Results for the year ended 31 December 2021

RNS Number : 2813J
Warpaint London PLC
26 April 2022
 

26 April 2022

Warpaint London PLC

("Warpaint", the "Company" or the "Group")

Results for the year ended 31 December 2021

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 2021.

Financial Highlights

 

·

Strong growth in sales, profitability and cash generation during the year reflecting the focus on growing sales of the Group's branded products

 

·

In 2021 Group sales increased by 24.1% to £50.0 million in 2021 (2020: £40.3 million)

 

· UK revenue increased by 20% to £25.3 million (2020: £21.1 million)

 

· International revenue increased by 29% to £24.7 million (2020: £19.1 million)

 

·

Gross profit margin increased to 33.8% (2020: 31.1%), against the backdrop of supply side price inflation and significant increases in freight costs

 

·

EBITDA of £7.6 million (2020: £2.8 million)

 

·

Adjusted profit from operations of £7.0* million (2020: £2.5* million). Statutory profit from operations of £3.8 million (2020 loss of £0.9 million)

 

·

Reported profit before tax of £3.7 million (2020 loss of £1.1 million)

 

·

Adjusted earnings per share of 7.8p* (2020: 3.1p*)

 

·

Cash of £4.1 million at year end 2021 (2020: £4.9 million) after investment in additional inventory.  Inventory at 31 December 2021 of £18.1 million (31 December 2020 £14.4 million)

 

·

The Group was at 31 December 2021, and still is, debt free with the remaining loans and hire purchase contracts totaling £0.3 million having been repaid in full in April 2021

 

·

Final dividend recommended of 3.5 pence per share (2020: 3.0 pence per share), bringing the total dividend for the year to 6.0 pence per share (2020: 5.8 pence per share, including a 1.3 pence special dividend)

 

*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

·

Further expansion in the number of Tesco stores stocking the Group's products and the stocking of additional W7 product lines. W7 branded products now sold in over 1,400 Tesco stores in the UK

 

·

Further product expansion in the US, including W7 products now being stocked in over 1,200 Five Below stores. New sales team in place in the USA to drive growth in the largest colour cosmetics market in the world

 

·

Online sales continue to accelerate, with an increase of 159% in Group e-commerce sales in 2021 to account for 2.7% of Group sales (2020: 1.3% of Group sales)

 

·

Further expansion of online sales presence with the launch in China of 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. We now have 15 online distributors in China

 

·

The Group's expansion strategy continues with active discussions being held with additional major retailers in the UK and internationally

 

Post-Period End Highlights

·

Successful launch in Boots of 45 W7 products in an initial 80 stores in February 2022

 

·

Record trading experienced in the first quarter of 2022 - Group sales for the first three months of 2022 approximately 60% ahead of the same period in 2021, with sales increases seen across all the Group brands

 

·

Gross margin continued to improve in the first quarter of 2022 versus both Q1 2021 and the full year 2021

 

·

Six new accounts opened in the USA, including CVS, where a significant Christmas 2022 order has also been received

 

 

Commenting, Clive Garston, Chairman, said: "I am pleased that despite much of the world having some level of lockdown during 2021 and the continued enforced temporary closure of a number of the Group's customers' retail outlets, sales and profits increased in 2021 to exceed the 2019 pre-pandemic level.

"In the first quarter of 2022 we have enjoyed further profitable growth as we focus on supplying additional retailers and growing sales through our existing customers, taking more warehouse space and adding further stores. In the UK the launch of our W7 products in Boots in February 2022 is a particular highlight and we anticipate adding further large store groups to our customer base in due course.

"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.

"I am optimistic that the very encouraging trends we have seen in 2021 and into 2022 will continue, and that we have the right offering and strategy in place to continue to deliver profitable future growth."

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

 

Investor Webinar

Warpaint's management will be hosting an online presentation and Q&A session later today at 5.30 p.m. BST. This session is open to all existing and prospective shareholders.  Those who wish to attend should register via the following link and they will be provided with access details:

https://us02web.zoom.us/webinar/register/WN_RAnJgEoaSdiUqNkdO9yt0w

 

Participants will have the opportunity to submit questions during the session, but questions are welcomed in advance and may be submitted to: warpaint@investor-focus.co.uk .

 

Warpaint London

Sam Bazini - Chief Executive Officer

Eoin Macleod - Managing Director

Neil Rodol - Chief Financial Officer

 

c/o IFC

 

Singer Capital Markets (Nominated Adviser & Joint Broker)

Shaun Dobson, Jen Boorer, Alex Bond - Investment Banking

020 7496 3000

 

Shore Capital (Joint Broker)

Patrick Castle, Daniel Bush - Corporate Advisory

Fiona Conroy - Corporate Broking

 

020 7408 4090

IFC Advisory (Financial PR & IR)

Tim Metcalfe, Graham Herring, Florence Chandler

020 3934 6630

 

 

Warpaint London

 

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, Very Vegan, and Chit Chat.

 

 

HEADLINE RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

Statutory Results

Year ended 31 Dec 2021

Year ended 31 Dec 2020

Revenue

£50.0m

£40.3m

Profit / (loss) from operations

£3.8m

£(0.9)m

Profit margin from operations

7.6%

na

Profit before tax ("PBT") / (Loss before tax)

£3.7m

£(1.1)m

Earnings per share  ("EPS")/ (Loss per share)

3.7p

(1.3)p

Cash and cash equivalents

£4.1m

£4.9m

 

Adjusted Statutory Results

Year ended 31 Dec 2021

Year ended 31 Dec 2020

Revenue

£50.0m

£40.3m

Adjusted profit from operations

£7.0m*

£2.5m*

Adjusted profit margin from operations

13.9%*

6.2%*

Adjusted PBT

£6.9m*

£2.3m*

Adjusted EPS

7.8p*

3.1p*

Cash and cash equivalents

£4.1m

£4.9m

 

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:

 

2021

2020

Statutory profit / (loss) from operations

  £3.8m

£(0.9)m

Exceptional items

  £0.6m

  £0.3m

Amortisation

  £2.4m

  £2.4m

Share based payments

  £0.2m

  £0.7m

*Adjusted profit from operations

  £7.0m

  £2.5m

 

 

 

*Adjusted profit margin from operations

£7.0m / £50.0m = 13.9%

£2.5m / £40.3m = 6.2%

 

 

 

Statutory PBT / (LBT)

  £3.7m

£(1.1)m

Exceptional items

  £0.6m

  £0.3m

Amortisation

  £2.4m

  £2.4m

Share based payments

  £0.2m

  £0.7m

*Adjusted PBT

  £6.9m

  £2.3m

 

 

 

Statutory profit / (loss) attributable to equity holders

  £2.8m

£(1.0)m

Exceptional items

  £0.6m

  £0.3m

Amortisation

  £2.4m

  £2.4m

Share based payments

   0.2m

  £0.7m

Adjusted profit attributable to equity holders

  £6.0m

  £2.4m

Weighted number of ordinary shares

  76,751,187

  76,749,125

*Adjusted EPS

  7.8p

  3.1p


Exceptional items include £0.03 million of staff restructuring and voluntary redundancy costs (2020: £0.24million), £0.19 million of non-recurring legal costs (2020: £0.08 million), and a £0.37 million provision for content use and associated legal fees (2020: £nil).

 

CHAIRMAN'S STATEMENT

Warpaint entered the Covid-19 pandemic in 2020 in robust health, with a strong balance sheet and an agile management team capable of dealing with the challenges presented. As the worst effects of the pandemic receded in 2021, with the ending of lockdowns in most parts of the world, the Group has emerged in an even stronger and more focused position.

In 2021 we enjoyed a return to growth, with sales and profits exceeding those achieved in 2019, the last full period before the pandemic struck.  During the year we focused on increasing our presence in larger retailers globally, through expanding existing relationships and developing new ones.  This larger footprint has provided more stability and visibility for the Group, and coupled with our growing online presence, provides a strong platform for the future.

Trading has continued to improve in the first quarter of 2022, with the Group enjoying record quarterly sales and profits.  We expect demand to remain at a higher level than pre pandemic and for sales to continue to grow, despite inflationary pressures and the increase in commodity prices exacerbated by the dreadful events taking place in the Ukraine.  The Group has no suppliers in either Russia or Ukraine, and no significant historic sales to either country.

Results

2021 was a year of improvement in financial performance for the Group as the worst of the coronavirus pandemic receded and growth resumed. This was achieved in a time of unprecedented increases in freight cost as well as the effect of the pandemic.

Adjusted profit from operations was £7.0 million (2020: £2.5 million) on revenue of £50.0 million (2020: £40.3 million) with basic earnings per share of 3.7p (2020: (1.3)p) and adjusted earnings per share of 7.8p (2020: 3.1p).  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.

During the latter part of 2021, the Group increased inventory levels to ensure anticipated demand in the first quarter of 2022 could be fulfilled, with inventories at 31 December 2021 increasing to £18.1 million (31 December 2020: £14.4 million). The balance sheet remains strong, with cash at 31 December 2021 of £4.1 million (31 December 2020: £4.9 million), and the Group is now debt free with the remaining loans and hire purchase contracts totalling £0.3 million having been repaid in full in April 2021.

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 3.5 pence per share which, if approved by shareholders at the AGM, will be paid on 5 July 2022 to shareholders on the register at 18 June 2022.  The shares will go ex-dividend on 17 June 2022.

Board and People

The pandemic dramatically impacted the personal and working lives of everyone.  At Warpaint we quickly made the required changes in 2020 to working practices and continued in 2021 to adapt and modify these as appropriate.  I am delighted with the way in which everyone has met these challenges and I would like to offer my thanks in particular to the Group's employees and my fellow board members for their dedication, flexibility and exceptional efforts.

 

On 3 August 2021 we were pleased to announce the appointment of John Collier from 1 September 2021 as an independent non-executive director of the Company.  John is a Canadian national, based in New York, USA, who has spent nearly 30 years in the consumer goods industry, primarily at Revlon, the multinational cosmetics, skin care, fragrance, and personal care company.  He brings with him a wealth of experience in the cosmetics sector that is proving particularly beneficial as we seek to grow our North American business and I welcome him to the board.

 

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 27 June 2022 at 10 a.m. and after the restrictions caused by the Covid-19 pandemic over the last two years we will be delighted to welcome those shareholders who are able to attend in person.

Summary and Outlook

I am pleased that despite much of the world having some level of lockdown during 2021 and the continued enforced temporary closure of a number of the Group's customers' retail outlets, sales and profits recovered in 2021 to exceed the 2019 pre-pandemic level. The Warpaint team has delivered tremendous results and given this performance the board is pleased to be recommending the payment of an increased dividend.

In the first quarter of 2022 we have enjoyed further profitable growth as we focus on supplying additional retailers and growing sales through our existing customers, taking more warehouse space and adding further stores. In the UK the launch of our W7 products in Boots in February 2022 is a particular highlight and we anticipate adding further large store groups to our customer base in due course.

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.

I am optimistic that the very encouraging trends we have seen in 2021 and into 2022 will continue, and that we have the right offering and strategy in place to continue to deliver profitable future growth.

Clive Garston

Chairman

25 April 2022

 

CHIEF EXECUTIVE'S STATEMENT

 

2021 was a period of strong growth for the Group as most of Warpaint's markets emerged from the worst of the Covid-19 pandemic.  Group sales increased by 24% in 2021 to £50.0 million, to surpass the level achieved in 2019, before the pandemic struck.  These sales were achieved at an increased gross margin of 33.8% (2020: 31.1%) despite cost pressures, particularly regarding freight, and resulted in a return to a reported profit before tax of £3.7 million (2020: loss of £1.1 million).

Our strategy is to produce a wide range of high quality cosmetics at an affordable price.  We aim to increase  sales to our existing customers and to win new customers, particularly those retailers with significant sales footprints, both in the UK and internationally.  We are also focussing strongly on growing our online sales.  This has provided more stability and visibility for the Group and a strong platform for continued growth.

The Group has continued to reduce the focus on its close-out business and in 2021 close-out sales accounted for 9% of revenue (2020: 12%).

W7

The Group's lead brand remains W7, with sales in 2021 accounting for 52% of total Group revenue (2020: 45%).  Overall W7 sales increased by 42% in 2021 to £25.9 million compared to £18.2 million in 2020 and showed an increase of 15% over 2019, the last period not impacted by the pandemic.

In the UK, W7 revenues were up 41% in 2021 at £12.0 million compared to £8.5 million in 2020.  The UK is the most important market for W7, having grown in importance over the last two years to account for 46% of W7 sales in 2021, compared to 35% in 2019.

The growth in W7 UK sales has been assisted by the roll out into Tesco, together with a growth in sales from the Group's other larger customers in the UK.  In February 2020 the Group's W7 products were in 56 Tesco stores, today they are in over 1,400 across the various store formats, with planned further expansion of the range of W7 and accessory products being stocked by Tesco, both in stores and online.  W7 sales in the UK received a further boost post period end with Boots starting to stock a range of approximately 45 W7 products in an initial 80 stores from February 2022.  We anticipate growth in the presence with Boots in due course.

Internationally W7 sales were up on 2020 in all of the Group's reported regions. In Europe sales increased by 25% compared to 2020, in the US sales increased by 83% compared to 2020, and in the rest of the world sales increased by 92% compared to 2020.

We believe that W7 has a compelling brand proposition and will continue to benefit from consumers wanting a high quality, but excellent value for money product.

Technic

The Technic brands comprise Technic, Body Collection and Man'stuff.  Since the acquisition of the Technic brands, through the acquisition of Retra Holdings in November 2017, we have focused on increasing the sales of the all year round cosmetics sold under the brands.  The proportion of gifting sales for Retra reduced to 37% in 2021 from 47% in 2020, with single products sold under the Technic brands accounting for 63% of sales in 2021, with an additional shift to all year round gifting products from specific Christmas focused gifting product.

Sales of branded Technic product in 2021 was 37% of total Group revenue (2020: 36%).  Overall Technic sales grew by 28% in 2021 to £18.5 million, compared to £14.5 million in 2020 and £16.7 million in 2019.

In 2021, UK revenues were 48% of Technic's total sales and they increased by 11% over the year returning to a similar level seen in 2019, aided by sales of Technic and Body Collection branded products in wilko, which continue to grow.

Sales in Europe, a market almost as large for Technic as the UK, accounted for 46% of Technic's sales and increased by 16% compared to 2020 and were 6% higher than the level achieved in 2019.

Sales for the Technic Brands outside of the UK and Europe accounted for 6% of Technics sales (2020 5%).  In the USA, sales decreased by 20% compared to 2020, and in the rest of the world sales increased by 133% compared to 2020, albeit the sales were small in these regions in the context of the Group as a whole being 2% of Group revenues.

The Retra business also produces and sells own brand white label cosmetics for several major high street retailers, with such sales being 2% of Group revenue (2020: 7%).  We continue to assess private label opportunities on a case by case basis, based on the return they can deliver and they are not a strategic focus for the Group.

As with W7 we saw a strong recovery in sales for Technic in the UK, Europe and the rest of the world as the Covid-19 lockdowns were ended during 2021, with growth continuing in the first quarter of 2022.

Close-out

Whilst the Group's close-out division continues to provide a good and profitable source of intelligence in the colour cosmetics market, taking advantage of profitable close-out opportunities as they become available, the strategy remains to reduce close-out sales.  The close-out division was therefore a smaller proportion of Group sales in 2021, representing 9% of the overall revenue of the Group, down from 12% in 2020 and 16% in 2019.

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.

In 2021 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 is very focused on the environmental impact of its products and all plastics have been removed from the outer packaging of its gifting and practically all of its all year-round products, and the Group has virtually eliminated the use of single use packaging in its products completely. 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. In terms of the Group's product casings, the use of plastic is sometimes practically unavoidable, but recyclable packaging is used wherever possible.

 

All new W7 brand products are being manufactured without parabens and the Company is reformulating existing products where feasible.  The Group is on track to be paraben free for all products in the next 18 to 24 months.  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.

e-Commerce

During 2021 we continued to focus on driving online sales.  Whilst direct online sales remain a modest proportion of the Group's overall sales at 2.7% (2020: 1.3% of Group sales), they have grown from £0.2 million in 2019 to £0.5 million in 2020 and to over £1.3 million in 2021, an increase of 159% from 2020 to 2021.

In addition to growing sales through the W7 and Technic brands' own bespoke e-commerce sites, the focus has continued on growing sales of our brands in the UK and the US on Amazon, which has helped further accelerate our online sales.

Further expansion of the Group's online sales presence was implemented in the second half of 2021 in China, with the launch of 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.

Marketing and PR

In 2021 we continued our focus on ensuring our marketing programmes were both fresh and innovative, focused on both customer loyalty and showcasing our products to new potential consumers, with a particular emphasis on social media.  Our online loyalty programme, initiated in 2020, is also helping to retain customers and increase basket size.

Strategy

On an annual basis the board carries out a process of developing a 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 2022, forming the basis of the Group's development through to 2024.  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 are eliminated; that close-out continues to reduce as a proportion of sales; and the Group delivers quality new product development 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 cross selling the Group's brands and categories 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 are successfully being 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.  This is particularly opportune as consumers and retailers across all sectors alike 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 is establishing agency channels and using employees to directly sell to retailers.  A core product range for the USA has been established with minimum margin requirements; whilst targeted discussions are now underway to gain both gifting and all year around listings.  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 market places.

· 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 Europe on Amazon and are fulfilled by Amazon.  Further on-line sales platforms and geographies will be evaluated and, where profitable opportunities identified, launched over the course of the three year plan.  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

As previously announced, in 2020 we undertook a review of all our brands, removing from sale those small number of brands that were sub-scale and did not have a compelling market position.  This exercise enabled the Group to concentrate on its core W7, Technic, Body Collection, Man'stuff, Chit Chat and Very Vegan brands during the year with an improved focus.

Customers & Geographies

The largest markets for sales of our Group brands are in the UK and Europe. In 2021 our top ten customers represented 57% of revenues (2020: 48%).  Group sales are made in 43 countries (2020: 43).

UK

The UK accounted for 51% of Group sales in 2021 (2020: 53%), with UK sales increasing by 20% to £25.3 million (2020: £21.1 million), led by the growth in sales of our lead brand W7, which increased by 41%.  Total Group sales in 2021 in the UK were also 12% higher than the level achieved in 2019, despite continued lockdowns in the UK for much of the first half of 2021.

The top ten UK Group customers accounted for 63% of UK sales in 2021 (2020: 63%).  Particularly strong growth was seen during the year with, Tesco (up 445%), T K Maxx (up 39%) and wilko (up 44%).

Europe

Prior to the onset of the Covid-19 pandemic in March 2020, Continental Europe was for some time an area of excellent growth for the Group.  Following significantly reduced demand caused by country wide lockdowns in 2020, the gradual opening up in 2021 boosted Group sales in Europe by 19% to £18.0 million compared to £15.1 million in the same period in 2020.  Sales for the Group's brands into Europe are mainly to Denmark, Spain, France and Sweden.

USA

USA sales, in sterling terms, increased by 39% in 2021 to £3.0 million (2020: £2.1 million) and grew by 49% in US dollar terms.  This equated to 6% of overall 2021 Group sales (2020: 5%).  USA sales remain below the 2019 level as the focus continues to be to increase the sales of the Group's brands rather than locally sourced close-out.  In the USA 89% of sales in 2021 were from the sale of the Group's brands (2020: 83%).  

Following a successful trial with Five Below, W7 products are now being stocked in over 1,200 of their stores in the USA.

A good performance was also seen from the Group's other major customers in the USA, including Macys Backstage, Marshalls, and TJ Maxx.  Going forward the focus is to continue to target the larger store groups and to focus on growing our US online sales via Amazon FBA.  Six new accounts have been added in the US post period end, including with CVS, where a significant Christmas 2022 order has also been received.

Rest of the World

Sales in the rest of the world increased by 94% from £1.9 million in 2020 to £3.7 million in 2021, accounting for 7.3% of overall Group sales (2020: 4.7%), and were 31% higher in 2021 compared to the 2019 pre-pandemic level.  In Australia, which is a key country for the Group in the rest of the world region, sales increased by 128% in 2021 to £2.4 million.  Since the easing of the Covid-19 lockdowns in the rest of the world region we have seen a strong recovery and growth in sales of our brands. 

Summary and Outlook

I am pleased with the strong performance in 2021, with a significant recovery across the Group, following a difficult 2020 for everyone and despite continuing Covid-19 lockdowns in many countries during 2021, particularly in the first half.

We have seen particularly strong growth in the UK, with sales increasing beyond the level achieved in 2019, aided by the growing sales of our W7 brand through Tesco and of our Technic and Body Collection brands through wilko.  Additionally, the launch of W7 into Boots in February 2022 provides a further significant opportunity.  We have also seen an improved performance globally and particularly in the US, aided by our successful roll out with Five Below.

The improved profit and gross margin performance in 2021 is despite cost headwinds, particularly with regard to freight.  Group container freight costs were £3 million higher in 2021 than they were in 2020.  In recent months we have seen some reduction in freight costs, although they remain above historic levels, and with changes to our logistics, such as direct shipping of product from China to the USA, we anticipate this could have a further positive impact on Group margins going forward.

Warpaint is very well positioned to take advantage of the increasing trend for consumers to move to the type of high quality value orientated products offered by the Group. We have a robust supply chain and an increasing number of outlets selling our products.  We are working in partnership with our existing retailers to grow sales further and are in active discussions with additional major retailers globally.

Trading in 2022 has started strongly with a record first quarter.  Sales for the first three months of 2022 are approximately 60% ahead of the same period in 2021, with sales increases seen across all of the Group's brands at improved levels of gross margin.  I am encouraged by the Group's prospects for the rest of the year and beyond as we seek to further increase our retailer penetration and online sales, together with looking to grow sales through our existing customer outlets.

I look forward to updating further on our progress later in the year and with significant opportunities for further growth I look forward to the future with confidence.

Sam Bazini

Chief Executive Officer

25 April 2022

 

FINANCIAL REVIEW

In 2020 results were adversely impacted by the Covid-19 pandemic, however 2021 has seen the Group achieve results ahead of 2020 and 2019 a year not affected by the pandemic. Group revenue increased in the year by 24% and adjusted profit before tax increased in the year by 200%. Most pleasing in the year was the improvement in gross margin by 2.7% to 33.8%, despite some increased costs in the supply chain, particularly with freight. 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.

 

2021

2020

Statutory PBT / (LBT)

  £3.7m

£(1.1)m

Exceptional Items

  £0.6m

  £0.3m

Amortisation

  £2.4m

  £2.4m

Share based payment

  £0.2m

  £0.7m

*Adjusted PBT

  £6.9m

  £2.3m


Exceptional items include £0.03 million of staff restructuring and voluntary redundancy costs (2020: £0.24million), and £0.19 million of non-recurring legal costs (2020: £0.08 million), and a £0.37 million provision for content use and associated legal fees (2020: £nil).

Headline results, shown below, represent the performance comparisons between the consolidated statements of income for the years ended 31 December 2020 and 31 December 2021.

Revenue

Group revenue for the year increased by 24.1% from £40.3 million in 2020 to £50.0 million in 2021. 

Company branded sales were £44.4 million in the year (2020: £32.8 million).  Our W7 brand had sales in the year of £25.9 million (2020: £18.2 million).  Our Technic brand contributed sales of £18.5 million in the year (2020: £14.5 million).

Our Retra subsidiary business had sales of retailer own brand white label cosmetics of £1.1 million in the year (2020: £2.6 million).  The white label business is traditionally cost competitive and Retra chooses which projects to undertake based on commercial viability, and in particular margin.

The close-out business revenue reduced by 8.4% from £4.9 million in 2020 to £4.5 million in 2021 as the Group, in line with its strategy, continued to reduce its focus on close-out opportunities.

In the UK sales increased by 19.8% to £25.3 million (2020: £21.1 million). Internationally, revenue increased 28.9% from £19.1 million in 2020, to £24.7 million 2021. In Europe Group sales increased by 19.4% to £18.0 million (2020: £15.1 million). In the rest of the world Group sales increased by 93.7% to £3.7 million (2020: £1.9 million). In the US Group sales increased by 38.5% to £3.0 million (2020: £2.1 million).

E-commerce sales continued to grow in the year and now represent 2.7% / £1.3 million of group revenue (2020: 1.3% / £0.5 million).

Other income of £nil was received from the UK Government's furlough scheme in the year (2020: £0.4mil)

Product Gross Margin

Gross margin was 33.8% for the year compared to 31.1% in 2020.  Since the start of 2021 we have noticed slight price increases in US dollars coming from our supply base in China and container freight rates have increased dramatically. We also noticed an increase in outbound freight costs to deliver goods to our European customers. Nevertheless, together with a weakening dollar compared to 2020, our management teams across the Group were swift to recognise and navigate cost headwinds so that new product development and sourcing helped achieve a gross margin improvement.

Container freight costs have increased as a percentage of the cost of goods by 11% in 2021, costing an additional £3.0 million, compared to container rates in 2020. As we end Q1 2022 container rates have begun to fall, and if maintained will 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.

In the USA our strategy to exit sales of locally sourced close-out brands and to focus on the sale of our Group brands is complete and this has helped improve the gross margin in the USA to be more in line with the rest of the Group.

At 31 December 2020 options were in place for the purchase of US$18 million at US$1.3260/£, this has helped to protect our margin in the turbulent foreign exchange markets. Similarly, at 31 December 2021 options were in place for the purchase of US$27 million at US$1.3849/£. Since the start of this year we have purchased more forward options to help protect our gross margin in 2022.

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 5.7% to £9.2 million in the year (2020: £8.7 million). Operating costs as a percentage of sales reduced from 21.6% to 18.4%.

The overall increase of £0.5 million in the year was necessary to support the growth of the business. Increased costs amounted to £0.7 million and were made up of increases in wages and salaries, office 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. There was a decrease in the charge for bad debts of £0.2 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 £7.7 million (2020: £4.2 million).

Profit Before Tax

Group profit before tax for the year was £3.7 million (2020: £1.1 million loss). The material changes in profitability between 2021 and 2020 were:

 

Effect on Profit

Sales volume growth

£3.0 million

Margin growth

£1.3 million

Increase in operating expenses

(£0.5) million

FX gain in 2021 £0.6 million (2020: Loss £0.4 million)

£1.0 million

Decrease in the cost of share option schemes

£0.5 million

Increase in exceptional costs

(£0.3) million

Decrease in other operating income

(£0.2) million


Exceptional Items

Exceptional items include £0.03 million of staff restructuring and voluntary redundancy costs (2020: £0.24million), and £0.19 million of non-recurring legal costs (2020: £0.08 million), and a £0.37 million provision for content use and associated legal fees (2020: £nil).

The Group is currently in dispute with a third party relating to the historic use of content on the Group's social media platforms in the period 2018 through to early 2021. As a result of legal advice received as to the likely quantum of liability a provision of £370,000 has been made as the directors' best estimate of the expected liability and associated legal costs. The payment and the restriction of content use will not affect the ongoing running of the Group's business.

Tax

The tax rate for the Group for 2021 was 24% 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 3.69p and 3.68p respectively in 2021 (2020: 1.31 loss).

The adjusted basic and diluted earnings per share before exceptional items, amortisation costs and share based payments was 7.80p and 7.79p respectively in 2021 (2020: 3.14p).

Dividends

The board is recommending a final dividend for 2021 of 3.5 pence per share, making a total dividend for the year of 6.0 pence per share of which 2.5 pence per share was paid on 26 November 2021 (2020: total dividend of 5.8 pence per share, of which the interim dividend was 2.8 pence per share that included a special dividend of 1.3 pence per share to reflect that no final dividend was declared for 2019, and the final dividend which was 3.0 pence per share). The dividend for the year was covered 1.3 times by adjusted earnings per share.

Cash Flow and Cash Position

Net cash flow generated from operating activities was £5.1 million (2020: £7.5 million).  The Group's cash balance decreased by £0.8 million to £4.1 million in 2021 (2020: £4.9 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 2021 £0.49 million was spent on store furniture for Tesco and wilko (2020: £0.66 million), and £0.11 million was spent on new computer software and equipment, and other general office fixtures and fittings and plant upgrades (2020: £0.18 million).

LTIP, EMI & CSOP Share Options

On 25 May 2021 CSOP share options were granted over a total of 400,000 ordinary shares of 25p each in the Company under the Warpaint London PLC Company Share Option Plan and the Warpaint London plc Enterprise Management Incentive Scheme. The options provide the right to acquire 400,000 ordinary shares at an exercise price of 122.0p per ordinary share.

The LTIP, EMI & CSOP share options had no 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 £0.18 million (2020: £0.66 million) and has been taken to the share option reserve.

Balance Sheet

Inventory was £3.7 million higher at the year end at £18.1 million (2020: £14.4 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 £0.52 million, 2.8% at the year end (2020: £0.52 million, 3.5%). 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 0.7% in percentage terms in the year. 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 £8.8 million (2020: £7.8 million), the increase on 2020 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, 0.8% of gross trade receivables (2020: £0.04 million, 0.6%).

Included within borrowings and lease liabilities is an invoice and stock finance facility used to help fund imports in our gifting business, and term loans and hire purchase contracts. At the year end no invoice finance remained outstanding (2020: £0.3 million). The balance outstanding on the term loans and hire purchase contracts at the year end totalled £nil million, having been repaid in full in April 2021 (2020: £0.3 million). The Group was therefore debt free at the year end and does not expect to utilise its £8.5 million invoice and stock finance facility during 2022. 

Working capital increased by £0.9 million in the year, to £26.2 million.  The main components were an increase in inventory of £3.7 million, an increase in trade and other receivables of £1.1 million, a decrease in cash at the year end of £0.8 million, and an increase in trade and other payables of £3.1 million.

Free cash flow (cash from operating activities less capital expenditure) remained strong at £4.5 million (2020: £6.6 million).

The Group's balance sheet remains in a very healthy position.  Net assets totalled £36.2 million at 31 December 2021, a decrease of £1.2 million from 2020, as a consequence of £4.2 million of dividends paid in the year.  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 (2020: £7.3 million) and £2.3 million of intangible fixed assets (2020: £4.7 million) arising from acquisition accounting. As at the year end cash totalled £4.1 million (31 December 2020: £4.9 million).

The balance sheet also includes £3.1 million of right-of-use assets. £3.1 million 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 £3.2 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 2021 with 42 options in place for the purchase of US$18 million at US$1.3260, and the sale of €5.1 million @ €1.1077. During 2021 when currency rates were favourable, we purchased 40 foreign exchange options which were outstanding at 31 December 2021, for the purchase of US$27 million at US$1.3849, and the sale of €3.9 million @ €1.1558.

The Group has a natural hedge from sales to the US which are entirely in US dollars, in 2021 these sales were $4.08 million (2020: $2.74 million). Together with sourcing product from new factories where it makes commercial sense to do so and by buying US dollars when rates are favourable, we are able to mitigate the effect of a strong US dollar against sterling.

 

Neil Rodol
Chief Financial Officer

25 April 2022

WARPAINT LONDON PLC

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF WARPAINT LONDON PLC

 

Opinion on the financial statements

In our opinion:

·   t he financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2021 and of the Group's profit for the year then ended;

· the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;

· the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

 

We have audited the financial statements of Warpaint London Plc (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 31 December 2021 which comprise the consolidated statement of comprehensive income, the consolidated and parent company statements of changes in equity, the consolidated and parent company statements of financial position, the consolidated statement of cash flows and notes to the financial statements, including a summary of significant accounting policies.

 

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard in the United Kingdom and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.  

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Group and the Parent Company's ability to continue to adopt the going concern basis of accounting included:

A critical evaluation of the Directors' assessment of the entity's ability to continue as a going concern, covering the period of at least 12 months from the date of approval of the financial statements by;

 

· Evaluating the process the Directors followed to make their assessment, including confirming the assessment and underlying projections were prepared by appropriate individuals with sufficient knowledge of the detailed figures as well as an understanding of the Group's markets, strategies and risks;

 

· Understanding, challenging and corroborating the key assumptions included in their cash flow forecasts against prior year, our knowledge of the business and independent market data, along with the findings from other areas of our audit;

 

· Consideration of the susceptibility of the Group to any counterparty default or significant delay in settlement of payments. This included corroborating post year end sales values and cash receipts;

 

· Evaluating via inquiry with the Directors, review of board minutes and review of external resources the potential impact of any a) macroeconomic influences (including inflationary pressures) and b) one-off cash outflows that may have been omitted from cash flow forecasts and assessing the impact these could have on future cash flows and cash reserves;

 

· Assessing appropriateness of stress test scenarios, and challenging whether other reasonably possible scenarios could occur and considering whether the assumptions included within these were appropriate; In doing so we also challenged the mitigations provided by the Directors in the event of a reasonable downside scenario occurring; and

 

· Considering the adequacy of the disclosures relating to going concern included within the annual report against the requirements of the accounting standards and consistency of the disclosures against the forecasts and going concern assessment.

 

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.

Overview

Coverage

92% (2020: 87%) of Group profit before tax

96% (2020: 94%) of Group revenue

95% (2020: 98%) of Group total assets

Key audit matters

 

2021

2020

Impairment of intangible assets and goodwill

P

P

Net realisable value of inventory

P

P

Going concern

P

P


Going concern is no longer considered to be a key audit matter as a result of the improved performance in the year and the resultant impact on our risk assessment.

Materiality

Group financial statements as a whole

 

We determined a materiality of £364,000 (2020: £245,000) based on 7% of profit before interest, tax, and amortisation (2020: 5% before interest, tax, amortisation and adjustments).

 

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.

The Group consists of three trading subgroups, all of which are run from the UK except for Marvin Leeds Marketing Services Inc. which is based in the USA. In establishing the overall approach to the Group audit, we completed full scope audits on the underlying subgroups and the parent company as significant components, except for Marvin Leeds Marketing Services Inc, on which we performed specific audit procedures on certain account balances. Marvin Leeds Marketing Services Inc. was not deemed to be a significant component therefore our work was tailored to focus on specific risk areas. All audit work was carried out by the Group audit team.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Aside from the going concern key audit matter identified above, we identified the following areas as the key audit matters relevant to our audit of the financial statements.

 

Key audit matter

How the scope of our audit addressed the key audit matter

 

Impairment of intangible assets and goodwill

 

(with reference to notes 1, 9 and 10)

 

The Directors perform annual impairment reviews of goodwill for all cash generating units ("CGUs"), which is carried at £7.3m in the Statement of Financial Position.

 

Impairment reviews are also performed over the carrying value of other intangible assets of the CGUs (totalling £2.3m at 31 December 2021) where indicators of impairment were deemed to exist.

 

The estimated recoverable amount of these balances is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows, which form the basis of the Group's value in use calculation and assessment of the carrying value of goodwill and intangible asset values.

 

We have determined as part of our risk assessment that the value-in-use calculation, determined by management with the assistance of an independent third party expert, used in the assessment of carrying value of goodwill and intangible assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole.

 

Key assumptions include revenue, gross margin, and resultant cash flow forecast assumptions over the five year period from 31 December 2021. The valuation is also based on key assumptions in respect of the appropriate discount rates applied to the cash flows and long-term growth rates.

 

As a result of their review, management did not identify any impairments.

 

 

Our procedures included the following:

 

We considered management's impairment assessment and evaluated its compliance with the requirements of IAS 36 "Impairment of Assets" as follows:

 

We obtained management's impairment model and confirmed its mechanical accuracy;

 

We assessed management's allocation of assets for each CGU based on our knowledge of the Group and its operations and assessed whether it met the requirements of the applicable accounting standard;

 

We challenged management and their third party experts regarding the assumptions made in the model including forecast free cash flows, the long term growth rate applied and the discount rate used. We benchmarked the key assumptions applied against a variety of similar businesses and considered whether these fell within our acceptable ranges;

 

We considered whether the revenue, and where relevant associated costs (including capital expenditure and working capital requirements), used to estimate free cash flows were reasonable in light of historic performance, macroeconomic conditions and current performance in FY22. This included challenge of key assumptions made by the Directors incorporating sensitivity analysis thereon. Specific areas of challenge included the projected economic growth and cost inflation, margin and known or probable changes in the business environment;

 

We used our own internal valuation experts to challenge management's determined discount rate and assessed the competence, independence and objectivity of the third party expert used by management in formulating the value-in-use model; and

 

Having assessed management's impairment review, we considered whether the disclosures presented in the financial statements were in line with the requirements of IAS 36 "Impairment of Assets".

 

Key observations:

Based on the procedures we performed, no issues arose from our work that suggested managements assessment of the impairment of goodwill and intangible assets was inappropriate.

 

Net realisable value of inventory

 

(with reference to notes 1 and 13)

The Group has significant levels of inventory, and as such there is significant estimation uncertainty in the valuation of slow moving and obsolete inventories, some of which have a limited shelf life. There is also some uncertainty over changes in consumer preferences and spending patterns, which are primarily driven by wider trends in the fashion industry as well as seasonality, which could impact the saleability of inventory.

 

There is a valuation risk associated with new product launches and judgement is required in forecasting demand which can lead to obsolete inventory if not performed accurately.

 

Given the level of judgement and estimation involved by management, along with the materiality of the balance at £19.4m, the carrying value of inventory is considered to be a key audit matter.

Our procedures included the following:

 

We assessed whether inventory was valued appropriately at the lower of cost and net realisable value through testing a sample of items to their unit cost and then to the average sale price in the period leading up to and around the year end. Where there were indicators of negative margin or zero margin, we determined whether these balances were considered appropriately in the inventory provision balance;

 

In addition, we considered the principles and appropriateness of the Group's inventory provisioning policies based on our understanding of the business and the accuracy of previous provisioning estimates. We assessed the  appropriateness of the inventory provision by testing the completeness and accuracy of inventory ageing report as at 31 December 2021 by agreeing a sample to supporting documentation to check the ageing and value and checked the arithmetic accuracy of the overall calculation.

 

We considered the inventory write off figure during the year and compared this to the Group's provision in the prior year to assess managements accuracy in determining the provision.

 

Furthermore, we tested the unprovided inventory balance, including new product launches, agreeing the sales volumes and values after the balance sheet date for a sample of inventory items to supporting documentation to determine if it was appropriate not to include these in the year end provision.

 

We also performed a number of counts at certain of the Group's inventory holding locations, and considered whether there were any indications of impairment or obsolescence.

 

Key observations:

Based on the procedures we performed, no issues arose from our work that suggested the net realisable value of inventories was inappropriate.

 

 

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.  We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

 

 

Group financial statements

Parent Company financial statements

 

2021

£

 

2020

£

2021

£

2020

£

Materiality

 

 

364,000

 

245,000

327,600

150,000

Basis for determining materiality

6% of profit before interest, tax, and amortisation (2020: 5% of profit before interest, tax, amortisation and adjustments).

 

 

90% (2020: 61%) of Group materiality

Rationale for the benchmark applied

We considered adjusted profit before tax (profit before interest, tax, and amortisation) to be the most appropriate measure for the basis of materiality given the importance of underlying trading profit as a measure for users of the financial statements in assessing the performance of the Group.

 

 

 

Capped at 90% (2020:61%) of Group materiality given the assessment of the components aggregation risk.

 

Performance materiality

 

254,800

183,750

229,320

112,500

Basis for determining performance materiality

70% (2020: 75%) of Group materiality, based on our overall risk assessment. In setting the level of performance materiality, we considered a number of factors including the control environment, our testing strategy, the expected total value of known and likely misstatements (based on past experience and other factors) and management's attitude towards proposed adjustments.

 

70% (2020: 75%) of Parent Company materiality, based on our overall risk assessment. In setting the level of performance materiality, we considered a number of factors including the control environment, our testing strategy, the expected total value of known and likely misstatements (based on past experience and other factors) and management's attitude towards proposed adjustments.

 

 

Component materiality

We set materiality for each component of the Group based on a percentage of between 70% and 90% (2020: 47% and 90%) of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component.

 

Component materiality ranged from £254,800 to £327,600 (2020: £116,000 to £221,000). In the audit of each component, we further applied performance materiality levels of 70% (2020: 75%) of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.

 

Reporting threshold

 

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £18,200 (2020: £12,250).  We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

 

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report and financial statements other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. 

 

Strategic report and Directors' report

 

In our opinion, based on the work undertaken in the course of the audit:

· the information given in the Strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

· the Strategic report and the Directors' report have been prepared in accordance with applicable legal requirements.

 

In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors' report.

 

Matters on which we are required to report by exception

 

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

 

· adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

· the Parent Company financial statements are not in agreement with the accounting records and returns; or

· certain disclosures of Directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit.

 

 

Responsibilities of Directors

As explained more fully in the Directors' responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and the industry in which it operates. We determined that the most significant laws and regulations which are directly relevant to specific assertions in the financial statements are those related to the applicable accounting frameworks, the Companies Act 2006, industry specific regulation and employment and taxation laws and regulations in the jurisdictions in which the Group operates.

Our procedures included the following:

· We involved our internal taxation specialists to review the adequacy and appropriateness of tax provisioning;

· Agreement of the financial statement disclosures to underlying supporting documentation; and

· We understood how the Group is complying with those legal and regulatory frameworks, by making enquiries of management and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes and reviewing summary of claims, litigations and regulatory inquiries that we have obtained from the Group's Compliance Officer.

 

We assessed the susceptibility of the Group's financial statements to material misstatement, including how fraud might occur, by meeting with management from across the Group to understand where they considered there was a susceptibility to fraud. We identified fraud risks in relation to management override of controls and appropriateness of revenue recognition around the year end where incentive might exist to accelerate (or decelerate) earnings.

Our procedures included the following:

· We obtained an understanding the processes and controls that the Group has established to address risks identified, or that otherwise prevent, deter and detect fraud, and how management monitors those processes and controls;

· We considered management's estimates and judgements applied in the preparation of the financial statements throughout the audit, individually and in aggregate, to evaluate whether there were any indications of bias in the application of these judgements. This included those set out in the key audit matters section of our report;

· Performed journal entry testing, focusing on journal entries containing defined characteristics and on large or unusual transactions based on our knowledge of the business by agreeing to supporting documentation; and

· Testing appropriateness of revenue recognised around year end, by agreeing a sample of revenue recognised to despatch notes to identify any revenue recognised in the incorrect period.

 

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities.  This description forms part of our auditor's report.

Use of our report

This report is made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.  Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

David Perry FCA (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London, United Kingdom

25 April 2022

BDO LLP is a limited liability partnership registered in England and Wales (registered in England and Wales (with registered number OC305127).  

WARPAINT LONDON PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

 

Year ended 31 December

 

 

2021

2020

 

Notes

£'000

£'000

 

 

 

 

Revenue

2

50,003

40,286

 

 

 

 

Cost of sales

2

(33,095)

(27,742)

 

 

 

 

Gross profit

 

16,908

12,544

 

 

 

 

Administrative expenses

4,5

(13,095)

(13,807)

Other operating income

3

2

361

 

 

 

 

 

 

 

 

Analysed as:

 

 

 

Adjusted profit from operations1

 

6,972

 

2,514

Amortisation

4,10

(2,394)

(2,443)

Exceptional items

4

(586)

(317)

Share based payments

23

(177)

(656)

 

 

 

 

Profit/(loss) from operations

 

3,815

(902)

 

 

 

 

Finance expense

6

(90)

(212)

 

 

 

 

Profit/(loss) before tax

 

3,725

(1,114)

 

 

 

 

Tax (expense) / credit

7

(895)

111

 

 

 

 

Profit/(loss) for the year attributable to equity holders of the parent Company

 

2,830

(1,003)

U

 

 

 

Other comprehensive income:

 

 

 

Item that will or may be reclassified to profit or loss:

 

 

 

Exchange (loss) / gain on translation of foreign subsidiary

 

(4)

53

 

 

 

 

 

 

 

 

Total comprehensive income/(loss) attributable to equity holders of the parent Company , net of tax

 

2,826

(950)

 

 

 

 

 

 

 

 

Basic earnings / (loss) per share (pence)

28

3.69

(1.31)

Diluted earnings / (loss) per share (pence)

28

3.68

(1.31)

 

 

 

 

 

Note 1 - Adjusted profit from operations is calculated as earnings before interest, taxation, amortisation of intangible assets, any impairment costs relating to non-current assets, share based payments and exceptional items.

The notes form part of these financial statements.

WARPAINT LONDON PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

AS AT 31 DECEMBER 2021

 

 

 

As at 31 December

 

 

2021

2020

 

Notes

£'000

£'000

Non-current assets

 

 

 

Goodwill

9

7,274

7,274

Intangibles

10

2,260

4,651

Property, plant, and equipment

11

1,385

1,149

Right-of-use assets

12

3,073

3,799

Deferred tax assets

19

500

581

 

 

 

 

Total non-current assets

 

14,492

17,454

 

 

 

 

Current assets

 

 

 

Inventories

13

18,139

14,413

Trade and other receivables

14

10,322

9,187

Cash and cash equivalents 

15

4,072

4,875

Derivative financial instruments

25

545

40

 

 

 

 

Total current assets

 

33,078

28,515

 

 

 

 

Total assets

 

47,570

45,969

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

16

(6,293)

(3,121)

Borrowings and lease liabilities

18

(610)

(914)

Derivative financial instruments

25

-

(400)

Corporation tax liability

7

(1,050)

(119)

Provisions

17

(370)

-

 

 

 

 

Total current liabilities

 

(8,323)

(4,554)

 

 

 

 

Non-current liabilities

 

 

 

Borrowings and lease liabilities

18

(2,537)

(3,045)

Deferred tax liabilities

19

(557)

(1,000)

 

 

 

 

Total non-current liabilities

 

(3,094)

(4,045)

 

 

 

 

Total liabilities

 

(11,417)

(8,599)

 

 

 

 

NET ASSETS

 

36,153

37,370

 

 

 

 

 

 

 

2021

2020

 

 

£'000

£'000

Equities

 

 

 

Share capital

21

19,188

19,187

Share premium

 

19,360

19,359

Merger reserve

 

(16,100)

(16,100)

Foreign exchange reserve

 

85

89

Share option reserves

22

1,810

1,633

Retained earnings

 

11,810

13,202

 

 

 

 

TOTAL EQUITY

 

36,153

37,370

 

 

 

 

 

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 2022

The notes form part of these financial statements.

WARPAINT LONDON PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

 

 

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 2020

19,187

19,359

(16,100)

36

977

16,354

39,813

 

 

 

 

 

 

 

 

Comprehensive income for the year

 

 

 

 

 

 

 

On translation of foreign subsidiary

-

-

-

53

-

-

53

Loss for the year

-

-

-

-

-

(1,003)

(1,003)

 

 

 

 

 

 

 

 

Total comprehensive income for the year

-

-

-

53

-

(1,003)

(950)

 

 

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

 

 

Share based payment charge

-

-

-

-

656

-

656

Dividends paid

-

-

-

-

-

(2,149)

(2,149)

 

 

 

 

 

 

 

 

Total transactions with owners

-

-

-

-

656

(2,149)

(1,493)

 

 

 

 

 

 

 

 

As at 31 December 2020

19,187

19,359

(16,100)

89

1,633

13,202

37,370

 

 

 

 

 

 

 

 

Comprehensive Income 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

 

 

 

 

 

 

 

 

 

The notes form part of these financial statements.

WARPAINT LONDON PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

 

Year ended 31 December

 

 

2021

2020

 

Notes

£'000

£'000

Operating activities

 

 

 

Profit/(loss) before tax

 

3,725

(1,114)

Finance expense

6

90

212

Amortisation of intangible assets

10

2,394

2,443

Depreciation of property, plant, and equipment

11/12

1,338

1,252

Loss on disposal of property, plant, and equipment

 

-

2

Share based payments

23

177

656

(Increase)/decrease in trade and other receivables

 

(1,135)

3,437

(Increase)/decrease in inventories

13

(3,726)

1,781

Increase/(decrease) in trade and other payables

 

3,542

(812)

Fair value (gain)/loss on derivative financial instruments

 

(905)

399

Other adjustments

18

(84)

-

Foreign exchange translation differences

 

(4)

53

 

 

 

 

Cash generated from operations

 

5,412

8,309

Tax paid

 

(325)

(853)

 

 

 

 

Net cash flows from operating activities

 

5,087

7,456

 

 

 

 

Investing activities

 

 

 

Purchase of intangible assets

10

(3)

(12)

Purchase of property, plant, and equipment

11

(596)

(869)

Proceeds from sale of property, plant, and equipment

 

-

21

 

 

 

 

Net cash used in investing activities

 

(599)

(860)

 

 

 

 

Financing activities

 

 

 

Repayment of borrowings

18

(48)

(90)

Lease payments

18

(933)

(810)

Repayment of stock and invoice finance facilities

 

-

(1,191)

Proceeds from issued share capital

21

2

-

Interest paid

6

(90)

(212)

Dividends

20

(4,222)

(2,149)

 

 

 

 

Net cash used in financing activities

 

(5,291)

(4,452)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(803)

2,144

Cash and cash equivalents at beginning of period

 

4,875

2,731

 

 

 

 

Cash and cash equivalents at end of period

15

4,072

4,875

 

 

 

 

Cash and cash equivalents consist of:

 

 

 

Cash and cash equivalents

15

4,072

4,875

 

 

 

 

 

 

4,072

4,875

 

 

 

 

The notes form part of these financial statements.

 

WARPAINT LONDON PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT ENDED 31 DECEMBER 2021

 

1.  Significant accounting policies

 

Basis of preparation

The financial statements of Warpaint London PLC (the "Company" or "Warpaint") and its subsidiaries (together the "Group") for the year ended 31 December 2021 were authorised for issue by the board of directors 25th April 2022.

 

Warpaint London PLC 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 £2.8 million in the year to 31 December 2021 (2020: £1.0 million loss) and had net current assets of 24.8 million at 31 December 2021 (2020: 24.0 million). The Group occasionally makes use in its Retra subsidiary of a £8.5 bank million facility that can be used for confidential invoice discounting and stock finance, the facility renews each year at the end of August. As at the year end £nil of the bank facility was utilised. At the 31st March 2022 the Group had cash of £2.3 million, £nil hire purchase and term debt having repaid these in full during 2021, and had used £nil of its bank facility.

The Directors have prepared forecasts covering the period to December 2023, built from the detailed Board-approved budget for 2022. 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. Excluding the potential impact of a pandemic, which is considered below, these risks 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 forecasts used in the analysis of the Group's ability to continue in operational existence for the foreseeable future include both the base plan and downside scenarios which although the Group has no significant connections with Russia or Ukraine through its operations (no employees located there nor any major customers or suppliers in the region), include assumptions taking into account macro-economic potential indirect impacts of the events unfolding.

The Group's cash flow forecasts and projections, taking account of reasonable and possible changes in trading performance excluding the potential impact of a pandemic (which is considered below), 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 2023, and in Retra within the level of its facility.

The uncertainty as to the future impact on the Group of a pandemic has been separately considered as part of the directors' consideration of the going concern basis of preparation. In the stress test scenario analysis performed, the directors have considered the reasonably plausible impact of another significant a pandemic outbreak on the Group's trading and cash flow forecasts, together with supply side cost inflation and further increases in freight costs.

In preparing this analysis, a number of scenarios were modelled with the benefit of experience having come through the three COVID-19 lockdowns in the UK in 2020. The scenarios modelled were all based on varying levels of sales revenue, including one that assumes no growth for 2022 and 2023 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.

 

Where the Group has entered into distributor arrangements the satisfaction of performance obligations and transfer of control to the distributor is from the date of dispatch from either the Group's overseas supplier or from the Group's UK warehouse. Revenue is therefore recognised on the date of dispatch.

 

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 2.8 million points yet to be redeemed, 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 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.

 

Government Grants

 

Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants which are revenue in nature are recognised on a systematic basis within Other operating income in the Statement of Comprehensive income over the period in which the Group recognises as expenses the related costs for which the grants are intended to compensate.

 

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 / (loss) from operations, profit / (loss) 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 10.

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 and 20% straight line

Fixtures and fittings    -  25% reducing balance and 20% straight line

Computer equipment  -   25% reducing balance and 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.

Financial assets (continued)

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.

 

Leases (continued)

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

· 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 property, plant and equipment in the jurisdictions from which it operates with a fixed periodic rent over the lease term. The Group has a total of 6 property leases and 1 plant and machinery lease.

 

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 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 effective from 1 January 2021.

 

There were no new standards or interpretations impacting the Group that will be adopted in the annual financial statements for the year ended 31 December 2021, and which have given rise to changes in the Group's accounting policies.

 

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 3

Amendments updating a reference to the Conceptual Framework

1st January 2022

IFRS 4

Amendments regarding the expiry date of the deferral approach

1st January 2023

IFRS 9

Amendments resulting from the annual improvements to IFRS Standards 2018-2020 (fees in the '10 per cent' test for derecognition of financial liabilities)

1st January 2022

IFRS 17

Insurance contracts

1st January 2023

IAS 1

Amendments to defer the effective date of January 2020 amendments

 

Amendments regarding the disclosure of accounting policies

1st January 2023

IAS 8

amendments regarding the definition of accounting estimates

1st January 2023

IAS 12

Amendments regarding deferred tax on leases and decommissioning obligations

1st January 2023

IAS 16

Amendments prohibiting a Company from deducting from the cost of property, plant and equipment amounts received from selling items while the Company is preparing the asset for its intended use

1st January 2022

IAS 37

Amendments regarding the costs to include when assessing whether a contract is onerous

1st January 2022

 

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 £18,139,000 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 £382,955. 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 £112,370.

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 10.0% to 11.0% would reduce the value in use by approximately £3.9 million leaving headroom of £22.2m above the carrying value. For Marvin Leeds Marketing Services, Inc., a 1% increase in the discount rate from 11.4% to 12.4% would reduce the value in use by approximately £0.8 million leaving headroom of £4.6m above the carrying value. For Treasured Scents Limited, a 1% increase in the discount rate from 10% to 11% would reduce the value in use by approximately £0.3 million leaving headroom of £1.6m above the carrying value.  None of these scenarios would therefore result in any impairment of the goodwill.

c)  Provision for content use and associated legal costs

The Group have recorded a provision of £370,000 at 31 December 2021 in respect of a claim relating to historic content use and associated legal costs (see note 17). The estimation of this provision is by its nature subject to some uncertainty, and whilst the Directors are satisfied that they have recorded their best estimate of the value of the potential outflow, it is nevertheless considered to be a key source of estimation uncertainty.

Critical accounting judgements

 

a)  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 the Group's 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.

Year ended 31 December

2021

2021

2021

2020

2020

2020

 

Group  Brands

Close-out

Total

Group  Brands

Close-out

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

Revenue

45,525

4,478

50,003

35,397

4,889

40,286

Cost of sales

(30,131)

(2,964)

(33,095)

(24,375)

(3,367)

(27,742)

 

 

 

 

 

 

 

Gross profit

15,394

1,514

16,908

11,022

1,522

12,544

Administrative expenses

(11,389)

(1,120)

(12,509)

(11,853)

(1,637)

(13,490)

Exceptional items

(586)

-

(586)

(279)

(38)

(317)

Other operating income

2

-

2

317

44

361

 

 

 

 

 

 

 

Segment result

3,421

394

3,815

(793)

(109)

(902)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of segment result to profit before tax:

 

 

 

 

 

 

Segment result

3,421

394

3,815

(793)

(109)

(902)

 

 

 

 

 

 

 

Finance expense

(90)

-

(90)

(212)

-

(212)

 

 

 

 

 

 

 

Profit / (loss) before tax

3,331

394

3,725

(1,005)

(109)

(1,114)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of total revenue by geographical market:

 

 

 

 

 

 

UK

21,358

3,965

25,323

16,909

4,233

21,142

Europe - Other

5,627

41

5,668

5,271

48

5,319

Europe - Spain

5,484

138

5,622

4,555

72

4,627

Europe - Denmark

6,741

8

6,749

4,987

171

5,158

Rest of World - USA

2,650

326

2,976

1,790

358

2,148

Rest of World - Australia and New Zealand

2,567

-

2,567

1,206

-

1,206

Rest of World - Other

1,098

-

1,098

679

7

686

 

 

 

 

 

 

 

Total

45,525

4,478

50,003

35,397

4,889

40,286

 

 

 

 

 

 

 

 

 

During the year ended 31 December 2021, revenues of approximately £5,033,980 were derived from a single external customer based in Denmark (10%). During the year ended 31 December 2020, there was no single material external customer from which revenues were derived exceeding 10% of annual sales.

 

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

2021

2021

2021

2020

2020

2020

 

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

1,072

374

1,446

2,454

585

3,039

Brand

683

-

683

1,456

-

1,456

Patents

127

-

127

148

-

148

Website

4

-

4

8

-

8

Property, plant and equipment

1,379

6

1,385

1,142

7

1,149

Right of use assets

2,995

78

3,073

3,684

115

3,799

 

 

 

 

 

 

 

 

12,980

1,012

13,992

15,612

1,261

16,873

 

 

 

 

 

 

 

 

3.    Other operating income

 

Year ended 31 December

 

2021

2020

 

£'000

£'000

Government grants receivable

-

361

Interest received

2

-

 

 

 

 

2

361

 

 

 

 

The Group did not apply for government support programs in 2021 (2020: £361,000).

Included within the consolidated statement of comprehensive income is £1,745 of interest received during the year ended 31 December 2021.

 

4.  Operating profit / (loss)

Operating profit / (loss) for the period is stated after charging:

 

Year ended 31 December

 

2021

2020

 

£'000

£'000

Foreign exchange (gain)/loss

(614)

420

Depreciation

648

385

Amortisation of right-of-use assets

690

867

Amortisation of intangible assets

2,394

2,443

Movement of inventories at net realisable value

(5)

312

Exceptional costs

586

317

 

 

 

 

The expenditure incurred within the table above falls wholly within Administrative expenses except movement of inventories which falls within cost of sales.

 

 

Exceptional costs

 

Year ended 31 December

 

2020

 

£'000

Non-recurring legal and professional fees

76

Content use and associated legal fees (See note below)

-

Restructuring costs

241

 

 

 

317

 

 

 

Non-recurring costs of £187,000 relate to the costs associated with a historic legal claim connected to an acquisition that the Group is pursuing.

 

The Group is currently in dispute with a third party relating to the historic use of content on our social media platforms, in the period 2018 through to early 2021. As a result of legal advice received as to the likely quantum of liability a provision of £370,000 at 31 December 2021 has been made as the directors' best estimate of the expected liability and associated legal costs. The payment and the restriction of content use will not affect the ongoing running of the business.

 

Restructuring costs of £29,000 are considered exceptional as they form the conclusion of a restructuring process that was initiated in the previous period.

 

Auditor's Remuneration

 

Analysis of auditor's remuneration is as follows:

 

Year ended 31 December

 

2021

2020

 

£'000

£'000

 

 

 

Fees payable to the Company's auditor for the audit of the Group's annual accounts

64

60

Fees payable to the Company's auditor for the audit of subsidiary companies

101

89

 

 

 

 

165

149

 

 

 

 

 

 

Other services pursuant to legislation:

 

 

Tax advice

28

26

Other assurance

2

3

 

 

 

Total non-audit fees

30

29

 

 

 

 

5.  Staff costs

 

 

Year ended 31 December

 

2021

2020

 

£'000

£'000

 

 

 

Wages and salaries

5,232

4,889

Social security costs

553

407

Pension costs (note 26)

90

83

 

 

 

 

5,875

5,379

 

 

 

 

The average monthly number of employees during the period was as follows:

 

Year ended 31 December

 

2021

2020

 

No.

No.

Directors

7

6

Administrative

27

27

Finance

8

7

Warehouse

48

53

Sales

11

8

Other

12

12

 

 

 

 

113

113

 

 

 

 

 

 

 

 

 

 

 2021

 2020

Directors' remuneration, included in staff costs

£'000

£'000

Salaries

858

838

Share based payments (note 23)

117

545

Benefits

20

18

Pension contributions

4

3

 

 

 

 

999

1,404

 

 

 

 

Remuneration in respect of Directors was as follows:

 

Salary/fees and bonus

Share based payment

Benefits

Pension contribution

 2021

2020

 

£'000

£'000

£'000

£'000

£'000

£'000

Executive Directors

 

 

 

 

 

 

S Bazini

230

40

11

-

281

480

E Macleod

230

40

9

-

279

478

N Rodol

185

36

-

2

223

244

S Craig

60

1

-

2

63

61

P Hagon

40

-

-

-

40

-

Non-executive Directors

 

 

 

 

 

 

C Garston

60

-

-

-

60

60

K Sadler

40

-

-

-

40

40

P Hagon

 

-

-

-

 

40

J Collier

13

-

-

-

13

-

 

 

 

 

 

 

 

 

858

117

20

4

999

1,403

 

 

 

 

 

 

 

 

 

Number of Share options at January 2021

Number of Share options awarded in the year

Number of Share options lapsed in the year

Number of Share options at December 2021

Exercise Price

Earliest Exercise Date

Exercise Expiry Date

 

 

 

 

 

 

 

 

N Rodol

412,258

250,000

-

662,258

105,262 @237.5p

306,996 @254.5p
24,590 @122.0p
225,410 @122.0p

29/06/2020

 

21/09/2021

24/05/2024

24/05/2024

29/06/2027

 

21/09/2028

24/05/2031

24/05/2031

S Bazini

1,534,986

-

-

1,534,986

254.5p

21/09/2021

21/09/2028

E Macleod

1,534,986

-

-

1,534,986

254.5p

21/09/2021

21/09/2028

S Craig

20,000

 

 

-

20,000

10,000 @237.5p 10,000 @49.5p

29/06/2020

 

20/05/2023

29/06/2027

 

20/05/2030

 

 

 

 

 

 

 

 

Total share options

3,502,230

250,000

-

3,752,230

 

 

 

 

 

 

 

 

 

 

 

 

The directors of the Group are the only key management personnel.

 

6.    Finance expense

 

Year ended 31 December

 

2021

2020

 

£'000

£'000

Loan interest

5

18

Lease liability interest (note 18)

84

143

Other interest

1

51

 

 

 

 

90

212

 

 

 

 

7.  Income tax

 

Year ended 31 December

 

2021

2020

 

£'000

£'000

Current tax expense

 

 

Current tax on profits for the period

1,262

429

 

 

 

 

1,262

429

Deferred tax expense

 

 

Origination and reversal of temporary differences

(367)

(544)

 

 

 

Total tax expense / (credit)

895

(111)

 

 

 

 

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

 

2021

2020

 

£'000

£'000

Profit/(loss) for the period before taxation

3,725

(1,114)

 

 

 

Expected tax charge based on corporation tax rate of 19% (2020: 19%)

708

(212)

Expenses not deductible for tax purposes

74

29

Other adjustments

1

2

Different tax rates applied in overseas jurisdiction

30

(69)

Adjustments in relation to prior year

-

-

Adjustment to deferred tax

82

139

 

 

 

Total tax expense / (credit)

895

(111)

 

 

 

 

The UK corporation tax at the standard rate for the year is 19.0% (2020: 19.0%).

 

On 24 May 2021, the UK Government enacted that from 1 April 2023 the corporation tax rate would increase to 25% for companies with profits of over £250,000. A small profits rate will also be introduced for companies with profits of £50,000 or less so that they will continue to pay corporation tax at 19%. From this date companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate.

 

Deferred tax balances in these financial statements account for the change in the UK Corporation Tax rate from 19% to 25% based on enacted legislation.

 

The Group's effective tax rate for the year is 24.03% (2020: 9.96%).

 

8.    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 Deutschland GmbH*

Supply chain management

Germany

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 Deutschland GmbH is Robert-Bosch-Straße 10, Haus 1, 56410 Montabaur, Germany.

 

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 6th Floor, South Bank House, Barrow Street, Dublin 4, D04 TR29.

9.  Goodwill

Cost

£'000

At 1 January 2020

8,086

 

 

At 31 December 2020

8,086

 

 

At 1 January 2021

8,086

 

 

At 31 December 2021

8,086

 

 

Impairment

 

At 1 January 2020

812

 

 

Impairment during the year

-

 

 

At 31 December 2020

812

 

 

At 1 January 2021

812

 

 

Impairment during the year

-

 

 

At 31 December 2021

812

 

 

 

 

Net book value

 

At 31 December 2021

7,274

 

 

At 31 December 2020

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 2021 includes Treasured Scents Limited (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 10.0% (2020: 10.1%) for Retra Holdings Limited and 11.4% (2020: 8.0%) for Marvin Leeds Marketing Services, Inc. and 10% for Treasured Scents Limited. Cash flows beyond the five-year period are extrapolated using a long-term average growth rate of 2.0% (2020: 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 Treasured Scents Limited, Retra Holdings Limited or Marvin Leeds Marketing Services, Inc. as the recoverable amount exceeds the carrying value.

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 19.3%  revenue over the next five years. For Retra, the compound annual growth rate over the next five years is anticipated to be 4.8%. For Treasured Scents the compound annual growth rate over the next five years is anticipated to be 4%. The gross margins  for LMS, Retra and Treasured Scents are based on historical rates achieved.

· Administrative expenses are expected to increase by 18% in LMS, 23% in Retra and 5% in Treasured Scents in the year ending 31 December 2022 with 5% incremental increases annually thereafter.

· Discount Rate - pre-tax discount rate of 10.0% for Retra Holdings Limited, 11.4% for Marvin Leeds Marketing Services, Inc. and 10% 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 (5 years from year end date) 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.

10.  Intangible assets

 

Brands

Customer lists

Patents

Website

Licences

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

 

At 1 January 2020

3,802

8,240

252

45

6

12,345

 

 

 

 

 

 

 

Additions

-

-

12

-

-

12

 

 

 

 

 

 

 

At 31 December 2020

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

At 1 January 2020

1,585

3,554

92

28

4

5,263

 

 

 

 

 

 

 

Charge for the year

765

1,644

24

9

1

2,443

 

 

 

 

 

 

 

At 31 December 2020

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 December 2021

687

1,442

127

4

-

2,260

 

 

 

 

 

 

 

At 31 December 2020

1,452

3,042

148

8

1

4,651

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.  Property, plant and equipment

 

 

Plant and machinery

Fixtures and fittings

Computer equipment

Motor vehicles

Total

 

£'000

£'000

£'000

£'000

£'000

Costs

 

 

 

 

 

At 1 January 2020

250

848

302

141

1,541

 

 

 

 

 

 

Additions

2

825

42

-

869

Disposals

-

-

-

(21)

(21)

 

 

 

 

 

 

At 31 December 2020

252

1,673

344

120

2,389

 

 

 

 

 

 

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

 

 

 

 

 

 


Accumulated depreciation

 

 

 

 

 

At 1 January 2020

59

528

181

89

857

Charge for year

41

257

70

17

385

On disposals

-

-

-

(2)

(2)

 

 

 

 

 

 

At 31 December 2020

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

 

 

 

 

 

 

Net book value

 

 

 

 

 

At 31 December 2021

267

1,036

77

5

1,385

 

 

 

 

 

 

At 31 December 2020

152

888

93

16

1,149

 

 

 

 

 

 

 

* 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.

 

12.  Right-of-use assets

 

 

Leasehold property

Plant and machinery

Computer equipment

Total

 

£'000

£'000

£'000

£'000

Costs

 

 

 

 

At 1 January 2020

4,960

760

77

5,797

 

 

 

 

 

Additions

139

-

-

139

Disposals

(303)

-

-

(303)

 

 

 

 

 

At 31 December 2020

4,796

760

77

5,633

 

 

 

 

 

Additions

253

-

-

253

Transfer to Plant and Machinery

-

(760)

-

(760)

 

 

 

 

 

At 31 December 2021

5,049

-

77

5,126

 

 

 

 

 

 

 

 

 

 


Accumulated amortisation

 

 

 

 

At 1 January 2020

729

321

62

1,112

 

 

 

 

 

Charge for the year

702

150

15

867

Disposals

(145)

-

-

(145)

 

 

 

 

 

At 31 December 2020

1,286

471

77

1,834

 

 

 

 

 

Charge for the year

690

-

-

690

Transfer to Plant and Machinery

-

(471)

-

(471)

 

 

 

 

 

At 31 December 2021

1,976

-

77

2,053

 

 

 

 

 

Net Book Value

 

 

 

 

 

 

 

 

 

At 31 December 2021

3,073

-

-

3,073

 

 

 

 

 

At 31 December 2020

3,510

289

-

3,799

 

 

 

 

 

 

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 3.73% (2020: 3.61%) for leasehold property, nil% (2020: 0.88%) for plant and machinery and nil% (2020: 0.88%) for computer equipment.

 

13.  Inventories

 

 

As at 31 December

 

2021

2020

 

£'000

£'000

 

 

 

Finished goods

18,655

14,934

Provision for impairment

(516)

(521)

 

 

 

 

18,139

14,413

 

 

 

The cost of inventories recognised as an expense and included in 'cost of sales' amounted to £28.56 million in the year ended 31 December 2021 (2020: £24.30 million).

 

 

14.  Trade and other receivables

 

As at 31 December

 

2021

2019

 

 

£'000

£'000

 

 

 

Trade receivables - gross

8,755

7,750

Provision for impairment of trade receivables

(66)

(44)

 

 

 

Trade receivables - net

8,689

7,706

Other receivables

92

600

Prepayments and accrued income

1,541

881

 

 

 

Total

10,322

9,187

 

 

 

 

 

 

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

 

2021

2020

 

£'000

£'000

 

 

 

Accumulated impairment losses at 1 January

44

44

Additional impairment losses recognised during the year, net

66

256

Amounts written off during the year as uncollectible

(44)

(256)

 

 

 

Accumulated impairment losses at 31 December

66

44

 

 

 

 

The impairment losses recognised during the year of £66,000 (2020: losses of £256,000 relating to the recovery of amounts previously written off as uncollectable).

 

Contract Liabilities

 

 

As at 31 December

 

2021

2020

 

£'000

£'000

 

 

 

At 1 January

292

321

Amounts included in contract liabilities that was recognised as revenue during the period


530

 

611

Amounts settled during the period

(603)

(640)

 

 

 

At 31 December

219

292

 

 

 

 

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 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.

 

15.  Cash and cash equivalents

 

Cash and cash equivalents include the following for the purposes of the cash flow statement:

 

 

As at 31 December

 

2021

2020

 

£'000

£'000

 

 

 

Cash at bank and in hand

4,072

4,875

 

 

 

 

4,072

4,875

 

 

 

 

16.  Trade and other payables

 

 

As at 31 December

 

2021

2020

 

£'000

£'000

Current

 

 

Trade payables

1,847

1,439

Social security and other taxes

293

523

Other payables

66

32

Accruals and deferred income

4,087

1,127

 

 

 

Total

6,293

3,121

 

 

 

 

The directors consider that the carrying values of trade and other payables measured at book value and amortised cost approximates to their fair value.

 

17.  Provision

The Group is currently in dispute with a third party relating to the historic use of content on the Group's social media platforms in the period 2018 through to early 2021. As a result of legal advice received as to the likely quantum of liability a provision of £370,000 at 31 December 2021 has been made as the directors' best estimate of the expected liability and associated legal costs. The payment and the restriction of content use will not affect the ongoing running of the Group's business.

 

18.  Loans and borrowings

 

 

As at 31 December

 

2021

2020

 

£'000

£'000

Bank loans

 

 

Repayable within 1 year

-

48

 

 

 

 

-

48

 

 

 

 

 

 

Lease liabilities

 

 

Repayable within 1 year

610

866

Repayable within 2 - 5 years

2,261

2,375

Repayable in more than 5 years

276

670

 

 

 

 

3,147

3,911

 

 

 

 

 

 

Total

 

 

Repayable within 1 year

610

914

Repayable within 2 - 5 years

2,261

2,375

Repayable in more than 5 years

276

670

 

 

 

 

3,147

3,959

 

 

 

 

 

Undiscounted lease payments

 

 

As at 31 December

 

2021

2020

 

£'000

£'000

Lease liabilities

 

 

Repayable within 1 year

684

995

Repayable within 2 - 5 years

2.390

2,599

Repayable in more than 5 years

281

506

 

 

 

Total

3,355

4,100

 

 

 

 

 

Lease liabilities

 

As at 31 December

 

Leasehold property

Plant and machinery

Computer equipment

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

At 1 January 2020

4,326

398

16

4,740

Lease additions

139

-

-

139

Lease disposals

(158)

-

-

(158)

Interest expense

97

44

2

143

Lease payments

(745)

(190)

(18)

(953)

 

 

 

 

 

As at 31 December 2020

3,659

252

-

3,911

 

 

 

 

 

Lease additions

253

-

-

253

Interest expense

84

-

-

84

Lease payments

(765)

(252)

-

(1,017)

Adjustments

(84)

 

 

(84)

 

 

 

 

 

As at 31 December 2021

3,147

-

-

3,147

 

 

 

 

 

 

 

Nature of lease liabilities

The Group leases a number of properties in the United Kingdom and United States of America as well as certain items of plant and equipment.

 

An additional £1,061 (2020: £2,617) has been expensed to the statement of comprehensive income in respect of low value operating leases. Interest payments of £Nil (2020: £4,051) have also been expensed in respect of leases that expired during the period.

 

The interest rates expected are as follows:

 

As at 31 December

 

2021

2020

 

%

%

Finance loans

7.0

7.0

Bank loans

8.75

8.75

Invoice financing

3.25

3.25

 

 

 

 

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 (2020: £Nil). The carrying value of assets pledged as collateral approximates to £8,205,000 (2020: £8,763,000).

 

19.  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

 

2021

2020

2021

2020

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Opening balance

(1,000)

(1,324)

581

374

Foreign exchange adjustment

-

3

-

(16)

Recognised in profit and loss:

 

 

 

 

Tax expense

443

321

(81)

223

 

 

 

 

 

Closing balance

(557)

(1,000)

500

581

 

 

 

 

 

 

 

The deferred tax liability has arisen due to the timing difference on accelerated capital allowances amounting to £46,000 (2020: £42,000) and on the intangible assets acquired in a business combination amounting to £1,057,000 (2020: £1,057,000).

 

Deferred tax asset has arisen from taxable losses carry forward for LMS amounting to £1,995,000 (2020: £2,323,000) and recognised at a rate of 25%.

 

20.  Dividends

 

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

 

 

 

 

Year to December 2020

Paid

Amount per share

Total £'000

 

 

 

 

Final dividend - 2019

-

-

-

Interim dividend - 2020

20 Nov 20

2.8p

2,149

 

 

 

 

 

 

 

2,149

 

 

 

 

 

The Group has proposed a final dividend for the year ended 31 December 2021 of 3.5p per share.

 

21.  Called up share capital

 

 

No. of shares

 

 

'000

£'000

Allotted and issued

 

 

 

 

 

Ordinary shares of £0.25 each:

 

 

At 1 January 2019 and 2020

76,749

19,187

Issued at 12 May 2021

3

1

 

 

 

 

 

 

At 31 December 2021

76,752

19,188

 

 

 

 

During the year, Company issued 3,230 equity shares with par value of £0.25 per share for £0.495 per share. Entire amount was paid in cash. No shares were allotted other than for cash.

 

All ordinary shares carry equal rights.

 

22.  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.

 

23.  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

 

2021

2021

2020

2020

 

 

 

 

 

Outstanding at the beginning of the year

233.50

4,528,962

253.45

4,088,302

Granted during the year

122.0

400,000

49.50

454,686

Expired during the year

115.0

(68,132)

83.36

(14,026)

 

 

 

 

 

Outstanding at the end of the year

226.0

4,860,830

233.50

4,528,962

 

 

 

 

 

 

The weighted average remaining contractual life of the options is 2.6 years (2020: 3.0 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

 

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:

 

25 May 2021

20 May 2020

24 Sept 18

29 June 17

Expected volatility

78%

76%

78%

64%

Expected life (years)

3

3

2-4

3

Risk-free interest rate

0.15%

0.01%

1.61%

0.38%

Expected dividend yield

1.76%

2.08%

1.53%

2%

Fair value per option (£)

0.552

0.213

0.422

0.963

 

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 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 below.

 

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 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, 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.

 

The charge in the statement of comprehensive income for the share-based payments during the year was £177,000 (2020: £656,000).

 

24.  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 5 with the exception of dividends and drawings which are disclosed in note 19.

 

During 2021, Warpaint Cosmetics (2014) Limited paid rent in the sum of £120,000 (2020: £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 £30,000 (2020: £Nil). During 2021, Warpaint Cosmetics (2014) Limited paid rent in the sum of £120,000 (2020: £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 £30,000 (2020: £1,000).

 

During 2021, Retra Holdings Limited paid rent in the sum of £340,000 (2020: £340,000) to Warpaint Cosmetics Limited, of which E Macleod and S Bazini are directors.

 

As announced on 6 February 2020, the Group appointed Ward & Hagon, a provider of practical business solutions, to assist it in implementing its strategic growth plan.  As a result of a successful initial period, whereby they assisted the Group in accessing new retail channels (including Tesco) the Group is pleased to announce that the Contract with Ward & Hagon, has been renewed for a further 12 months.

 

The Contract has a total annual value of £210,000 (which will be satisfied from the Group's operating cash flows), and includes the services of Paul Hagon, an executive director of the Company and Martyn Ward, amongst other members of the Ward & Hagon team.  In addition, Ward & Hagon will be paid a commission of 3% on all sales generated from their introductions in the 12-month period from the point of first sale, and 4% on all sales generated from their introductions in the 12-month period thereafter. 

 

The board is of the view that the services provided under the Contract represent value to shareholders through assisting the Group achieving is near term objectives.  Accordingly, Ward & Hagon will continue to focus on assisting the Group access new retail channels both in the UK and overseas.

 

Paul Hagon, an executive director of Warpaint, is a member of Ward & Hagon.  Accordingly, the renewal of the contract is classified as a related party transaction pursuant to the AIM Rules for Companies. The independent directors of the Company (being all executive and non-executive directors except Mr Hagon), having consulted with N+1 Singer, the Company's Nominated Adviser, consider that the terms of the Contract renewal are fair and reasonable insofar as the Company's shareholders are concerned.

 

Also note Ward & Hagon were paid £200,000 fees (2020: £200,0000, £20,010 commission (2020: £Nil) and expenses of £7,941 in 2021 (2020: £7,299).

 

25.  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 £50,358,000 as at 31 December 2021 (2020: £51,748,000) 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

 

2021

2020

 

£'000

£'000

Financial assets

 

 

Financial assets at amortised cost:

 

 

Trade and other receivables

8,781

8,306

Financial assets measured at fair value through the profit and loss:

 

 

Cash and cash equivalents

4,072

4,875

Derivative financial instruments

545

40

 

 

 

 

13,398

13,221

Financial liabilities 

 

 

Financial liabilities at amortised cost:

 

 

Trade and other payables

(1,913)

(2,598)

Loan and borrowings

(3,147)

(3,959)

Financial liabilities measured at fair value through the profit and loss:

 

 

Derivative financial instruments

-

(400)

 

 

 

 

(5,060)

(6,957)

 

 

 

Net

8,338

6,264

 

 

 

         

 

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 £18,000 (2020: £7,000) 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 2021, the Group has trade receivables of £8,689,000 (2020: £7,706,000).

 

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

 

2021

2020

 

£'000

£'000

 

 

 

Current

4,811

4,682

1 - 30 days

2,006

1,801

31 - 60 days

1,516

944

61 - 90 days

183

220

91 + days

239

103

Provision for impairment of trade receivables

(66)

(44)

 

 

 

Total trade receivables - net

8,689

7,706

 

 

 

 

The Directors are unaware of any factors affecting the recoverability of outstanding balances at 31 December 2021 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

 

2021

2020

 

£'000

%

£'000

£'000

%

£'000

Current

4,811

0.135

6

4,682

0.135

6

1 - 30 days

2,006

0.405

8

1,801

0.405

7

31 - 60 days

1,516

1.215

18

944

1.215

11

61 - 90 days

183

3.645

8

220

3.645

8

91 + days

239

10.935

26

103

10.935

12

 

 

 

 

 

 

 

 

 

 

66

 

 

44

 

 

 

 

 

 

 

 

Credit quality of financial assets

 

As at 31 December

 

2021

2020

Trade receivables, gross (note 14):

£'000

£'000

 

 

 

Receivable from large companies

2,600

4,270

Receivable from small or medium-sized companies

2,211

412

 

 

 

Total neither past due nor impaired

4,811

4,682

 

 

 

 

 

As at 31 December

 

2021

2020

Past due but not impaired:

£'000

£'000

Less than 30 days overdue

2,006

1,801

30 - 90 days overdue

1,872

1,223

 

 

 

Total past due but not impaired

3,878

3,024

 

 

 

 

Lifetime expected loss provision:

 

 

Less than 30 days overdue

-

-

30 - 90 days overdue

66

44

 

 

 

Total lifetime expected loss provision (gross)

66

44

 

 

 

 

 

 

Less: Impairment provision

(66)

(44)

 

 

 

Total trade receivables, net of provision for impairment

8,689

7,706

 

 

 

 

 

Cash and cash equivalents, neither past due nor impaired (Moody's ratings of respective counterparties):

 

As at 31 December

 

2021

2020

 

£'000

£'000

 

 

 

AAA rated

6

10

AA rated

1,723

303

A rated

-

1,115

BAA rated

2,343

3,447

 

 

 

Total cash and cash equivalents

4,072

4,875

 

 

 

 

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 (2020: £100,000).

 

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 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

1,847

-

-

-

1,847

Other payables

66

-

-

-

66

Accruals

4,087

-

-

-

4,087

Loans and borrowings

342

342

2,390

281

3,355

 

 

 

 

 

 

 

6,342

342

2,390

281

9,355

 

 

 

 

 

 

 

 

Year ended 31 December 2020

 

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

1,439

-

-

-

1,439

Other payables

32

-

-

-

32

Accruals

1,127

-

-

-

1,127

Loans and borrowings

497

498

2,599

506

4,100

 

 

 

 

 

 

 

3,095

498

2,599

506

6,698

 

 

 

 

 

 

 

The borrowings of the Group are secured by a debenture including a fixed charge over all present leasehold property, a first fixed charge over book and other debts and a first floating charge over all assets.

 

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. The Group mitigates its foreign exchange risk by negotiating contracts with key suppliers that offer a flexible discount structure to offset any adverse foreign exchange movements and through the use of forward currency contracts. At December 2021, there were total sums of £939,000 (2020: £375,000) 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 2021, the net foreign liability was £0.7m (2020: £0.4m). 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 £9,083 increase in reported profits and equity, while a 5% strengthening of sterling would result in £8,218 decrease in profits and equity.

Marvin Leeds Marketing Services, Inc.

 

 

As at 31 December

 

 

2021

2021

 

 

USD

GBP

 

 

 

 

Profit After Tax

 

233,587

172,570

 

 

 

 

5% weakening of US dollar

 

233,587

181,653

 

 

 

 

 

Increase profits

 

9,083

 

 

 

 

 

 

 

 

5% strengthening of US dollar

 

233,587

164,352

 

 

 

 

 

Decrease profits

 

(8,218)

 

 

 

 

 

Foreign exchange risk

 

2021

2020

 

£'000

£'000

Derivatives carried at fair value:

 

 

Exchange gain/(loss) on forward foreign currency contracts

545

(360)

 

 

 

 

The Group, along with other businesses, will face the risk of inflationary pressures through commodities cost increases, further driven by currency weakness post Brexit.

 

Forward contracts and options

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 intro 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 2021, the Group has 40 (2020: 42) forward foreign exchange contracts outstanding. Derivative financial instruments are carried at fair value.

 

The following table details the foreign currency contracts outstanding as at the balance sheet date.

a)  Contracted exchange rate

2021

2020

2021

2020

 

£/$

£/€

3 months or less

1.3730

1.3353

-

1.1082

3 to 6 months

1.3866

1.3222

1.1645

1.1099

6 to 12 months

1.3813

1.3265

1.1491

1.1024

 

 

b)  Contract value

2021

2020

2021

2020

 

£/$

£/€

 

£'000

£'000

£'000

£'000

3 months or less

728

2,620

-

947

3 to 6 months

13,159

7,008

1,072

2,479

6 to 12 months

5,447

3,766

2,259

1,133

 

 

 

 

 

 

19,335

13,394

3,331

4,559

 

 

 

 

 

 

c)  Foreign currency

2021

2020

2021

2020

 

$'000

$'000

€'000

€'000

3 months or less

1,000

3,500

-

1,050

3 to 6 months

18,250

9,254

1,250

2,750

6 to 12 months

7,535

5,000

2,600

1,250

 

 

 

 

 

 

26,785

17,754

3,850

5,050

 

 

 

 

 

 

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.

 

26.  Pension costs

 

The Group operates a defined contribution pension scheme. Contributions payable to the Group'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 £88,339 (2020: £91,019).

 

27.  Controlling party

 

In the opinion of the directors there is no ultimate controlling party.

 

28.  Earnings/(loss) 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.

 

 

2021

2020

 

 

 

Basic earnings/(loss) per share (pence)

3.69

(1.31)

 

 

 

Diluted earnings per/(loss) share (pence)

3.68

(1.31)

 

 

 

The calculation of basic and diluted earnings/(loss) per share is based on the following data:

 

 

 

 

 

 

2021

2020

Earnings

£'000

£'000

Earnings for the purpose of basic earnings per share, being the net profit/(loss)

2,830

(1,003)

 

 

 

 

Number of shares

2021

2020

Weighted number of ordinary shares for the purpose of basic earnings per share

76,751,187

76,749,125

Potentially dilutive shares awarded

62,699

67,040

 

   

   

Weighted number of ordinary shares for the purpose of diluted earnings per share

76,813,886

76,816,165

 

   

   

 

The 4,542,988 share options (2020: 4,088,302) in issue throughout the year 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 400,000 share options granted 25 May 2021 have been included in the computation of diluted earnings per share as the exercise price of the options is below the average annual market price of Ordinary shares.

29.  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 2020

3,864

2,205

6,069

Non-cash flows:

-

(19)

(19)

Cash flows

-

(2,091)

(2,091)

Reclassification from Non-current loans and borrowings to current loans and borrowings

 

(819)

 

819

 

-

 

 

 

 

At 31 December 2020

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 borrowings

(508)

508

-

 

 

 

 

At 31 December 2021

2,537

610

3,147

 

 

 

 

 

30.  Post balance sheet events

On 2 March 2022, Ward & Hagon Management Consulting LLP (an LLP of which Paul Hagon is a member) were granted options to subscribe for 200,000 ordinary shares of 25p in the Company at an exercise price of 127.5 pence per share (the "Option"), being the closing mid-market price on 1 March 2022 (the last practicable date prior to this announcement).  The Option is exercisable between three and ten years from the date of grant. Save as mentioned above, there were no changes in the shareholdings of the directors between 31 December 2021 and the date of this report.

 

 

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