Annual Report 2016
Warpaint London P LC
Contents
Strategic Report
03 Mission Statement
04 Headline Results
06 Chairman’s Statement
07 Joint Chief Executive s’ Statement
11 Financial Review
17 Risk Management
Governance
19 Board of Directors
20 Corporate Governance Report
22 Audit Committee Report
23 Remuneration Committee Report
24 Directors’ Report
26 Independent Auditor s’ Report
Financial Statements
29 Consolidated Statement of Comprehensive Income
30 Consolidated Statement of Financial Position
32 Consolidated Statement of Changes in Equity
33 Consolidated Statement of Cash Flows
34 Notes to the Consolidated Financial Statements
51 Company Statement of Financial Position
52 Company Statement of Changes in Equity
53 Notes to the Company Financial Statements
55 Appendix A
Other Information
57 Offi cers and Professional Advisors
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Mission Statement
“Our mission is to ensure that everybody should
have access to an extensive range of high quality
cosmetics at an affordable price.”
We strive to fulfil our mission by:
• Minimising unnecessary, costly marketing and advertising expenditure
• Creating innovative, eye catching and desirable packaging
• Creating cosmetic products of high quality
• Always striving to improve and better our brand and product offering
• Being at the cutting edge of trend
Our values
• We use the finest quality ingredients available
• We manufacture products that are safe and kind to the user
• We follow and adhere strictly to all relevant regulatory compliance in all territories where we sell our products
Our Ethics
• We do not test our products on animals regardless of the regulatory requirements we encounter
• We always seek the best value and quality from every constituent ingredient
• We endeavour to ensure that all our suppliers mirror our values and understand our principles
Our Ethos – Who will you be today?
• W7 gives its customers the ability and flexibility to style themselves based on who they want to be
• W7 engages its customers by interacting with them directly using a variety of media platforms
• W7 enables its customers by making product available through direct and third party sales
• W7 empowers its customers by seeking their feedback, interaction and views
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Warpaint London PLC
Headline Results
Headline proforma financial results for the year to 31 December 2016
Warpaint London PLC (“Warpaint”, the “Company” or the “Group”) is made up of two
trading divisions; the first and largest is the own-brand division which sells the Group’s
leading cosmetic brand W7; the second and smaller division trades in close-out and
excess stock of branded cosmetics and fragrances from around the world.
On 11 November 2016, prior to admission of the Company’s shares to trading on
AIM, a new group structure was formed. This annual report has been prepared in
accordance with acquisition accounting standards, which deem that the larger
business acquired the smaller business on that date. In order to present to
shareholders a more consistent view of the trading of the Group we have prepared
proforma consolidated statements of comprehensive income for the years ended
31 December 2015 and 31 December 2016, with a reconciliation between the proforma
and the statutory consolidated statement of comprehensive income.
Headline results, shown below, represent the performance comparisons between the
proforma consolidated statements of income for the years ended 31 December 2015
and 31 December 2016.
The proforma numbers have been adjusted to take account of restructuring changes
and other non-recurring items, specifically the inclusion of the trade of the close-out
division for the years ended 31 December 2015 and 31 December 2016. Reconciliations
between the proforma consolidated income statements and the statutory consolidated
income statements for the 12 months to 31 December 2016, and the 12 months to
31 December 2015 are included in the Financial Review.
The proforma consolidated statement of comprehensive income for the years ended
31 December 2015 and 31 December 2016, includes the trade of the larger own-brand
division plus the trade of the smaller close-out division for the whole of each year.
The statutory consolidated statement of comprehensive income for the years ended
31 December 2015 and 31 December 2016, include the trade of the larger own-brand
division for the whole of each year, plus the trade of the smaller close-out division from
the acquisition date of 11 November 2016 only.
In 2016, £1.7 million of expenses (2015: £0.06 million) have been treated as exceptional
as they were one off payments related to the admission of the Group’s shares to
trading on AIM in November 2016.
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Unaudited Proforma results
Statutory results
Year ended
31 Dec 2016
Year ended
31 Dec 2015
Growth
%
Year ended
31 Dec 2016
Year ended
31 Dec 2015
Growth
%
Revenue
£27.0m
£22.3m
21.1
£22.5m
£16.9m
33.1
Adjusted profit
from operations
Adjusted profit from
operations margin
£6.8m*
£5.5m*
23.6
£6.2m*
£5.6m*
10.7
25.2%*
24.7%*
27.6%*
33.1%*
Adjusted PBT
£6.7m*
£5.4m*
Adjusted EPS
8.6p*
6.9p*
Net cash
£3.5m
£1.1m
24.1
24.6
£6.1m*
£5.5m*
7.9p*
£3.5m
7.1p*
£1.1m
10.9
11.3
*Adjusted for the £1.7 million of one off IPO costs incurred in the year (2015: £0.06 million)
Highlights
• Proforma revenue increased by 21.1% to £27 million (2015: £22.3 million)
• Proforma operating margin over 25%
• Proforma adjusted earnings per share increased by 24.6% to 8.6p (2015: 6.9p)
• Net cash at the year end of £3.5 million (31 December 2015: £1.1 million)
• Encouraging start to e-commerce strategy
• Brand awareness reaching global levels
• Admitted to AIM on 30 November 2016
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Warpaint London PLC
Chairman’s Statement
Clive Garston
Results
This is the first reported annual
results since our admission to AIM in
November 2016. I am delighted with the
way in which the Group has reorganised
itself as a public company and also with
the strong 2016 performance. Although
the majority of these results reflect a
period prior to the IPO it is pleasing to
note the high rate of growth that was
achieved and in particular, that the
uncertainty caused by the UK referendum
result on membership of the EU quickly
disappeared and the Group was able to
take appropriate measures to mitigate the
effects of the fall in value of Sterling.
The proforma numbers will be quoted
throughout the annual report in order to
give shareholders clarity in understanding
the results for the year.
Profit before tax was £4.4 million
(proforma £5.0 million) on a turnover
of £22.5m (proforma £27.0 million) with
basic earnings per share of 5.07p
(proforma 5.84p). Earnings per share
adjusted to exclude IPO costs were
7.87p (proforma 8.64p). Net cash at
31 December 2016 of £3.5 million
underpins the balance sheet and leaves
the Group in a strong position going
forward.
Dividend
As was stated at the time of the IPO,
our intention is to adopt a progressive
dividend policy to allow shareholders
to share in the Group’s growth in
earnings and cash flow. The board is
pleased to recommend a final dividend
of 1.5p per share which, if approved by
shareholders, will be paid on 21 July 2017
to shareholders on the register at close of
business on 7 July 2017. The shares will
go ex-dividend on 6 July 2017.
Board and People
I joined the board as non-executive
chairman ahead of the IPO together
with Paul Hagon and Keith Sadler who
were appointed as non-executive
directors and respectively chairman of the
remuneration and audit committee.
The remaining members of the board are
Sam Bazini and Eoin Macleod the joint
chief executives and Neil Rodol the
chief financial officer. I regard it as a
privilege to work alongside my fellow
board members and particularly the
joint chief executives who founded the
business and are responsible for its
success today.
In addition to the board, Warpaint has
a wonderful pool of people with real
skills and who contribute enormously
to its success. A key strength of the
Company is the commitment of its
employees, many of whom have been with
the Group for some time. The culture of
the Group has been responsible for this
and the board recognises the importance
of ensuring that the Group’s culture is
appropriate for the business as it grows.
Warpaint is a progressive, energetic and
dynamic company which is driven by its
executive team and all its employees.
I would like to thank all of them for their
contribution to the Group’s success.
AGM
Our first annual general meeting will
be held on 26 June 2017 at 10.00am at
the offices of DAC Beachcroft LLP,
100 Fetter Lane, London, EC4A 1BN and
I look forward to meeting all shareholders
who are able to attend.
Outlook
Warpaint has made an encouraging start
to its new life as a quoted company and
has demonstrated its ability to prosper in
the public arena and build shareholder
value. I am delighted with the levels of
interest that has been experienced from
the market in our first months of trading.
I believe that the Group’s prospects are
encouraging and that the outlook for the
Group remains positive. I look forward
very much to working with my colleagues
on the board and all the Warpaint team
to continue to deliver growth for
shareholders.
Clive Garston
Chairman
9 May 2017
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Joint Chief Executives’ Statement
Sam Bazini
Eoin Macleod
We are delighted to present the Group’s
first annual results to shareholders
following our Admission to AIM in
November 2016. 2016 was a
transformational year for the business,
seeing strong progress in both domestic
and international markets. We remain
committed to the Group’s strategy of
producing an extensive range of high
quality cosmetics at an affordable price
to customers.
Business Overview
Warpaint consists of two separate
divisions, own-brand and close-out,
with the own-brand business being the
primary strategic focus of the Group and
currently representing over 80% of the
Group’s revenue.
The W7 brand predominantly sells to high
street retailers and independent beauty
shops, although the online sales channel,
that was established during the year, is
a growing contributor. Sales to overseas
customers are through a combination
of direct sales to businesses or to
distributors in those countries.
W7 products are manufactured by
carefully selected companies in Europe
and China that also supply other
leading global cosmetic brands.
We believe the key to the success of W7
is spotting trends in cosmetic colourways
or new products and then quickly
launching them onto the market at a
value price point. The W7 range now
contains over 500 items and includes a
broad collection of colour cosmetics, gift
sets and accessories.
Close-out, representing less than 20%
of the Group’s business, buys and sells
close-out and excess stock of branded
cosmetics and fragrances from around
the world, which it sells to high street
outlets, wholesalers and the discount
mass market retailers, mainly in the UK.
Whilst not a strategic focus, the close-out
side of the business provides a useful
source of knowledge of the colour
cosmetics market and access to new
market trends.
Our e-commerce platform that was
established in May 2016 for the W7 brand
has become increasingly important in
terms of sales. We believe this growth
is supported by the colour cosmetics
industry, benefiting from a more engaged
and educated customer base, driven by
the success of beauty blogs, celebrity
endorsement and social media. We have
had a number of well received recent
campaigns with a number of high profile
television celebrities that have translated
into increased online ordering and brand
awareness.
Strategy
Our overriding goal is to provide our
customers with access to an extensive
range of high quality cosmetics at an
affordable price. To achieve this, we are
building an internationally recognised
brand in W7 which will help augment
our future growth.
In May 2016 an export manager was
employed with the responsibility of
opening up new territories overseas
and this has already led to a number
of new accounts.
As outlined at the time of the admission
to AIM, we are looking to make our
offering more widely available to an
international audience, particularly in
China and the US, with a focus on social
media and e-commerce activities.
To accomplish this, we are soon to
launch new US and China focused
e-commerce sites, with the ability to
transact in local currencies.
A priority for us throughout 2016 was to
ensure that our internal infrastructure
was of a very high quality, able to cope
with increased business and the
demands of being a public company.
From our sound foundations, we can
look forward to supporting future
growth, new customers and markets
and developing new products to stay on
trend. With selective investment, and
new hires where appropriate, we believe
there is plenty of latent capacity available
within our distribution network.
Recently we have employed brand
managers to develop our brand portfolio
as part of the Warpaint team.
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Warpaint London PLC
Joint Chief Executives’ Statement (continued)
Brands
Our key focus remains developing our
flagship brand, W7, an extremely
creative, design-focused cosmetic
brand proposition, delivering high
quality cosmetics at affordable prices.
We outsource manufacturing overseas
to ensure competitive pricing and
rapid production.
The W7 range is characterised by
eye-catching designs, bold packaging
and creative product names. Our on-trend
range of products benefits from a short
lead time due to the Group’s operational
structure. Our third-party supply network
enables us to offer a fast turnaround and
competitive prices to our customers,
whilst also ensuring high quality. We can
deliver “fast-track” launches of products
in a three to six-month time frame, which
we believe is much quicker than most
other competitors in the colour cosmetics
market.
An exciting development in 2017 has
been the creation of a new range called
Very Vegan. These products have been
developed specifically for vegans and
others supporting an animal friendly
lifestyle. We believe that this range has
great potential for growth. The range
includes nine different product lines,
encompassing 30 individual products
and is scheduled to be on sale by
June 2017.
Our other brands include:
Outdoor Girl
This brand has now been developed and sales have been encouraging.
CopyCat
Currently being developed as a premium product range, to target large health and beauty retailers.
Smooch
To be developed as a prestige brand at a higher recommended retail price, aimed at department stores.
Taxi
To satisfy bespoke ad-hoc orders from the value sector.
Products
Warpaint is focused on colour cosmetics, which it separates into four main categories:
•
Face make-up: foundation, blushers, illuminators, face bronzing lotions, creams and powders and loose and
pressed powders;
• Eye make-up: eye shadows, eyeliners, eyebrow pencils and mascara;
• Lip make-up: lipstick and glosses, lip pencils, lip plumpers and palettes; and
• Nail make-up: nail varnishes and polishes, hardeners and strengtheners, base and top coat.
As previously stated, new product additions for 2017 include Very Vegan.
We have extended our range of cosmetic bags having sold out of stock prior to Christmas 2016. We currently have 25 new designs on
order and will be bringing them to market soon.
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W7’s largest selling product categories
are eye products, face make-up and lip
products, which together represented
approximately 80% of the own-brand
division’s revenue in 2016.
The 12 months to 31 December 2016
product sales split for our W7 brand
is shown across:
Eye
44%
W7 – 2016 Sales by Product
Nail
4% Make Up Brushes
8%
Accessories & Sets
8%
Lip
8%
Face Make Up
28%
Customers & Geographies
We are very pleased to be able to report that the customer base for the Group grew
from 270 customers at the end of 2015 to 319 at the end of 2016.
The majority of our largest clients are export customers from the US, Australia and
Europe. At the end of 2016 our top ten W7 customers represented 56.3% of revenues,
compared to 50.0% in 2015. Our W7 US distributor has expanded from 3.1% of W7
revenue in 2015 to 12.3% of W7 revenue in 2016.
In 2016, the W7 own-brand business had over 280 customers (2015: 230 customers)
in more than 50 countries (2015: 40 countries).
The 12 months to 31 December 2016 and 31 December 2015 regional sales split for
our W7 brand is shown below:
W7 – 2016 Regional Sales Split
W7 – 2015 Regional Sales Split
ROW
3%
USA
12%
EU
27%
ROW
2%
USA
3%
EU
25%
Australia & NZ
12%
UK
46%
Australia & NZ
17%
UK
53%
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Warpaint London PLC
Joint Chief Executives’ Statement (continued)
Colour Cosmetics Market
The colour cosmetics market comprises
face make-up, eye make-up, lip
products, nail products and colour
cosmetics sets/kits and is typically made
up of two categories; prestige and mass.
Prestige products are considered to be
premium and therefore generally
command higher prices; such products
are generally available through high-end
department stores. Mass products are
more affordable and widely available,
generally occupying additional routes
to market such as supermarkets,
pharmacies and convenience stores.
The accessible price points of the mass
market see consumers buying these
brands more frequently. Currently W7
operates in the mass market.
The global mass market for colour
cosmetics is expected to be the fastest
growing cosmetics market category
and in mature markets such as
Western Europe and the US, consumers
are increasingly favouring low cost
make-up. The US is the largest colour
cosmetics market globally, with a retail
value in 2015 of around $11 billion; this
is nearly three times the second largest
market of China, at approximately
$4 billion. New product innovation, in
particular, has been influential in the
growth of the colour cosmetics market.
The global beauty market (mass and
prestige) continues to grow with the
mass market consistently achieving
a higher annual growth rate than the
prestige market. It has also demonstrated
resiliency through economic cycles,
often referred to as “the lipstick effect”,
and it is expected that it will continue to
show solid growth, making it a consistent
consumer category. The industry remains
relatively concentrated, with retail sales
dominated by brands owned by large
multinational companies.
The UK was the fourth largest retail
colour cosmetics market in the world
in 2015 and is forecast to grow from an
estimated £1.8 billion this year, to around
£2.4 billion in 2021.
In addition, the cosmetics industry is
undergoing change. Today’s consumers
are increasingly connected and
influenced by friends, beauty bloggers,
social media and other online content.
The rise of beauty bloggers has been
a benefit for the sector, encouraging
women to experiment with new looks
and trends, driving the uptake of a
wider range of products.
Admission to AIM
The admission to AIM has been a very
positive experience for the Company in a
number of ways. We have seen our profile
grow and we have also strengthened our
relationships with suppliers, distribution
partners and customers. We look forward
to our continued growth on AIM and
welcome our new shareholders.
The funding received at Admission has
allowed Warpaint to invest further in key
staff to develop our brand portfolio and
to continue to build the key W7 brand
internationally.
In addition, being a quoted company will
enable us to incentivise staff through a
planned new share option scheme.
Outlook
Warpaint enjoyed many years of
successful growth prior to joining AIM
and we are confident that with
increasing awareness of our brands
we remain well placed to continue this
expansion. The Company remains at the
forefront of developing on trend
products for its ever discerning range
of customers. Overseas business will
continue to be a major driver as we
aim to gain a larger share of the global
colour cosmetics market.
With a flexible supplier base and a tight
control of working capital the business
remains inherently cash generative.
We would like to take this opportunity
to thank our employees for their
commitment and hard work during
what has been a year of significant
transition. We would also like to thank
our advisors involved in the IPO process in
what was a challenging year in the
financial markets. Working with a board of
non-executive directors whose skill sets
complement our entrepreneurial drive
and ambition for the W7 brand and our
other brands has been fantastic.
The current year has started well and we
look forward to updating shareholders on
our progress.
Sam Bazini & Eoin Macleod
Joint Chief Executive Officers
9 May 2017
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Financial Review
Neil Rodol
2016 saw significant progress for the Group, both structurally and financially,
with improvement in our KPI’s during a busy year for the business.
In order to aid shareholders’ understanding of the underlying performance of the
business we have focused our comments on the proforma consolidated statement
of income for the 12 months to 31 December 2016 compared with the proforma
consolidated statement of income for the 12 months to 31 December 2015.
Headline results represent the performance comparisons between the proforma
consolidated statements of income for the years ended 31 December 2015 and
31 December 2016. The proforma numbers have been adjusted to take account of
restructuring changes and other non-recurring items, specifically the inclusion of
the trade of the close-out division for the years ended 31 December 2015 and
31 December 2016. Reconciliations between the proforma consolidated income
statements and the statutory consolidated income statements for the 12 months
to 31 December 2016, and the 12 months to 31 December 2015 are shown below.
KPIs
2014
2015
2016
Unaudited proforma revenue (£m)
2016: £27.0 million + 21%
Unaudited proforma adjusted profit before tax* (£m)
2016: £6.7 million +24%
17.0
22.3
27.0
2014
2015
2016
4.1
5.4
6.7
0
5
10
15
20
25
30
0
1
2
3
4
5
6
7
*Adjusted for the £1.7 million of one off
IPO costs incurred in the year.
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Warpaint London PLC
Financial Review (continued)
Proforma Headline Consolidated Income Statement
Revenue
Cost of sales
Gross profit
Administrative expenses
Profit from operations
Analysed as:
Profit from operations before exceptional items
Exceptional items
Finance expense
Profit before tax
Tax expense
Profit for the year
2016
Unaudited
Proforma
Statement
£’000
2015
Unaudited
Proforma
Statement
£’000
26,968
(16,745)
22,280
(14,148)
10,223
8,132
(5,205)
(2,685)
5,018
5,447
6,757
(1,739)
5,508
(61)
(16)
(82)
5,002
5,365
(1,384)
(1,196)
3,618
4,169
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Reconciliation between the statutory consolidated income statement and the proforma consolidated
income statement for the 12 months to 31 December 2016
Close-out
business
2016 pre-acquisition
11 November
2016
£’000
Statutory
Accounts
£’000
22,483
(13,692)
4,485
(3,053)
8,791
1,432
(4,374)
4,417
6,156
(1,739)
(16)
4,401
(1,260)
3,141
(787)
645
645
–
–
645
(124)
521
Revenue
Cost of sales
Gross profit
Administrative expenses
Profit/(loss) from operations
Analysed as:
Profit/(loss) from operations before exceptional items
Exceptional items
Finance expense
Profit/(loss) before tax
Tax expense
Profit/(loss) for the year
Weighted number of ordinary shares
Earnings per share
61,981,720
5.07p
Profit for the year
Add back exceptional items
Adjusted profit for the year
3,141
1,739
4,880
Weighted number of ordinary shares
Adjusted earnings per share
61,981,720
7.87p
Amortisation
of Intangible
assets on
acquisition
of close-out
business
£’000
2016
Unaudited
Proforma
Statement
£’000
–
–
–
(44)
(44)
(44)
–
–
(44)
–
(44)
26,968
(16,745)
10,223
(5,205)
5,018
6,757
(1,739)
(16)
5,002
(1,384)
3,618
61,981,720
5.84p
3,618
1,739
5,357
61,981,720
8.64p
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Warpaint London PLC
Financial Review (continued)
Reconciliation between the statutory consolidated income statement and the proforma consolidated
income statement for the 12 months to 31 December 2015
Revenue
Cost of sales
Gross profit
2015
Statutory
Accounts
£’000
2015
Close-out
business
£’000
2015
Unaudited
Proforma
Statement
£’000
16,938
(10,229)
5,342
(3,919)
22,280
(14,148)
6,709
1,423
8,132
Administrative expenses
(1,117)
(1,568)
(2,685)
Profit/(loss) from operations
5,592
(145)
5,447
Analysed as:
Profit/(loss) from operations before exceptional items
Exceptional items
Finance expense
5,592
–
(84)
(84)
(61)
2
5,508
(61)
(82)
Profit/(loss) before tax
5,508
(143)
5,365
Tax expense
(1,123)
(73)
(1,196)
Profit/(loss) for the year
4,385
(216)
4,169
Weighted number of ordinary shares
Earnings per share
61,722,383
7.11p
61,722,383
6.75p
Profit for the year
Add back exceptional items
Adjusted profit for the year
4,385
–
4,385
4,169
61
4,230
Weighted number of ordinary shares
Adjusted earnings per share
61,722,383
7.11p
61,722,383
6.85p
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Revenue
Total proforma revenue grew by 21.1%
from £22.3 million in 2015 to £27.0 million
in 2016. Warpaint has been able to focus
on sales growth in the year whilst also
preparing the Group for our IPO.
Revenue continues to be driven by
increased export sales into the US and
Europe, and by increased awareness of
the W7 brand globally. As we look to 2017
it is pleasing that growth continues.
A detailed commentary on our sales
growth strategy and trading performance
is included in the CEO’s report.
Total statutory revenue grew by 33.1%
from £16.9 million in 2015 to £22.5 million
in 2016.
Profit Before Tax and Exceptional Items
Group proforma Profit Before Tax (“PBT”)
was £5.0 million (2015: £5.4 million),
a decrease of 7.4% on the prior year.
Underlying PBT (profit before tax and
exceptional items) was £6.7m
(2015: £5.4 million), an increase of 24.1%
on the prior year. In the 12-month period
to 31 December 2016, £1.7 million of
expenses have been treated as
exceptional as they related to the
admission of the Group’s shares to
trading on AIM in November 2016.
Group statutory Profit Before Tax (“PBT”)
was £4.4 million (2015: £5.5 million),
a decrease of 20.0% on the prior year.
Underlying PBT (profit before tax and
exceptional items) was £6.1m
(2015: £5.5 million), an increase of
10.9% on the prior year.
Product Gross Margin
Proforma gross margin improved by
3.9% over 2015 to 37.9%. The cost
impact of Brexit has been mitigated with a
ratcheted discount mechanism from
our key supplier in China, also by growing
US revenue significantly in 2016 and from
enjoying margin growth as the W7
brand gains global awareness. Further
contributing to Group margin is the
close-out business which has delivered
gross margin of 25.4% (See Close-out
business income statement: Appendix A)
compared to 24.9% in 2015. We remain
focused on improving gross margin in
both our own-brand and close-out
businesses.
Statutory gross margin decreased by 1.3%
over 2015 to 39.1%.
Operating Expenses
Underlying proforma operating expenses
(before exceptional items) grew 32.1%
year on year, however expressed as a
percentage of proforma turnover
underlying operating expenses (before
exceptional items) increased to 12.9%
in 2016 from 11.8% in 2015. Costs grew
in the main because of these factors:
• The joint CEOs of the business were
paid a salary for the first time in 2016
• Cost of the PLC board in readiness for
admission to AIM from November 2016
• Commercial arms length rent charged
for the first time in 2016
• Increased staffing levels ahead of
the IPO in the financial and order
processing departments
• Increase in audit fees
Statutory operating expenses before
exceptional items grew 135.9% year on
year, however expressed as a percentage
of statutory turnover, operating expenses
before exceptional items increased to
11.7% in 2016 from 6.6% in 2015.
Statutory operating costs grew in the
main because of the factors discussed
above and additional operating costs
that were reallocated from the close-out
division to the own-brand division as the
Group was restructured in 2016.
Most operating expenses are relatively
fixed, however we continue to monitor and
examine significant costs to ensure they
are controlled.
Exceptional Items
In 2016, £1.7 million of expenses
(2015: £0.06 million) have been treated
as exceptional as they were one off legal
and professional fees and commissions
incurred in relation to the admission of
the Group’s shares to trading on AIM in
November 2016.
Tax
The proforma tax rate for the Group for
2016 was 27.7% compared to the UK
corporation tax standard rate of 20%
for the year. Some of the costs of the
admission to AIM have been disallowed
for tax purposes, which has increased
the effective tax rate. We would expect
the tax rate on adjusted profits to be
approximately 19.25% in 2017 and falling
in line with the UK Government measures
to reduce corporation tax to 17% by 2020.
The statutory tax rate for the Group for
2016 was 28.6% compared to the UK
corporation tax standard rate of 20% for
the year.
Earnings Per Share
The underlying proforma basic earnings
per share before exceptional costs was
8.6p in 2016, an increase of 24.6% on
the 6.9p achieved in 2015, as a result of
improved sales and gross margin.
The statutory basic earnings per share
before exceptional costs was 7.9p in 2016,
an increase of 11.3% on the 7.1p achieved
in 2015.
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Warpaint London PLC
Financial Review (continued)
Dividends
The board is recommending a final
dividend for 2016 of 1.5 pence per share,
making a total dividend of 6.1 pence
per share of which 4.6 pence per share
was paid in 2016 prior to the IPO
(2015: 3.2 pence per share).
Cash flow and cash position
Net cash flow generated from operating
activities was £3.0 million (2015:
£2.3 million), after payment of the
£1.7 million exceptional items previously
referred to. Management are continually
monitoring trade receivables and stock
levels to avoid working capital lock up as
the business continues to grow.
The Group’s net cash balance increased
by £2.4 million to £3.5 million in 2016
(2015: £1.1 million). The cash generated
was principally used to make dividend
payments prior to the IPO. Capital
expenditure requirements of the Group
remain modest and we expect it to
continue to be so. £0.16 million was
spent in the year on new office space
for additional staff, an upgrade to our
computer systems and the purchase
of a promotional double decker bus
for the W7 brand.
Balance Sheet
The Group’s balance sheet remains in
a very healthy position with no debt.
Net assets totalled £14.3 million at
31 December 2016, with the majority
made up of liquid assets of stock, trade
receivables and cash. Included in the
balance sheet is £0.5 million of goodwill
and £1.3 million of intangible fixed assets
arising from the acquisition accounting
adopted to reflect the purchase of the
close-out business by the much larger
own-brand colour cosmetics business
in November 2016, in preparation of the
Group joining AIM.
pursuant to a capital reduction to which
16,340,000 B ordinary shares of £0.052
each held by Sam Bazini and Eoin
Macleod were cancelled in consideration
for the transfer of the entire issued share
capital of Warpaint Cosmetics Limited to
a company owned and controlled by Sam
Bazini and Eoin Macleod. This was part of
a Group reconstruction prior to admission
to AIM on the 30 November 2016.
Admission to AIM
Warpaint’s business is already benefiting
from being a quoted company on AIM.
The profile of the Group and its key brand
W7 has been enhanced with the increased
public awareness. We have received
investment to accelerate growth and now
have the ability when and if needed, to
easily access capital for further expansion
or for acquisition capital should a
compelling opportunity arise.
On 11 November 2016 a new group
structure was formed. On the
21 November 2016, the Company
disposed of £1.4m of land and buildings
Neil Rodol
Chief Financial Officer
9 May 2017
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Annual Report 2016
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Risk Management
Warpaint London is exposed to a variety
of risks that can have financial,
operational and regulatory impacts on
our business performance. The Board
recognises that creating shareholder
returns is the reward for taking and
accepting risk. The effective
management of risk is therefore
critical to supporting the delivery of
the Group’s strategic objectives.
Currency / Foreign Exchange
Due to the Group’s goods being
manufactured overseas and its
extensive export business, it both
generates revenues and incurs
manufacturing costs in foreign
currencies. As a result, the Group is
exposed to the risk that adverse
exchange rate movements cause the
value (relative to its reporting
currency) of its revenues to decrease,
or costs to increase, resulting in
reduced profitability.
Following the result of the EU
Referendum on 23 June 2016, the
Directors negotiated a ratcheted discount
mechanism with their main supplier to
reflect the £:$ exchange rate, and they
have increased average selling prices for
the Group’s products from January 2017.
In addition, the Group purchases US$
at favourable rates when available;
however, residual currency risk remains
which might have a material adverse
effect on the Group’s financial position,
results of operations and future
prospects.
legislation and maintain adequate
product and public liability insurance
so as to ensure that any claims have
little impact on the Group’s profitability.
Reliance on key suppliers
In 2016 one key supplier from China
was responsible for approximately 50%
(2015: 60%) of the Group’s W7 brand
range of colour cosmetics. If there were
some catastrophic event that reduced
or stopped the supply from this key
supplier then the Directors are able to
place orders with other existing suppliers.
However, this would take several months
to implement and such an event would
therefore have a material adverse effect
on the Group’s financial position, results
of operations and future prospects.
Product liability
All products are manufactured in
facilities approved by relevant authorities.
The ingredients in each product are
compliant with and meet the relevant
standards required by the markets to
which the products will be sold into.
There is however always the risk that an
end user could have an allergic or other
reaction to an individual product leading
to the possibility of compensation claims
and potentially damaging the good
reputation of the Group’s brands.
The Directors have every colour cosmetic
item independently checked by a qualified
chemist for compliance with EU
Significant customers
The Group has one customer in Australia
with over 300 stores who has an
exclusive distribution agreement for
the W7 brand of colour cosmetics in
Australia. In 2016 this customer
represented 10.7% (2015: 15.4%) of
own-brand/W7 revenues. In addition, the
Group’s US distributor represented 12.3%
of own brand W7 revenue in 2016 (2015:
3.1%). Significant goodwill in the W7
brand has been built up by these
customers and the Directors believe that
should either of these customers decide
to end their distribution agreement, a
large amount if not all of the existing
business will be taken up by other
retailers, local wholesalers or other
distributors.
Location
The Group, its operations, and most of
its assets are at one location in Iver; if a
fire were to befall the premises occupied
by the Group, most of its assets might be
destroyed or damaged and – although the
Group has insurance cover in place – the
Group’s business, financial results and
prospects might be negatively affected by
such an event.
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Warpaint London PLC
Members of the Board
From left to right: Eoin Macleod, Sam Bazini, Neil Rodol, Clive Garston
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Annual Report 2016
Board of Directors
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Sam Bazini, Joint Chief Executive Officer
On leaving school at 16, Sam started work in a cosmetics warehouse, supplementing his income by selling
cosmetics directly to the public at numerous London street markets. Selling directly to the public gave Sam an
invaluable insight into consumer needs and in 1981 at the age of 18, using £500 he had saved he set up
his own business, buying and selling close-out and end of line cosmetics and fragrance. During the course
of the next ten years, Sam and Eoin’s paths crossed on numerous occasions, working intermittently with
each other on a joint venture basis until they formally went into business together in 1992.
Eoin Macleod, Joint Chief Executive Officer
Eoin’s first introduction to the world of beauty was at the age of 14 through a Saturday job in an indoor
market selling cosmetics and perfumes. After leaving college, Eoin decided to set up his own business
selling fragrance directly to the public through London street markets as well as selling into the wholesale
sector and then expanding into selling cosmetics. In 1992 he formally went into business with Sam,
operating initially in the close-out cosmetics and fragrance industry.
Neil Rodol, Chief Financial Officer
Neil joined the Group in August 2015, having previously been an advisor to the business for several years.
He has overseen the introduction of new systems and procedures. Over the last 17 years he has been involved
in several corporate purchases and acquisitions. In 2006, he sold his publishing company to a quoted group
and became the group licensing director; in 2014 he completed a management buyout. Neil trained as an
accountant at BDO Stoy Hayward and holds an honours degree in Maths and Computer Science.
Clive Garston, Non-Executive Chairman
Clive has been a corporate lawyer for over 40 years specialising in corporate finance and mergers and
acquisitions, and he is currently a consultant at DAC Beachcroft LLP. He has been on the boards of a number
of public and private companies and has been the deputy chairman of a fully-listed company and chairman
of a number of AIM companies. He has significant experience in small and medium quoted companies.
He is a fellow of the Chartered Institute for Securities and Investment (CISI) and chairman of its corporate
finance forum. Clive has been closely connected with the Quoted Company Alliance and is one of the authors
of its corporate governance guidelines.
Paul Hagon, Non-executive Director
Paul is Group Strategy and Development Director at Palmer & Harvey McLane Ltd (“P&H”), the UK’s number
one delivered wholesaler, with an annual turnover of more than £4 billion, and the UK’s 6th largest privately
owned company. He is responsible for setting out the Operational Strategy and Three Year Plan for the P&H
business alongside identifying new service solutions/market opportunities for retailers and suppliers.
He is a board member of the Association of Convenient Stores (ACS).
Keith Sadler, Non-executive Director
Keith is chief financial officer of A Spokesman Said Limited, an online price comparison site. He is also
a non-executive director of TLA Worldwide plc, a global sports management and events business, for which
he chairs the audit committee. He was, until December 2014, chief financial officer of Dods Group PLC,
a political communications business, and formerly chief operations officer and group finance director of
WEARE 2020 plc. Prior to this he was chief executive and group finance director of SPG Media Group plc,
a marketing services business, group finance director of The Wireless Group and two quoted regional
newspaper publishers; News Communication and Media plc and Bristol United Press plc. Before this he
was treasurer of Mirror Group Newspapers plc. Keith is a chartered accountant and holds an honours
degree in economics from the University of Kent.
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Warpaint London PLC
Corporate Governance Report
The Directors recognise the importance of
sound corporate governance and
confirm that the Company complies,
so far as practicable and to the extent
appropriate for a company of its nature
and size, with the recommendations in
the QCA Guidelines, which have become
a widely recognised benchmark for
corporate governance of smaller quoted
companies, particularly AIM companies.
Given the size of the Group, the Board
currently comprises of three
non-executive directors (including the
Chairman), Clive Garston, Paul Hagon
and Keith Sadler, and three executive
directors, Sam Bazini, Eoin Macleod
and Neil Rodol. The Board considers
this to be appropriate at this relatively
early stage of the Company’s
development, but will reconsider this
as the Group grows in size.
The Board retains a range of financial,
commercial and entrepreneurial
experience and there is a good
balance of skills, independence,
diversity and knowledge of both the
Company and the sectors in which it
operates. The non-executive directors
have been appointed on merit and for
their specific areas of expertise and
knowledge. This enables them to bring
independent judgement on issues of
strategy and performance and to debate
matters constructively. No single
Director is dominant in the
decision-making process.
It is intended that the Board will meet
at least ten times a year to review,
formulate and approve the Group’s
strategy, budgets, corporate actions and
oversee the Group’s progress towards
its goals. The Board has established
the Audit Committee, Remuneration
Committee and Insider Committee
with formally delegated duties and
responsibilities and with written terms
of reference. From time to time separate
committees may be set up by the Board
to consider specific issues when the need
arises. Due to the size of the Group, the
Directors have decided that issues
concerning the nomination of directors
will be dealt with by the Board rather
than a committee, but will regularly
reconsider whether a nominations
committee is required.
The Group has adopted a code for
directors’ and certain employee share
dealings which the Directors believe is
appropriate for an AIM quoted company.
The Directors will comply with the Market
Abuse Regime and Rule 21 of the AIM
Rules relating to directors’ dealings and
in addition will take all reasonable steps
to ensure compliance by the Group’s
applicable employees (as defined in the
AIM Rules).
The Board of Directors
The board of directors is responsible for
formulating, reviewing and approving the
Group’s strategy, budgets, major items of
capital expenditure and acquisitions,
and reporting to the shareholders.
All non-executive directors are
independent of management and free
from any business or other relationship
which could materially interfere with the
exercise of their independent judgement.
Compliance with the Bribery Act
The Group has in place an anti-bribery
and anti-corruption policy which sets out
its zero-tolerance position and provides
information and guidance to those
working for the Group on how to
recognise and deal with bribery and
corruption issues. During the period,
there were no incidents for consideration.
Internal financial control and reporting
The Board is responsible for establishing
and maintaining the Group’s system of
internal controls and reviewing its
effectiveness. The procedures, which
include financial, compliance and risk
management, are reviewed on an on-
going basis. The board approves the
annual budget and performance against
budget is monitored and reported by the
Board. The internal control system can
only provide reasonable and not absolute
assurance against material misstatement
or loss. The board has considered the need
for an internal audit function but does not
consider it necessary at the current time
with the current controls in place and the
relative complexity of the business.
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Annual Report 2016
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Whistleblowing procedures
The Group’s ’whistleblowing’ procedures
ensure that arrangements are in place to
enable employees and suppliers to raise
concerns about possible improprieties on
a confidential basis. Any issues raised are
investigated and appropriate actions are
taken. Should any significant issue arise
they are highlighted to the Board.
Relations with shareholders
The Group reports to shareholders
twice a year. The Group dispatches the
notice of its Annual General Meeting,
together with a description of the items
of special business, at least 21 days
before the meeting. Each substantially
separate issue is the subject of a separate
resolution and all shareholders have
the opportunity to put questions to the Board
at the Annual General Meeting.
The chairmen of the Audit and
Remuneration Committees normally
attend the Annual General Meeting and
will answer questions which may be
relevant to their responsibilities.
Insider Committee
The Company has an Insider Committee
which consists of Clive Garston (as
chairman), Samuel Bazini and Neil Rodol.
The Insider Committee is responsible,
inter alia, for the identification of inside
information for the purpose of maintaining
the Company’s insider lists and for reporting
that information as required under Market
Abuse Regulation (EU) 596/2014.
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Warpaint London PLC
Audit Committee Report
Keith Sadler
The audit committee consists of Keith
Sadler (as chairman), Clive Garston and
Paul Hagon. The audit committee is
convened formally at least three times
a year and otherwise as required. It has
responsibility for ensuring that the
financial performance of the Group is
properly reported on and reviewed, and
its role includes monitoring the integrity
of the financial statements of the Group
(including annual and interim accounts
and results announcements), reviewing
internal control and risk management
systems, reviewing any changes to
accounting policies, reviewing and
monitoring the extent of the
non-audit services undertaken by external
auditors, reviewing findings of an audit
with the auditors, meeting regularly
with the auditors and advising on the
appointment of external auditors.
Whilst the Board as a whole has a duty
to act in the best interests of the
Company, the Committee has a
particular role, acting independently of
management, to ensure that the interests
of shareholders are properly protected
in relation to financial reporting and the
effectiveness of the Group’s systems
of financial internal controls.
The key responsibilities of the
Committee are to:
• Review the significant issues and
judgements of management, and the
methodology and assumptions used
in relation to the Group’s financial
statements and formal announcements
on the Group’s financial performance;
• Review the Group’s going concern
assumptions;
• Assess the effectiveness of the Group’s
system of internal controls, including
financial reporting and financial controls;
• Consider and make recommendations
to the Board on the appointment,
reappointment, dismissal or resignation
and remuneration of the external
auditor; and
• Assess the independence and objectivity
of the external auditor and approve and
monitor the application of the external
auditor business standard.
The full terms of reference for the
Committee can be found on the Company’s
website at www.warpaintlondonplc.com
and are also available from the Group
company secretary.
audit of the Group and Company
financial statements, the audit of
Group subsidiaries, and audit-related
assurance services. In addition the
Group paid £338,000 to BDO in 2016,
for tax advice and services relating to
the IPO.
Committee performance and
effectiveness
As this is the first reporting period for
the Company and Group as a PLC no
review of the performance and
effectiveness of the Committee
took place.
Audit Committee Report
This Audit Committee Report was
reviewed and approved by the Board
on 9 May 2017.
Keith Sadler
Audit Committee Chair
9 May 2017
The chief financial officer and the
external auditor normally attend
Committee meetings. The Committee
will meet with the external auditor
without management present during
the year.
External auditor
BDO was appointed by the Board as the
Company’s external auditor on
18 February 2016 for the 2016 reporting
period and it is their intention to put them
forward at the AGM to stand as auditors
for the next financial period. There are no
contractual obligations that restrict the
Committee’s choice of external auditor.
The Group paid £62,000 to BDO for audit
services in 2016, relating to the statutory
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Annual Report 2016
Remuneration Committee Report
Paul Hagon
The remuneration committee consists of Paul Hagon (as chairman), Clive Garston and Keith Sadler. The remuneration committee
is convened not less than twice a year and otherwise as required. It has responsibility for determining, within the agreed terms
of reference, the Group’s policy on the remuneration packages of the Company’s chairman, and the executive directors and such
other members of the senior management as it is designated to consider. The remuneration committee also has responsibility for
determining (within the terms of the Group’s policy and in consultation with the chairman of the board and/or the chief executive
officers) the total individual remuneration package for each executive director and other senior managers (including bonuses,
incentive payments and share options or other share awards). The remuneration of non-executive directors will be a matter for the
board. No director or manager will be allowed to partake in any discussions as to their own remuneration. In exercising this role,
the Directors shall have regard to the recommendations put forward in the relevant QCA Guidelines.
Directors Remuneration Report
The Group takes into account both Group and individual performance, market value and sector conditions in determining director
and senior employee remuneration. The Group has maintained a policy of paying salaries comparable with peer companies in the
sector in order to attract and retain key personnel.
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Directors’ remuneration and Directors’ interests
Salary
Pension
S Bazini
E Macleod
N Rodol*
C Garston*
P Hagon*
K Sadler*
165,000
165,000
16,667
10,000
5,000
6,667
*Appointed on 1 November 2016
–
–
–
–
–
–
Fair Value
of Options
–
–
–
–
–
–
Bonus
–
–
150,000
–
–
–
Total
Remuneration
2016 £
Total
Remuneration
2015 £
165,000
165,000
166,667
10,000
5,000
6,667
–
–
–
–
–
–
The Directors, who held office at 31 December 2016, had the following interests in the shares of the Group:
Number of share
options held at
31 December 2016
Ordinary Shares as %
of issued share capital
Ordinary Shares held
at 31 December 2016
Number of
S Bazini
E Macleod
N Rodol
C Garston
P Hagon
K Sadler
Paul Hagon
Remuneration Committee Chair
9 May 2017
–
–
–
–
–
–
31.63
31.63
0.10
0.15
0.03
0.03
20,413,630
20,413,630
61,856
100,000
20,619
20,619
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Warpaint London PLC
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 year ended 31 December 2016. The Corporate Governance Statement on pages 20-21 forms part of this report.
Going concern
The company’s going concern statement can be found in the Consolidated Financial Statements on page 34.
Results and dividends
Results for the year ended 31 December 2016 are set out in the Consolidated Income Statement on page 29.
Directors
The following Directors have held office since incorporation on 4 July 2016, unless otherwise stated, to the date of authorisation
of the accounts:
Non-Executive Chairman
C Garston (appointed 1 November 2016)
Executive Directors
S Bazini
E Macleod
N Rodol (appointed 1 November 2016)
Non-Executive Directors
P Hagon (appointed 1 November 2016)
K Sadler (appointed 1 November 2016)
Future development
For details of future developments refer to the Strategic Report set out on pages 3-17.
Substantial shareholdings
The Group is aware of the following shareholdings of 3% or more in the share capital as at 31 December 2016:
Shareholder
Number of Shares
S Bazini
E Macleod
Schroder Investment Management Limited
BlackRock Investment Management Limited
Hargreave Hale Limited
20,413,630
20,413,630
6,268,000
5,799,000
4,130,480
%
31.63
31.63
9.71
8.99
6.40
Financial instruments
The Group’s financial risk management objectives and policies are discussed in note 21 to the Consolidated Financial Statements.
Auditors
In accordance with section 485 of the Companies Act 2006, a resolution proposing that BDO LLP be re-appointed as auditors
of the Group will be put to the Annual General Meeting.
Indemnity of Directors
The Group has purchased and maintains, for all Directors, insurance against any liability and the Group maintains appropriate
insurance cover against legal action bought against its Directors.
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Annual Report 2016
informed of developments in the
Company through a combination of
meetings and electronic communication.
Statement of disclosure to the auditors
So far as the Directors are aware:
(a) there is no relevant audit information
of which the Company’s auditors are
unaware, and
(b) they have taken all the steps that they
ought to have taken as a Director in
order to make themselves aware of
any relevant audit information and to
establish that the Company’s auditors
are aware of that information.
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On behalf of the Board
Neil Rodol
Chief Financial Officer
9 May 2017
The Directors are responsible for
preparing the Strategic and Directors’
Report and the Group financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors
to prepare Group financial statements
for each financial year. Under that law
they have elected to prepare the Group
financial statements in accordance with
International Financial Reporting
Standards as adopted by the EU and
applicable law.
Under company law the Directors must
not approve the Group financial
statements unless they are satisfied
that they give a true and fair view of
the state of affairs of the Group and
of its profit or loss for that period.
In preparing the Group 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 they have been prepared
in accordance with IFRSs as adopted by
the EU; and
• Prepare the Group financial statements
on the going concern basis unless it is
inappropriate to presume that the Group
will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Group and enable them to ensure
that its financial statements comply with
the Companies Act 2006. They have
general responsibility for taking such
steps as are reasonably open to them to
safeguard the assets of the Group and to
prevent and detect fraud and other
irregularities.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Group’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Employees
It is the Company’s policy not to
discriminate between employees or
potential employees on any grounds.
Full and fair consideration is given to
the recruitment, training and promotion
of disabled people and, should staff
become disabled during the course of
their employment, efforts are made to
provide appropriate re-training.
The Company places enormous
importance on the contributions of its
employees and aims to keep them
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Warpaint London PLC
Independent Auditors’ Report
to the members of Warpaint London PLC
Opinion
Key audit matters
We have audited the financial statements of Warpaint London PLC (the
‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 December 2016 which comprise the consolidated statement of
comprehensive income, the consolidated statement of changes in equity,
the consolidated and company statements of financial position, the
consolidated cashflow statement and notes to the financial statements,
including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation
of the group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union. The financial reporting framework that has been applied in the
preparation of the parent company financial statements is applicable law
and United Kingdom Accounting Standards, including Financial Reporting
Standard 102 The Financial Reporting Standard in the United Kingdom
and Republic of Ireland (United Kingdom Generally Accepted Accounting
Practice).
In our opinion:
• the financial statements give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31 December 2016
and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
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 in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements. 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 parent company’s ability to continue to adopt the
going concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for issue.
Key audit matters are those matters that, in our professional judgment,
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.
The following matters were identified by us as the most significant
assessed risks of material misstatement:
Accounting for the group reorganisation
As explained in note 1 the Warpaint London PLC group consists of two
separate subgroups previously owned by the same shareholders. The
combination of these businesses has been accounted for as a group
reconstruction with regard the larger business and an acquisition under
IFRS 3 for the smaller one, Treasured Scents. See note 8 for further
information.
The risk – Accounting for the business combinations involved significant
judgement in determining the appropriate accounting treatment for the
reconstruction and acquisition and then determining the fair value of both
the consideration paid for the Treasured Scents group and the underlying
assets and liabilities of that group, including intangible assets such as
customer relationships. Judgement was also exercised in determining
the appropriate period over which to amortise the intangible asset in
relation to customer relationships.
How we addressed the risk – Our audit procedures included assessing
the appropriateness of the accounting treatment adopted and challenging
the Directors’ assessment of the fair value of the assets acquired and
liabilities assumed with reference to evidence provided by third party
experts engaged by management. We critically evaluated the capabilities,
competence and objectivity of the external valuers engaged by the
Directors involved in assessing the fair value of intangible assets and the
fair value of the consideration paid, as well as evaluating and concluding
on the appropriateness of their conclusions.
We used our own valuation specialists to challenge the acquisition
accounting including the identification of amounts related to customer
relationships and the valuation of the consideration paid. We also
challenged the third party experts and management regarding the
amortisation period of the intangible asset in relation to customer
relationships. In addition, we considered the adequacy of the Group’s
disclosures in respect of the business combinations.
Carrying value of inventory
See accounting policy in note 1.
The risk – The group holds significant levels of inventory and a number of
estimates are involved in valuing slow moving and obsolete inventories,
some of which have a limited shelf life. There are inherent uncertainties
in consumer preferences and spending patterns, which are primarily
driven by wider trends in the fashion and cosmetics industry. There is a
recoverability risk associated with new product launches as well as with
close out stock purchased at the end of ranges or seasons with judgement
required in forecasting demand.
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Annual Report 2016
How we addressed the risk – Our procedures included assessing the
principles and appropriateness of the Group’s inventory provisioning
policies based on our understanding of the business and the accuracy
of previous provisioning estimates. In assessing inventory provisions our
procedures included testing the methodology applied by management
in preparing their provision including the identification of slow moving
and obsolete items. We considered the inventory write off figure during
the year and compared this to the Group’s expected recoveries brought
forward and to the position at the year end date. Further, we substantively
tested the unprovided inventory balance to review sales volumes and
values after the balance sheet date. In addition, we assessed the adequacy
of the disclosures in respect of amounts recognised as provision against
inventory during the period.
Our application of materiality and overview of the scope of our audit
The scope of our audit was influenced by our application of materiality.
We set certain quantitative thresholds for materiality which, together
with qualitative considerations, help us to determine the nature, timing
and extent of our audit procedures on the individual financial statement
areas and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
We determined materiality for the financial statements as a whole to be
£515,000 which represents 8.5% of profit before tax before exceptional
items relating to the listing. We agreed with the audit committee that we
would report to them misstatements identified during our audit above
£25,000.
We used profit before tax before listing expenses as a benchmark given
the importance of profit as a measure for shareholders in assessing the
performance of the Group.
The group consists of two trading subgroups, both of which are run
from the UK. In establishing the overall approach to the group audit,
we completed full scope audits on the underlying subgroups. The
group audit team obtained an understanding of the internal control
environment related to the financial reporting process and assessed the
appropriateness, completeness and accuracy of group journals and other
adjustments performed on consolidation.
Other information
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 year for which the financial statements are prepared is
consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the
parent company and its environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or
the directors’ report.
We have nothing to report in respect of the following matters in relation
to which the Companies Act 2006 requires us to report to you if, in our
opinion:
• adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent company financial statements are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not
made; or
• we have not received all the information and explanations we require for
our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement as
set out in the Directors’ report, the directors are responsible for the
preparation of the financial statements and for being satisfied that they
give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
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 preparing the financial statements, the directors are responsible for
assessing the group’s and the parent company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
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.
Auditor’s responsibilities for the audit of the financial statements
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the company
and the company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
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Warpaint London PLC
Independent Auditors’ Report (continued)
to the members of Warpaint London PLC
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.
Mark RA Edwards
(Senior Statutory Auditor)
For and on behalf of BDO LLP,
Statutory Auditor
London
9 May 2017
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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Consolidated Statement of Comprehensive Income
for the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
Profit from operations
Analysed as:
Profit from operations before exceptional items
Exceptional items
Finance expense
Profit before tax
Tax expense
Profit for the year attributable to equity holders of the parent company
Other comprehensive income (net of tax)
Total comprehensive income attributable to equity holders of the parent company
Annual Report 2016
Note
1,2
3,5
3
3
5
6
Year ended 31 December
2016
£’000
22,483
2015
£’000
16,938
(13,692)
(10,229)
8,791
(4,374)
4,417
6,156
(1,739)
(16)
4,401
(1,260)
3,141
–
3,141
6,709
(1,117)
5,592
5,653
(61)
(84)
5,508
(1,123)
4,385
–
4,385
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Basic and diluted earnings per share (pence)
25
5.07
7.11
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Warpaint London PLC
Consolidated Statement of Financial Position
as at 31 December 2016
Registered Number: 10261717
Non-current assets
Goodwill
Intangibles
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Loans and borrowings
Corporation tax liability
Total current liabilities
Non-current liabilities
Bank loan
Deferred tax liability
Total non-current liabilities
Total liabilities
NET ASSETS
Year ended 31 December
Note
9
10
11
12
13
21
14
15
15
16
2016
£’000
513
1,403
237
2,153
7,669
5,364
37
3,503
16,573
18,726
(2,841)
–
(1,329)
(4,170)
–
(278)
(278)
(4,448)
14,278
2015
£’000
–
65
1,475
1,540
5,296
4,170
–
1,758
11,224
12,764
(1,715)
(201)
(1,420)
(3,336)
(425)
(12)
(437)
(3,773)
8,991
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Consolidated Statement of Financial Position
as at 31 December 2016
Registered Number: 10261717
Equities
Share capital
Share premium
Merger reserve
Retained earnings
TOTAL EQUITY
Annual Report 2016
Note
2016
£’000
2015
£’000
18
16,135
15,000
1,806
–
(17,995)
(20,000)
14,332
14,278
13,991
8,991
The financial statements of Warpaint London PLC were approved and authorised for issue by the Board of Directors on 9 May 2017 and were signed on
its behalf by:
Neil Rodol
Chief Financial Officer
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Warpaint London PLC
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
At 1 January 2015
Profit for the year
Dividends paid
As at 31 December 2015
Share issue for cash
Share issue for Treasured Scents
Share capital reduction
Profit for the year
Dividends paid
Share Capital
Share Premium
Merger Reserve
Retained Earnings
Total Equity
Note
17
18
18
18
17
£’000
15,000
–
–
15,000
644
1,340
(849)
–
–
£’000
–
–
–
–
1,806
–
–
–
–
£’000
(20,000)
–
–
£’000
11,559
4,385
£’000
6,559
4,385
(1,953)
(1,953)
(20,000)
13,991
–
2,005
–
–
–
–
–
–
3,141
(2,800)
8,991
2,450
3,345
(849)
3,141
(2,800)
As at 31 December 2016
16,135
1,806
(17,995)
14,332
14,278
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Consolidated Statement of Cash Flows
for the year ended 31 December 2016
Operating activities
Profit before tax
Interest paid
Amortisation of intangible assets
Depreciation of property, plant and equipment
Loss/(profit) on disposal of property, plant and equipment
Increase in trade and other receivables
Increase in inventories
Increase in trade and other payables
Cash generated from operations
Tax paid
Interest paid
Net cash flows from operating activities
Investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds received from investment in LLP
Bank balances acquired
Sale of investments
Net cash (used in)/generated by investing activities
Financing activities
Proceeds from new share capital subscribed
Share issue costs
(Reduction)/increase in borrowings
Dividends
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash and cash equivalents consists:
Cash and cash equivalents
Annual Report 2016
Year ended 31 December
2016
£’000
2015
£’000
4,401
5,508
16
57
58
8
(289)
(1,413)
1,601
4,439
(1,465)
(16)
2,958
(77)
(163)
–
98
(6)
(148)
2,500
(53)
(712)
(2,800)
(1,065)
1,745
1,758
3,503
3,503
3,503
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84
4
51
–
(1,457)
(1,965)
236
2,461
(132)
(84)
2,245
(28)
(49)
138
–
–
61
–
–
411
(1,953)
(1,542)
764
994
1,758
1,758
1,758
Note
5
10
11
10
11
17
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Warpaint London PLC
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
1.
Significant accounting policies
Basis of preparation
The financial statements of Warpaint London PLC (the “Company” or
“Warpaint”) and its subsidiaries (together the “Group”) for the year ended
31 December 2016 were authorised for issue by the board of directors
on 9 May 2017 and the statement of financial position was signed on the
board’s behalf by Neil Rodol.
Warpaint London PLC is a public limited Company incorporated and
domiciled in England and Wales. Its registered office is Units B&C, Orbital
Forty Six, The Ridgeway Trading Estate, Iver, Bucks., SL0 9HW.
The Group’s financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted by
the European Union and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The financial statements
are presented in pounds sterling because that is the currency of the
primary economic environment in which the Group operates.
The annual financial statements have been prepared on the historical cost
basis, except for certain financial assets and liabilities which are carried
at fair value or amortised cost as appropriate.
The preparation of financial statements in conformity with International
Financial Reporting Standards adopted by the European Union requires
the use of estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Although these estimates are
based on management’s best knowledge of current events and actions,
actual results ultimately may differ from those estimates. The principal
accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements
incorporates the financial
statements of the Group and all of its subsidiary undertakings. The financial
statements of all Group companies are adjusted, where necessary,
to ensure the use of consistent accounting policies. Acquisitions are
accounted for under the acquisition method from the date control passed
to the Group. On acquisition, the assets and liabilities of a subsidiary are
measured at their fair values. Any excess of the cost of acquisition over
the fair values of the identifiable net assets acquired is recognised as
goodwill.
The Group was formed after the company, prior to its IPO and listing on
AIM, completed share for share transactions for two separate groups
owned by the same shareholders. The Board have taken the view that
the most appropriate way to account for these in line with IFRS is to
deem the share for share exchange with the Warpaint Group (the own
brand business) as a group reconstruction. This has been accounted for
under the basis of merger accounting given that the ultimate ownership
before and after the transaction remained the same. Merged subsidiaries
undertakings are treated as if they have always been a member of the
Group. Any difference between the nominal value of the shares acquired
by the Company and those issued by the Company to acquire them is
taken to the merger reserve.
There is currently no specific guidance on accounting for group
reconstructions such as this transaction under IFRSs. In the absence
of specific guidance, entities should select an appropriate accounting
policy and IFRS permits the consideration of pronouncements of other
standard-setting bodies. This group reconstruction as scoped out of
IFRS 3 has therefore been accounted for using predecessor accounting
principles resulting in the following practical effects;
(a)
(b)
(c)
(d)
The net assets of the two companies are combined using existing
book values, with adjustments made as necessary to ensure that
the same accounting policies are applied to the calculation of the
net assets of both companies;
No amount is recognised as consideration for goodwill or negative
goodwill;
The consolidated profit and loss account includes the profits or
losses of each company for the entire period, regardless of the
date of the reconstruction, and the comparative amounts in the
consolidated financial statements are restated to the figures
presented by the predecessor company Warpaint Cosmetics Group
Limited;
The retained earnings reserve includes the cumulative results of
each company, regardless of the date of the reconstruction, and
the comparative amounts in the statement of financial position are
restated to the presented by the predecessor company Warpaint
Cosmetics Group Limited
The share for share exchange of the other group of companies, namely
Treasured Scents (the close-out business) was acquired on 11 November
2016 and has been treated as an acquisition under IFRS 3.
This is the first year that the Group has presented its results under
IFRS. No reconciliation has been provided because there are no material
differences.
On 21 November 2016, the Company also undertook a capital reduction
pursuant to which 16,340,000 B ordinary shares of £0.052 each held by
Sam Bazini and Eoin Macleod were cancelled in consideration for the
transfer of the entire issued share capital of Warpaint Cosmetics Limited
to a company owned and controlled by Sam Bazini and Eoin Macleod.
Going concern
The Directors have prepared a detailed forecast with a supporting business
plan for the foreseeable future. The forecast indicates that the Group
will remain in a positive cash position throughout the forecast period.
As such, the Directors have a reasonable expectation the Company and
Group will have adequate resources to continue in operational existence
for the foreseeable future. As such, they continue to prepare the financial
statements on the basis of going concern.
Revenue Recognition
Revenue for the Group is measured at the fair value of the consideration
received or receivable. The Group recognises revenue for goods sold when
the amount of revenue can be reliably measured and it is probable that
future economic benefits will flow to the entity.
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Annual Report 2016
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
1.
Significant accounting policies (continued)
Intangible assets acquired separately
Sale of goods
Revenue from the sale of goods is recognised when all of the following
conditions are satisfied:
• the Group has transferred the significant risks and rewards of ownership
to the buyer;
• the Group retains neither continuing managerial involvement to the
degree usually associated with ownership nor effective control over the
goods sold;
• the amount of revenue can be measured reliably;
• it is probable that the Group will receive the consideration due under
the transaction; and
• the costs incurred or to be incurred in respect of the transaction can be
measured reliably.
UK sales are recognised and invoiced to the customer once the goods
have been delivered to the customer. Overseas sales are recognised
and invoiced to the customer once the goods have been delivered to the
customer, or collected by the customer from the company’s warehouse
according to the terms of sale.
Where the Company has entered in to distributor arrangements the risk
and rewards are considered to be with the distributor from the date of
dispatch from either the Company’s overseas supplier or from the
Company’s UK warehouse. Revenue will therefore be recognised from the
date of dispatch.
Expenditure and provisions
Expenditure is recognised in respect of goods and services received when
supplied in accordance with contractual terms. Provision is made when
an obligation exists for a future liability relating to a past event and where
the amount of the obligation can be reliably estimated.
Intangible assets with finite useful lives that are acquired separately
are carried at cost less accumulated amortisation and accumulated
impairment losses. Amortisation is recognised on a straight-line basis over
their estimated useful lives. The estimated useful life and amortisation
method are reviewed at the end of each reporting period, with the effect
of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired separately
are carried at cost less accumulated impairment losses.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised
separately from goodwill are initially recognised at their fair value at
the acquisition date (which is regarded as their cost). Subsequent to
initial recognition, intangible assets acquired in a business combination
are reported at cost less accumulated amortisation and accumulated
impairment losses, on the same basis as intangible assets that are
acquired separately. Amortisation is provided on customer lists so as to
write off the carrying value over the expected useful economic life of five
years.
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future
economic benefits are expected from use or disposal. Gains or losses
arising from derecognition of an intangible asset, measured as the
difference between the net disposal proceeds and the carrying amount
of the asset, and are recognised in profit or loss when the asset is
derecognised.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost.
As well as the purchase price, cost includes directly attributable costs.
Depreciation is provided on all items of property, plant and equipment
so as to write off their carrying value over the expected useful economic
lives. It is provided at the following rates:
Retirement Benefits: Defined contribution schemes
Contributions to defined contribution schemes are charged to the
consolidated statement of comprehensive income in the year to which
they relate.
– 50 years
Land and buildings
Plant and machinery
– 25% reducing balance
Fixtures, fittings and equipment – 25% reducing balance
– 25% reducing balance
Computer equipment
– 25% reducing balance
Motor vehicles
Exceptional items
Exceptional items which have been disclosed separately on the face of
the income statement in order to summarise the underlying results.
Exceptional items include costs incurred by the Group in relation to
IPO costs. Neither ‘underlying profit or loss’ nor ‘exceptional items’
are defined by IFRS however the directors believe that the disclosures
presented in this manner provide clear presentation of the financial
performance of the Group.
Intangible assets
Patents
Patents are used by the Group in order to generate future economic value
through normal business operations. The underlying assets are amortised
over the period from which the Group expects to benefit, which is typically
between five to ten years.
Financial assets
The Group classifies its financial assets into the categories, discussed
below, due to the purpose for which the asset was acquired. The Group
has not classified any of its financial assets as held to maturity.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of services to customers (e.g. trade receivables),
but also incorporate other types of contractual monetary asset. They are
initially recognised at fair value plus transactions costs that are directly
attributable to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less provision for
impairment.
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Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
1.
Significant accounting policies (continued)
Current tax
The Group’s loans and receivables comprise of trade and other receivables
included within the combined statement of financial position.
Cash and cash equivalents include cash held at bank and bank overdrafts.
Bank overdrafts are shown within loans and borrowings in current
liabilities in the combined statement of financial position.
Impairment provisions are recognised when there is objective evidence
(such as significant financial difficulties on the part of the counterparty
or default or significant delay in payment) that the Group will be unable
to collect all of the amounts due under the terms receivable, the amount
of such a provision being the difference between the net carrying amount
and the present value of the future expected cash flows associated with
the impaired receivable. For trade receivables, which are reported net,
such provisions are recorded in a separate allowance account with the loss
being recognised within administrative expenses in the income statement.
On confirmation that the trade receivables will not be collectable, the gross
carrying value of the asset is written off against the associated provision.
Financial liabilities
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from ‘profit before tax’ as reported in the consolidated
statement of profit or loss and other comprehensive income because of
items of income or expense that are taxable or deductible in other years
and items that are never taxable or deductible.
The Group’s current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the reporting period.
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying
amount of an asset or liability in the combined statement of financial
position differs from its tax base, except for differences arising on:
• the initial recognition of goodwill;
• the initial recognition of an asset or liability in a transaction which is not
a business combination and at the time of the transaction affects
neither accounting or taxable profit; and
The Group classifies its financial liabilities as other financial liabilities
which include the following:
• Bank loans which are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the instrument.
liabilities are subsequently measured at
Such
amortised cost ensuring the interest element of the borrowing is
expensed over the repayment period at a constant rate.
interest-bearing
• investments in subsidiaries and jointly controlled entities where the
Group is able to control the timing of the reversal of the difference and
it is probable that the difference will not reverse in the foreseeable
future.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised.
• Trade payables, other borrowings and other short-term monetary
liabilities, which are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
Leased assets
Assets obtained under hire purchase contract and finance leases are
capitalised as tangible fixed assets. Assets acquired by finance lease
are depreciated over the shorter of the lease term and their useful lives.
Assets acquired by hire purchase are depreciated over their useful lives.
Finance leases are those where substantially all of the benefits and
risks of ownership are assumed by the company. Obligations under such
agreements are included in creditors net of the finance charge allocated
to future periods. The finance element of the rental payment is charged
to the profit and loss account so as to produce a constant periodic rate of
charge on the net obligation outstanding in each period.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the balance sheet date and are
expected to apply when the deferred tax liabilities or assets are settled or
recovered. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
• the same taxable group company; or
• different company entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which significant
amounts of deferred tax assets and liabilities are expected to be settled
or recovered.
Operating Leases
Where substantially all of the risks and rewards incidental to ownership
are not transferred to the Group (an ‘operating lease’), the total rentals
payable under the lease are charged to the combined statement of
comprehensive income on a straight-line basis over the lease term. The
aggregate benefit of lease incentives is recognised as a reduction of the
rental expense over the lease term on a straight-line basis.
Taxation
Income tax expense represents the sum of the tax currently payable and
deferred tax.
Inventories
Inventories are initially recognised at cost, and subsequently at the lower
of the cost and net realisable value. Cost comprises all costs of purchase,
costs of conversion and other costs incurred in bringing the inventories to
their present location and condition.
Foreign currencies
Assets and liabilities in foreign currencies are translated into Sterling at
the rates of exchange ruling of the Statement of Financial Position date.
Transactions in foreign currencies are translated into Sterling at the rate
of exchange ruling at the date of the transaction. Exchange differences
are taken into account in arriving at operating profit.
3
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Annual Report 2016
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
1.
Significant accounting policies (continued)
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision maker has been identified as the management team
including the Chief Executive Officers and the Chief Financial Officer.
The Board considers that the Group’s project activity constitutes two
operating and two reporting segments, as defined under IFRS 8.
Management reviews the performance of the Group by reference to total
results against budget.
The total profit measures are operating profit and profit for the year, both
disclosed on the face of the combined income statement. No differences
exist between the basis of preparation of the performance measures used
by management and the figures in the Group financial information.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to
manage its exposure to foreign exchange rate risk, through the use of
foreign exchange rate forward contracts.
Derivatives are initially recognised at fair value at the date the derivative
contracts are entered into and are subsequently re-measured to their
fair value at the end of each reporting period. The resulting gain or
loss is recognised in profit or loss immediately unless the derivative is
designated and effective as a hedging instrument, in which event the
timing of the recognition in profit or loss depends on the nature of the
hedge relationship.
• IFRS 15 Revenue from Contracts with Customers (May 2014, September
2015 and April 2016 amendments) – This standard replaces IAS 18,
‘Revenues’ and introduces a five step approach to revenue recognition
based on performance obligations under customer contracts.
• IFRS 16 Leases (January 2016 amendments) – This standard replaces
IAS 17, ‘Leases’ and introduces leases with the objective of ensuring
that lessees and lessors provide relevant information that faithfully
represents those transactions.
The effect of these standards is under review but has not yet been
quantified.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including the expectations of future events
that are believed to be reasonable under the circumstances. In the future,
actual experience may differ from these estimates and assumptions.
The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
Judgements and accounting estimates and assumptions
(a)
Inventories
Inventories are initially recognised at cost, and subsequently at the
lower of the cost and net realisable value. There is judgement involved
in assessing the level of inventory provision required in respect of slow
moving inventory.
Earnings per share
(b)
Fair value of consideration
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Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders of the parent by the weighted average number
of ordinary shares outstanding during the year, excluding treasury shares
and shares in employee benefit trusts, determined in accordance with
the provisions of IAS 33 earnings per Share. Diluted earnings per share
is calculated by dividing earnings attributable to ordinary shareholders of
the parent by the weighted average number of ordinary shares outstanding
during the year adjusted for the potentially dilutive ordinary shares.
Changes in accounting policies
This is the first year the Group has prepared financial statements under
International Financial Reporting Standards, therefore all relevant IFRS’s
have been adopted.
New standards, interpretations and amendments not yet effective
The following new standards, interpretations and amendments, which
have not been applied in this financial information, will or may have an
effect on the Group’s future financial information:
• IFRS 9 Financial Instruments (July 2014 amendments) – This standard
incorporates requirements for classification and measurement,
impairment, general hedge accounting and derecognition of financial
instruments.
Goodwill arising on the acquisition of Treasured Scents (2014) Limited is
calculated using consideration which is measured at fair value. The Group
has used the earnings method in calculating fair value of the consideration
being the EBITDA (earnings before interest, tax, depreciation and
amortisation) multiplied by an ‘earnings multiple’. The directors have
used judgement in calculating the level of the earnings multiple.
(c)
Intangible assets acquired
On acquisition of Treasured Scents (2014) Limited the group has
recognised the customer list also obtained in the business combination.
The valuation of the customer list is based on judgement involved in
assessing the projected future cashflows arising from those customers.
Further judgement is involved in assessing the life of the intangible asset
and a suitable discount rate to be used to measure the future revenues to
present value.
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Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
2.
Segmental information
For management purposes, the Group is organised into two operating segments; W7 Branded and close-out. The segment ‘W7 Branded’ relates to
the sale of own branded products whereas ‘close-out’ relates to the purchase of third party stock which is then repackaged for sale. These segments
are the basis on which the Group reports internally to the Board. Revenue and costs not included in one of these operating segments, for example
administrative expenses, have not been allocated to an operating segment.
Year ended 31 December
Revenue
Cost of sales
Gross profit
Administrative expenses
Exceptional items
Segment result
Reconciliation of segment result to profit before tax:
Segment result
Finance expense
Profit before tax
Analysis of total revenue by geographical market:
UK
USA
Rest of World
Total
2016
W7 Branded
2016
Close-out
£’000
21,862
(13,078)
8,784
(2,483)
(1,739)
4,562
4,562
(16)
4,546
£’000
621
(614)
7
(152)
–
(145)
(145)
–
(145)
2016
Total
£’000
22,483
(13,692)
8,791
(2,635)
(1,739)
4,417
4,417
(16)
4,401
11,841
2,880
7,762
22,483
Information regarding segment assets and liabilities as at 31 December 2016 and capital expenditure for the period then ended:
W7 Brand
Close-out
Eliminations
£’000
21,694
(9,056)
163
1,394
1,557
£’000
4,293
(2,653)
14
–
14
£’000
(7,261)
7,261
–
–
–
Total assets
Total liabilities
Tangible asset additions
Intangible asset additions
Total capital expenditure
3.
Operating profit
Operating profit for the period is stated after charging/ (crediting):
Foreign exchange movement
Depreciation and amortisation
Loss on disposal of fixed asset
Operating lease
Exceptional IPO costs
2015
W7 Branded
£’000
16,938
(10,229)
6,709
(1,117)
–
5,592
5,592
(84)
5,508
9,135
526
7,277
16,938
Total
£’000
18,726
(4,448)
177
1,394
1,571
Year ended 31 December
2016
£’000
(28)
115
8
263
1,739
2015
£’000
(2)
55
–
–
61
Exceptional costs relate to legal and professional fees and commissions incurred in listing the company on AIM in the year ended 31 December 2016
were £1,739,000 (2015: £61,000).
3
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39
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
3.
Operating profit (continued)
Analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the Group’s annual accounts
Fees payable to the Company’s auditor for the audit of subsidiary companies
Other services pursuant to legislation:
Tax compliance
Tax advice
Services relating to IPO
Total non-audit fees
4.
Staff costs
Wages and salaries
Social security costs
Pension costs
The average monthly number of employees during the period was as follows:
Directors
Administrative
Finance
Warehouse
Sales
Other
Directors’ remuneration, included in staff costs
Salaries
Bonus
Pension contributions
Information regarding the highest paid director is as follows:
Emoluments
Annual Report 2016
Year ended 31 December
2016
£’000
13
49
62
–
30
308
338
2015
£’000
18
–
18
–
–
–
–
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a
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c
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S
t
a
t
e
m
e
n
t
s
Year ended 31 December
2016
£’000
1,413
159
6
1,578
2015
£’000
387
40
6
433
Year ended 31 December
2016
No.
3
5
2
22
4
4
40
2016
£’000
330
150
–
480
167
167
2015
No.
2
3
2
4
1
–
12
2015
£’000
–
–
–
–
–
–
3
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39
Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
5.
Finance expense
Finance expense
Loan interest
6.
Income tax
Current tax expense
Current tax on profits for the period
Adjustment in respect of previous periods
Deferred tax expense
Origination and reversal of temporary differences
Total tax expense
Year ended 31 December
2016
£’000
16
16
2015
£’000
84
84
Year ended 31 December
2016
£’000
1,225
19
1,244
16
1,260
2015
£’000
1,116
–
1,116
7
1,123
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to
profit for the year as follows:
Profit for the period before tax
Expected tax charge based on corporation tax rate of 20% in 2016 (20.25% in 2015)
Expenses not deductible for tax purposes
Other adjustments
Prior year adjustments
Deferred tax
Total tax expense
Year ended 31 December
2016
£’000
4,401
880
361
3
19
(3)
2015
£’000
5,508
1,115
1
2
–
5
1,260
1,123
The UK corporation tax at the standard rate for the year is 20.0% (2015: 20.25%).
In July 2015 the UK government announced its intention to reduce the standard corporation tax rate to 18% by 2020. The measure to reduce the rate to
19% for the financial year beginning 1 April 2017 and to 18% for the financial year beginning 1 April 2020 were substantively enacted on 26 October 2015
and have been reflected in the calculation of deferred tax in the December 2016 numbers.
7.
Subsidiaries
At the period end, the Group has the following subsidiaries:
Subsidiary name
Warpaint Cosmetic Group Limited
Warpaint Cosmetics (2014) Limited*
Treasured Scents (2014) Limited
Treasured Scents Limited*
* indicates indirect interest
Nature of business
Holding company
Wholesaler
Wholesaler
Wholesaler
Place of incorporation
England and Wales
England and Wales
England and Wales
England and Wales
Percentage owned
100%
100%
100%
100%
On 11 November 2016, the Company acquired 100% of the issued share capital of Treasured Scents (2014) Limited and its subsidiary undertaking
Treasured Scents Limited. All the other entities detailed above have been in existence for the whole of the reporting period.
The registered office for all the above-named subsidiaries is 2 Park Court, Pyrford Road, West Byfleet, Surrey, KT14 6SD.
3
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Annual Report 2016
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
8.
Acquisitions
Treasured Scents (2014) Limited
On 11 November 2016, the Group acquired the entire share capital of Treasured Scents (2014) Limited, a close-out cosmetics wholesaler based in
the UK. The principal reason for acquiring Treasured Scents (2014) Limited was due to the company operating in the same industry and the client
relationships maintained by the directors, Mr E. Macleod and Mr S. Bazini.
Treasured Scents (2014) Limited has contributed £621,260 to revenue for the period between the date of acquisition and the balance sheet date. Had
Treasured Scents (2014) Limited been consolidated from 1 January 2016, the consolidated income statement for the year ended 31 December 2016
would show revenue of £26,968,000 and profit before tax of £4,927,000.
The provisional fair value of the net assets at the acquisition date is as follows:
Client relationships
Property, plant and equipment
Stock
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax liabilities
Deferred tax liabilities
Net assets acquired
Goodwill arising on acquisition
Consideration
The gross contractual amount of trade receivables is equal to the fair value.
£’000
1,318
14
960
1,142
98
(334)
(116)
(250)
2,832
513
3,345
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Goodwill comprises the value of expected synergies and other opportunities arising from the acquisition, management know how, the skilled work force
employed by Treasured Scents (2014) Limited and other intangible assets that do not qualify for separate recognition. None of the goodwill recognised
is expected to be deductible for tax purposes. The fair value of consideration has been calculated by means of an EBITDA multiple supported by a
discounted cashflow model.
The fair value of consideration paid is as follows:
Share consideration
The profit and loss for Treasured Scents (2014) Limited from the date of acquisition to 31 December 2016 is as follows:
Revenue
Cost of sales
Gross profit
Administrative expenses
Loss before tax
Tax expense
Total comprehensive loss for the period
£’000
3,345
3,345
£’000
615
(614)
1
(152)
(151)
19
(132)
3
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Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
9.
Goodwill
Cost
Arising on business combination
At 31 December 2016
Amortisation
At 31 December 2015 and 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
£’000
513
513
–
513
–
Goodwill represents the excess of consideration over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the
date of acquisition.
Goodwill arising on acquisition in the year ended 31 December 2016 relates to the Group’s acquisition of Treasured Scents (2014) Limited.
Impairment is calculated by comparing the carrying amounts to the value in use derived from discounted cash flow projections for Treasured Scents
(2014) Limited. A CGU is deemed to be an individual fascia and these have been grouped together into similar classes for the purpose of formulating
operating segments as reported in note 2. Value in use calculations are based on a discounted cash flow model (“DCF”) for the subsidiary, which
discounts expected cash flows over a five-year period using a pre-tax discounts rate of 15% (2015: nil). Cash flows beyond the five-year period are
extrapolated using the average growth rate of 0.5% (2015: nil). Management have performed the annual impairment review as recognised by IAS 36 and
have concluded that no impairment is indicated with the fair value of goodwill exceeding book value.
Key Assumptions and sensitivity to changes in assumptions
The key assumptions are based upon management’s historical experience. The calculation of VIU is most sensitive to the following assumptions:
• Sales and EBITDA – this is based on reasonable forecasts for the first year. These have been forecasted for years two to five based on expected sales
trends
• Discount Rate – pre-tax discount rate of 15% reflects the Directors’ estimate of an appropriate rate of return, taking into account the relevant risk
factors
• Growth Rate – used to extrapolate beyond the budget period and for terminal values based on a long term average growth rate of 0.5%.
Management believe that no reasonably possible change in key assumptions would lead to an impairment of goodwill.
10.
Intangible assets
Cost
At 1 January 2015
Additions
At 31 December 2015
On acquisition of subsidiaries
Additions
At 31 December 2016
Accumulated amortisation
At 1 January 2015
Charge for the year
At 31 December 2015
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
Customer list
£’000
Patents
£’000
Website
£’000
Licenses
£’000
63
28
91
–
41
132
22
4
26
8
34
98
65
41
–
–
–
–
30
30
–
–
–
4
4
26
–
–
–
–
–
–
6
6
–
–
–
1
1
5
–
–
–
–
–
1,318
–
1,318
–
–
–
44
44
1,274
–
–
3
42
Total
£’000
63
28
91
1,318
77
1,486
22
4
26
57
83
1,403
65
41
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Annual Report 2016
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
11.
Property, plant and equipment
Land and buildings
Plant and machinery
Fixtures and fittings
Computer equipment
Motor vehicles
£’000
£’000
£’000
£’000
£’000
Costs
At 1 January 2015
Additions
At 31 December 2015
Additions
On acquisition of subsidiary
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2015
Charge for year
At 31 December 2015
Charge for year
On disposals
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
1,400
–
1,400
–
–
(1,400)
–
9
28
37
14
(51)
–
–
1,363
1,391
80
3
83
6
2
–
91
8
18
26
14
–
40
51
57
72
10
16
26
43
4
–
73
1
2
3
9
–
12
61
23
9
5
30
35
42
–
(9)
68
–
3
3
10
(1)
12
56
32
5
–
–
–
72
8
–
80
–
–
–
11
–
11
69
–
–
Total
£’000
1,495
49
1,544
163
14
(1,409)
312
18
51
69
58
(52)
75
237
1,475
1,477
The disposal of land and buildings occurred as part of the capital reduction exercise referred to in note 18 pursuant to which the entire issued share
capital of Warpaint Cosmetics Limited was transferred to a company owned and controlled by Sam Bazini and Eoin Macleod.
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12.
Inventories
Finished goods
As at 31 December
2016
£’000
7,669
2015
£’000
5,296
The cost of inventories recognised as an expense and included in ‘cost of sales’ amounted to £11,690,172 in the year ended 31 December 2016
(2015: £8,987,787).
13.
Trade and other receivables
Trade receivables – gross
Allowance for doubtful debts
Trade receivables – net
Other receivables
Prepayments and accrued income
Total
As at 31 December
2016
£’000
2,674
(110)
2,564
16
2,784
5,364
2015
£’000
3,204
(100)
3,104
607
459
4,170
The directors consider that the carrying value of trade and other receivables measured at book value and amortised cost approximates to fair value.
3
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Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
14.
Trade and other payables
Current
Trade payables
Social security and other taxes
Other payables
Accruals and deferred income
Total
As at 31 December
2016
£’000
2,537
–
23
281
2,841
2015
£’000
634
284
603
194
1,715
The directors consider that the carrying value of trade and other payables measured at book value and amortised cost approximates to fair value.
Included in other payables are amounts owed to directors of £16,918 as at 31 December 2016 (2015: £602,966). The amounts owed to the directors are
interest free and are repayable on demand.
15.
Loans and borrowings
Bank loans
Repayable within 1 year
Repayable within 2 – 5 years
Total
Repayable within 1 year
Repayable within 2 – 5 years
As at 31 December
2016
£’000
–
–
–
–
–
–
2015
£’000
201
425
626
201
425
626
The bank loan was secured over the assets of the Company and transferred out of the Group as part of the capital reduction. Refer to note 18.
16.
Deferred Tax
Deferred tax is calculated in full on temporary differences under the liability method using tax rate of 19%-20%.
The movement on the deferred tax account is as shown below:
Opening balance
On acquisition of subsidiary
Recognised in profit and loss:
Tax expense
Closing balance
Year ended 31 December
2016
£’000
11
251
16
278
2015
£’000
5
–
7
12
The deferred tax has arisen due to the timing difference on accelerated capital allowances and on the intangible assets acquired in a business
combination.
In July 2015 the UK government announced its intention to reduce the standard corporation tax rate to 18% by 2020. The measure to reduce the rate to
19% for the financial year beginning 1 April 2017 and to 18% for the financial year beginning 1 April 2020 were substantively enacted on 26 October 2015
and have been reflected in the calculation of deferred tax in the December 2016 numbers.
3
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45
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
17. Dividends
Year to December 2016
Interim dividend
Interim dividend
Year to December 2015
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Annual Report 2016
Paid
Amount per share
4 April 16
25 Nov 16
£12,000
9.79p
Paid
Amount per share
1 Jan 15
31 Jan 15
1 May 15
10 Oct 15
1 Dec 15
£1,090
£1,430
£1,600
£6,100
£9,310
Total
£’000
1,200
1,600
2,800
Total
£’000
109
143
160
610
931
1,953
The payment of dividends prior to the group restructuring on 11 November 2016 were based on 100 ordinary shares in issue.
18.
Called up share capital
Allotted and issued
Ordinary shares of £1 each
Share issue on incorporation
Sub-division to A and B shares
Cancellation of B shares
Consolidation and subdivision of shares into
ordinary shares 25p
Ordinary shares of £0.25 each
New share issue
Preference shares of £1 each
2016 No of shares
2015 No of shares
Date
£’000
£’000
2016
£’000
2015
£’000
As at 31 December
11 Nov 16
15 Nov 16
21 Nov 16
24 Nov 16
30 Nov 16
16,340
16,340
(16,340)
45,621
61,961
2,577
–
64,538
–
–
–
–
–
–
15,000
15,000
16,340
–
(849)
–
15,491
644
–
16,135
–
–
–
–
–
–
15,000
15,000
At the date of incorporation, 2 ordinary shares of £1 were issued.
On 11 November 2016, the Company issued a further 16,339,998 ordinary share of £1 each in exchange for 15,000,100 ordinary shares in Warpaint
Cosmetics Group Limited and 1,339,900 ordinary shares in Treasured Scents (2014) Limited.
On 15 November 2016, the Company re-designated and subdivided the ordinary shares of £1 in issue into 16,340,000 A ordinary shares of £0.948 each
and 16,340,000 B ordinary shares of £0.052 each.
On 21 November 2016, the Company undertook a capital reduction pursuant to which 16,340,000 B ordinary shares of £0.052 each held by Sam Bazini
and Eoin Macleod were cancelled in consideration for the transfer of the entire issued share capital of Warpaint Cosmetics Limited to a company owned
and controlled by Sam Bazini and Eoin Macleod and the allotment and issue by that company to Sam Bazini and Eoin Macleod 16,340,000 B ordinary
shares of £0.052.
On 24 November 2016, the Company consolidated each A ordinary share of £0.948 each into 1,000 A ordinary shares of £948 each and then subdivided
each A ordinary share of £948 each into 3,792 A ordinary shares of £0.25 each. Each A ordinary share of £0.25 each was then re-designated into an
ordinary share of £0.25 each.
On 30 November 2016 in an initial public offering Warpaint London PLC issued 2,577,320 ordinary £0.25 shares at a price of £0.97, resulting in an
increase in share capital of £644,330 and share premium of £1,855,670 and directly attributable share issue costs of £50,000.
All ordinary shares carry equal rights.
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Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
19.
Other Reserves
Share premium
The share premium reserve contains the premium arising on the issue
of equity shares, net of issue expenses incurred by the company. On
30 November 2016 in an initial public offering Warpaint London PLC
issued 2,577,320 ordinary £0.25 shares at a price of £0.97, resulting in
share premium of £1,855,670 and share issue costs of £50,000.
Retained earnings
Retained earnings represent cumulative profits or losses, net of dividends
and other adjustments.
Merger reserve
The effect of the application of merger accounting principles on the
merger reserve is that the share capital and other distributable reserves
that existed in Warpaint Cosmetics Group Limited (the company) as at the
point Warpaint London PLC legally acquired Warpaint Cosmetics Group
Limited is accounted for as if it had been in existence as at the comparative
period end, 31 December 2015 and as at the opening balance sheet date,
1 January 2015. The corresponding entry being the merger reserve so the
overall net assets as at the comparative dates are not affected.
The movement on the merger reserve during the period arose due to the
acquisition of Treasured Scents (2014) Limited on 11 November 2016. The
shareholders of Treasured Scents (2014) Limited transferred their shares
to Warpaint London PLC in exchange for shares in Warpaint London PLC,
the difference in fair value of the consideration was £2,005,233. This is
adjusted through the merger reserve as it is considered part of the
consideration paid by Warpaint London PLC to acquire Treasured Scents
(2014) Limited.
20. Related party transactions
Transactions between the company and its subsidiaries, which are related
parties, have been eliminated on consolidation.
Compensation of key management personnel (including Directors) is
disclosed in note 5 with the exception of dividends and drawings which are
disclosed in note 18.
During 2016, Treasured Scents (2014) Limited paid rent in the sum of
£123,750 (2015: £31,250) to Trading Scents Group Limited, of which Mr
Macleod is a director. At the year end the amount due to Trading Scents
Group Limited was £Nil (2015: £Nil).
During 2016, Warpaint Cosmetics (2014) Limited paid rent in the sum of
£30,000 (2015: £Nil) to Trading Scents Group Limited, of which Mr Macleod
is a director. At the year end the amount due to Trading Scents Group
Limited was £Nil (2015: £Nil).
During 2016, Warpaint Cosmetics (2014) Limited paid rent in the sum of
£153,750 (2015: £31,250) to Direct Supplies (2014) Group Limited, of which
Mr Bazini is a director. At the year end the amount due to Direct Supplies
(2014) Group Limited was £Nil (2015: £Nil).
During 2016, Warpaint Cosmetics (2014) Limited paid consultancy fees
in the sum of £150,000 to Outdoor Girl Limited, of which Mr Rodol is a
director.
During 2016 as part of the restructure the group sold its subsidiary
company Warpaint Cosmetics Limited by way of sale and purchase
agreement to Johnhenlon Limited, a company which is owned jointly by
Mr Bazini and Mr Macleod. This led to the cancellation of the ordinary
B shares as noted by the capital reduction in the share capital note.
During the year, the Company advanced £15,000 to Mr S Bazini, a director
of the company. During the year, the director repaid £93,803. Mr S Bazini
incurred expenses on behalf of the company totalling £2,002. At the
year end the company owed the sums of £15,779 (2015: £200,015) to
Mr S Bazini.
During the year, the Company advanced £15,000 to Mr E Macleod, a
director of the company. During the year, the director repaid £84,803.
Mr E Macleod was reimbursed expenses on behalf of the Company
totalling £2,663. At the year end the company owed the sums of £1,140
(2015: £402,952) to Mr E Macleod.
Dividends paid to Mr S Bazini prior to the company listing on AIM totalled
£600,000 (2015: £976,500). Dividends paid to Mr E Macleod prior to the
Company listing on AIM totalled £600,000 (2015: £976,500).
21.
Financial instruments
Capital risk management
The Board has overall responsibility for the determination of the Group’s
risk management objectives and policies. The overall objective of the Board
is to set policies that seek to reduce risk as far as possible without unduly
affecting the Group’s competitiveness and flexibility. The Group reports in
Sterling. All funding requirements and financial risks are managed based
on policies and procedures adopted by the Board of Directors.
The Group manages its capital to ensure its ability to continue as a going
concern and to maintain an optimal capital structure to reduce cost of
capital. The capital structure of the Group comprises equity attributable to
equity holders of the Company consisting of invested capital as disclosed
in the Statement of Changes in Equity and cash and cash equivalents.
The Group’s invested capital is made up of share capital and retained
earnings totalling £16,013,479 as at 31 December 2016 (2015: £8,990,992).
The Group maintains or adjusts its capital structure through the payment
of dividends to shareholders and issue of new shares.
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Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
21.
Financial instruments (continued)
Capital risk management (continued)
Financial assets
Loans and receivables at amortised cost including cash and cash equivalents:
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
Bank loan
Net
Cash and cash equivalents
Annual Report 2016
Year ended 31 December
2016
£’000
3,503
2,617
6,120
(2,841)
–
(2,841)
3,279
2015
£’000
1,758
3,711
5,469
(1,431)
(626)
(2,057)
3,412
This comprises cash and short-term deposits held by the Group. The carrying amount of these assets approximates their fair value.
General risk management principles
The Group’s activities expose it to a variety of risks including market risk (interest rate risk), credit risk and liquidity risk. The Group manages these
risks through an effective risk management programme and through this programme, the Board seeks to minimise potential adverse effects on the
Group’s financial performance. The Directors have an overall responsibility for the establishment of the Group’s risk management framework. A formal
risk assessment and management framework for assessing, monitoring and managing the strategic, operational and financial risks of the Group is in
place to ensure appropriate risk management of its operations.
The following represent the key financial risks that the Group faces:
Market risk
The Group’s activities expose it to the financial risk of interest rates.
Interest rate risk
The Group’s interest rate exposure arises mainly from its interest-bearing borrowings. Contractual agreements entered into at floating rates expose the
entity to cash flow risk. Interest rate risk also arises on the Group’s cash and cash equivalents. The Group does not enter into derivative transactions
in order to hedge against its exposure to interest rate fluctuations. An increase in the rate of interest by 100 basis points would decrease profits by £Nil
(2015: £1,000) with an increase in profits by the same amount for a decrease in the rate of interest by 100 basis points.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual obligations.
The Group’s principal financial assets are trade and other receivables and bank balances and cash. The credit risk on liquid funds is limited because
the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
The Group’s credit risk is primarily attributable to trade receivables. The Group has a policy of assessing credit worthiness of potential and existing
customers before entering into transactions. There is ongoing credit evaluation on the financial condition of accounts receivable using independent
ratings where available or by assessment of the customer’s credit quality based on its financial position, past experience and other factors. The Group
manages the collection of its receivables through its ongoing contact with customers so as to ensure that any potential issues that could result in non-
payment of the amounts due are addressed as soon as identified.
The maximum exposure to credit risk in respect of the above is the carrying value of financial assets recorded in the financial statements. At 31 December
2016, the Group has trade receivables of £2,564,383 (2015: £3,104,231).
The following table provides an analysis of trade receivables that were due, but not impaired, at each financial year end. The Group believes that the
balances are ultimately recoverable based on a review of past impairment history and the current financial status of customers.
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Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
21.
Financial instruments (continued)
Credit risk (continued)
Current
1 – 30 days
31 – 60 days
61 – 90 days
91 + days
Total trade receivables – gross
As at 31 December
2016
£’000
1,296
1,084
112
89
93
2,674
2015
£’000
1,012
1,087
406
140
559
3,204
The Directors are unaware of any factors affecting the recoverability of outstanding balances at 31 December 2016 and, consequently, no further
provisions have been made for bad and doubtful debts.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.
To achieve this aim, it closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis to
ensure that it has sufficient funds to meet the obligations as they fall due.
The Board receives regular forecasts which estimate cash flows over the next eighteen months, so that management can ensure that sufficient funding
is in place as it is required.
The tables below summarise the maturity profile of the combined group’s non-derivative financial liabilities at each financial year end based on
contractual undiscounted payments, including estimated interest payments where applicable:
Year ended 31 December 2016
Trade payables
Other payables
Bank loans
Year ended 31 December 2015
Trade payables
Other payables
Bank loans
Foreign exchange risk
Less than 6 months
£’000
2,537
23
–
2,560
Between 6 months
and 1 year
£’000
Between 1
and 5 years
£’000
–
–
–
–
–
–
–
–
Less than 6 months
Between 6 months
and 1 year
Between 1
and 5 years
£’000
634
284
101
1,019
£’000
–
–
100
100
£’000
–
–
425
425
Total
£’000
2,537
23
–
2,560
Total
£’000
634
284
626
1,544
The Group operates in a number of markets across the world and is exposed to foreign exchange risk arising from various currency exposure in respect
of cash and cash equivalents, trade receivables and trade payables, in particular with respect to the US dollar. The Group mitigates its foreign exchange
risk by negotiating contracts with key suppliers that offer a flexible discount structure to offset any adverse foreign exchange movements and through
the use of forward currency contracts.
Derivatives designated and effective as hedging instruments carried at fair value:
Exchange gain on forward foreign currency contracts
2016
£’000
37
2015
£’000
–
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Annual Report 2016
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
21.
Financial instruments (continued)
Forward contracts and options
The Group enters into forward foreign exchange contracts and options to manage the risk associated with anticipated sale and purchase transactions
which are denominated in foreign currencies.
As at 31 December 2016, the group has 2 (31 December 2015: Nil) forward foreign exchange contracts outstanding. Derivative financial instruments are
carried at fair value.
The following table details the USD foreign currency contracts outstanding as at the balance sheet date.
a) Contracted exchange rate £/$ rate
3 months or less
3 to 6 months
b) Contract value
3 months or less
3 to 6 months
c) Foreign currency
3 months or less
3 to 6 months
2016
1.2411 – 1.266
–
2016
£’000
1,398
–
1,398
2016
£’000
1,750
–
1,750
2015
–
–
2015
£’000
–
–
–
2015
£’000
–
–
–
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Fair value of financial assets and liabilities
The Directors consider that there is no significant difference between the book value and fair value of the Group’s financial assets and liabilities.
22. Pension costs
The Group operates a defined contribution pension scheme. Contributions payable to the Company’s pension scheme are charged to the statement of
comprehensive income in the period to which they relate. The amount charged to profit in each period was £6,228 (2015: £5,746).
23. Operating lease commitments – Group company as lessee
The Group leases offices and warehouses under non-cancellable operating lease agreements. The lease terms are between 5-10 years, and are
renewable at the end of the lease period at market rate.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Land and buildings
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total
2016
£’000
360
1,440
1,650
3,450
2015
£’000
–
–
–
–
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Warpaint London PLC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2016
24.
Controlling party
In the opinion of the Directors there is no ultimate controlling party.
25. Earnings per share
Basic earnings per share are calculated by dividing profit or loss attributable to ordinary equity holders by the weighted average number of ordinary
shares in issue during the period.
The acquisition of Warpaint Cosmetics Group Limited by Warpaint London PLC on 11 November 2016 has been accounted for using merger accounting
principles. The effect of using merger accounting principles on share capital is that the capital that existed as at the point Warpaint London PLC legally
acquired Warpaint Cosmetics Group Limited is accounted for as if it had been in existence as at the comparative period end (31 December 2015) and as
at the opening balance sheet date (1 January 2015).
The weighted average number of shares in issue for the current and prior year has therefore been stated to reflect the post IPO share capital structure,
this adjustment assumes the total shares issued during the IPO were in issue throughout the whole of the current and previous period presented.
The weighted average number of shares includes the shares issued as consideration for the acquisition of Treasured Scents (2014) Limited on
11 November 2016.
Basic earnings per share (pence)
The calculation of basic earnings per share is based on the following data:
Earnings
Earnings for the purpose of basic earnings per share, being the net profit
2016
5.07
2016
£’000
3,141
2015
7.11
2015
£’000
4,386
Number of shares
Weighted number of ordinary shares for the purpose of basic earnings per share
2016
2015
61,981,720
61,722,383
50350
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Company Statement of Financial Position
for the year ended 31 December 2016
Fixed assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Corporation tax liability
Total current liabilities
Net current assets
Total assets less current liabilities
Capital and reserves
Share capital
Share premium
Capital redemption reserve
Retained earnings
Shareholders’ funds
Annual Report 2016
Note
2
3
4
5
6
2016
£’000
16,340
16,340
3,060
859
3,919
67
–
67
3,852
20,192
16,135
1,806
849
1,402
20,192
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As permitted by section 408 of the Companies Act 2006, the profit and loss account is not presented. The profit for the year amounted to £3,850,780.
The financial statements on pages 51 to 54 were approved and authorised for issue by the Board of Directors on 9 May 2017 and were signed on its
behalf by:
Neil Rodol
Chief Financial Officer
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Warpaint London PLC
Company Statement of Changes in Equity
for the year ended 31 December 2016
On incorporation
Share issue
Profit for the year
Share capital reduction
Dividends paid
As at 31 December 2016
Share Capital
Share Premium
Retained Earnings
Total Equity
Note
5/6
5
£’000
16,340
644
–
(849)
–
£’000
–
1,806
–
–
–
16,135
1,806
£’000
–
–
3,851
–
(1,600)
2,251
£’000
16,340
2,450
3,851
(849)
(1,600)
20,192
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Annual Report 2016
On 21 November 2016 Warpaint London PLC disposed of the entire share
capital in Warpaint Cosmetics Limited through a capital reduction.
The Company subsidiaries, as at the period end are shown in note 8 of the
consolidated financial statements.
3.
Debtors
Due from group undertakings
Other debtors
Prepayments and accrued income
Notes to the Company Financial Statements
for the year ended 31 December 2016
1.
Significant accounting policies
Basis of preparation
The Company was incorporated on 4 July 2016, the first period of account
is therefore the 6 month period ended 31 December 2016. These separate
financial statements of Warpaint London PLC have been prepared in
accordance with applicable United Kingdom accounting standards,
including Financial Reporting Standard 102 – The Financial Reporting
Standard Applicable in the United Kingdom and Republic of Ireland
(FRS 102), and with the Companies Act 2006.
The Company’s financial statements are presented in GBP.
In preparing these financial statements the Company has taken advantage
of the disclosure exemptions conferred by FRS 102. Therefore, these
financial statements do not include:
• a statement of cash flows;
4.
Creditors due within one year
• the disclosure of the remuneration of key management personnel; and
• disclosure of related party transactions with wholly owned fellow Group
companies.
Trade payables
Accruals and deferred income
The financial statements have been prepared under the historical cost
convention. The principal accounting policies adopted are the same as
those set out in note 1 to the consolidated financial statements except as
set out below.
5.
Called up share capital
At 31 December 2016
£’000
3,036
16
8
3,060
At 31 December 2016
£’000
47
20
67
At 31 December 2016
£’000
16,135
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Investments
Fixed asset investments are stated at cost less provisions for diminution
in value. The Company takes advantage of merger relief when recording
the cost of the investment.
Going Concern
Going concern for the Company has been considered along with the Group
by the directors. The consideration is set out in note 1 of the consolidated
financial statements.
2.
Investments
Cost and net book value
At 31 December 2016
£’000
16,340
On 11 November 2016 Warpaint London PLC acquired the entire share
capital in Warpaint Cosmetics Group Limited. On the same date, Warpaint
London PLC acquired the entire share capital in Treasured Scents (2014)
Limited.
The transactions were as set out below:
On 11 November 2016 Warpaint London PLC acquired the entire share
capital in Warpaint Cosmetics Group Limited and Treasured Scents (2014)
Limited.
On 11 November 2016 Warpaint London PLC and Warpaint Cosmetics
Group Limited entered into a sale and purchase agreement whereby the
share capital of Warpaint Cosmetics Limited was acquired by Warpaint
London PLC for consideration totalling £849,680.
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Allotted and issues
64,538,600 ordinary shares of 0.25 pence each
At the date of incorporation, 2 ordinary shares of £1 were issued.
On 11 November 2016, the Company issued a further 16,339,998 ordinary
share of £1 each in exchange for 15,000,100 ordinary shares in Warpaint
Cosmetics Group Limited and 1,339,900 ordinary shares in Treasured
Scents (2014) Limited.
On 15 November 2016, the Company re-designated and subdivided the
ordinary shares of £1 in issue into 16,340,000 A ordinary shares of £0.948
each and 16,340,000 B ordinary shares of £0.052 each.
On 21 November 2016, the Company undertook a capital reduction
pursuant to which 16,340,000 B ordinary shares of £0.052 each held by
Sam Bazini and Eoin Macleod were cancelled in consideration for the
transfer of the entire issued share capital of Warpaint Cosmetics Limited
to a company owned and controlled by Sam Bazini and Eoin Macleod and
the allotment and issue by that company to Sam Bazini and Eoin Macleod
16,340,000 B ordinary shares of £0.052.
On 24 November 2016, the Company consolidated each A ordinary share of
£0.948 each into 1,000 A ordinary shares of £948 each and then subdivided
each A ordinary share of £948 each into 3,792 A ordinary shares of £0.25
each. Each A ordinary share of £0.25 each was then re-designated into an
ordinary share of £0.25 each.
On 30 November 2016 in an initial public offering Warpaint London PLC
issued 2,577,320 ordinary £0.25 shares at a price of £0.97, resulting in an
increase in share capital of £644,330 and share premium of £1,855,670.
All ordinary shares carry equal rights.
Warpaint London PLC
Notes to the Company Financial Statements (continued)
for the year ended 31 December 2016
6.
Share premium
Share premium
At 31 December 2016
£’000
1,806
The share premium reserve contains the premium arising on the issue
of equity shares, net of issue expenses incurred by the company. On
30 November 2016 in an initial public offering Warpaint London PLC
issued 2,577,320 ordinary £0.25 shares at a price of £0.97, resulting in
share premium of £1,855,670 and share issue costs of £50,000.
7.
Related party transactions
The Company has taken advantage of the disclosure of related party
transactions with wholly owned fellow group companies. Related party
transactions with key management personnel (including Directors) are
shown in note 20 of the Consolidated Financial Statements.
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Appendix A
Treasured Scents (2014) Limited
Unaudited Income Statement for the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
Profit from operations
Analysed as:
Profit from operations before exceptional items
Exceptional items
Finance income
Profit before tax
Tax expense
Total comprehensive profit/(loss) for the financial year
Annual Report 2016
Year ended 31 December
2016
£’000
5,676
(4,233)
1,443
(969)
474
477
(3)
–
474
(105)
369
2015
£’000
5,271
(4,601)
670
(722)
(52)
(52)
–
2
(50)
8
(42)
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3 Officers and Professional Advisors
Directors
C Garston
S Bazini
E Macleod
N Rodol
K Sadler
P Hagon
Chairman
Joint Chief Executive Offi cer
Joint Chief Executive Offi cer
Chief Financial Offi cer
Non-executive Director
Non-executive Director
Company Secretary
S Craig
Registered Offi ce
Units B&C
Orbital Forty Six
The Ridgeway Trading Estate
Iver
Buckinghamshire
SL0 9HW
Company Number
10261717
Nominated Adviser & Broker
Auditors
Solicitors
Registrars
Financial PR
Stockdale Securities Limited
Beaufort House
15 St. Botolph Street
London
EC3A 7BB
BDO LLP
55 Baker Street
London
W1U 7EU
DAC Beachcroft LLP
100 Fetter Lane
London
EC4A 1BN
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen
West Midlands
B63 3DA
IFC Advisory Limited
73 Watling Street
London
EC4M 9BJ
Perivan Financial Print 245182
57
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WARPAINT LONDON PLC
Units B&C
Orbital Forty Six
The Ridgeway Trading Estate
Iver
Buckinghamshire
SL0 9HW