REG - Revolution Beauty Gp - Interim Results
14/11/2023 07:15
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RNS Number : 3021T Revolution Beauty Group PLC 14 November 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")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2023
H1 24 revenue up 20%, driven by volume growth across all regions and softer
prior year comparatives.
Strong improvement in EBITDA, up £14.3m, due to higher sales volumes, gross
margins and cost reduction initiatives.
New CEO, CMO and COO appointed, bringing considerable industry experience.
Upgrade to FY24 full year EBITDA guidance.
Revolution Beauty Group plc (AIM: REVB), the multi-channel mass beauty
innovator, today announces its unaudited Half Year Results for the six months
ended 31 August 2023 ('H1 24').
Financial Highlights
Group results
(Unaudited) H1 24 H1 23 Change Change
£'M £'M £'M %
Revenue 90.4 75.3 15.1 20%
Gross Profit 44.7 31.2 13.5 43%
Gross Margin 49.4% 41.4% 8.0pt 19%
Adjusted EBITDA* 6.4 (7.9) 14.3 181%
Adjusted EBITDA % 7.1% (10.5%) 17.6% n/a
Operating (Loss) (0.5) (12.5) 12.0 96%
Profit/(Loss) before tax 0.4 (13.7) 14.1 n/a
Gross inventory 58.6 97.5 (38.9) (40%)
Cash 8.0 11.8 (3.8) (32%)
Net (debt) (23.8) (15.9) (7.9) (50%)
*Adjusted EBITDA is an alternative performance measure used by management to
gauge the underlying performance of the business, adjusting for certain
non-cash, non-recurring and normalising items that are not considered to form
part of underlying performance (note 8).
· Group revenue increased by 20% driven by growth across all
regions and softer H1 23 comparatives.
· Gross margin improved to 49%, with significant improvement in
freight rates, improving stock control and more focused New Product
Development ('NPD').
· Adjusted EBITDA of £6.4m, increased by £14.3m due to sales
performance, improved gross margin and cost control.
· Operating loss decreased to £0.5m (H1 23: £12.5m loss), due to
improved performance and a lower level of exceptional costs.
o £2.3m gain on the revaluation of deferred consideration relating to the
acquisition of Medichem in October 2021. The amendment to the terms of the
payment of the deferred consideration was announced on 7 March 2023 (see note
6).
· Gross inventory reduced by £38.9m due to improved controls over
product assortment, alongside a discontinued stock clearance programme.
· As at 10 November 2023, cash balances were £12.3m, with net debt
of £19.7m.
o Cash outflow from operations in H123 was £0.4m, including £4.2m of
exceptional legal and professional costs and £8.2m of payments principally
relating to legacy supplier debts.
o Net bank debt was £23.5m at the end of H1 23, with £32.0m drawn on the RCF
and £8.0m of cash.
o Significant headroom on covenants remains.
Operational Highlights
· Strengthened and refreshed Board and management team.
o Lauren Brindley appointed Group Chief Executive Officer, bringing
significant leadership expertise across retail, beauty, and brands.
o Alison Hollingsworth appointed Chief Marketing Officer, bringing beauty
brand development and marketing expertise.
o Steve Vanoli appointed Chief Operating Officer, bringing merchandising and
operational experience in the retail sector.
o After engagement with major shareholders, four new Non-Executive Directors
have been appointed, bringing relevant and complementary experience to the
Board.
· Increased number of doors worldwide through new retail
relationships, expansion of existing relationships and entry into new
territories.
o US store revenue grew 8% due to a new partnership with Walmart.
o UK stores revenue grew 13% with strong performances across Boots and
Superdrug.
o Rest of the world stores revenue up 58%, with growth primarily due to weak
H1 23 comparative revenue in Germany and Turkey.
o Distributer revenue grew 65% primarily due to weak prior year comparatives
related to overstocking, and new distribution in Middle East.
o Digital wholesale revenue grew 12% reflecting recovery from previous
overstocking issues in H1 23. Own web sales declined 18% following strategic
reallocation of marketing investment.
· Total D2C contactable database increased 16% year-on-year to 1.98
million; total customer base increased 3%, with returning customers increasing
by 6%.
· The Group continued to focus on its distinctive social media
presence and successfully leveraged its existing Revolution branded channels,
delivering global social channel follower growth of 6% year on year with an
increase in engagement rate across all cosmetics channels of 27% year on year.
Outlook
· The strength of the Revolution brand and the beauty markets in
which we operate underpins our global growth ambitions.
· The Group has sufficient cash resources and covenant headroom to
finance its current organic growth plans.
· Revolution Beauty has made a good start to the second half of FY
24, with revenue and adjusted EBITDA in line with internal forecasts.
· While the crucial Christmas trading period is still to come, the
Group is upgrading its guidance for the full year and now expects
adjusted EBITDA to be not less than double-digit millions for FY 24 (an
increase from the previously guided high single digit millions). The Group
continues to expect revenue growth to be in the high single digits in FY 24.
· New CEO to present three-year strategic plan for the Group at a
capital markets event early in the new year.
Lauren Brindley, Group Chief Executive Officer, said:
"Since joining Revolution Beauty, I have seen first-hand the strength of the
Revolution brand, the brilliance of my colleagues and the enduring relevance
of our product offer. It is these aspects which have supported the business
over the past 18 months, and which I am confident will unlock future
opportunities.
"With improved internal controls and the right leadership in place with
clearer roles and responsibilities, momentum has built across the business in
the first half of the year. Our strengthened financial performance and the
return to positive EBITDA represents a significant milestone in the next phase
of this business, while new retail partnerships in the US and strengthened
retail partnerships elsewhere around the world are representative of our
operational progress.
"Looking ahead, I believe there are significant and compelling opportunities
for Revolution Beauty within a large and attractive market. While there is
still lots to do, we are on the right trajectory, and I am developing a
strategic plan with our new executive leadership team to ensure we are
best-placed to deliver future growth. I look forward to sharing this vision
and more detail on our plans early in the new year."
Presentation
A recorded management presentation from Lauren Brindley, CEO and Elizabeth
Lake, CFO is available here:
https://stream.brrmedia.co.uk/broadcast/65524fd57cc5473d88694591
(https://stream.brrmedia.co.uk/broadcast/65524fd57cc5473d88694591)
For further information please contact:
Investor Relations Investor.Relations@revolutionbeautyplc.com
Lauren Brindley, CEO
Elizabeth Lake, CFO
Joint Corporate Brokers
Zeus (NOMAD): Nick Cowles /Jamie Peel /Jordan Warburton Tel: +44 (0) 161 831 1512
Liberum: Dru Danford / Edward Thomas / John More / 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.17,500 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 411 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.
Chief Executive Officer's Review
This review follows the very recent publication of our FY 23 Annual Report and
Accounts on 31 August 2023, and the period under review in this report, H1 24,
was before the start of my tenure at Revolution Beauty. However, I am pleased
with the financial performance and the operational progress that these results
demonstrate. These are figures which underline the resilience and
attractiveness of the Revolution brand during a period of well-publicised
upheaval for the Group. In addition, the progress achieved during the period
represents a step-forward for the Group, strengthening our position as we look
towards sustainable future growth.
Since joining the Group in September 2023, I have been impressed by the
strength of the brand, the engagement we enjoy with our global customer base,
the quality of our retail partner relationships, the pipeline of new product
and the passion of our employees.
During my time with the Group, I have been getting to know the business across
all the markets in which we operate and focused on developing a growth
strategy, which will be anchored in a three-year plan. This is being created
in tandem with the wider leadership team and we will provide more detail on
this in early 2024.
It is clear there are significant opportunities for growth and for operating
excellence across Revolution Beauty, but there is work to be done. We have
already taken action to ensure that we can begin to deliver on our potential.
This has included: optimising our brand and product portfolio, with a clearer
focus on our core products and a reduction in ongoing replenishable SKU count
by c.50%; putting in place a more effective operating model, under a new Chief
Operating Officer, and taking steps to improve our global supply chain;
refreshing the Executive Team, so that we have the right leadership team in
place with clearer roles and responsibilities; and evaluating cost saving
initiatives which will help to increase profitability and cash generation.
While the crucial Christmas trading period is still to come, the Group is
upgrading its guidance for the full year and now expects adjusted EBITDA to
be not less than double-digit millions for FY 24 (an increase from the
previously guided high single digit millions). The Group continues to expect
revenue growth to be in the high single digits in FY 24.
As we look further ahead, we will provide a comprehensive update on the future
opportunities we see for Revolution Beauty to all our stakeholders in early
2024.
Financial Review
As previously announced the Directors have determined that a provision which
was previously disclosed as a contingent liability should have been recognised
as a provision during the period ended 31 August 2022. The impact of the
correction is set out in note 3.
Revenue
Revenue for H1 24 was £90.4m, up 20% on H1 23. This growth rate is ahead of
the global beauty market and is driven by strong performances in retail
globally and the distributer revenue channel. Year on year growth in H2 24 is
expected to be lower due to stronger prior year comparatives in H2 23.
Global store group revenue contributed just over half of the growth, with UK
store revenue increasing 12% year-on-year through strong sales to Superdrug
and Boots, and US store group performance benefitting from new distribution in
Walmart.
The growth in distributer revenue accounted for just under half of overall
Group revenue growth in the period. This was achieved through extended
distribution in the Middle East coupled with stronger performances across a
number of distributer customers where the prior year comparisons were
particularly weak. International store groups also performed strongly
contributing c.25% of the growth, with Turkey and Germany performing
particularly well following overstocking in H1 2023.
Digital wholesale revenue grew 12% reflecting recovery from previous
overstocking issues in H1 23. Own web sales declined 18% following strategic
reallocation of marketing investment.
Gross Margin
Gross margin in the period was 49.4%, significantly ahead of the 41.4%
achieved in H1 23.
Approximately half of this increase is due to the reduction in freight rates
which has reduced landed costs significantly. Freight rates are now back to
pre-pandemic levels.
The gross margin further improved as a result of changes in the value of the
stock provision. Approximately 2 percentage points of this improvement is
attributable to a more focused approach to new product development, designed
to improve quality, relevance, and customer satisfaction as well as stock
management and profitability. A further 1 percentage point is due to achieving
a selling price above the provisioned cost of slow moving and obsolete stock.
Due to the timing of stock flows in and out of the Group it is anticipated
that some of the gains resulting from the release of stock provision will
reverse in H2 24 and have a lower positive impact on margin by year end. At
the same time the Group remains focussed on clearing old stock and improving
buying patterns. Going forward, it is anticipated that margin increases will
be driven by price and product mix.
Adjusted EBITDA and Operating Loss
The adjusted EBITDA for the period was £6.4m (H1 23 EBITDA loss £7.9m), an
improvement of £14.3m.
The increase is due to revenue and margin growth, coupled with reductions in
year-on-year marketing costs, particularly in stand updates, and improvements
in direct costs associated with distribution.
Operating loss was £0.5m, against a loss of £12.5m in H1 23. There were
material exceptional restructuring and legal and professional costs in the
statement of comprehensive income (c.£2.8m, see note 8). In addition, there
was an increase in share-based payment charges as a result of the grant of
relisting awards as announced on 28 June with the Group's readmission to AIM.
Reported profit after tax was £0.3m against a loss of £13.8m in H1 23. The
finance income arises primarily from the revaluation of the deferred
consideration due from the acquisition of Medichem, following the Deed of
Variation signed on 6 March 2023 amending the timing of the payments. This
resulted in a financial gain which is reported in finance income.
Cash
We ended the period with a cash balance of £8.0m and gross borrowing amounted
to £32.0m.
Whilst there was an operating cash outflow of £0.4m in the period, the Group
has paid material legal and professional exceptional costs (c.£4.2m) and has
paid down material amounts of legacy stock supplier debts (c.£8.2m). A
payment plan has been agreed with these stock suppliers to ensure the
situation is not repeated in the future. Going forward the level of
exceptional costs is expected to materially reduce, and the outflow in working
capital is also expected to reduce as a result of actions that have been taken
to control stock management and cash collection.
The Group has sufficient cash resources and covenant headroom to finance its
current organic growth plans.
Regulator action
The Company informed shareholders on 21 July 2023 that the Financial Conduct
Authority 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 continues to cooperate fully with
the FCA and will provide updates as necessary.
REVOLUTION BEAUTY GROUP PLC
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF-YEAR ENDED 31 AUGUST 2023
6 months ended 31 August 2023 6 months ended 31 August Year ended 28 February 2023
Note 2022 As restated
Unaudited Unaudited
£'000 £'000 £'000
Revenue 5 90,399 75,273 187,842
Cost of sales (45,733) (44,088) (111,958)
Gross profit 44,666 31,185 75,884
Marketing and distribution costs (22,845) (26,964) (57,469)
Administrative expenses
- General administrative expenses (22,349) (16,682) (42,161)
- Impairment losses on financial assets - - (204)
- Impairment of property, plant and equipment - - (2,177)
- Impairment of goodwill - - (3,388)
- Provision for legal cases - - (1,066)
Total administrative expenses (22,349) (16,682) (48,996)
Operating loss (528) (12,461) (30,581)
Finance income 6 2,358 - 1
Finance costs (1,464) (1,192) (3,294)
Profit/(Loss) before taxation 366 (13,653) (33,874)
Income tax credit/(expense) (21) (111) 228
Profit/(Loss) for the year/period 345 (13,764) (33,646)
Other comprehensive expense
for the period, net of tax
Exchange differences 829 (1,433) (223)
Total comprehensive income/(loss) for the period 1,174 (15,197) (33,869)
Earnings per share (p) 7 0.0 (4.4) (10.9)
Diluted earnings per share (p) 7 0.0 (4.4) (10.9)
Adjusted EBITDA 8 6,438 (7,867) (7,475)
The total comprehensive loss for the period is entirely attributable to the
owners of the parent company.
The above consolidated statement of comprehensive income should be read in
conjunction with the accompanying notes.
Refer to Note 3 for detailed information on the correction of prior period
errors.
REVOLUTION BEAUTY GROUP PLC
(Company Number: 11666025)
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 31 AUGUST 2023
31 August 2023 31 August 28 February 2023
Notes 2022
As restated
Unaudited Unaudited
ASSETS £'000 £'000 £'000
Non-current assets
Intangible assets 5,116 9,956 5,728
Property, plant and equipment 7,399 8,945 7,928
Right-of-use assets 1,501 3,602 2,310
Reimbursement asset 3 - 3,586 -
14,016 26,089 15,966
Current assets
Inventories 10 42,320 55,200 47,606
Trade and other receivables 11 43,370 53,144 52,708
Corporation Tax Receivable 340 - -
Reimbursement asset 3 4,079 - 4,079
Cash and cash equivalents 8,006 11,754 11,044
Total current assets 98,115 120,098 115,437
Current liabilities
Lease liabilities (1,204) (2,046) (2,060)
Trade and other payables 12 (65,889) (83,062) (82,707)
Deferred consideration 6 - (5,083) (10,910)
Provisions 3 (6,815) - (7,060)
Borrowings 9 (31,807) (27,637) (31,721)
Corporation tax payable - (311) (28)
Total current liabilities (105,715) (118,139) (134,486)
Net current assets (7,600) 1,959 (19,049)
Total assets less current liabilities 6,416 28,048 (3,083)
Non-current liabilities
Lease liabilities (708) (1,974) (954)
Deferred consideration 6 (16,137) (13,778) (9,098)
Deferred tax liabilities 91 (28) `-
Provisions 3 - (6,151) -
Total non-current liabilities (16,754) (21,931) (10,052)
Net assets (10,338) 6,117 (13,135)
Equity
Share capital 3,183 3,097 3,097
Share premium 103,487 103,487 103,487
Warrant reserve 7,239 7,239 7,239
Merger reserve 14,860 14,860 14,860
Translation reserve 1,275 (764) 446
Retained earnings (140,382) (121,802) (142,264)
Total equity (10,338) 6,117 (13,135)
Refer to Note 3 for detailed information on the correction of prior period
errors.
REVOLUTION BEAUTY GROUP PLC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF-YEAR ENDED 31 AUGUST 2023
Share capital Merger reserve Translation reserve Retained earnings Total
equity
Share Warrant reserve
Premium
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 March 2022 - as restated 3,097 103,487 7,239 14,860 669 (108,921) 20,431
Loss for the period - as restated - - - - - (13,764) (13,764)
Other comprehensive income net of taxation:
Foreign operations - foreign currency translation differences - - - - (1,433) - (1,433)
Total comprehensive loss for the period - - - - (1,433) (13,764) (15,197)
Transactions with owners in their capacity as owners:
Share-based payments - - - - - 883 883
Total transactions with owners - - - - - 883 883
Balance at 31 August 2022 - as restated 3,097 103,487 7,239 14,860 (764) (121,802) 6,117
Refer to Note 3 for detailed information on the correction of prior period
errors.
REVOLUTION BEAUTY GROUP PLC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF-YEAR ENDED 31 AUGUST 2023
Share capital Merger reserve Translation reserve Retained earnings Total
equity
Share Warrant reserve
premium
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 March 2023 3,097 103,487 7,239 14,860 446 (142,264) (13,135)
Profit for the period - - - - - 345 345
Other comprehensive expense net of taxation:
Foreign operations - foreign currency translation differences - - - - 829 - 829
Total comprehensive loss for the period - - - - 829 345 1,174
Transactions with owners in their capacity as owners:
Issue of shares, net of transaction costs 86 - - - - - 86
Share-based payments - - - - - 1,537 1,537
Total transactions with owners 86 - - - - 1,537 1,623
Balance at 31 August 2023 3,183 103,487 7,239 14,860 1,275 (140,382) (10,338)
The above consolidated statement of changes in equity should be read in
conjunction with the accompanying notes
REVOLUTION BEAUTY GROUP PLC
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE HALF-YEAR ENDED 31 AUGUST 2023
6 months ended 31 August 2023 6 months ended 31 August Year ended 28 February 2023
2022
As restated
Unaudited Unaudited
£'000 £'000 £'000
Cash flows from operating activities
Loss for the financial period 345 (13,764) (33,646)
Adjustments for:
Taxation 21 111 (228)
Finance costs 1,464 1,192 3,294
Finance income (2,358) - (1)
Depreciation of property, plant and equipment 2,100 2,638 8,369
Impairment of property, plant and equipment - - 2,177
Amortisation of intangible assets 462 787 1,933
Impairment of intangible assets - - 3,388
Loss/(profit) on disposal of property, plant and equipment 5 197 62
Equity settled share-based payment expense 1,537 884 303
Provisions movement (245) 336 1,565
Movements in working capital:
Movement in inventories 5,285 (10,517) (2,923)
Movement in receivables 9,339 1,638 1,814
Movement in payables (18,346) 12,060 11,934
Cash used in operating activities (391) (4,438) (1,959)
Income tax refunded/(paid) (516) 1,564 1,898
Net cash used in operating activities (907) (2,874) (61)
Cash flows from investing activities
Purchase of intangible assets (128) (449) (1,018)
Purchase of property, plant and equipment (896) (2,767) (7,496)
Finance income - - 1
Net cash used in investing activities (1,024) (3,216) (8,513)
Cash flows from financing activities
Interest paid (1,199) (873) (1,175)
Proceeds from borrowings - 4,000 8,000
Payment of lease liabilities (1,102) (1,066) (2,127)
Net cash generated from financing activities (2,301) 2,061 4,698
Cash and cash equivalents
Net (decrease) in the period (4,232) (4,029) (3,876)
Cash and cash equivalents at the beginning of the period 11,044 15,619 15,619
Effects of exchange rate changes 1,194 164 (699)
Cash and cash equivalents at the end of the period 8,006 11,754 11,044
REVOLUTION BEAUTY GROUP PLC
NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 31 AUGUST 2023
1. General information
Revolution Beauty Group Plc ("the Company") is a company limited by shares and
is registered and incorporated in England and Wales. 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.
The Board of Directors approved this unaudited interim financial information
on 13 November 2023.
2. Significant accounting policies
These consolidated condensed financial statements for the interim half-year
reporting period ended 31 August 2023 have been prepared in accordance with
IAS 34 'Interim Financial Reporting'. These interim financial statements do
not constitute full financial statements and do not include all the notes of
the type normally included in annual financial statements. Accordingly, these
financial statements are to be read in conjunction with the annual report for
the year ended 28 February 2023. The FY 23 numbers included in this report are
not statutory accounts for that year (but have been derived from the statutory
accounts). The FY 23 statutory accounts contain a qualified audit report which
can be found on the Group's website
https://revolutionbeautyplc.com/results-and-reports/
(https://revolutionbeautyplc.com/results-and-reports/) .
The annual financial statements of the Group are prepared in accordance with
UK-adopted International Accounting Standards ("IFRSs"). The Group has applied
the same accounting policies and methods of computation in its interim
consolidated financial statements as in its 28 February 2023 annual financial
statements. There are no new and amended standards and/or interpretations that
will apply for the first time in the next annual financial statements that are
expected to have a material impact on the Group.
Tax charged within the 6 months ended 31 August 2023 has been calculated by
applying the effective rate of tax which is expected to apply to the Group for
the year ending 28 February 2024 as required by IAS 34.
The financial statements have been prepared on the historical cost basis
except for, where disclosed in the accounting policies, certain financial
instruments that are measured at fair value. The financial statements are
prepared in Sterling, which is the functional currency and presentational
currency of the parent Company and primary operating subsidiary. Monetary
amounts in these financial statements are rounded to the nearest £1,000.
Going concern
As reported in note 2 of the FY 23 Annual Report and Accounts, the Directors
have completed a full assessment of forecast and banking arrangements to
consider going concern.
The Group's revenue growth, margin improvement and return to positive adjusted
EBITDA in H1 all represent key improvement in the Group's financial stability
since the previous assessment. Steps taken with regard to the deferral and
renegotiation of the Medichem consideration and the amendment of the Group's
lending arrangements and reductions in payables 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 challenges the business has faced
since its listing on AIM and the underperformance of sales versus previous
expectations, as well as the uncertainty in the wider economy. The strength of
the Group's brand and recent reductions in expenditure and a more refined
stock purchasing process have enable continued growth through a challenging
period. The Directors are working to build on this period of stabilisation
with a renewed strategy that keeps the Group on a stable financial footing on
a long term basis.
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 to reduce controllable 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 the FY 23
financial statements. Notwithstanding that the audit for the year ending 28
February 2024 has not yet commenced, the Directors anticipate that certain
qualifications will be carried into the Auditors opinion on the FY2 4
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.
The Group's Revolving Credit Facility matures in October 2024. The Group is
currently in discussion with its banking partners to extend the facility on
terms consistent with the existing agreement for a period of 12 months beyond
the current maturity. The board is confident that the discussion will result
in an extension of the facility. Whilst the board has confidence in the
process and lenders remain supportive, there is uncertainty in the extension
of the current facility until a further agreement is signed. Were an agreement
for an extension not to be reached the Group would need to find additional
financing upon maturity of the RCF, the board is confident that this would be
achievable.
These factors, in conjunction with the sensitivity identified in the severe
but plausible downside scenario with respect to the recently agreed 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.
3. Correction of prior period 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 period ended 31 August 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 £4.9m should have been
provided for at 31 August 2022.
In addition, it has been determined that reimbursement assets of £3.6m should
have been recognised in respect of insurances and reimbursements the Group
will receive when a settlement is ultimately paid. The reimbursement assets
recognised relate to an insurance policy and indemnities. £2.3m 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 for the period ended 31 August
2022 is a net charge in respect of the legal case of £336k. In addition,
£0.2m in legal costs were settled on behalf of the Group by its insurance
during the period ended 31 August 2022. Deferred tax assets totalling £432k
should have been recognised as a result, with a corresponding credit in the
Statement of Profit or Loss.
Impact on the Statement of Profit or Loss and Other Comprehensive Income
6 month period ended 6 month period ended
31 August 2022 31 August 2022
Extract
Reported Adjustments Restated
£'000 £'000 £'000
Administrative expenses (16,346) (336) (16,682)
Loss before taxation (13,317) (336) (13,653)
Loss for the period (13,428) (336) (13,764)
Total comprehensive loss for the period (14,861) (336) (15,197)
Earnings per share (p) (4.3) (0.1) (4.4)
Diluted earnings per share (p) (4.3) (0.1) (4.4)
Adjusted EBITDA (7,531) (336) (7,867)
Impact on the Statement of Financial Position
31 August 2022 31 August 2022
Extract
Reported Adjustments Restated
£'000 £'000 £'000
Reimbursement Asset - 3,586 3,586
Provisions (non-current) (1,210) (4,941) (6,151)
Deferred tax liabilities (460) 432 (28)
Net assets/(liabilities) 7,040 (923) 6,117
Retained earnings (120,879) (923) (121,802)
Total equity 7,040 (923) 6,117
4. 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.
5. Revenue
An analysis of the Group's revenue is as follows: 6 month period ended 31 August 2023 6 month period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited
£'000 £'000 £'000
Revenue analysed by class of business
Digital 18,098 18,486 51,008
Store Groups 72,301 56,787 136,834
90,399 75,273 187,842
Revenue analysed by geographical location
United Kingdom 31,397 28,231 66,974
United States of America 23,619 22,704 51,961
Rest of World 35,383 24,338 68,907
90,399 75,273 187,842
6. 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 7 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 Investments Ltd)
· £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
The modification was deemed by management to be substantial. This was
determined by recalculating the amortised cost of the modified deferred
consideration by discounting the modified contractual cash flows using the
original effective interest rate and resulting in a movement in amortised cost
of greater than 10% of the original. The variance between the fair value of
the modification and the amortised cost of the original deferred consideration
resulted in a net gain of £2,370k, which has been recognised in the profit or
loss as finance income at the date of the modification.
7. 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 common
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.
6 month period ended 31 August 2023 6 month period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited
Loss attributable to shareholders (£'000) 345 (13,764) (33,646)
Weighted average number of shares 311,776,151 309,737,250 309,737,250
Basic earnings per share (p) 0.0 (4.4) (10.9)
Total comprehensive expense attributable to the owners of the company (£'000) 345 (13,764) (33,646)
Weighted average number of shares 311,776,151 309,737,250 309,737,250
Dilutive effect of share options - - -
Diluted earnings per share (p) 0.0 (4.4) (10.9)
Pursuant to IAS 33, options whose exercise price is higher than the value of
the Company's security 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.
8. 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 Group. 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.
6 month period ended 31 August 2023 6 month period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited
£'000 £'000 £'000
Operating loss (528) (12,461) (30,581)
Amortisation of intangible assets 462 787 1,933
Impairment of intangible assets - - 3,388
Depreciation of property, plant and equipment 2,100 2,638 8,369
Impairment of property, plant and equipment - - 2,177
Loss on disposal of asset 5 - 62
Share-based payments 1,640 884 303
Operating exceptional items:
Acquisition costs - 76 262
Restructuring costs 440 209 1,310
Provision for settlement of legal cases - - 1,474
Exceptional legal fees 2,319 - 3,528
Exceptional audit fees - - 300
Adjusted EBITDA 6,438 (7,867) (7,475)
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 £896k (FY
23: £3.5m).
During the period a major shareholder of the Group, boohoo Group Plc
("boohoo"), requisitioned a General Meeting with certain resolutions to be
voted upon, the details of which are available on the Group's website. On 18
July 2023, prior to the General Meeting taking place, the Group announced a
settlement agreement with boohoo. The terms of the settlement included the
resignation of directors Bob Holt and Derek Zissman and the appointment of
Alistair McGeorge, Neil Catto, Rachel Horsefield and Peter Hallet. Included
within exceptional legal fees are £577k of cost associated with legal and
professional support associated with this process.
On 20 June 2023 the Group announced that it had sent a letter of claim to one
of its former directors, the claim alleges that the director breached his
fiduciary, statutory, contractual and/or tortious duties to the Company,
included within exceptional legal fees are £670k associated with advice in
relation to this claim.
During the period the Group settled legal claims in the US totalling £176k.
During the period the Group incurred £440k in restructuring and redundancy
costs. Thes included £211k paid to Bob Holt, the former CEO, £76k of costs
incurred in closing one of the Group's warehouse units and £153k on
restructuring undertaken at Revolutions Beauty Labs, the Group's manufacturing
subsidiary.
9. Borrowings
31 August 2023 31 August 2022 28 February 2023
Unaudited Unaudited
£'000 £'000 £'000
Bank revolving credit facility 31,807 27,637 31,721
31,807 27,637 31,721
Payable within one year 31,807 27,637 31,721
10. Inventories
31 August 2023 31 August 2022 28 February 2023
Unaudited Unaudited
£'000 £'000 £'000
Finished goods and goods for resale 42,320 55,200 47,606
Stock written down/(written back) during period (14,926) 3,510 (5,986)
The total cost of inventories recognised as an expense in cost of sale in the
period was £45,673,000 (Period ended August 2022: £43,984,000, full year
ended February 2023: £111,861,000).
11. Trade and Other Receivables
31 August 2023 31 August 2022 28 February 2023
Unaudited Unaudited
£'000 £'000 £'000
Trade Receivables 40,909 46,016 50,715
Other Receivables 364 2,527 452
Prepayments 2,097 4,601 1,541
43,370 53,144 52,708
12. Trade and Other Payables
31 August 2023 31 August 2022 28 February 2023
Unaudited Unaudited
£'000 £'000 £'000
Trade Payables 38,995 59,295 56,233
Other Taxation and Social Security 1,044 1,467 826
Other Payables 60 503 51
Accruals and Contract Liabilities 25,790 21,797 25,597
65,889 83,062 82,707
13. Contingent Liabilities
In February 2023 the Group terminated an arrangement with its Polish agent.
The agent has submitted a claim for lost commission and costs as a result of
the termination. The Group believes that is has performed its obligation under
the arrangement and that no further commission is payable. The directors have
taken legal advice with regard to this matter and currently believe that it is
not probable that a material liability will arise.
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