REG - Revolution Beauty Gp - FINAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2023
31/08/2023 08:30
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RNS Number : 9402K Revolution Beauty Group PLC 31 August 2023
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.
REVOLUTION BEAUTY GROUP PLC
("Revolution Beauty", the "Group" or the "Company")
AUDITED FINAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2023
Improving trading performance during period of change
Suspension of shares traded on the London Stock Exchange successfully lifted
post period end
Revolution Beauty Group plc (AIM: REVB), the multi-channel mass beauty
innovator, today announces its Full Year Results for the year ended 28
February 2023 ("FY23" or the "Period").
The Group delivered a resilient performance during the Period, despite
continuing to be impacted by previously flagged issues Identified around
stock, revenue and the carrying value of Revolution Labs.
Nonetheless, trading improved as the year progressed, with the return of top
line revenue growth and positive EBITDA in H2; this follows operational and
commercial changes made by the new management team.
Since the year end, this trend has continued, and the Group is pleased to be
performing ahead of internal expectations.
Key financials
Group results Year ended 28 February 2023 Year ended 28 February 2022
Restated
£'M £'M Change YoY
£'M
Revenue 187.8 184.6 3.2
Gross profit 75.9 71.0 4.9
Gross profit % 40.4% 38.5% 1.9%
Adj EBITDA (7.5) (0.8) (6.7)
Operating loss (30.6) (39.9) 9.3
Net finance costs (3.3) (6.0) 2.7
Loss before tax (33.9) (45.9) 12.0
Income tax credit 0.2 1.6 (1.4)
Loss for the year (33.6) (44.3) 10.7
Gross Cash 11.0 15.6 (4.6)
Net Debt (21.0) (8.4) (12.6)
Financial Highlights
· Group revenue increased by 1.7% to £187.8m (2022: £184.6m)
primarily due to the reopening of physical stores. Store revenue increased by
8.1%; Online sales were lower by 12.1%
· Gross profit margin increased by 190bps to 40.4%, primarily due
to improved stock management and reduced freight costs
· Adjusted EBITDA loss widened to £7.5m (FY22: £0.8m) due to
increased marketing expenses and higher staffing costs due primarily to
increased headcount, partly offset by improved margin; loss after tax narrowed
to £33.6m (FY22: £44.3m)
· Significant improvement in year-on-year operating cash flow. Cash
balance at year end of £11m. Banking facility fully drawn at £32.0m, £8.0m
of which was drawn in the Period, resulting in net debt balance of £21.0m at
the year end
· New inventory provisioning methodology adopted by the Group in
FY22, tight inventory control introduced during H2, resulting in the reduction
in the inventory provision for FY23 of £6.0m (FY22 increase: £11.3m)
Operational Highlights
· Rigorous new internal controls and protocols introduced across
Group functions and departments; suspension of Group's shares successfully
lifted post period-end
· Improving trading performance and maintained strong stakeholder
relationships during a period of significant and well-publicised upheaval for
the Group
· Continued to successfully fulfil consumer demand for Revolution
Beauty's relevant, affordable and multichannel offer
· Growth in store revenues driven by new distribution in Boots in
UK and Walgreen in US
· Rationalisation of product range, with focus redoubled on
successful core products and attractive 'Make Up Revolution' brand
· Appointment of the Group's first Chief Marketing Officer post
period end, demonstrating strategic intent to grow across core markets of US,
UK and Germany
· The Group will be announcing imminently the appointment of a new
CEO. They will replace Bob Holt, who as previously announced, stands down
today. Alistair McGeorge will become the Non-Executive Chair when the new CEO
joins the business
· On March 2023 the Group announced it secured an amended facility
agreement with its banking partners which runs through to October 2024. The
overall size of the facility was agreed at £32m, reduced from £40m, and is
fully drawn. Revised covenants remain in place and the Group continues to
enjoy the support of its banking partners
Current Trading and Outlook
· Post period-end, trading has continued to perform ahead of
expectations. As previously announced, sales in Q1 FY24 increased by 60% on
the prior year (Q1 FY23 sales were particularly weak due to customers
previously overstocking) with EBITDA at £3.5m (Q1 FY23: £7.4m loss)
· While the Board is mindful of the external environment, it
remains confident in the future opportunities open to Revolution Beauty, given
its relevant, affordable and multichannel offer. As previously disclosed, the
current expectation for FY24 is high single digit growth in revenue, and
adjusted EBITDA in the high single digit millions
· The Group currently has a cash balance of £10.5m, and remains
fully drawn on its facility
Alistair McGeorge, Executive Chairman, commented:
"This solid Group trading performance has been achieved during a period of
well-publicised upheaval for the business. To that end, I would like to thank
my predecessor Derek Zissman, Bob Holt and Elizabeth Lake for their efforts
over the past twelve months. Firstly in maintaining the commercial performance
of the Group while also overseeing the implementation of new internal
protocols and the lifting of the suspension of the Group's shares which are
traded on AIM.
"While I have only been with Revolution Beauty for a short period, it is clear
to me that the business has the right attributes in place. The expertise of
colleagues, combined with the relevance, affordability and strength of the
Revolution brand gives me confidence that we can achieve continued growth
across our core markets. .
"While there is still a lot of work to be done, I look forward to supporting
our new CEO, to build on recent momentum within the business, and achieve
long-term sustainable growth within what is a large and attractive beauty
market."
For further information please contact:
Investor Relations Investor.Relations@revolutionbeautyplc.com
Elizabeth Lake
Joint Corporate Brokers
Zeus (NOMAD): Nick Cowles /Jamie Peel /Jordan Warburton Tel: +44 (0) 161 831 1512
Liberum: Clayton Bush / Edward Thomas / Miquela Bezuidenhoudt Tel: +44 (0) 203 100 2222
Media enquiries Tel: +44 (0)20 3805 4822
Headland Consultancy Revolutionbeauty@headlandconsultancy.com
Matt Denham / Will Smith / Antonia Pollock
About Revolution Beauty
Revolution Beauty is a global mass beauty and personal care business which
operates a multi brand, multi category strategy and sells its products both
direct-to-consumer (DTC) via its e-commerce operations, and in physical and
digital retailers through wholesale relationships.
Today, the Group has a retail footprint of c.17,000 doors across leading
retail chains in the UK, USA and other international markets. Revolution
Beauty has access to a wide customer base, predominantly aged between 16 and
35, through its digital partners and own DTC platform. It has established and
invested to streamline its supply chain with its own manufacturing facility in
the UK, and third-party warehousing facilities across the UK, USA and
Australia. The Group has offices in the UK, USA, New Zealand and Germany.
Revolution Beauty currently employs 347 people.
The total mass beauty market was worth $218bn in 2022 and is expected to grow
to $255bn over the next 3 years (source: Euromonitor). Revolution Beauty has
been a leading innovator building a significant global following across social
channels, enabling it to spot trends and respond quickly to consumer demand,
and translating this to mass market beauty retail.
CHAIR'S STATEMENT
I am delighted to present my first report as Executive Chair of Revolution
Beauty. This is an exciting time for the business as we seek to capitalise on
its undoubted strengths.
As has been well publicised, the business has suffered a number of significant
commercial and financial shortcomings. These have been outlined in detail in
the FY22 annual report. Most of these are now behind us and this is due to the
successful actions of my predecessor as Chair, Derek Zissman, outgoing CEO Bob
Holt and the wider executive team. With a new Board now in place we can look
forward to driving sustainable profitable growth.
LIFTING OF SHARE SUSPENSION
Over the past year, the over-riding priority for the business, its
shareholders and stakeholders has been to lift the suspension of trading in
the Group's shares.
As set out in our FY22 annual report and accounts, the Company's shares were
suspended on 1 September 2022. The focus of the Board from then was to work
tirelessly to restore trading in the Company's shares for the benefit of all
stakeholders.
The hurdles to getting the suspension lifted were,
· the completion of the FY22 audit (annual report and accounts
published 26 May 2023).
· the publication of the FY23 interims (published 2 June 2023).
· completion of a report on the Group's working capital carried out
by KPMG and similarly a report on the updated Financial Position and Prospects
Procedures (FPPP).
· a fully constituted Board with four independent non-executive
directors (27 June 2023).
With the publication of the interim results on 2 June 2023, the Company had
met the conditions for re-listing, and it also gave notice of the date of the
AGM 27 June 2023.
Following considerable work from the whole Revolution Beauty team, the
Company's shares were restored to trading on AIM (Alternative Investment
Market) on 28 June 2023
CORPORATE GOVERNANCE, BOARD AND MANAGEMENT CHANGES
The Group has adopted the Quoted Companies Alliance Corporate Governance Code
2018 (QCA Code) and the Board remains committed to upholding the highest
levels of corporate governance. The Board acknowledges that in some areas this
was not historically the case, and has taken significant measures to address
these historic and complex matters which were the subject of an Independent
Investigation.
Between the start of FY23 and the request from boohoo Group Plc for Board
representation, there have been a number of significant changes to the Board
and management of the business:
Andrew Clark announced his intention to step down as a director and CFO of the
Company on 12 May 2022. On the same date, we welcomed Elizabeth Lake as
director and Chief Financial Officer.
In November 2022, it was announced that due to the events since IPO and the
transition from a private company to a public company, Chief Executive Officer
Adam Minto resigned as a Director of the Group and stepped down from the
business with immediate effect. Bob Holt had been appointed as Interim Chief
Operating Officer in October and was subsequently appointed Chief Executive
Officer and a Director on 28 November 2022.
In December 2022, Gita Samani and Edward Rumsey also resigned from the Board.
On completion of the FY22 audit, Tom Allsworth resigned as a Director of the
Group on 24 May 2023.
Under the leadership of Bob Holt, two Non-Executive Directors ("NEDs") with
significant listed company and commercial experience (Rachel Maguire and
Matthew Eatough) were appointed to strengthen the Board and help stabilise it
at a time of intense corporate activity. Following the settlement announcement
with boohoo Group Plc, three further NEDs were appointed (Peter Hallett, Neil
Catto and Rachel Horsefield) to reflect the change in leadership, bringing
with them experience closely aligned to the direction of the new leadership
team.
Following these appointments, as at the date of this Report, the Board has six
NEDs and this will increase to seven imminently once the new CEO is appointed
and I become a non-executive Chair.
Since the board changes referred to above, the Board and the Nominations
Committee have been conducting a search for a new CEO and for non executive
Directors to replace Jeremy Schwartz, Rachel Maguire and Matthew Eatough, who,
having played their part in the restoration of the Company's trading on AIM
and the transition to the new leadership team, have each decided that they
will not put themselves forward for election at the forthcoming AGM. This
search process is well progressed and we intend to announce a series of
appointments in the near future. I would like to thank each of Jeremy, Rachel
and Matthew for their responsive and professional service and guidance during
this transitional period.
REGULATOR ACTION
The Company informed the shareholders on 21 July that the Financial Conduct
Authority (the "FCA") had notified Revolution Beauty that it had commenced an
investigation into potential breaches of the Market Abuse Regulation (EU)
596/2014 (as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018) in relation to certain matters in the period from July
2021 to September 2022. Revolution Beauty is cooperating fully with the FCA
and will provide updates in due course.
OUR PEOPLE
I would like to take this opportunity to express my thanks to all the
employees of Revolution Beauty for their efforts during what has been a
challenging and busy period.
LOOKING FORWARD
The business is well placed to move forward and continue to deliver topline
growth and improving profitability under the leadership of its new CEO. The
business operates within a growing sector and is positioned to take advantage
of the opportunities.
Alistair McGeorge
Executive Chair
31 August 2023
CHIEF EXECUTIVES REVIEW
INTRODUCTION
The Company was listed on the AIM in July 2021 and was suspended from trading
in September 2022. I was appointed to the Board in November 2022 to bring
stability to the business following a period of significant turmoil.
The results presented herewith recognise significant change in the business,
Elizabeth Lake the CFO was appointed in May 2022 and was instrumental in
bringing the Company out of suspension in July 2023.
As stated in the Chair's report I will be leaving the business at the end of
August 2023.
I am proud of what has been achieved under my short tenure and take
satisfaction from achieving what I was brought in to achieve, the
stabilisation of the business and the lifting of the share suspension.
We are pleased to report the results for the year ended 28 February 2023.
Turnover grew by 1.7% to £187.8m (FY22 £184.6m) and losses before tax
reducing to £33.9m (FY22 £45.9m).
Adjusted EBITDA for the period was a loss of £7.5m compared to a loss of
£0.8m in FY22. All of this loss was in H1 and was due to lower sales and
increasing overheads particularly within marketing and people costs. In H2
cost saving measures were put in place and revenue grew.
Both Elizabeth Lake our Chief Financial Officer and I were appointed during
the year being reported, and the results include significant changes to those
envisaged when the company was floated in July 2021.
Underlying cashflows have improved, however during the period exceptional
legal and professional fees (c.£3.8m) and costs of restructuring have been
paid (c.£1.3m), impacting cash generation. Without these one off costs the
business would have generated cash through its operating activities. The cash
balance at the end of the year is £11m, and the £32m facility is fully
drawn, resulting in a net debt balance of £21.0m. The cash balance at 30
August was £10.5m.
UPDATE ON INDEPENDENT INVESTIGATION
As announced on 23 September 2022, the Company's auditor wrote to the Board on
21 September 2022 to identify a number of serious concerns that had arisen
during the course of its work on the audit of the Company's accounts for FY22.
The detail of the findings can be found in the FY22 Annual Report and
Accounts.
The Board appointed independent external advisors to undertake an Independent
Investigation, Macfarlanes (lawyers) and FRA (forensic accountants).
The delayed completion of the FY22 results subsequently had a knock-on effect
to the timetable for the publication of these FY23 results. In addition, these
results also reflect the impact of the issues previously identified,
particularly around stock and revenue and the carrying value of Revolution
Labs.
The report highlighted a number of accounting irregularities and control
issues, which have now been dealt with.
FY23 PERFORMANCE
During the year, we achieved a small increase in Group sales, up 1.7%% to
£187.5m as compared to the same 12-month period last year. This is a solid
performance given the turmoil within the business during the year and the
impact of certain customers being overstocked and therefore reducing their
buying, particularly in the digital wholesale channel.
I want to highlight the future opportunities for the Group rather than
continuing to dwell on the control weaknesses of the past. As part of the
restructure we implemented, all global sales heads reported into me and for
the first time were accountable for controlling the costs of their individual
departments and headcount. We feel more comfortable now with the ability of
the teams to forecast sales and costs attributable to them than at any time
since joining.
Due to the previous lack of control around new product development, we
typically produced over one thousand new products each year into an already
saturated product offering. Our sales teams, in conjunction with our
customers, are now working to a more controlled product range. We have in the
past been recognised as being able to bring innovative products to market more
efficiently and speedier than our mass market competitors. We continue to
deliver that flexibility.
Our gross margin in the year improved to 40.4% from 38.5% in FY22. The
improvement was mainly driven by reducing freight costs and reduced stock
provision charges.
Since entering the US market, we have seen strong growth. Work remains
ongoing to further strengthen relationships, streamline the product range and
improve service levels on stock supply. These measures will ensure continued
focus on fulfilling the brand's full potential in the US market.
Our trading throughout our other major markets, in the UK, Germany, the
Nordics and Australasia have performed well, and we look forward to building
further on those markets whilst opening new territories which offer long term
attractive opportunities for profitable growth. The global cosmetics market
continues to grow and offers significant rewards for those brands with
established relationships and the ability to be innovative and proactive to
ever evolving market opportunities.
What became very evident during the early part of my appointment was the
underperformance of a number of newly developed brands and sub brands. We have
subsequently reduced significantly the product ranges on Revolution Man,
Tanning, BH cosmetics and Fragrance. Again, our focus is on our core range of
products and in the categories we are successful in, with some variation by
country or individual customer need. To reiterate, we continue to provide a
flexible approach to give customers products that excite whilst maintaining a
commercially viable approach to future partnership discussions.
POST-PERIOD END AND CURRENT TRADING
The post year end trading has continued to perform ahead of our internal
expectations We are seeing increasing demand for our products in our key
markets, and our sales teams are confident of hitting their forecast sales
targets.
It would be remiss of me to fail to mention the significant management effort
which was needed to rescue the business from the errors of the recent past. I
would like to thank the slimmed down management team for the successful
turnaround in the business in such a short period of time.
I also should like to thank all stakeholders for their support in the period
reported.
OUTLOOK
We are proud of the progress that has been made in the business over the
past year, and that we were able to secure the lifting of the share
suspension.
We have been focused on reinforcing internal controls and processes to ensure
that we are in a position to achieve consistent operational excellence at a
global scale, and in line with the required standards. I know I am handing
over to an experienced team who will continue from here.
The business is poised for the next stage of its growth story, and I wish
Alistair and the rest of the team well as they take the business to the next
level.
Bob Holt OBE
Chief Executive Officer
31 August 2023
FINANCIAL REVIEW
Following the publication of the FY22 Annual Report and Accounts and the H1
FY23 interims, the suspension on the Company's shares was lifted and the
shares have been trading as normal since 28 June 2023.
FY23 is a story of two halves, in H1 Group revenue decreased by 4.2% and
adjusted EBITDA was a loss of £7.5m. The second half of the year saw a return
to top line revenue growth due to the changes that were made by the new
management team both operationally and commercially.
REVENUE
Year ended Year ended
28 February 2023 28 February 2022
Change
£'M £'M £'M %
Revenue 187.8 184.6 3.2 1.7%
Gross margin 75.9 71.0 4.9 6.9%
Adjusted EBITDA (7.5) (0.8) (6.7) (834%)
Revenue in the year increased by £3.2m or 1.7%, with the opening of stores
following the closures during the pandemic, consumers switched back very
quickly from online to physical stores. Overall we saw a rapid decline in
online sales of 12% year on year, whilst revenue from our own websites
increased 2%, revenue from digital partners fell 23% as they de-stocked
following the fall in demand.
Gross margin for the year ended 28 February 2023 improved significantly to
40.4%/£75.9m (FY2022: 38.5%/£71.0m) as a result of improved stock
management, and reduced freight costs as freight rates returned to near
pre-pandemic levels.
Adjusted EBITDA loss increased from a loss of £0.8m in FY22 to a loss of
£7.5m in FY23. The main reason for this increased loss was the marketing
spend on stand updates which was significantly higher than FY22 which had been
impacted by lockdowns and low spend in stores. In addition, the business had
increased staffing levels in FY22 in anticipation of significantly higher
revenue and this resulted in higher people costs, particularly in the first
half of FY23.
Year ended 28 February Year ended 28 February
2023 2022
£'M £'M Change %
£'000
By business channel:
Digital Stores
51.0 27% 58.0 31% (7.0) (12.1%)
136.8 73% 126.6 69% 10.2 8.1%
Total revenue 187.8 100% 184.6 100% 3.2 1.7%
By region:
UK 67.0 36% 71.5 39% (4.5) (6.3%)
US 51.9 28% 48.0 26% 3.9 8.2%
ROW 68.9 36% 65.1 35% 3.8 5.9%
Total revenue 187.8 100% 184.6 100% 3.2 1.7%
As shown in the table above, Group revenue increased by £3.2m to £187.8m in
the year ended 28 February 2023 (2022: £184.6m). This revenue growth was
achieved during a year in which the business went through significant change
as a result of the issues that arose from the Investigation as set out in the
CEO report.
Store revenue increased by £10.2m or 8.1% to £136.8m (2022: £126.6m), with
both the US and UK store groups growing at 8% and 9% respectively, driven by
new distribution in Boots in the UK and new distribution in Walgreen in the
US.
An increased number of customers returned to the stores when Covid-19 related
trading restrictions were lifted, and this resulted in a decline in digital
sales in the year of £7m compared with the prior year. Within this we saw
growth of 2% from our own websites, however revenue from our digital partners
declined 23% as they implemented significant destocking measures which
resulted in a drop in order levels.
Most of the impact of the decline in revenue from our digital partners was in
the UK market which resulted in UK sales reducing by £4.5m despite increased
store distribution in Boots and a good performance in Superdrug.
US revenue increased by £3.8m due to new distribution in Walgreen, and the
recovery of US retailer performance following the pandemic.
In the Rest of the World (ROW) we saw 5.9% growth overall, which included
14% growth in revenue from our distributers.
PROFITS
Year ended Year ended
28 February 28 February
2023 2022 Change
Restated
£'000 £'000 £'000
Gross profit 75,884 71,028 4,856
Marketing and distribution costs (57,469) (49,546) (7,923)
Administrative expenses (42,161) (35,038) (7,123)
Impairment losses on financial assets (204) (1,428) 1,224
Impairment of property, plant and equipment (2,177) (1,948) (229)
Impairment of goodwill (3,388) (13,000) 9,612
Provision for legal cases (1.066) (1,018) (48)
Exceptional item - IPO costs - (8,936) 8,936
Other income - 5 (5)
Operating loss (30,581) (39,881) 9,300
Net finance costs (3,293) (6,034) 2,741
Loss before taxation (33,874) (45,915) 12,041
Gross profit margin 40.4% 38.5% 1.9ppt
Gross profit margin for the year ended 28 February 2022 increased from 38.5%
to 40.4%. The improvement in margin was driven primarily by the reduction in
freight rates following their historical highs due to the pandemic. The margin
at H1 was higher at 41.4% due to seasonality, with higher seasonal promotions
in H2.
Whilst there will be ongoing changes to the stock provision based on New
Product Development (NPD), Net Realisable Value (NRV) and slow-moving stock,
the movement between FY22 and FY23 has reduced due to the actions taken by new
management to manage stock purchasing, establish exit routes for slow moving
stock and focus NPD on fewer better products.
Operating loss for the year ended 28 February 2023 of £30.6m reduced by
£9.3m (2022: £39.9m). This was due to a number of factors:
Improvement in gross profit (£4.9m) driven by reduction in stock provision
charges and lower freight rates following record levels during the pandemic.
· Reduction in one off costs incurred in FY22, impairment of assets
(£10.6m, mostly from the acquisition of Medichem), IPO costs (£8.9m)
· Increase in spend on stand updates (£5m) catching up with
updates missed during the pandemic, and additional marketing and distribution
spend (£2.9m)
· Increase in People costs (£2m), resulting from scaling up for
expected increase in revenue, loss on foreign exchange on revaluation of US
balances (£1.5m) and other overheads (£2.9m)
Loss before taxation for the year reduced to £33.9m (2022: Loss before
taxation £45.9m), an improvement of £12.0m.
TAXATION
The Group's tax credit decreased year on year by £1.4m primarily due to the
prior year including tax refunds totalling £1.6m arising from historic
overpayments and loss carry back, resulting in an overall credit of £1.6m in
FY22 compared with a credit of £0.2m in FY23.
LOSS AFTER TAXATION
Loss after taxation decreased to £33.6m (2022: Loss after taxation £44.3m).
ADJUSTED PROFITS
The Group uses a number of Alternative Performance Measures ("APMs") in
addition to those measures reported in accordance with IFRS. Such APMs are not
defined terms under IFRS and are not intended to be a substitute for any IFRS
measure. The Directors believe that the APMs are important when assessing the
underlying financial and operating performance of the Group. Full details of
the exceptional charges incurred during the year are presented in Note 5 to
the financial statements.
The exceptional items identified as non-recurring in nature are set out below
and were considered in calculating the adjusted profits. Exceptional Items are
defined in Note 2
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000 Change
Operating loss £'000
Depreciation, amortisation & impairment
Share-based payment
Loss on disposal of asset
Exceptional items:
(30,581) (39,881) 9,300
15,867 22,560 (6.693)
303 3,534 (3,231)
62 -
62
IPO related costs - 8,936 (8,936)
Acquisition costs 262 621 (359)
Restructuring costs 1,310 261 1,049
Provision for legal cases 1,474 1,018 456
Legal and professional fees 3,528 3,528
Audit Fees 300 2,150 (1,850)
Total exceptional items added back 6,874 12,986 (6,112)
Adjusted EBITDA (7,475) (801) (6,674)
Adjusted EBITDA decreased by £6.7m to a loss of £7.5m during the year (2022:
£0.8m loss). The reduction in EBITDA was primarily due to additional stand
marketing costs and higher People costs as the business had scaled up for high
levels of growth at the end of FY22 and the first half of FY23.
Depreciation, amortisation and impairment was significantly lower as a result
of the impairments to stands and goodwill made in FY22. The remaining amount
of goodwill and assets acquired for Medichem were impaired in FY23, bringing
the carrying value to zero, as a result in changes to forecasts.
As part of the changes the new management team made, teams were restructured
which resulted in one off costs associated with the restructure.
Significant one off legal and professional fees were incurred in relation to
the Independent Investigation and the work required to enable the suspension
on the Company's shares to be lifted.
FINANCIAL POSITION AND RESOURCES
As at As at
28 February 28 February
2023 2022 Restated Change
£'000 £'000 £'000
Intangible assets 5,728 9,837 (4,109)
Property, plant and equipment 7,928 8,215 (287)
Right of use asset 2,310 4,150 (1,840)
Reimbursement asset - 3,267 (3,267)
Non-current assets 15,966 25,469 (9,503)
Current assets excluding cash 104,393 101,401 2,992
Liabilities excluding borrowings (112,817) (98,507) (14,310)
Cash and cash equivalents 11,044 15,619 (4,575)
Borrowings (31,721) (23,551) (8,170)
Net debt (20,677) (7,932) (12,745)
Net assets (13,135) 20,431 (33,566)
NON-CURRENT ASSETS
The Group states property, plant and equipment at cost, less depreciation or
provision for impairment. Non-current assets as at 28 February 2023 reduced to
£16.0m (2022: £25.5m), mainly due to a further impairment of the acquisition
of Medichem, resulting in no residual carrying value and the movement of the
reimbursement asset to current assets due to Management's view that the legal
case will be settled within 12 months.
CURRENT ASSETS
Current assets increased to £104.4m as at 28 February 2023 (2022: £101.4m).
The inventory balance was higher at £47.6m (2022: £44.7m) which was due to
business requirements. There was an increase in Trade Receivables of £3.0m
consistent with higher sales. As the US business has grown, there is an impact
on trade debtor balances caused by typically longer payment terms. Other
receivables also increased by £3.2m representing the reimbursement asset on a
copyright infringement legal case (see Note 4).
LIABILITIES
The increase in total liabilities excluding borrowings as at 28 February 2023
of £14.3m relates mainly to an increase in trade payables of £9m due to
stock purchases, impact of foreign exchange, audit fees, and accruals and
contract liabilities mainly due to fixture accruals for Walmart and marketing
deductions for new and existing US retail customers.
LIQUIDITY
At 28 February 2023, the Group had £11.0m cash, with gross borrowing of £32m
fully drawn from the RCF.
The face value of the Group net debt is £21.0m. The reported net debt of
£20.7m is after deducting £0.3m of prepaid fees. These figures exclude the
deferred consideration.
BANKING FACILITIES
As at 28 February 2023 the Group had a £40.0m RCF in place. In September
2022, the Group breached its facility agreement as a result of not publishing
its audited accounts by 31 August 2022. Following on from this, there was
uncertainty as to what the adjusted EBITDA numbers would be for FY21 and FY22,
until these statements were finalised. Therefore, the Group was unable to
certify its results to the Banks. As a result, the banks agreed a short-term
liquidity covenant and the facilities operated under this arrangement until a
new suite of covenants was agreed on 29 March 2023 with the first quarterly
test at the end of May 2023 which the Group cleared. As at the date of signing
this report, the Group has an amended and restated credit facility of £32.0m
of which the full £32.0m is drawn and has cash balances of c.£11.0m as at
the end of July which provides sufficient liquidity to the Group for its
current requirements.
Due to the qualifications in the audit report, the Group received a waiver
from its banking partners prior to the signing of the financial statements for
the provision in the RCF which classifies a qualified audit opinion as an
Event of Default. Therefore, the Group remains within all the requirements of
the facility agreement, see note 2.
CASH FLOW
Year ended 28 February
Year ended 28 February Restated
2023 2022 Change
£'000 £'000 £'000
Net cash (used in) generated from operations
Income tax
Net cash generated from operating activities
(1,959) (17,841) 15,882
1,898 (890) 2,788
(61) (18,731) 18,670
Purchase of intangible assets (1,018) (3,066) 2,048
Purchase of property, plant and equipment (7,496) (4,968) (2,528)
Purchase of subsidiary - (6,630) 6,630
Others 1 (509) 510
Net cash used in investing activities (8,513) (15,173) 6,660
Interest paid (1,175) (5,000) 3,825
Drawdown of borrowings 8,000 29,000 (21,000)
Repayment of borrowings - (78,665) 78,665
(Repayment)/Proceeds of debt instruments - (6,000) 6,000
Issue of new shares - 105,775 (105,775)
Others (2,127) (983) (1,144)
Net cash generated from financing activities 4,698 44,127 (39,429)
Net increase/(decrease) in cash during the year (3,876) 10,223 (14,099)
Net cash used in operations improved in FY23 and reduced by £15.9m. Without
the level of exceptional costs incurred in the year particularly relating to
legal and professional fees surrounding the Independent Investigation, and
activities to secure the lifting of the suspension on the Company's shares,
together with significant restructuring costs, the Group would have generated
significant operating cash inflows.
ISSUE OF NEW SHARES
In FY22, in conjunction with the Company's IPO, new shares with a total value
of £105.8m were issued at £1.60 per share during the year. The IPO also
involved the repayment of borrowings amounting to £82.4m. No new shares were
issued in FY23.
ACQUISITION OF MEDICHEM
In July 2021, the Revolution Beauty Group was granted a call option to acquire
100% of the issued share capital of Medichem. The Group exercised the call
option in October 2021. Total purchase consideration of £27.5m comprises an
initial cash consideration of £7.0m which was paid in October 2021, with the
balance of £20.5m to be paid in 4 equal instalments from October 2022 net of
the repayment of a £1.5m loan from Medichem to a company owned by the seller
of Medichem. As at the date of signing the Board are in negotiations with the
previous owner of Medichem to reach a revised agreement on the amount of
consideration due and the payment terms for any further consideration payable.
Since the year end, a deed of variation to the original sale and purchase
agreement has been signed on 7 March 2023, confirming that no consideration
will be demanded until 21 October 2025. See Note 34 for details of the
deferment schedule.
DIVIDEND
No ordinary dividends were paid during the year under review. The Directors do
not recommend payment of a final ordinary dividend for the year (2022: £nil).
Consistent with the guidance provided at IPO, the Group does not envisage
paying dividends in the foreseeable future and intends to re-invest surplus
funds in the development of the Group's business.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS
The Directors are responsible for preparing the Annual Report and the Group
and parent Company financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. Under that law the Directors are
required to prepare the Group financial statements in accordance with UK
adopted International Accounting Standards ('IFRSs') and have elected to
prepare the parent Company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable law), including FRS 101 'Reduced Disclosure
Framework'. Under company law the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the Group for
that period.
In preparing the Group financial statements, International Accounting Standard
1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity's
financial position and financial performance; and
• make an assessment of the Group's ability to continue as a going
concern.
• In preparing the Parent Company financial statements, the Directors are
required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy, at any time, the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Alistair McGeorge
Executive Chair
31 August 2023
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 28 February 2023
Year ended 28 February Year ended 28 February
2023 2022
£'000 Restated
Note £'000
Revenue Cost of sales
187,842 184,579
7 (111,958) (113,551)
Gross profit 75,884 71,028
Marketing and distribution costs (57,469) (49,546)
Administrative expenses
- General administrative expenses (42,161) (35,038)
- Impairment losses on financial assets (204) (1,428)
- Impairment of property, plant and equipment and right-of-use assets 17,18 (2,177) (1,948)
- Impairment of goodwill and other intangibles 16 (3,388) (13,000)
- Provision for legal cases 27 (1,066) (1,018)
- IPO related costs 5 - (8,936)
Total administrative expenses (48,996) (61,368)
Other operating income 10 - 5
Operating loss 10 (30,581) (39,881)
Finance income 12 1 76
Finance costs 13 (3,294) (6,110)
Loss before taxation (33,874) (45,915)
Income tax credit/(expense) 14 228 1,606
Loss for the year (33,646) (44,309)
Other comprehensive income net of taxation
Exchange differences on translation of foreign operations - may be
reclassified to profit and loss
(223) 158
Total comprehensive loss for the year (33,869) (44,151)
Earnings per share (p) 15 (10.9) (15.7)
Diluted earnings per share (p) 15 (10.9) (15.7)
Adjusted EBITDA* 5 (7,475) (801)
* Adjusted EBITDA is a non-GAAP measure and is defined as Operating Loss
adjusted for depreciation and amortisation, impairments and reversals of
impairment, profits and losses on the disposal of assets, share based charges
and releases and operating exceptional items as disclosed in note 5.
The following notes are an integral part of these financial statements.
Consolidated Statement of Financial Position
As at 28 February 2023
As at
As at 28 February
28 February 2022
2023 Restated
Note £'000 £'000
Non-current assets
Intangible assets 16 5,728 9,837
Property, plant and equipment 17 7,928 8,215
Right-of-use assets 18 2,310 4,150
Reimbursement asset - 3,267
Total non-current assets 15,966 25,469
Current assets
Inventories 19 47,606 44,683
Trade and other receivables 20 52,708 55,334
Reimbursement asset 4,079 -
Corporation tax recoverable - 1,384
Cash and cash equivalents 21 11,044 15,619
Total current assets 115,437 117,020
Current liabilities
Lease liabilities 18 (2,060) (1,915)
Trade and other payables 22 (82,707) (69,924)
Deferred consideration 24 (10,910) (4,889)
Provisions 27 (7,060) -
Borrowings 23 (31,721) (23,551)
Corporation tax payable (28) (48)
Total current liabilities (134,486) (100,327)
Net current assets/(liabilities) (19,049) 16,693
Total assets less current liabilities (3,083) 42,162
Non-current liabilities
Lease liabilities 18 (954) (2,732)
Deferred consideration 24 (9,098) (13,504)
Deferred tax liabilities 26 - -
Provisions 27 - (5,495)
Total non-current liabilities (10,052) (21,731)
Net assets/(liabilities) (13,135) 20,431
Equity
Share capital 29 3,097 3,097
Share premium 103,487 103,487
Warrant reserve 7,239 7,239
Merger reserve 14,860 14,860
Translation reserve 446 669
Retained earnings (142,264) (108,921)
Total (deficit)/equity (13,135) 20,431
The following notes are an integral part of these financial statements.
Refer to Note 4 for detailed information on the correction of prior period
errors.
These financial statements were approved and authorised for issue by the Board
of Directors on 31 August 2023 and were signed on its behalf by:
Alistair McGeorge
Director
Consolidated Statement of Changes in Equity
For the year ended 28 February 2023
Share capital Share premium Warrant reserve Merger reserve Translation Retained earnings Total equity
£'000 £'000 £'000 £'000 reserve £'000 £'000
Note £'000
Balance at 1 March 2021 - - - 14,860 511 (64,989) (49,618)
Loss for the year - as restated - - - - - (44,309) (44,309)
Other comprehensive income net of taxation:
Foreign operations - foreign currency translation differences - - - - 158 - 158
Total comprehensive income/expense for the year - as restated - - - - 158 (44,309) (44,151)
Transactions with owners in their capacity as owners:
Issue of shares, net of transaction costs of £4,940,241
28 696 105,080 - - - - 105,776
Capital reorganization 28 2,416 - - - - (2,416) -
Repurchase of shares 28 (15) - - - - 15 -
Share-based payments - - - - - 2,778 2,778
Issue of warrants 29 - (1,593) 7,239 - - - 5,646
Total transactions with owners 3,097 103,487 7,239 - - 377 114,200
Balance at 28 February 2022- as restated 3,097 103,487 7,239 14,860 669 (108,921) 20,431
Loss for the year - - - - - (33,646) (33,646)
Other comprehensive income net of taxation:
Foreign operations - foreign currency translation differences - - - - (223) - (223)
Total comprehensive income/expense for the year - - - - (223) (33,646) (33,869)
Transactions with owners in their capacity as owners:
Share-based payments - - - - - 303 303
Total transactions with owners - - - - - 303 303
Balance at 28 February 2023 3,097 103,487 7,239 14,860 446 (142,264) (13,135)
The following notes are an integral part of these financial statements.
Consolidated Statement of Cash Flows
For the year ended 28 February 2023
Year ended Year ended
28 February 28 February
2023 2022
Restated
Note £'000 £'000
Loss for the period (33,646) (44,309)
Adjustments for:
Taxation charge/(credit) 14 (228) (1,606)
Finance costs 13 3,294 6,110
Finance income 12 (1) (76)
Depreciation of property, plant and equipment and right-of-use assets 17,18 8,369 6,310
Impairment of property, plant and equipment and right-of-use assets 17,18 2,177 1,948
Amortisation of intangible assets 16 1,933 1,303
Impairment of intangible assets 16 3,388 13,000
Loss/(profit) on disposal of property, plant and equipment - (34)
Loss on disposal of intangible assets 16 62 -
Equity settled share-based payment expense 303 2,778
Issue of warrants 30 - 5,645
Provisions movement 27 1,565 2,228
Movements in working capital:
Movement in inventories (2,923) (5,708)
Movement in receivables 1,814 (1,666)
Movement in payables 11,934 (3,764)
Cash used in operations (1,959) (17,841)
Income taxes received/(paid) 1,898 (890)
Net cash used in operating activities (61) (18,731)
Cash flows from investing activities
Purchase of intangible assets (1,018) (3,066)
Purchase of property, plant and equipment (7,496) (4,968)
Proceeds on disposal of property, plant and equipment - -
Finance income 1 1
Payment of financial derivatives - (510)
Purchase of subsidiaries (net of cash acquired) - (6,630)
Net cash generated by/(used in) investing activities (8,513) (15,173)
Cash flows from financing activities
Interest paid (1,175) (5,000)
Proceeds from borrowings 8,000 29,000
Proceeds from issue of shares, net of transaction costs - 105,775
Repayment of debt instruments - (6,000)
Repayment of borrowings - (78,665)
Payment of lease liabilities(1) (2,127) (534)
Loan issue fees - (449)
Net cash generated by financing activities 4,698 44,127
Consolidated Statement of Cash Flows
For the year ended 28 February 2023
Year ended Year ended
28 February 28 February
2023 2022
Note £'000 £'000
Cash and cash equivalents
Net (decrease)/increase in the year (3,876) 10,223
At 1 March 15,619 5,581
Effects of exchange rate changes on cash and cash equivalents (699) (185)
At 28 February 11,044 15,619
(1) Payment of lease liabilities includes £115k (2022: £45k) of interest
payments and £2,012k (2022: £489k) of principal lease payments.
(2) The share based payment charge for the year is £303k (2022: £3,534k),
of which £Nil (2022: £756k) was paid in cash.
The following notes are an integral part of these financial statements.
Notes to the Consolidated Financial Statements
For the year ended 28 February 2023
1 GENERAL INFORMATION
Revolution Beauty Group plc ("the Company") is a company limited by shares,
and is registered, domiciled and incorporated in England and Wales. The
Company listed on the Alternative Investment Market (AIM) on 19 July 2021. The
address of the registered office is 201 Temple Chambers, 3-7 Temple Avenue,
London, EC4Y 0DT.
The Group ("the Group") consists of Revolution Beauty Group plc and all of its
subsidiaries as listed in note 4 to the Company financial statements.
The Group's principal activity, business activities and other factors likely
affecting the Groups performance are set out in the Chief Executive Officers
Review.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
This consolidated financial information for the year ended 28 February 2023
comprises the Company and its subsidiaries. The financial information
presented has been prepared applying the accounting policies and presentation
applied in the preparation of the Group's consolidated financial statements
for the year ended 28 February 2023. These preliminary results do not
constitute the Group's statutory accounts for the years ended 28 February 2023
and 28 February 2022. The statutory accounts for the year ended 28 February
2022 have been reported on by the Company's auditors and delivered to the
Registrar of Companies. The statutory accounts for the year ended 28 February
2023, which have been approved by the Directors, will be sent to shareholders
in September 2023 and delivered to the Registrar of Companies.
The auditor has reported on the Group and Company statutory accounts for the
year ended 28 February 2023. The reports were qualified, and included a
material uncertainty related to Going Concern and have been reproduced in
notes 37 and 38 of this announcement.
Prior period adjustments made to the amounts reported in the Group's 2022
financial statements have been set out in note 4.
Measurement convention
The financial statements have been prepared under the historical cost
convention except for, where disclosed in the accounting policies, certain
items shown at fair value. Historical cost is generally based on the fair
value of the consideration given in exchange for goods, services and assets.
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities, and the disclosure of
contingent liabilities at the reporting date. If in the future, such estimates
and assumptions which are based on management's best judgement at the
reporting date, deviate from the actual circumstances, the original estimates
and assumptions will be modified as appropriate in the year in which the
circumstances change.
Critical accounting estimates and key sources of estimation uncertainty in
applying the accounting policies are disclosed in note 3.
Basis of consolidation
The consolidated financial statements incorporate those of Revolution Beauty
Group plc and all of its subsidiaries.
Where the company has control over an investee, it is classified as a
subsidiary. The company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
De-facto control exists in situations where the company has the practical
ability to direct the relevant activities of the investee without holding the
majority of the voting rights. In determining whether de-facto control exists
the company considers all relevant facts and circumstances, including:
• The size of the company's voting rights relative to both the
size and dispersion of other parties who hold voting rights
• Substantive potential voting rights held by the company and by
other parties
• Other contractual arrangements
• Historic patterns in voting attendance.
The consolidated financial statements present the results of the company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore eliminated in
full.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used
by other members of the Group.
Business Combinations
The cost of a business combination is the fair value at acquisition date of
the assets given, equity instruments issued, and liabilities incurred or
assumed. The excess of the cost of a business combination over the fair value
of the identifiable assets, liabilities and contingent liabilities acquired is
recognised as goodwill. Costs directly attributable to the business
combination are expensed to the profit or loss as incurred.
Going concern Base Case Forecast
Having achieved the lifting of the suspension of the Company's shares on AIM
on 28 June 2023 and performed above the previous budget over recent months,
the Group has updated its base case forecast for the period through to August
2024 to reflect all aspects of its current operational structure.
Following a comprehensive review and forecast exercise prior to the lifting of
the share suspension on AIM, the updated base case forecast to August 2024 has
evolved with the current FY24 performance to date, whilst largely consistent
with expectations earlier in the year upon release of the FY22 Financial
Statements. The current Board shares the more prudent outlook taken by the
previous Board in May 2023, whilst also planning for growth in revenue and
profitability. Immediately following the release of these Financial Statements
the Board intends to appoint a new CEO, who will have time to develop and
deliver a strategy intended to grow from the current base, this process is not
expected to result in any significant change to plans or forecasts in the
short term.
Management have determined that the period to August 2024 is the relevant
period over which to consider the Groups performance for the assessment of
going concern and have therefore forecast operational and financial
performance over that period. Twelve months has been selected as the going
concern period because forecasting over this period is the most accurate, the
further out the forecast is the greater likelihood of volatility. The five
months to 31 July 2023 have shown sales performing ahead of budget. The
updated base case to August 2024 forecasts that the Group will generate cash
as it builds sustainable growth from a solid core business, growth is expected
to be achieved through current sales channels and some increased distribution,
underpinned by marketing and capital investment as set out in the Group's
strategy.
In addition to sustainable growth in sales, the base case forecasts that the
management team's strategy will drive improvements in working capital, with
inventory and receivables managed in line with trading volumes. Existing
trading terms with supplier and customers are forecast to be maintained under
the base case.
Cost reduction measures taken during FY23 have been adhered to and the Group
has demonstrated during the early months of FY24 that it now has a more
appropriate cost base from which it can achieve its forecast revenue. The
significant accounting changes made in the prior year remain and form the
basis of the Groups reporting and forecast model.
The Groups gross inventory balance has reduced significantly, resulting in a
significant reduction in its inventory provision since FY22. Inventory
reductions have been driven by a more rationalised purchasing program, which
is more targeted to the Group's demand forecast. In addition, significant
amounts of older inventory has been sold through the Groups outlet channels or
destroyed where no longer considered to be of any value.
Under the base case scenario, the lowest amount of headroom against the
minimum liquidity covenant is £4,632k in December 2023, the lowest test point
in the EBITDA covenant is August 2023, when there is £3,211k of headroom.
Lending Arrangements
On 30 March 2023 the Group announced that that it had secured an amended
facility agreement with its banking partners (the "Lenders"). The amendment
includes a waiver of breaches of the terms of the original agreement. As part
of the amended facility agreement which runs through to October 2024, the
overall size of the facility was agreed at £32m, reduced from £40m, and is
fully drawn. The Directors are of the view that the reduced facility provides
the business with sufficient liquidity as it continues delivering its strategy
for the Going Concern period. The facility matures in October 2024, it is the
board's intention and expectation that the facility will be refinanced during
FY24.Indeed, following the lifting of the share suspension, initial
discussions with the Group's banking partners have started positively. The
Group continues to enjoy the support of its banking partners, management
believe that recent progress in stabilising net debt, generating cash,
ensuring covenant compliance and rationalising the cost base have positioned
the Group well for refinancing its debt facilities, and is confident of
refinancing beyond October 2024.
Revised covenants remain in place and include a minimum liquidity threshold of
£5.0 million and an Adjusted EBITDA covenant. Certain non-financial covenants
that applied following the amendments of the agreement were complied with and
are no longer in place.
Adjusted EBITDA covenant is tested quarterly and the minimum liquidity
threshold is tested weekly.
The remaining non-financial covenants include a condition that would result in
an Event of Default occurring where the auditors qualify the annual
consolidated financial statements. The lenders have provided a waiver in
respect of the covenant relating to the Auditors qualifications in their audit
report for these financial statements as was indicated in the FY22 financial
statements.
The forecast results under the base case indicate that the Group will remain
in compliance with financial covenants throughout the going concern period.
On 7 March 2023 the Group announced that it had reached an agreement in
respect of the timing of payments of deferred consideration for its
acquisition of Medichem Manufacturing Limited. A Deed of Variation dated 6
March 2023 was signed which amends the terms of the deferred consideration and
completion net asset adjustment, adjusting the timing of the payment, all of
which are now payable beyond the Going Concern assessment period.
Downside Scenarios
In addition to the base case scenario, the Group has considered the potential
impact of a severe but plausible downside scenario. Under the severe but
plausible scenario, a 10% reduction in total sales from August 2023, driven by
consumer demand in the beauty market caused by wider economic factors has been
modelled. Under such circumstances the Group would need to take action to
reduce costs, which would include, but not be limited to, reducing capital
expenditure, marketing and general overheads including people costs.
In such a scenario, if mitigating actions were taken, the Group would remain
in compliance with its covenants throughout the forecast period. However, the
sensitivity of the Adjusted EBITDA performance under such circumstances
suggests that there is a realistic possibility that a prolonged reduction in
sales of 10% could result in the Group breaching its Adjusted EBITDA covenant.
Were the Group exposed to a similar scenario and no mitigating actions taken,
the Adjusted EBITDA covenant would be breached in February 2024.
Under a scenario in which the Groups revenue reduced to 10% below the forecast
levels in the base case from September 2023 onward and no mitigating actions
were taken, the Group would breach its minimum liquidity threshold in February
2024. The Directors are confident that under such a scenario, there would be
sufficient time for them to take actions within their control over the cost
base to prevent a breach occurring.
If the Group were to breach either of its covenants, it would be reliant on
the support of its lenders in order to be able to continue to operate. The
Group enjoys a good relationship with its banking partners and is confident of
their continued support. The Group would have sufficient cash to continue
operating under all plausible scenarios modelled.
Conclusion
The Directors are pleased with the current performance of the business
particularly given the challenging economic outlook and the disruption faced
by the business in FY22 and FY23. Net sales have increased since the balance
sheet date, which reflects the continued strength of the brand.
Steps taken with regard to the deferral and renegotiation of the Medichem
consideration and the amendment of the Groups lending arrangements and
reductions to the cost base are significant in strengthening liquidity and
providing a base from which to grow.
Having considered the information available and recent changes to the
business, the Directors are satisfied that the base case supports the
application of the going concern assumption in preparation of the financial
statements.
However, the Directors also recognise the continuing challenges the business
has faced since its shares resumed trading on AIM, including addressing legacy
issues, as well as the underperformance of sales versus previous expectations,
as well as the uncertainty in the wider economy. As noted above, the Directors
have reset the strategy with reductions in forecast expenditure and
improvements to the working capital cycle considered to be commensurate with
the level of revenues forecast. The current Board continue to believe in this
strategy and look to enhance the business further so that it is well place to
grow to deliver its full potential.
The Directors are confident that the adopted strategy and actions taken to
address the cost base and working capital cycle can be successfully executed.
In the event that revenue falls below the level forecast in the base case
scenario, the Directors are also confident that they are able to take
mitigating actions within their control to reduce costs further on a timely
basis, in order to maintain compliance with the Adjusted EBITDA and minimum
liquidity covenant tests.
The Directors acknowledge that, in the event either a financial or
non-financial covenant were to be breached, due to either a downturn in
operational activity or the impact or timing of settlement of any financial
commitments, known or otherwise, arising from legacy issues, the Group would
be reliant on its lenders not requiring immediate repayment of the outstanding
loan or obtaining alternative finance in order to continue to operate as a
going concern. The lenders have provided a waiver in respect of the covenant
relating to the Auditors qualifications of their audit report on these
financial statements. Notwithstanding that the audit for the year ending 28
February 2024 had not yet commenced, the Directors anticipate that certain
qualifications will be carried into the Auditors opinion on the FY24 financial
statements. The Lenders have also confirmed their present intention to waive
any further Event of Default which might occur as a result of the audit report
to be issued by the Parent's Auditor in respect of the financial year of the
Group ending 28 February 2024 containing qualifications which are
substantially the same as qualifications on these financial statements.
These factors, in conjunction with the sensitivity identified in the severe
but plausible downside scenario with respect to the Adjusted EBITDA covenant,
represent material uncertainty which may cast significant doubt over the
Group's ability to continue to operate as a going concern. The financial
statements do not include the adjustments that would be required should the
going concern basis of preparation no longer be appropriate.
New and revised standards in issue but not yet effective
The following standards and interpretations relevant to the Group are in issue
but are not yet effective and have not been applied in the preparation of the
financial statements.
Standard/amendment Effective date
Amendments to IAS 1 - Classification of liabilities as current or non-current 1 January 2023
Amendments to IAS 1 - Disclosure of accounting policies 1 January 2023
Amendments to IAS 8 - Definition of accounting estimates 1 January 2023
Amendments to IAS 12 - Deferred tax related to assets and liabilities arising 1 January 2023
from a single transaction
The above standards are not expected to impact the Group materially.
Revenue recognition
Revenue represents invoiced sale of goods to customers net of sales tax.
Revenue is recognised when control of a good is transferred to the customer,
which is when the Group's performance obligations are considered to have been
met in line with its contracts and is adjusted for returns and provisions for
expected returns, discounts, rebates and refunds.
Estimation is required in assessing concessions provided to the customer such
as refunds and returns. Such estimates are determined using either the
'expected value' or 'most likely amount' method, which are determined by
assessing historic concessions made to customers for refunds and returns.
Provisions for refunds and returns are recognised within trade and other
payables. Returns are an area of significant judgement, as set out below.
The Group sells its products via their own website and to third party online
retailers ("digital") and wholesale sales to retailers and distributors
("store groups").
Digital
Revenue from the sale of goods sold through the Groups website is recognised
when the product is delivered to the customer. Payment of the transaction
price is due immediately when the customer purchases the products. The Group's
policy is to offer a right of return if notified within a specified time
period. The Group therefore retains an insignificant risk of ownership through
a digital sale when a refund is offered or when return goods are accepted if a
customer is not satisfied. Revenue in such cases is recognised at the point of
delivery to the customer provided the Group can reliably estimate future
returns and the Group recognises a liability for returns against revenue based
on previous accumulated experience and other factors.
Loyalty scheme
The Group operates a loyalty card scheme for 'digital' customers where points
are earned for products purchased online. The Group accounts for loyalty
points as a separately identifiable component of the sales transaction in
which they are granted. Deferred revenue is recognised in relation to points
issued but not yet redeemed. Deferred revenue is subsequently recognised when
the loyalty points are redeemed or when they expire.
A portion of the transaction price is allocated to the loyalty scheme points
based on relative stand-alone selling price of the points issued. When
estimating relative stand-alone selling price, the Group assesses the
likelihood that the customer will redeem the points based on historic
redemption rates.
Store groups
Store group revenue is recognised when title has passed in accordance with the
terms of the contract. The timing of transfer of control in wholesale
transactions is either when the goods have been collected by the customer or
when the goods have been delivered to the location specified in the contract
and the customer has accepted the products in accordance with the sales
contract.
Sales incentives, cash discounts and product returns are deducted from net
sales, such as commercial cooperation and discounts. Incentives granted to
customers are recorded as a deduction from net sales.
Sales incentives, cash discounts, provisions for returns and incentives
granted to distributors and customers are recorded simultaneously to the
recognition of sales if it is highly probable that the incentive will be
utilised., The determination of whether incentives will be utilised is based
mainly on statistics compiled from past experience and contractual conditions.
Historical experience enables the group to estimate reliably the value of
goods that will be returned, or the extent of utilisation of any incentive
given, and restrict the amount of revenue that is recognised such that it is
highly probable that there will not be a reversal of previously recognised
revenue.
In some cases, the Group can enter into arrangements with customers where
payments are made to compensate for certain promotional actions or operational
costs for which the Group will be invoiced. As such payments cannot usually be
separated from the supply relationship, the compensation for promotional
actions is not deemed to be a distinct service and therefore the Group
recognises the consideration paid as a deduction of revenue.
Foreign currencies
The financial statements are presented in Sterling, this being the currency of
the primary economic environment of the Group.
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions or
valuation where items are re-measured. Non-monetary items are not
retranslated. Foreign exchange gains and losses resulting from the settlement
of such transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement.
On consolidation, assets and liabilities of foreign operations are translated
into sterling at year-end exchange rates. The results of foreign operations
are translated into sterling at average rates of exchange for the year.
Exchange differences arising on translating net assets at opening rate and the
results of overseas operations at actual rate are recognised in other
comprehensive income and accumulated in the translation reserve.
Finance income and costs
Finance costs comprise interest charged on liabilities and finance costs
accruing from lease liabilities.
Interest income and interest payable are recognised in the statement of
comprehensive, using the effective interest method. Amounts included in
finance income and finance costs are set out in notes 11 and 12 respectively.
Exceptional Items
Exceptional items are those which are non-recurring and not assessed to
represent charges and credits incurred or gained in the Group's normal course
of business and are material by size or nature. All items identified as
exceptional are set out in note 4.
Segmental reporting
The Group has one operating segment; being its retail business. The Chief
Operating Decision Maker has been identified as the board of directors of
Revolution Beauty Group Plc, which receives regular reporting on its retail
business.
Property, plant and equipment
All property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognised as
a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying amount of the replaced part
is derecognised. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.
Stands are provided to retail customers for displaying the Group's products in
store. The Group recognises stands as property, plant and equipment as the
Group are solely responsible for providing, maintaining and disposing of the
stands and therefore the Group is considered to have control of these assets.
Depreciation is calculated using the straight-line method to allocate assets'
cost amounts to their residual values over their estimated useful lives. The
estimated useful lives are as follows:
Leasehold improvements 5 years
Stands 2 to 10 years
Office equipment 3 years
Computer equipment 3 years
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at the end of each reporting period. An asset's carrying amount
is written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised within 'Administrative expenses' in the
income statement.
Goodwill
Goodwill arises on the acquisition of a business. Goodwill is not amortised.
Instead, goodwill is tested annually for impairment, or more frequently if
events or changes in circumstances indicate that it might be impaired and is
carried at cost less accumulated impairment losses. Impairment losses on
goodwill are taken to profit or loss and are not subsequently reversed.
Intangible assets other than goodwill
Intangible assets acquired separately from a business are recognised at cost
and are subsequently measured at cost less accumulated amortisation and
accumulated impairment losses.
Intangible assets acquired on business combinations are recognised separately
from goodwill at the acquisition date where it is probable that the future
economic benefits that are attributable to the asset will flow to the entity
and the fair value of the asset can be measured reliably.
Amortisation is calculated on a straight-line basis, less its estimated
residual value, over its useful economic life. The estimated useful lives are
as follows:
Software 5 years
Website costs 3 years
Trademarks 5 years
Intellectual property 5 -10 years
Impairment of property, plant and equipment and of intangible assets, including right-of-use assets
At each reporting period end date, the Group reviews the carrying amounts of
its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss, if any. Where it is not
possible to estimate the recoverable amount of an individual asset, the Group
estimates the recoverable amount of the cash-generating unit to which the
asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or cash-generating unit) prior years. A
reversal of an impairment loss is recognised immediately in profit or loss,
unless the relevant asset is carried in at a revalued amount, in which case
the reversal of the impairment loss is treated as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable value on a
'Weighted Average Cost' basis. Costs of purchased inventory includes the
purchase price, import duties, other taxes and delivery costs and are
determined after deducting rebates and discounts received or receivable. Cost
comprises of direct materials and delivery costs, direct labour, import duties
and other taxes, an appropriate proportion of variable and fixed overhead
expenditure based on normal operating capacity, and, where applicable,
transfers from cash flow hedging reserves in equity
Inventory in transit is stated at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.
Financial instruments
Financial assets and liabilities are recognised on the statement of financial
position when the Group has become party to the contractual provisions of the
instrument and derecognised when it ceases to be a party to such provisions.
Trade and other receivables
Trade receivables are initially measured at their transaction price. Other
receivables are initially measured at fair value plus any directly
attributable transaction costs. Receivables are held to collect the
contractual cash flows which are solely payments of principal and interest.
Therefore, these receivables are subsequently measured at amortised cost using
the effective interest rate method. The Group does not hold any receivables
with a significant financing component.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and other short-term
investments held by the Group with maturities of less than three months. These
are highly liquid investments that are readily convertible into known amounts
of cash and are subject to an insignificant risk of change in fair value.
Trade and other payables
Trade and other payables are initially recognised at fair value less
transaction costs and subsequently measured at amortised cost using the
effective interest rate method, with all movements being recognised in the
statement of comprehensive income. Cost is considered to approximate fair
value.
Deferred Consideration
Deferred consideration is initially recognised at fair value and subsequently
measured at amortised cost. Charges arising on significant financing component
of deferred consideration are recognised in profit or loss over the life of
the deferral period.
Borrowings
Interest-bearing loans are initially measured at fair value, net of direct
transaction costs and are subsequently measured at amortised cost. The
effective interest method allocates interest expense to each period at the
rate which discounts estimated future cash payments through the expected life
of the debt to the net carrying amount on initial recognition. Finance
charges, including fees and premiums payable on settlement or redemption, are
recognised in profit or loss over the term of the loan using an effective rate
of interest. Arrangement fees in relation to undrawn facilities are recognised
as a prepayment to reflect the right for the Group to borrow in the future on
pre-specified terms which may be favourable. The prepayment is released to
profit or loss on a systematic basis, the timing of which depends on the
probability of further draw down of the facility. If further draw down is not
probable, the fee is recognised over the period of the facility to which it
relates, if it is probable, the prepayment is held at full amount until draw
down.
Classification and subsequent measurement of financial liabilities
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements and financial covenants entered
into. An equity instrument is any contract that evidences a residual interest
in the assets of the Group after deducting all its liabilities.
Derivatives
The Group enters into foreign exchange forward contracts and swaps. These
derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured to their fair value
at each reporting date. Fair value gains and losses are recognised in profit
and loss.
Equity
Equity instruments issued are recorded at fair value on initial recognition
net of transaction costs.
Provisions
Provisions are recognised when the company has a present (legal or
constructive) obligation as a result of a past event, it is probable the
company will be required to settle the obligation, and a reliable estimate can
be made of the amount of the obligation. The amount recognised as a provision
is the best estimate of the consideration required to settle the present
obligation at the reporting date, taking into account the risks and
uncertainties surrounding the obligation. If the time value of money is
material, provisions are discounted using a current pre-tax rate specific to
the liability. The increase in the provision resulting from the passage of
time is recognised as a finance cost.
Where the Group has contractual arrangements in place that are expected to
result in reimbursement of liabilities for which a liability has been provided
for, a reimbursement asset is separately recognised. Such assets are only
recognised where the Group is virtually certain of that the reimbursement will
be received. The resulting recognition within the profit and loss, is that the
provision is recognised net of the reimbursement asset.
Impairment of financial assets under IFRS 9
An impairment loss is recognised for the expected credit losses on financial
assets when there is an increased probability that the counterparty will be
unable to settle an instrument's contractual cash flows on the contractual due
dates, a reduction in the amounts expected to be recovered, or both.
The probability of default and expected amounts recoverable are assessed using
reasonable and supportable past and forward-looking information that is
available without undue cost or effort. The expected credit loss is a
probability-weighted amount determined from a range of outcomes and takes into
account the time value of money.
Trade receivables
For trade receivables, the simplified approach is used for expected credit
losses as there is no significant financing component. The lifetime expected
credit losses are measured by applying an expected loss rate to the gross
carrying amount. The expected loss rate comprises the risk of a default
occurring and the expected cash flows on default based on the aging of the
receivable. The risk of a default occurring always takes into consideration
all possible default events over the expected life of those receivables ("the
lifetime expected credit losses"). Different provision rates and periods are
used based on groupings of historic credit loss experience by product type,
customer type and location.
Impairment of other receivables measured at amortised cost
The measurement of impairment losses depends on whether the financial asset is
'performing', 'underperforming' or 'non-performing' based on the Group's
assessment of increases in the credit risk of the financial asset since its
initial recognition and any events that have occurred before the year-end
which have a detrimental impact on cash flows. The financial asset moves from
'performing' to 'underperforming' when the increase in credit risk since
initial recognition becomes significant.
In assessing whether credit risk has increased significantly, the Group
compares the risk of default at the year-end with the risk of a default when
the receivable was originally recognised using reasonable and supportable past
and forward-looking information that is available without undue cost. The risk
of a default occurring takes into consideration default events that are
possible within 12 months of the year- end ("the 12-month expected credit
losses") for 'performing' financial assets, and all possible default events
over the expected life of those receivables ("the lifetime expected credit
losses") for 'underperforming' financial assets.
Impairment losses and any subsequent reversals of impairment losses are
adjusted against the carrying amount of the receivable and are recognised in
profit or loss.
Employee benefits
The costs of short-term employee benefits are recognised as a liability and an
expense unless those costs are required to be recognised as part of the cost
of other assets.
The cost of any unused holiday entitlement is recognised in the period in
which the employee's services are received. Termination benefits are
recognised immediately as an expense when the Group is demonstrably committed
to terminate the employment of an employee or to provide termination benefits.
Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the Consolidated Statement of Profit or Loss in
the periods which services are rendered by employees.
Share-based payments
The company issues equity-settled share-based incentives to certain employees
in the form of share options and incentive shares and recharges the cost of
these to the relevant subsidiary company. Equity-settled share-based payments
are measured at fair value at the date of grant. The fair value determined at
the grant date is expensed in the relevant subsidiary's financial statements
on a straight-line basis over the estimated vesting period, based on the
estimate of shares that will eventually vest. For share options which vest in
instalments over the vesting period, each instalment is treated as a separate
share option grant, each with a different vesting period. A corresponding
adjustment is made to equity.
The fair value of incentive shares and share options are measured using the
Monte Carlo model. The expected life used in the model has been adjusted,
based on management's best estimate, for the effect of non-transferability,
exercise restrictions and behavioural conditions.
If the vesting conditions of incentive shares or share options are modified in
a manner that is beneficial to the employee and this modification increases
the fair value of the equity instruments granted (or increases the number of
equity instruments granted) measured immediately before and after the
modification, the entity shall include the incremental fair value granted in
the measurement of the amount recognized for services received as
consideration for the equity instruments granted. The incremental fair value
granted is the difference between the fair value of the modified equity
instrument and that of the original equity instrument, both estimated as at
the date of modification. If the modification occurs during the vesting
period, the incremental fair value granted is included in the measurement of
the amount recognised for services received over the period from the
modification date until the date when the modified equity instruments vest, in
addition to the amount based on the grant date at fair value of the original
equity instruments, which is recognised over the remained of the original
vesting period. Cancellations or settlements are treated as an acceleration of
vesting and the amount that would have been recognised over the remaining
vesting period is recognised immediately.
Taxation
The tax expense for the period comprises current and deferred tax. Tax is
recognised in the income statement, except to the extent that it relates to
items recognised in other comprehensive income or directly in shareholders'
funds. In this case, the tax is also recognised in other comprehensive income
or directly in shareholders' funds, respectively.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the balance sheet date in the countries
where the Group operates and generates taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to
the tax authorities.
Deferred income tax assets are recognised only to the extent that it is
probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred income tax is recognised on
temporary differences arising between the tax basis of assets and liabilities
and their carrying amounts in the financial statements. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is released or the deferred income tax liabilities
is settled.
Deferred income tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the balances
on a net basis.
Since the Group is able to control the timing of the reversal of the temporary
difference associated with interests in subsidiaries, a deferred tax liability
is recognised only when it is probable that the temporary difference will
reverse in the foreseeable future mainly because of a dividend distribution.
At present, no provision is made for the additional tax that would be payable
if the subsidiaries in certain countries remitted their profits because such
remittances are not probable, as the Group intends to retain the funds to
finance organic growth locally.
Leases
On commencement of a contract (or part of a contract) which gives the Group
the right to use an asset for a period of time in exchange for consideration,
the Group recognises a right-of-use asset and a lease liability unless the
lease qualifies as a 'short-term' lease or a 'low-value' lease.
Short-term leases
Where the lease term is twelve months or less and the lease does not contain
an option to purchase the leased asset, lease payments are recognised as an
expense on a straight-line basis over the lease term.
Leases of low-value assets
For leases where the underlying asset is 'low-value', lease payments are
recognised as an expense on a straight-line basis over the lease term.
Initial and subsequent measurement of the right-of-use asset
A right-of-use asset is recognised at commencement of the lease and initially
measured at the amount of the lease liability, plus any incremental costs of
obtaining the lease and any lease payments made at or before the leased asset
is available for use by the Group.
The right-of-use asset is subsequently measured at cost less accumulated
depreciation and any accumulated impairment losses. The depreciation methods
applied are as follows:
Right-of-use assets on a straight-line basis over the shorter of the lease term and the useful
life
The right-of-use asset is adjusted for any re-measurement of the lease
liability and lease modifications.
Initial measurement of the lease liability
The lease liability is initially measured at the present value of the lease
payments during the lease term discounted using the interest rate implicit in
the lease, or the incremental borrowing rate if the interest rate implicit in
the lease cannot be readily determined.
The lease term is the non-cancellable period of the lease plus additional
periods arising from extension options that the Group is reasonably certain to
exercise and termination options that the Group is reasonably certain not to
exercise.
Subsequent measurement of the lease liability
The lease liability is subsequently increased for a constant periodic rate of
interest on the remaining balance of the lease liability and reduced for lease
payments.
Interest on the lease liability is recognised in profit or loss, unless
interest is directly attributable to qualifying assets, in which case it is
capitalised in accordance with the Group's policy on borrowing costs.
Remeasurement of the lease liability
The lease liability is adjusted for changes arising from the original terms
and conditions of the lease that change the lease term, the Group's assessment
of its option to purchase the leased asset, the amount expected to be payable
under a residual value guarantee and/or changes in lease payments due to a
change in an index or rate. The adjustment to the lease liability is
recognised when the change takes effect and is adjusted against the
right-of-use asset, unless the carrying amount of the right-of-use asset is
reduced to nil, when any further adjustment is recognised in profit or loss.
On termination of leases, the right-of-use asset and lease liability are
derecognised, with any resulting gain or loss being recognised in profit or
loss.
Adjustments to the lease payments arising from a change in the lease term or
the lessee's assessment of its option to purchase the leased asset are
discounted using a revised discount rate. The revised discount rate is
calculated as the interest rate implicit in the lease for the remainder of the
lease term, or if that rate cannot be readily determined, the lessee's
incremental borrowing rate at the date of reassessment.
Changes to the amounts expected to be payable under a residual value guarantee
and changes to lease payments due to a change in an index or rate are
recognised when the change takes effect and are discounted at the original
discount rate unless the change is due to a change in floating interest rates,
when the discount rate is revised to reflect the changes in interest rate.
Lease modifications
A lease modification is a change that was not part of the original terms and
conditions of the lease and is accounted for as a separate lease if it
increases the scope of the lease by adding the right to use one or more
additional assets with a commensurate adjustment to the payments under the
lease.
For a lease modification not accounted for as a separate lease, the lease
liability is adjusted for the revised lease payments, discounted using a
revised discount rate. The revised discount rate used is the interest rate
implicit in the lease for the remainder of the lease term, or if that rate
cannot be readily determined, the lessee company's incremental borrowing rate
at the date of the modification.
Where the lease modification decreases the scope of the lease, the carrying
amount of the right-of-use asset is reduced to reflect the partial or full
termination of the lease. Any difference between the adjustment to the lease
liability and the adjustment to the right-of-use asset is recognised in profit
or loss.
For all other lease modifications, the adjustment to the lease liability is
recognised as an adjustment to the right-of-use asset.
Government grants
Government grants are recognised when there is reasonable assurance that the
grant conditions will be met, and the grants will be received.
Government grants received in the year are towards staff wage costs under the
job retention scheme during Covid-19. The grant income is recognised under
other operating income over the period necessary to match with the related
wage expense.
Dividends
Dividends are recognised when declared and authorised during the financial
year and no longer at the discretion of the Group.
3 JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group's accounting policies, the Directors are
required to make judgements, estimates and assumptions about the carrying
amount of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
Judgements
In the course of preparing the financial statements, judgements have been made
in the process of applying the accounting policies that have had a significant
effect in the amounts recognised in the financial statements. The following
are the areas requiring the use of judgements that may significantly impact
the financial statements.
Expected Credit Losses
Impairment provisions for trade receivables are recognised based on the
simplified approach within IFRS 9 using a provision matrix in the
determination of the lifetime expected credit losses. During this process the
probability of the non-payment of the trade debtors is assessed. This
probability is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the trade debtors.
For trade receivables, which are reported net, such provisions are recorded in
a separate provision account with the loss being recognised within cost of
sales in the statement of comprehensive income. On confirmation that the trade
debtor will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
Reimbursement Assets
Reimbursement assets are recognised when it is determined to be virtually
certain that they will be recovered, in accordance with IAS 37. Judgment is
required in making this determination prior to the receipt of cash flows, the
Group considers strength and validity of contractual arrangement in place as
well as the resources of the counterparty to any reimbursement. Where the
contractual arrangements are considered secure, the counterparty has
sufficient resources and there is no other plausible reason for the asset not
to be recovered, the reimbursement is recognised.
Estimates
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised where the revision affects only that period, or in the
period of the revision and future periods where the revision affects both
current and future periods. Estimates include:
Returns
Some customers are able to return unsold stock. At the period end, the Group
makes a provision for returns based on historical averages, or actual values
that have been agreed with the customer.
Measurement of inventory provision
The Group's inventory provision methodology is made up of a net realisable
value (NRV) component and a slow moving component. The slow moving component
includes a provision for inventory that has recently been launched and
therefore has limited sales history and also for more mature inventory which
is assessed based on its sales cover, which gives rise to the key source of
estimation uncertainty.
The NRV provision is determined by assessing the latest sales price of a Stock
Keeping Unit ("SKU"), less the cost of selling it, against the cost of
purchasing it. There is judgment applied in assessing the costs included in
selling each SKU. The Group determines cost to sell on an average basis across
all SKUs. The cost to sell includes the incremental costs of selling, such as
commissions, as well as non-incremental selling costs including expected
marketing costs and expected costs to hold the stock until the anticipated
time of sale.
Inventory consists of a large number of SKUs, with a range of values. The
slow-moving inventory provision is calculated for each SKU, based on sales in
a 12 month period, to calculate the number of months cover held at the balance
sheet date for each SKU held in stock.
No provision is applied to SKUs where inventory cover is 12 months or less.
Where a SKU has more than 12 months inventory cover a provision of 50% is
applied to inventory expected to sell in months 13-24 and 100% to inventory
expected to sell thereafter. Inventory cover is determined by dividing the
level of inventory on hand at the balance sheet date by sales data for a 12
month period including a period after the balance sheet date, at a SKU by SKU
level.
As recent sales data does not accurately reflect the expected future sales of
products developed in the 12 months prior to the balance sheet date on an
individual basis, historic sales performance of all new products launched over
the preceding three years has been applied. Therefore, the Group has
determined the historic rate of sale of newly developed products and makes a
further slow moving provision of 25% of the value of new SKUs launched in the
12 month period up to the reporting date.
The total provision at 28 February 2023 is £33.8m (2022: £39.8m). The
calculation of the inventory provision as at 28 February 2023 is based on a
number of assumptions. These are set out below, alongside a sensitivity to
those assumptions considered to be most subjective by management.
• Provision rate of 50%. An increase or decrease in the provision
rate of 50% on inventory with inventory cover of greater than 24 months but
less than 36 months to the minimum of 0% or maximum of 100% possible would
increase or decrease the inventory provision by £2.2m respectively.
• Newly developed product provision. An increase or decrease in
the provision applied to products developed in the 12 months prior to the
reporting date by 5% would increase or decrease the overall provision by
£1.2m.
Impairment of goodwill
The Group determines whether goodwill is impaired when indicators of
impairment are identified or in the annual assessment of impairment. The
annual assessment requires an estimate of the value in use of the CGUs to
which the assets are allocated, which is by business unit.
Estimating the value in use requires the Group to make an estimate of the
expected future cash flows from each business unit and discount these to their
net present value at a discount rate. The resulting calculation is sensitive
to the assumptions in respect of future cash flows and the discount rate
applied.
Forecasting expected cash flows and selecting an appropriate discount rate
inherently requires estimation. A sensitivity analysis has been performed over
the estimates (see Note 15). The resulting calculation is sensitive to the
assumptions in respect of future cash flows and the discount rate applied. The
Directors consider that the key assumptions made within the cash flow
forecasts include sales levels. The Directors consider that the assumptions
made represent their best estimate of the future cash flows generated by the
CGUs, and that the discount rate used is appropriate given the risks
associated with the specific cash flows.
Measurement, useful lives and impairment of property, plant and equipment
The annual depreciation charge for property, plant and equipment is sensitive
to changes in the estimated useful economic lives and residual values of the
assets. The useful economic lives and residual values are re-assessed
annually. They are amended when necessary to reflect current estimates, based
on technological advancement, future investments, economic utilisation and
physical condition of the assets. In the event of impairment, an estimate of
the asset's recoverable amount is made. The value of the assets are tested
whenever there are indications of impairment.
Impairment of property, plant and equipment
The Group determines whether property, plant and equipment, predominantly
related to stands used in stores to present the Group's inventory for sale,
are impaired or require reversal of impairment when indicators of impairments
or reversal of impairment exist or based on the annual impairment assessment.
The annual assessment requires an estimate of the value in use of the CGUs to
which the assets are allocated, which is at a customer level.
Estimating the value in use requires the Group to make an estimate of the
expected future cash flows from each customer and discount these to their net
present value at a discount rate. The resulting calculation is sensitive to
the assumptions in respect of future cash flows and the discount rate applied.
Forecasting expected cash flows and selecting an appropriate discount rate
inherently requires estimation. A sensitivity analysis has been performed over
the estimates (see Note 16). The resulting calculation is sensitive to the
assumptions in respect of future cash flows and the discount rate applied. The
Directors consider that the key assumptions made within the cash flow
forecasts include sales levels. The Directors consider that the assumptions
made represent their best estimate of the future cash flows generated by the
CGUs, and that the discount rate used is appropriate given the risks
associated with the specific cash flows.
Measurement of legal provisions
The Group recognises a provision when it has a present liability for a past
event, in accordance with IAS 37. With regard to legal claims, management
consider the status of any claims and all legal advice available to determine
that a liability exists. Where no agreement has been reached for the value of
a claim with the claimant, estimation is required in assessing the quantum of
the liability. Estimating the liability also involves consideration of all
available advice from counsel, the legal stage of the claim, any offers for
settlement which have been made and whether or not they have been accepted.
The strength of the claims and the defence is also considered. Management
consider that the assessment made in respect of legal claims provided for at
the Balance Sheet date represent their best possible estimate of the expected
liability using the available information.
4 CORRECTION OF PRIOR YEAR ERRORS
The Directors have determined that a provision which was previously disclosed
as a contingent liability should have been recognised as a provision during
the year ended 28 February 2022, as the process of reaching a settlement of
the case had reached a stage whereby it had been established that a material
settlement was likely and a value could have been accurately estimated.
The Group has posted or reposted social media video clips which contain sound
recordings and musical compositions from the music library of the relevant
social media platform. A letter was received in Autumn 2020 from two music
owners, claiming copyright infringement. Letters raising such allegations are
common in other business sectors involved in social media. The Group, funded
by its insurers, is robustly defending the allegations and, taking a cautious
approach, has sought to remove any allegedly offending posts over which the
Group has control. Despite the time that has passed, no court proceedings have
been brought by the music owners.
The Directors have taken formal legal advice from specialist US intellectual
property attorneys and engaged in a mediation process with the claimants.
Based on that advice and the ongoing mediation process and settlement offers
made to date, the Group believes that a liability of £4.3m should have been
provided for at 28 February 2022.
In addition, it has been determined that reimbursement assets of £3.3m should
have been recognized in respect of insurances and reimbursements the Group
will received when a settlement is ultimately paid. The reimbursement assets
recognised relate to an insurance policy and indemnities. £2.0m has been
recognised in respect of the indemnities. Further detail relating to the
indemnities has not been disclosed on the grounds that such disclosure is
considered to be seriously prejudicial.
The impact on the Statement of Profit or Loss is a net charge in respect of
legal case so £1,018k. In addition, £0.2m in legal costs were settled on
behalf of the Group by its insurance during the year ended 28 February 2022.
Deferred tax assets totalling £432k should have been recognised as a result,
with a corresponding credit in the Statement of Profit or Loss.
In the prior year, disclosure of related party transactions with close
family members of Key Management Personnel were omitted. These are now
disclosed in Note 33.
Impact on the Statement of Profit or Loss and Other Comprehensive Income
Year ended Year ended
28 February 2022 28 February 2022
Extract
Reported Adjustments Restated
£'000 £'000 £'000
Provision for legal cases - (1,018) (1,018)
Loss before taxation (44,897) (1,018) (45,915)
Income tax charge credit 1,174 432 1,606
Loss for the period (43,723) (586) (44,309)
Total comprehensive loss for the period (43,565) (586) (44,151)
Earnings per share (p) (15.5) (0.2) (15.7)
Diluted earnings per share (p) (15.5) (0.2) (15.7)
Impact on the Statement of Financial Position
28 February 2022 28 February 2022
Extract
Reported Adjustments Restated
£'000 £'000 £'000
Reimbursement Assets - 3,267 3,267
Net non-current assets 22,202 3,267 25,469
Provisions (non-current) (1,210) (4,285) (5,495)
Deferred tax liabilities (432) 432 -
Net assets 21,017 (586) 20,431
Retained earnings (108,335) (586) (108,921)
Total equity 21,017 (586) 20,431
5 ADJUSTED PERFORMANCE MEASURES
The Group uses a number of Alternative Performance Measures ("APMs") in
addition to those measures reported in accordance with IFRS. Such APMs are not
defined terms under IFRS and are not intended to be a substitute for any IFRS
measure. The Directors believe that the APMs are important when assessing the
underlying financial and operating performance of the Group.
The APMs are used internally in the management of the Group's business
performance, budgeting and forecasting, and for determining Executive
Directors' remuneration and that of other management throughout the business.
The APMs are also presented externally to meet investors' requirements for
further clarity and transparency of the Group's financial performance. Where
items of profits or costs are being excluded in an APM, these are included
elsewhere in our reported financial information as they represent actual
income or costs of the Group.
The Group's Alternative Performance Measures are set out below.
Adjusted EBITDA
Adjusted EBITDA is defined as Operating Profit adjusted for depreciation and
amortisation, impairments and reversals of impairment, profits and losses on
the disposal of assets, share based charges and releases and exceptional
items.
Year ended Year ended
28 February 28 February
2023 2022
Restated
£'000 £'000
Operating loss (30,581) (39,881)
Amortisation of intangible assets 1,933 1,303
Impairment of goodwill and other intangibles 3,388 13,000
Depreciation of property, plant and equipment and right-of-use assets 8,369 6,309
Impairment of property, plant and equipment and right-of-use assets 2,177 1,948
Loss of disposal of asset 62 -
Share-based payment expenses 303 3,534
Operating exceptional items:
IPO related costs - 8,936
Acquisition costs 262 621
Restructuring costs 1,310 261
Provision or settlement of legal cases 1,474 1,018
Exceptional legal fees 3,528 -
Exceptional audit fees 300 2,150
Adjusted EBITDA (7,475) (801)
Operating exceptional items
As announced on 23 September 2022, the Company's auditor wrote to the Board on
21 September 2022 to identify a number of serious concerns that had arisen
during the course of its work on the audit of the Company's accounts for the
year ended 28 February 2022. The Board appointed independent external advisors
to undertake an independent investigation, and the Company appointed
Macfarlanes (lawyers), Rosenblatt (lawyers) and FRA (forensic accountants) on
23 September 2022. As a result of issue identified through this process,
exceptional legal and professional fees were incurred at a cost of £3.5m
(which includes £0.4m paid on behalf of two Directors). In addition, these
concerns raised led to exceptional audit fees to be incurred above the level
usually required for the Group's annual statutory audit at a further cost of
£0.3m.
Further to the investigation outcomes a reorganisation of the Groups
operations and processes, included the restructure of senior management
positions. This reorganisation resulted in the Group incurring exceptional
redundancy and professional cost of £1.3m.
In addition, the Group incurred £262k in further professional fees and
inventory costs in connection with the acquisitions completed during 2022
which are considered to be outside the normal course of business:
- the acquisition of Medichem Manufacturing Ltd
- the purchase of asset from BH Cosmetics Inc.
The Group incurred legal and professional costs of £0.1m and £0.2m
respectively, in the process of concluding the above-mentioned acquisitions,
which are considered to be transaction related costs outside the normal course
of business.
During the current and prior year, the Group made provision of £1.0m in
respect of a legal claim in respect of copyright infringement on music rights
in the US., this amount had not been settled by the balance sheet date and is
included within provisions. During the year, the Group reached a legal
settlement of £0.3m related to a one off trademark dispute.
Prior period operating exceptional items
Having listed on AIM in July 2021, the Group incurred certain expenses
connected with the listing through the course of the period. These expenses
included £2.9m related to legal and professional fees associated with the IPO
process, £0.5m in staff bonuses associated with the IPO and £5.6m in
connection with the issue of warrants.
In addition, the Group incurred £621k in further professional fees in
connection with the acquisitions which are considered to be outside the normal
course of business:
- the acquisition of Medichem Manufacturing Ltd.
- the purchase of asset from BH Cosmetics Inc.
The Group incurred legal and professional costs of £0.3m and £0.3m
respectively, in the process of concluding the above mentioned acquisitions,
which are considered to be transaction related costs outside the normal course
of business.
- a reorganisation of the Groups US operations, including the
restructure of senior management positions and changes to certain operational
reporting process. This reorganisation resulted in the Group incurring
exceptional redundancy and professional cost of £0.3m.
As an outcome of the financial investigations related to the financial year
ended 28 February 2022, exceptional audit fees were incurred above the level
usually required for the Group's annual statutory audit, at a cost of £2.2m.
6 SEGMENTAL REPORTING
IFRS 8 Operating Segments requires that operating segments be identified on
the basis of internal reporting and decision-making. The Group identifies
operating segments based on internal management reporting that is regularly
reported to and reviewed by the Board of directors, which is identified as the
chief operating decision maker. Management information is reported as one
operating segment, being revenue from sales of products.
7 REVENUE
2023 2022
£'000 £'000
An analysis of the Group's revenue is as follows:
Revenue analysed by class of business
Digital 51,008 58,013
Store groups 136,834 126,566
187,842 184,579
Revenue analysed by geographical market
UK 66,974 71,456
United States of America 51,961 48,021
Rest of World 68,907 65,102
187,842 184,579
The Group generated revenue from one individual customer that accounted for
greater than 10% of total revenue in FY23 and FY22. Total revenue from that
one customer was £19.6m (2022: £20.0m).The performance obligations are
settled upon delivery of the products to the specified customer location or
upon collection by the customer. Payment is typically due within 30 to 90 days
from delivery for online retailers and store groups.
8 EMPLOYEES
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000
An analysis of the Group's staff costs is as follows:
Wages and salaries 17,774 14,076
Social security costs 2,292 1,378
Pension costs - defined contribution 323 226
Equity-settled share-based payments 303 3,534
Total employee benefit expense 20,692 19,214
Included in wages and salaries is an amount totalling £Nil (2022: £446k)
relating to a staff bonus paid to staff in connection with the Group's listing
on AIM during 2021, this was a one-off payment and as such has been included
within operating exceptional items, as set out in note 4. Included in wages
and salaries in the current year is £Nil (2022: £2k) in respect of furlough
grants received.
The Group operates a defined contribution pension scheme for all qualifying
employees. The assets of the scheme are separately held from those of the
Group in an independently administered fund. At the reporting date,
contributions totalling £4k (2022: £34k) were payable to the fund and are
included within other creditors.
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000
Average number of staff
Administration Cost of sales
279 228
137 141
416 369
9 DIRECTORS' REMUNERATION
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000
An analysis of the Group's directors' remuneration costs is as follows:
Directors' remuneration excluding pension
1,659 994
Remuneration disclosed above includes the following amounts paid to the
highest paid director:
Year ended Year ended
28 February 28 February
2023 2022
£'000 £'000
Directors' remuneration 468 343
Pension contributions of £550 (2022: £1,320) were made on behalf of one
director during the year. Full details of Directors remuneration are set out
on in the Renumeration Report in the Groups' Annual Report and Accounts .
10 OPERATING LOSS
Year ended Year ended
28 February 28 February
2023 2022
Restated
£'000 £'000
The operating loss is arrived at after charging/(crediting):
In-store marketing and stands 26,166 20,325
Warehousing and logistics 13,681 12,639
Freight out 7,817 8,709
Commissions payable 5,106 5,082
Net foreign exchange (gains)/losses (321) 252
Government grants - (5)
Amortisation of intangible assets 1,933 1,303
Impairment of goodwill and other intangibles 3,388 13,000
Depreciation of property, plant and equipment - owned 6,548 5,394
Depreciation of property, plant and equipment - right-of-use assets 1,821 915
Impairment of property, plant and equipment - owned 1,811 1,948
Cost of stocks recognised as an expense 112,704 113,353
Provision utilised on cost of inventory (5,898) 11,262
Share-based payment charge 303 3,534
Operating lease rentals
- short-term leases 89 -
- low-value leases 18 4
11 AUDITORS REMUNERATION
Year ended Year ended
28 February 28 February
2023 2022
£'000 £'000
Fees payable to the Group's auditor and its associates:
Audit of the financial statements 1,367 2,750
Subsidiary entity audit fees 150 150
All other non-audit services
- Half year review - 23
- Reporting accountant - 410
- Tax advisory - 129
1,517 3,462
12 FINANCE INCOME
2023 2022
£'000 £'000
Gain on movement of the fair value of financial derivatives - 76
Interest receivable 1 -
1 76
13 FINANCE COSTS
2023 2022
£'000 £'000
Interest on bank overdrafts and loans 1,379 230
Series A and B loan notes - 3,810
Interest on debt instruments - 617
Other loans - 548
Interest on lease liabilities 146 82
Other interest 1,769 823
3,294 6,110
14 INCOME TAX CREDIT/EXPENSE
2022
Restated
£'000
2023
£'000
Current tax:
UK corporation tax on profits for the current period - 204
Adjustments in respect of prior periods 7 (1,609)
7 (1,405)
Foreign current tax on profits for the current period (120) 201
Adjustments in respect of prior periods (72) (46)
Total current tax (185) (1,250)
Deferred tax
Origination and reversal of timing differences (180) 191
Previously unrecognised tax loss, tax credit or timing difference 137 (115)
Effect of restatement - (432)
Total deferred tax (43) (356)
Total income tax credit (228) (1,606)
Factors affecting tax charge for the year
2022
Restated
£'000
2023
£'000
Loss before taxation
(33,874) (45,915)
Expected tax credit based on the standard rate of corporation tax in the UK of (6,457) (8,530)
19%
Tax effect of expenses that are not deductible in determining taxable profit 184 5,319
Fixed Asset Differences (200) (202)
Adjustment in respect of prior years (64) (1,655)
Effect of overseas tax rates (5) 116
Deferred tax adjustments in respect of prior years 137 (547)
Deferred tax assets not recognised 6,219 3,893
Effect of change in deferred tax rate (42) -
Total income tax credit (228) (1,606)
The Group has tax losses totalling £54,773k (2022: £28,913k) and other
temporary differences of £24,182k (2022: £29,543k) for which no deferred tax
asset has been recognised due to uncertainty over future recoverability.
Changes to UK corporation tax rates were substantively enacted by the Finance
Bill 2021 on 24 May 2021. These included an increase of the corporation tax
rate to 25% from 1 April 2023. As this change was substantively enacted at the
year end date, where deferred tax is recognised, it is at a rate of 25% in the
current year (2022: 25%).
15 EARNINGS PER SHARE
The Group reports basic and diluted earnings per common share. Basic earnings
per share is calculated by dividing the profit attributable to ordinary
shareholders of the Company by the weighted average number of common shares
outstanding during the period.
Diluted earnings per share is determined by adjusting the profit attributable
to common shareholders by the weighted average number of common shares
outstanding, taking into account the effects of all potential dilutive common
shares, including options.
2022
Restated
2023 £'000
£'000
Loss attributable to shareholders (33,646) (44,309)
Adjustments:
Weighted average number of shares 309,737,250 282,835,551
Basic earnings per share (p) (10.9) (15.7)
Total comprehensive expense attributable to the owners of the company (33,646) (44,309)
Weighted average number of shares 309,737,250 282,835,551
Dilutive effect of share options and warrants - -
Weighted average number of diluted shares 309,737,250 282,835,551
Diluted earnings per share (p) (10.9) (15.7)
Pursuant to IAS 33, options whose exercise price is higher than the average
price of the Company's shares in the year were not taken into account in
determining the effect of dilutive instruments. The calculation of diluted
earnings per share does not assume conversion, exercise, or other issue of
potential ordinary shares that would have an antidilutive effect on earnings
per share.
16 INTANGIBLE ASSETS
Website Intellectual Acquired
Goodwill Software costs Trademarks property rights Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost:
As at 1 March 2021 2,017 1,843 1,757 358 723 532 7,230
Additions - business combinations 15,786 - - - - 631 16,417
Additions - 288 - 178 2,600 - 3,066
Disposals - (70) - (65) (7) - (142)
Exchange adjustments - - - - - - -
As at 28 February 2022 17,803 2,061 1,757 471 3,316 1,163 26,571
Additions 679 - 113 226 - 1,018
Disposals (466) - (37) (591) - (1,095)
Exchange adjustments 450 (5) - - (134) - 311
As at 28 February 2023 18,253 2,269 1,757 547 2,817 1,163 26,806
Amortisation and impairment:
As at 1 March 2021 - 673 877 154 366 503 2,573
Amortisation charge for the period - 422 586 82 184 29 1,303
Impairment charge 13,000 - - - - - 13,000
Disposals - (70) - (65) (7) - (142)
Exchange adjustments - - - - - - -
As at 28 February 2022 13,000 1,025 1,463 171 543 532 16,734
Amortisation charge for the year - 632 294 101 406 500 1,933
Impairment charge 2,786 245 - - 226 131 3,388
Disposals - (404) - (37) (591) - (1,032)
Exchange adjustments - 1 2 52 - 55
As at 28 February 2023 15,786 1,499 1,757 237 636 1,163 21,078
Carrying amount:
As at 28 February 2022 4,803 1,036 294 300 2,773 631 9,837
As at 28 February 2023 2,467 770 - 310 2,181 - 5,728
Amortisation and impairment of intangible assets is recognised within
administrative expenses in the Statement of Comprehensive Income. Intangible
assets are located across the Groups geographical market as follows: UK
£2,942k (2022: £5,220k), ROW £Nil (2022: £Nil), US £2,786k (2022:
£4,617k).
Impairment testing
Goodwill is tested for impairment at each reporting date and a review
undertaken for indicators of impairment.
For the purposes of impairment testing the Group assigns goodwill to cash
generating units (CGUs). Goodwill has been assigned to the following two CGUs
Revolution Beauty Inc of £2,333k (2022: £2,017k) and Revolution Labs Ltd
(formerly Medichem Ltd) of £2,786k (2022: £15,786k).
In testing the goodwill of each CGU the Group aggregates all identifiable
assets, including all other intangible asset and property, plant and
equipment. The assets of the CGU are compared to the value in use of the CGU
in order to assess the recoverable amount. The value in use is calculated by
discounting future cashflows forecast to be generated from the CGU over a five
year period using the Group's pre-tax weighted average cost of capital (WACC),
which is disclosed in note 16.
At 28 February 2023, the recoverable amount of the Revolution Labs Ltd CGU was
determined to be below the carrying amount, an impairment of £2.8m (2022:
£13.0m) was recognised to impair the full goodwill balance. The most
significant factors driving the impairment charges were the reduction in
forecast production and sales of inventory produced by Revolution Labs Ltd,
which were determined based on the latest financial information available and
management forecasts.
Impairment reviews are sensitive to changes in key assumptions. Management
determined that the key assumption used in the cashflow forecast is the sales
and production of inventory produced by Revolution Labs Ltd. As such,
management prepared a sensitivity analysis on the sales and production and
calculated that an increase of 10% would have also resulted in a full
impairment charge being required to goodwill.
17 PROPERTY, PLANT AND EQUIPMENT
Office and
Leasehold Computer
improvements Stands equipment Total
£'000 £'000 £'000 £'000
Cost:
As at 1 March 2021 465 36,696 511 37,672
Additions - business combinations 17 215 122 354
Additions 13 4,774 205 4,992
Disposals - (6,682) (338) (7,020)
Exchange adjustments - 111 (1) 110
As at 28 February 2022 495 35,114 499 36,108
Additions 1 7,643 207 7,851
Disposals - (7,661) (184) (7,845)
Exchange adjustments - 66 27 93
As at 28 February 2023 496 35,162 549 36,207
Depreciation and impairment:
As at 1 March 2021 246 26,698 357 27,301
Charge for the year 99 5,131 164 5,394
Impairment charge - 1,948 - 1,948
Disposals - (6,661) (283) (6,944)
Exchange adjustments - 201 (7) 194
As at 28 February 2022 345 27,317 231 27,893
Charge for the year 103 6,251 194 6,548
Impairment charge 15 1,766 30 1,811
Disposals - (7,661) (184) (7,845)
Exchange adjustments - (130) 2 (128)
As at 28 February 2023 463 27,543 273 28,279
Carrying amount:
As at 28 February 2022 150 7,797 268 8,215
As at 28 February 2023 33 7,619 276 7,928
Depreciation and impairment of property, plant and equipment is recognised
within administrative expenses in the Statement of Comprehensive Income.
Property, plant and equipment is located across the Group's geographical
market as follows: UK £3,380k (2022: £5,169k), ROW £1,720k, (2022:
£2,337k), US £2,827k (2022: £710k).
Impairment testing
The Group determines whether these assets are impaired when indicators of
impairment exist or at each reporting date. For impairment testing purposes,
stand assets are grouped by customer into CGUs. Impairment testing is carried
out by comparing the carrying value of the assets held at a CGU with the
recoverable amount of the CGU.
The recoverable amount of a CGU is the higher of value in use or fair value
less cost of disposal. The Group determines the recoverable amount with
reference to its value in use. Value in use is assessed by forecasting the
cashflow generated from a CGU over the remaining useful life of the asset of
the CGU. A pre-tax Weighted Average Cost of Capital (WACC) derived from
externally benchmarked data is then used to discount the cashflows to present
value. The WACC applied for 2023 was 26% (2022: 12%), this is considered a key
assumption for the impairment review and a movement of 2% in the WACC rate
used would result in a £0.1m change to the impairment.
During the year, an impairment of stand assets of £1,766k (2022: £1,948k)
was recognised. This impairment was driven by certain customers not reaching
forecasted sales levels and related to eight UK customers and one US customer
(2022: four UK customer and three US customers) where the value in use was
assessed to be below the carrying value. One UK customer accounted for the
majority of the impairment at £1,132k.
As disclosed in Note 15, management determined during the year that the
recoverable amount of Medichem CGU was below its carrying value. This has
resulted in an impairment of property plant and equipment of £171k.
Impairment reviews are sensitive to changes in key assumptions. Management
have determined that the key assumption used in the cashflow forecast is the
gross profit for each customer. As such, management have prepared sensitivity
analysis on the gross profit for each customer and calculated that a reduction
in performance in line with the severe but plausible scenario set out in note
1 would result in an additional impairment of £0.4m.
18 LEASES
Land and Plant and
Buildings machinery Other Total
£'000 £'000 £'000 £'000
Right-of-use assets
1 March 2021 939 111 15 1,065
Additions 3,208 - 55 3,263
Additions through business combinations 627 108 9 744
Disposals - - (7) (7)
Depreciation (832) (66) (17) (915)
28 February 2022 3,942 153 55 4,150
Additions 328 - - 328
Disposals - - - -
Depreciation (1,736) (74) (11) (1,821)
Impairment charge (366) - - (366)
Exchange Adjustment 19 - - 19
28 February 2023 2,187 79 44 2,310
Lease liabilities
1 March 2021 979 115 15 1,109
Additions 3,208 - 55 3,263
Additions through business combinations 615 110 9 734
Disposals - - (7) (7)
Interest expense related to lease liabilities 77 5 - 82
Repayment of lease liabilities (including interest) (446) (71) (17) (534)
28 February 2022 4,433 159 55 4,647
Additions 328 - - 328
Disposals - - - -
Interest expense related to lease liabilities 140 4 2 146
Repayment of lease liabilities (including interest) (2,040) (72) (15) (2,127)
Exchange Adjustment 20 20
28 February 2023 2,881 91 42 3,014
Current 2,002 47 11 2,060
Non-current 879 44 31 954
2023 2022
£'000 £'000
Maturity analysis:
Within 1 year 2,005 2,022
Between 1 and 5 years 1,105 2,676
Over 5 years - 137
3,110 4,835
Less unearned interest (96) (188)
Lease liability 3,014 4,647
Analysed as:
Non-current 954 2,732
Current 2,060 1,915
3,014 4,647
The carrying value of right-of-use assets in respect of the above lease
liabilities is £2,678k (2022: £4,150k). Lease assets are located across the
Group's geographical market as follows: UK £2,408k (2022: £4,143k), ROW
£Nil (2022: £Nil), US £270k (2022: £Nil).
The Group's lease arrangements are in relation to property leases, plant and
office equipment. The leases have termination dates ranging from 2023 to 2028.
The rates of interest implicit in the Group's lease arrangements are not
readily determinable and management have determined that the incremental
borrowing rate to be applied in calculating the lease liability is 3.0%. The
fair value of the Group's lease obligations is approximately equal to their
carrying amount.
2023 2022
£'000 £'000
Effects of leases on financial performance:
Depreciation charge on right-of-use assets included within 'administrative 1,821 915
expenses'
Interest expense on lease liabilities included within 'finance costs' 146 82
Expense relating to short-term leases included within 'administrative 89 -
expenses'
Expense relating to low-value leases included within 'administrative expenses' 18 4
2,074 1,001
Effects of leases on cash flows:
Total cash outflow for right-of-use asset leases (538)
(2,127)
The Group has leases in respect of printers which have been classified as low
value in accordance with IFRS 16. In the year, the Group had three property
leases which have a term of 12 months or less where it has elected to treat
the lease as a short-term lease in accordance with IFRS 16. The Group is
committed to minimum lease payments in respect of these leases as follows:
2023 2022
£'000 £'000
Short-term lease commitment
Low-value lease commitment
5 -
1 1
6 1
19 INVENTORIES
2023 2022
£'000 £'000
Finished goods and goods for resale
47,606 44,683
Stock written down/(written back) during period (5,986) 11,262
The total cost of inventories recognised as an expense in cost of sale in the
year was £111,861k (2022: £113,353k). For further details on inventory
valuation, key assumptions and sensitivities, see Note 3.
20 TRADE AND OTHER RECEIVABLES
2023 2022
£'000 £'000
Current assets
Trade receivables 50,715 47,611
Other receivables 452 4,209
Prepayments 1,541 3,514
52,708 55,334
All of the trade receivables were non-interest bearing and receivable under
normal commercial terms. The fair value of the Group's trade and other
receivables is the same as their book value stated above. The Group has
assessed the credit risk of its financial assets measured at amortised cost by
reference to the historic default experience of each debtor and the analysis
of the debtor's financial position. The Group has determined that the loss
allowance for expected credit losses of those assets is £2,151k (2022:
£1,983k).
21 CASH AND CASH EQUIVALENTS
2023 2022
£'000 £'000
Cash at bank and in hand 11,044 15,619
22 TRADE AND OTHER PAYABLES
2023 2022
£'000 £'000
Trade payables 56,233 47,145
Other taxation and social security 826 2,556
Other payables 51 2,159
Accruals and contract liabilities 25,597 18,064
82,707 69,924
23 BORROWINGS
2023 2022
£'000 £'000
Bank revolving credit facility 31,721 23,551
31,721 23,551
Analysed as:
Payable within one year 31,721 23,551
The balance is shown net of loan arrangement fees of £279k (2022: £449k).
Interest is charged on the RCF based on the Sterling Overnight Index Average
plus an applicable margin. The RCF has a maturity date of 19 October 2024
however the Group was in breach of the covenants due to its shares being
suspended from trading, therefore the amount is presented within current
liabilities.
On 29 March 2023, the Group agreed an amendment to the revolving credit
facility (RCF) with its banking partners. The amendment included a waiver of
breaches of the terms of the original agreement. As part of the amended
facility agreement which runs through to October 2024, the overall size of the
facility was agreed at £32m, reduced from £40m, and is fully drawn. Revised
covenants have been agreed, which include, a minimum liquidity threshold of
£5.0 million and an Adjusted EBITDA covenant, as well as certain
non-financial covenants. The Adjusted EBITDA covenant is tested quarterly and
the minimum liquidity threshold is tested weekly. Interest accrues on the face
value of the drawn down loan amount at Sterling Overnight Index Average
(SONIA) plus 3.5% margin.
24 DEFERRED CONSIDERATION
2023 2022
£'000 £'000
Current 10,910 4,889
Non-current 9,098 13,504
During the previous financial year, Revolution Beauty Holdings exercised its
option to wholly acquire Revolution Beauty Labs (Formerly Medichem Ltd) which
was previously 100% owned and controlled by a previous director and
shareholder of Revolution Beauty Group Plc, with a deferred consideration of
£20,500,000 to be paid evenly over a 4-year period, which accrues interest at
2.5% per annum. Total interest accrued on this consideration is £1,298,450.
On the 7(th) March 2023 the Group announced that it had reached an agreement
in respect of the timing of payments of deferred consideration for its
acquisition of Medichem Manufacturing Limited, which has been disclosed within
Note 34.
25 FINANCIAL RISK MANAGEMENT
The Group's financial instruments at the reporting dates mainly comprise cash
and various items arising directly from its operations, such as trade and
other receivables and trade and other payables.
(a) Risk management policies
The Group's Directors are responsible for overviewing capital resources and
maintaining efficient capital flow, together with managing the Group's cash
flow risk, foreign exchange risk, credit risk and liquidity risk.
(b) Financial assets and liabilities
Financial assets and liabilities analysed by the categories were as follows:
2023
£'000 2022
£'000
Financial assets at amortised cost:
Trade and other receivables Cash and cash equivalents
51,167 51,820
11,044 15,619
62,211 67,439
Financial liabilities at amortised cost:
Borrowings 31,721 23,551
Trade and other payables Deferred consideration Lease liabilities 81,881 67,368
20,008 18,393
3,014 4,647
136,624 113,959
The carrying value of all financial instruments is not materially different
from their fair value.
(c) Credit risk
Credit risk is the risk that the counterparty will default on its contractual
obligations resulting in financial loss to the Group. Maximum credit risk at
the reporting dates was as follows:
2023 2022
£'000 £'000
Current trade and other receivables 51,167 51,820
The Group has adopted a policy of only dealing with creditworthy
counterparties as a means of mitigating the risk of financial loss from
defaults the Group uses publicly available financial information and its own
trading records to rate its major customers. The Group's exposure and the
credit ratings and compliance with credit limits of its counterparties are
continuously monitored. Sales to retail customers are required to be settled
in cash or using major credit cards, mitigating credit risk.
Trade receivables are regularly reviewed for impairment loss. The Group has
assessed the credit losses attributable to its financial assets measured at
amortised cost and has determined that the loss allowance for expected credit
losses of those assets is immaterial to the financial statements.
(d) Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting
obligations associated with financial liabilities. In order to maintain
liquidity to ensure that sufficient funds are available for ongoing operations
and future developments, the Group uses a mixture of long-term and short-term
loan notes together with short term intragroup borrowings.
Contractual cash flows relating to the Group's financial liabilities are as
follows:
Carrying amount Contractual cashflows Within 1 year More than 5 years
£'000 £'000 £'000 1-2 years 2-5 years £'000
£'000 £'000
28 February 2023
Borrowings 31,721 32,000 32,000 - - -
Trade payables 56,233 56,233 56,233 - - -
Accruals and other payables 25,648 25,648 25,648 - - -
Deferred consideration 20,008 21,798 11,163 5,382 5,253 -
Lease liabilities 3,014 2,918 2,005 394 519 -
Total 136,624 138,597 127,049 5,776 5,772 -
Carrying amount Contractual cashflows Within 1 year More than 5 years
£'000 £'000 £'000 1-2 years 2-5 years £'000
£'000 £'000
28 February 2022
Borrowings 23,551 24,000 24,000 - - -
Trade payables 47,145 47,145 47,145 - - -
Accruals and other payables 20,223 20,223 20,223 - - -
Deferred consideration 18,393 19,000 3,625 5,125 10,250 -
Lease liabilities 4,647 4,835 2,022 2,094 582 137
Total 113,959 115,203 97,015 7,219 10,832 137
(e) Interest rate risk
Interest rate risk is the risk that the future cash flows associated with a
financial instrument will fluctuate because of changes in market interest
rates.
Profit or loss is sensitive to higher/lower interest expense on borrowings as
a result of changes in interest rates. The risk of movement within the
interest rate for the RCF equates to approximately £3,200 for each 100 basis
point movement in interest rates charged.
(f) Foreign exchange risk
Foreign exchange risk is mitigated by closely monitoring foreign exchange
movements, having natural hedges with the Group's overseas operations, and
having appropriate terms with non-GBP denominated suppliers.
(g) Capital management
The Group's main objective when managing capital is to protect returns to
shareholders by ensuring the Group will continue to trade for the foreseeable
future. In order to maintain or adjust the capital structure, the Group may
adjust the dividends paid to shareholders, return capital to shareholders or
issue new shares.
The Group considers its capital to include net cash (being the aggregate of
bank balances less borrowings), share capital, share-based payment reserve,
merger reserve and retained earnings.
As at 28 February 2022
As Restated
2023 £'000
£'000
Cash and cash equivalents 11,044 15,619
Borrowings (31,721) (23,551)
Net debt (20,677) (7,932)
Total equity (14,197) 19,999
(34,874) 12,067
26 DEFERRED TAX
The deferred tax balances recognised in the consolidated statement of
financial position are as follows:
2022
2023 Restated
£'000 £'000
Deferred tax (liability)/asset
Accelerated capital allowances (525) (1,366)
Tax losses 1,126 2,030
Intangible fixed assets (601) (511)
Other timing differences - 152)
Net deferred tax liability - -
The net movement is explained as follows:
2023 2022
£'000 £'000
Opening deferred tax liability - 177
Charge/(credit) to profit or loss (43) 76
Acquisition of subsidiary - 167
Effects of exchange rate changes 43 11
Effect of restatement - (432)
Closing deferred tax liability - -
27 PROVISIONS
Dilapidations Legal cases On Hold Total
£'000 £'000 £'000 £'000
Opening Provision 100 4,295 1,100 5,495
Charge/(credit) to profit or loss - 1,438 526 1,964
Reversal of unutilised amounts - - (829) (829)
Effects of exchange rate changes 430 430
Closing Provision 100 6,163 797 7,060
The dilapidations provision relates to the estimated costs to be incurred by
the Group in restoring the underlying assets to the condition required by the
terms and conditions of the Group's lease arrangements.
The on hold provision relates to charges expected in respect of supplier
purchase orders which are expected to be cancelled and for which no inventory
is expected to be received, the full amount is expected to be settled within
the next 12 months.
The Directors have determined that a provision which was previously disclosed
as a contingent liability should have been recognised as a provision during
the year ended 28 February 2022, as the process of reaching a settlement of
the case had reached a stage whereby it had been established that a material
settlement was likely and a value could have been accurately estimated.
The Group has posted or reposted social media video clips which contain sound
recordings and musical compositions from the music library of the relevant
social media platform. A letter was received in Autumn 2020 from two music
owners, claiming copyright infringement. Letters raising such allegations are
common in other business sectors involved in social media. The Group, funded
by its insurers, is robustly defending the allegations and, taking a cautious
approach, has sought to remove any allegedly offending posts over which the
Group has control. Despite the time that has passed, no court proceedings have
been brought by the music owners.
The Group has taken formal legal advice from specialist US intellectual
property attorneys and engaged in a mediation process with the claimants.
Based on that advice and the ongoing mediation process and settlement offers
made to date, the Group believes that a liability of £4.3m should have been
provided for at 28 February 2022. In addition, it has been determined that
contingent assets of £3.3m should have been recognized in respect of
insurances and reimbursements the Group will received when a settlement is
ultimately paid. This results in a total net additional liability of £1.0m
and a charge to the consolidated statement of profit or Loss of £1.0m. Full
details of the prior year adjustment recognised are set out in note 4.
In addition to the reimbursement asset recognised in respect of insurances and
indemnities receivable against the liability for the claim, there are further
contingent assets which have not been recognised. Whilst inflows are
considered highly probable in respect of these remaining indemnities, they are
not virtually certain and have therefore not been recognised as
reimbursements. Further detail relating to the indemnities are not provided on
the grounds that such disclosure would be considered seriously prejudicial.
The Group expects to agree and settle the claim within the next financial
year.
28 SHARE-BASED PAYMENTS
Equity-settled schemes
C share / Nominee scheme
The Group has granted Nominee share options at the date of IPO based on the
unvested portion of their shares under the cancelled C share scheme. The
vesting period ranges between one and four years depending on the remaining
vesting period that was applicable to each individual under the C share
scheme. As the Nominee scheme represents new equity instruments granted as
replacement equity instruments for the cancelled C share scheme, management
has determined that it represents a modification to the existing share scheme.
The equity-settled classification has not changed. As such, the existing
share-based payment charge of the C share scheme continues to be recognised
over the original vesting period. The incremental increase in the total fair
value of the Nominee share options is recognised over the remaining vesting
period.
New LTIP
The Group has granted options to certain employees under the New LTIP scheme.
There is a non-market based performance condition attached to the New LTIP
share options, which will impact the number of shares which will eventually
vest. The vesting condition is based on the level of EBITDA achieved by the
Group in the three financial years following the grant. The vesting period
ranges from three to four years.
Legacy LTIP
The Legacy LTIP scheme rewards legacy employees who did not have share options
under the old C share scheme. The vesting period ranges from three to four
years.
Additional LTIP
The Group has granted options to one employee under the Additional LTIP
scheme. There is a market based performance condition attached to the
Additional LTIP share options, which will impact the number of shares which
will eventually vest. The vesting condition is based on the market
capitalisation of the Group in the five years following the IPO. The vesting
period is five years. The probability of achieving the market capitalisation
conditions has been considered in determining the fair value of the share
options using the Monte Carlo option-pricing model.
SIP
The Group has granted options to each employee enrolled in the SIP scheme. The
vesting period is three years and there is a service condition attached to the
options.
A reconciliation of equity-settled share-based payment schemes is presented
below:
Balance at Balance at
the start of the end of
2023 the year Granted Exercised Forfeited the year
C share / Nominee scheme 2,398,308 (1,210,739) (713,594) 473,975
New LTIP 1,902,190 (862,391) 1,039,799
Legacy LTIP 801,650 (49,867) 751,783
Additional LTIP 5,000,000 (5,000,000) -
SIP 339,750 (27,000) 312,750
10,441,898 - (1,210,739) (6,652,852) 2,578,307
Weighted average exercise price £0.01 £- £0.01 £0.01 £0.01
Balance at Effect of Balance at
the start of capital the end of
2022 the year Granted Exercised Forfeited reorganisation the year
C share / Nominee scheme 950,288 469,613 (975,237) (121,549) 2,075,193 2,398,308
D share scheme 176,795 - - - (176,795) -
E share scheme 165,745 - - - (165,745) -
New LTIP - 2,108,902 - (206,712) - 1,902,190
Legacy LTIP - 955,567 - (153,917) - 801,650
Additional LTIP - 5,000,000 - - - 5,000,000
SIP - 362,250 - (22,500) - 339,750
1,292,828 8,896,332 (975,237) (504,678) 1,732,653 10,441,898
Weighted average exercise price £2.47 £0.01 £- £0.01 £- £0.01
The weighted average remaining contractual life of the Group's equity-settled
share options outstanding at the reporting date was 1.0 years (2022: 3.9
years)
Cash-settled schemes
Phantom SIP
The Group has granted a Phantom Share Award to each overseas employee enrolled
in the Phantom SIP scheme. This entitles holders to a right to receive a cash
payment equal to the market value of the Group's shares on the vesting date.
The vesting period is three years.
Balance at the start of the year Balance at the end of the year
2023 Granted Exercised Forfeited Other
Phantom SIP 31,500 (4,500) 27,000
Weighted average exercise price -
Balance at the start of the year Balance at the end of the year
2022 Granted Exercised Forfeited Other
Phantom SIP - 38,250 - (6,750) - 31,500
Weighted average exercise price - - - - - -
The weighted average remaining contractual life of the Group's cash-settled
share options outstanding at the reporting date was 1.5 years (2022: 2.5
years).
The expense recognised in the period for the share-based payment transactions
was £306k for equity settled schemes and a £3k credit for cash settled
schemes due to forfeitures (2022: £3,530k equity settled schemes and £4k for
cash settled schemes)
The fair value per option granted during the period covered by the financial
statements and the assumptions used in the calculation are as follows:
Grant period
2023 2022
Share price at grant date £1.60 - £1.63 £1.60 - £1.63
Exercise price £nil - £0.01 £nil - £0.01
Expected option life 3 - 5 years 3 - 5 years
Expected volatility 50.0% 50.0%
Expected dividends 0.0% 0.0%
Discount rate 0.2% 0.2%
Weighted average fair value per option £1.59 £1.59
29
2023 2022
No. ('000) No. ('000)
Class of share
Ordinary shares of 1p each
309,737 309,737
309,737 309,737
SHARE CAPITAL
£'000 £'000
Class of share
Ordinary shares of 1p each
3,097 3,097
3,097 3,097
There were no issuances of share capital during the year.
Ordinary share rights
Ordinary shares carry full voting rights and rights in respect of dividends
and capital distributions (including on winding up).
During the prior period, 469,613 C Ordinary shares were issued and 11,050 C
Ordinary shares, 2,250,000 A1 Deferred shares and 228,000 A2 Deferred shares
were bought back and cancelled.
As part of the company's admission to AIM on 13 July 2021, a capital
reorganisation occurred, pursuant to which the existing shares were subdivided
and redesignated into Ordinary shares and Deferred shares, following which all
such Deferred shares were cancelled. On completion of the capital
reorganisation, the share capital comprised 240,180,313 Ordinary shares of
£0.01 each. A further 69,194,687 Ordinary shares of £0.01 each were issued
as part of the Placing on 19 July 2021. On 20 August 2021, the Company issued
a further 362,250 Ordinary shares of £0.01 each. Total consideration for the
shares issued in the period was £110,716k.
30 RESERVES
Share capital
The called-up share capital records the nominal value of shares issued and
paid up.
Share premium reserve
Consideration received for shares issued above their nominal value, net of
transaction costs.
Warrant reserve
A warrant instrument dated 13 July 2021 was issued upon the Groups admission
to AIM. The Company granted Zeus Capital, a right to subscribe in cash for
9,281,250 Shares at £1.60 per Share during the period commencing on the date
of admission and expiring on the date which is the tenth anniversary of
admission.
The Group valued the warrant using the Black-Scholes model, applying a
risk-free interest rate, expected term and an estimated share price and
volatility.
The warrant reserve represents the fair value of warrants outstanding at the
date of issue. Each warrant confers the right to subscribe in cash for one
ordinary share at the placing price of 160 pence per share. The warrants are
only exercisable during the period from 20 July 2022 to 19 July 2031.
Merger reserve
The merger reserve has arisen due to a group reorganisation, under the merger
method of accounting.
Translation reserve
The translation reserve represents foreign exchange gains and losses on the
retranslation of the results and net assets of the foreign operations of the
Group.
Retained earnings
Cumulative profit and loss net of distributions to owners.
31 NET DEBT
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group's consolidated cash flow
statement as cash flows from financing activities.
As at 1 March As at 28 February
2022 Non-cash movements 2023
£'000 Cash flows £'000 £'000
£'000
Cash and cash equivalents Borrowings
Lease liabilities
15,619 (3,876) (699) 11,044
(23,551) (8,000) (170) (31,721)
(4,647) 2,127 (494) (3,014)
Net debt (12,579) (9,749) (1,363) (23,691)
As at 1 March As at 28 February
2021 Cash flows As restated Non-cash movements 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents Borrowings
Lease liabilities
5,581 10,223 (185) 15,619
(79,605) 61,115 (5,061) (23,551)
(1,109) 534 (4,072) (4,647)
Net debt (75,133) 71,872 (9,318) (12,579)
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000
Amortised cost
Prepaid financing fees
(31,721) (23,551)
(279) (449)
Gross borrowings (31,721) (24,000)
32 CAPITAL COMMITMENTS
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000
Amounts contracted for but not provided in the financial statements:
Acquisition of tangible fixed assets
106 3,000
33 RELATED PARTY TRANSACTIONS
Interests in subsidiaries are set out in note 4 to the Company financial
statements.
Transactions with related parties
Transactions between the Group and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
The Group entered into the following transactions with companies under the
control of one of the Directors:
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000
Other related parties
Sales 3 12
Purchases - 11,928
Rent paid 236 140
The following amounts were outstanding at the reporting date:
Year ended 28 February Year ended 28 February
2023 2022
£'000 £'000
Other related parties
Amounts due to related parties
1 -
Included within deferred consideration is a loan to Walbrook Investments
Limited, a company under the control of T Allsworth, of £1,500k (2022:
£1,500k). The amount is offset against the Groups' liability to T Allsworth
in respect of the acquisition of Medichem and will be settled through the
payment of the deferred consideration.
Medichem Properties Limited (Formerly Walbrook Investments Limited), is a
company under the control of one of the former directors. During the period
the company provided rental premises to the group for cash payments of £235k
(2022: £140k). As at the period end there is a rent liability of £370k
(2022: £592k) outstanding.
Astound Commerce Ltd, a company in which one of the former Non-Executive
Directors is employed, sold services to the group for a total of
£278k (2022: £449k), of which £23k (2022: £23k) remains outstanding in
trade creditors as of the period end.
During the financial year, the Group employed a number of individuals which
are considered close family members of the Directors, and paid salaries of
£472k (2022: £407k).
The Group entered into the following transactions with boohoo Group Plc, an
entity considered to have significant influence over the group.
Year ended 28 February Year ended 28 February
2023 2022
Other related parties £'000 £'000
Sales 987 647
Purchases 57 38
The receivable amount outstanding at the balance sheet date was £223k (2022:
£305k).
For the purposes of IAS 24 "Related Party Disclosure", the Group consider key
management personnel to be the Directors of Revolution Beauty Group plc,
executives below the level of the Company's Board are not regarded as key
management personnel. Remuneration for the board of directors is set out in
note 8.
DIRECTORS' TRANSACTIONS
At 28 February 2023 the Directors owed £Nil (2022: £215k) to the Group in
respect of excess interest paid during the period, these amounts were repaid
during the year.
During the prior year, Revolution Beauty Holdings exercised its option to
wholly acquire Revolution Beauty Labs (Formerly Medichem Ltd), from a director
who had a controlling interest, for an initial consideration of £7,000,000,
with a deferred consideration of £16,000,000 to be paid evenly over a 4-year
period. An agreement was reached with the director to amend the terms of the
deferred consideration, details of the amendment and outstanding liability are
set out in note 24.
34 SUBSEQUENT EVENTS
On 7 March 2023 the Group announced that it had reached an agreement in
respect of the timing of payments of deferred consideration for its
acquisition of Medichem Manufacturing Limited.
A Deed of Variation dated 6 March 2023 was signed which amends the terms of
the deferred consideration and completion net asset adjustment, adjusting the
timing of the payments as outlined below:
• £3.625 million payable on 21 October 2025 (being the £5.125
million consideration reduced by the £1.5 million loan due from one of the
Sellers companies, Walbrook)
• £5.125 million payable on 21 October 2026
• £5.125 million payable on 21 October 2027
• £5.125 million payable on 21 October 2028 Interest accrues on
outstanding balances at a rate of 2.5% per annum
On 30 March 2023 the Group announced that that it had secured an amended
facility agreement with its banking partners. The amendment includes a waiver
of breaches of the terms of the original agreement. As part of the amended
facility agreement which runs through to October 2024, the overall size of the
facility was agreed at £32m, reduced from £40m, and is fully drawn. Revised
covenants remain in place and include a minimum liquidity threshold of £5.0
million and an Adjusted EBITDA covenant. Certain non-financial covenants that
applied following the amendments of the agreement were complied with and are
no longer in place.
On 28 June 2023 on the lifting of the Company's share suspension from AIM,
5,684,210 nominal cost options were awarded to Bob Holt and 2,842,105 nominal
cost options were awarded to Elizabeth Lake. On the 19 July 2023, Bob Holt and
Elizabeth Lake, both respectively exercised their combined 8,526,315 nominal
cost options of £0.01 in the capital of the Company.
35 ULTIMATE CONTROLLING PARTY
The Directors do not consider there to be one ultimate controlling party.
Subsequent to the reporting date, three directors have been appointed on the
instigation of boohoo Group Plc, an entity considered to have significant
influence over the Group by virtue of its shareholding.
36 COMPANY STATEMENT OF FINANCIAL POSITION
2023 2022
Note £'000 £'000
ASSETS
Non-current assets
Investments 4 - -
Other receivables 5 14,543 44,202
Total non-current assets 14,543 44,202
Current assets
Other receivables 5 354 603
Cash and cash equivalents 6 648 7,263
Total current assets 1,002 7,866
Current liabilities
Trade and other payables 7 (6,079) (896)
Borrowings 8 (31,721) (23,551)
Total current liabilities (37,800) (24,447)
Net current assets/(liabilities) (36,798) (16,581)
Total assets less current liabilities (22,255) 27,621
Net assets (22,255) 27,621
Equity
9
Share capital 3,097 3,097
Share premium 103,487 103,487
Share-based payment reserve 4,712 4,409
Warrant reserve 7,239 7,239
Retained earnings (140,790) (90,611)
Total equity (22,255) 27,621
37 AUDIT OPINION ON CONSOLIDATED FINANCIAL STATEMENTS
Independent auditor's report to the members of Revolution Beauty Group Plc
Qualified opinion on the Group financial statements
In our opinion, except for the possible effects of the matters described in
the Basis for qualified opinion section of our report, the Group financial
statements:
• give a true and fair view of the state of the Group's
affairs as at 28 February 2023 and of the Group's loss for the year then
ended;
• have been properly prepared in accordance with UK-adopted
international accounting standards; and
• have been prepared in accordance with the requirements of
the Companies Act 2006.
We have audited the Group financial statements of Revolution Beauty Group plc
(the 'Company') and its subsidiaries (the 'Group') for the year ended 28
February 2023 which comprise the Consolidated Statement of Profit or Loss and
Other Comprehensive Income, the Consolidated Statement of Financial Position,
the Consolidated Statement of Changes in Equity, the Consolidated Statement of
Cash Flows and Notes to the Consolidated Financial Statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of
the Group financial statements is applicable law and UK-adopted international
accounting standards.
Basis for qualified opinion
As announced on 23 September 2022, we wrote to the Board on 21 September 2022
setting out a number of serious concerns with respect to certain governance
and control arrangements in place over a number of key financial and business
transactions that took place during the prior year to 28 February 2022 and
which impacted the Group financial statements for the year ended 28 February
2022 and which may also have had a consequential impact on the Group financial
statements for the year ended 28 February 2023. We communicated to the Board a
number of findings and issues and we recommended that the Board appoint
external advisers to undertake an independent Investigation (the
"Investigation").
The Company announced on 13 January 2023 the completion of that Investigation
and its findings. . A number of the matters identified in our letter and by
the investigation led us to undertake additional audit procedures and resulted
in qualifications to our opinion in respect of the Group financial statements
for the year ended 28 February 2022. We have therefore considered the impact
of those qualifications in determining the qualifications to our opinion on
the Group financial statements for the year ended 28 February 2023. Each
matter set out below represents a separate qualification to our opinion:
Potential liabilities and contingent liabilities
The Investigation report identified a number of matters and actions which
could potentially lead to liabilities and contingent liabilities. Management
advised us that that they fully investigated these matters and have not
identified any further specific liabilities that may arise and as such no
further provision or disclosure has been considered necessary by the Board.
However, given the nature of these findings, we continue to be unable to
determine whether further liabilities or contingent liabilities, such as
claims, tax assessments or irregularities may subsequently materialise and we
have therefore been unable to determine the impact that such further potential
liabilities or losses may have on the financial position of the Group as at 28
February 2023, and/or whether any further contingent liabilities need to be
disclosed in the notes to the Group financial statements.
Cancelled purchase orders
Management had placed deferred purchase orders prior to and during the
pandemic. As a result of the trading terms with its suppliers, this resulted
in the Group having to negotiate a settlement for these unfulfilled orders. A
liability of £1.1m was recorded as at 28 February 2022 as Management's best
estimate of the unavoidable cost in meeting these commitments. We were unable
to obtain sufficient appropriate audit evidence to support the recognition of
these commitments at the 28 February 2022 or whether the commitments should
have been recognised in a prior period or constitute a non-adjusting post
balance sheet event. . Given that we were unable to conclude on the opening
provision and the timing of the recognition of the associated expense, we are
therefore unable to determine whether the income statement for the year ended
28 February 2023 is materially correct and/or whether the amount expensed
previously for cancelled orders has been recorded in the correct period and
consequently whether any adjustment to the Group financial statements for the
year ended 28 February 2023 is required.
Carrying value of goodwill of Revolution Beauty Labs Limited (previously
called Medichem Manufacturing Limited ("Medichem"))
In October 2021, the Group exercised an option to purchase the entire share
capital of Medichem which was wholly owned by Tom Allsworth (former Executive
Chairman and co-founder of the Group). The option was exercised following
completion of an independent valuation of Medichem. The Investigation
identified a number of issues, which related to factors which were not
considered as part of the assessment of the acquisition price, which could
have a material impact on the valuation reported and the associated goodwill
arising from the acquisition.
As a result of these issues, we were unable to obtain sufficient appropriate
audit evidence to support the carrying value of goodwill arising on the
acquisition of Medichem as at 28 February 2022 included in the balance sheet
at that date as £2.8m. We were therefore unable to determine whether the
subsequent impairment of goodwill of £2.8m included in the Group financial
statements for year ended 28 February 2023 is materially correct and/or
whether the impairment included in the Group financial statements has been
recorded in the correct period, and consequently whether any adjustment to the
Group financial statements for the year ended 28 February 2023 is required.
Related party disclosures
The Investigation identified a number of related party transactions of members
of the Board and management which had not been disclosed to all members of the
Board nor to us as the auditors. Management have set out in note 35 to the
Group financial statements those related party transactions that have been
identified through the Investigation as well as those that have been captured
during the ordinary course of business. We also refer to note 33 to the Group
financial statements where the Board has assessed and disclosed in the Group
financial statements that Key Management is limited to the Board of Directors.
There are a number of limitations in us being able to conclude that related
party transactions and key management disclosures are complete. The key
reasons giving rise to these limitations are as follows:
- the findings from the Investigation as to actions and
involvement of certain individuals in the business and engagement with key
trading partners may suggest that Management may not have identified all
individuals required to be considered as Key Management. However, it has not
been possible for us to be conclusive in this respect;
- certain of the Directors that were members of the Board and
other senior individuals are no longer with the Group and we are therefore
limited as to enquiries that can be made of Management who were present
throughout the year being audited; and
- there was an absence of appropriate processes and records in
the year to capture all related parties and transactions that may have taken
place with those parties.
Should there be further relationships which by their nature would be disclosed
as related parties, then transactions made with those parties may have been
made outside normal commercial terms which may result in revisions being
required to the recording of such transactions. We have therefore been unable
to conclude that the Group financial statements are free from material
misstatement arising from the omission of related party transactions being
fully disclosed and we are unable to determine whether the disclosures in
respect of related party transactions in the Group financial statements are
complete and accurate.
Further, we have been unable to determine whether the disclosures in respect
of Directors' remuneration are complete and accurate.
In addition, and without further modifying our opinion, a number of other
matters highlighted by the Investigation have been included within the key
audit matters section of this report.
Our opinion on the current period's Group financial statements is also
modified because of the possible effect of these matters on the comparability
of the current period's figures and the corresponding figures.
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are
further described in the Auditor's responsibilities for the audit of the Group
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
qualified opinion.
Independence
We remain independent of the Group in accordance with the ethical requirements
that are relevant to our audit of the Group financial statements in the UK,
including the FRC's Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.
Material uncertainty related to going concern
We draw attention to note 2 to the Group financial statements, which indicates
the following:
· under the terms of the amended facility agreement, an Event
of Default arises where a qualified audit report is issued on the consolidated
financial statements. The Lenders previously issued a waiver in respect of
this clause relating to the year ended 28 February 2022 and have issued a
further waiver in respect of this clause relating to the financial statements
for the year ended 28 February 2023. The Lenders have confirmed their present
intention to issue a similar waiver relating to the financial statements for
the year ending 28 February 2024 provided that any qualifications in respect
of that year are substantially the same as those set out in the Basis for
qualified opinion section of our report on the financial statements for the
year ended 28 February 2023. In the event that such a waiver is not
forthcoming the Group would be in breach of the amended facility agreement;
and
· if the Group was unable to achieve its forecasts, due to
either a downturn in operational activity or the impact or timing of
settlement of any financial commitments, known or otherwise, arising from
legacy issues, and be unable to implement mitigating actions within the
Group's control on a timely basis, it may breach covenants or the minimum
liquidity threshold set out in its amended facility agreement.
In respect of any or all of the above breaches of the amended facility
agreement, the Group is reliant on the support of its Lenders to waive any or
all of the above breaches of the facility or the Group would need to seek
alternative sources of funding to repay all amounts due under the amended
facility agreement and provide the Group with sufficient ongoing finance to
continue as a going concern.
As stated in note 2 to the Group financial statements, these events or
conditions, along with other matters as set out in note 2 to the Group
financial statements, indicate that a material uncertainty exists that may
cast significant doubt on the Group's ability to continue as a going concern.
The Group financial statements do not include any adjustments that may be
necessary if the Group is not a going concern. Our opinion is not modified in
respect of this matter.
We considered going concern to be a Key Audit Matter because of the
significance of this issue. The scope of our audit addressed this Key Audit
Matter through performing the following procedures:
· we assessed the Directors' forecasts with the assistance
of business restructuring specialists to test the application and completeness
of assumptions approved by the Directors within the forecasts and checked the
model mechanics including the mathematical accuracy;
· we evaluated the reasonableness of the assumptions and
future plans modelled within the Directors' base case forecasts and the
Directors' severe but plausible downside scenario including whether such plans
and assumptions are consistent when compared to past performance and align
with expectations within the wider retail industry and adjusted for the
Group's specific circumstances;
· we inspected the Group's revised covenant terms included
in the amended facility agreement to gain evidence that the scenarios modelled
had appropriately considered these revised covenant terms;
· we further considered the Directors' assessment of their
anticipated compliance with the non-financial covenants included in the
amended facility agreement to determine whether these result in a material
uncertainty or not;
· we considered the Directors' assessment of the adequacy
of headroom on the financial covenants under both the base case and the severe
but plausible downside scenario;
· we also considered the severe but plausible downside
scenario and the extent to which the likelihood of this scenario was
sufficiently low to support the Directors' conclusion that events and
conditions identified result in material uncertainty in relation to the
adoption of the going concern basis in the preparation of the Group financial
statements as opposed to the going concern basis not being appropriate and the
Group financial statements being required to be prepared on an alternative
basis; and
· we considered the adequacy of the disclosures in the
Group financial statements against the requirements of accounting standards
and consistency of the disclosures against the Directors' base case forecasts
and the Directors' severe but plausible downside scenario.
In auditing the Group financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the preparation of
the Group financial statements is appropriate.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview - for the year ended 28 February 2023
Coverage(( 1 )) 83% (2022:80%) of Group loss before tax
100% (2022:100%) of Group revenue
99% (2022:94%) of Group total assets
2023 2022
Material uncertainty related to going concern ü ü
Revenue recognition ü ü
Management override of controls ü ü
Inventory Provision ü ü
Key audit matters
Legal dispute ü x
Existence & valuation of trade receivables x ü
Business acquisition of Revolution Beauty Labs Ltd and Limited and associated x ü
deferred consideration
x ü
Carrying value of non-current stand assets
Three KAM's included on our audit report in respect of the financial
statements for the year ended 28 February 2022 are no longer considered to be
akey audit matters this year, as indicated above, because:
· Business acquisition of Revolution Beauty Labs
Ltd and associated deferred consideration related to the acquisition that took
place in 2022 and is therefore not relevant to the current period;
· Existence and valuation of trade receivables was
identified as a key audit matter in 2022 as a result of the inter-relationship
with revenue and significant balances which were outstanding that were found
to relate to revenue that was subsequently reversed. Similar issues have not
been identified in 2023; and
· Carrying value of non-current stand assets was
considered to be a KAM in 2022 due to the loss making position and the revised
inventory provisioning policy in 2022 that had a material impact on cashflows
which led to a need to reassess impairment indicators for stands in respect of
prior years.
Three KAM's included on our audit report in respect of the financial
statements for the year ended 28 February 2022 are no longer considered to be
a key audit matters this year, as indicated above, because:
· Business acquisition of Revolution Beauty Labs
Ltd and associated deferred consideration related to the acquisition that took
place in 2022 and is therefore not relevant to the current period;
· Existence and valuation of trade receivables was
identified as a key audit matter in 2022 as a result of the inter-relationship
with revenue and significant balances which were outstanding that were found
to relate to revenue that was subsequently reversed. Similar issues have not
been identified in 2023; and
· Carrying value of non-current stand assets was
considered to be a KAM in 2022 due to the loss making position and the revised
inventory provisioning policy in 2022 that had a material impact on cashflows
which led to a need to reassess impairment indicators for stands in respect of
prior years.
Group financial statements as a whole
Materiality
£0.93m (2022: £0.9m) based on 0.5% (2022: 0.5%) of revenue.
Three KAM's included on our audit report in respect of the financial
statements for the year ended 28 February 2022 are no longer considered to be
a key audit matters this year, as indicated above, because:
· Business acquisition of Revolution Beauty Labs
Ltd and associated deferred consideration related to the acquisition that took
place in 2022 and is therefore not relevant to the current period;
· Existence and valuation of trade receivables was
identified as a key audit matter in 2022 as a result of the inter-relationship
with revenue and significant balances which were outstanding that were found
to relate to revenue that was subsequently reversed. Similar issues have not
been identified in 2023; and
· Carrying value of non-current stand assets was
considered to be a KAM in 2022 due to the loss making position and the revised
inventory provisioning policy in 2022 that had a material impact on cashflows
which led to a need to reassess impairment indicators for stands in respect of
prior years.
Materiality
Group financial statements as a whole
£0.93m (2022: £0.9m) based on 0.5% (2022: 0.5%) of revenue.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
As a result, we identified two significant components, namely: Revolution
Beauty Limited in the UK and Revolution Beauty Inc. in the US. The Group audit
team completed full scope audits on the Parent Company and the two significant
components.
Non-significant components were subject to either audit procedures on
specified balances and/or desktop review procedures, which were performed by
the Group audit team. Desktop review procedures comprised Group level
analytical procedures of each non-significant component.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the Group financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Group
financial statements as a whole, and in forming our qualified opinion thereon,
and we do not provide a separate opinion on these matters.
In addition to the matters included in the Basis for qualified opinion and the
Material uncertainty related to going concern sections above, we determined
the matters described below to be additional key audit matters to be
communicated in our report. This is not a complete list of all risks
identified by our audit.
Key audit matter How the scope of our audit addressed the key audit matter
Revenue recognition The Group generates revenue through the supply to retail store groups and The following procedures were carried out in response to the risks identified:
distributors (Business to Business - B2B), sales directly to the consumer via
the Group's own website (Business to customer - B2C) and supplies inventory on
a consignment basis.
Note 2 - sets out the accounting policy per revenue stream for the recognition
· Business to Business revenue (B2B)
of revenue and the measurement of that revenue including consideration of all
deductions to gross revenue initially recognised.
We performed the following procedures:
Revenue is recognised in line with the requirements set out in IFRS 15 -
Revenue from Contracts with Customers ("IFRS 15") taking into consideration · for a sample of customer contracts with significant
contracts in place, identification of the relevant performance obligations and retail store groups and consignment customers, we read the terms of business
Note 3 - sets out the key sources of estimation uncertainty included in the determination of the transaction price. to check that the appropriate application of IFRS 15 had been applied, and we
process of determining the level of returns expected in order to arrive at a
agreed those terms back to the recognition of revenue where appropriate; and
provision for returns and resultant reduction to revenue.
· for a sample of revenue items recorded in the general
Revenue is recognised on a net basis where applicable taking into ledger, we agreed the revenue recorded to supporting documentary evidence and
consideration the relevant performance obligations in respect of the contracts the receipt of cash.
Note 7 - sets out the analysis of the Group's revenue by class of business as with the retail store groups. There are various deductions processed against
well as by geographical market. payments made by customers which are offset against revenue as appropriate.
Given the extent of deductions taken by the retail store groups, there is a
risk that not all deductions are appropriately recognised in the correct As part of our response to the risk of fraud due to management override of
accounting period and offset correctly as a reduction to revenue. controls, we performed the following procedures relevant to revenue with the
assistance of our IT specialists:
· we performed data analytics to identify entries posted
Revenue is only to be recognised when the performance obligation is settled. in the general ledgers to revenue via journals processed which were of audit
The recognition of revenue is identified as a significant risk with a interest, such as those considered to be unusual;
particular focus around the year-end for the B2B revenue stream. Therefore,
the significant risk of fraud associated with revenue was concentrated on the · we identified who posted the journal to agree that it aligned
appropriate recognition of revenue and any manual adjustments made directly to to their role; and
revenue.
· where we considered this to require further investigation, we
challenged management to understand the nature or reason for the journal and
sought to obtain further evidence to support the validity of the journal
entry.
We also reviewed the Group financial statements to confirm that the
disclosures with respect to revenue were appropriate and sufficient with
reference to the requirements of IFRS 15.
Key observations:
Based on the work performed, we are satisfied that revenue reflected in the
financial statements has been recognised appropriately in accordance with the
Group's accounting policies and the accounting standards.
Key audit matter How the scope of our audit addressed the key audit matter
Management override of controls The findings from the Investigation together with our assessment of the We involved our forensic specialists in our response to, and our audit of, the
control environment identified evidence that senior management were able to findings of the Investigation.
override the controls that were in place during the prior year and that this
situation continued in FY23. Our audit also identified a number of
Refer to pages 35 to 38 (Audit and Risk Committee Report) misstatements in the prior period which also impact the FY23.
We evaluated the terms of engagement and credentials and independence of the
Group's appointed external advisors. We critically assessed the detailed
findings and using our forensic experts considered if the approach taken was
As a result, there is a risk that controls may not have prevented or detected reasonable and whether any additional procedures were considered necessary. We
and corrected material misstatements on a timely basis more broadly in the also considered the nature of the findings and undertook additional procedures
Group financial statements for the year ended 28 February 2023. and testing to satisfy ourselves where we considered it was necessary.
Based on the prior period misstatements noted, as well as the results of the
Investigation, we ensured our planned audit approach appropriately addressed
the matters that had been raised through the Investigation. We also considered
the impact on the level of our materiality used in testing to ensure
appropriate consideration of the level of expected errors. Our audit approach
was entirely substantive, with no reliance on internal controls, and
management explanations were assessed against the available evidence that was
considered to be reliable.
In light of the findings from the Investigation we performed an extended
analysis of work on the IT systems relevant to the audit, with a specific
focus on access rights to those systems and the risks related to access gained
to and activity within those systems in the year. An extended analysis was
also carried out over journal entries considered to have higher risk criteria
and which we agreed back to supporting documentation which we considered
appropriate.
We planned the scope of our work throughout the audit to include in depth
challenge of management and those charged with governance, and applied
increased and scepticism in all areas.
We sought alternative representations and required additional procedures to be
performed to support those representations where in our judgement, we
considered to be necessary.
Key observations:
From the evidence obtained, we considered the risk of management override of
control to have been reduced to an acceptable level for the reported financial
position as at 28 February 2023, and for the financial results of the year
then ended.
Key audit matter How the scope of our audit addressed the key audit matter
Inventory provision The Group has significant inventory holdings. With the changes in fashion and We performed the following audit procedures to address the risks identified:
trends, demand for these products results in limited life cycles and the Group
has been continuously launching new products to stay on trend. This heightens
the risk of impairment of inventory where such new launches (with minimum
£47.6m (2022: £44.7m) after provision of £33.9m (2022: £39.8m) of order quantities) are not successful. · obtained an understanding of the stock provision methodology
inventory held at the balance sheet date.
and policies, together with how estimates and assumptions were determined by
management;
Note 2 sets out the accounting policies for inventory.
Inventories are carried at the lower of cost and net realisable value. · confirmed that the provisioning methodology adopted by
Determining net realisable value requires significant estimates to be made in management remains appropriate and prepared on a consistent basis to the prior
relation to: year;
Note 3 sets out judgements and key sources of estimation uncertainty within
inventory. · assessed the accuracy and completeness of the information used
by management in calculating the provision by performing tests over the data
- future selling prices and volumes; and used in both the calculation of the inventory provision and the analysis of
the sell through of inventory in previous years prepared by management to
Note 19 sets out the components of inventory and amounts recognised as an - the future costs associated with selling the support the provision;
expense in the period. inventory.
· challenged and assessed the key assumptions applied by
management in estimating the provision by the use of historical evidence, post
year end actual sales and knowledge of the industry, including the percentages
Management have extracted extensive data to enable them to analyse historical used to calculate the forecast rate of sales and the percentages used to
trends to support the sale through volumes of inventory, both for existing determine excess stock; and
lines of stock and new products launched in the year, and subsequently
prepared an inventory provision using the same methodology as that adopted for · considered the adequacy of the disclosures in the Group
the first time for the preparation of the 2022 financial statements. financial statements against the requirements of the relevant accounting
standards.
Key observations:
We are satisfied that the inventory provision has been calculated
appropriately and that inventory is recorded at the lower of cost and net
realisable value.
Key audit matter How the scope of our audit addressed the key audit matter
Legal Dispute
The Group has a number of legal cases. The Group is required to assess whether We completed the following audit procedures to address the risks identified:
it is probable that there will be a financial outflow related to these cases
Provision of £6.2m (2022: £4.3m) and reimbursement assets of £4.1m (2022: and, if so, recognise a provision based on their best estimate.
£3.3m) recognised at the balance sheet date and related disclosures of
contingent assets (note 27). we evaluated Management's assessment of the accounting required for the legal
case, which includes internal and external legal counsel's assessment of the
The most significant of these cases is the claim into the historic unlicensed case, and performed procedures to reach an independent assessment of the
use of music used in the Group's social media posts. To date there have been conclusions reached. These included:
Note 2 sets out the accounting policies for provisions and contingent assets. two rounds of mediation in relation to this case and the Group has made
settlement offers. - obtained and read external counsel's assessment of the likely
outcome of the case and assessed the accuracy and completeness of the
information used by Management in calculating the provision, which included
Note 3 sets out judgements and key sources of estimation uncertainty within
having direct discussions with internal and external legal counsel on the
provisions and contingent assets. In addition the Group has an insurance policy and indemnities provided by the facts, circumstances and timeline of events in respect to the case;
pre-IPO shareholders of Revolution Beauty Group Plc. When a provision is
recognised, the Group will be required to assess if receiving reimbursement is - obtained and inspected relevant supporting documentation,
virtually certain to recognise an asset. which included legal risk assessments, communication with claimants, written
Note 27 sets out the details of the legal dispute and the unrecognised
settlement offers made and counter offers received;
contingent asset.
- challenged Management where appropriate to ensure all relevant
information was considered in the determination of the provision based on the
information available at each reporting period;
Due to the significance of the amounts involved, and level of judgement
required in this matter we determined this to be a key audit matter. - reviewed Management's assessment in respect to the potential
reimbursement assets to the Group if the provision were to be settled and
considered the assessment against the requirements of IAS 37: Provisions,
Contingent Liabilities and Contingent Assets, for the recognition of
reimbursement assets or disclosure of contingent assets;
- considered the associated taxation impacts of the recognition
of the provision and corresponding reimbursement assets. We challenged
Management on the relevant jurisdiction to ensure that the provision and
reimbursement assets (which are recognised in different jurisdictions and
hence for tax purposes are to be considered independently) are considered
appropriately in respect to the different tax laws and requirements for tax
purposes; and
- considered the adequacy of the disclosures in the Group
financial statements against the requirements of the relevant accounting
standards.
Key observations:
We are satisfied that the provision for the expected settlement of the legal
dispute has been determined appropriately and that the evidence to support the
virtually certain basis for recognition of the reimbursement assets is
appropriate. We are also satisfied that the disclosures in respect of the
provision and reimbursement assets relating to the legal dispute, and the
unrecognised contingent asset, are in accordance with the Group's accounting
policies and the accounting standards.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
Group financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the Group financial statements as a whole.
Based on our professional judgement, we determined materiality for the Group
financial statements as a whole and performance materiality as follows:
2023 2022
Materiality £0.93 million £0.9 million
Basis for determining materiality 0.5% of revenue
Rationale for the benchmark applied Revenue represents the most appropriate benchmark of trading for the Group
given the volatility in performance caused by significant growth in the Group
but also the findings and issues highlighted by the Investigation.
Performance materiality £0.56 million £0.54 million
Basis for determining performance materiality 60% of materiality
We considered a number of factors including the expected level of known and
likely misstatements, our knowledge of the group's internal controls and
management's attitude towards proposed adjustments
Component materiality
We set materiality for each significant component of the Group based on a
percentage of between 48% and 86% (2022: between 39% and 90%) of Group
materiality dependent on the size and our assessment of the risk of material
misstatement of that component. Component materiality ranged from £450,000 to
£800,000 (2022: ranged from £350,000 to £810,000). In the audit of each
component, we further applied performance materiality levels of 60% (2022:
60%) of the component materiality to our testing to ensure that the risk of
errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £27,900 (2022: £27,000). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the Annual Report and Accounts other
than the Group and Company financial statements and our auditor's reports
thereon. Our qualified opinion on the Group financial statements does not
cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the
Group financial statements, or our knowledge obtained in the course of the
audit, or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required
to determine whether this gives rise to a material misstatement in the Group
financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we
are required to report that fact.
As described in the Basis for our qualified opinion section above, the scope
of our audit was limited in several areas as set out in that section. We have
concluded that where the other information refers to any of the balances
covered by the limitation of scope the other information may be materially
misstated for the same reasons.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during
the course of the audit, we are required by the Companies Act 2006 and ISAs
(UK) to report on certain opinions and matters as described below.
Strategic Report and Directors' report Except for the possible effects of the matters described in the Basis for
qualified opinion section of our report, in our opinion, based on the work
undertaken in the course of the audit:
· the information given in the Strategic Report and the
Directors' report for the financial year for which the Group financial
statements are prepared is consistent with the Group financial statements; and
· the Strategic Report and the Directors' report have been
prepared in accordance with applicable legal requirements.
Except for the possible effects of the matters described in the Basis for
qualified opinion section of our report above, in the light of the knowledge
and understanding of the Group and its environment obtained in the course of
the audit, we have not identified material misstatements in the Strategic
Report or the Directors' report.
Matters on which we are required to report by exception Arising from the limitation on the scope of our work as set out in the "Basis
of the qualified opinion" section above, we have not obtained all the
information and explanations that we considered necessary for the purpose of
our audit.
We have also been unable to determine whether certain disclosures of
directors' remuneration specified by law have been made and are complete.
Responsibilities of the Directors
As explained more fully in the Directors' responsibilities statement, the
Directors are responsible for the preparation of the Group financial
statements and for being satisfied that they give a true and fair view, and
for such internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Group financial statements, the Directors are responsible for
assessing the Group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the Group financial statements
Our objectives are to obtain reasonable assurance about whether the Group
financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these Group financial statements.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· we gained an understanding of the legal and regulatory
framework applicable to the Group and the industry in which it operates,
through discussion with management and the Audit Committee and our knowledge
of the industry. We focused on significant laws and regulations that could
give rise to a material misstatement in the Group financial statements,
including, but not limited to, the Companies Act 2006, the AIM Rules, relevant
accounting standards and UK tax legislation; and
· we considered the risks of potential non-compliance with
these laws and regulations in our initial planning and risk assessment work
and communicated these risks to the engagement team to consider in planning
and executing their work.
We considered the fraud risk areas to be management override of controls and
revenue recognition, specifically the mis-statement of revenue for the
financial year, valuation of inventory through using inappropriate assumptions
to determine the provision, completeness of related party transactions which
impact the commercial terms of transactions and an appropriate recognition and
disclosure of provisions in respect of the ongoing legal case on copyright
infringement claims..
The specific work we have undertaken to address the risk of fraud in the Group
financial statements has included:
· considering whether there are undisclosed related party
transactions. Due to the evidence in the Investigation Report of potential
related parties which were not previously disclosed to the Board, and inherent
limitations of our work and the Investigation in this area, we have considered
it necessary to qualify our opinion in this area, as set out in the Basis for
qualified opinion above;
· testing the cut-off of revenue and the validity of revenue
transactions recorded in the records of the Group (see the keys audit matters
section above);
· working with our IT specialists to identify journal entries
with characteristics of audit interest based on our fraud risks assessment and
then assessing whether these were appropriate by obtaining evidence to support
these journals;
· assessing the key assumptions used in the determination of
the inventory provision and challenging these by reference to data on historic
and post year-end sales (see the key audit matters section above).
· considering the appropriateness of alternative performance
measures and testing their calculation and rationale for inclusion as
alternative performance measures;
· challenging management on the ongoing legal case for the
copyright infringement claims and confirming that the accounting treatment of
the Boards best estimate of the provision and accounting thereof is
appropriate and sufficiently disclosed (see the key audit matters section
above):
· considering whether there are potential additional
liabilities arising as a result of matters identified through the
Investigation Report. Due to the inherent limitations in assessing these we
have qualified our audit work in this respect as set out in the Basis for
qualified opinion above; and
· involving our forensic specialists in our audit of the
findings of the Investigation and allocating further senior team members to
the audit team.
Our audit procedures were designed to respond to risks of material
misstatement in the Group financial statements, recognising that the risk of
not detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it. In addition, the extent to which the audit was capable
of detecting irregularities, including fraud was limited by the matter
described in the Basis for qualified opinion section of our report.
A further description of our responsibilities is available on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities
(http://insite.bdo.co.uk/sites/audit/Documents/www.frc.org.uk/auditorsresponsibilities)
. This description forms part of our auditor's report.
Other matter
We have reported separately on the Company financial statements of Revolution
Beauty Group Plc for the year ended 28 February 2023. The opinion in that
report is a qualified opinion and included a material uncertainty related to
going concern.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Sophia Michael (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
31 August 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
38 AUDIT OPINION ON THE COMPANY FINANCIAL STATEMENTS
Independent auditor's report to the members of Revolution Beauty Group Plc
Qualified Opinion on the Company financial statements
In our opinion, except for the possible effects of the matters described in
the Basis for qualified opinion section of our report:
· the financial statements give a true and fair view of the state
of the Parent Company's affairs as at 28 February 2023;
· the financial statements have been properly prepared in
accordance with the United Kingdom Generally Accepted Accounting Practice; and
· the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
We have audited the financial statements of Revolution Beauty Group Plc ("the
Company") for the year ended 28 February 2023 which comprise the Company
Statement of Financial Position, the Company Statement of Changes in Equity,
and the Notes to the Company Financial Statements, including a summary of the
significant accounting policies. The financial reporting framework that has
been applied in the preparation of the Company financial statements is
applicable law and United Kingdom Accounting Standards, including Financial
Reporting Standard 101 'Reduced Disclosure Framework' (United Kingdom
Generally Accepted Accounting Practice).
Basis for qualified opinion
In respect of the year ended 28 February 2022, Revolution Beauty Group Plc had
loans receivable of £142m from subsidiary undertakings at the year-end before
recognising expected credit losses of £97.6m resulting in a carrying value of
£44.2m. Under IFRS 9 - Financial Instruments, entities are required to
recognise expected credit losses for all financial assets held at amortised
cost, including intercompany loans receivable. The recoverability of these
financial assets is reliant on the future cashflows of those subsidiaries and
the Board had accordingly prepared their assessment for recoverability based
on forecast future cash flows which resulted in an expected credit loss of
£97.6m on the intercompany loans receivable as at 28 February 2022.
The forecasts used to derive the expected credit loss should be based on
conditions prevailing as at each balance sheet date. Due to significant
changes to senior management and the executive Board, Management were unable
to provide forecasts that would have existed as at 28 February 2022. We
therefore were unable to obtain sufficient appropriate audit evidence that the
expected credit loss calculations provided in respect of the prior period
income statement and the resultant carrying value as at 28 February 2022, were
prepared on a reasonable and informed basis and therefore were unable to
conclude that the carrying value of the financial asset as at that date was
free from material misstatement. As a result, we did not express an opinion on
the Company financial statements for the year ended 28 February 2022.
Our opinion on the financial statements for the year ended 28 February 2023 is
modified because we have been unable to determine whether there was any
consequential effect of this disclaimer of opinion on the figures included in
the Company Statement of Changes in Equity, and related notes to the financial
statements, in respect of the year ended 28 February 2023.
During the course of our audit for the year ended 28 February 2023, we also
identified a number of additional matters where we were unable to obtain
sufficient appropriate audit evidence and which result in a qualified opinion
on the Company financial statements.
As announced on 23 September 2022, we wrote to the Board on 21 September 2022
setting out a number of serious concerns with respect to certain governance
and control arrangements in place over a number of key financial and business
transactions that took place during the prior year to 28 February 2022 and
which may have had an impact also on the financial statements for the year
ended 28 February 2023. We communicated to the Board of Directors a number of
findings and issues and we recommended that the Board appoint external
advisers to undertake an independent Investigation (the "Investigation"). The
Company announced on 13 January 2023 the completion of that Investigation and
its findings. A number of the matters identified in our letter and by the
investigation have led us to undertake additional audit procedures and have
resulted in qualifications to our opinion. Each matter set out below
represents a separate qualification to our opinion:
Potential liabilities and contingent liabilities
The Investigation report identified a number of matters and actions which
could potentially lead to liabilities and contingent liabilities. Management
have advised us that that they have fully investigated these matters and have
not identified any further specific liabilities that may arise and as such no
further provision or disclosure has been considered necessary by the Board.
However, given the nature of these findings, we have been unable to determine
whether further liabilities or contingent liabilities, such as claims, tax
assessments or irregularities may subsequently materialise and we have
therefore been unable to determine the impact that such further potential
liabilities or losses may have on the financial position of the Company as at
28 February 2023, and/or whether any further contingent liabilities need to be
disclosed in the notes to the Company financial statements.
Related party disclosures
The Investigation identified a number of related party transactions of members
of the Board and management which had not been disclosed to all members of the
Board nor to us as the auditors. Management have set out in note 33 to the
Group financial statements those related party transactions that have been
identified through the Investigation as well as those that have been captured
during the ordinary course of business. We also refer to note 33 to the Group
financial statements where the Board has assessed and disclosed in the Group
financial statements that Key Management is limited to the Board of Directors.
There are a number of limitations in us being able to conclude that related
party transactions and key management disclosures are complete. The key
reasons giving rise to these limitations are as follows:
- the findings from the Investigation as to actions and
involvement of certain individuals in the business and engagement with key
trading partners may suggest that Management may not have identified all
individuals required to be considered as Key Management. However, it has not
been possible for us to be conclusive in this respect;
- certain of the Directors that were members of the Board and
other senior individuals are no longer with the Group and we are therefore
limited as to enquiries that can be made of Management who were present
throughout the year being audited; and
- there was an absence of appropriate processes and records in the
year to capture all related parties and transactions that may have taken place
with those parties.
Should there be further relationships which by their nature would be disclosed
as related parties, then transactions made with those parties may have been
made outside normal commercial terms which may result in revisions being
required to the recording of such transactions. We have therefore been unable
to conclude that the Company financial statements are free from material
misstatement arising from the omission of related party transactions being
fully disclosed and we are unable to determine whether the disclosures in
respect of related party transactions in the Company financial statements are
complete and accurate.
Further, we have been unable to determine whether the disclosures in respect
of Directors' remuneration are complete and accurate.
Our opinion on the financial statements for the year ended 28 February 2023 is
further modified because of the possible effect of all of these matters set
out above on the comparability of the current period's figures and the
corresponding figures. In addition, were any adjustments to be required to any
of the balances impacted, the strategic report and the directors report would
also need to be amended.
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our qualified opinion.
Independence
We are independent of the Group and the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
Material uncertainty related to going concern
We draw attention to the matters set out in note 2 to the Company financial
statements, where the Directors indicate the following:
· under the terms of the amended facility agreement, an Event of
Default arises where a qualified audit report is issued on the consolidated
financial statements. The Lenders previously issued a waiver in respect of
this clause relating to the year ended 28 February 2022 and have issued a
further waiver in respect of this clause relating to the financial statements
for the year ended 28 February 2023. The Lenders have confirmed their present
intention to issue a similar waiver relating to the financial statements for
the year ending 28 February 2024 provided that any qualifications in respect
of that year are substantially the same as those set out in the Basis for
qualified opinion section of our report on the financial statements for the
year ended 28 February 2023. In the event that such a waiver is not
forthcoming the Company would be in breach of the amended facility agreement;
and
· if the Group was unable to achieve its forecasts, due to either a
downturn in operational activity or the impact or timing of settlement of any
financial commitments, known or otherwise, arising from legacy issues, and be
unable to implement mitigating actions within the Group's control on a timely
basis, it may breach covenants or the minimum liquidity threshold set out in
its amended facility agreement.
In respect of any or all of the above breaches of the amended facility
agreement, the Company is reliant on the support of its Lenders to waive any
or all of the above breaches of the facility or the Company would need to seek
alternative sources of funding to repay all amounts due under the amended
facility agreement and provide the Company with sufficient ongoing finance to
continue as a going concern.
As stated in note 2 to the Company financial statements, these events or
conditions, along with other matters as set out in note 2 to the Company
financial statements, indicate that a material uncertainty exists that may
cast significant doubt on the Company's ability to continue as a going
concern. The Company financial statements do not include any adjustments that
may be necessary if the Company is not a going concern. Our opinion is not
modified in respect of this matter.
We considered going concern to be a Key Audit Matter because of the
significance of this issue. The scope of our audit addressed this Key Audit
Matter through performing the following procedures:
· we assessed the Directors' forecasts with the assistance of
business restructuring specialists to test the application and completeness of
assumptions approved by the Directors within the forecasts and checked the
model mechanics including the mathematical accuracy;
· we evaluated the reasonableness of the assumptions and future
plans modelled within the Directors' base case forecasts and the Directors'
severe but plausible downside scenario including whether such plans and
assumptions are consistent when compared to past performance and align with
expectations within the wider retail industry and adjusted for the Group's
specific circumstances;
· we inspected the Company's revised covenant terms included in the
amended facility agreement to gain evidence that the scenarios modelled had
appropriately considered these revised covenant terms;
· we further considered the Directors' assessment of their
anticipated compliance with the non-financial covenants included in the
amended facility agreement to determine whether these result in a material
uncertainty or not;
· we considered the Directors' assessment of the adequacy of
headroom on the financial covenants under both the base case and the severe
but plausible downside scenario;
· we also considered the severe but plausible downside scenario and
the extent to which the likelihood of this scenario was sufficiently low to
support the Directors' conclusion that events and conditions identified result
in material uncertainty in relation to the adoption of the going concern basis
in the preparation of the Company financial statements as opposed to the going
concern basis not being appropriate and the Company financial statements being
required to be prepared on an alternative basis; and
· we considered the adequacy of the disclosures in the Company
financial statements against the requirements of accounting standards and
consistency of the disclosures against the Directors' base case forecasts and
the Directors' severe but plausible downside scenario.
In auditing the Company financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the preparation of
the Company financial statements is appropriate.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
An overview of the scope of our audit
Our audit of the Company financial statements was scoped by obtaining an
understanding of the Company and its environment, including the Company's
system of internal control, and assessing the risks of material misstatement
in the financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there was evidence
of bias by the Directors that may have represented a risk of material
misstatement. We performed a full scope audit on the Company financial
statements.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the Company financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Company
financial statements as a whole, and in forming our qualified opinion thereon,
and we do not provide a separate opinion on these matters.
In addition to the matters included in the Basis for qualified opinion and the
Material uncertainty related to going concern sections above, we determined
the matter described below to be an additional key audit matter to be
communicated in our report. This is not a complete list of all risks
identified by our audit.
Key audit matter How the scope of our audit addressed the key audit matter
Revolution Beauty Group Plc (Parent Company) Loans Receivable from Revolution Beauty Group Plc has Loans receivable of £152m from subsidiary We assessed the accuracy of the forecast models used to determine anticipated
subsidiaries undertakings as at 28th February 2023 before recognizing expected credit future cash flows in the Directors' recoverability assessment. To do this we
losses. challenged management on the underlying assumptions, including the growth
rates applied to future months and whether such plans align with expectations
within the wider retail industry as adjusted for the Group's specific
£14.5m (2022: £44.2m) carrying value of parent company loan receivable as at
circumstances.
28(th) February 2023 after recognizing expected credit loss of £39.9m (2022: In the absence of contractual agreements between the parties these loans are
97.6). treated as loans payable on demand by the subsidiary undertakings with 0%
effective interest rate.
Management prepared three different scenarios and weighted the probable
outcome of each scenario. We assessed Management's expectations applied to
Note 2 of the company financial statements sets out the accounting policy for
each scenario to consider how actual results that may differ from forecast
initial recognition and subsequent assessment of expected credit losses on the IFRS 9 requires entities to recognise expected credit losses for all financial results could impact the asset's carrying value. We assessed whether the
above financial assets. assets held at amortised cost, including intercompany loans from the disclosures in the financial statements detail the key judgements within the
perspective of the lender. The recoverability of these financial assets is recoverability assessment and sources of estimation uncertainty
reliant on the future cashflows of those subsidiaries and the Board of
Directors have accordingly prepared their assessment for recoverability based
on forecast future cash flows for the period out to the end of the banking
facility term which is October 2024. These forecasts have resulted in an We challenged management on their ability to generate reasonable cash flow
expected credit loss of £39.9m on the intercompany loans receivable as at forecasts in line with the circumstances prevailing as of 28(th) Feb 2023 by
28(th) February 2023. performing a comparison to performance in recent months compared to previous
cashflows set and we also considered the material uncertainties that are
inherent in the performance of the business, particularly at 28(th) February
2023.
The Directors are required to present disclosures in a manner that helps users
of financial statements to understand the judgements that directors make about
the future and about other sources of estimation uncertainty. Due to the
degree of estimation uncertainty inherent in this assessment this was We reviewed the Company financial statements to assess whether the disclosures
considered to be a key audit matter. in the Company financial statements appropriately reflect the key judgements
within the expected credit loss calculation and sources of estimation
uncertainty.
Key observations:
We are satisfied that the judgements made by management in the determination
of expected credit loss on intercompany receivable are reasonable.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
Company financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the Company financial statements as a whole.
Based on our professional judgement, we determined materiality for the Company
financial statements as a whole and performance materiality as follows:
2023 2022
Materiality £651,000 £630,000
Basis for determining materiality 5% of Loss before tax 1% of Total assets
Rationale for the benchmark applied For our 2023 audit the benchmark used was the loss before tax which was a
change from the 2022 audit when Total Assets was used. In FY22 the
inter-company receivable represented a majority of the Total Assets and we
concluded that it was the appropriate benchmark to determine materiality last
year, but in FY23, the impairment of the inter-company receivable and the
significant costs incurred relating to the Investigation led us to conclude
that loss before tax was the most appropriate benchmark to determine
materiality this year.
Performance materiality £358,000 £378,000
Basis for determining performance materiality 60% of overall materiality.
We considered a number of factors including the expected level of known and
likely misstatements, our knowledge of the Company's internal controls and
management's attitude towards proposed adjustments.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £19,530 (2022: £18,900). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the Annual Report and Accounts other
than the Group and Company financial statements and our auditor's reports
thereon. Our qualified opinion on the Company financial statements does not
cover the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance conclusion
thereon. Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the
Company financial statements or our knowledge obtained in the course of the
audit, or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required
to determine whether this gives rise to a material misstatement in the Company
financial statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we
are required to report that fact.
As described in the Basis for our qualified opinion section above, the scope
of our audit for the year ended 28 February 2023 was limited in several areas
as set out in that section. We have concluded that where the other information
refers to any of the balances covered by the limitation of scope the other
information may be materially misstated for the same reasons.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during
the course of the audit, we are required by the Companies Act 2006 and ISAs
(UK) to report on certain opinions and matters as described below.
Strategic Report and Directors' report Except for the possible effects of the matters described in the Basis for
qualified opinion section of our report, in our opinion, based on the work
undertaken in the course of the audit:
· the information given in the Strategic Report and the Directors'
report for the financial year for which the Company financial statements are
prepared is consistent with the Company financial statements; and
· the Strategic Report and the Directors' report have been prepared
in accordance with applicable legal requirements.
Except for the possible effects of the matters described in the Basis for
qualified opinion section of our report above, in the light of the knowledge
and understanding of the Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the Strategic
Report or the Directors' report.
Matters on which we are required to report by exception Arising from the limitation on the scope of our work as set out in the "Basis
of the qualified opinion" section above:
· we have not obtained all the information and explanations that we
considered necessary for the purpose of our audit;
· we were unable to determine whether adequate accounting records
have been kept; and
· we were unable to determine whether certain disclosures of
directors' remuneration specified by law have been made and are complete.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· returns adequate for our audit have not been received from
branches not visited by us; or
· the Company financial statements are not in agreement with the
accounting records and returns.
Responsibilities of Directors
As explained more fully in the Statement of Directors' Responsibilities in
respect of the Annual Report and Accounts, the Directors are responsible for
the preparation of the Company financial statements and for being satisfied
that they give a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the Company financial statements, the Directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the Company
financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor's report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these Company financial statements.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· we gained an understanding of the legal and regulatory framework
applicable to the Company and the industry in which it operates, through
discussion with management and the Audit Committee and our knowledge of the
industry. We focused on significant laws and regulations that could give rise
to a material misstatement in the Company financial statements, including, but
not limited to, the Companies Act 2006, the AIM Rules, relevant accounting
standards and UK tax legislation;
· we considered the risks of potential non-compliance with these
laws and regulations in our initial planning and risk assessment work and
communicated these risks to the engagement team to consider in planning and
executing their work; and
· following the identification of relevant findings and concerns
from our audit work, and the subsequent investigation by the Investigation
Committee, we re-considered our planning and risk assessment and identified
potential additional fraud risks.
We considered the fraud risk areas of the Company to be management override of
controls, completeness of related party transactions which impact the
commercial terms of transactions and the existence and valuation of loans
receivable from subsidiaries.
The specific work we have undertaken to address the risk of fraud in the
Company financial statements has included:
· considering whether there are undisclosed related party
transactions. Due to the evidence in the Investigation Report of potential
related parties which were not previously disclosed to the Board, and inherent
limitations of our work and the investigation in this area, we have considered
it necessary to qualify our opinion in this area, as set out in the Basis for
qualified opinion above;
· working with our IT specialists to identify journal entries with
characteristics of audit interest based on our fraud risks assessment and then
assessing whether these were appropriate by obtaining evidence to support
these journals;
· challenging assumptions and judgements made by Management in
their significant accounting estimates and judgements in other areas also,
including in particular, in relation to the impairment assessment for the
carrying value of the expected credit loss on the company receivable from
subsidiaries;
· considering whether there are potential additional liabilities
arising as a result of matters identified through the Investigation Report.
Due to the inherent limitations in assessing these we have qualified our audit
work in this respect as set out in the Basis for qualified opinion above; and
· involving our forensic specialists in our audit of the findings
of the Investigation and allocating further senior team members to the audit
team.
Our audit procedures were designed to respond to risks of material
misstatement in the Company financial statements, recognising that the risk of
not detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the Company financial statements, the less
likely we are to become aware of it. In addition, the extent to which the
audit was capable of detecting irregularities, including fraud was limited by
the matters described in the Basis for qualified opinion section of our
report.
A further description of our responsibilities is available on the Financial
Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities
(https://www.frc.org.uk/auditorsresponsibilities) . This description forms
part of our auditor's report.
Other matter
We have reported separately on the Group financial statements of Revolution
Beauty Group Plc for the year ended 28 February 2023. The opinion in that
report is qualified and included a material uncertainty related to going
concern.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Sophia Michael (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
31 August 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
1 These are areas which have been subject to a full scope audit by the group
engagement team
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