Brand Architekts Group plc
Annual Report 2019

Plain-text annual report

Brand Architekts Group plc is an AIM listed Beauty Brands business, specialising in the delivery of innovative and exciting new products to consumers and retailers. FORWARD-LOOKING STATEMENTS Certain statements in this Brand Architekts Group plc Annual Report and Accounts 2019 constitute “forward-looking statements”. Forward-looking statements may sometimes, but not always, be identified by words such as “will”, “may”, “should”, “continue”, “believes”, “expects”, “intends” or similar expressions. These forward-looking statements are subject to risks, uncertainties and other factors which, as a result, could cause Brand Architekts Group plc’s actual future financial condition, performance and results to differ materially from the plans, goals and expectations set out in the forward-looking statements. Such statements are made only as at the date of this Report and, except to the extent legally required, Brand Architekts Group plc undertakes no obligation to revise or update such forward-looking statements. Contents In this report 04 Highlights 06 Chairman’s Foreword Strategic Report 08 Executive Chairman’s Report 10 12 15 Principal Risks and Uncertainties Financial Review People and Sustainability Governance 16 18 19 Corporate Governance Board of Directors Directors’ Report 22 Independent Auditor’s Report Financial Statements 26 27 29 31 32 Group Statement of Comprehensive Income Group and Company Statements of Financial Position Group and Company Statements of Changes in Equity Group and Company Cash Flow Statements Notes to the Accounts 64 Five Year Summary 66 Corporate Directory I H G H L I G H T S I S T R A T E G C R E P O R T G O V E R N A N C E I I F N A N C A L S T A T E M E N T S 4 Financial Highlights Operational Highlights • Group Revenues for the 52 weeks increased by 8% to £77.3m (2018: £71.6m). • Owned Brands represented 25% of revenues and 59% of underlying operational profits. • Owned Brand revenues decreased by 6.7%, impacted by lower consumer confidence and by challenges faced by retailers in a restricted marketplace. • Adjusted profit before taxation* increased by 1% to £5.1m (2018: £5.0m). • Underlying operating profit** decreased by 19% to £4.4m (2018: £5.5m). • Adjusted EPS increased by 9% year on year to 25.3 pence (2018: 23.2 pence). • Proposed final dividend of 4.35p per share (2018: 4.2p), in addition to the interim dividend of 2.15p already paid, to give a full year dividend of 6.5p (2018: 6.2p), an increase of 5%. • Net Debt as at 29 June 2019 decreased to £7.2m (2018: £11.8m). *calculated as per page 13 **as per note 2 Annual Report & Accounts 2019Brand Architekts Group plcBrand Architekts Group plc 5 Financial Highlights Operational Highlights • Creation of a solely Owned Brands business following the disposal of the Contract Manufacturing Business for £35 million, a premium to the market capitalisation of the Group as at 15 July 2019. Net proceeds receivable by the Company are £33.75 million. • Ongoing business renamed Brand Architekts Group plc on 29 August 2019 to reflect sole focus on Owned Brands. • New product development (“NPD”) continues with 80 new products launched in the year. • Net cash as at 31 August of £24m. • Net Assets as at 31 August of £38m. Annual Report & Accounts 2019HIGHLIGHTSBrand Architekts Group plc6 Chairman’s Foreword Brendan Hynes, Executive Chairman commented: “On the 23 August 2019 the Group disposed of its Manufacturing business for £35m to KDC/One Inc. This transformational deal is another significant milestone for our strategy of accelerating the growth of our Owned Brands business and simplifying the Group. We will now focus all our time, resources and investment growing and developing the higher margin part of our business. The value achieved on disposal represents a very good return for shareholders, it also strengthens our balance sheet, moving the Group from a net debt position of £11.8m last financial year end, to a significant positive cash position on completion of £24.0m. The new Group has been renamed the Brand Architekts Group Plc and has an outstanding, stand-alone operational team with an excellent track record and strong relationships with our retail customers. The business is now well capitalised and we will use some of the proceeds from the disposal to grow the business organically and through selective acquisitions that will deliver further profitability and scale. We are now well positioned to continue to build a more profitable and sustainable business, which will generate further shareholder value.” Over the last four years we have developed, both organically and through acquisition, a growing portfolio of brands that are owned and managed by the Group and which we control from formulation development through to distribution. Following the disposal of the Manufacturing business, we now have complete focus on the Owned Brands business as well as the necessary financial resources to invest and grow the business further. Annual Report & Accounts 2019Brand Architekts Group plcBrand Architekts Group plcChairman’s Foreword 7 Revenue Underlying Operating Profit Adjusted PBT Reported PBT EPS – Adjusted EPS – basic Dividend per share – paid and proposed Net Debt Brands MFG* Central £m 19.7 3.6 £m 62.0 2.5 £m (4.4) (1.7) 2019 Total £m 77.3 4.4 5.1 4.1 25.3 20.7 2018 Total £m 73.9 5.5 5.0 4.5 23.2 20.9 6.5p 6.2p £7.2m £11.8m *Disposal on 23 Aug 2019 for £35m Dividend Given our strong cash position and confidence in the business it is the Board’s intention to propose a final dividend of 4.35 pence. Together with the interim dividend already paid of 2.15 pence, this represents a total dividend for the year of 6.5 pence, an improvement of 5% over the prior year (2018: 6.2p). It remains the Directors’ intention to align future dividend payments to the underlying earnings and cash flow of the stand-alone business, taking into account the investment and operational requirements of the business. Board succession Following the successful completion of the deal to dispose of the Manufacturing business on 23 August, which represents a fundamental change to the scale of business for the Group, the Board has mutually agreed with Tim Perman that he will step down from the PLC Board and as Chief Executive and leave the company on 30 September 2019. Brendan Hynes, Non-Executive Chairman will take on an executive Chairman role until a permanent replacement is appointed. The successful brand management team remains in place and unchanged and will continue to be supported until the end of the calendar year by Mathew Gazzard, formerly Group Finance Director and Jane Fletcher, formerly Group Sales and Marketing Director, under the transitional services agreement. In addition, we will be putting in place an interim CFO to work on the transition and to support the stand-alone Brands business, until a full CFO is appointed. The Board wishes to thank Tim for his contribution to the Group during his time with us and wish him all the very best for the future. Outlook We expect the economic and consumer uncertainty seen in the UK and in the second half year to June 2019 to continue into our new financial year. The slow-down in momentum in our Owned Brands business will be addressed by enabling management to focus on this business following the disposal, innovative NPD and a stronger focus on distribution in both the UK and internationally. Given the strength of our balance sheet, we also remain alert to further acquisition opportunities which offer the potential to build scale and deliver incremental shareholder value. Following the successful disposal of the Manufacturing business, we are confident that our new strategic focus will enable us to deliver the best outcome for all our stakeholders. Brendan Hynes Chairman 27 September 2019 Annual Report & Accounts 2019HIGHLIGHTSBrand Architekts Group plc 8 Strategic Report Executive Chairman’s Report Fundamental transformation - focus on brands Over the last four years our stated strategy has been to develop, both organically and though acquisition, a portfolio of brands that are owned and managed by the Group and which we control from formulation development through distribution. As at 29th June 2019, Owned Brands represented 54% of group underlying operation profits. Following a strategic review process, the Board concluded that the Manufacturing business would be better served as part of a business with bigger scale and that £35 million sale proceeds represented excellent value for shareholders. With the disposal of the Manufacturing business in August 2019, we have accelerated our strategic re-alignment and will now be 100% focused on the brands that we own and control. The disposal has also strengthened the balance sheet, eliminated group debt and leaves the group in a significantly cash positive position. The Board believe that we are now better positioned to drive further value by focusing solely on our Owned Brands business with its higher margins, lower capital investment requirements and superior financial returns. Annual Report & Accounts 2019Brand Architekts Group plc9 New name – stronger focus The new group is now called Brand Architekts Group plc, which more appropriately reflects the future focus of the group. Strategic priorities The challenging market conditions, particularly in the UK require us to have a clear strategic focus. The strategic priorities for the Group are: • Build Scale: Accelerate sales and profit growth organically and via accretive acquisitions • New Product Development (NPD): continue to execute at pace • International expansion: Develop new customers in new geographies • On-line expansion: accelerate E-commerce and digital presence • Build organisation capability: Continue to Invest in people and skills Progress against our strategic priorities • New Product Development (NPD) We are pleased that the pace of NPD continues with over 80 new lines launched over the 12 month period across 11 brands. We continue to evaluate and develop the brand portfolio to ensure that we are focusing the appropriate level of resource and support to drive maximum performance and growth. Within the portfolio we have defined a number of ‘Drive’ brands where we are specifically focused on extending distribution, new product development, international growth and increasing support through both instore and digital promotion. • International expansion Our focus continues on developing sales in new international markets and building relationships with appropriate distribution and retail partners for our brand portfolio. Bi-lingual pack formats have been developed for specific brands, allowing us to maximise opportunity whilst carefully managing inventory levels. The launch of the Dirty Works brand into France and Belgium has been followed by new distribution in the Middle East. Our range of therapeutic bath solutions, Dr Salts, has launched successfully in South Africa; the Real Shaving Company has launched in New Zealand. • On-line expansion We continue to invest in the area of developing in-house expertise to grow the reach of Owned Brands business within multi channels to market. Strong relationships with key e-tailers have been established enhancing the breadth of distribution and partners for our brand portfolio. • Build organisation capability We will continue to build and develop the stand alone capability of our Owned Brands business by investing in further Marketing, Digital, Technical and Supply chain skills. Strategic Report Annual Report & Accounts 2019STRATEGIC REPORTBrand Architekts Group plc10 Principal Risks and Uncertainties The Board recognises the need for a robust system of internal controls and risk management. The Group operates in an environment that is constantly changing and as a result the risks it is facing change over time. The Group’s management have developed processes to assess risks and to develop strategies for dealing with these risks on an ongoing basis. A formal review of these risks is carried out by the Group twice a year. The review process involves the classification of risks, assessment to determine the relative likelihood of them impacting the business and the potential severity of the impact, and determination of whether changes to management processes are needed to manage them effectively. Brexit does not change the nature of the risks that the Group is exposed to, but may well impact on the incidence and magnitude of those risks. The Directors have identified the following as principal risks and uncertainties: People The performance of the Group is dependent on the efforts of our people, especially key management personnel. As the Group undertakes major changes in structure, and to the leadership team, it is crucial that relevant skills and capabilities are retained or, through recruitment, brought into the Group, and that new recruits mesh well with the corporate culture of the Group. Competitive environment and customer requirements The environment remains competitive within the personal care sector. Following disposal of the Manufacturing business this risk is mitigated by diversification across brands, retailers, and internationally. There is also increasing focus on digital marketing activities to increase engagement directly with retail customers. Close contact is maintained with customers to better understand their desires and create products that fulfil their needs. Product quality Product quality is a key strength of the Group and failure to maintain a high standard of quality would have a severe impact on service levels, customer relationships, and have financial repercussions. Annual Report & Accounts 2019Brand Architekts Group plc11 Labour costs, prices, and supply The Group potentially faces the risk of inflationary pressures through commodities cost increases, further driven by currency weakness post Brexit, the National Living Wage, and other ongoing legislative changes. The Group in the normal course of its business, transacts in and holds various currencies, and follows a policy of managing currency exposure through natural hedging wherever possible. The Group maintains a high level of expertise in its purchasing and supply chain team. The team seeks to cultivate strong relationships with major suppliers to ensure continuity of supply at competitive prices. The application of long-term contracts is assessed where applicable to reduce uncertainty in input prices. Brexit related supply risks may impact our suppliers and have a consequential impact on the Group. The regular renovation and innovation across our products can help to manage margin pressures in an effective manner, as far as the competitive environment allows. Economic environment The market place remains challenging and there is an uncertain macro-economic outlook following the vote to leave the EU. Our focus on executing our clear strategy, outlined earlier in this report, has improved our ability to navigate any potential macro uncertainty. Cyber security The Group is exposed to the risk of increasingly sophisticated cyber-attacks aimed at causing business disruption, capture of data for financial gain, general embarrassment and reputational damage. Investment internally and externally continues to be applied to maintain a high level of protection software and real-time back-up. Following the introduction of GDPR Data Protection rules, the Group has implemented Group wide data privacy protective measures. Pension fund deficit The revaluation of the defined benefit pension plan on a technical provision basis at each reporting date can cause large fluctuations in valuations based on factors outside the Groups control. There is an agreed deficit recovery plan fixed until April 2027 or until a new schedule is agreed based on the next triennial valuation which will be at 5 April 2020. This deficit recovery plan provides a degree of certainty over cash flows between triennial reviews. The Group maintains a close relationship and regular communication with the Trustees. Principal Risks and Uncertainties Annual Report & Accounts 2019STRATEGIC REPORTBrand Architekts Group plc12 Financial Review Key Performance Indicators To measure and monitor our progress against our growth strategy, we track our performance against a set of ambitious targets and milestones. The goals we set are closely assessed to ensure we focus our efforts to deliver both in the short term and long term. A summary of the financial measures used are: Reported Results from continuing and discontinued operations Revenue (note 2) Adjusted revenue (constant currency) 1 Adjusted operating profit 2 Reported operating profit Profit before taxation Adjusted earnings per share 2 Basic earnings per share Total Dividend per share Net debt 2019 2018 £77.3m £76.9m £4.3m £3.3m £4.1m 25.3p 20.7p 6.5p £7.2m £73.9m £74.4m £5.2m £4.7m £4.5m 23.2p 20.9p 6.2p £11.8m 1 Revenue translated at 2018 exchange rates 2 Adjusted operating profit and adjusted earnings per share are calculated before exceptional items and amortisation of acquisition-related intangibles. Annual Report & Accounts 2019Brand Architekts Group plc A reconciliation of underlying operating profit to profit before taxation is shown below: 13 2019 Total £’000 Underlying profit from operations (see note 2) 4,428 Charge for share-based payments Adjusted operating profit Net borrowing costs Adjusted profit before taxation Amortisation of acquisition-related intangibles 5,070 4,313 (115) 757 (260) Exceptional (costs) Profit before taxation (717) 4,093 2019 2019 Continuing Discontinued operations operations 2018 2018 2018 Total Continuing Discontinued operations operations £’000 2,355 (115) 2,240 (144) 2,096 (260) (48) 1,788 £’000 5,173 £’000 2,073 5,470 (297) - 2,073 901 2,974 - (669) 2,305 4,524 5,000 (279) (197) (173) £’000 3,319 (297) 3,022 (161) 2,861 (197) (279) 2,385 £’000 2,151 - 2,151 (12) 2,139 - 2,139 Financial Review The Group implements a number of non-GAAP measures which are summarised in the tables above and in more detail within the segmental Income Statement. These measures are used to illustrate the impact of non-recurring and non-trading items on the Group’s financial results. In addition to the financial key performance measures, a range of operational non-financial key performance indicators are also monitored at a management level covering, amongst others, new product development and innovation and quality. The Board receives an overview of these on a regular basis. Group statutory revenue at £77.3m from continuing and discontinued operations was up 5% against prior year. The Owned Brands business endured a difficult year against strong comparatives, declining by 6.7%, adversely impacted by the decline in consumer confidence and retailer pressures. In the Group’s Manufacturing business, revenues increased by 13% against prior year comparators, driven by increased volumes through the launch of three new contract wins. On a comparable 52-week basis, revenue increased by 8% to £77.3m (2018: £71.6m). The weakness of Sterling against the US dollar has increased sales revenue by £0.5m. Revenue increase on a constant currency basis would have been 4.0%. The adverse currency impact on revenue has been offset by an equivalent favourable currency impact on cost of goods, reflecting the Group’s broadly natural hedge profile. The pressure experienced on the margin accretive Owned Brands revenues, whilst slightly offset by higher volume sales in the Manufacturing business, has resulted in a reduction in the underlying operating profit at £4.4m (2018: £5.5m). Underlying operating profit is shown before charges for share-based payments, with a charge made of £0.1m (2018: £0.3m). Share options are put in place in order to incentivise the Group’s wider management team (including the Executive Directors) and to ensure that their interests are aligned with shareholders. The net effect is that the Group made an adjusted operating profit of £4.3m (2018: £5.2m). Adjusted profit before tax increased to £5.1m (2018: £5.0m). The exceptional item of £0.7m for the Group in the current period is in part due to the GMP equalisation charge on the Group’s DB Pension Scheme of £0.3m and £0.4m of “one off” costs relating to the Group’s disposal of the Manufacturing business and wider restructure. In 2018 there was an exceptional charge of £0.28m mainly relating to the writing down of the investment in Sterling Shave Club. The overall effective rate of the new Group taxation for the period was 11.1% (2018: 19%) of pre-tax profits. The current year tax charge reflects standard UK and the Czech Republic rates of taxation. This results in adjusted earnings per share of 24.1p (2018: 23.2p). Annual Report & Accounts 2019STRATEGIC REPORTBrand Architekts Group plc 14 The Group’s strategic investment shareholding in Shanghai Colour Cosmetics Technology Company Limited (SCCTC) has reduced from 19% to 13.3% within the period. However, the carrying value remains unchanged during the period, based on a fair value of SCCTC’s commercially, externally assessed valuation of the business. The initial cost of this investment was £0.14m and this is now valued at £1.39m. This improved valuation reflects a strong trading performance, supplying customers in Europe and the USA. Income totalling £1.15m was received in the year (2018: £0.19m). This investment was part of the Manufacturing business on disposal and is classified as held for sale at the period end. Net debt and cash flow Net debt decreased significantly to £7.2m (2018: £11.8m). A re-balancing of the company’s working capital from the prior year has helped ‘normalise’ the net debt closing balance. The Group maintains a broadly natural hedge position on the Euro and US Dollar, and manages timing differences through a multi-currency invoice finance facility. At the reporting date, the Group was maintaining a hedged position by holding Euro and US Dollar cash balances, whilst drawing on its GBP facility. Note 11 provides an analysis of net debt. The components of working capital highlight the unwinding of the impact of the introduction of the three new major account wins in the Manufacturing business which were being implemented at the end of the prior year. This aspect combined with a more linear shape to trade debtors have positively impacted the total working capital invested at year end. Financing costs of £0.4m (2018: £0.36m) comprised interest expense of £0.26m (2018: £0.21m) plus a pension plan notional finance charge of £0.13m (2018: charge £0.15m). Finance income is the receipt of £1.15m (2018: £0.19m) income from our investment holding in SCCTC. Capital expenditure was £1.1m which was behind the level of depreciation. We have continued to make a number of investments to improve line efficiencies and support incremental new customer contracts. Defined benefit pension plan The defined benefit pension plan underwent its last triennial valuation on 5 April 2017. The deficit on a statutory funding basis was £2.6m and the Group entered into a revised deficit recovery plan and schedule of contributions in July 2018. Under this there is a commitment to make deficit reduction payments of £318k per annum (previously £108k per annum) for seven years and £210k for a further three years, and to pay certain administration costs and the PPF levy for the life of the plan. This commitment will be re-assessed once the results of the next triennial valuation at 5 April 2020 are available. Accounting Standards require the discount rate used for valuations under IAS19 ‘employee benefits’ to be based on yields on high quality (usually AA-rated) corporate bonds of appropriate currency, taking into account the term of the relevant pension plan’s liabilities. Corporate bond indices are used as a proxy to determine the discount rate. At the reporting date, the yields on bonds of all types were lower than they were at 30 June 2018. This has resulted in lower discount rates being adopted for accounting purposes compared to last year. In addition, inflation rates are higher than last year. The combination of these two factors have materially increased the fair value of the plan liabilities as measured under IAS 19, which combined with the anticipated investment return performance, has translated into an increased liability under the IAS19 methodology. For accounting purposes at 29 June 2019, the Group recognised under IAS19 ‘employee benefits’, a net liability of £9.4m (2018: £4.5m). Dividends The Board is pleased to announce that it will be proposing a final dividend of 4.35 pence. Together with the interim dividend already paid of 2.15 pence this represents a total dividend for the year of 6.5 pence, an improvement of 5% over the prior year (2018: 6.2p). If approved, the final dividend will be paid on 6 December 2019 to shareholders on the register on 15 November 2019. The shares will be marked as ex-dividend on 14 November 2019. Going Concern As part of its normal business practice, the Group prepares annual and longer-term plans and, in reviewing this information the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, we continue to adopt the going concern basis in preparing the annual report and accounts. Annual Report & Accounts 2019Brand Architekts Group plc15 People and Sustainability Employment practices The success of our business is dependent upon the quality, commitment and behaviour of our employees. Therefore, the Group provides clear policies and direction to our employees and strives for the highest standards of behaviour. Employee communication The policy of informing and consulting with employees is given prominence and has continued by means of regular briefing Groups and consultative committees. Employees are encouraged to present their views and suggestions in respect of the Group’s performance. During the year a number of employee workshops and briefings have taken place to engage employees. This has been supported through an employee reward and recognition scheme and an on-line facility to capture employee suggestions and questions. Equality and diversity The Group continues to carefully consider applications for employment by individuals from any background, including disabled persons. The Group’s training, development and promotion policies aim to ensure all employment decisions are based on fairness and merit. The Group published its Gender Pay Gap report in February 2019. We are pleased to report that the Group’s pay gap of 3.1% is significantly less than the national average of 17.9% and we believe that our approach to recruitment, development and pay will continue to support our position. However, we will not become complacent as there are opportunities still to be realised. We have a culture based on continual improvement and so we will continue to focus on improving our gender pay profile. Consistent evaluation of roles using proven tools and processes will be an important aspect. Corporate Social Responsibility The Group recognises the importance of social responsibility in its business and remains strongly committed to reducing the environmental impact of its production and design processes, and advancing its systems and policies to comply with and, wherever possible, anticipate changing legislative and customer demands. This important area is covered as part of regular team briefs to all members of staff. By order of the Board Brendan Hynes Executive Chairman 27 September 2019 Annual Report & Accounts 2019STRATEGIC REPORTBrand Architekts Group plc 16 Corporate Governance The Board, recognising the importance of sound corporate governance, has decided to adopt the QCA’s new Corporate Governance Code (published in April 2018) (the “QCA Code”) as the basis for the Company’s corporate governance. In applying the QCA Code, the company applies the ten principles of the QCA Code (the “Principles”) to its governance. Relations with Shareholders Communications with shareholders are given high priority. The Chairman’s foreword and Strategic report on pages 2 to 4 include a detailed review of the business and future developments. There is regular dialogue with institutional and other major shareholders including presentations after the Company’s announcement of final and interim results. The Board also uses the Annual General Meeting to communicate with private and institutional investors and welcomes their participation. All Directors will be available to answer questions at the Annual General Meeting on 20 November 2019 and the resolutions to be proposed can be found on the separate circular sent to shareholders with a copy of this Report and Accounts. The Chairman and Non- Executive Directors meet and communicate with shareholders as requested. They also use the Company’s broker and informal discussions after the Annual General Meeting, to maintain open routes of communication with shareholders. All presentations to shareholders are shown in the investors section of the Group’s website. The Workings of the Board and its Committees The Board The Company’s corporate governance is founded on the Board having good quality people in place with relevant skills and experience, working as a team, to achieve the Company’s strategy and deliver value for shareholders. The Board currently comprises an Executive Chairman, and two Non-Executive Directors. The Board is in the process of recruiting a new Chief Executive and a new Finance Director who have skills and experience that are relevant to the new shape of the business. The biographies appearing on page 12 demonstrate a range of experience and sufficient calibre to bring independent judgement on issues of strategy, performance, resources and standards of conduct that are vital to the success of the Group. The Board is responsible to shareholders for the proper management of the Group. A statement of the Directors’ responsibilities in respect of the accounts and a statement of going concern is set out on page 14. Annual Report & Accounts 2019Brand Architekts Group plcCorporate Governance 17 The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for decision by the Board. Each Executive Director is given responsibility for specific aspects of the Group’s affairs and independent advice is available to all Directors. Appropriate training is given when Directors are appointed to the Board. The Board meets a minimum of six times per year to review trading performance, set and monitor strategy, approve matters reserved for decision by the Board and to ensure that adequate funding exists. All Directors are supplied with information in a manner to enable the Board to discharge its duties. Indemnity Insurance The Group carries liability and indemnity insurance for Directors, Officers and Senior Managers. Nomination Committee The current members of the Nomination Committee are Brendan Hynes (Committee Chairman), and Roger McDowell. The Committee is responsible for proposing candidates for appointment to the Board, having regard to the balance and structure of the Board. In appropriate cases recruitment consultants are used to assist the process. The terms of reference of the Nomination Committee are published on the Group’s website. All Directors are subject to re–election at least every three years. Audit Committee The current members of the Audit Committee are Edward Beale (Committee Chairman), Brendan Hynes, and Roger McDowell. It meets at least twice a year to review the Group’s accounting policies and reporting procedures, external audit reports and other relevant matters. The external auditors, Group Finance Director and Chief Executive Officer are also invited to attend but are not entitled to vote. The terms of reference of the Audit Committee are published on the Group’s website. The Group sometimes receives non-audit services such as taxation and other consultancy advice from the Group’s auditors. The Audit Committee assesses the independence of the external auditors by means of an internal review of relationships with the auditors together with a review of an annual independence report issued by the auditors. The Group does not have an internal audit function. Remuneration Committee The current members of the Remuneration Committee are Roger McDowell (Committee Chairman), Brendan Hynes, and Edward Beale. The Chief Executive Officer and Group Finance Director attend the Remuneration Committee meetings by invitation but are not entitled to vote. The Committee reviews the terms and conditions of service of Executive Directors, and ensures that salaries, bonuses and share option awards satisfy any relevant performance criteria and align interests with shareholders. Terms of reference of the Remuneration Committee are published on the Group’s website. Internal Control The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system can only provide reasonable and not absolute assurance against material misstatement or loss. The key procedures established are as follows: • Responsibility levels, the ethos of the Group, the delegation of authority and other control procedures, together with appropriate accounting policies, are communicated throughout the Group; • The Group appoints experienced and professional staff of the necessary calibre, both through promotion and recruitment, to fulfil their responsibilities; • The Group maintains an annual budget process. The Board sets budgets once per year and monitors actual performance against those budgets at every Board meeting. The Board also reviews forecasts and expectations in the light of up-to-date circumstances and takes action as appropriate; • The Audit Committee considers significant control matters. Management letter points raised by the external auditors are discussed by the Audit Committee and are dealt with as appropriate; • The Group maintains an expenditure approval process that ensures that the Board approves major expenditure and investments; and • The Board undertakes a review of internal controls annually. The Group has established a Group Risk Management Register and the Board has procedures in place for regular reviews. Annual Report & Accounts 2019GOVERNANCEBrand Architekts Group plc18 Board of Directors BRENDAN M HYNES MBA, FCMA Executive Chairman Brendan joined the Company as Non-Executive Chairman on 1st July 2013 and is currently acting as Executive Chairman on a temporary basis. He is also currently the Senior Independent Non- Executive Director and Chairman of the Audit Committee of Churchill China plc, Non-Executive Director of private, online education business “Webexaminer”; and a member of the Criticaleye Advisory Board. He was CEO of Nichols plc from 2007 to 2013 having previously been Group Finance Director. He has plc main board experience across a range of other sectors including TMT, retail, consumer goods, buildings and automotive. Previous roles have included Executive Director at Knowledge Management Software plc and Group Finance Director at William Baird plc a branded clothing business and Director of the Consumer, Retail and Distribution (CRD) practice of PricewaterhouseCoopers advising Times 100 companies. Brendan chairs the Nomination Committee and is a member of the Audit and Remuneration Committees. ROGER MCDOWELL Roger was reappointed to the Board in March 2012 having previously served as a Non-Executive Independent Non-Executive Director from July 2011 to January 2012. Roger is an experienced director of over 30 years’ Director standing: he led the Oliver Ashworth Group through dramatic growth, main market listing and sale to St. Gobain, following which he was appointed to a number of non-executive roles, including chairmanships in both public and private equity backed businesses. He is currently Chairman of Avingtrans plc, and is Senior Non-Executive Director of Servelec Group plc and Tribal Group plc. He is also a Non-Executive Director of D4T4 Solutions plc and Proteome Sciences plc. Roger chairs the Remuneration Committee and is a member of the Audit and Nomination Committees. EDWARD BEALE Edward joined the Company as a Non-Executive Director on 1 July 2014. Mr Beale is a Chartered Independent Non-Executive Accountant and is the Finance Director of Marshall Monteagle plc. He is a member, previously Director chairman, of the Corporate Governance Expert Group of the Quoted Companies Alliance. He was a member of the Accounting Standards Board of the Financial Reporting Council for six years to 31st August 2013. He is a non-executive director of London Finance & Investment Group P.L.C., Western Selection P.L.C., Heartstone Inns Limited, and some of their subsidiary and associated companies. Edward chairs the Audit Committee and is a member of the Remuneration Committee. Annual Report & Accounts 2019Brand Architekts Group plc19 Directors’ Report The Directors’ present their annual report on the affairs of the Group, together with the financial statements and auditor’s report, for the period ended 29 June 2019. The Corporate Governance Statement set out on pages 16 to 17 forms part of this report. Change of name The Company changed its name on 9 August 2019 from Swallowfield plc to Brand Architekts Group plc. Directors The Company’s current Directors are listed on page 18, together with their biographical details. The Directors who served at any time during the year and since the year end were as follows: B M Hynes F P Berrebi (resigned 29 June 2019) T J Perman (resigned 30 September 2019) J M Fletcher (resigned 23 August 2019) M Gazzard (resigned 23 August 2019) R S McDowell E J Beale Strategic Report The Strategic Report set out on page 4 provides a fair review of the Group’s business for the year ended June 2019. It also explains the objectives and strategy of the Group, its competition and the markets in which it operates, the principal risks and uncertainties it faces, employee information, the Group’s financial position, key performance indicators and likely future developments of the business. Substantial Shareholdings As at 28 June 2019, the following shareholders had notified the Company that they held an interest in 3% or more of its issued ordinary share capital: Shareholdings Significant Shareholders Soros Fund Mgt Western Selection Plc Canaccord Genuity Wealth Mgt FIL Investment International R & A Persey Charles Stanley BGF Investments Hargreaves Lansdown Asset Mgt River & Mercantile Asset Mgt Gresham House M&G Investment Mgt City Asset Mgt Shareholding 2,116,426 Percentage of Issued Shares 12.4 1,300,000 1,060,000 1,059,900 1,036,924 956,433 954,500 886,450 790,000 662,773 566,750 566,061 7.6 6.2 6.2 6.1 5.6 5.6 5.2 4.6 3.9 3.3 3.3 Save for these interests, the Directors have not been notified that any person is directly or indirectly interested in 3% or more of the issued ordinary share capital of the Company. General Meeting This year’s Annual General Meeting will be held on Wednesday 20 November 2019, at 11am. The venue for the AGM will be Farmers and Fletchers, 3 Cloth Street, London EC1A 7LD. A separate circular will be sent to shareholders and includes the following: • Notice of meeting; • Form of proxy; • Details and information on the resolutions to be proposed. Annual Report & Accounts 2019GOVERNANCEBrand Architekts Group plc 20 PKF Francis Clark have expressed their willingness to continue in office as auditors and a resolution proposing their reappointment will be presented at the forthcoming Annual General Meeting. Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable IFRS’s have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy, at any time, the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. Disclosure of Information to Auditors At the date of making this report each of the Company’s Directors, as set out on page 18, confirm the following: • so far as each Director is aware, there is no relevant information needed by the Company’s auditors in connection with preparing their report of which the Company’s auditor is unaware; and • each Director has taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant information needed by the Company’s auditors in connection with preparing their report and to establish that the Company’s auditor is aware of that information. By Order of the Board Brendan Hynes Executive Chairman 27 September 2019 Company Number: 01975376 Annual Report & Accounts 2019Brand Architekts Group plc 21 Annual Report & Accounts 2019GOVERNANCEBrand Architekts Group plc22 Independent Auditor’s Report to the members of Brand Architekts Group plc Opinion We have audited the financial statements of Brand Architekts plc (the ‘company’) and its subsidiaries (the ‘group’) for the 52 weeks ended 29 June 2019, which comprise the group statement of comprehensive income, the group and company statements of financial position, the group and company statements of changes in equity, the group and company cash flow statements and the notes to the financial statements including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the company’s affairs as at 29 June 2019 and of the group’s profit for the period then ended; • • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 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 are independent of the group and 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 those requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the company’s ability to continue to adopt the going concern basis of accounting for at least twelve months from the date when the financial statements are authorised for issue. 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) 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. Annual Report & Accounts 2019Brand Architekts Group plc 23 Revenue recognition Work done The group’s two key sources of revenue are: • Assessing and challenging the revenue recognition • Own brand sales • Contract manufacturing policies adopted by the group to confirm they are appropriate in the context of the business and in accordance with IFRS 15. • Reviewing a sample of relevant contracts to assess We identified that the revenue recognition risk relates whether there is an alternate use and if there is a particularly to the adoption of IFRS 15 in respect of contract contractual right to be paid for work as it progresses. manufacturing arrangements. Where there are contracts for • Assessing the disclosures made and adjustments required products with no alternate use and there is a contractual right to in respect of adopting IFRS15. be paid for work as it progresses, IFRS 15 requires revenue to be recognised over a period of time rather than at a point in time. As a result of the procedures performed, we are satisfied that revenue has been correctly recorded and the adoption of IFRS15 does not have a material impact on the financial statements. Goodwill, brands and investment impairment Work done As identified in the accounting policies, the impairment review Our audit work included: of the group’s carrying value of goodwill and brands is one of • Assessing and challenging the key assumptions and the main areas of estimation. At 29 June 2019, the carrying value calculations applied by management in their impairment of these balances in the group balance sheet was £11.3m (2018: reviews. £11.3m). We identified that the audit risk relates to ensuring • Benchmarking the revised long term growth rate to that management’s impairment review is robust and reliable independent market data to confirm it is appropriate. in identifying potential impairment, and that the assumptions • Assessing and challenging management’s sensitivity made are reasonable. analysis on key assumptions and calculations. • Performing our own sensitivity analysis on short term growth forecasts. As a result of the procedures performed, we are satisfied that the key assumptions used in the impairment model and the resulting conclusions drawn by management are appropriate and that no impairment is required. Capitalisation of new product development (NPD) time Work done The group incurs NPD expenditure in relation to product Our audit work included: development prior to the point of commercial production. The • Reviewing and challenging the basis of management’s key cost is in relation to employee time spent on research and assessment as to when the development phase of NPD development activities. begins. Significant judgement is required in determining when amount of internal time capitalised and agreeing the capitalisation can take place as set out in IAS38. Significant inputs, on a sample basis, back to underlying records such estimation is required in determining the percentage of as timesheets and payroll costs. employees’ time that can be capitalised. • Reviewing the historical market life of products and The group amortises NPD costs over a 12 month period on the whether the periods over which management amortise basis that products are typically launched within 12 months of such costs are aligned with those lives. • Reviewing and challenging calculations that support the development. We identified that the audit risk relates to ensuring that capitalised NPD costs are accurate and recoverable. As a result of the procedures performed, we are satisfied that the capitalisation of development time is appropriate. Annual Report & Accounts 2019GOVERNANCEBrand Architekts Group plc 24 Our application of materiality Misstatements, including omissions, are considered to be material if individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We use quantitative thresholds of materiality, together with qualitative assessments in planning the scope of our audit, determining the nature, timing and extent of our audit procedures and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall group materiality: Overall company materiality: Performance materiality: Basis for determination: £253,000 £170,000 75% of financial statement materiality 5% of profit before exceptional items (and central costs at a company level) Range of materiality at 4 components subject to full scope audits: £23,000 - £199,000 Misstatements reported to the audit committee: £6,000 Rationale for the benchmark applied: We consider adjusted profit to be the most appropriate measure for materiality as it best reflects the underlying trading profitability and is a key metric used by both management and other stakeholders in assessing performance. An overview of the scope of our audit We planned and performed our audit by obtaining an understanding of the group and its environment, including the accounting processes and controls, and the industry in which it operates. The group comprises the following active companies: • • • • • • 1 UK trading parent company 2 UK trading subsidiary companies (1 wholly owned and 1 51% owned) 1 wholly owned Czech Republic based trading subsidiary; 1 wholly owned French based trading subsidiary; 1 wholly owned US based trading subsidiary; and 1 intermediate UK holding company. Of the group’s 6 trading components, the 3 UK based trading companies were subject to full scope audits performed by the group audit team. The UK intermediate holding company was also subject to a full scope audit by the group audit team. Component auditors were used to perform specific audit procedures on the Czech Republic subsidiary in conjunction with analytical procedures carried out by the group audit team. The remaining 2 overseas components were subject to analytical review procedures, carried out by the group audit team. Those components subject to audit and specific audit procedures cover 94% of the group’s revenue and 98% of the group’s consolidated profit before exceptional and central costs. Our audit work at the component level is executed at levels of materiality appropriate for such components. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, 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. In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. 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. Opinions on other matters prescribed by the Companies Act 2006 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 period 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. Annual Report & Accounts 2019Brand Architekts Group plc 25 Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report. 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 company, or returns adequate for our audit have not been received from branches not visited by us; or • • the company financial statements are not in agreement with the accounting records and returns; 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 the 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 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 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. A further description of our responsibilities for the audit of the financial statements is located 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 company’s shareholders, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an audit report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body for our audit work, for this report, or for the opinions we have formed. Glenn Nicol (Senior Statutory Auditor) PKF Francis Clark Statutory Auditor Centenary House Peninsula Park Rydon Lane Exeter EX2 7XE 30 September 2019 Annual Report & Accounts 2019GOVERNANCEBrand Architekts Group plcGroup Statement of Comprehensive Income For the 52 weeks ended 29 June 2019 and 53 weeks ended 30 June 2018 Revenue Cost of sales Gross profit Commercial and administrative costs Operating profit before exceptional items Exceptional items Operating profit Finance income Finance expense Profit before taxation Taxation Profit for the year Profit on Discontinued Operations after taxation Profit for the year Other comprehensive income/(loss): Items that will not be reclassified subsequently to profit or loss: Re-measurement of defined benefit liability Items that will be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (Loss)/gain on financial assets held at fair value Other comprehensive income/(loss) for the year Total comprehensive income for the year Profit attributable to: Equity shareholders Non-controlling interests Total comprehensive income attributable to: Equity shareholders Non-controlling interests Earnings per share - basic - diluted Dividends Paid in year (£’000) Paid in year (pence per share) Proposed (£’000) Proposed (pence per share) Notes 2 3 7 8 4 9 28 11 11 10 10 2019 £’000 19,676 (12,680) 6,996 (5,016) 1,980 (48) 1,932 - (144) 1,788 (198) 1,590 2,050 3,640 (4,011) (35) (6) (4,052) (412) 3,539 101 (513) 101 20.7p 20.0p 1,088 6.35p 745 4.35p The accompanying accounting policies and notes form part of the financial statements. *2018 comparatives have been restated for discontinued operations – see note 2 for further information. 26 2018* £’000 21,085 (12,705) 8,380 (5,556) 2,824 (279) 2,545 - (160) 2,385 (453) 1,932 1,701 3,633 1,403 30 156 1,589 5,222 3,542 91 5,131 91 20.9p 20.3p 933 5.5p 720 4.2p Annual Report & Accounts 2019Brand Architekts Group plc 27 Group Statement of Financial Position For the 52 weeks ended 29 June 2019, and 53 weeks ended 30 June 2018 Notes 2019 £’000 2018 Restated – Note 29 £’000 ASSETS Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Investments Total non-current assets Current assets Inventories Trade and other receivables Assets held for resale Cash and cash equivalents Current tax receivable Total current assets Total assets LIABILITIES Current liabilities Trade and other payables Interest-bearing loans and borrowings Current tax payable Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Post-retirement benefit obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Share premium Revaluation of investment reserve Exchange reserve Pension re-measurement reserve Retained earnings Equity attributable to holders of the parent Non-controlling interest Total equity 12 13 22 14 15 16 28 17 18 19 26 22 23 23 23 23 23 23 21 12,817 1,714 - 14,552 5,211 3,475 22,700 381 285 32,052 46,604 6,628 1,139 527 8,294 2,091 9,417 1,061 12,569 20,863 25,741 857 11,987 1,241 (147) (6,502) 18,160 25,596 145 25,741 11,438 13,852 803 1,391 27,484 13,825 19,283 - 934 109 34,151 61,635 23,709 1,127 503 25,339 3,230 4,489 1,555 9,274 34,613 27,022 857 11,987 1,247 (112) (2,491) 15,455 26,943 79 27,022 The accompanying accounting policies and notes form part of the financial statements. Approved by the Board on 27 September 2019 and signed on its behalf by Brendan Hynes Executive Chairman and Company Secretary Company Number: 01975376 Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 28 2018 £’000 10,493 4,828 806 16,131 32,258 9,866 12,956 - 737 - 23,559 55,817 24,699 1,127 3 25,829 3,230 4,489 410 8,129 33,958 21,859 857 11,987 1,247 467 (2,491) 9,792 21,859 Company Statement of Financial Position For the 52 weeks ended 29 June 2019, and 53 weeks ended 30 June 2018 ASSETS Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Investments Total non-current assets Current assets Inventories Trade and other receivables Assets held for resale Cash and cash equivalents Current tax receivable Total current assets Total assets LIABILITIES Current liabilities Trade and other payables Interest-bearing loans and borrowings Current tax payable Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Post-retirement benefit obligations Deferred tax liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Share premium Revaluation of investment reserve Capital reserve Pension re-measurement reserve Retained earnings Total equity Notes 12 13 22 14 15 16 28 17 18 19 26 22 23 23 23 23 23 23 2019 £’000 - 3,969 1,645 12,084 17,698 - 4 22,151 147 341 22,643 40,341 10,199 1,139 - 11,338 2,091 9,417 - 11,508 22,846 17,495 857 11,987 1,241 467 (6,502) 9,445 17,495 The accompanying accounting policies and notes form part of the financial statements. Approved by the Board on 27 September 2019 and signed on its behalf by Brendan Hynes Executive Chairman and Company Secretary Company Number: 01975376 Annual Report & Accounts 2019Brand Architekts Group plc 29 Group Statement of Changes in Equity For the 52 weeks ending 29 June 2019 and 53 weeks ending 30 June 2018 Share Capital £’000 857 - Share Revaluation Premium of investment reserve £’000 £’000 11,987 - 1,247 - Exchange Pension re- Reserve measurement reserve £’000 £’000 (112) - (2,491) - Retained Earnings £’000 15,455 (1,088) - 254 (834) 3,539 - - - Non- controlling interest £’000 79 (35) 101 - 66 - - - - Total Equity £’000 27,022 (1,123) 101 254 (768) 3,539 (4,011) (35) (6) - - - - - - - - - - - (35) (6) - - - - - (4,011) - - Group Balance as at June 2018 Dividends Non-controlling interest Share based payments Transactions with owners Profit for the year - - - - Other comprehensive income: Re-measurement of defined benefit liability Exchange difference on translating foreign operations Gain on available for sale financial assets Total comprehensive income for the year - - - - - - - - - - - Balance as at June 2019 857 11,987 (6) 1,241 (35) (147) (4,011) (6,502) 3,539 - (513) 18,160 145 25,741 Group Balance as at June 2017 Dividends Issue of new shares Non-controlling interest Share based payments Transactions with owners Profit for the year Other comprehensive income: Re-measurement of defined benefit liability Exchange difference on translating foreign operations Gain on available for sale financial assets Total comprehensive income for the year Share Capital £’000 844 - 13 - - 13 - - - - - Share Revaluation Premium of investment reserve £’000 £’000 Exchange Pension re- Reserve measurement reserve £’000 £’000 Retained Earnings £’000 12,749 (933) Non- controlling interest £’000 18 (30) 11,744 - 243 - - 243 - - - - - 1,091 - (142) - (3,894) - - - - - - - - 156 156 1,247 - - - - - - 30 - - - - - - - - 97 (836) 3,542 1,403 - - - - - 30 (112) 1,403 (2,491) 3,542 15,455 Total Equity £’000 22,410 (963) 256 91 97 (519) 3,542 1,403 30 156 5,131 - 91 - 61 - - - - - Balance as at June 2018 857 11,987 79 27,022 The accompanying accounting policies and notes form part of the financial statements. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 30 Company Statement of Changes in Equity For the 52 weeks ending 29 June 2019 and 53 weeks ending 30 June 2018 Company Balance as at June 2018 Dividends Share based payments Transactions with owners Profit for the year Other comprehensive income: Re-measurement of defined benefit liability Gain on available for sale financial assets Total comprehensive income for the year Share Capital £’000 857 - Share Revaluation Premium of investment reserve £’000 £’000 11,987 - 1,247 - Exchange Pension re- Reserve measurement reserve £’000 £’000 467 - (2,491) - - - - - - - - - - - - - - - - - (6) (6) 1,241 Retained Earnings Total Equity £’000 £’000 9,792 (1,088) 254 (834) 487 21,859 (1,088) 254 (834) 487 - - - (4,011) - - - (4,011) (6) (4,011) 487 (3,530) - - - - - - Balance as at June 2019 857 11,987 467 (6,502) 9,445 17,495 Company Balance as at June 2017 Dividends Issue of new shares Share based payments Transactions with owners Profit for the year Other comprehensive income: Re-measurement of defined benefit liability Gain on available for sale financial assets Total comprehensive income for the year Share Capital £’000 844 - 13 - 13 - - - - Share Revaluation Premium of investment reserve £’000 £’000 Exchange Pension re- Reserve measurement reserve £’000 £’000 11,744 - 243 - 243 - - - - 1,091 - 467 - (3,894) - - - - - - 156 156 1,247 - - - - - - - - - - - 1,403 - 1,403 467 (2,491) Retained Earnings Total Equity £’000 9,942 (933) - 97 (836) 686 £’000 20,194 (933) 256 97 (580) 686 - - 1,403 156 686 9,792 2,404 21,859 Balance as at June 2018 857 11,987 The accompanying accounting policies and notes form part of the financial statements. Annual Report & Accounts 2019Brand Architekts Group plc Cash Flow Statement For the 52 weeks ended 29 June 2019 and 53 weeks ended 30 June 2018 Cash flow from operating activities Profit before taxation Depreciation Amortisation Finance income Finance cost (Increase) in inventories Decrease /(increase) in trade and other receivables Increase in trade and other payables (Decrease) in share-based payments provision Contributions to defined benefit plans Cash generated from operations Finance expense paid Taxation paid Net cash flow from operating activities Cash flow from investing activities Investment income received Purchase of property, plant and equipment Purchase of intangible assets Purchase of subsidiary Net cash flow from investing activities Cash flow from financing activities Movements in invoice discounting facility Proceeds from new loan Issue of new share capital Repayment of loans Dividends paid Net cash flow from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Group 2019 £’000 4,093 1,262 944 (1,146) 389 (2,129) 1,252 3,059 (221) (282) 7,221 (263) (593) 6,365 1,146 (1,088) (699) - (641) (4,027) - - (1,127) (1,123) (6,277) (553) 934 381 2018 £’000 4,524 1,283 583 (191) 364 (2,395) (2,648) 944 (1,666) (108) 690 (209) (762) (281) 191 (1,631) (3,850) (1,850) (7,140) 2,741 3,000 256 (736) (963) 4,298 (3,123) 4,057 934 Company 2019 £’000 461 1,064 768 (1,182) 382 (877) (1,693) 7,7712 (221) (282) 6,132 (256) (197) 5,679 1,182 (900) (699) - (417) (3,637) - - (1,127) (1,088) (5,852) (590) 737 147 The accompanying accounting policies and notes form part of the financial statements. 31 2018 £’000 699 1,058 418 (822) 363 (1,279) 71 2,563 (1,666) (108) 1,297 (208) (247) 842 822 (1,486) (3,850) (1,850) (6,364) 1,701 3,000 256 (736) (933) 3,288 (2,234) 2,971 737 Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 32 Note 1 Significant accounting policies Notes to the Accounts General information Brand Architekts Group plc is a Company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 58. The nature of the Group’s operations and its principal activities are set out in the Strategic Report. The Group draw their accounts up on a 52 week year basis. Basis of preparation The Group has prepared its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and also in accordance with IFRS issued by the International Accounting Standards Board. These financial statements have been prepared under the historical cost convention, modified to include the revaluation of certain non-current assets and financial instruments. The Directors have considered trading and cash flow forecasts prepared for the Group, and based on these, and the confirmed banking facilities, are satisfied that the Group will continue to be able to meet its liabilities as they fall due for at least one year from the date of signing of these accounts. On this basis, they consider it appropriate to adopt the going concern basis in the preparation of these accounts. The consolidated financial statements are presented in sterling and all values are rounded to the nearest thousand (£’000) except where otherwise indicated. Discontinued Activities As a result of the agreed disposal of the manufacturing business (completed post year-end), these operations have been disclosed as discontinued and the related assets classified as held for sale at the period end. Basis of consolidation The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings. The results and net assets of undertakings acquired or disposed of during a financial year are included in the Group Statement of Comprehensive Income and Group Statement of Financial Position from the effective date of acquisition or to the effective date of disposal. Subsidiary undertakings have been consolidated using the purchase method of accounting. In accordance with the exemptions given by section 408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The Company’s profit after tax for the year to June 2019 was £0.487m (2018: profit after tax £0.686m). The Group financial statements consolidate those of the parent company and all of its subsidiaries as of June 2019. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of June. All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Business combinations The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • fair values of the assets transferred • liabilities incurred to the former owners of the acquired business • equity interests issued by the Group • fair value of any asset or liability resulting from a contingent consideration arrangement, and • fair value of any pre-existing equity interest in the subsidiary. Annual Report & Accounts 2019Brand Architekts Group plc 33 Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the • • • consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Intangible assets (i) Computer software Computer software is stated at cost less accumulated amortisation. Computer software is amortised on a straight-line basis over the expected useful life of 3 years. (ii) Research and development Expenditure on the research phase of projects to develop new products is recognised as an expense as incurred. Costs that are directly attributable to a project’s development phase are recognised as intangible assets, provided they meet the following recognition requirements: • • • • • the development costs can be measured reliably the project is technically and commercially feasible the Group intends to and has sufficient resources to complete the project the Group has the ability to use or sell the development the development will generate probable future economic benefits. Development costs not meeting these criteria for capitalisation are expensed as incurred. Any capitalised development costs that are not yet complete are not amortised but are subject to impairment testing. Complete development projects are amortised on a straight-line basis over the expected life of the project up to a maximum of 5 years. (iii) Brand names and customer relationships Brand names and customer relationships acquired are recognised as intangible assets at their fair values (see note 13). Customers relationships are amortised on a straight-line basis over 5 or 10 years, based on evaluation at point of acquisition. Brand names are considered to have an indefinite life and are tested for impairment annually. This is on the basis that the brand is well established and there is no foreseeable limit on the period of time over which it is expected to contribute to cash flow. (iv) Goodwill An impairment test is undertaken where there are indicators of impairment or on an annual basis where intangible assets are determined to have an infinite useful life such as Brands and goodwill. Brands and goodwill are combined together as part of the same CGU and tested together using a discounted cash flow approach. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 34 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Where there is evidence of impairment, property, plant and equipment is written down to its recoverable amount. Any such write down is charged to the profit or loss for the year. Property, plant and equipment are depreciated on a straight-line basis over their expected useful lives as follows: Freehold buildings Plant and machinery 2% per annum 5% to 33% per annum Freehold land is not depreciated. Impairment of assets An impairment test is performed annually where required and whenever events and circumstances indicate that the carrying value of an asset may exceed its recoverable amount. The carrying value is compared against the expected recoverable amount of the asset, generally by reference to the present value of the future net cash flows expected to be derived from that asset. Inventories Inventories are stated at the lower of cost and net realisable value. Costs are those incurred in bringing each product to its present location and condition. Cost comprises purchase costs including transport costs together with any direct labour and attributable overheads. Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. Taxation Current tax is the tax payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the Statement of Financial Position date. Changes in deferred tax assets or liabilities are recognised in profit or loss as a component of tax expense in the Statement of Comprehensive Income, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity. Foreign currencies Trading transactions denominated in foreign currencies are recorded in sterling at actual rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the middle market rates ruling at the Statement of Financial Position date. Such exchange differences are recognised in the profit or loss for the year. The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the Statement of Financial Position date. Income and expenses are translated at the average rate. The exchange differences arising from the retranslation of foreign operations are charged / credited to other comprehensive income and recognised in the ‘Exchange reserve’ in equity. On disposal of a foreign operation, the cumulative translation differences are reclassified from equity to profit or loss. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts and rebates, VAT and other sales-related taxes. Revenue is recognised when the Group has transferred the significant risks and rewards of ownership to the customer, which is generally when the production of goods is complete, the customer has accepted title of the goods under contractual shipping arrangements and collectability of the related receivables is reasonably assured. Leased assets Operating lease rental payments are charged to profit or loss on a straight line basis over the term of the lease. Annual Report & Accounts 2019Brand Architekts Group plc 35 Employee benefits Pension obligations The Group operates both defined benefit and defined contribution pension plans. i) Defined benefit schemes Plan assets are measured at fair values. Defined benefit pension plan liabilities are measured by an independent actuary using the projected unit method and discounted at the current rate of return on high quality corporate bonds of equivalent term and currency to the liability. The increase in the present value of the liabilities of the Group’s defined benefit pension plans expected to arise from employee service in the year is charged to operating profit. The plan was closed to future accrual on 31 December 2015. The expected return on the plan’s assets and the increase during the year in the present value of the plan’s liabilities, arising from the passage of time, are included in other finance income or cost. ii) Defined contribution schemes Costs of defined contribution pension plans are charged to the profit or loss in the year they fall due. iii) Share-based Payment Transactions The value, as at the grant date, of options granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. For cash-settled share-based payment transactions, the liability needs to be re-measured at the end of each reporting period up to the date of settlement, with any changes in fair value recognised in the profit or loss. Financial assets The Group’s financial assets consist of loans and receivables and financial assets at fair value through profit or loss. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in the profit or loss. The Group’s 13.3% interest in SCCTC (see note 14) is held at fair value as required under IFRS9. Gains and losses in respect of this investment are held in a separate reserve. Fair value has been determined by the latest share acquisitions by a third party on an arm’s length basis. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and on demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. The Group considers overdrafts (repayable on demand) to be an integral part of its cash management activities and these are included in cash and cash equivalents for the purposes of the Cash Flow Statement. Financial liabilities The Group’s financial liabilities consist of bank borrowings, trade and other payables. Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value, all transaction costs are recognised immediately in the profit or loss. All other financial liabilities are recorded initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit or loss are re-measured at each reporting date at fair value, with changes in fair value being recognised in the profit or loss. All other financial liabilities are carried subsequently at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the profit or loss. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the profit or loss on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc36 Financial liabilities are categorised as at fair value through profit or loss where they are classified as held-for-trading or designated as at fair value through profit or loss on initial recognition. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. Distributions to shareholders Dividends and other distributions to shareholders are reflected in financial statements when approved by shareholders in a general meeting, except for interim dividends which are included in financial statements when paid by the Company. Accordingly, proposed dividends are not included as a liability in the financial statements. Exceptional items Exceptional items are non-recurring material items which are outside the normal scope of the Group’s ordinary activities such as liabilities and costs arising from a fundamental restructuring of the Group’s operations. Significant management judgement in applying accounting policies The following are significant management judgements in applying the accounting policies of the Group that have the most significant impact on the financial statements: Deferred Taxation The Group has not made full provision for deferred taxation on the full carrying value of the Group’s land and buildings, on the basis that the full value of these assets will be recovered through sale and not through use and that indexation will result in no taxable gain arising on disposal. Post-retirement benefits The Group has a commitment to pay certain future administration costs and PPF levies associated with the Group’s defined benefit pension plan as set out in Note 26 Post Retirement Benefits. These future cash outflows relate to an ongoing economic benefit at the period end, and therefore do not give rise to a liability that needs to be included in the statement of financial position. Key sources of estimation uncertainty In applying the above accounting policies, the Group has made appropriate estimates in a number of areas and the actual outcome may differ from those calculated. The key sources of estimation uncertainty at the year-end that may have a risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: Fair value on acquisition Judgement and estimates arise in the determination and fair value of intangible and tangible assets and contingent and other liabilities arising when acquiring a business. The valuation of externally acquired assets such as Brands and customer lists require judgement regarding estimated future cash flows arising for those established assets, discounted to reflect the time value of money. Judgement is also used in determining the useful economic life and amortisation periods. Further information is included in Note 13. Impairment reviews An impairment test is undertaken where there are indicators of impairment or on an annual basis where intangible assets are determined to have an infinite useful life such as Brands and goodwill using a discounted cash flow approach. Note 13 discloses the assumptions used. Post-retirement benefits The Group’s defined benefit pension plan is assessed annually. The value in these accounts which has been based on the assumptions of an independent actuary resulted in a deficit of £9.4m (2018: £4.5m) before deferred taxation. The size of the deficit is sensitive to the market value of the underlying plan investments and the actuarial assumptions which include price inflation, pension and salary increases, the discount rate used in assessing the liabilities, mortality rates, and other demographic factors. Further details are included in Note 26. Capitalisation of New Product Development (NPD) costs The Group capitalises NPD costs within intangible fixed assets. The key sources of estimation uncertainty involved is this are: a. Assessment of proportion of employee’s time spent on new product development. b. Period of amortisation – the length of time between the creation of the asset and it being consumed in the sales of the products created varies over the range of products created. Review of available data has indicated that one year is a reasonable average figure. Annual Report & Accounts 2019Brand Architekts Group plc37 Impact of new standards adopted during the period IFRS 9 ‘Financial Instruments’ The Group adopted IFRS 9 with effect from 1 July 2018. Due to the short term nature of the Group’s trade receivables, the credit ratings of the Group’s Clients, and credit insurance on certain trade receivables, the requirement under IFRS 9 to use an expected loss method of impairment of financial assets has not had a material effect on the Group’s financial statements. Impairment of financial assets A loss allowance is recognised on initial recognition of financial assets held at amortised cost, based on expected credit losses, and is remeasured annually with changes appearing in profit or loss. Where there has been a significant increase in credit risk of the financial instrument since initial recognition, the loss allowance is measured based on lifetime expected losses. In all other cases, the loss allowance is measured based on 12-month expected losses. For assets with a maturity of 12 months or less, including trade receivables, the 12-month expected loss allowance is equal to the lifetime expected loss allowance. IFRS 15 ‘Revenue from Contracts with Customers’ The Group adopted IFRS 15 with effect from 1 July 2018. The main impact of this standard has been assessed in respect of the manufacturing business where IFRS15 requires revenue to be recognised over a period of time where products are produced that have no alternative use and where there is a right to payment through the manufacturing process. From review of contractual terms and based on customary practice, it has been concluded that no contract assets or liabilities arise in such instances or else are immaterial to the financial statements. As such there has been no material impact in the adoptions of IFRS15. Revenue continues to be recognised when the significant risks and rewards of ownership to the customer have been transferred. This is when performance obligations are deemed to have been satisfied in contracts. All revenue has therefore been recognised at a point in time rather than over a period of time. As such no contract assets or liabilities have been recognised. The Group has applied the practical expedient permitted by IFRS 15 to not disclose the transaction price allocated to performance obligations unsatisfied or partially unsatisfied as of the end of the reporting period as contracts typically have an original expected duration of a year or less. Costs incurred in obtaining a new customers or contracts are written off as incurred and are not taken into consideration in when assessing the cost of fulfilling a contacts as contracts tend to be satisfied in a period of less than 12 months. Standards in issue but not yet effective At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB 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. IFRS 16 ‘Leases’ IFRS 16 represents new requirements for the recognition of operating leases, replacing IAS 17 ‘Leases’. The new standard requires that certain operating leases are disclosed within the Statement of Financial Position. The Group’s management have yet to assess the impact of IFRS 16 on these consolidated financial statements. The new standard is required to be applied for our annual reporting period ending on 30 June 2020. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc38 Note 2 Segmental analysis The Group is a market leader in the development, formulation, and supply of personal care and beauty products. The reportable segments of the Group are aggregated as follows: • Brands – we leverage our skilled resources to develop and market a growing portfolio of Brand Architekts Group owned and managed Brands. These include organically developed Bagsy, MR. and Tru, plus the acquisitions of The Real Shaving Company (in 2015), the portfolio of Brands included in The Brand Architekts acquisition (in 2016) and the Fish brand acquired during this financial year. • Manufacturing – the contracted development, formulation and production of quality products for many of the world’s leading personal care and beauty Brands. • Eliminations and Central Costs. Other Group-wide activities and expenses, including defined benefit pension costs, share- based payment expenses, amortisation of acquisition-related intangibles, interest, taxation and eliminations of intersegment items, are presented within ‘Eliminations and central costs’. This is the basis on which the Group presents its operating results to the Directors, which is considered to be the Chief Operating Decision Maker (CODM) for the purposes of IFRS 8. Comparative full year numbers have been presented on the same basis. IFRS15 requires the disaggregation of revenue into categories that depict how the nature, timing, amount and uncertainty of revenue and cash flows are affected by economic factors. The Directors have considered how the Group’s revenue might be disaggregated in order to meet the requirements of IFRS15 and has concluded that the activity and geographical segmentation disclosures set out below represent the most appropriate categories of disaggregation. a) Principal measures of profit and loss – Income Statement segmental information for 52 weeks ending 29 June 2019 and 53 weeks ending 30 June 2018: 52 weeks ended 30 June 2019 UK revenue International revenue Revenue – External Revenue – Internal Total revenue Discontinued Operation Total Revenue Brands Manufacturing £’000 £’000 Eliminations and Central Costs £’000 Total £’000 2018 Total £’000 16,381 35,763 3,220 21,974 19,601 57,737 75 4,235 19,676 - 61,972 (61,972) 19,676 - - 52,144 51,253 25,194 22,692 - 77,338 73,945 - - 77,338 73,945 (52,860) (4,310) 4,310 (4,310) (1,706) (115) (260) - (57,662) 19,676 4,428 (115) (260) (48) (717) (144) 757 (255) (2,050) 442 - 21,085 5,470 (297) (197) (279) (173) (438) (1,701) 1,788 2,385 (198) (453) 1,932 1,590 - 2,515 - - (669) 901 (255) (2,492) Underlying profit from operations* Charge for share-based payments 3,619 - Amortisation of acquisition-related intangibles Exceptional costs Net borrowing costs Tax charge on discontinued operations Segment Profit included in Discontinued Operations - - - - - Profit before taxation Tax charge 3,619 - (1,831) (198) Profit for the period from continuing activities 3,619 - (2,029) *The underlying profit net of eliminations and central costs are as follows: Underlying profit from operations – operating segments Eliminations and central costs Underlying profit from operations Continuing operations - Discontinued operations - Total Brands £’000 3,619 (1,264) 2,355 Manufacturing £’000 2,515 (442) 2,073 £’000 6,134 (1,706) 4,428 Annual Report & Accounts 2019Brand Architekts Group plc 39 2017 Total £’000 44,732 29,582 Brands Manufacturing £’000 £’000 Eliminations and Central Costs £’000 Total £’000 53 weeks ended 30 June 2018 UK revenue International revenue Revenue – External Revenue – Internal Total revenue Discontinued Operation Total Revenue Underlying profit from operations Charge for share-based payments 17,086 34,167 3,968 21,054 18,724 52,891 31 1,940 21,085 - (54,831) 54,831 21,085 4,806 - Amortisation of acquisition-related intangibles Exceptional costs Net borrowing costs Tax charge on discontinued operations - - - - Segment Profit included in Discontinued Operations - Profit before taxation 4,806 Tax charge - Profit for the period from continuing activities 4,806 - (1,971) - - 51,253 22,692 73,945 (1,971) 1,971 (1,875) (297) (197) (279) (161) - - 74,314 5,617 74,314 - - 73,945 74,314 (52,860) 21,085 5,470 (297) (197) (279) (173) (438) 388 (1,701) 2,385 3,115 (453) (543) 2,572 1,932 - (1,755) (343) (187) (217) - - (2,421) (453) (2,874) - 2,539 - - - (12) (438) (2,089) - - - *The underlying profit net of eliminations and central costs are as follows: Underlying profit from operations – operating segments Eliminations and central costs Underlying profit from operations Continuing operations - Discontinued operations - Total Brands £’000 4,806 (1,487) 3,319 Manufacturing £’000 2,539 (388) 2,151 £’000 6,134 (1,875) 5,470 The segmental Income Statement disclosures are measured in accordance with the Group’s accounting policies as set out in note 1. Inter segment revenue earned by Manufacturing from sales to Brands is determined on commercial trading terms as if Brands were a third-party customer. All defined benefit pension costs and share-based payment expenses are recognised for internal reporting to the CODM as part of Group-wide activities and are included within ‘Eliminations and central costs’ above. Other costs, such as Group insurance and auditors’ remuneration which are incurred on a Group-wide basis are recharged by the head office to segments on a reasonable and consistent basis for all periods presented, and are included within segment results above. b) Other Income Statement segmental information The following additional items are included in the measures of underlying profit and loss reported to the CODM and are included within (a) above: 52 weeks ended 29 June 2019 Depreciation Amortisation 53 weeks ended 30 June 2018 Depreciation Amortisation Brands Manufacturing £’000 £’000 Eliminations and Central Costs £’000 13 - 1,249 700 - 260 Total £’000 1,262 960 13 1,270 - 1,283 - 386 197 583 Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 40 c) Principal measures of assets and liabilities The Groups assets and liabilities are managed centrally by the CODM and consequently there is no reconciliation between the Group’s assets per the statement of financial position and the segment assets. d) Additional entity-wide disclosures The distribution of the Group’s external revenue by destination is shown below: Geographical segments UK Other European Union countries Rest of the World Geographical segments – Ongoing Business UK Other European Union countries Rest of the World 52 weeks ended 29 June 2019 53 weeks ended 30 June 2018 £’000 52,144 17,482 7,712 77,338 52 weeks ended 29 June 2019 £’000 16,456 609 2,611 19,676 £’000 51,284 16,891 5,770 73,945 53 weeks ended 30 June 2018 £’000 17,021 520 3,544 21,085 In the 52 weeks ended 29 June 2019, the Group had two customers that exceeded 10% of total revenues, being 12% and 11% respectively. In the 53 weeks ended 30 June 2018, the Group had two customers that exceeded 10% of total revenues, this being 13% and 12% respectively. In 2019 the Group had non-current assets held overseas of £2,247,000 (2018: £2,304,000). Note 3 Exceptional items The exceptional item of £0.048m in the current period is due to the GMP equalisation charge on the Group’s DB Pension Plan of £0.288m offset by the release (credit) of unrequired contingent earn-out consideration that arose in a prior-year of £0.240m. Note 4 Profit before taxation (a) This is stated after charging/ (crediting) Depreciation of property, plant and equipment of purchased assets Amortisation of intangible assets Research and development Foreign exchange (gains) / losses Operating leases: Hire of plant and machinery Rent of buildings (b) Auditors’ remuneration Audit services: Audit of the Company financial statements – PKF Francis Clark Audit of the Company financial statements – Grant Thornton UK LLP Audit of subsidiary undertakings – PKF Francis Clark Audit of subsidiary undertakings – Grant Thornton UK LLP Audit related services: Interim review – Grant Thornton UK LLP Taxation compliance services: Corporation tax compliance – Grant Thornton UK LLP Other non-audit services: Acquisition advice – Grant Thornton UK LLP 2019 £’000 1,262 944 1,039 (37) 125 782 35 - 12 - - - - 2018 £’000 1,283 583 972 (9) 80 679 - 42 - 20 9 21 19 Annual Report & Accounts 2019Brand Architekts Group plc (c) Earnings before interest, taxation, depreciation and amortisation (‘EBITDA’) from continuing and discontinued operations Operating profit before exceptional items Depreciation of property, plant and equipment Amortisation of intangible assets Amortisation of acquisition-related intangibles EBITDA before exceptional operating items Exceptional operating items EBITDA after exceptional operating items 41 2019 £’000 2018 £’000 4,053 1,262 701 260 6,276 (717) 5,559 4,976 1,283 386 197 6,842 (279) 6,563 *Operating profit before exceptional items were derived from continuing activities of £1,980,000 (2018: £2,824,000) and from discontinued activities of £2,073,000 (2018: £2,150,000) Note 5 Staff costs Wages and salaries Social security costs Other pension costs The average monthly number of employees, including executive Directors, during the year was: Production Distribution Administration Remuneration in respect of Directors was as follows: 2019 £’000 13,846 1,602 928 16,376 2019 Number 437 104 45 586 2018 £’000 13,476 1,555 997 16,028 2018 Number 441 103 49 593 Executive Directors T J Perman C G How J M Fletcher M Gazzard M W Warren Non-Executive Directors B M Hynes E J Beale F P Berrebi (resigned 29 June 2019) R S McDowell Total Salary/Fees Benefits Contributions £’000 £’000 £’000 Pension Total 2019 £’000 Total 2018 £’000 260 - 125 133 - 60 29 29 29 665 77 - 18 11 - - - - - 106 - - 31 13 - - - - - 44 337 - 174 157 - 60 29 29 29 815 - 258 175 74 88 61 29 29 29 743 Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 42 Director’s and former Directors’ interest in share based options: Number of Shares at June 2018 Number of Shares lapsed in year 46,376 (15,304) 22,717 11,358 77,160 77,160 57,870 - - - - - 292,641 (15,304) 46,376 (15,304) 22,717 11,358 - - C G How J M Fletcher M W Warren T J Perman J M Fletcher M Gazzard Total share options Phantom share options: C G How J M Fletcher M W Warren Total phantom 80,451 (15,304) Number of Shares Awarded in year Number of Shares Exercised in the year - - - - - - - - - - - - - - - - - - - - - - Number of Shares at June 2019 31,072 22,717 11,358 77,160 77,160 57,870 277,337 31,072 22,717 11,358 65,147 Exercise Price Nil Nil Nil 5p 5p 5p Nil Nil Nil Earliest Exercise Date Exercise Expiry Date 16/7/19 15/7/26 16/7/19 15/7/26 16/7/19 15/7/26 19/6/21 18/6/28 19/6/21 18/6/28 19/6/21 18/6/28 16/7/19 15/7/26 16/7/19 15/7/26 16/7/19 15/7/26 The mid-market price of the ordinary shares on 29 June 2019 was 192.5p (2018: 322.5p) and the range during the 52-week period to 29 June 2019 was 172.5p to 322.5p (53 weeks to 30 June 2018: 280.0p to 412.5p). The total number of ordinary shares subject to options and which could, in the future, be issued is 523,641. This represents 3.06% of the issued share capital of the Company which comprised 17,135,542 Ordinary Shares at the reporting date. Note 6 Share Based Employee Remuneration Executive and Managers Share Option Scheme The Group operates both approved and unapproved share option schemes. There have been a number of options granted during the course of the financial year to 30 June 2018 with further details given below: Date of grant Number of share options granted Number of phantom options granted 5 December 2015 – managers phantom share options - 20,000 15 July 2016 – exec share options 15 July 2016 – exec cash-settled share options 80,451 - - 80,451 Exercise price 155.0p Nil Nil 16 June 2017 – managers share options 18 June 2018 – execs share options Total Options Granted Charge relating to options granted in the prior year Charge relating to phantoms granted in the prior year Charge relating to options granted in the current year Charge included in Administration expenses 231,000 212,190 523,641 - 367.5p - 100,451 5p 291p 200 260 (145) - 115 Amount expensed in year-ended June 2019 £’000 - 24 (145) 36 Fair value pence 154p 165p 307p 47p Period of expense (restated) 3 years 3 years 3 years 3 years 3 years The Company has used the QCA-IRS option valuer TM (based on the Black-Scholes-Merton based option pricing model) to calculate the fair value of the outstanding share options. This model was developed by The QCA partnered with Independent Remuneration Solutions (IRS) and City Group Plc. The development was led by Mr Edward Beale, a Director of the Group, and at that time Chief Executive of City Group Plc. Year-ended June 2017 awards All of the 183,620 new Options granted under the LTIP on 15 July 2016 have two performance conditions attached to them. The first 50% of the award is linked to certain share price targets and the remaining 50% is linked to earning per share targets. To the extent that both of the performance conditions are met at the end of the three-year performance cycle, then the Options can be exercised at nil cost. Upon vesting, half of each award will be made in shares with the balance being made in cash. Annual Report & Accounts 2019Brand Architekts Group plc 43 The managers share options were issued on 16 June 2017 under a Company Share Option Scheme (CSOP), and have an exercise price of 367.5p and no performance conditions attached, with vesting after a minimum of three-years and a maximum of ten-years. 15,304 of both the share based options and the phantom share options have lapsed following Chris How’s departure from the Group. Period-ended June 2018 awards All of the 212,190 Options granted under the LTIP on 18 June 2018 have performance conditions attached to them which is linked to earning per share targets. To the extent that the performance conditions are met at the end of the three-year performance cycle, then the Options can be exercised at a cost of 5p per share. Upon vesting, the award will be made in shares. Detailed in Note 5 is a summary of awards outstanding at the end of the year. Note 7 Finance income Total Ongoing Operations Note 8 Finance costs Total Ongoing Operations Note 9 Taxation Income from investments Income from investments Bank loans and overdrafts Net pension plan costs Bank loans and overdrafts Net pension plan costs (a) Analysis of tax charge in the year UK corporation tax: - on profit for the year - adjustment in respect of previous years -foreign tax Total current tax charge Deferred tax: -current year (credit) -prior year charge/(credit) Total deferred tax Tax charge 2019 £’000 1,146 1,146 2019 £’000 - - 2019 £’000 263 126 389 2019 £’000 18 126 144 2019 £’000 528 (171) 77 434 (28) 47 19 453 2018 £’000 191 191 2018 £’000 - - 2018 £’000 212 152 364 2018 £’000 8 152 160 2018 £’000 901 - (11) 890 (60) 61 1 891 Total tax charge of £453,000 (2018: £891,000) comprised tax on ongoing operations of £198,000 (2018: £453,000) plus tax on discontinued operations of £255,000 (2018: £438,000). Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 44 (b) Factors affecting total tax charge for the year The tax assessed on the profit before taxation for the year is lower (2018: higher) than the standard rate of UK corporation tax of 19.00% (2018: 19.00%). The differences are reconciled below: Tax at the applicable rate of 19.00% (2018: 19.00%) Profit before taxation Effect of: Adjustment in respect of previous years Adjustment to deferred tax Differences between UK and foreign tax rates Permanent differences and other R&D tax credit Actual tax charge 2019 £’000 4,093 778 (124) (7) 10 (168) (36) 453 2018 £’000 4,524 860 (60) - - 91 - 891 (c) Factors that may affect future tax charges Provision has not been made for deferred taxation on the Group’s land and buildings on the basis that the principal location will be sold in the short term, and that the majority of its value will therefore be recovered through sale. Because of this no tax liability is expected to arise and therefore no provision has been made in relation to deferred taxation. Note 10 Payments to shareholders Final dividend paid - Interim dividend paid - 4.2p (2018: 3.5p) per share 2.15p (2018: 2.0p) per share 2019 £’000 720 368 1,088 In addition a dividend payment was made to the non-controlling interest of £35,000. The Directors have recommended the payment of a final dividend of 4.35p per share (2018: 4.2p). Note 11 Earnings per share Basic and Diluted Profit for the year (£’000) Profit for the year (£’000) continuing operations Basic weighted average number of ordinary shares in issue during the year Diluted number of shares Basic earnings per share Diluted earnings per share Basic earnings per share continuing operations Diluted earnings per share continuing operations 2019 3,539 1,489 17,135,542 17,659,183 20.7p 20.0p 8.7p 8.4p 2018 £’000 590 343 933 2018 3,542 1,841 16,934,762 17,454,505 20.9p 20.3p 10.8p 10.5p Basic earnings per share has been calculated by dividing the profit for each financial year by the weighted average number of ordinary shares in issue at 29 June 2019 and 30 June 2018 respectively. There is a difference at June 2019 between the basic net earnings per share and the diluted net earnings per share of 0.7p due to the 523,641 share options awarded. Annual Report & Accounts 2019Brand Architekts Group plc  Adjusted earnings per share Adjusted Profit for the year after tax (£’000) Basic weighted average number of ordinary shares in issue during the year Diluted number of shares Basic earnings per share Diluted earnings per share 2019 4,330 17,135,542 17,659,183 25.3p 24.5p 45 2018 3,928 16,934,762 17,454,505 23.2p 22.5p Adjusted profit for the current year of £4.33m is shown after adding back Exceptional Items of £0.72m and Amortisation of Acquisition Related Intangibles of £0.26m, and then deducting a notional tax charge of £0.19m. Adjusted earnings per share has been calculated by dividing the adjusted profit of £4.33m by the weighted average number of ordinary shares in issue at 29 June 2019. The 2018 comparative figures have also been adjusted to a comparable basis. Note 12 Property, plant and equipment Freehold Land and Buildings Group Cost: At June 2017 Exchange Movements Additions Disposals At June 2018 Exchange Movements Additions Transfers to Assets Held for Sale Disposals At June 2019 Depreciation: At June 2017 Exchange Movements Additions Provided during the year Disposals At June 2018 Exchange Movements Additions Provided during the year Transfers to Assets Held for Sale Disposals At June 2019 Net book value: At June 2019 At June 2018 £’000 7,610 - - - 7,610 - - (7,610) - - 2,938 - - 115 - 3,053 - - 108 (3,161) - - - 4,557 Plant and Machinery £’000 26,131 66 1,631 (1,721) 26,107 23 1,088 (23,033) (4,145) 40 19,727 36 - 1,168 (1,705) 19,226 76 - 1,154 (16,292) (4,145) 19 21 6,881 Total £’000 33,741 66 1,631 (1,721) 33,717 23 1,088 (30,643) (4,145) 40 22,665 36 - 1,283 (1,705) 22,279 76 - 1,262 (19,453) (4,145) 19 21 11,438 Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc Freehold Land and Buildings £’000 7,610 - - - 7,610 - (7,610) - - 2,939 113 - - 3,052 108 (3,160) - - - - Plant and Machinery £’000 23,317 1,486 - (1,705) 23,098 900 (19,853) (4,145) - 17,925 943 - (1,705) 17,163 956 (13,974) - (4,145) - - 46 Total £’000 30,927 1,486 - (1,705) 30,708 900 (27,463) (4,145) - 20,864 1,056 - (1,705) 20,215 1,064 (17,134) - (4,145) - - 4,558 5,935 10,493 Research & Software Development £’000 £’000 Brand Customer Names Relationships £’000 £’000 Goodwill £’000 Total £’000 782 420 6,015 1,746 1,473 1,145 2,618 - - 2,618 - - 420 734 (395) 759 695 (770) (684) 6,015 2,700 - 8,715 - - 1,746 380 - 2,126 - - - 8,715 2,126 2,618 27 360 (345) 42 684 (42) (684) - - - - - - - - 202 197 - 399 243 - 642 - - - - - - - 10,436 1,145 11,581 3,850 (421) 15,010 699 (1,456) (794) 13,459 583 583 (371) 1,158 944 (666) (794) 642 - 717 8,715 8,715 1,484 1727 2,618 2,618 12,817 13,852 782 36 (26) 792 4 (686) (110) - 717 26 (26) 717 17 (624) (110) - - 75 Company Cost: At June 2017 Additions Transfers to subsidiary Disposals At June 2018 Additions Transfers to Assets Held for Sale Disposals At June 2019 Depreciation: At June 2017 Provided during the year Transfers to subsidiary Disposals At June 2018 Provided during the year Transfers to Assets Held for Sale Transfers to subsidiary Disposals At June 2019 Net book value: At June 2019 At June 2018 Note 13 Intangible assets Group Cost At June 2017 Prior Year Adjustment At June 2017 restated Additions Disposals At June 2018 Additions Transfers to Assets Held for Sale Disposals At June 2019 Amortisation: At June 2017 Provided during the year Disposals At June 2018 Provided during the year Transfers to Assets Held for Sale Disposals At June 2019 Net book value: At June 2019 At June 2018 Annual Report & Accounts 2019Brand Architekts Group plc Company Cost At June 2017 Additions Disposals At June 2018 Additions Transfers to Assets Held for Sale Disposals At June 2019 Amortisation: At June 2017 Provided during the year Disposals At June 2018 Provided during the year Transfers to Assets Held for Sale Disposals At June 2019 Net book value: At June 2019 At June 2018 Software £’000 Research & Development £’000 Brand Names £’000 Customer Relationships £’000 782 36 (26) 792 4 (686) (110) - 717 26 (26) 717 17 (624) (110) - - 75 420 734 (395) 759 695 (770) (684) - 27 360 (345) 42 684 (42) (684) - - 717 924 2,700 - 3,624 - - 100 380 - 480 - - 3,624 480 - - - - - - - 3,624 3,624 36 32 - 68 67 - 135 345 412 47 Total £’000 2,226 3,850 (421) 5,655 699 (1,456) (794) 4,104 780 418 (371) 827 768 (666) (794) 135 3,969 4,828 Impairment testing The three Brands (Brand Architekts, Real Shaving Co and Fish) have been tested for impairment and all three gave valuations well in excess of their carrying values. Sensitivity analysis were carried out on each of the brands to ascertain whether any reasonable change in assumptions would cause an impairment, no such impairment was found. As previously the recoverable amount of each brand was determined based on value-in-use calculations, covering a 1-2year forecast, followed by an extrapolation of expected cash flows for the remaining useful life using growth assumptions determined by management. The present value of the expected cash flows is determined by applying a suitable discount rate reflecting current market assessments of the time value of money and risks specific to the brand. The rate applied is a pre-tax 8%. Growth assumptions For each brand management have assumed a growth rate of between 2-5% which reflects the specific initiatives planned and the overall prospects of the sector in which it operates. Discount rates The discount rates reflect appropriate adjustments relating to market risk and specific risk factors. Cash flow assumptions Management’s key assumptions include stable profit margins, based on past experience in this market. The Group’s management believes that this is the best available input for forecasting this mature sector. Apart from the considerations in determining the value-in-use of the brand described above, management is not currently aware of any other probable changes that would necessitate changes in its key estimates. The values of the intangibles that are not amortised are the Brand Architekts brand name £5,091,000, the Fish brand name £2,700,000 and the RSC brand name £924,000. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc Note 14 Investments For the 52 weeks ending 29 June 2019 and 53 weeks ending 30 June 2018 48 2018 £’000 1,235 156 1,391 2018 Total £’000 19,553 - 156 19,709 2019 £’000 1,391 (6) (1,385) - 2019 Total £’000 19,709 - (6) (1,385) 18,318 Equity investment Investments in held at fair value Subsidiaries £’000 £’000 18,318 - - 18,318 1,391 - (6) (1,385) - - - - (3,578) (3,578) (3,578) (2,656) (6,234) 12,084 (2,656) (6,234) 12,084 - (3,578) 16,131 Group: Equity investments held at fair value Cost: Opening position Revaluation Transfer to Assets Held for Sale Closing position Company Cost: Opening position Additions Revaluation Transfer to Assets Held for Sale Closing position Provision for impairment: at June 2018 Transfer from amounts due to subsidiary undertakings At June 2019 Net book value: The company has transferred £2,656,000 of balances during the period in relation to dormant subsidiaries. There has been no impact on the company profit as there were equal and opposite amounts owed to subsidiary companies that have been released to profit during the period as they are deemed no longer due to the subsidiary companies. The Company owns 100% of the voting rights and ordinary shares of the following subsidiary undertakings, except as indicated below: Name of Company Aerosols International Limited Atlas Group Limited Bagsy Beauty Limited (formerly Cosmetics Plus Limited) Tru Products Limited Curzon Supplies Limited Fish London Limited The Brand Architekts Limited Mr. Haircare Limited – 51% Country of Registration England England England England England England England England Nature of Business Dormant Dormant Dormant Dormant Non Trading Dormant Trading – Brands business Trading – venture with Jamie Stevens (Media) Limited Swallowfield Consumer Products Limited Swallowfield SARL, 41 rue Camille Desmoulins, 92130 Issy-Les-Moulineaux France Swallowfield s.r.o. Vozicka 606, 390 02 Tabor, Czech Republic Czech Republic Swallowfield Inc USA Trading Trading Trading The non-controlling interest represents the share of earnings within Mr. Haircare Limited due to Jamie Stevens (Media) Limited. The registered office of each subsidiary is the same as that of Brand Architekts Group plc except where shown otherwise. Annual Report & Accounts 2019Brand Architekts Group plc Note 15 Inventories Group Raw materials Work in progress Finished goods and goods for resale Company Raw materials Work in progress Finished goods and goods for resale 49 2018 £’000 6.562 297 6,966 13,825 2018 £’000 6,504 297 3,065 9,866 2019 £’000 496 - 4,715 5,211 2019 £’000 - - - - The Group consumed inventories totalling £53.7m during the year (2018: £48.2m). No items are being carried at fair value less cost to sell (2018: £NIL). As described in note 28, certain inventories have been transferred to assets held for sale. Note 16 Trade and other receivables Group Company Amounts owed by Group undertakings Trade receivables Other receivables Prepayments 2019 £’000 3,325 - 5 145 3,475 2018 £’000 17,094 - 110 2,079 19,283 2019 £’000 - 4 - - 4 The amounts owed by Group undertakings relate to intercompany receivables. As described in note 28, a number of trade and other receivables have been transferred to assets held for sale. Detailed below is the movement on the bad and doubtful debt provision for the Group and Company: Ageing of trade receivables: Group and Company Opening balance Impairment loss recognised Amounts recovered Charged to profit and loss Closing balance 2019 £’000 12 (12) - - - 2018 £’000 11,910 116 20 910 12,956 2018 £’000 12 - - - 12 An allowance has been made for estimated irrecoverable amounts of £nil (2018: £12,000). The estimated irrecoverable amount is arrived at by considering the historic loss rate and adjusting for current expectations, client base and economic conditions. Both historic losses and expected future losses being very low, the Directors consider it appropriate to apply a single average rate for expected credit losses to the overall population of trade receivables and accrued income. The single expected loss rate applied is 0% (2018 0.1%). The difference between the incurred loss method applied in the 2018 annual report and the new lifetime expected loss rate method under IFRS 9 is considered immaterial and comparatives have not been restated. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc Ageing of trade receivables: Group Current Overdue but less than 90 days More than 90 days overdue Company Current Overdue but less than 90 days More than 90 days overdue 50 2018 £’000 14,065 2,180 849 17,094 2018 £’000 10,789 1,053 68 11,910 2019 £’000 3,091 213 21 3,325 2019 £’000 - - - - Our policy requires customers to pay us in accordance with agreed payment terms. Depending on the geographical location, our settlement terms are generally due within 30 or 60 days from the end of the month of sale and do not bear any effective interest rate. All trade receivables are subject to credit risk exposure. Where the Group identifies a specific concentration of credit risk attached to any individually significant balances these are specifically reviewed for recoverability and suitable provision made having regard to the credit risk identified. Note 17 Trade and other payables Trade payables Amounts owed to subsidiaries Other taxes and social security costs Accruals Share-based payments accrual Commercial Invoice Discounting facility Group Company 2019 £’000 1,561 - 109 515 124 4,319 6,628 2018 £’000 12,425 - 454 2,139 345 8,346 23,709 2019 £’000 - 6,297 - 186 124 3,592 10,199 2018 £’000 10,583 4,774 404 1,364 345 7,229 24,699 The Directors consider that the carrying value of trade and other payables approximates to their fair value. The Commercial Invoice Discounting (CID) facility allows a regular drawdown of cash funds in Sterling and foreign currencies, and is secured on the book debts of the Group and Company. This facility carries an interest rate of 1.5% over base and is repayable on demand. As described in note 28, a number of trade and other payables have been transferred to assets held for sale. Note 18 Interest-bearing loans and borrowings – amounts falling due within one year Group and Company Secured: Loans 2019 £’000 1,139 The Directors consider that the carrying value of bank loans and overdrafts approximates to their fair value. Note 19 Interest-bearing loans and borrowings – amounts falling due after more than one year Loans are repayable by instalments as follows: Group and Company Between one and two years Between two and five years 2019 £’000 1,022 1,069 2,091 2018 £’000 1,127 2018 £’000 1,139 2,091 3,230 The Group’s loan facilities are secured by fixed and floating charges over certain of the Group’s freehold land and buildings. The loans are over fixed terms with between one and four years remaining at a fixed annual interest rate of 2.35%. Annual Report & Accounts 2019Brand Architekts Group plc 51 Note 20 Obligations under leases Operating leases At the Statement of Financial Position date, the Group and Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: Group Other Within one year In the second to fifth years inclusive In over five years 2019 £’000 147 299 36 482 Company Other Within one year In the second to fifth years inclusive In over five years 2019 £’000 142 292 36 470 2018 £’000 152 354 29 535 2018 £’000 145 342 29 516 Land & Buildings 2018 2019 £’000 733 1,430 - 2,163 £’000 615 1,788 - 2,403 Land & Buildings 2018 2019 £’000 464 1,009 - 1,473 £’000 346 1,126 - 1,472 Note 21 Financial instruments The Group uses financial instruments comprising borrowings, cash and cash equivalents, and various items such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group also has bank accounts denominated in Euros, US Dollars, Canadian Dollars, Czech Koruna, and Chinese Renminbi. The purpose of these accounts is to manage the currency transactions arising from the Group’s operations overseas. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged from the previous year. Interest rate risk The Group finances its operations through a mixture of debt and equity. The Group’s loan borrowings bear interest at rates based on the bank’s base rate. The Group Statement of Financial Position also includes financial assets in the form of cash at bank and in hand totalling £381,000 (2018: £934,000) which are exposed to floating interest rates based on bank base rates. A 0.5% increase in bank base rates would reduce pre-tax profits by £63,000 in the period. A 0.5% decrease would have the opposite effect. Foreign currency risk The Group is exposed to transactional foreign exchange risk. The Group seeks to hedge its exposures using bank facilities denominated in Euros, US Dollars, Canadian Dollars, Czech Koruna, and Chinese Renminbi and also by buying and selling products in these currencies with the objective of minimising fluctuations in exchange rates on future transactions and cash flows. Approximately 13% (2018: 13%) of the Group’s sales are invoiced in Euros and 18% (2018: 16%) in US Dollars. These sales are calculated in sterling, but invoiced in Euros / US Dollars. The Group policy is to minimise currency exposures on balances for which settlement is not anticipated until a later date through the use of the respective bank facilities. All other Group sales are denominated in sterling. At 29 June 2019, there were sums totalling £247,000 (2018: £318,000) held in foreign currency bank accounts. A 5% weakening of sterling would result in a £124,000 increase in reported profits and equity, while a 5% strengthening of sterling would result in a £118,000 decrease in profits and equity. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 52 Liquidity risk The Group seeks to manage financial risk, to ensure sufficient liquidity is available to meet the identifiable needs of the Group and to invest cash assets safely and profitably. The Group’s and Company’s liabilities, including those classified as held for sale, see note 28, have contractual maturities as summarised below: Group Loans and receivables Financial liabilities at amortised cost through profit or loss Company Loans and receivables Financial liabilities at amortised cost through profit or loss Group Loans and receivables Financial liabilities at amortised cost through profit or loss Financial liabilities at fair value through profit or loss Company Loans and receivables Financial liabilities at amortised cost through profit or loss Financial liabilities at fair value through profit or loss Current Non-current Within 6 months 6-12 months 1-5 years Over 5 years 29 June 2019 £’000 604 20,412 21,016 £’000 591 - 591 £’000 2,143 - 2,143 £’000 - - - Current Non-current Within 6 months 6-12 months 1-5 years Over 5 years 29 June 2019 £’000 604 17,091 17,695 £’000 591 - 591 £’000 2,143 - 2,143 £’000 - - - Current Non-current Within 6 months 6-12 months 1-5 years Over 5 years 30 June 2018 £’000 604 21,401 300 22,305 £’000 604 - - £’000 3,338 - - 604 3,338 £’000 - - - - Current Non-current Within 6 months 6-12 months 1-5 years Over 5 years 30 June 2018 £’000 604 17,918 300 18,822 £’000 604 - - £’000 3,338 - - 604 3,338 £’000 - - - - No gains or losses have been recognised in the period in respect of financial liabilities held at amortised cost. A gain of £0.3m has been recognised in the Statement of comprehensive income in respect of financial liabilities held at fair value through profit and loss. Working capital The Group’s working capital policy is to fund short-term movements through excess cash generated from the trading business. The Group had £10.7m (2018: £15.6m) undrawn committed borrowing facilities available at June 2019. The maturity profile of committed bank facilities is regularly reviewed and such facilities are extended or replaced well in advance of their expiry. Annual Report & Accounts 2019Brand Architekts Group plc 53 Capital maintenance The Group’s objectives when managing capital are: • to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; • • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk; and to maintain an optimal capital structure to reduce the cost of capital. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. Financial assets Financial assets included in the Statement of Financial Position relate to the following IFRS9 categories (including those held for sale at the period end – see note 28): Loans and receivables Fair value through profit or loss Group Company 2019 £’000 15,730 1,385 17,115 2018 £’000 18,138 1,391 19,529 2019 £’000 12,222 1,385 13,607 2018 £’000 12,783 1,391 14,174 No gains or losses have been recognised in the period in respect of financial assets held at amortised cost. The financial assets are included in the Statement of Financial Position within the following headings: Non-current assets Investments Current assets: Trade receivables Other receivables Intercompany receivables Cash and cash equivalents Group Company 2019 £’000 2018 £’000 2019 £’000 2018 £’000 1,385 1,391 1,385 1,391 15,317 32 - 381 17,115 17,094 110 - 934 19,529 11,992 79 4 147 13,607 11,910 20 116 737 14,174 Financial liabilities Financial liabilities included in the Statement of Financial Position relate to the following categories (including those held for sale at the period end – see note 28): Current liabilities: Borrowings Trade payables Intercompany payables Accruals Other payables Non-current liabilities: Borrowings Group Company 2019 £’000 1,139 14,865 - 1,986 4,319 2,091 24,400 2018 £’000 1,127 12,424 - 2,484 8,346 3,230 27,611 2019 £’000 1,139 13,209 8,953 1,350 3,592 2,091 30,334 2018 £’000 1,127 10,582 4,774 1,709 7,229 3,230 28,651 Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc Note 22 Deferred tax liabilities The movement in deferred tax provisions is analysed as follows: Group Deferred taxation At June 2017 Recognised in profit or loss Recognised in other comprehensive income Prior Year Adjustment Temporary exchange differences At June 2018 Recognised in profit or loss Recognised in other comprehensive income Temporary exchange differences At June 2019 Deferred tax is represented by: Capital allowances in advance of depreciation Temporary difference on post retirement benefit obligations Other temporary differences Temporary exchange differences Recognised as: Deferred tax assets Deferred tax liabilities Deferred tax (asset)/liability held for resale Company Deferred taxation At June 2017 Recognised in profit or loss Recognised in other comprehensive income At June 2018 Recognised in profit or loss Recognised in other comprehensive income At June 2019 Deferred tax is represented by: Capital allowances in advance of depreciation Temporary difference on post retirement benefit obligations Other temporary differences Total 2019 £’000 1,566 (1,601) (55) - (90) (1,714) 1,061 563 (90) 2019 £’000 506 (1,601) (53) (1,148) 54 £’000 (681) 1 287 1,145 - 752 19 (857) (4) (90) 2018 £’000 410 (763) (40) (393) (803) 410 - (393) (683) 287 - (396) 105 (857) (1,148) 2018 £’000 410 (763) (43) (396) Annual Report & Accounts 2019Brand Architekts Group plc Recognised as: Deferred tax assets Deferred tax liabilities Deferred tax (asset)/liability held for resale Total (1,645) - 497 (1,148) 55 (806) 410 - (396) Provision has not been made for deferred taxation on the full carrying value of the Group’s land and buildings, on the basis that the full value of these assets will not be recovered through use and that indexation will result in no taxable gain arising on disposal. Note 23 Share capital and reserves Equity ordinary share capital Authorised share capital 25,800,000 shares of 5p each Allotted, called-up and fully paid ordinary shares at 29 June 20 and 30 June 2018 Shares in issue 2019 £’000 1,290 2018 £’000 1,290 857 857 At the both the beginning and end of the financial year there were 17,135,542 shares in issue. Share premium Share premium reserve includes the accumulated premium on the issue of share capital. Revaluation of investment reserve The Group has a total shareholding in the Chinese business, Shanghai Colour Cosmetics Technology Company Limited (SCCTC) of 13.3%. In line with IFRS9, the equity instrument has been held at fair value. Gains and losses are held in a separate reserve. Exchange reserve Exchange differences arising on translation of the foreign controlled entity are recognised in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. Pension re-measurement reserve Actuarial re-measurement of plan liabilities recognised in other comprehensive income and accumulated in a separate reserve within equity, net of the impact of deferred tax. Retained earnings Retained earnings account includes all current and prior period profits and losses. Note 24 Notes to Cash Flow Statement Group (a) Reconciliation of cash and cash equivalents to movement in net debt: (Decrease)/Increase in cash and cash equivalents Net cash outflow/(inflow) from decrease/(increase) in borrowings Change in net debt Opening net debt Closing net debt 2019 £’000 (553) 5,154 4,601 (11,769) (7,168) 2018 £’000 (3,123) (5,005) (8,128) (3,641) (11,769) Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc Company (a) Reconciliation of cash and cash equivalents to movement in net debt: (b) Analysis of net debt: Cash at bank and in hand CID facility Borrowings due within one year Borrowings due after one year (Decrease)/Increase in cash and cash equivalents Net cash outflow/(inflow) from decrease/(increase) in borrowings Change in net debt Opening net debt Closing net debt (b) Analysis of net debt: Cash at bank and in hand Secured debt facility Borrowings due within one year Borrowings due after one year Note 25 Capital Commitments Group and Company Contracted for but not provided 56 Non-Cash Movement Closing 2019 £’000 £’000 8 - - - 8 381 (4,319) (1,139) (2,091) (7,168) 2018 £’000 (2,234) (3,965) (6,199) (4,650) (10,849) Closing 2018 Cash Flow £’000 934 (8,346) (1,127) (3,230) (11,769) £’000 (561) 4,027 (12) 1,139 4,593 2019 £’000 (590) 4,764 4,174 (10,849) (6,675) Closing 2018 Cash Flow £’000 737 (7,229) (1,127) (3,230) (10,849) £’000 (591) 3,637 (12) 1,139 4,173 2019 £’000 198 Non-Cash Movement Closing 2019 £’000 £’000 1 - - - 1 147 (3,592) (1,139) (2,091) (6,675) 2018 £’000 270 Note 26 Post retirement benefits The Group and Company operate defined contribution pension plans, all of which are funded by the payment of contributions to separately administered plans. The Group and Company operates a funded defined benefit plan, the Aerosols International Pension Plan (the Plan) in the UK which provides both pensions in retirement and death benefits to members. Contributions to defined contribution plans are expensed when they become due for payment and amounted to £840,000 (2018: £780,000) of which £15,000 related to continuing and £825,000 related to discontinued businesses. Employer contributions to these plans varied between 2% and 7% of salary depending on the plan and the level of employee contributions. The Group has an obligation to ensure that the Plan has sufficient funding, and promises of future funding, to pay pensions to its members, who are some of the current and former employees of the contract manufacturing business sold to KDC/One in August 2019. The Plan is set up as a Trust, separate from the Group, and managed by the Trustees. The Trust has committed to pay both pensions in retirement and death benefits to members. Annual Report & Accounts 2019Brand Architekts Group plc 57 The Group’s obligation to the Plan continues following the sale of the contract manufacturing business. An agreed Schedule of Contributions is in place under which the Group commits to make deficit reduction payments, and to pay (i) the administration costs of the Trust (with the exception of investment management charges), and (ii) the Pension Protection Fund levies, for the life of the Plan . This commitment will be reviewed and may be altered once the results of the next triennial valuation of the Fund at 5 April 2020 have been finalised. Triennial valuations are prepared using a different basis to the IAS 19 valuation of liabilities, and the IAS 19 valuation included in these accounts does not provide any indication of what the outcome of the triennial funding valuation might be. Payments made by the Company to the Plan and in respect of Plan liabilities were: Company pension contributions Deficit recovery payments Plan administrative expenses Pension Protection Fund premium Total The amounts expensed in the Group Statement of Comprehensive Income were: In Operating profit: Company pension contributions Plan administrative expenses Pension Protection Fund premium In Exceptional items (note 3) Past service charge – GMP equalisation In Finance costs: Unwinding of notional discount factor Total 2019 £’000 - 282 179 108 569 2019 £’000 - 179 108 287 290 126 703 2018 £’000 - 108 171 222 501 2018 £’000 - 171 222 393 - 155 548 The deficit reduction payment will be £318k per annum (previously £108k per annum) for seven years to 2025 and £210k for a further three years to 2028. Anticipated payments by the Company in respect of plan administrative expenses and the pension protection fund premium in the year ending 30 June 2020 are expected to be of a similar order of magnitude to payments in 2019. IAS 19 Employee Benefits IAS 19 requires that the assets and liabilities to members of the Plan are consolidated in these Group accounts using the valuation method prescribed in the accounting standard. The effects of the application of IAS19 on the statement of financial position at June 2019 are: Increase in pension and other benefit obligations Increase in deferred tax Decrease in equity 2019 £’000 (4,832) 821 (4,011) The Accounting Standards require the discount rate to be based on yields on high quality (usually AA-rated) corporate bonds of appropriate currency, taking into account the term of the relevant pension plan’s liabilities. Corporate bond indices are often used as a proxy to determine the discount rate. At the reporting date, the yields on bonds were lower than they were at June 2018. This has resulted in higher discount rates being adopted for accounting purposes as compared to last year which has translated into a reduced liability. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc (a) The principal actuarial assumptions used at the Statement of Financial Position date were as follows: Discount rate Inflation assumption (RPI) Inflation assumption (CPI) Deferred revaluation for benefits in excess of GMP Employed deferred members Deferred members Rate of increase in pensions in payment: CPI, max 3% (2017: max 3%) RPI, max 5% (2017: max 5%) RPI, max 2.5% (2017: max 2.5%) Mortality assumptions: Life expectancy of male aged 65 now Life expectancy of female aged 65 now Life expectancy of male aged 65 in 20 years Life expectancy of female aged 65 in 20 years 2019 2.40% 3.10% 2.10% 2.60% 2.10% 1.91% 3.04% 2.18% 20.9 23.1 22.2 24.6 58 2018 2.80% 3.00% 2.00% 2.50% 2.00% 1.85% 2.95% 2.15% 20.8 22.7 22.1 24.2 The assumptions used in determining the overall expected return on the plan’s assets have been set with reference to yields available on corporate bonds. (b) The assets in the plan at the Statement of Financial Position date were as follows: Equities Property Index Linked Gilts Corporate Bonds Diversified Growth Funds LDI funds Other Fair value of plan assets 2019 Market Value £’000 9,188 1,652 2,449 1,954 6,686 1,903 313 24,145 2018 Market Value £’000 8,897 1,596 2,233 1,990 6,128 1,947 222 23,013 The actual return on plan assets was an increase of £1.5m (2018: increase £0.6m). The plan assets do not include any of the Company’s own financial instruments, nor any property occupied by, or assets used by, the Company. (c) Amounts recognised in the Statement of Financial Position: Present value of funded obligations Fair value of scheme assets (Deficit) Net liability recognised in the Statement of Financial Position 2019 £’000 (33,562) 24,145 (9,417) 2018 £’000 (27,502) 23,013 (4,489) (9,417) (4,489) Annual Report & Accounts 2019Brand Architekts Group plc (d) Reconciliation of opening and closing balances of the present value of the defined benefit obligation: Benefit obligation at beginning of year Movement in the year: Notional finance cost Actuarial gains/(losses) - financial Actuarial (loss) / gain – demographic Actuarial (losses) - experience Past Service Cost Net benefits paid out Benefit obligation at end of year (e) Reconciliation of opening and closing balance of the fair value of plan assets: Fair value of plan assets at beginning of year Movement in the year: Notional interest on plan assets Return on assets, excluding interest income Contributions - employer Benefits paid out Fair value of plan assets at end of year 2019 £’000 (27,502) (770) (3,320) (260) (2,106) (290) 686 (33,562) 2019 £’000 23,013 644 854 320 (686) 24,145 (f) Re-measurement of the net defined benefit liability to be shown in other comprehensive income: Net re-measurement - financial Net re-measurement – demographic Net re-measurement – experience Return on assets, excluding interest income Deferred taxation Total re-measurement of the net defined benefit liability to be shown in OCI 2019 £’000 3,320 260 2,106 (854) (4,832) 821 (4,011) 59 2018 £’000 (29,438) (738) 1,660 100 (113) - 1,027 (27,502) 2018 £’000 23,306 583 43 108 (1,027) 23,013 2018 £’000 (1,660) (100) 113 (43) (1,690) 287 (1,403) (g) History of plan - the history of the plan for the current year and prior years is as follows: Statement of Financial Position Present value of defined benefit obligation Fair value of plan assets At end of year 2019 £’000 (33,562) 24,145 (9,417) 2018 £’000 (27,502) 23,013 (4,489) 2017 £’000 2016 £’000 2015 £’000 (29,438) (24,694) (22,970) 23,306 (6,132) 20,199 (4,495) 20,308 (2,662) Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 60 Characteristics of the Plan and the risks associated with the Plan a) Information about the characteristics the Scheme i. The Plan provides pensions in retirement and death benefits to members. Pension benefits are linked to a member’s final salary at retirement and their length of service. As of 31 December 2015, the Plan closed to future accrual. The Plan is a registered plan under UK legislation and was contracted out of the State Second Pension. The Plan is subject to the plan funding requirements outlined in UK legislation. The last agreed plan funding valuation ii. iii. of the Plan was as at 5 April 2017 and revealed a deficit of £2,599,000. iv. The Plan membership as at 5 April 2017 comprised 279 deferred pensioner members and 12 pensioner members. Since 31 December 2015, the Plan has been closed to future accrual with those active members if still employed by the Company transferring to a new category of employed deferred member. If no longer employed, they became a deferred member. v. The Plan was established from 1 January 1987 under trust and is governed by the Plan’s trust deed and rules dated 19 January 2001. The Trustees are responsible for the operation and the governance of the Plan, including making decisions regarding the Plan’s funding and investment strategy in conjunction with the Company. b) Information about the risks of the Plan to the Company The Plan exposes the Company to actuarial risks such as; market (investment) risk, interest rate risk, inflation risk, currency risk and longevity risk. The small number of Plan members means that the Plan and ultimately the Company are exposed to the experience (such as life expectancy and take-up of member options) of individual members. The Plan does not expose the Company to any unusual Plan-specific or Company-specific risks. c) Information about any amendments, curtailments and settlements There has been no allowance for any amendments, curtailments, or settlements within this accounting period. On the 26th October 2018, a High Court judge ruled that the trustees of UK defined benefit pension Plans must compensate members for sex inequalities attributable to guaranteed minimum pensions (GMPs). The Plan has benefits which include GMPs and as such will need to take action to address this inequality. The outcome of this will be to increase the liabilities of the Plan. Whilst the Trustees have not yet taken any steps to amend benefits in the Plan to deal with inequalities arising from GMPs the company has estimated the potential impact as a prior service cost. Amount, timing and uncertainty of future cash flows a) Sensitivity analysis Please note that the results in the disclosures are inherently volatile, particularly the figures shown on the statement of financial position. The results disclosures are dependent on the assumptions chosen by the Directors’. The table below shows the approximate impact of varying the key assumptions adopted as at June 2019 Discount rate (increase of 0.25% pa) Rate of RPI inflation (increase of 0.25% pa) Mortality (1.5% long term rate) Decrease by Increase by Increase by b) Description of asset-liability matching strategies June 2019 £’000 £1,800 £1,400 £450 The Trustees holds a proportion of the Plan’s assets in pooled funds invested in gilts, corporate bonds and liability driven investment funds to provide some degree of matching with the Plan’s liabilities. Liability driven investment funds and index-linked gilts fund are used to provide a degree of price inflation and interest rate matching with the liabilities. Annual Report & Accounts 2019Brand Architekts Group plc 61 c) The Plan’s investment strategy The Plan’s investment strategy is to invest broadly 75% in return seeking and 25% in matching assets, which include leveraged liability driven investment funds in order to hedge some of the Plan’s interest rate and inflation exposure. This strategy reflects the Plan’s liability profile and the Trustees’ and Employer’s attitude to risk. The Plan holds a number of annuity policies which match a portion of pensions in payment. Note 27 Related parties Compensation of key management personnel (including directors): Short term employee benefits Post-employment benefits 2019 £’000 771 44 815 2018 £’000 2,665 55 2,720 Directors and their Interests The Directors who served during the year and their interests in the Company’s share capital are as follows: B M Hynes C G How J M Fletcher M Gazzard F P Berrebi T Perman R S McDowell E J Beale 29 June 2019 Ordinary Shares 74,914 201,698 104,216 3,000 - 12,000 389,205 - 30 June 2018 Ordinary Shares 24 June 2017 Ordinary Shares 74,914 226,434 102,216 3,000 - - 344,189 - 74,914 89,977 37,374 - - - 344,189 - Mr E J Beale’s Director’s fees have been surrendered to his primary employer, Marshall Monteagle plc. He is a director of Western Selection PLC, who have a beneficial interest in 7.6% of the Company’s issued share capital at the reporting date. Director’s Fees of £29,000 were paid or are payable for the year ended June 2019 (2018: £29,000). During the year the Group sold finished goods to the value of £80,000 (2018: £69,000) to Monteagle International Ltd, a subsidiary of Marshall Monteagle plc. Mr E J Beale is a director of Monteagle International Ltd. In the year to June 2019, Brand Architekts Group plc purchased goods and services amounting to £2,710,000 (2018: £2,468,000) from Swallowfield s.r.o. At the year end the Company had payables due to Swallowfield s.r.o. amounting to £42,000 (2018: £144,000) being disclosed within ‘Trade and other payables’ (see Note 17). ‘Trade and other payables’ also includes an amount of £2,494,000 (2018: £2,494,000) in respect of amounts due to dormant subsidiaries (see Note 17). In the year to June 2019, the Company purchased services amounting to £267,000 (2018: £nil) from Swallowfield SARL. At the 2019 year end the Company had a balance due from Swallowfield SARL amounting to £2,000 (2018: £114,000) being disclosed within ‘Trade and other receivables’ (see Note 16). In the year to June 2019, the Company purchased services amounting to £141,000 (2018: £135,000) from Swallowfield Inc. At the 2019 year end the Company had payables due to Swallowfield Inc. amounting to £63,000 (2018: £54,000) being disclosed within ‘Trade and other payables’ (see Note 17). In the year to June 2019, the Company sold products to the value of £170,000 (2018: £102,000) to MR Haircare Limited, a joint venture with Jamie Stevens (Media) Limited. At the 2019 year end the Company had payables due to MR Haircare Limited of £282,000 (2018: £100,000) being disclosed within ‘Trade and other payables’ (see Note 17). In the year to June 2019 MR Haircare Limited made a profit of £206,000 (2018: profit £187,000) and this is reported in the Group results. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 62 In the year to June 2019, the Company sold products to the value of £2,024,000 (2018: £358,000) and also operated an inter- company current account with Brand Architekts Limited, a wholly owned subsidiary. At the 2019 year end the Company had payables due to Brand Architekts Limited of £5,177,000 (2018: £1,431,000) being disclosed within ‘Trade and other payables’ (see Note 17). In the year to June 2019 Brand Architekts Limited made a profit after tax of £2,909,000 (2018: £3,599,000) and this is reported in the Group results. In the year to June 2019, the Group purchased finished products for resale amounting to £2,801,000 (2018: £3,641,000) from SCCTC, a Chinese manufacturer of cosmetics products in which the Group holds a 13.3% shareholding. At the 2019 year end the Group had payables due to SCCTC amounting to £502,000 (2018: £724,000) being disclosed within ‘Trade and other payables’ (see Note 17). During the year, Brand Architekts Group plc operated an inter-company loan facility with Swallowfield Consumer Products Limited with the balance at the year-end of £734,000 due to Swallowfield Consumer Products Limited (2018: £366,000 due to Swallowfield Consumer Products) being disclosed within ‘Trade and other payables’ (see Note 17). Interest of £12,000 (2018: £5,000) was payable on this loan during the year to Swallowfield Consumer Products. Annual Report & Accounts 2019Brand Architekts Group plc63 Note 28 Non-adjusting post period end events - discontinued operations In July 2019, the Group sold its 100% interest in Curzon Supplies Ltd for consideration of £35m (completing the disposal of the Manufacturing segment) which is the only operation presented as discontinued operations in 2019. Curzon Supplies Ltd was incorporated in March 2019. Although the transaction completed after the period end it was more likely than not to go through at the balance sheet date and so results have been disclosed here. The financial results of this business has been treated as discontinued operations in both the current and prior year financial statements in line with IFRS5. The remaining activities within the Group are referred to as continuing operations. As a result the following assets and liabilities have been classified as held for sale: Net assets held for sale Property, plant and equipment Intangible fixed assets Equity instruments held at fair value Inventories Trade and other receivables Trade and other payables Deferred tax liability Result of discontinued operations Expenses other than finance costs Revenue Investment Income Exceptional costs Tax (expense) / credit Profit / (Loss) for the year Earnings per share from discontinued operations Basic earnings per share Diluted earnings per share Cashflow in respect of discontinued activities Operating cash flows Investing cash flows Financing cash flows Total cash flows Group 2019 £’000 11,190 779 1,385 10,743 13,966 Company 2019 £’000 10,329 779 1,385 10,743 13,962 (14,800) (14,550) (563) 22,700 2019 £’000 57,663 (497) 22,151 2018 £’000 52,860 (55,835) (50,709) 1,146 (669) (255) 2,050 2019 £ 12.6 11.6 2019 £000 6,717 (602) (3,637) 2,478 (12) - (438) 1,701 2018 £ 10.0 9.7 2018 £000 1,619 (879) 1,701 2,441 Included in Exceptional costs in discontinued operations are restructuring charges of £535k and deal fees of £88k. Note 29 Prior Year Adjustment A deferred tax liability was not recognised in respect of customer relationships and brands, which were assets that were separately identified in the acquisition of Brand Architeks Limited. This has historically resulted in an understatement of Goodwill and the deferred tax liability of £1,145k. This has been restated in the comparative information. There has been no impact to the previously stated retained earnings, net assets and cash flows. Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc 64 Five Year Summary The following five-year summary has been produced to allow improved comparisons to be made between the current results and those of prior years. Unaudited IFRS audited Financial Year 2019 £’000 IFRS audited IFRS audited IFRS audited IFRS audited Financial Year 20181 restated £’000 Financial Year Financial Year Financial Year 2017 restated £’000 2016 £’000 2015 £’000 Number of weeks in financial year 52 53 52 52 52 Statement of Comprehensive Income Reported Revenue Adjustment for 53rd week Revenue Operating profit before exceptional items Exceptional items Operating profit after exceptional items Net interest Profit before taxation Taxation Profit attributable to equity shareholders of the parent Profit attributable to non-controlling interest Payments to shareholders Statement of Financial Position Non-current assets Net current assets Total assets less current liabilities Non-current liabilities: Loans and lease finance Long term employee benefits Deferred tax Equity Net debt 77,338 - 77,338 4,227 (891) 3,336 757 4,093 (453) 3,539 101 (1,123) 27,409 10,967 38,376 (2,091) (9,417) (1,127) 25,741 7,168 73,945 (2,298) 71,647 4,976 (279) 4,697 (173) 4,524 (891) 3,542 91 (963) 26,339 8,812 35,151 (3,230) (4,489) (69) 27,022 11,769 74,314 - 74,314 3,675 (343) 3,332 (217) 3,115 (543) 2,554 18 (675) 22,889 7,619 30,508 (1,559) (6,132) (407) 22,410 3,641 54,455 49,447 - - 54,455 49,447 1,793 645 2,438 (164) 2,274 (273) 2,001 - (317) 13,988 4,500 18,488 (442) (4,495) (414) 13,137 4,331 996 - 996 (182) 814 (68) 746 - - 13,061 3,511 16,572 (583) (2,662) (403) 12,924 5,390 Statistics Weighted average number of shares in issue 17,135,542 16,934,762 16,834,773 11,306,416 11,306,416 Undiluted earnings per share Gearing Dividends per share (paid) 20.7 28% 6.6 20.9 44% 5.5 15.2p 17% 4.0p 17.7p 34% 2.8p 6.6p 42% - 1 Except for revenue, where the relevant adjustment has been shown above, no material changes would be required to the income statement to adjust the 2018 financial year numbers to a 52-week basis. Annual Report & Accounts 2019Brand Architekts Group plc 65 Annual Report & Accounts 2019FINANCIAL STATEMENTSBrand Architekts Group plc66 Corporate Directory Directors B M Hynes (Executive Chairman) R S McDowell (Non-Executive Director) E J Beale (Non-Executive Director) Secretary B M Hynes Registered Office 8 Waldegrave Road Teddington TW11 8GT Stockbrokers N+1Singer Singer Advisory LLP (N+1 Singer) One Bartholomew Lane London EC2N 2AX Financial PR Alma PR Aldwych House 71 – 91 Aldwych London WC2B 4HN Registered Number 01975376 Financial Calendar 2019 Annual General Meeting Proposed final dividend payment Interim results announcement Interim dividend payment Announcement of 2020 final results 2020 Annual General Meeting Registrars Computershare Investor Services PLC PO Box 82 The Pavilions Bridgewater Road Bristol BS99 7NH Auditors PKF Francis Clark Centenary House Peninsula Park Rydon Lane Exeter EX2 7XE Solicitors Osborne Clarke 2 Temple Back East Temple Quay Bristol BS1 6EG Bankers HSBC Bank plc 3 Rivergate Temple Quay Bristol BS1 6ER Website Address www.brandarchitektsplc.com 20 November 2019 6 December 2019 March 2020 May 2020 September 2020 November 2020 Annual Report & Accounts 2019Brand Architekts Group plcwww.brandarchitektsplc.com 

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