REG - Warpaint London PLC - Results for the year ended 31 December 2022
26/04/2023 07:00
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RNS Number : 4456X Warpaint London PLC 26 April 2023
26 April 2023
Warpaint London PLC
("Warpaint", the "Company" or the "Group")
Results for the year ended 31 December 2022
Record sales and significant profitability reflect strong full year
performance; positive start to 2023
Warpaint London plc (AIM: W7L), the specialist supplier of colour cosmetics
and owner of the W7 and Technic brands is pleased to announce its audited
results for the year ended 31 December 2022.
Financial Highlights
· Strong growth in sales to reach a record level for the Group. Significant
profitability and cash generation during the year reflecting the focus on
growing sales of the Group's branded products
· In 2022 Group sales increased by 28% to £64.1 million (2021: £50.0 million)
· UK revenue increased by 9% to £27.6 million (2021: £25.3 million)
· International revenue increased by 48% to £36.5 million (2021:
£24.7 million)
· Gross profit margin increased to 36.4% (2021: 33.8%), despite continued supply
side price inflation
· EBITDA increased 56% to £11.7 million (2021: £7.5 million)
· Adjusted profit from operations of £10.3* million (2021: 7.0* million).
Statutory profit from operations of £8.0 million (2021: £3.8 million)
· Reported profit before tax of £7.7 million (2021: £3.7 million)
· Adjusted earnings per share increased by 44% to 11.2p* (2021: 7.8p*)
· Cash of £5.9 million at 31 December 2022 (31 December 2021: £4.1 million),
with no debt
· Final dividend recommended of 4.5 pence per share (2021: 3.5 pence per share),
bringing the total dividend for the year to 7.1 pence per share (2021: 6.0
pence per share)
*Adjusted numbers are closer to the underlying cash flow performance of the
business which is regularly monitored and measured by management, the
adjustments made to the statutory numbers are set out in the table below
Operational Highlights
· European sales increased by 56% to £28.1 million (2021: £18.0 million),
making this the largest sales region for the Group
· Successful launch in Boots of 45 W7 products in an initial 80 stores
· USA sales, in sterling terms, increased by 79% in 2022 to £5.3 million (2021:
£3.0 million) and grew by 55% in US dollar terms
· Direct online sales continue to accelerate, with an increase of 106% in Group
e-commerce sales in 2022 to account for 4.3% of Group sales (2021: 2.7% of
Group sales)
Post-Period End Highlights
· Continued strong trading in Q1 2023, with unaudited Group sales for
the three months to 31 March 2023 of £18.5 million an increase of 40% on the
same period in 2022 (3 months to 31 March 2022: £13.2 million)
· Margins in Q1 were robust and better than those achieved in the full
year 2022
· Q1 2023 e-commerce sales of £0.83m, 188% ahead of the same period in
2022 (Q1 2022 £0.29m)
· Record cash in bank of £8.6 million as at 31 March 2023 and no debt
· Continuing brand sales momentum being seen in 2023:
o In April 2023, a range of 158 Technic products will be launched in an
initial four Asda superstores on a trial basis with a view to a wider
inclusion in Asda's cosmetic range review in Q4 2023
o After an initial trial of W7 product in 20 New Look stores in the UK, the
Group is now rolling out W7 product to a further 200 New Look stores
o Significant further expansion in the US with H-E-B stores, CVS BIRL
stores, where initial sales have been ahead of expectations, as well as
launching in Sallys and Nordstrom Rack
Commenting, Clive Garston, Chairman, said: "I am very pleased with Warpaint's
strong performance in 2022, which reflects the Group's consistent and focussed
strategy. We have concentrated on increasing our presence in larger retailers
in all our major markets, both through growing sales to existing customers and
entering into new relationships. This strategy of increasing sales to larger
customers and providing products that their customers want is reflected in the
Group's results and provides a strong platform for the future. In addition,
growing our online presence is a prime objective of the Group.
"Trading has continued to be strong in the first quarter of 2023, with the
Group enjoying record first quarter sales. I am optimistic that the strong
performance we have seen in 2022 and into 2023 will continue and that we have
the right offering and strategy in place to continue to deliver profitable
future growth, despite the backdrop of macroeconomic uncertainty."
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 which is part of UK law by virtue of the European
Union (Withdrawal) Act 2018
Enquiries:
Warpaint London c/o IFC
Sam Bazini - Chief Executive Officer
Eoin Macleod - Managing Director
Neil Rodol - Chief Financial Officer
Shore Capital (Nominated Adviser & Broker) 020 7408 4090
Patrick Castle, Daniel Bush - Corporate Advisory
Fiona Conroy - Corporate Broking
IFC Advisory (Financial PR & IR) 020 3934 6630
Tim Metcalfe, Graham Herring, Florence Chandler
Warpaint London plc
Warpaint sells branded cosmetics under the lead brand names of W7 and Technic.
W7 is sold in the UK primarily to retailers and internationally to local
distributors or retail chains. The Technic brand is sold in the UK and
continental Europe with a significant focus on the gifting market, principally
for high street retailers and supermarkets. In addition, Warpaint supplies
own brand white label cosmetics produced for several major high street
retailers. The Group also sells cosmetics using its other brand names of
Man'stuff, Body Collection and Chit Chat.
HEADLINE RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
Statutory Results Year ended 31 Dec 2022 Year ended 31 Dec 2021
Revenue £64.1m £50.0m
Profit from operations £8.0m £3.8m
Profit margin from operations 12.4% 7.6%
Profit before tax ("PBT") £7.7m £3.7m
Earnings per share ("EPS") 8.1p 3.7p
Cash and cash equivalents £5.9m £4.1m
Adjusted Statutory Results Year ended 31 Dec 2022 Year ended 31 Dec 2021
Revenue £64.1m £50.0m
Adjusted profit from operations £10.3m* £7.0m*
Adjusted profit margin from operations 16.1%* 13.9%*
Adjusted PBT £10.0m* £6.9m*
Adjusted EPS 11.2p* 7.8p*
Cash and cash equivalents £5.9m £4.1m
Adjusted numbers are closer to the underlying cash flow performance of the
business which is regularly monitored and measured by management, the
adjustments made to the statutory numbers are as follows:
2022 2021
Statutory profit from operations £7.97m £3.82m
Exceptional items £0.15m £0.58m
Amortisation £2.00m £2.39m
Share based payments £0.19m £0.18m
*Adjusted profit from operations £10.31m £6.97m
*Adjusted profit margin from operations £10.31m / £64.06m = 16.09% £6.97m / £50.00m = 13.94%
Statutory PBT £7.69m £3.73m
Exceptional items £0.15m £0.58m
Amortisation £2.00m £2.39m
Share based payments £0.19m £0.18m
*Adjusted PBT £10.03m £6.88m
Statutory profit attributable to equity holders £6.25m £2.83m
Exceptional items £0.15m £0.58m
Amortisation £2.00m £2.39m
Share based payments £0.19m £0.18m
Adjusted profit attributable to equity holders £8.59m £5.98m
Weighted number of ordinary shares 76,752,355 76,751,187
*Adjusted EPS 11.19p 7.80p
Exceptional items include £nil of staff restructuring and voluntary
redundancy costs (2021: £0.03 million), £nil of non-recurring legal costs
(2021: £0.18 million), and £0.15 million for content use and associated
legal fees (2021: £0.37 million).
CHAIRMAN'S STATEMENT
Warpaint's business strategy and model has enabled it to withstand the
difficult business environment driven by rampant inflation, the war in Ukraine
and the aftermath of the Covid epidemic to deliver a very good performance in
2022 and to be in a position to grow further in all its markets. This is due
to the dedication of all the Warpaint team and I would like to thank them very
much for their energy, flexibility and exceptional efforts. Relationships
with our major customers and suppliers continue to be very strong.
During the year we continued our strategy of focusing on increasing our
presence in larger retailers globally, through growing sales through our
existing relationships and entering into new ones, together with growing our
online presence. This focus on larger customers and doing more business with
them is reflected in the Group's results and provides a strong platform for
the future.
Trading has continued to be strong in the first quarter of 2023, with the
Group enjoying record quarterly sales. We expect demand to remain buoyant
and for sales to continue to grow, despite the macroeconomic headwinds.
Results
2022 was a year of significant achievement for the Group, with record sales
and profits being delivered.
Adjusted profit from operations was £10.3 million (2021: £7.0 million) on
revenue of £64.1 million (2021: £50.0 million) with basic earnings per share
of 7.9p (2021: 3.7p) and adjusted earnings per share of 11.0p (2021: 7.8p).
Adjusted numbers exclude exceptional costs (staff restructuring and voluntary
redundancy costs, certain non-recurring legal costs, stock relocation costs
and a provision for content use and associated legal fees), amortisation in
relation to acquisitions and share based payments.
Whilst continuing to focus on quick stock turnover, the Group ensured
inventory levels were appropriate at the year end to service the anticipated
demand in the first quarter of 2023, with inventory at 31 December 2022
increasing to £18.7 million (31 December 2022 £18.1 million). The balance
sheet remains strong, with cash at 31 December 2022 of £5.9 million (31
December 2021: £4.1 million), and the Group remains debt free.
Dividend
In accordance with the Group's policy to continue to pay appropriate
dividends, the board is pleased to recommend an increased final dividend of
4.5 pence per share which, if approved by shareholders at the AGM, will be
paid on 4 July 2023 to shareholders on the register at 16 June 2023. The
shares will go ex-dividend on 15 June 2023.
Board
John Collier, an independent non-executive director of the Company, left the
board on 31 December 2022 to focus on his other business interests. I would
like to thank John for his contribution to Warpaint and we wish him well in
his future endeavours. It is the board's intention to appoint an additional
non-executive director in the second half of 2023.
Annual General Meeting
The Company's annual general meeting will be held at the Company's offices at
Units B&C, Orbital Forty Six, The Ridgeway Trading Estate, Iver, Bucks,
SL0 9HW on 28 June 2023 at 10 a.m. and we will be delighted to welcome those
shareholders who are able to attend in person.
Summary and Outlook
I am very pleased with the Group's strong performance in 2022 and that this
has continued in the first quarter of 2023, with the Group enjoying record
quarterly sales. This reflects Warpaint's consistent and focused strategy of
increasing our presence in large retailers globally, both by growing sales
through our existing relationships and entering into new ones, together with
increasing our online presence. This focus on larger customers, doing more
business with them and providing what their customers demand is reflected in
the Group's results and provides a strong platform for the future. We also
continue to develop relationships with other large retailers, particularly in
the UK, Europe and the US, where they are seeing demand from their customers
for quality, on trend, but more value orientated brands, such as those
produced by the Group.
Notwithstanding the current situation in the Ukraine and current levels of
inflation I am optimistic that the strong performance we have seen in 2022 and
into 2023 will continue and that we have the right offering and strategy in
place to continue to deliver profitable future growth, despite the
macroeconomic headwinds.
Clive Garston
Chairman
25 April 2023
CHIEF EXECUTIVE'S STATEMENT
The Group achieved a record level of sales in 2022, reflecting the success of
the Group's strategy of focusing on growing sales of its branded products.
This was achieved at an improved gross margin, despite a number of continuing
operational challenges being faced, particularly with regard to supply side
price inflation.
In 2022, Group sales increased by 28% in 2022 to £64.1 million, reaching a
record level for the Group. These sales were achieved at an increased gross
margin of 36.4% (2021: 33.8%) despite continued cost pressures and resulted in
a reported profit before tax of £7.7 million (2021: £3.7 million). Gross
margin is being maintained in Q1 2023 despite the current economic challenges.
Our strategy of producing a wide range of high-quality cosmetics at an
affordable price remains our key focus, growing sales through our existing
customers' outlets and winning new customers with significant sales
footprints, both in the UK and internationally, together with continuing to
grow our online sales. The global cosmetics market is increasingly seeing
customers transferring to more value orientated brands, such as those produced
by the Group, and I believe we are very well placed with our high-quality
focused offering to capture further market share.
Following the rationalisation of our brand portfolio in 2020 the Group has
concentrated on its core W7, Technic, Body Collection, Man'stuff and Chit Chat
brands during the year. In 2022, sales of the Group's branded products
accounted for 90% of revenue (2021: 89%).
Warpaint has continued to reduce the focus on its close-out business, although
profitable close-out opportunities continue to be taken where appropriate.
In 2022 close-out sales accounted for £3.8 million (2021: £4.5 million),
6% of Group sales. The remainder of the Group's sales of £2.6 million
(2021: £1.1 million) are white label products for major high street
retailers.
W7
The Group's lead brand remains W7, with sales in 2022 accounting for 55% of
total Group revenue (2021: 52%). Overall W7 sales increased by 35% in 2022
to £35.0 million compared to £25.9 million in 2021.
In the UK, W7 revenues were up 7% in 2022 compared to 2021, representing 37%
of W7 sales in the year, down from 46% in 2021, as stronger sales growth was
experienced in regions outside of the UK and higher than normal levels of
inventory were held by certain UK retailers at the start of the year. W7
revenues in the UK grew by increased sales into Tesco, together with a growth
in sales from the Group's other larger customers in the UK. W7 sales in the
UK also received a further boost with Boots starting to stock a range of
approximately 45 W7 products in an initial 80 stores from February 2022.
Sales to date from Boots have been encouraging and we anticipate an increased
presence with Boots in due course.
The strongest growth in 2022 was seen in continental Europe, with sales
increasing by 77% compared to 2021, and continental Europe became the largest
sales region for W7 branded products in the year, accounting for 45% of W7
sales. The Group has benefited from its post Brexit fulfilment strategy,
enabling products to enter the EU without issues, and the growth in both the
range of European customers served and the expansion in the number of outlets
for certain larger customers.
In the US, W7 sales doubled in 2022 compared to 2021, and accounted for 13% of
overall W7 sales, with the Group benefiting from the increased number of
customers and outlets in the US.
In the rest of the world, W7 sales declined marginally, largely reflective of
the timing of certain large orders.
We believe that W7 has a compelling brand proposition and will continue to
benefit from consumers wanting a high quality, on trend, but excellent
value-for-money product.
Technic
Since the Company's acquisition of Retra Holdings Limited ("Retra") and its
Technic, Body Collection and Man'stuff brands in November 2017, the focus has
been on growing the sales of all year-round cosmetics in addition to
continuing to grow its strong and established gifting proposition. It was
pleasing to see sales of Technic and the other Retra brands, including Body
Collection, grow by 23% in 2022. As a result of the ongoing successful
execution of this strategy, the proportion of gifting sales for Retra reduced
to 34% in 2022, from 37% in 2021 and 47% in 2020, with single products sold
under the Technic brands accounting for 66% of sales in 2022.
Sales of branded Technic product in 2022 was 36% of total Group revenue (2021:
37%). Overall Technic brand sales grew by 23% in 2022 to £22.7 million
compared to £18.5 million in 2021.
In 2022, UK revenues were 46% of Technic's total sales and they increased by
24% over the year, aided by sales of Technic and Body Collection branded
products to the retailer, Bodycare. In April 2023, a range of 158 Technic
products will be launched in an initial four Asda superstores on a trial basis
with a view to a wider inclusion in Asda's cosmetic range review in Q4 2023.
As with W7, sales of the Technic brands grew strongly in continental Europe
during the year and accounted for 48% of Technic's sales in 2022, an increase
of 34% compared to 2021, making continental Europe the largest sales region
for the Technic brands.
Sales for the Technic brands outside of the UK and Europe accounted for 6% of
Technic sales (2021: 6%). In the USA, sales increased by 58% compared to
2021, and in the rest of the world sales increased by 18% compared to 2021,
albeit the sales were small in these regions in the context of the Group as a
whole being under 3% of total Group revenues.
Building on the successful sales of W7 branded product through Amazon, a
Technic brand store was launched on Amazon in the UK in January 2023 and a
number of key Technic lines will be launched on Amazon in the US in Q2 2023
and in continental Europe later in 2023.
The Technic business also produces and sells own brand white label cosmetics
for several major high street retailers, with such sales more than doubling to
be 4% of Group revenue (2021: 2%). Despite the growth in white label sales
in 2022, we continue to assess private label opportunities on a case by case
basis, based on the return they can deliver.
Close-out
Close-out sales continue not to be a core focus for the Group, although
advantage is taken of profitable close-out opportunities as they become
available. The close-out division reduced as a proportion of Group sales in
2022, compared to 2021, representing 6% of the overall revenue of the Group
(2021: 9%). Whilst not a core focus, this side of the business continues to
provide a significant and profitable source of intelligence in the colour
cosmetics market and access to new market trends.
e-Commerce
During 2022 we continued to focus on driving online sales. In addition to
growing sales through the W7 and Technic brands' own bespoke e-commerce sites,
the Group has continued to focus on growing sales of our brands in the UK and
the US on Amazon, and in China through official W7 brand stores owned by the
Group on Taobao Mall (Tmall), the most visited B2C online retail platform in
China and Xiaohongshu (Red), one of China's foremost social media, fashion and
luxury shopping platforms. Additionally, W7 product was launched on Amazon
EU in Germany, Italy and Spain in 2022.
Direct online sales as a proportion of the Group's overall sales increased to
4.3% in 2022 (2021: 2.7%), having grown from £0.5 million in 2020 to £1.3
million in 2021, to over £2.8 million in 2022, an increase of 115% from 2021
to 2022.
Online sales have grown further in the current financial year, up 188% in Q1
2023 compared to the same period in 2022, and the focus remains on ensuring a
similar margin to the Group's sales through traditional physical outlets.
In 2023 the Group will launch online sales in Japan through Amazon, a similar
model to that successfully deployed in the US, together with launches of the
Technic brands on Amazon in the UK, US and continental Europe.
New Product Development
New product development continues to be core to the Group's proposition to
provide new products that are on trend, fast to market and that meet the
consumer's quickly changing needs.
During 2022 our New Product Development Team continued to develop a strong
pipeline of new products, focused on the demands of our customers. Our new
product development strategy continues to utilise a variety of manufacturing
partners, predominantly in China and Europe, that provide high quality
products quickly, at very competitive prices, and meet our legal and ethical
compliance requirements, together with ensuring continuity of delivery. This
process is supported by the Group's Hong Kong based subsidiary sourcing office
and its China subsidiary (Jinhua Badgequo Cosmetics Trading Company Ltd), with
local employees able to explore new factories and oversee quality control and
ethical sourcing.
The Group's cosmetic products are "cruelty free" and are not tested on animals
irrespective of where the products are being supplied. We support cruelty
free alternatives to animal testing to become compulsory and animal testing
overall to be ceased globally. We will now be proudly displaying the PETA
company logo on our products for all new products and as packaging is updated.
Our commitment to the PETA "Beauty without Bunnies program" is Group wide
and covers all brands within the Group.
The Group is very focused on the environmental impact of its products and the
Group is committed to becoming an industry leader for sustainable products and
packaging. All unrecyclable plastics have now been removed from the outer
packaging of our gifting, and we are progressing well with our journey of
removing unrecyclable plastics from our all year-round products. The Group's
product packaging therefore uses paper and cardboard wherever practicable,
which enables the Group, the wholesaler and end user to recycle the waste
effectively.
All new W7 brand products are being manufactured without parabens and the
Company is reformulating existing products where feasible. No heavy metals
such as TBTO (preservative) and other ingredients of concern are added to our
products and all raw materials comply with the strict regulations applicable
in the EU, USA, Canada and other markets in which we operate.
Marketing and PR
We continue to ensure our marketing programmes are both fresh and innovative,
focused on both customer loyalty and showcasing our products to new potential
consumers, with a particular emphasis on social media using brand ambassadors,
influencers and make-up artists. Our online loyalty programme, initiated in
2020, continues to help retain customers and increase basket size.
Strategy
On an annual basis the board reviews and appropriately adapts its three-year
strategic plan for the business based on market data, experience and the
Group's aims. This is targeted by year, measured monitored and reviewed as
part of the board's on-going business throughout the year. The strategic
plan has been updated for 2023, forming the basis of the Group's development
through to 2025. The plan is designed to drive shareholder value and has
defined targets for sales, EBITDA, earnings per share and cash generation with
a particular emphasis on driving incremental EBITDA growth.
The strategic plan comprises six key pillars:
· Develop and build the Group's brands and provide new product
development that meets changing trend and consumer needs
The Group ensures that everybody within the business has crystal clarity of
the positioning of the Group's portfolio of brands; that there is a clear
brand hierarchy; non-core brands and products have been eliminated; that
close-out continues to reduce as a proportion of sales; and the Group delivers
quality new product development, category extensions where appropriate to the
brand and gifting sets that are on-trend and meets the consumers changing
needs.
· Develop and nurture the current core business
A major objective of the Group is to continue to develop and grow the presence
of the Warpaint brands beyond their existing customer base. There is still,
however, significant potential to be realised and further distribution gains
in the current customer base and the Group is committed to ensuring this
potential is maximised. The Group is focused on ensuring there is a clarity
of product offering to each customer segment and to supporting its customers
with relevant new products; by using appropriate marketing and innovative
merchandising solution to draw consumers into customer stores; and by
enhancing the customer offer by cross selling the Group's brands and category
extensions for example accessories, body mists, gifting and skin care where
appropriate.
· Grow market share in the UK
The business continues to focus on increasing the presence of the Group's
brands in channels that our consumers shop in, to increase accessibility and
drive profitable market share growth. As a result of this strategy, the Group
has successfully launched the W7 brand into Tesco, where distribution gains
across all store formats continue to be driven, into Boots, and the Technic
and Body Collection brands into wilko. It continues to have active
discussions with other major retailers who are currently in channels that the
Group is yet to materially supply to and expanding the UK customer base is a
key focus of management. For example a trail successfully activated in 20 New
Look stores in the fashion retail sector in Autumn 2022, will be rolled out to
a further 200 New Look stores in mid 2023. This is a particular focus as the
business continues to capitalise on consumers and retailers across all sectors
alike who are increasingly looking to provide quality products to their
customers at affordable prices.
· Grow market share in the USA and China
The USA and China continue to provide a major growth opportunity for the
Group. In the USA, the Group has established distributor and agency channels
and is using employees to directly sell to retailers. A compelling core
product range for the USA has been established with minimum margin
requirements. The business is focused on targeted customer initiatives that
have gained both gifting and all year around listings with major retailers
across key channels. In China the Group conducts business locally through
its Chinese subsidiary company. We are also continuing to register products
for sale in China in order to grow our total offering and increase sales.
This has led to the development of relationships with distributors in the
region who have the capability to drive sales of the W7 brand via a W7
storefront on on-line marketplaces.
· Develop the online/e-commerce strategy for brand development and
profitable sales
The Group aims to grow and maximise profitable sales across the Group's
on-line sales channels. As well as continuing to sell on the businesses' own
websites and developing its own consumer community, plans continue to be
executed to develop sales across Amazon platforms. W7 stores have been
launched in the UK, USA and key European markets on Amazon and are fulfilled
by Amazon. Further on-line sales platforms and geographies continue to be
evaluated and, where profitable opportunities are identified, launched over
the course of the three year plan. The first of these is planned to be Japan
in 2023. The Group continues to develop and build its brands by utilising
brand ambassadors, influencers and make-up artists to engage actively with its
target audience. The Group wants to ensure that consumers are adequately
inspired and educated on how the Group's products can be used to experiment
and achieve different looks. Developing the social media strategy also
directly impacts the Group's online sales strategy.
· Develop and implement appropriate strategies that ensure Warpaint
reduces its impact on the environment
The Group recognises consumers', customers' and our own requirement to reduce
our environmental impact. The business has already identified and
implemented a number of initiatives to reduce our environmental footprint via
reduced shipping and road mileage; removing plastics where possible from
packaging and improving recyclability; removing parabens from ingredients; and
ensuring all products are manufactured cruelty free. Further initiatives have
been identified and targeted with the aim of being implemented across the
course of the three year plan. Further information is contained within the
ESG section of this report.
Brands
In 2020 we undertook a review of all our brands, and since then the Group has
concentrated on its core W7, Technic, Body Collection, Man'stuff and Chit Chat
brands, being those with the most compelling market position.
Customers & Geographies
The largest markets for sales of our Group brands are in the UK and
continental Europe. In 2022 our top ten customers represented 60% of revenues
(2021: 57%). Group sales are made in 43 countries (2021: 43).
UK
The UK accounted for 43% Group sales in 2022 (2021: 51%), with UK sales
increasing by 9% to £27.6 million (2021: £25.3 million). Sales growth in
the UK was seen by both our lead brand W7, which increased by 7%, and the
Technic brands, which increased by 24%. UK sales in Q1 2023 are 23% ahead of
the same period in 2022.
The top ten UK Group customers accounted for 74% of UK sales in 2022 (2021:
71%). Particularly strong growth was seen during the year with Asda and
Bodycare. Additionally, after an initial trial of W7 product in 20 New Look
stores, the Group is now rolling out W7 product to a further 200 New Look
stores during 2023. We are also in continued talks with Tesco to increase
the W7 offering in their stores and anticipate further expansion across their
estate this year.
Europe
In 2022 Group sales in Europe increased by 56% to £28.1 million, compared to
£18.0 million in the same period in 2021, making this the largest sales
region for the Group, accounting for 46% of Group branded sales in 2022, and
44% of overall Group sales in 2022 (2021: 36%). Sales for the Group's brands
into Europe are mainly to Denmark, Spain, France and Sweden and during the
year strong growth was seen particularly through increased sales to certain
existing European customers as the number of these customers stores served by
the Group was expanded. Group sales in Europe in Q1 2023 continued to
accelerate and were 41% ahead of the same period in 2022.
USA
USA sales, in sterling terms, increased by 79% in 2022 to £5.3 million (2021:
£3.0 million) and grew by 55% in US dollar terms. This equated to 8% of
overall 2022 Group sales (2021: 6%). In the US 97% of sales in 2022 (2021
89%) were from the sale of the Group's brands as minimal close-out activity
was undertaken, in line with the Group's strategy to focus on its own brands.
A good performance was seen from the Group's major customers in the USA,
including CVS, Five Below, Macys Backstage, Marshalls, and TJ Maxx. Six
significant new accounts were added in the US in 2022, including with CVS,
where a large Christmas 2022 order was delivered, and with H-E-B stores, a
Texas based supermarket group, where an extensive range of nail polish was
launched in 280 of their stores in the last quarter of the year. From July
2023 it is expected that a full range of 120 W7 colour cosmetics products will
be stocked in 80 of the H-E-B stores.
A further agreement was reached to launch a range of 60 W7 cosmetic products
in 190 CVS BIRL stores, from January 2023, and initial sales have been ahead
of expectations. Additional orders have also been received from Nordstrom
Rack and Sallys in the US, where a significant order has been received for
delivery in July 2023. US sales in Q1 2023 are 61% ahead of the same period
in 2022.
Rest of the World
Sales in the rest of the world decreased by 16% from £3.7 million in 2021 to
£3.1 million in 2022 accounting for 5% of overall Group sales (2021: 7%).
The reduction in sales was primarily as a result of the timing of sales orders
in Australia, which is a key country for Warpaint in the rest of the world
region. The focus in the rest of the world region continues to be on
Australia, China and other countries where profitable sales in appropriate
volumes can be made.
The Group has no suppliers in either Russia or Ukraine, and no significant
historic sales to either country.
People - Cost of Living Bonus
The board recognises that we are living in difficult times, with inflationary
pressures causing significant increases in the cost of living. To provide
some assistance with these increased living costs and to acknowledge the
exceptional efforts in a record period for the Group, all of the Group's 122
employees (which excludes the board members) were awarded a payment of £1,000
over and above their normal remuneration in October 2022.
Summary and Outlook
I am delighted with the Group's performance in 2022. We have enjoyed strong
growth in sales and that these sales have been achieved at a significantly
improved gross margin, despite supply side inflationary pressures, is a
significant achievement. To date the Group has been largely able to mitigate
supply side inflation with a price rise implemented in January 2022, sourcing
product from new factories, and new product development, all of which are
ongoing. In 2023, together with significantly reduced transport costs, we
remain confident that margins can be maintained.
Whilst we continue to experience good growth in the UK, I am particularly
pleased with the growth we are seeing in continental Europe and the US. We
have put in place a robust supply chain and distribution network to ensure
that we are able to supply our retailer's outlets on time with the product
that their customers are demanding. The Group is also in active discussions
with new major retailers globally and with certain existing customers
regarding expansion of the range of the Group's products stocked.
Online sales also continue to grow and the focus remains on ensuring they can
deliver a similar margin to the Group's sales through traditional physical
outlets. In 2023, the Group will launch online sales in Japan through
Amazon, a similar model to that successfully deployed in the US.
Trading in 2023 has started strongly with a record first quarter. Sales for
the first three months of 2023 are approximately 40% ahead of the same period
in 2022, with sales increases seen across all of the Group's brands, both in
stores and online, and at an improved gross margin to that achieved in the
full year 2022.
We will update further on our progress later in the year and with significant
opportunities for further growth, both already secured with our existing
retailers and in discussion with additional major retailers globally, I am
confident that the Group will continue to perform well for the remainder of
the year and beyond.
Sam Bazini
Chief Executive Officer
25 April 2023
CHIEF FINANCIAL OFFICER'S REVIEW
2022 was a record year for the Group, with strong growth in sales, margins and
profit before tax. Group revenue increased in the year by 28% and adjusted
profit before tax increased by 46%. Gross margin improved in the year by
2.6% to 36.4%. This is the second year running that gross margin has
improved despite some increased costs in the supply chain. The Group
continues its strategy of building the W7 and Technic brands in the UK and
internationally, and we remain focused on margin, being debt free, and
generating cash.
The Group monitors its performance using a number of key performance
indicators which are agreed and monitored by the board. Headline results,
shown below, represent the performance comparisons between the consolidated
statements of income for the years ended 31 December 2021 and 31 December
2022.
Revenue
Group revenue for the year increased by 28.1% from £50.0 million in 2021 to
£64.1 million in 2022.
Company branded sales were £57.7 million in 2022 (2021: £44.4 million).
Our W7 brand had sales in the year of £35.0 million (2021: £25.9 million).
Our Technic brand contributed sales of £22.7 million (2021: £18.5 million).
Our Retra subsidiary business had sales of retailer own brand white label
cosmetics of £2.6 million in the year (2021: £1.1 million). The white
label business is traditionally cost competitive and Retra chooses which
projects to undertake based on commercial viability, in particular margin.
The close-out business revenue reduced by 15.8% from £4.5 million in 2021 to
£3.8 million in 2022 as the Group, in line with its strategy, continued to
reduce its focus on close-out opportunities.
In the UK sales increased by 8.8% to £27.6 million (2021: £25.3 million).
Internationally, revenue increased 47.8% from £24.7 million in 2021, to
£36.5 million 2022. In Europe Group sales increased by 55.6% to £28.1
million (2021: £18.0 million). In the rest of the world Group sales decreased
by 16.0% to £3.1 million (2021: £3.7 million). In the US Group sales
increased by 78.8% to £5.3 million (2021: £3.0 million).
E-commerce sales continued to grow in the year and now represent 4.3% / £2.8
million of group revenue (2021: 2.7% / £1.3 million).
Product Gross Margin
Gross margin was 36.4% for the year compared to 33.8% in 2021. Our management
teams across the Group were swift to recognise and navigate cost headwinds
that started in 2021. New product development, sourcing product from new
factories, and an inflationary price increase to customers at the start of the
year, have all helped achieve a significant gross margin improvement in 2022.
The cost of freight from the Far East is a significant cost of goods
throughout the Group. Container freight rates which increased dramatically in
2021, started to slowly fall in 2022 by on average 20%. As we end Q1 2023
freight rates have fallen from record highs in 2021 to now record lows in
2023, which are currently 80% lower year on year and, if maintained, will help
to improve our gross margin in the current year.
We remain focused on improving gross margin where possible in all our
businesses and are making good use of our Hong Kong buying office to ensure
this happens. To counter currency pressure, we continue to move production
to new factories of equal quality to retain or improve margin and have a
natural hedge from our US dollar revenue which is growing.
At 31 December 2021 options were in place for the purchase of US$27 million at
US$1.3849/£; this has helped to protect our margin in the turbulent foreign
exchange markets. Towards the end of 2022 we purchased various options to help
protect our gross margin in 2023, these included traditional forward purchase
foreign exchange options for US$3 million at US$1.2146, and more complex
forward purchase foreign exchange options which will deliver a minimum of $18
million to a maximum of $36 million at an average rate for 2023 of $1.1984/£.
Since the start of this year we have purchased more forward options to help
protect our gross margin in 2023.
The currency options we have for the current year, the falling container
rates, new product development, sourcing, and growing sales in the USA, will
all help to protect our margin in 2023.
Operating Expenses
Total operating expenses before exceptional items, amortisation costs,
depreciation, foreign exchange movements and share based payments, grew more
slowly than sales, increasing by 24.1% to £11.4 million in the year (2021:
£9.2 million). Operating costs as a percentage of sales reduced from 18.4% to
17.8%.
The overall increase of £2.2 million in the year was necessary to support the
growth of the business.
Increased costs amounted to £2.3 million and were made up of increases in
wages and salaries, office costs, travel costs, the spend on PR and marketing
as e-commerce sales continue to grow, professional fees and the cost of a
larger sales team based in the US.
Included in the increase to wages and salaries is a one off cost of living
crisis payment of £0.1 million to all of the Groups employees excluding board
members.
The increase in office costs includes an extra £0.06 million of utility
charges. At current rates utility costs are expected to increase in 2023 by a
further £0.08 million.
There was a decrease in the charge for bad debts of £0.1 million.
Warpaint remains a business with most operating expenses relatively fixed and
evenly spread across the whole year. We continue to monitor and examine
significant costs to ensure they are controlled and strive to reduce them.
In addition, the increased scale of the business has given the Group increased
buying power.
Adjusted EBITDA
The board considers Adjusted EBITDA (adjusted for foreign exchange movements,
share based payments and exceptional items) a key measure of the performance
of the Group and one that is more closely aligned to the success of the
business. Adjusted EBITDA for the year was £11.9 million (2021: £7.7
million).
Profit Before Tax
Group profit before tax for the year was £7.7 million (2021: £3.7 million).
The material changes in profitability between 2022 and 2021 were:
Effect on Profit
Sales volume growth £4.7 million
Margin growth £1.7 million
Increase in operating expenses (£2.2) million
FX gain in 2022 £0.1 million (2021: Gain £0.6 million) (£0.5) million
Increase in finance costs (£0.2) million
Increase in depreciation and amortisation of right-of-use assets (£0.3) million
Decrease in the charge for amortisation costs on acquisition* £0.4 million
Decrease in exceptional costs £0.4 million
*Acquisition costs are amortised over 5 years. The reduction in 2022 reflects
the end of the write off period since the purchase of Retra in November 2017.
Exceptional Items
Exceptional items include £nil of staff restructuring and voluntary
redundancy costs (2021: £0.03 million), £nil of non-recurring legal costs
(2021: £0.18 million), and £0.15 million for content use and associated
legal fees (2021: £0.37 million).
During the year the Group agreed a settlement regarding a dispute with a third
party relating to the historic use of content on the Group's social media
platforms in the period from 2018 through to early 2021. The total
settlement including associated legal costs was £0.52 million, of which
£0.37 million was provided for in the year to 31 December 2021. The payment
and the restriction of content use will not affect the ongoing operations of
the Group's businesses.
Tax
The tax rate for the Group for 2022 was 19% compared to the UK corporation tax
standard rate of 19% for the year. Since the acquisition of LMS, the Group
is exposed to tax in the USA at an effective rate of approximately 25% and in
other jurisdictions the Group operates cost centres, but these are not
materially exposed to changes in tax rates.
Earnings Per Share
The statutory basic and diluted earnings per share was 8.14p and 8.11p
respectively in 2022 (2021: 3.69p and 3.68p).
The adjusted basic and diluted earnings per share before exceptional items,
amortisation costs and share based payments was 11.19p and 11.15p respectively
in 2022 (2021: 7.80p and 7.79p).
Dividends
The board is recommending a final dividend for 2022 of 4.5 pence per share,
making a total dividend for the year of 7.1 pence per share of which 2.6 pence
per share was paid on 25 November 2022 (2021: total dividend of 6.0 pence per
share, of which the interim dividend was 2.5 pence per share and the final
dividend was 3.5 pence per share). The dividend for the year was covered 1.6
times by adjusted earnings per share.
Cash Flow and Cash Position
Net cash flow generated from operating activities was £8.4 million (2021:
£5.1 million). The Group's cash balance increased by £1.8 million to £5.9
million in 2022 (2021: £4.1 million). The cash generated was principally
used to make dividend payments in the year.
We expect capital expenditure requirements of the Group to remain low, however
as part of our strategy to grow market share in the UK and US there will be
occasions where investment in store furniture is required to secure that
business.
In 2022 £0.29 million was spent on store furniture for Tesco, Boots and wilko
(2021: £0.49 million), £0.42 million was spent on warehouse improvements,
new forklifts and racking (2021: £0.04 million), £0.09 million was spent on
new computer software and equipment (2021: £0.02 million), and £0.03 million
was spent on other general office fixtures and fittings and plant upgrades
(2021: £0.04 million).
Given the growth of the Group in the last two years it is necessary and
prudent to have bank facilities available to it to help fund day to day
working capital requirements as the Group continues to grow. Accordingly the
Group maintains a £9.5 million invoice and stock finance facility which is
used to help fund imports in our gifting business during the peak season. At
the year end no invoice and stock finance remained outstanding (2021: £nil
million). In addition, in February 2023 the Group added a new "general
purpose" facility of £3 million. These facilities, together with the Groups
positive cash generation and the growing cash balance held, ensure that future
growth can be funded.
LTIP, EMI & CSOP Share Options
On 17 October 2022 CSOP share options were granted over a total of 20,000
ordinary shares of 25p each in the Company under the Warpaint London plc
Company Share Option Plan. The options provide the right to acquire 20,000
ordinary shares at an exercise price of 132.5p per ordinary share.
On 2 March 2022 EMI (non-qualifying) share options were granted over a total
of 200,000 ordinary shares of 25p each in the Company under the Warpaint
London plc Enterprise Management Incentive Scheme. The options provide the
right to acquire 200,000 ordinary shares at an exercise price of 127.5p per
ordinary share.
The LTIP, EMI & CSOP share options had an immaterial dilutive impact on
earnings per share in the period. The share-based payment charge of the
LTIP, EMI and CSOP share options for the year was £0.19 million (2021: £0.18
million) and has been taken to the share option reserve.
Balance Sheet
Inventory was £0.6 million higher at the year end at £18.7 million (2021:
£18.1 million). The rise in inventory is a function of growth in the business
and to ensure delivery disruption is avoided for our customers. One of the
Group's unique selling propositions is that it can deliver a full range of
colour cosmetics to our customers, in good time all year round. Having
appropriate inventory levels is vital to providing that service. The provision
for old and slow inventory was £0.37 million, 1.9% at the year end (2021:
£0.52 million, 2.8%). Across the Group we have worked hard in the year to
sell through older stock lines, allowing for our provision for old and slow
inventory to fall 0.9% in percentage terms. Our Group policy is to provide for
50% of the cost of perishable items that are over two years old. However, we
remain comforted by the fact that many such items in the normal course of
business are eventually sold through our close-out division without a loss to
the Group.
Trade receivables are monitored by management to ensure collection is made to
terms, to reduce the risk of bad debt and to control debtor days, which have
improved on the prior year. At the year end trade receivables, excluding other
receivables, were £9.9 million (2021: £8.8 million), the increase on 2021
due to the rise in sales year on year. The provision for bad and doubtful
debts carried forward at the year end was £0.07 million, 0.7% of gross trade
receivables (2021: £0.07 million, 0.8%).
The Group has no borrowings or lease liabilities outstanding at the year end
(2021: £nil), apart from those associated with right-of-use assets as
directed by IFRS 16 (see below). The Group was therefore debt free at the year
end.
Working capital increased by £4.1 million in the year, to £30.3 million. The
main components were an increase in inventory of £0.6 million, an increase in
trade and other receivables of £1.4 million, an increase in cash at the year
end of £1.8 million, and a decrease in trade and other payables of £0.3
million.
Free cash flow (cash from operating activities less capital expenditure)
remained strong at £7.6 million (2021: £4.5 million).
The Group's balance sheet remains in a very healthy position. Net assets
totalled £37.8 million at 31 December 2022, an increase of £1.7 million from
2021. Most of the balance sheet is made up of liquid assets of inventory,
trade receivables and cash. Included in the balance sheet is £7.3 million of
goodwill (2021: £7.3 million) and £0.3 million of intangible fixed assets
(2021: £2.3 million) arising from acquisition accounting. As at the year end
cash totalled £5.9 million (31 December 2021: £4.1 million).
Goodwill represents the excess of consideration over the fair value of the
Group's share of the net identifiable assets of the acquired business / cash
generating units at the date of acquisition. The carrying value at 31
December 2022 of £7.3 million included Treasured Scents Limited (Close-out
business) £0.5 million, Retra Holdings Limited £6.2 million and Marvin Leeds
Marketing Services, Inc. £0.6 million. Management have performed the required
annual impairment review at 31 December 2022 and have concluded that no
impairment is indicated for Treasured Scents Limited, Retra Holdings Limited
or Marvin Leeds Marketing Services, Inc. as the recoverable amount exceeds the
carrying value.
The balance sheet also includes £5.7 million of right-of-use assets, this is
the inclusion of the Group leasehold properties, now recognised as
right-of-use assets as directed by IFRS 16. An equivalent lease liability is
included of £5.9 million at the balance sheet date.
Foreign Exchange
The Group imports most of its finished goods from China paid for in US
dollars, which are purchased throughout the year at spot as needed, or by
taking forward purchase foreign exchange options when rates are deemed
favourable, and with consideration for the budget rate set by the board for
the year. Similarly, foreign exchange options are taken to sell forward our
expected Euro income in the year to ensure our sales margin is protected.
We started 2022 with options in place for the purchase of US$27 million at
US$1.3849, and the sale of €3.9 million at €1.1558. During 2022 when
currency rates were favourable, we purchased additional US dollar foreign
exchange options and spot rate amounts to cover our total US dollar
requirement for the year.
In addition, towards the end of 2022 we purchased various options to help
protect our gross margin in 2023, these included traditional forward purchase
foreign exchange options for US$3 million at US$1.2146, and more complex
forward purchase foreign exchange options known as Window Barrier Accruals and
Counter TARFs which will deliver a minimum of $18 million to a maximum of $36
million (depending on the dollar rate at maturity of each option) at an
average rate for 2023 of $1.1984/£. We also sold €3.8 million at €1.1340.
All of these options were outstanding at 31 December 2022.
The Group has a natural hedge from sales to the US which are entirely in US
dollars, in 2022 these sales were $6.32 million (2021: $4.08 million).
Together with sourcing product from new factories where it makes commercial
sense to do so, new product development, and by buying US dollars when rates
are favourable, we are able to mitigate the effect of a strong US dollar
against sterling.
Section 172(1) Statement
The directors are well aware of their duty under section 172 of the Companies
Act 2006 to act in the way which they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of its members as
a whole, and in doing so have regard (amongst other matters) to:
· the likely consequences of any decision in the long term;
· the interests of the Company's employees;
· the need to foster the Company's business relationships with
suppliers, customers and others;
· the impact of the Company's operations on the community and the
environment;
· the desirability of the Company maintaining a reputation for high
standards of business conduct, and
· the need to act fairly as between members of the Company
(the "Section 172 (1) Matters").
Induction materials provided on appointment include an explanation of
directors' duties, and the board is regularly reminded of the Section 172(1)
Matters, as a board meeting agenda item.
Further information on how the directors have had regard to the Section 172(1)
Matters can be found in the Stakeholder Engagement and Section 172 Report.
This information forms part of the strategic report and has been approved for
issue by the board on 25 April 2023.
Neil Rodol
Chief Financial Officer
25 April 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Year ended 31 December
2022 2021
Note £'000 £'000
Revenue 2 64,058 50,003
Cost of sales 2 (40,724) (33,095)
Gross profit 23,334 16,908
Administrative expenses 3,4 (15,367) (13,095)
Analysed as:
Adjusted profit from operations(1) 10,307 6,970
Amortisation 3,9 (1,995) (2,394)
Exceptional items 3 (152) (586)
Share based payments 21 (193) (177)
Profit from operations 7,967 3,813
Net finance cost 5 (277) (88)
Profit before tax 7,690 3,725
Tax expense 6 (1,440) (895)
Profit for the year attributable to equity holders of the parent company 6,250 2,830
Other comprehensive loss:
Item that will or may be reclassified to profit or loss:
Exchange loss on translation of foreign subsidiary (135) (4)
Total comprehensive income attributable to equity holders of the parent 6,115 2,826
company , net of tax
Basic earnings per share (pence) 26 8.14 3.69
Diluted earnings per share (pence) 26 8.11 3.68
Note 1 - Adjusted profit from operations is calculated as earnings before
interest, taxation, amortisation of intangible assets, share based payments
and exceptional items.
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 31 DECEMBER 2022
As at 31 December
2022 2021
Note £'000 £'000
Non-current assets
Goodwill 8 7,274 7,274
Intangibles 9 277 2,260
Property, plant, and equipment 10 1,432 1,385
Right-of-use assets 11 5,659 3,073
Deferred tax assets 17 429 500
Total non-current assets 15,071 14,492
Current assets
Inventories 12 18,715 18,139
Trade and other receivables 13 11,693 10,322
Cash and cash 14 5,865 4,072
equivalents
Derivative financial instruments 23 8 545
Total current assets 36,281 33,078
Total assets 51,352 47,570
Current liabilities
Trade and other payables 15 (5,988) (6,293)
Borrowings and lease liabilities 16 (1,015) (610)
Corporation tax liability (943) (1,050)
Derivative financial instruments 23 (600) -
Provisions - (370)
Total current liabilities (8,546) (8,323)
Non-current liabilities
Borrowings and lease liabilities 16 (4,847) (2,537)
Deferred tax liabilities 17 (180) (557)
Total non-current liabilities (5,027) (3,094)
Total liabilities (13,573) (11,417)
NET ASSETS 37,779 36,153
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
AS AT 31 DECEMBER 2022
2022 2021
£'000 £'000
Equities
Share capital 19 19,188 19,188
Share premium 19,360 19,360
Merger reserve (16,100) (16,100)
Foreign exchange reserve (50) 85
Share option reserves 20 2,003 1,810
Retained earnings 13,378 11,810
TOTAL EQUITY 37,779 36,153
The financial statements of Warpaint London plc were approved and authorised
for issue by the Board of Directors and were signed on its behalf by:
Neil Rodol
Chief Financial Officer
Date: 25 April 2023
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Share Capital Share Premium Merger Reserve Foreign exchange reserve Share option reserve Retained Earnings Total Equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2021 19,187 19,359 (16,100) 89 1,633 13,202 37,370
Comprehensive income/(loss) for the year
Equity shares issued 1 1 - - - - 2
On translation of foreign subsidiary - - - (4) - - (4)
Profit for the year - - - - - 2,830 2,830
Total comprehensive income for the year 1 1 - (4) - 2,830 2,828
Transactions with owners
Share based payment charge - - - - 177 - 177
Dividends paid - - - - - (4,222) (4,222)
Total transactions with owners - - - - 177 (4,222) (4,045)
As at 31 December 2021 19,188 19,360 (16,100) 85 1,810 11,810 36,153
Comprehensive Income/(loss) for the year
Equity shares issued - - - - - - -
On translation of foreign subsidiary - - - (135) - - (135)
Profit for the year - - - - - 6,250 6,250
Total comprehensive income for the year - - - (135) - 6,250 6,115
Transactions with owners
Share based payment charge - - - - 193 - 193
Dividends paid - - - - - (4,682) (4,682)
Total transactions with owners - - - - 193 (4,682) (4,489)
As at 31 December 2022 19,188 19,360 (16,100) (50) 2,003 13,378 37,779
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
Year ended 31 December
2022 2021
Note £'000 £'000
Operating activities
Profit before tax 7,690 3,725
Finance expense 5 278 90
Amortisation of intangible assets 9 1,995 2,394
Depreciation of property, plant, and equipment 10 761 649
Depreciation on right of use assets 11 965 690
Loss on disposal of property, plant, and equipment 1 -
Share based payments 21 193 177
Increase in trade and other receivables (1,370) (1,135)
Increase in inventories 12 (576) (3,726)
(Decrease)/increase in trade and other payables (981) 3,541
Fair value loss/(gain) on derivative financial instruments 1,139 (905)
Other non-cash adjustments 17 - (84)
Foreign exchange translation differences (117) (4)
Cash generated from operations 9,978 5,412
Tax paid (1,546) (325)
Net cash flows from operating activities 8,432 5,087
Investing activities
Purchase of intangible assets 9 (12) (3)
Purchase of property, plant, and equipment 10 (831) (596)
Net cash used in investing activities (843) (599)
Financing activities
Repayment of borrowings 16 - (48)
Lease payments 16 (836) (933)
Proceeds from issued share capital - 2
Interest paid 5 (278) (90)
Dividends 18 (4,682) (4,222)
Net cash used in financing activities (5,796) (5,291)
Net increase/(decrease) in cash and cash equivalents 1,793 (803)
Cash and cash equivalents at beginning of period 4,072 4,875
Cash and cash equivalents at end of period 14 5,865 4,072
Cash and cash equivalents consist of:
Cash and cash equivalents 14 5,865 4,072
5,865 4,072
The notes on pages 70 to 121 form part of these financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT ENDED 31 DECEMBER 2022
1. Significant accounting policies
Basis of preparation
The financial statements of Warpaint London PLCPLC (the "Company" or
"Warpaint") and its subsidiaries (together the "Group") for the year ended 31
December 2022 were authorised for issue by the board of directors on 25(th)
April 2023.
Warpaint London PLCPLC is a public limited Company incorporated and registered
in England and Wales. Its registered office is Units B&C, Orbital
Forty-Six, The Ridgeway Trading Estate, Iver, Buckinghamshire, SL0 9HW.
The Group's financial statements have been prepared in accordance in
accordance UK adopted international accounting standards and in conformity
with the requirements of the Companies Act. The functional currency of the
parent and its subsidiaries is pounds sterling because that is the currency of
the primary economic environment in which the Group operates. The financial
statements are also presented in pounds sterling. All values are rounded to
the nearest thousand (£'000) except where otherwise indicated.
The annual financial statements have been prepared on the historical cost
basis, except for certain financial assets and liabilities which are carried
at fair value or amortised cost as appropriate.
The preparation of financial statements in accordance with UK adopted
international accounting standards requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Although these estimates are based on management's best
knowledge of current events and actions, actual results ultimately may differ
from those estimates. The principal accounting policies adopted are set out
below.
Basis of consolidation
Where the company has control over an investee, it is classified as a
subsidiary. The company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the company and
its subsidiaries as if they formed a single entity. Intercompany transactions
and balances between group companies are therefore eliminated in full. All
subsidiaries have a reporting date of December.
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is obtained.
They are deconsolidated from the date on which control ceases.
On consolidation, the results of overseas operations are translated into
pounds sterling at rates approximating to those ruling when the transactions
took place. All assets and liabilities of overseas operations, including
goodwill arising on the acquisition of those operations, are translated at the
rate ruling at the reporting date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas operations
at actual rate are recognised in other comprehensive income and accumulated in
the foreign exchange reserve.
Exchange differences recognised profit or loss in Group entities' separate
financial statements on the translation of long-term monetary items forming
part of the Group's net investment in the overseas operation concerned are
reclassified to other comprehensive income and accumulated in the foreign
exchange reserve on consolidation.
On disposal of a foreign operation, the cumulative exchange differences
recognised in the foreign exchange reserve relating to that operation up to
the date of disposal are transferred to the consolidated statement of
comprehensive income as part of the profit or loss on disposal.
Going concern
The Directors have concluded that it is reasonable to adopt a going concern
basis in preparing the financial statements. This is based on a reasonable
expectation that the Group has adequate resources to continue in operational
existence for at least twelve months from the date of signing of these
accounts. The Group made a statutory profit of £6.1 million in the year to 31
December 2022 (2021: £2.8 million) and had net current assets of £27.7
million at 31 December 2022 (2021: £24.8 million).
The Group occasionally makes use in its Retra Holdings Limited ("Retra")
subsidiary of a £6.0 million bank facility that can be used for confidential
invoice discounting, the facility renews each year at the end of September.
Retra also have a £3.5 million bank facility that can be used for stock
finance, which is used if needed during the peak gift buying season, the
facility renews each year at the end of November. In addition, the Group have
a £3.0 million general purpose bank facility in its Warpaint Cosmetics (2014)
Limited ("Warpaint Cosmetics") subsidiary which was agreed in January 2023.
This facility will renew annually and was put in place to support the
continued growth of the business. As at the year end £nil of the bank
facilities were utilised and the Directors expect that in 2023 the facilities
will only be used to modest levels well within the facility limits, to support
the day to day working capital of the business. At the 31 March 2023 the
company had cash of £8.6 million, no debt and had used £nil of its bank
facilities.
The Directors have prepared forecasts covering the period to December 2024,
built from the detailed Board-approved budget for 2023. The forecasts include
a number of assumptions in relation to varying levels of sales revenue. Whilst
the Group's trading and cash flow forecasts have been prepared using current
trading assumptions, the operating environment presents a number of challenges
which could negatively impact the actual performance achieved. These
challenges include, but are not limited to, achieving forecast levels of sales
and order intake, the impact on customer confidence as a result of general
economic conditions and leaving the European Union, achieving forecast margin
improvements, supply side price inflation, increases in freight costs, and the
director's ability to implement cost saving initiatives in areas of
discretionary spend where required.
The Group's cash flow forecasts and projections, taking account of reasonable
and possible changes in trading performance, offset by mitigating actions
within the control of management including reductions in areas of
discretionary spend, show that the Group will be able to operate comfortably
through to the end of December 2024, and in Retra and Warpaint Cosmetics
within the level of their own bank facility.
In preparing this analysis, a number of scenarios were modelled with the
benefit of experience. The scenarios modelled were all based on varying levels
of sales revenue, including one that assumes no growth for 2023 and 2024 as a
reasonable downside scenario, and more extreme falls in revenue of up to 30%
in both years as a worst-case scenario. In each scenario, mitigating actions
within the control of management have been modelled. Under each of the
scenarios modelled, the Group has sufficient cash to meet its liabilities as
they fall due and consequently, the directors believe that the Group has
sufficient financial strength to withstand the possible disruption to its
activities.
Based on the above indications the directors believe that it remains
appropriate to prepare the financial statements on a going concern basis.
Revenue Recognition
Performance obligations and timing of revenue recognition
The Group's revenue is derived from selling goods with revenue recognised at a
point in time when control of the goods has transferred to the customer. This
is generally when the goods are delivered to the customer. However, for export
sales, control might also be transferred when delivered either to the port of
departure or port of arrival, depending on the specific terms of the contract
with a customer. There is limited judgement needed in identifying the point
control passes: once physical delivery of the products to the agreed location
has occurred, the group no longer has physical possession, usually will have a
present right to payment (as a single payment on delivery) and retains none of
the significant risks and rewards of the goods in question.
UK sales are recognised and invoiced to the customer once the goods have been
delivered to the customer. Overseas sales are recognised and invoiced to the
customer once the goods have been delivered to the customer or collected by
the customer from the Group's warehouse according to the terms of sale. Online
sales are recognised and invoiced to the customer once the goods have been
delivered to the customer.
Customer loyalty
The Group operates a loyalty reward scheme for 'digital' customers where
points are earned for products purchased online, with 10 points equivalent to
£1. The Group accounts for loyalty points when redeemed as a sales discount
on the sales transaction. A sales discount provision is recognised in the
accounts in relation to points issued but not yet redeemed. When estimating
this provision, the Group considers the likelihood that the customer will
redeem the points. At the year-end there were 6.5 million points yet to be
redeemed, leading to a provision of £32,471 (2021: 2.8 million points leading
to a provision of £14,000).
Under IFRS 15, volume rebates and early settlement discounts represent
variable consideration and is estimated and recognised as a reduction to
revenue as performance obligations are satisfied. Management recognises
revenue based on the amount of estimated rebate to the extent that revenue is
highly probably of not reversing. Management monitors this estimate at each
reporting date and adjusts it as necessary.
Determining the transaction price
Most of the group's revenue is derived from fixed price contracts and
therefore the amount of revenue to be earned from each contract is determined
by reference to those fixed prices. Exceptions are as follows:
· Some contracts provide customers with a limited right of return. These relate
predominantly, but not exclusively, to online sales direct to consumers and
sales made to certain large retailers. Historical experience enables the group
to estimate reliably the value of goods that will be returned and restrict the
amount of revenue that is recognised such that it is highly probable that
there will not be a reversal of previously recognised revenue when goods are
returned.
· Variable consideration relating to volume rebates has been considered in
estimating revenue in order that it is highly probable that there will not be
a future reversal in the amount of revenue recognised when the amount of
volume rebates has been determined.
Allocating amounts to performance obligations
For most contracts, there is a fixed unit price for each product sold, with
reductions given for bulk orders placed at a specific time. Therefore, there
is no judgement involved in allocating the contract price to each unit ordered
in such contracts (it is the total contract price divided by the number of
units ordered). Where a customer orders more than one product line, the Group
is able to determine the split of the total contract price between each
product line by reference to each product's standalone selling prices (all
product lines are capable of being, and are, sold separately).
Practical Exemptions
The group has taken advantage of the practical exemptions:
· not to account for significant financing components where the time difference
between receiving consideration and transferring control of goods (or
services) to its customer is one year or less; and
· expense the incremental costs of obtaining a contract when the amortisation
period of the asset otherwise recognised would have been one year or less.
Expenditure and provisions
Expenditure is recognised in respect of goods and services received when
supplied in accordance with contractual terms. Provision is made when an
obligation exists relating to a past event and where the amount of the
obligation can be reliably estimated.
Retirement Benefits: Defined contribution schemes
Contributions to defined contribution schemes are charged to the consolidated
statement of comprehensive income in the year to which they relate.
Exceptional items and Alternative Performance Measures
Exceptional items which have been disclosed separately on the face of the
Consolidated Statement of Comprehensive Income in order to summarise the
underlying results. Exceptional items in the current period relate to
restructuring costs and legal and professional fees. Neither 'underlying
profit or loss' nor 'exceptional items' are defined by IFRS however the
directors believe that the disclosures presented in this manner provide a
clearer presentation of the underlying financial performance of the Group.
Alternative performance measures (APM's) are used by the Board to assess the
Group's performance and are applied consistently from one period to the next.
They therefore provide additional useful information for shareholders on the
underlying performance and position of the Group. Additionally, adjusted
profit from operations is used to determine adjusted EPS which is used as a
key performance indicator for the Long-Term Incentive Plan (LTIP) and the
Company Share Option Scheme (CSOP). These measures are not defined by IFRS and
are not intended to be a substitute for IFRS measures. The Group presents
underlying profit from operations, profit before tax and EPS which are
calculated as the statutory measures stated before non-underlying items,
including exceptional items, amortisation of intangible assets and share-based
payments where applicable.
Underlying results are used in the day-to-day management of the Group. They
represent statutory measures adjusted for items which could distort the
understanding of performance and comparability year on year. Non-underlying
items include the amortisation of intangible assets, exceptional items and
share-based payments. Exceptional items are those items which the group
consider to be significant in nature and not in the normal course of business
or are consistent with items that were treated as exceptional in prior
periods.
Intangible assets
Patents
Patents are used by the Group in order to generate future economic value
through normal business operations. Patents are acquired separately and
carried at cost less amortisation and impairment. The underlying assets are
amortised over the period from which the Group expects to benefit, which is
typically between five to ten years.
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are
carried at cost less accumulated amortisation and accumulated impairment
losses. Amortisation is recognised on a straight-line basis over their
estimated useful lives. The estimated useful life and amortisation method are
reviewed at the end of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis. Intangible assets with
indefinite useful lives that are acquired separately are carried at cost less
accumulated impairment losses. Amortisation is provided on Licences and
Website costs so as to write off the carrying value over the expected useful
economic life of five years.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately
from goodwill are initially recognised at their fair value at the acquisition
date (which is regarded as their cost). Subsequent to initial recognition,
intangible assets acquired in a business combination are reported at cost less
accumulated amortisation and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately. Amortisation is provided on
customer lists and brands so as to write off the carrying value over the
expected useful economic life of five years. Other details of the acquisition
are detailed in note 9.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
Group's interest in the fair value of identifiable assets, liabilities and
contingent liabilities acquired.
Cost comprises the fair value of assets given, liabilities assumed, and equity
instruments issued, plus the amount of any non-controlling interests in the
acquiree. Contingent consideration is included in cost at its acquisition date
fair value and, in the case of contingent consideration classified as a
financial liability, remeasured subsequently through profit or loss.
Goodwill is considered to have an indefinite useful economic life and is
capitalised as an intangible asset with any impairment in carrying value being
charged to the consolidated statement of comprehensive income. Where the fair
value of identifiable assets, liabilities and contingent liabilities exceed
the fair value of consideration paid, the excess is credited in full to the
consolidated statement of comprehensive income on the acquisition date.
Impairment of non-financial assets (excluding inventories and deferred tax
assets)
Impairment tests on goodwill and other intangible assets with indefinite
useful economic lives are undertaken annually at the financial year end. Other
non-financial assets are subject to impairment tests whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its recoverable
amount (i.e. the higher of value in use and fair value less costs to sell),
the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the smallest group of assets to
which it belongs for which there are separately identifiable cash flows; its
cash generating units ('CGUs'). Goodwill is allocated on initial recognition
to each of the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the extent they
reverse gains previously recognised in other comprehensive income. An
impairment loss recognised for goodwill is not reversed.
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic
benefits are expected from use or disposal. Gains or losses arising from
derecognition of an intangible asset, measured as the difference between the
net disposal proceeds and the carrying amount of the asset, are recognised in
profit or loss when the asset is derecognised.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As
well as the purchase price, cost includes directly attributable costs.
Depreciation is provided on all items of property, plant and equipment so as
to write off their carrying value over the expected useful economic lives. It
is provided at the following rates:
Plant and machinery - 25% reducing balance or 20% straight line
Fixtures and fittings - 25% reducing balance or 20% straight line
Computer equipment - 25% reducing balance or 33.33% straight line
Motor vehicles - 20% straight line
Right-of-Use Assets
Right-of-use assets are measured at cost, which is made up of the initial
measurement of the lease liability adjusted for any lease payments made at or
before the commencement date, plus any initial direct costs incurred and an
estimate of costs to dismantle and remove the asset at the end of the lease,
less any lease incentives received.
The Group depreciates the right-of-use assets on a straight-line basis from
the lease commencement date to the earlier of the end of the useful life of
the right-of-use asset or the end of the lease term.
The Group also assesses the right-of-use asset for impairment when such
indicators exist.
The right-of-use assets are included in a separate line within non-current
assets on the Consolidated Balance Sheet.
Financial assets
The Group classifies its financial assets into one of the categories discussed
below, depending on the purpose for which the asset was acquired. Other than
financial assets in a qualifying hedging relationship, the Group's accounting
policy for each category is as follows:
Fair value through profit or loss
This category comprises in-the-money derivatives and out-of-money derivatives
where the time value offsets the negative intrinsic value (see "Financial
liabilities" section for out-of-money derivatives classified as liabilities).
They are carried in the statement of financial position at fair value with
changes in fair value recognised in the consolidated statement of
comprehensive income in the finance income or expense line. Other than
derivative financial instruments which are not designated as hedging
instruments, the Group does not have any assets held for trading nor does it
voluntarily classify any financial assets as being at fair value through
profit or loss.
Amortised cost
These assets arise principally from the provision of goods and services to
customers (e.g. trade receivables), but also incorporate other types of
financial assets where the objective is to hold these assets in order to
collect contractual cash flows and the contractual cash flows are solely
payments of principal and interest. They are initially recognised at fair
value plus transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost using the
effective interest rate method, less provision for impairment.
Impairment requirements use an 'expected credit loss' ('ECL') model to
recognise an allowance. Impairment is measured using a 12- month ECL method
unless the credit risk on a financial instrument has increased significantly
since initial recognition in which case the lifetime ECL method is adopted.
For receivables, a simplified approach to measuring expected credit losses
using a lifetime expected loss allowance is available and has been adopted by
the Group. During this process the probability of the non-payment of the trade
receivables is assessed. This probability is then multiplied by the amount of
the expected loss arising from default to determine the lifetime expected
credit loss for the trade receivables. For trade receivables, which are
reported net, such provisions are recorded in a separate provision account
with the loss being recognised within administrative expenses in the
consolidated statement of comprehensive income. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
The Group's financial assets measured at amortised cost comprise trade and
other receivables, and cash and cash equivalents in the consolidated statement
of financial position.
Cash and cash equivalents include cash in hand, deposits held at call with
banks, other short term highly liquid investments with original maturities of
three months or less, and - for the purpose of the statement of cash flows -
bank overdrafts. Bank overdrafts are shown within loans and borrowings in
current liabilities on the consolidated statement of financial position.
Financial liabilities
The Group classifies its financial liabilities into one of two categories,
depending on the purpose for which the liability was acquired. The Group's
accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises out-of-the-money derivatives where the time value does
not offset the negative intrinsic value (see "Financial assets" for
in-the-money derivatives and out-of-money derivatives where the time value
offsets the negative intrinsic value). They are carried in the consolidated
statement of financial position at fair value with changes in fair value
recognised in the consolidated statement of comprehensive income. The Group
does not hold or issue derivative instruments for speculative purposes, but
for hedging purposes. Other than these derivative financial instruments, the
Group does not have any liabilities held for trading nor has it designated any
financial liabilities as being at fair value through profit or loss.
Other financial liabilities
Other financial liabilities include the following items:
· Bank loans which are initially recognised at fair value net of any transaction
costs directly attributable to the issue of the instrument. Such
interest-bearing liabilities are subsequently measured at amortised cost
ensuring the interest element of the borrowing is expensed over the repayment
period at a constant rate.
· Trade payables, other borrowings and other short-term monetary liabilities,
which are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage
its exposure to foreign exchange rate risk, through the use of foreign
exchange rate forward contracts.
Derivatives are initially recognised at fair value at the date the derivative
contracts are entered into and are subsequently re-measured to their fair
value at the end of each reporting period. The resulting gain or loss is
recognised in profit or loss immediately unless the derivative is designated
and effective as a hedging instrument, in which event the timing of the
recognition in profit or loss depends on the nature of the hedge relationship.
Foreign currencies
Transactions entered into by Group entities in a currency other than the
currency of the primary economic environment in which they operate (their
"functional currency") are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the reporting date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are recognised
immediately in profit or loss, except for foreign currency borrowings
qualifying as a hedge of a net investment in a foreign operation, in which
case exchange differences are recognised in other comprehensive income and
accumulated in the foreign exchange reserve along with the exchange
differences arising on the retranslation of the foreign operation.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for:
· leases of low value assets; and
· leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is
typically the case) this is not readily determinable, in which case the
group's incremental borrowing rate on commencement of the lease is used.
Variable lease payments are only included in the measurement of the lease
liability if they depend on an index or rate. In such cases, the initial
measurement of the lease liability assumes the variable element will remain
unchanged throughout the lease term. Other variable lease payments are
expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also
includes:
· amounts expected to be payable under any residual value guarantee;
· the exercise price of any purchase option granted in favour of the group if it
is reasonably certain to assess that option; and
· any penalties payable for terminating the lease, if the term of the lease has
been estimated on the basis of termination option being exercised.
Right of use assets are initially measured at the amount of the lease
liability, reduced for any lease
incentives received, and increased for:
· lease payments made at or before commencement of the lease;
· initial direct costs incurred; and
· the amount of any provision recognised where the group is contractually
required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a straight-line
basis over the remaining term of the lease or over the remaining economic life
of the asset if, rarely, this is judged to be shorter than the lease term.
When the group revises its estimate of the term of any lease (because, for
example, it re-assesses the probability of a lessee extension or termination
option being exercised), it adjusts the carrying amount of the lease liability
to reflect the payments to make over the revised term, which are discounted at
the same discount rate that applied on lease commencement. The carrying value
of lease liabilities is similarly revised when the variable element of future
lease payments dependent on a rate or index is revised. In both cases an
equivalent adjustment is made to the carrying value of the right-of-use asset,
with the revised carrying amount being amortised over the remaining (revised)
lease term.
When the group renegotiates the contractual terms of a lease with the lessor,
the accounting depends
on the nature of the modification:
· if the renegotiation results in one or more additional assets being leased for
an amount commensurate with the standalone price for the additional
rights-of-use obtained, the modification is accounted for as a separate lease
in accordance with the above policy ;
· in all other cases where the renegotiated increases the scope of the lease
(whether that is an extension to the lease term, or one or more additional
assets being leased), the lease liability is remeasured using the discount
rate applicable on the modification date, with the right-of-use asset being
adjusted by the same amount ; and
· if the renegotiation results in a decrease in the scope of the lease, both the
carrying amount of the lease liability and right-of-use asset are reduced by
the same proportion to reflect the partial of full termination of the lease
with any difference recognised in profit or loss. The lease liability is then
further adjusted to ensure its carrying amount reflects the amount of the
renegotiated payments over the renegotiated term, with the modified lease
payments discounted at the rate applicable on the modification date. The
right-of-use asset is adjusted by the same amount.
For contracts that both convey a right to the group to use an identified asset
and require services to be provided to the group by the lessor, the group has
elected to account for the entire contract as a lease, i.e. it does allocate
any amount of the contractual payments to, and account separately for, any
services provided by the supplier as part of the contract.
Nature of leasing activities (in the capacity as lessee)
The group leases a number of properties in the jurisdictions from which it
operates with a fixed periodic rent over the lease term. The group has a total
of 7 property leases.
Taxation
Income tax expense represents the sum of the tax currently payable and
deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from 'profit before tax' as reported in the consolidated
statement of comprehensive income and other comprehensive income because of
items of income or expense that are taxable or deductible in other years and
items that are never taxable or deductible.
The Group's current tax is calculated using tax rates that have been enacted
or substantively enacted by the end of the reporting period.
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the combined statement of financial position
differs from its tax base, except for differences arising on:
· the initial recognition of goodwill;
· the initial recognition of an asset or liability in a transaction which is not
a business combination and at the time of the transaction affects neither
accounting or taxable profit; and
· investments in subsidiaries and jointly controlled entities where the Group is
able to control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the end of the reporting period and
are expected to apply when the deferred tax liabilities or assets are settled
or recovered. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
· the same taxable group company; or
· different company entities which intend either to settle current tax assets
and liabilities on a net basis, or to realise the assets and settle the
liabilities simultaneously, in each future period in which significant amounts
of deferred tax assets and liabilities are expected to be settled or
recovered.
Inventories
Inventories are initially recognised at cost, and subsequently at the lower of
the cost and net realisable value. Cost comprises all costs of purchase, costs
of conversion and other costs incurred in bringing the inventories to their
present location and condition.
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision maker has been identified as the management team including the Chief
Executive Officers, Managing Director and the Chief Financial Officer.
The Board considers that the Group's project activity constitutes the two
operating and two reporting segments presented in Note 2, as defined under
IFRS 8. Management reviews the performance of the Group by reference to total
results against budget.
The total profit measures are operating profit and profit for the year, both
disclosed on the face of the combined income statement. No differences exist
between the basis of preparation of the performance measures used by
management and the figures in the Group financial information.
Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders of the parent by the weighted average number of
ordinary shares outstanding during the year, excluding treasury shares and
shares in employee benefit trusts, determined in accordance with the
provisions of IAS 33 earnings per Share. Diluted earnings per share is
calculated by dividing earnings attributable to ordinary shareholders of the
parent by the weighted average number of ordinary shares outstanding during
the year adjusted for the potentially dilutive ordinary shares.
Share Capital
The Group's ordinary shares are classified as equity instruments.
Share-based payments
Where equity settled share options are awarded to employees, the fair value of
the options at the date of grant is charged to the consolidated statement of
comprehensive income over the vesting period. Non-market vesting conditions
are considered by adjusting the number of equity instruments expected to vest
at each reporting date so that, ultimately, the cumulative amount recognised
over the vesting period is based on the number of options that eventually
vest. Non-vesting conditions and market vesting conditions are factored into
the fair value of the options granted. As long as all other vesting conditions
are satisfied, a charge is made irrespective of whether the market vesting
conditions are satisfied. The cumulative expense is not adjusted for failure
to achieve a market vesting condition or where a non-vesting condition is not
satisfied.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the consolidated statement of
comprehensive income over the remaining vesting period.
Where equity instruments are granted to persons other than employees, the
consolidated statement of comprehensive income is charged with the fair value
of goods and services received.
Dividends
Dividends are recognised when they become legally payable. In the case of
interim dividends to equity shareholders, this is when declared by the
directors. In the case of final dividends, this is when approved by the
shareholders at the annual general meeting.
Changes in accounting policies
New standards, interpretations and amendments that are effective for the first
time for the financial year beginning 31 December 2022
IFRS 3 Amendments updating a reference to the conceptual framework
IFRS 9 Amendments resulting from the annual improvements to IFRS Standards 2018-2020
(fees in the '10 percent' test for derecognition of financial liabilities)
IAS 16 Amendments prohibiting a Company from deducting the cost of property, plant
and equipment amounts received from selling items while the Company is
preparing the asset for its intended use.
IAS 37 Amendments regarding the costs to include when assessing whether contracts are
onerous
New standards, interpretations and amendments effective from 1 January 2023
At the date of authorisation of these financial statements, certain new
standards, amendments and interpretations to existing standards have been
published by the IASB and adopted by the EU but are not yet effective and have
not been adopted early by the Group. Management anticipates that all of the
relevant pronouncements will be adopted in the Group's accounting policies for
the first period beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that are expected
to be relevant to the Group's financial statements is provided below. Certain
other new standards and interpretations have been issued but are not expected
to have a material impact on the Group's financial statements.
Effect annual periods beginning before or after
IFRS 4 Amendments regarding the expiry date of the deferral approach 1(st) January 2023
IFRS 17 Insurance contracts 1(st) January 2023
IFRS 17 Amendments regarding comparative information for initial application of IFRS 1(st) January 2023
17 and IFRS 9
IAS 1 Amendments regarding disclosure of accounting policies 1(st) January 2023
IAS 1 Amendments regarding the classification of covenants
IAS 8 Amendments regarding the definition of accounting estimates 1(st) January 2023
IAS 12 Amendments resulting from deferred tax assets and liabilities arising from a 1(st) January 2023
simple transaction
IFRS 16 Amendments to clarify seller-lessee subsequently measured sale and leaseback 1(st) January 2024
transactions
Critical accounting judgements and key sources of estimation uncertainty
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including the expectations of future events that
are believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below.
Key sources of estimation uncertainty
a) Inventories
Inventories are initially recognised at cost, and subsequently at the lower of
the cost and net realisable value. There is judgement involved in assessing
the level of inventory provision required in respect of slow-moving inventory.
Inventory is carried at a value of £18.7 million at the year end.
The Group makes a 50% provision for perishable items of stock that are greater
than two years old. Should the Group increase the provision to 100% of
perishable items that are greater than two years old, this would decrease
profit by £303,327. The Group does not provide any provision on its
non-perishable goods that are greater than two years old on the basis that the
products have long shelf life. Should the Group increase the provision to 100%
of non-perishable items that are greater than two years old, this would
decrease profit by £163,653.
b) Valuation of goodwill
The assessment of the recoverable amount of goodwill allocated to Retra
Holdings Limited, Marvin Leeds Marketing Services, Inc. and Treasured Scents
Limited, as detailed in note 9, was based on fair value less costs to sell and
value in use calculations which involved judgements over the assumptions
applied. For Retra Holdings Limited, a 1% increase in the discount rate from
13.3% to 14.3% would reduce the value in use by approximately £5.1 million
leaving headroom of £44 million above the carrying value. For Marvin Leeds
Marketing Services, Inc., a 1% increase in the discount rate from 10.4% to
11.4% would reduce the value in use by approximately £0.8 million leaving
headroom of £4.6 million above the carrying value. For Treasured Scents
Limited, a 1% increase in the discount rate from 13.3% to 14.3% would reduce
the value in use by approximately £0.6 million leaving headroom of £6.2
million above the carrying value. None of these scenarios would therefore
result in any impairment of the goodwill.
Critical accounting judgements
c) Deferred tax assets
Deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. The carrying amount of deferred tax assets is
reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all
or part of the assets to be recovered.
2. Segmental information
For management purposes, the Group is organised into two operating segments;
Branded and Close-out. The segment 'Branded' relates to the sale of own
branded products whereas 'Close-out' relates to the purchase of third-party
stock which is then repackaged for sale. These segments are the basis on which
the Group reports internally to the Board. The executive directors Sam Bazini,
Eoin Macleod and Neil Rodol together with members from the Groups senior
management teams are the chief operating decision makers of the whole
business.
Year ended 31 December 2022 2022 2022 2021 2021 2021
Own Brand Close-out Total Own Brand Close-out Total
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 60,288 3,770 64,058 45,525 4,478 50,003
Cost of sales (38,327) (2,397) (40,724) (30,131) (2,964) (33,095)
Gross profit 21,961 1,373 23,334 15,394 1,514 16,908
Administrative expenses (14,319) (896) (15,215) (11,389) (1,120) (12,509)
Exceptional items (143) (9) (152) (586) - (586)
Segment result 7,499 468 7,967 3,419 394 3,813
Reconciliation of segment result to profit before tax:
Segment result 7,499 468 7,967 3,419 394 3,813
Finance expense (277) - (277) (88) - (88)
Profit before tax 7, 222 468 7,690 3,331 394 3,725
Analysis of total revenue by geographical market:
UK 24,277 3,287 27,564 21,358 3,965 25,323
Europe - Other 6,942 13 6,955 5,627 41 5,668
Europe - Spain 8,005 194 8,199 5,484 138 5,622
Europe - Denmark 12,822 98 12,920 6,741 8 6,749
Rest of World - USA 5,163 178 5,341 2,650 326 2,976
Rest of World - Australia and New Zealand 1,565 - 1,565 2,567 - 2,567
Rest of World - Other 1,514 - 1,514 1,098 - 1,098
Total 60,288 3,770 64,058 45,525 4,478 50,003
During the year ended 31 December 2022, revenues of approximately £11.2
million (2021: £5.1 million) were derived from a single external customer
based in Denmark (17.5%; 2021: 10.2%).
The Directors are not able to attribute the Group's assets and liabilities by
reportable business segment.
Analysis of non-current assets by geographical market.
Year ended 31 December 2022 2022 2022 2021 2021 2021
UK USA Total UK USA Total
£'000 £'000 £'000 £'000 £'000 £'000
Goodwill 6,720 554 7,274 6,720 554 7,274
Customer lists - 160 160 1,072 374 1,446
Brand - 3 3 683 - 683
Patents 105 - 105 127 - 127
Website 9 - 9 4 - 4
Property, plant and equipment 1,427 5 1,432 1,379 6 1,385
Right of use assets 5,624 35 5,659 2,995 78 3,073
13,885 757 14,642 12,980 1,012 13,992
3. Operating profit
Operating profit for the period is stated after charging/(crediting):
Year ended 31 December
2022 2021
£'000 £'000
Foreign exchange gain (133) (614)
Depreciation 761 648
Amortisation of right-of-use assets 965 690
Amortisation of intangible assets 1,995 2,394
Movement of inventories at net realisable value (151) (5)
Exceptional costs 152 586
The expenditure incurred within the table above falls wholly within
Administrative expenses.
Exceptional costs
Year ended 31 December
2022 2021
£'000 £'000
Non-recurring legal and professional fees - 187
Royalty claim and associated legal fees 152 370
Restructuring costs - 29
152 586
During the year the Group agreed a settlement regarding a dispute with a third
party relating to the historic use of content on the Group's social media
platforms in the period from 2018 through to early 2021. The total
settlement including associated legal costs was £0.52 million, of which
£0.37 million was provided for in the year to 31 December 2021. The payment
and the restriction of content use will not affect the ongoing operations of
the Group's businesses.
Auditor's Remuneration
Analysis of auditor's remuneration is as follows:
Year ended 31 December
2022 2021
£'000 £'000
Fees payable to the Company's auditor for the audit of the Group's annual 91 64
accounts
Fees payable to the Company's auditor for the audit of subsidiary companies 106 101
197 165
Other services pursuant to legislation:
Tax advice 15 28
Other assurance 3 2
Total non-audit fees 18 30
4. Staff costs
Year ended 31 December
2022 2021
£'000 £'000
Wages and salaries 6,103 5,232
Social security costs 738 553
Pension costs (note 24) 101 88
6,942 5,873
The average monthly number of employees during the period was as follows:
Year ended 31 December
2022 2021
No. No.
Directors 7 7
Administrative 24 27
Finance 9 8
Warehouse 58 48
Sales 13 11
New Product Development and PR 14 12
125 113
2022 2021
Directors' remuneration, included in staff costs £'000 £'000
Salaries 985 858
Share based payments (note 21) 125 117
Benefits 23 20
Pension contributions 2 4
1,135 999
Remuneration in respect of Directors was as follows:
Salary/ fees and bonus Share based payment Benefits Pension contribution 2022 Total Remuneration
2021
£'000 £'000 £'000 £'000 £'000 £'000
Executive Directors
S Bazini 260 27 13 - 300 281
E Macleod 260 27 10 - 297 279
N Rodol 212 50 - 1 263 223
S Craig 63 1 - 1 65 63
P Hagon* 40 20 - - 60 40
Non-executive Directors
C Garston 66 - - - 66 60
K Sadler 44 - - - 44 40
J Collier** 40 - - - 40 13
985 125 23 2 1,135 999
* Shares granted to consultancy company Ward & Hagon Management Consulting
LLP, of which director Paul Hagon is a member.
** Appointed 1 September 2021 and resigned 31 December 2022.
Directors' interests in share options for year ended 31 December 2022
As at 31 December 2022, the following Directors held the following performance
related share awards (Enterprise Management Incentive Scheme Options, LTIPs or
CSOPs) over ordinary shares of 25p each under the Warpaint London plc
Enterprise Management Incentive Scheme, the Long Term Incentive Plan and the
Warpaint London plc Company Share Option Plan. For details of the share
option schemes see Note 21 in the Financial Statements.
Type of Share Award Date of Grant Number of Shares at 31 December 2022 Exercise Price End of Performance Period/First Exercise Date Number of Shares at 31 December 2021 (or date of appointment if later)
S Bazini LTIP 21.09.2018 1,534,986 254.5p 31.12.2022 1,534,986
E Macleod LTIP 21.09.2018 1,534,986 254.5p 31.12.2022 1,534,986
N Rodol EMI 29.06.2017 105,262 237.5p 29.06.2020 105,262
LTIP 21.09.2018 306,996 254.5p 31.12.2022 306,996
EMI (Non-Qualifying) 24.05.2021 225,410 122.0p 24.05.2024 225,410
CSOP 24.05.2021 24,590 122.0p 24.05.2024 24,590
S Craig EMI 29.06.2017 10,000 237.5p 29.06.2020 10,000
CSOP 20.05.2020 10,000 49.5P 20.05.2023 10,000
P Hagon EMI (Non-Qualifying) 01.03.2022 200,000* 127.5p 01.03.2025 -
C Garston - - - - - -
K Sadler - - - - - -
J Collier** - - - - - -
* Shares granted to consultancy company Ward & Hagon Management Consulting
LLP, of which director Paul Hagon is a member.
** Appointed 1 September 2021 and resigned 31 December 2022.
The Directors of the Group are the only key management personnel.
5. Net finance cost
Year ended 31 December
2022 2021
£'000 £'000
Interest received 4 2
Interest paid
Loan interest - (5)
Lease liability interest (note 16) (185) (84)
Other interest (96) (1)
(277) (88)
6. Income tax
Year ended 31 December
2022 2021
£'000 £'000
Current tax expense
Current tax on profits for the period 1,746 1,262
1,746 1,262
Deferred tax expense
Origination and reversal of temporary differences (377) (367)
Total tax expense 1,440 895
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the United Kingdom applied to profit
for the year as follows:
Year ended 31 December
2022 2021
£'000 £'000
Profit for the period before taxation 7,690 3,725
Expected tax charge based on corporation tax rate of 19% (2021: 19%) 1,461 708
(Income)/expenses not (allowable)/deductible for tax purposes (11) 74
Other adjustments (41) 1
Different tax rates applied in overseas jurisdiction 31 30
Adjustment to deferred tax to average rate - 82
Total tax expense 1,440 895
The UK corporation tax at the standard rate for the year is 19.0% (2021:
19.0%).
The Group's effective tax rate for the year is 18.73% (2021 24.03%).
7. Subsidiaries
At the period end, the Group has the following subsidiaries:
Subsidiary name Nature of business Place of incorporation Percentage owned
Warpaint Cosmetics Group Limited Holding company England and Wales 100%
Warpaint Cosmetics (2014) Limited* Wholesaler England and Wales 100%
Treasured Scents (2014) Limited Holding company England and Wales 100%
Treasured Scents Limited* Dormant England and Wales 100%
Warpaint Cosmetics Inc. Holding company U.S.A. 100%
Retra Holdings Limited Holding company England and Wales 100%
Badgequo Limited* Wholesaler England and Wales 100%
Retra Own Label Limited* Dormant England and Wales 100%
Badgequo Hong Kong Limited* Supply chain management Hong Kong 100%
Jinhua Badgequo Cosmetics Trading Co., Ltd* Wholesaler People's Republic of China 100%
Marvin Leeds Marketing Services, Inc.* Wholesaler U.S.A. 100%
Warpaint Cosmetics (ROI) Limited Wholesaler Republic of Ireland 100%
* indicates indirect interest
All entities detailed above have been in existence for the whole of the
reporting period.
The registered office for all UK incorporated subsidiaries is Units B&C,
Orbital Forty-Six, The Ridgeway Trading Estate, Iver, Bucks. SL0 9HW.
The registered office for Warpaint Cosmetics Inc.is 445 Northern Boulevard -
Great Neck, New York 11021.
The registered office for Badgequo Hong Kong Limited is 12F, 3 Lockhart Road,
Wanchai, Hong Kong.
The registered office for Jinhua Badgequo Cosmetics Trading Co. Ltd is Room
1401, Gongyuan Building No. 307 South Shuanglong Street, Wucheng District,
Jinhua, Zhejiang, China 321000.
The registered office for Marvin Leeds Marketing Services, Inc. is 34W. 33rd
St. - Suite 301, New York NY 10001.
The registered office for Warpaint Cosmetics (ROI) Limited is 6(th) Floor,
South Bank House, Barrow Street, Dublin 4, D04 TR29.
8. Goodwill
Cost £'000
At 1 January 2021 8,086
At 31 December 2021 8,086
At 1 January 2022 8,086
At 31 December 2022 8,086
Impairment
At 1 January 2021 812
Impairment during the year -
At 31 December 2021 812
At 1 January 2022 812
At 31 December 2022 812
Net book value
At 31 December 2022 7,274
At 31 December 2021 7,274
Goodwill represents the excess of consideration over the fair value of the
Group's share of the net identifiable assets of the acquired business/CGU at
the date of acquisition. The carrying value at 31 December 2022 includes
Treasured Scents (2014) Limited ("TS2014") (the Close-out business) of
£513,000, Retra Holdings Limited £6,207,000 and Marvin Leeds Marketing
Services, Inc. £554,000.
Impairment is calculated by comparing the carrying amounts to the recoverable
amount being the higher of value in use derived from discounted cash flow
projections or the fair value less costs to sell. A CGU is deemed to be an
individual division, and these have been grouped together into similar classes
for the purpose of formulating operating segments as reported in Note 2. Value
in use calculations are based on a discounted cash flow model ("DCF") for the
subsidiary, which discounts expected cash flows over a five-year period using
a post-tax discount rate of 13.3% (2021: 10.0%) for Retra Holdings Limited and
10.4% (2021: 11.4%) for Marvin Leeds Marketing Services, Inc. and 13.3% for
TS2014 (2021: 10%). Cash flows beyond the five-year period are extrapolated
using a long-term average growth rate of 2.0% (2021: 2.0%). The average growth
rate beyond the five-year period is lower than current growth rates and is in
line with Management's expectations for the business.
The fair value less costs to sell was based on a multiple of earnings less
estimated costs to sell. Management have performed the annual impairment
review as required by IAS 36 and have concluded that no impairment is
indicated for TS2014, Retra Holdings Limited ("Retra") or Marvin Leeds
Marketing Services, Inc. ("LMS") as the recoverable amounts exceeds the
respective carrying values.
Key assumptions and sensitivity to changes in assumptions
The key assumptions are based upon management's historical experience. The
calculation of VIU is most sensitive to the following assumptions:
· Sales and gross margin - for LMS this is based on forecasts incorporating a
compound annual growth rate of 15% revenue over the next five years. For
Retra, the compound annual growth rate over the next five years is anticipated
to be 15%. For Treasured Scents the compound annual growth rate over the next
five years is anticipated to be 2.5% in the year ended 31 December 2022. The
gross margins for LMS, Retra and Treasured Scents are based on historical
rates achieved.
· Administrative expenses are expected to increase by 5% in LMS, 15% in Retra
and 5% in Treasured Scents in the year ending 31 December 2023 with 5%
incremental increases annually thereafter.
· Discount Rate - pre-tax discount rate of 13.3% for Retra Holdings Limited,
10.4% for Marvin Leeds Marketing Services, Inc. and 13.3% for Treasured Scents
reflects the Directors' estimate of an appropriate rate of return, considering
the relevant risk factors.
· Growth Rate - used to extrapolate beyond the budget period and for terminal
values based on a long-term average growth rate of 2.0%.
Sensitivity to changes in assumptions
The impairment review of the Group is sensitive to changes in the key
assumptions, most notably the pre-tax discount rate, the terminal growth rate,
the projected operating cash flows. Reasonable changes to these assumptions
are considered to be:
· 1.0% increase in the pre-tax discount rate;
· reduction in the terminal growth rate to 1%; and
· 10.0% reduction in projected operating cash flows.
Reasonable changes to the assumptions used, considered in isolation, would not
result in an impairment of goodwill for LMS, Retra or TS2014.
9. Intangible assets
Brands Customer lists Patents Website Licences Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2021 3,802 8,240 264 45 6 12,357
Additions - - 3 - - 3
At 31 December 2021 3,802 8,240 267 45 6 12,360
Additions - 1 3 8 - 12
At 31 December 2022 3,802 8,241 270 53 6 12,372
Accumulated amortisation
At 1 January 2021 2,350 5,198 116 37 5 7,706
Charge for the year 765 1,600 24 4 1 2,394
At 31 December 2021 3,115 6,798 140 41 6 10,100
Charge for the year 684 1,283 25 3 - 1,995
At 31 December 2022 3,799 8,081 165 44 6 12,095
Net book value
At 31 December 2022 3 160 105 9 - 277
At 31 December 2021 687 1,442 127 4 - 2,260
10. Property, plant and equipment
Plant and machinery Fixtures and fittings Computer equipment Motor vehicles Total
£'000 £'000 £'000 £'000 £'000
Costs
At 1 January 2021 252 1,673 344 120 2,389
Reclassification to right-of-use assets
Additions 15 558 23 - 596
Transfer from right-of-use assets 760 - - - 760
At 31 December 2021 1,027 2,231 367 120 3,745
Additions 301 409 91 30 831
Disposals - (349) (3) (72) (424)
Foreign exchange gain/loss (37) - 16 - (21)
At 31 December 2022 1,291 2,291 471 78 4,131
Accumulated depreciation
At 1 January 2021 100 785 251 104 1,240
Charge for year 189 410 39 11 649
Transfer from right-of-use assets 471 - - - 471
At 31 December 2021 760 1,195 290 115 2,360
Charge for year 181 538 37 5 761
Disposals - (349) (1) (72) (422)
At 31 December 2022 941 1,384 326 48 2,699
Net book value
At 31 December 2022 350 907 145 30 1,432
At 31 December 2021 267 1,036 77 5 1,385
Transferred from right of use assets category represents the return of ROU
assets at expiry of the lease and where title is transferred to the Group.
11. Right-of-use assets
Leasehold property Plant and machinery Computer equipment Total
£'000 £'000 £'000 £'000
Costs
At 1 January 2021 4,796 760 77 5,633
Additions 253 - - 253
Transfer to property, plant and equipment - (760) - (760)
At 31 December 2021 5,049 - 77 5,126
Additions 3,551 - - 3,551
Transfer to property, plant and equipment - - - -
At 31 December 2022 8,600 - 77 8,677
Accumulated amortisation
At 1 January 2021 1,286 471 77 1,834
Charge for the year 690 - - 690
Transfer to property, plant and equipment - (471) - (471)
At 31 December 2021 1,976 - 77 2,053
Charge for the year 965 - - 965
Transfer to property, plant and equipment - - - -
At 31 December 2022 2,941 - 77 3,018
Net Book Value
At 31 December 2022 5,659 - - 5,659
At 31 December 2021 3,073 - ,- 3,073
Transferred from right of use assets category represents the return of ROU
assets at expiry of the lease and where title is transferred to the Group.
The weighted average incremental borrowing rate applied to measure lease
liabilities is 3.99% (2021: 3.73%) for leasehold property.
12. Inventories
As at 31 December
2022 2021
£'000 £'000
Finished goods 19,080 18,655
Provision for impairment (365) (516)
18,715 18,139
The cost of inventories recognised as an expense and included in 'cost of
sales' amounted to £35.09 million in the year ended 31 December 2022 (2021:
£28.56 million).
13. Trade and other receivables
As at 31 December
2022 2021
£'000 £'000
Trade receivables - gross 9,935 8,755
Provision for impairment of trade receivables (70) (66)
Trade receivables - net 9,865 8,689
Other receivables 213 92
Prepayments and accrued income 1,615 1,541
Total 11,693 10,322
The directors consider that the carrying values of trade and other receivables
measured at book value and amortised cost approximates to their fair value.
The individually impaired receivables relate to the supply of goods to
customers. A provision is recognised for amounts not expected to be recovered.
Movements in the accumulated impairment losses on trade receivables were as
follows:
As at 31 December
2022 2021
£'000 £'000
Accumulated impairment losses at 1 January 66 44
Additional impairment losses recognised during the year, net 4 66
Amounts written off during the year as uncollectible - (44)
Accumulated impairment losses at 31 December 70 66
The impairment losses recognised during the year are net of a credit of
£9,000 (2021: Nil) relating to the recovery of amounts previously written off
as uncollectable.
Contract Liabilities
As at 31 December
2022 2021
£'000 £'000
At 1 January 219 292
Amounts included in contract liabilities that was recognised as revenue during 525 530
the period
Amounts settled during the period (501) (603)
At 31 December 243 219
Contract liabilities are included within "trade and other receivables" in the
face of the statement of financial position being settled net of the trade
debtor balances. They arise from the group's own brand segment, which enter
into contracts with customers for early settlement discounts, marketing
contributions and volume rebates, because the invoiced amounts to customers at
each balance sheet date do not consider the amount or rebate and discounts the
customers are entitled to until settlement of the debtor balance at a certain
time.
14. Cash and cash equivalents
Cash and cash equivalents include the following for the purposes of the cash
flow statement:
As at 31 December
2022 2021
£'000 £'000
Cash at bank and in hand 5,865 4,072
5,865 4,072
15. Trade and other payables
As at 31 December
2022 2021
£'000 £'000
Current
Trade payables 1,368 1,847
Social security and other taxes 1,294 293
Other payables 101 66
Accruals and deferred income 3,225 4,087
Total 5,988 6,293
The directors consider that the carrying values of trade and other payables
measured at book value and amortised cost approximates to their fair value.
16. Loans and borrowings
As at 31 December
2022 2021
£'000 £'000
Bank loans
Repayable within 1 year - -
Repayable within 2 - 5 years - -
- -
Lease liabilities
Repayable within 1 year 1,015 610
Repayable within 2 - 5 years 3,498 2,261
Repayable in more than 5 years 1,349 276
5,862 3,147
Total
Repayable within 1 year 1,015 610
Repayable within 2 - 5 years 3,498 2,261
Repayable in more than 5 years 1,349 276
5,862 3,147
Undiscounted lease payments
As at 31 December
2022 2021
£'000 £'000
Lease liabilities
Repayable within 1 year 1,200 684
Repayable within 2 - 5 years 4,027 2,390
Repayable in more than 5 years 1,465 281
Total 6,692 3,355
Lease liabilities
As at 31 December
Leasehold property Plant and machinery Computer equipment Total
£'000 £'000 £'000 £'000
At 1 January 2021 3,659 252 - 3,911
Lease additions 253 - - 253
Interest expense 84 - - 84
Lease payments (765) (252) - (1,017)
Prior period adjustment (84) - - (84)
As at 31 December 2021 3,147 - - 3,147
Lease additions 3,551 - - 3,551
Interest expense 185 - - 185
Lease payments (1,021) - - (1,021)
As at 31 December 2022 5,862 - - 5,862
Nature of lease liabilities
The group leases a number of properties in the United Kingdom and United
States of America.
An additional £Nil (2021: £1,061) has been expensed to the statement of
comprehensive income in respect of low value operating leases. Interest
payments of £Nil (2021: £Nil) have also been expensed in respect of leases
that expired during the period.
The interest rates expected are as follows:
As at 31 December
2022 2021
% %
Finance loans - 7.0
Bank loans - 8.75
Invoice financing 5.49¹ 3.25
Note 1: Base rate + 1.99%
Secured loans
The borrowings of the subsidiary companies, Retra Holdings Limited and
Badgequo Limited, are secured by a debenture including a fixed charge over the
present leasehold property, a first fixed charge over book and other debts and
a first floating charge over all assets of those companies.
Bank borrowings include stock and invoice financing facilities amounting to
£Nil (2021: £Nil). The carrying value of assets pledged as collateral
approximates to £10,259,284 (2021: £8,205,000).
17. Deferred tax
Deferred tax is calculated in full on temporary differences under the
liability method using tax rate of 19% - 25%.
The movement on the deferred tax account is as shown below:
Deferred tax liability Deferred tax asset
Year ended 31 December Year ended 31 December
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Opening balance (557) (1,000) 500 581
Foreign exchange adjustment - - (71) -
Recognised in profit and loss:
Tax expense 377 443 - (81)
Closing balance (180) (557) 429 500
The deferred tax liability has arisen due to the timing difference on
accelerated capital allowances amounting to £65,000 (2021: £65,000) and on
the intangible assets acquired in a business combination amounting to
£115,000 (2021: £492,000).
Deferred tax asset has arisen from loss carry forward for LMS amounting to
£1,716,000 (2021: £1,995,000) and recognised at a rate of 25%.
18. Dividends
Year to December 2022 Paid Amount per share Total £'000
Final dividend - 2021 05 July 22 3.5p 2,686
Interim dividend - 2022 25 Nov 22 2.6p 1,996
4,682
Year to December 2021 Paid Amount per share Total £'000
Final dividend - 2020 05 July 21 3.0p 2,303
Interim dividend - 2021 11 Nov 21 2.5p 1,919
4,222
The group has proposed a final dividend for the year ended 31 December 2022 of
4.5p per share.
19. Called up share capital
No. of shares
'000 £'000
Allotted and issued
Ordinary shares of £0.25 each:
At 1 January 2021 76,749 19,187
Issued at 12 May 2021 3 1
At 31 December 2021 76,752 19,188
At 31 December 2022 76,752 19,188
All ordinary shares carry equal rights.
20. Reserves
Share premium
The share premium reserve contains the premium arising on the issue of equity
shares, net of issue expenses incurred by the Company.
Retained earnings
Retained earnings represent cumulative profits or losses, net of dividends and
other adjustments.
Merger reserve
The merger reserve arose due to the group reconstruction in 2016. The effect
of the application of merger accounting principles on the merger reserve is
that the share capital and other distributable reserves that existed in
Warpaint Cosmetics Group Limited (the Company) as at the point Warpaint London
PLC legally acquired Warpaint Cosmetics Group Limited is accounted for as if
it had been in existence as at 31 December 2015 and as at 1 January 2015. The
corresponding entry being the merger reserve so the overall net assets as at
the comparative dates are not affected.
Share option reserves
'Share option reserves' have arisen from the share-based payment charge. The
shares over which the options were issued are that of the parent company.
'Other reserves' have also arisen on translation of foreign subsidiaries.
21. Share based payments
Movements in the number of options and their weighted average exercise prices
are as follows:
Weighted average exercise price (pence) Number of options Weighted average exercise price (pence) Number of options
2022 2022 2021 2021
Outstanding at the beginning of the year 226.00 4,860,830 233.50 4,528,962
Granted during the year 127.95 220,000 122.00 400,000
Expired during the year 55.40 (26,842) 115.00 (68,132)
Other adjustments 80.09 15,526
Outstanding at the end of the year 222.20 5,069,514 226.00 4,860,830
The weighted average remaining contractual life of the options is 1.34 years
(2021: 2.64 years).
The following options over ordinary shares have been granted by the Company:
Exercise price Exercise period Number of options
Pence (years)
29 June 2017 237.50 3 255,051
24 September 2018 254.50 5 3,837,462
20 May 2020 49.50 3 454,686
25 May 2021 122.0 3 400,000
01 March 2022 127.50 3 200,000
17 October 2022 132.50 3 20,000
At the date of grant, the options were valued using the Black-Scholes option
pricing model. The fair value per options granted and the assumptions used in
the calculations were as follows:
17 Oct 22 01 Mar 22 25 May 21 20 May 20 24 Sept 18 29 June 17
Expected volatility 48% 54% 78% 76% 78% 64%
Expected life (years) 3 3 3 3 2-4 3
Risk-free interest rate 2.77% 0.99% 0.15% 0.01% 1.61% 0.38%
Expected dividend yield 3.24% 4.94% 1.76% 2.08% 1.53% 2%
Fair value per option (£) 0.383 0.354 0.552 0.213 0.422 0.963
On 29 June 2017, the Company granted in aggregate over 277,788 ordinary shares
of 25 pence each in the Company under the Enterprise Management Incentive
Scheme to all staff members, including the Company's Chief Financial Officer,
Neil Rodol, but excluding all other directors. The Options are exercisable for
a period of seven years from 29 June 2020 (three years after the grant date),
subject to certain performance conditions being met, including that the
compound annual growth rate in the Company's earnings per share must exceed 8
per cent over the three financial years commencing 1 January 2017, subject to
the discretion of the Company's remuneration committee.
On 24 September 2018, share options with an exercise price of 254.50p, equal
to the closing mid-market value immediately prior to the date of grant, and
subject to the achievement of demanding Earnings Per Share ("EPS") and Total
Shareholder Return ("TSR") performance conditions measured over a period of up
to 5 years were granted to certain directors.
The share options are exercisable up to 10 years from the date of
grant. Vesting is subject to the performance conditions set out below:
· 50% of the award is subject to an adjusted EPS growth performance condition.
One third of this portion of the award will be tested and vest after three,
four and five years. Vesting is based on adjusted EPS in the years ending Dec
2020, 2021 and 2022. Threshold vesting of 20% of the award is achieved at
12.5% compound annual EPS growth and full vesting at 22.5% compound annual EPS
growth, measured from 31 December 2017.
· 50% of the award is subject to an absolute TSR performance condition tested
following the announcement of results for the years ending 31 December 2020,
2021 and 2022. Threshold vesting of 20% of the award is achieved at 8%
compound annual TSR and straight line vesting up to 100% vesting at 18%
compound annual TSR, measured from 31 December 2017.
An additional grant of 460,494 share options with the same terms was made on
the same date to three senior management individuals of the Company.
On 20 May 2020, the Company granted, in aggregate, 454,686 share options with
an exercise price of 49.50 pence per Ordinary share under a Company Share
Option Plan (CSOP). Key persons discharging managerial responsibilities
(PDMR's) were awarded a cumulative 112,106 share options as part of their
annual remuneration and incentivisation packages. The remaining 342,580
options granted have been awarded to other members of the company's workforce.
No directors of the company were awarded options in relation to this CSOP. The
options are exercisable for a period of seven years from 20 May 2023, subject
to the same performance conditions dictated by the Enterprise Management
Incentive Scheme detailed above.
On 25 May 2021, the Company granted, in aggregate, 400,000 share options with
an exercise price of 122.0 pence per Ordinary share under a Company Share
Option Plan (CSOP). Key persons discharging managerial responsibilities
(PDMR's) were awarded a cumulative 400,000 share options as part of their
annual remuneration and incentivisation packages. The options are exercisable
for a period of seven years from 24 May 2024 and are not subject to the
satisfaction of any performance criteria.
On 1 March 2022, the Company granted in aggregate 200,000 ordinary shares of
25 pence each at an exercise price of 127.5 pence each under an unapproved
scheme. These were granted to a consultancy company Ward & Hagon
Management Consulting LLP ("Ward & Hagon") appointed to assist with the
implementation of the Company's strategic growth plan in recognition of the
success of the arrangements at the time and to incentivise the consultancy
company to align with the long-term interest of shareholders. The options are
exercisable between three and ten years from the date of grant.
On 17 October 2022, the Company granted in aggregate 20,000 ordinary shares of
132.5 pence each under a Company Share Option Plan (CSOP) scheme. The options
are exercisable between three and ten years from the date of grant, with the
usual first exercise date being the 3rd anniversary of the date of the grant.
The charge in the statement of comprehensive income for the share-based
payments during the year was £192,986 (2021: £177,000).
22. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation.
Key management personnel are considered to be the directors. Compensation of
the directors is disclosed in note 4 with the exception of dividends which are
disclosed in note 18.
During 2022, Warpaint Cosmetics (2014) Limited paid rent in the sum of
£138,000 (2021: £120,000) to Direct Supplies (2014) Group Limited, of which
S Bazini is a director. At the year end the amount due to Direct Supplies
(2014) Group Limited was £34,500 (2021: £30,000).
During 2022, Warpaint Cosmetics (2014) Limited paid rent in the sum of
£138,000 (2021: £120,000) to Trading Scents Group Limited, of which E
Macleod is a director. At the year end the amount due to Trading Scents Group
Limited was £34,500 (2021: £30,000).
During 2022, Warpaint Cosmetics (2014) Limited paid rent in the sum of
£138,000 (2021: £120,000) to Warpaint Cosmetics limited, of which S Bazini
and E Macleod are directors. At the year end the amount due to Warpaint
Cosmetics Limited was £34,500 (2021: £30,000).
During 2022, Retra Holdings Limited paid rent in the sum of £404,265 (2021:
£340,000) to Warpaint Cosmetics Limited, of which E Macleod and S Bazini are
directors.
Paul Hagon, an executive director of Warpaint London plc ("Warpaint"), is a
member of Ward & Hagon. Ward & Hagon were paid £177,437 fees (2021:
£200,0000), £169,172 commission (2021: £20,010) and expenses of £7,404 in
2022 (2021: £7,941) and were issued with 200,000 share options, details of
which are disclosed in note 21.
23. Financial instruments
Capital risk management
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies. The overall objective of the Board is to
set policies that seek to reduce risk as far as possible without unduly
affecting the Group's competitiveness and flexibility. The Group reports in
Sterling. All funding requirements and financial risks are managed based on
policies and procedures adopted by the Board of Directors.
The Group manages its capital to ensure its ability to continue as a going
concern and to maintain an optimal capital structure to reduce cost of
capital. The capital structure of the Group comprises equity attributable to
equity holders of the Company consisting of invested capital as disclosed in
the Statement of Changes in Equity and cash and cash equivalents.
The Group's invested capital is made up of share capital, share premium and
retained earnings totalling £51,926,000 as at 31 December 2022 (2021:
£50,358,000) as shown in the statement of changes in equity.
The Group maintains or adjusts its capital structure through the payment of
dividends to shareholders and issue of new shares.
Year ended 31 December
2022 2021
£'000 £'000
Financial assets
Financial assets at amortised cost:
Trade and other receivables 10,078 8,781
Financial assets measured at fair value through the profit and loss:
Cash and cash equivalents 5,865 4,072
Derivative financial instruments 8 545
15,951 13,398
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables (1,469) (1,913)
Loan and borrowings (5,862) (3,147)
Financial liabilities measured at fair value through the profit and loss:
Derivative financial instruments (600) -
(7,931) (5,060)
Net 8,020 8,338
Financial assets measured at fair value through the profit and loss comprise
cash and cash equivalents and derivative financial instruments.
Financial assets measured at amortised cost comprise trade receivables and
other receivables.
Financial liabilities measured at amortised cost comprise trade payables and
other payables, and bank loans.
Cash and cash equivalents
This comprises cash and short-term deposits held by the Group. The carrying
amount of these assets approximates their fair value.
General risk management principles
The Group's activities expose it to a variety of risks including market risk
(interest rate risk), credit risk and liquidity risk. The Group manages these
risks through an effective risk management programme and through this
programme, the Board seeks to minimise potential adverse effects on the
Group's financial performance. The Directors have an overall responsibility
for the establishment of the Group's risk management framework. A formal risk
assessment and management framework for assessing, monitoring and managing the
strategic, operational and financial risks of the Group is in place to ensure
appropriate risk management of its operations.
The following represent the key financial risks that the Group faces:
Market risk
The Group's activities expose it to the financial risk of interest rates.
Interest rate risk
The Group's interest rate exposure arises mainly from its interest-bearing
borrowings. Contractual agreements entered into a floating rate expose the
entity to cash flow risk. Interest rate risk also arises on
the Group's cash and cash equivalents. The Group does not enter into
derivative transactions in order to hedge against its exposure to interest
rate fluctuations. An increase in the rate of interest by 100 basis points
would decrease profits by £12,000 (2021: £18,000) with an increase in
profits by the same amount for a decrease in the rate of interest by 100 basis
points.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or a
counterparty to a financial instrument fails to meet its contractual
obligations.
The Group's principal financial assets are trade and other receivables and
bank balances and cash. The credit risk on liquid funds is limited because the
counterparties are banks with high credit-ratings assigned by international
credit-rating agencies.
The Group's credit risk is primarily attributable to trade receivables. The
Group has a policy of assessing credit worthiness of potential and existing
customers before entering into transactions. There is ongoing credit
evaluation on the financial condition of accounts receivable using independent
ratings where available or by assessment of the customer's credit quality
based on its financial position, past experience and other factors. The Group
manages the collection of its receivables through its ongoing contact with
customers so as to ensure that any potential issues that could result in
non-payment of the amounts due are addressed as soon as identified. The Group
makes a provision in the financial statements for expected credit losses based
on an evaluation of historical data and applies percentages based on the
ageing of trade receivables.
The maximum exposure to credit risk in respect of the above is the carrying
value of financial assets recorded in the financial statements. At 31 December
2022, the Group has trade receivables of £9,865,000 (2021: £8,689,000).
The following table provides an analysis of trade receivables that were due,
but not impaired, at each financial year end. The Group believes that the
balances are ultimately recoverable based on a review of past impairment
history and the current financial status of customers.
As at 31 December
2022 2021
£'000 £'000
Current 5,502 4,811
1 - 30 days 2,680 2,006
31 - 60 days 1,164 1,516
61 - 90 days 375 183
91 + days 214 239
Provision for impairment of trade receivables (70) (66)
Total trade receivables - net 9,865 8,689
The Directors are unaware of any factors affecting the recoverability of
outstanding balances at 31 December 2022 and, consequently, no further
provisions have been made for bad and doubtful debts.
The allowance for bad debts has been calculated using a 12-month lifetime
expected credit loss model, as set out below, in accordance with IFRS 9.
As at 31 December As at 31 December
2022 2021
£'000 % £'000 £'000 % £'000
Current 5,432 0.135 8 4,811 0.135 6
1 - 30 days 2,680 0.405 11 2,006 0.405 8
31 - 60 days 1,164 1.215 14 1,516 1.215 18
61 - 90 days 375 3.645 14 183 3.645 8
91 + days 214 10.935 23 239 10.935 26
70 66
Credit quality of financial assets
As at 31 December
2022 2021
Trade receivables, gross (note 13): £'000 £'000
Receivable from large companies (see below for definition) 5,115 2,600
Receivable from small or medium-sized companies 386 2,211
Total neither past due nor impaired 5,501 4,811
For the purpose of the Group's monitoring of credit quality, large companies
or groups are those that, based on information available to management at the
point of initially contracting with the entity, have annual turnover in excess
of £100,000 (2021: £100,000).
As at 31 December
2022 2021
Past due but not impaired: £'000 £'000
Less than 30 days overdue 2,680 2,006
30 - 90 days overdue 1,684 1,872
Total past due but not impaired 4,364 3,878
Lifetime expected loss provision:
Less than 30 days overdue - -
30 - 90 days overdue 70 66
Total lifetime expected loss provision (gross) 70 66
Less: Impairment provision (70) (66)
Total trade receivables, net of provision for impairment 9,865 8,689
Cash and cash equivalents, neither past due nor impaired (Moody's ratings of
respective counterparties):
As at 31 December
2022 2021
£'000 £'000
AAA rated - 6
AA rated - 1,723
A rated 5,862 -
BAA rated 3 2,343
Total cash and cash equivalents 5,865 4,072
Liquidity risk
Liquidity risk arises from the Group's management of working capital. It is
the risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due. The Group's policy is to ensure that it will
always have sufficient cash to allow it to meet its liabilities when they
become due. To achieve this aim, it closely monitors its access to bank and
other credit facilities in comparison to its outstanding commitments on a
regular basis to ensure that it has sufficient funds to meet the obligations
as they fall due.
The Board receives monthly cash balance updates and weekly sales and margin
reports marked against budget. At the start of each year the Board approve and
adopt a budget and cash flow for the next 24 months, the CFO monitors these
and reports any material divergences to the Board, so that management can
ensure that sufficient funding is in place as it is required. The budget and
cash flow are updated at the end of each year, for the following 24 months.
The tables below summarise the maturity profile of the combined group's
non-derivative financial liabilities at each financial year end based on
contractual undiscounted payments, including estimated interest payments where
applicable:
Year ended 31 December 2022
Less than 6 months Between 6 months and 1 year Between 1 and 5 years Over 5 years Total
£'000 £'000 £'000 £'000 £'000
Trade payables 1,368 - - - 1,368
Other payables 1,395 - - - 1,395
Accruals 3,225 - - - 3,225
Loans and borrowings 508 507 3,498 1,349 5,862
6,496 507 3,498 1,349 11,850
Year ended 31 December 2021
Less than 6 months Between 6 months and 1 year Between 1 and 5 years Over 5 years Total
£'000 £'000 £'000 £'000 £'000
Trade payables 1,079 - - - 1,079
Other payables 1,137 - - - 1,137
Accruals 4,077 - - - 4,077
Loans and borrowings 302 308 2,261 276 3,147
6,595 308 2,261 276 9,440
The borrowings of the subsidiary companies, Retra Holdings Limited and
Badgequo Limited, are secured by a debenture including a fixed charge over the
present leasehold property, a first fixed charge over book and other debts and
a first floating charge over all assets of those companies.
Foreign exchange risk
The Group operates in a number of markets across the world and is exposed to
foreign exchange risk arising from various currency exposure in respect of
cash and cash equivalents, trade receivables and trade payables, in particular
with respect to the US dollar. At December 2022, there were total sums of
£1,828,145 (2021: £939,000) held in foreign currency.
The Group is also exposed to currency risk as the assets one of its subsidiary
are denominated in US Dollars. At 31 December 2022, the net foreign liability
was £0.6m (2021: £0.7m). Differences that arise from the translation of
these assets from US dollar to sterling are recognised in other comprehensive
income in the year and the cumulative effect as a separate component in
equity. The Group does not hedge this translation exposure to its equity.
A 5% weakening of sterling would result in a £18,222 increase in reported
profits and equity, while a 5% strengthening of sterling would result in
£16,487 decrease in profits and equity.
Marvin Leeds Marketing Services, Inc.
As at 31 December
2022 2022
USD GBP
$'000 £'000
Profit After Tax 416,845 346,217
5% weakening of US dollar 416,845 364,439
Increase profits 18,222
5% strengthening of US dollar 416,845 329,730
Decrease profits (16,487)
Foreign exchange risk
2022 2021
£'000 £'000
Derivatives carried at fair value:
Exchange (loss)/gain on forward foreign currency contracts (592) 545
The Group, along with other businesses, will face the risk of inflationary
pressures through commodities cost increases.
Derivatives: Foreign currency forward contracts
The Group enters into forward foreign exchange contracts and options to manage
the risk associated with anticipated sale and purchase transactions which are
denominated in foreign currencies.
Derivatives are recognised initially at their fair value at the date the
derivative contract is entered into and are subsequently remeasured to their
fair value at each reporting date. The resulting gain or loss is recognised
immediately in the profit or loss unless the derivative is designed and
effective as a hedging instrument, in which event the timing and recognition
in the profit or loss depends on the nature of the hedging relationship.
As at 31 December 2022, the group has in total 34 (2021: 40) forward foreign
exchange contracts outstanding, made up of regular forward foreign exchange
contracts, and more complex forward foreign exchange contracts known as Window
Barrier Accruals and Counter TARNs (targeted accrual redemption note).
Derivative financial instruments are carried at fair value.
Regular forward foreign exchange contracts:
At 31 December 2022, there were 30 (2021: 40) regular forward foreign exchange
contracts, to buy US dollars and sell Euros, for an agreed amount of foreign
currency on a specific future date. The purchase or sale is made at a
predetermined exchange rate. The outcome is certain and will deliver a known
fixed amount. The following table details the regular forward foreign exchange
contracts outstanding as at the balance sheet date.
a) Contracted exchange rate 2022 2021 2022 2021
£/$ £/€
3 months or less 1.2707 1.3730 n/a n/a
3 to 6 months 1.1447 1.3866 1.1485 1.1645
6 to 12 months 1.1407 1.3813 1.1414 1.1491
12 months or more n/a n/a 1.1192 n/a
b) Contract value 2022 2021 2022 2021
£/$ £/€
£'000 £'000 £'000 £'000
3 months or less 1,448 728 0 0
3 to 6 months 699 13,159 849 1,072
6 to 12 months 438 5,447 1,095 2,259
12 months or more - - 1,385 -
2,585 19,334 3,329 3,331
c) Foreign currency 2022 2021 2022 2021
$'000 $'000 €'000 €'000
3 months or less 1,840 1,000 0 0
3 to 6 months 800 18,250 975 1,250
6 to 12 months 500 7,535 1,250 2,600
12 months or more 0 0 1,550 0
3,140 26,785 3,775 3,850
Window Barrier Accrual forward foreign exchange contracts:
At 31 December 2022, there were 3 Window Barrier Accrual forward foreign
exchange contracts to buy US dollars (2021: nil).
Window Barrier Accruals have an agreed US dollar purchase Forward Rate, a
start date known as the Barrier date, an end date known as the Expiration
date, a rate below which the forward foreign exchange contract becomes
worthless known as the Knock Out Rate, and a Notional Amount of currency to
purchase at the Forward Rate depending on the US dollar Spot Rate at the
Expiration Date.
Each Window Barrier Accrual contract has been designed to cover the currency
needs of the business throughout 2023 and includes 12 Barrier and Expiration
dates, one in each calendar month, so that the forward foreign exchange
contract is split evenly across the year.
If from month to month between the Barrier date and the following Expiration
date, the Spot Rate of the US dollar falls below the Knock Out Rate, then
there is no obligation, and no US dollars can be purchased. Otherwise, if on
the Expiration date Spot Rate is below the Forward Rate, then the Notional
Amount of US dollars will be purchased at the Forward Rate, however if on the
Expiration date Spot Rate is above the Forward Rate, then double the Notional
Amount of US dollars will be purchased at the Forward Rate.
The following table details the Window Barrier Accrual forward foreign
exchange contracts outstanding as at the balance sheet date.
Window Barrier Accrual Forward Rate Barrier dates Expiration dates Knock Out Rate Notional Amount Double the Notional Amount
(12 in total) (12 in total)
Contract 1 $1.1950 16 Dec 2022 through to 16 Nov 2023 17 Jan 2023 through to 15 Dec 2023 $1.0590 $500,000 $1,000,000
Contract 2 $1.2020 15 Dec 2022 through to 14 Nov 2023 13 Jan 2023 through to 13 Dec 2023 $1.0590 $75,000 $150,000
Contract 3 $1.2000 15 Dec 2022 through to 14 Nov 2023 13 Jan 2023 through to 13 Dec 2023 $1.0590 $425,000 $850,000
Maximum total per month $1,000,000 $2,000,000
As at 31 March 2023 the Group have purchased $6,000,000 at an average rate of
$1.1976 using the Window Barrier Accrual forward foreign exchange contracts.
Counter TARN forward foreign exchange contracts:
At 31 December 2022, there was 1 Counter TARN forward foreign exchange
contract to buy US dollars (2021: nil).
Counter TARNs have an agreed US dollar purchase Forward Rate, an end date
known as the Expiration date, a Target which is the agreed number of times the
contract allows the purchase of dollars when the Spot Rate is less than the
Forward rate at the Expiration date, a Fixing Count which increments by 1 each
time the contract allows the purchase of dollars when the Spot Rate is less
than the Forward rate, a Notional Amount of currency to purchase at the
Forward Rate depending on the US dollar Spot Rate at the Expiration Date, and
a Knock Out Event which is when the Fixing Count total has reached the agreed
Target and thereafter the forward foreign exchange contract becomes worthless.
The Counter TARN contract has been designed to cover the currency needs of the
business throughout 2023 and includes 12 Expiration dates, one in each
calendar month, so that the forward foreign exchange contract is split evenly
across the year.
If from month to month on the Expiration dates Spot Rate is below the Forward
Rate, then the Notional Amount of US dollars will be purchased at the Forward
Rate and the Fixing Count will increment by 1, however if on the Expiration
dates Spot Rate is above the Forward Rate, then double the Notional Amount of
US dollars will be purchased at the Forward Rate and the Fixing Count will not
change. If at any time the Fixing Count reaches the Target for the contract,
then this triggers a Knock Out Event which ends the contract and no further US
dollars can be purchased.
The following table details the Counter TARN forward foreign exchange contract
outstanding as at the balance sheet date.
Counter TARN Forward Rate Expiration dates (12 in total) Target Notional Amount Double the Notional Amount
Contract 1 $1.2000 12 Jan 2023 through to 13 Dec 2023 5 $500,000 $1,000,000
Maximum total per month $500,000 $1,000,000
As at 31 March 2023 the Group have purchased $3,000,000 at a rate of $1.2000
using the Counter TARN forward foreign exchange contract.
Management has applied a Monte Carlo model approach when calculating the fair
value of the Window Barrier Accrual and Counter TARN foreign exchange hedging
instruments at the year end. This involved making assumptions and judgements
around the future likely value of the US dollar compared to the Forward Rate
of the exchange contracts, using statistical trials based around historic data
of the US dollar exchange rate versus pound sterling. The Monte Carlo model
predicted that the Window Barrier Accrual forward foreign exchange contracts
would in total allow the Group to purchase $18 million, out of a possible
maximum $24 million, and the Counter TARN forward foreign exchange contract
would in total allow the Group to purchase $7.4 million, out of a possible
maximum $12 million.
Foreign currency forward contract assets and liabilities are presented in the
line 'Derivative financial instruments' (either as asset or as liabilities)
within the Statement of Financial Position.
Fair value of financial assets and liabilities
Financial instruments are measured in accordance with the accounting policy
set out in Note 1. All financial instruments carrying value approximates its
fair value with the exception of foreign currency forward contracts and
options which are considered Level 2. The Directors consider that there is no
significant difference between the book value and fair value of the Group's
financial assets and liabilities and is considered to be immaterial.
24. Pension costs
The Group operates a defined contribution pension scheme. Contributions
payable to the company's pension scheme are charged to the statement of
comprehensive income in the period to which they relate. The amount charged to
profit in each period was £101,003 (2021: £88,339).
25. Controlling party
In the opinion of the directors there is no ultimate controlling party.
26. Earnings per share
Basic earnings per share are calculated by dividing profit or loss
attributable to ordinary equity holders by the weighted average number of
ordinary shares in issue during the period.
The weighted average number of shares for the current year includes the shares
issued as consideration for the acquisition of Retra Holdings Limited on 30
November 2017.
2022 2021
Basic earnings per share (pence) 8.14 3.69
Diluted earnings per share (pence) 8.11 3.68
The calculation of basic and diluted earnings per share is based on the
following data:
2022 2021
Earnings £'000 £'000
Earnings for the purpose of basic earnings per share, being the net profit 6,250 2,830
Number of shares 2022 2021
Weighted number of ordinary shares for the purpose of basic earnings per share 76,752,355 76,751,187
Potentially dilutive shares awarded 296,256 62,699
Weighted number of ordinary shares for the purpose of diluted earnings per 77,048,611 76,813,886
share
4,063,881 share options (2021: 4,542,988) in issue have not been included in
the computation of diluted earnings per share, as per IAS 33, the share
options are not dilutive as they are not likely to be exercised given that the
exercise price is higher than the average market price.
The additional 385,633 share options granted on 20 May 2020, additional
400,000 share options granted 24 May 2021, 200,000 share options granted 01
March 2022 and 20,000 share options granted 17 October 2022 have been included
in the computation of diluted earnings per share as the exercise prices of the
options are below the average annual market price of Ordinary shares.
27. Notes supporting statement of cash flows
Non-cash transactions from financing activities are shown in the table below.
Non-current loans and borrowings Current loans and borrowings
Total
£'000 £'000 £'000
At 1 January 2021 3,045 914 3,959
Non-cash flows - 169 169
Cash flows - (981) (981)
Reclassification from Non-current loans and borrowings to current loans and (508) 508 -
borrowings
At 31 December 2021 2,537 610 3,147
Non-cash flows 3,551 - 3,551
Cash flows - (836) (836)
Reclassification from Non-current loans and borrowings to current loans and (1,241) 1,241 -
borrowings
At 31 December 2022 4,847 1,015 5,862
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