDerma, revenue increased by 7% due to strong international sales, which
was offset by challenging trading conditions in UK channels. We discontinued
several non-strategic brands, namely Roots, Kind Natured, Happy Naturals and
Beautopia as we continued our focus on profitability.
Skinny Tan's sales in the UK were adversely affected by the softening of the
direct-to-consumer (DTC) market and our decision to focus on margin, at the
expense of gross sales. We have maintained Skinny Tan's UK Customer (CRM)
database (350,000 email addresses), but by dialling down our investment on
Meta and reducing promotional discounting, we saw a drop in net sales, but an
improvement in gross margin and contribution percentage. The Group expects
these initiatives to continue when we approach the 2024 tanning season, in
particular the need to promote & support more affordable self-tan
products.
The Group retained a healthy net cash position of £8.2m at the year-end which
was £0.1m better than the position at the half year.
Despite the challenging trading environment, the Group generated a reduced
underlying operating loss of £0.4m in H2, a £0.4m improvement on the
performance in H1, due to a focus on better targeted advertising &
promotions resulting in improved contribution. Full year underlying operating
losses were £1.2m, a £0.6m improvement on last year. Our focus for the
current year is to achieve breakeven and thereafter return to profitable
growth.
The Group continues to make progress on transitioning the business to focus on
fewer, bigger brands that are highly efficacious, margin accretive and provide
consumers with problem-solving solutions. Historically Brand Architekts
brands' were retail exclusives, with little or no marketing investment, so in
order to compete in today's landscape, it is vital that we transform the
brands by investing in profitable brand awareness digital campaigns and
customer acquisition initiatives.
I was pleased that we were able to resolve our legal dispute with Jamie
Stevens Media Limited (JSML), our joint venture counterparty/co-shareholder in
Mr Haircare Ltd, which alleged a breach of shareholders' agreement between the
parties dating back to the company's acquisition of Fish in 2018. We agreed a
full and final settlement of all claims in the sum of £200,000 together with
legal costs of £225,000. We also agreed to purchase JSML's 49% shareholding
in Mr Haircare Ltd in cash at a fair value price to be determined by an
external valuer later in the year. JSML is entitled to 55% of the sale
valuation. MR sales for FY23 were £0.54m (FY22 £0.5m). The transaction is
expected to conclude before the end of the 2023 calendar year and a further
announcement will be made in due course.
The proposed acquisition of the remaining JV shares is in line with the
company's strategic vision to invest and build its portfolio of
high-performance, problem-solving and margin accretive brands. The brand will
be relaunched as MR Expert Solutions and the company's vision is to expand the
brand into adjacent male grooming problem solving categories and invest in the
master brand to accelerate brand awareness and stimulate consumer trial.
Although the trading environment remains extremely challenging, good progress
has been made during the period and post period-end, which gives a degree of
confidence for the future. Key highlights include:
· Continued implementation of the strategy to invest and support
our Invest & Nurture brands, which command higher retail prices, engender
strong consumer loyalty and deliver stronger margins.
· Branded Super Facialist instore merchandising trays rolled out to
Boots and Morrisons. New Super Facialist Clear Skin, targeting problematic
teenage skin care needs, launched on Amazon in September and in Boots in June
23. New Super Facialist D2C site launched in March 23.
· New Skinny Tan Wonder Serum brand awareness and customer
acquisition campaigns launched in July 2023 to capitalise on the second half
of the tanning season.
· The Solution Menopause range to launch in 2024.
· 49% growth vs the prior year in international channel sales
driven by post COVID-19 rebound in volumes from General Merchandise stores
across North America and Europe, benefitting Dirty Works.
· Confirmed distribution roll out to AS Watson stores in 2023 &
2024 across the Middle East and Asia (Thailand - 200 stores, Vietnam - 7, The
Gulf - 16, Philippines - 100, Malaysia - 66, Taiwan - 200, Singapore - 40,
Turkey -100).
· Good sales growth from key historical Brand Architekts' Nurture
and Harvest brands including Fish, MR, The Solution, Argan, SenSpa and Root
Perfect.
In line with our focus on contribution, as previously announced we streamlined
the board composition, reducing the number of Non-Executive Directors by one.
Geoff Ellis joined as part-time CFO in June 2023. I would like to recognise
and thank the board for their support when I took a four-month sabbatical over
the summer.
Notwithstanding difficult market conditions, including inflationary pressures,
we are committed to returning the business to profitability and cash
generation at the earliest opportunity.
On behalf of the board, I would like to thank our employees for their hard
work and commitment and shareholders for their continued support.
CEO's Statement 2023
In response to the well documented changes in consumer behaviour and the wider
global and domestic macro-economic factors, we pivoted our business strategy
to focus on brands and products that engender high levels of consumer loyalty
and reflect the redefined company purpose of focusing on high performance
problem-solving solution led brands. This resulted in a reclassification of
our brand portfolio and a strategic focus on brand contribution, rather than
aggressive sales growth.
Rampant inflation and high interest rates exacerbated the cost-of-living
crisis and in particular consumers' disposable income. This affected their
appetite for masstige products and highlighted the importance of focusing on
brand contribution and the need to build awareness and acquire new
customers. Cash strapped consumers' initial response is to trade down, as
demonstrated in the Self Tan category, where consumers have favoured gradual
tanners retailing at less than £10, which resulted in our decision to reduce
Skinny Tan Mousse and Whip retail prices. However, if brands are to succeed in
a period of recession, it is important to invest in brand awareness and new
product development, which are key tenets of our brand development strategy.
The team worked very hard to integrate the Innovaderma team and brands into
the business. This is now complete, and we have delivered £1.4 operating
synergies, against the £1.5m target set out at the time of acquisition. On
acquisition, the team expanded to nearly 80 people which we have consolidated
down to 51. To reflect the mix of business, we moved all Australian roles to
the UK. There are now 42 people in the UK and 9 people who provide customer
service and financial and operations support in the Philippines. To further
simplify the business, we will look to close all USA & Australia entities
within the next few years.
The business is now focussed on a 3-year transition strategy whereby our brand
portfolio will ultimately be reduced to 9 (from 15) and we will evolve our
brands and products to focus on margin accretive high performance topically
applied products. It is our belief that if we successfully meet the needs of
our consumers problems, this will engender loyalty and reduce the need for
brand building advertising & promotion (A&P). Our mission is to become
a challenger beauty business that provides "problem solving solutions for
everyday beauty".
Portfolio & Brand Development strategy -
Invest brands (Skinny Tan and Super Facialist):
Both have a degree of scale and are masstige positioned brands, which address
key problem-solving needs. They have a clear point of difference and
recognisable brand personalities. They benefit from extensive annual NPD
pipelines and ideally incorporate either proprietary technology or trademarked
ingredients, which leads to consumers paying a premium.
They will benefit from 360-degree marketing activation plans, which will
result in "fewer-bigger-better" holistic omnichannel communications; an
investment in the creation of best-in-class assets, which will then be used
across their organic social, paid social, PR and retail channels. Both brands
will be supported with new customer acquisition initiatives (Meta; Tik Tok;
Google; Affiliation etc) and we will invest in consumer mechanics such as user
generated content; VIP product testing & feedback loops that will enable
us to get closer to the consumer, which in turn will provide strong reasons
for consumers to follow the brand and to join the email database.
We will continue to drive and support an omnichannel distribution approach and
will apply a digital first lens to product launches and marketing
activity.
Nurture brands (The Solution, MR Expert Solutions and Dirty Works):
The fundamental difference between our Invest and Nurture brands is the level
of A&P we allocate to each category. The Solution and MR Expert Solutions
are both currently sub scale but have significant growth potential by creating
problem solving master brand propositions. Both brands are masstige and margin
accretive. Their brand names have a clear point of difference and a distinct
personality that lends itself to address beauty/personal care pain points
across multiple categories. Initially we launched The Solution as
"skinification" for the body, and we will be launching a Menopause range in
2024, which meets the specific needs of consumers going through the menopause
and beyond. Once we have fully acquired the MR brand, we believe that its
high-performance efficacious proposition will lend itself to enter into other
male problem categories, such as problem skincare and perspiration. Once the
master brands have been created by investment in a strong NPD pipeline, both
brands will be supported with their own DTC site and 360 marketing
activation campaigns.
Dirty Works has the greatest international reach of all our brands with sales
in over 40 countries. The brand is being exclusively rolled out to over 700
Watsons stores across Middle East and Asia in FY24. We are also developing
over 12 exclusive skincare lines for our North American retail partner. Dirty
Works is a master brand, given that it participates in the Washing &
Bathing, Skincare, Accessories and Gifting categories. Given its affordable,
fun, fragrant & indulgent proposition, brand investment will be focussed
on supporting key retail partners around the World. We will not launch a
Dirty Works DTC but will support its rollout offline and online.
Harvest Brands:
Although our objective is to focus and invest in fewer brands, we have a small
portfolio of Harvest brands that play several key roles - they meet the needs
of a specific category (Men's Styling); provide retail or channel exclusivity
(Root Perfect); strengthen Brand Architekts trading relationship with key
offline partners (Argan+ and Dr Salts) and absorb a disproportionate share of
corporate overheads, given we support these brands with trade marketing spend
only. For our remaining Harvest brands, we will look to discontinue over the
next couple of years either as a divestment (Charles + Lee), a termination of
license agreements or discontinuation, so that we can provide more focus and
resource on investing in our key focus brands.
Brand Reach:
Offline & Online:
The number one objective of our brand reach strategy is to secure new
distribution across our Invest and Nurture brands, both domestically and
internationally. We will be aggressively pushing Dirty Works (Middle East,
Asia and USA); Skinny Tan (USA, Middle East, Europe); The Solution (Europe)
into new international retailers and territories. Domestically we will look
to land all new product development in FY24 and to consolidate and drive
productivity on Skinny Tan and Super Facialist within existing distribution.
We will be looking to capitalise on the recent success of Super Facialist
Clear Skin; the relaunch of MR Expert Solutions; the launch of The Solution
Menopause and the relaunch of Fish and Dirty Works in 2024.
DTC:
Despite the global softening of the DTC channel, we believe that DTC sites
play an integral role in our omnichannel distribution strategy. Brand
Architekts believes in a digital first approach, initially to launch new
products but also to generate traffic and consumer interest, prior to roll out
online and offline. DTC helps with digital engagement and brand education. To
drive customer acquisition, we will be increasing pay-per-click advertising
and Meta spend behind our social footprint and database activity, given the
upcoming reduction of third party-cookies. Our focus last year was on
improving the profitability of the Skinny Tan site, potentially to the
detriment of gross sales. By applying an ongoing test and learn approach, we
will be focusing more on delivering actual cash contribution, rather than %
contribution.
By the end of 2024 all Invest and Nurture brands will have their own DTC
offering (excluding Dirty Works), we will have exited The Unexpekted Store and
Skinny Tan Australia. Our strategic focus and investment will be behind
four DTC sites, whereby we can generate an appropriate AOV (average order
value) and margin.
Environmental & sustainability
We continue to review and improve our beauty sustainability and are making
good progress against our 2025 sustainability pledge. 78% of brands use either
reusable or bio sourced plastic and packaging. Our target is 100% for 2025.
Please see separate sustainability section of the annual report.
Outlook:
Against a backdrop of continued challenging market conditions and inflationary
pressures the management team is focused upon realising both the strategic and
financial aims of the Group. The immediate priorities are driving brand
awareness of key Invest and Nurture brands, delivering revenue synergies
through international expansion, a laser focus on brand contribution and
releasing working capital tied up in harvest brands. We remain confident that
the foundations we are building will enable us to return to profitability and
achieve our medium and long-term goals.
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:
2023 2022
Reported results from continuing operations
Revenue (Note 2) £20.1m £14.3m
Underlying operating (loss)/profit(1) £(1.2)m £(1.8)m
Loss before taxation £(6.8)m £(4.1)m
Basic (loss)/earnings per share (23.5)p (23.9)p
Net cash £8.2m £11.3m
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:
2023 2022
Total Total
Underlying (loss) from operations (1,206) (1,811)
Amortisation of acquisition-related intangibles (1,027) (240)
Charge for share-based payments 12 (39)
Exceptional items - Impairment of intangible (3,500) (500)
assets
Other exceptional items (1,078) (1,350)
Operating (loss)/profit (6,799) (3,940)
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). Exceptional items are also explained further in Note 3. 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 £20.1 m (FY 2022: £14.3m), an
increase of 41% on the prior year due primarily to the full year effect of the
acquisition of InnovaDerma Plc, which completed on 31 May 2022. Excluding
InnovaDerma, revenue increased by 7% due to strong international sales offset
by challenging trading conditions in the UK.
The underlying gross profit margin was significantly better than the prior
year increasing by 6.2% to 39.7% (2022: 33.5%). This is due to the full year
effect of the Innovaderma portfolio, chiefly Skinny Tan where margins are
higher. Margins from the sale of Brand Architekts' brand products have held up
well year on year despite continued and significant cost increases throughout
the supply chain, notably in raw materials, componentry and energy. Every
attempt was made to pass cost increases on to retailers but that is often
difficult due to previously agreed pricing commitments.
Despite the challenging trading environment, the Group generated a reduced
operating loss in H2, a significant improvement on the performance in H1, due
to a focus on better targeted advertising & promotions resulting in
improved contribution.
The Group made a loss before tax of £6.8m after amortisation of intangibles
£1m, impairment of £3.5m and other exceptional items of £1.1m which
included restructuring costs (£0.4m), and costs associated with the
resolution of the legal claim with MR haircare (£0.7m).
Financing costs were £0.1m (2022: £0.2m) relating to the defined benefit
pension plan notional finance charge.
The effective tax rate for the period was 3% (2022: negative 3%) of pre-tax
profits. The effective rate is below the statutory rate of 20.5% due to the
losses in the period.
Financial position and cash flow
The Group retains a net cash position of £8.2m, a reduction of £3.1m versus
the prior year (2022: £11.3m). The cash outflow was due to a mix of the
underlying operating loss of £1.2m, exceptional costs relating to the
InnovaDerma acquisition of £1.0m which includes restructuring costs and a
£0.6m net increase in working capital following a planned investment in key
product line inventory holdings to offset cost inflation. The company also
made a payment of £0.3m, its annual payment commitment to its defined benefit
pension scheme as outlined below.
Defined benefit pension plan
The defined benefit pension plan underwent its last triennial valuation on 5
April 2020. The scheme funding valuation at this date revealed a deficit of
£21.1m. 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.
The outcome of the next triennial valuation at 5 April 2023 is expected in
late autumn 2023 and will form the basis of a potential re-assessment.
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 2022. This
has resulted in a slightly higher discount rate being adopted for accounting
purposes compared to last year. This has decreased the fair value of the plan
liabilities as measured under IAS 19, and while it is also true that the fair
value of the scheme's assets also decreased, the decrease in assets was lower
than the decrease in liability hence the net result is a decreased liability
under the IAS 19 methodology. For accounting purposes at 30 June 2023, the
Group recognised under IAS 19, a net liability of £1.6m (2022: £2.4m).
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 £8.2m. 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 2023 and 30 June 2022
2023 2022
Notes £'000 £'000
Revenue 2 20,085 14,296
Cost of sales (12,101) (9,506)
Gross profit 7,984 4,790
Commercial and administrative costs (10,202) (6,880)
Operating loss before exceptional items (2,218) (2,090)
Exceptional items - Impairment of intangible assets 3 (3,500) (500)
Other exceptional items 3 (1,078) (1,350)
Operating loss (6,796) (3,940)
Finance income 111 20
Finance expense (88) (196)
Loss before taxation 4 (6,773) (4,116)
Taxation 5 188 (130)
Loss for the year (6,585) (4,246)
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Re-measurement of defined benefit liability 444 5,143
Items that will be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations - -
Other comprehensive income for the year 444 5,143
Total comprehensive income for the year (6,141) 897
Loss attributable to:
Equity shareholders (6,588) (4,322)
Non-controlling interests 3 76
Total comprehensive income attributable to:
Equity shareholders (6,141) 821
Non-controlling interests 3 76
Earnings per share 6
- basic (23.5)p (23.9)p
- diluted (23.5)p (23.9)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 2023
2023 2022
Notes £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment including right of use assets 43 53
Intangible assets 7 14,462 18,870
Deferred tax assets 520 730
Total non-current assets 15,025 19,653
Current assets
Inventories 6,123 7,375
Trade and other receivables 4,774 5,099
Cash and cash equivalents 8,177 11,347
Total current assets 19,074 23,821
Total assets 34,099 43,474
LIABILITIES
Current liabilities
Trade and other payables 4,687 6,844
Current Tax Payable 2 9
Total current liabilities 4,689 6,853
Non-current liabilities
Post-retirement benefit obligations 1,619 2,439
Deferred tax liabilities 2,190 2,428
Total non-current liabilities 3,809 4,867
Total liabilities 8,498 11,720
Net assets 25,601 31,754
EQUITY
Share capital 1,397 1,397
Share premium 11,987 11,987
Merger reserve 6,588 6,588
Pension re-measurement reserve (2,215) (2,659)
Retained earnings 7,613 14,213
Equity attributable to holders of the parent 25,370 31,526
Non-controlling interest 231 228
Total equity 25,601 31,754
Group Statement of Changes in Equity
For the year ended 30 June 2023 and the year ended 30 June 2022
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 2022 1,397 11,987 6,588 (2,659) 14,213 228 31,754
Non-controlling interest - - - - - 3 3
Share based payments - - - - (12) - (12)
Transactions with owners - - - - (12) 3 (9)
Loss for the year attributable to equity shareholders - - - - (6,588) - (6,588)
Other comprehensive income:
Re-measurement of defined benefit liability - - - 444 - - 444
Total comprehensive income for the year - - - 444 (6,588) - (6,144)
Balance as at June 2023 1,397 11,987 6,588 (2,215) 7,613 231 25,601
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
Cash Flow Statement
For the year ended 30 June 2023 and the year ended 30 June 2022
Group Company
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Cash flow from operating activities
Loss before taxation (6,773) (4,116) (5,493) (2,581)
Depreciation 32 29 - -
Amortisation 1,118 388 74 78
Impairment of property, plant & equipment (166) 166 - -
Impairment of intangible assets 3,500 770 - 500
Impairment of investments - - 3,500 -
Finance income (111) (20) (111) (10)
Finance cost 88 196 88 190
(Increase)/ Decrease in inventories 1,252 (3,084) - -
Decrease /(Increase) in trade and other receivables 325 101 (904) (1,266)
Increase / (Decrease) in trade and other payables (2,082) 641 (996) (559)
Share based payment expense (14) 39 (23) 42
Contributions to defined benefit plans (318) (1,318) (318) (1,318)
Cash (outflow) / generated from operations (3,149) (6,208) (4,183) (4,924)
Finance costs paid - - - -
Taxation received (66) 432 - -
Net cash (outflow) from operating activities (3,215) (5,776) (4,183) (4,924)
Cash flow from investing activities
Purchase of property, plant and equipment (22) (15) - -
Purchase of intangible assets (44) (237) - -
Cash consideration paid for acquisitions - (1,965) - (1,965)
Cash acquired on acquisition - 1,510 - -
Net cash flow from investing activities (66) (707) - (1,965)
Cash flow from financing activities
Repayment of / Movements in invoice discounting facility - - - -
Finance income received 111 20 111 10
Repayment of loans - (1,208) - -
Net cash flow from financing activities 111 (1,188) 111 10
Net decrease in cash and cash equivalents (3,170) (7,671) (4,072) (6,879)
Cash and cash equivalents at beginning of year 11,347 19,018 9,802 16,681
Cash and cash equivalents at end of year 8,177 11,347 5,730 9,802
Notes to the Accounts
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
2023 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 2022 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 2023 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).
Note 1 Significant accounting policies
General Information
Brand Architekts Group plc is a public limited company which is listed on AIM
and is 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 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. In making this
assessment directors have considered the possible impact of a reduction of
trading on budgets and have stress tested the figures by comparing costs
committed to with the cash available which showed sufficient headroom to
continue trading. 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
acquisition 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 2023 was £5.529m (2022: loss after tax £2.742m).
The Group financial statements consolidate those of the parent company and all
of its subsidiaries as of 30 June 2023. 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, there were three reportable segments of the Group, 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 2023 and year ended 30 June 2022:
Year ended 30 June 2023 Brand Architekt Brands Eliminations and Central Costs Total
Innovaderma Brands
£'000 £'000 £'000 £'000
UK revenue 11,243 4,538 - 15,781
International revenue 3,225 1,079 - 4,304
Revenue - External 14,468 5,617 - 20,085
Revenue - Internal - - - -
Total Revenue 14,468 5,617 - 20,085
Underlying profit / (loss) from operations 193 (233) (1,166) (1,206)
Credit / (charge) for share-based payments (12) - 24 12
Amortisation of acquisition-related intangibles - - (1,027) (1,027)
Exceptional items - Impairment of intangible assets (Note 3) - (3,500) - (3,500)
Other Exceptional items (Note 3) (147) (297) (634) (1,078)
Net borrowing income / (expense) - - 26 26
Profit / (Loss) before taxation 34 (4,030) (2,777) (6,773)
Tax charge 77 (91) 202 188
Loss for the year 111 (4,121) (2,575) (6,585)
Year ended 30 June 2022 Brand Architekt Brands Eliminations and Central Costs
Innovaderma Total
Brands
£'000 £'000 £'000 £'000
UK revenue 10,910 741 - 11,651
International revenue 2,558 87 - 2,645
Revenue - External 13,468 828 - 14,296
Revenue - Internal - 26 (26) -
Total Revenue 13,468 854 (26) 14,296
Underlying loss from operations (667) (87) (1,057) (1,811)
Credit / (charge) for share-based payments 3 - (42) (39)
Amortisation of acquisition-related intangibles - - (240) (240)
Other Exceptional items (Note 3) (281) (341) (1,228) (1,850)
Net borrowing income / (expense) 4 - (180) (176)
Loss before taxation (941) (428) (2,747) (4,116)
Tax charge - - (130) (130)
Loss for the period (941) (428) (2,877) (4,246)
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 2023 Brand Architekt Brands Innovaderma Eliminations and Central Costs Total
Brands
£'000 £'000 £'000 £'000
Depreciation / impairment of PPE 32 - - 32
Amortisation / impairment of intangibles * 91 3,500 1,027 4,618
Period ended 30 June 2022 Brand Architekt Brands Innovaderma Eliminations and Central Costs Total
Brands
£'000 £'000 £'000 £'000
Depreciation 29 166 - 195
Amortisation/ impairment* 418 - 740 1,158
* Impairment losses of £Nil (2022: £0.5m) in Central Costs is included in
Exceptional Items - Impairment of intangible assets
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 2023 30 June 2022
£'000 £'000
UK 15,781 11,651
Other European Union countries 642 982
Rest of the World 3,662 1,663
20,085 14,296
In the year ended 30 June 2023, the Group had one customer that exceeded 10%
of total revenues, being 13.7%. 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. All of these customers are reported within the Brand
Architekts Brands segment. Revenue is recognised when goods are despatched to
the customer and the significant risks and rewards of ownership to the
customer have been transferred. Our policy requires customers to pay us in
accordance with agreed payment terms. Depending on the geographical
location, our settlement terms are generally due within 30 or 60 days from the
end of the month of sale.
Note 3 Exceptional Items
Exceptional charges / (credits) from Continuing Operations: Year ended Year ended
30 June 2023 30 June 2022
£'000 £'000
Exceptional items - Impairment of intangible assets 3,500 500
Other exceptional items:
Impairment of software - 270
Acquisition costs - 728
Restructuring costs 390 186
Legal costs 705
Other exceptional costs (17) 166
Total exceptional items 4,578 1,850
Exceptional impairments of intangible assets relates to the partial impairment
of the InnovaDerma brand of £3.5m (2022: impairment of Fish brand £0.5m).
Restructuring costs of £0.4m have been incurred following the acquisition of
InnovaDerma in the prior year.
Legal costs of £0.7m associated with the resolution of the claim with MR
Haircare were incurred in the year, including the settlement agreement reached
totalling £425k as disclosed in the Chairman's statement on page 6. Final
settlement of these costs were made after the year end.
Note 4 Loss before taxation
2023 2022
£'000 £'000
(a) This is stated after charging/ (crediting)
Depreciation of property, plant and equipment of purchased assets 32 29
Amortisation of intangible assets 1,118 388
Impairment of intangible assets and property, plant and equipment (classified - 770
as exceptional - Note 3)
Foreign exchange (gains) / losses 66 (5)
Amounts expensed for short term and low value leases 56 56
(b) Auditors' remuneration
Audit services:
Audit of the Company financial statements 57 53
Audit of subsidiary undertakings 32 14
Audit related services:
Interim review 3 3
Non audit services:
Corporate finance - acquisition related services - 45
Note 5 Taxation
2023 2022
(a) Analysis of tax charge in the year £'000 £'000
UK corporation tax:
- on profit for the year - -
- adjustment in respect of previous years - -
Total current tax credit - -
Deferred tax: - -
-current year (credit)/ charge (188) 130
-effect of tax rate change on opening balance - -
Total deferred tax charge (188) 130
Tax charge (188) 130
(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 20.50% (2022: 19.00%). The applicable rate of
tax in the year ended June 2024 will be 25%, the tax rate in the year is
20.50% due to the tax rate changing from 1 April 2023. The differences are
reconciled below:
2023 2022
£'000 £'000
Loss before taxation (6,773) (4,116)
Tax at the applicable rate of 20.5.% (2022: 19.00%) (1,388) (782)
Effect of:
Adjustment in respect of previous years - -
Expenses not deductible for tax purposes 792 138
Adjustment to losses 15 -
Income not taxable for tax purposes - -
Deferred tax asset not recognised on taxable losses 494 774
Remeasurement of deferred tax for changes in tax rates (44) -
Other timing differences (57) -
Actual tax (credit)/charge (188) 130
The group has tax losses of £12.9m (2022: £11.3m) which have not been
recognised as there is no certainty that they can be utilised.
Note 6 Earnings per share
2023 2022
Basic and Diluted
Loss for the year attributable to equity holders (£'000) (6,579) (4,322)
Basic weighted average number of ordinary shares in issue during the year 27,943,180 18,111,180
Diluted number of shares 28,032,180 18,200,180
Basic loss per share (23.5)p (23.9)p
Diluted loss per share (23.5)p (23.9)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 2023 and 30 June 2022 respectively.
Note 7 Intangible assets
Software and Trademarks Brand Names Customer Relationships Goodwill Trade Total
marks
GROUP £'000 £'000 £'000 £'000 £'000 £'000
Cost:
At June 2021 385 8,715 2,126 2,618 - 13,844
Additions 218 - - - 19 237
Acquired through business combinations- - 1,608 2,329 5,736 - 9,673
Additions
At June 2022 603 10,323 4,455 8,354 19 23,754
Additions 44 - - - - 44
At June 2023 647 10,323 4,455 8,354 19 23,798
Amortisation:
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
At June 2022 471 3,024 1,386 - 3 4,884
Provided during the year 85 466 561 - 6 1,118
Impairment charge during the year - - - 3,500 - 3,500
Acquired through business combinations - - - (166) - (166)
Disposals - - - - - -
At June 2023 556 3,490 1,947 3,334 9 9,336
Net book value:
At June 2023 91 6,833 2,508 5,020 10 14,462
At June 2022 132 7,299 3,069 8,354 16 18,870
-
1,608
2,329
5,736
-
9,673
At June 2022
603
10,323
4,455
8,354
19
23,754
Additions
44
-
-
-
-
44
At June 2023
647
10,323
4,455
8,354
19
23,798
Amortisation:
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
At June 2022
471
3,024
1,386
-
3
4,884
Provided during the year
85
466
561
-
6
1,118
Impairment charge during the year
-
-
-
3,500
-
3,500
Acquired through business combinations
-
-
-
(166)
-
(166)
Disposals
-
-
-
-
-
-
At June 2023
556
3,490
1,947
3,334
9
9,336
Net book value:
At June 2023
91
6,833
2,508
5,020
10
14,462
At June 2022
132
7,299
3,069
8,354
16
18,870
Brand Names Customer Relationships Total
COMPANY £'000 £'000 £'000
Cost:
At June 2021 3,624 480 4,104
At June 2022 3,624 480 4,104
At June 2023 3,624 480 4,104
Amortisation:
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
Provided during the year - 74 74
Impairment charge during the year - - -
At June 2023 3,024 457 3,481
Net book value:
At June 2023 600 23 623
At June 2022 600 97 697
Impairment testing
Three Brands (Brand Architekts, Fish and InnovaDerma) and associated goodwill
have been tested for impairment as they have indefinite useful lives. The
Brand Architekts and Fish brands gave a valuation in excess of their carrying
values, and therefore no impairment is required. The InnovaDerma brand was
partially impaired by £3.5m.
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 2%. Fair value less costs to sell was determined by a
review of historic acquisitions in the consumer goods market of similar size
and current market data 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 8.1%
(2022: 8%), 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 2%, in line with wider
industry forecasts, in the calculations including into perpetuity.
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. The expectations included
in the workings are for increases in performance and profits being made due to
cost synergies from integration into the BAG group and a focus on higher
margin products.
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 is £600,000. Goodwill held in relation
to InnovaDerma was £2,236,000, following the partial impairment of
£3,500,000. The value of the customer relationship intangibles for Brand
Architekts are £478,000. The values of the customer relationship and brand
intangibles for InnovaDerma are £1,863,000 and £1,286,000 respectively.
Sensitivity analysis
Fair value less costs to sell are the higher of the value in use and fair
value less costs to sell and as a result the fair value has been used to
assess the impairment. A 10% decrease in the fair value for the Brand
Architekts goodwill and brand names would not result in an additional
impairment. A 10% decrease in the fair value of Innovaderma would results in
an additional impairment of the goodwill of £0.6m and an increase of 10%
would result in a reduction in the impairment of the goodwill of £0.6m.
Note 8 Notes to Cash Flow Statement
GROUP
2023 2022
£'000 £'000
Decrease in cash and cash equivalents (3,170) (9,181)
Net cash outflow from decrease in borrowings - 1,208
Change in net cash (3,170) (7,973)
Opening net cash 11,347 19,018
Net cash acquired on business combinations - 302
Closing net cash 8,177 11,347
Closing 2022 Cash Flow Closing 2023
(b) Analysis of net cash:
£'000 £'000 £'000
Cash at bank and in hand 11,347 (3,170) 8,177
Borrowings due within one year - - -
11,347 (3,170) 8,177
Note 9 Post Balance Sheet Events
Since the year end a settlement has been reached in respect of the dispute in
relation to Mr Haircare. As part of the settlement agreement, Brand
Architekts Group plc will purchase the remaining shares in Mr Haircare at fair
value as determined by an independent third party valuer. The basis of
valuation adopted is currently subject to challenge and the purchase price has
not yet been agreed. The potential value of the shares is not disclosed as it
could be prejudicial to the outcome. The transaction is expected to conclude
before the end of the 2023 calendar year and a further announcement will be
made in due course.
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