Warpaint London P LC
Contents
Strategic Report
03 Mission Statement
04 Headline Results
06 Chairman’s Statement
08 Chief Executive’s Statement
13 Financial Review
18 Risk Management
Governance
21 Board of Directors
23 Corporate Governance Report
28 Audit Committee Report
29 Remuneration Committee Report
32 Directors’ Report
34 Independent Auditor’s Report
Financial Statements
37 Consolidation Statement of Comprehensive Income
38 Consolidated Statement of Financial Position
40 Consolidated Statement of Changes in Equity
41 Consolidated Statement of Cash Flows
42 Notes to the Consolidated Financial Statements
67 Company Statement of Financial Position
68 Company Statement of Changes in Equity
69 Notes to the Company Financial Statements
Other Information
71 Offi cers and Professional Advisers
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Annual Report 2018
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Mission Statement
“Warpaint’s 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:
• Creating innovative, eye catching and desirable packaging
• Creating cosmetic products of high quality
• Always striving to improve and better our brand and product offers
• Being at the cutting edge of trend
Our Values
• We use the fi nest 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?
• To give customers the ability and the fl exibility to style themselves based on who they want to be
• To engage customers by interacting with them directly using a variety of media platforms
• To make our products easily available to our customers
• To empower our customers by seeking their feedback, interaction and views
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Warpaint London P LC
Headline Results
Headline results for the year to 31 December 2018
Warpaint London plc (“Warpaint”, the “Company” or the “Group”) is made up of two divisions.
The largest division sells own brand cosmetics under the lead brand names of W7 and Technic.
W7 is sold in the UK primarily to discount retailers and internationally to local distributors
or retail chains. The Technic brand is sold in the UK and the rest of Europe with a signifi cant
focus on the gifting market, principally for high street retailers and supermarkets. In addition,
this division supplies own brand white label cosmetics produced for several major high street
retailers. The Group also sells cosmetics using the smaller own brand names of Man’stuff,
Body Collection, Vintage, Outdoor Girl, Very Vegan, Chit Chat, Smooch, Copy Cat and Taxi.
The second division trades in close-out and excess stock of branded cosmetics and fragrances
from around the world.
On 2 August 2018, the Group acquired Marvin Leeds Marketing Services, Inc. (“LMS”)
for a consideration of £1.6 million ($2.08 million). LMS sells the Group brands as well as
close-out to their existing US customers. In the previous year on 30 November 2017, the
Group acquired Retra Holdings Ltd (“Retra”) for £17.8 million. This annual report has been
prepared in accordance with IFRS as adopted by the European Union, which requires use of
acquisition method for business combinations. The reported fi gures for 2017 only included
the results of Retra for one month post acquisition, therefore in order to aid shareholders’
understanding of the underlying performance of the business we have focused our comments
on the consolidated statement of comprehensive income for the year ended 31 December
2018 compared with the consolidated statement of comprehensive income for the year ended
31 December 2017, with reference where appropriate to “like for like” numbers which include
the Retra business for the whole of 2017. Like for like numbers have not been adjusted for
the business of LMS in 2017. LMS was a customer of the Group prior to acquisition and
distributed the W7 brand throughout the period 1 January 2017 to 1 August 2018. The business
conducted by LMS prior to acquisition is already included in the consolidated statements of
comprehensive income for the years ended 31 December 2017 and 31 December 2018.
Headline results, shown below, represent the performance comparisons between the
consolidated statements of income for the years ended 31 December 2017 and 31 December
2018.
The statutory consolidated statement of comprehensive income for the years ended
31 December 2017 and 31 December 2018, include the trade of the existing own brand and
close-out businesses for the whole of each year, plus the trade of Retra from the acquisition
date of 30 November 2017 only, and the trade of LMS from the date of its acquisition on
2 August 2018 only.
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Statutory Results
Year ended
31 Dec 2018
Year ended
31 Dec 2017
Growth
%
£48.5m
£32.5m
£4.9m
10.1%
£4.7m
4.7p
£6.9m
21.5%
£6.9m
8.3p
£1.3m
£2.0m
49.2
-29.0
-31.9
-43.4
Adjusted Statutory Results
31 Dec 2018
Year ended
31 Dec 2017
Year ended
%
Growth
£48.5m
£32.5m
£8.3m*
£7.7m*
17.1%*
23.7%*
£8.2m*
£7.7m*
9.1p*
9.6p*
£1.3m
£2.0m
49.2
7.8
6.5
-4.2
Revenue
Profi t from operations
Profi t from operations margin
PBT
EPS
Net cash
Revenue
Adjusted profi t from operations
Adjusted profi t from operations margin
Adjusted PBT
Adjusted EPS
Net cash
* Adjusted for £0.16 million of LMS acquisition costs, plus £0.10 million of Retra acquisition costs, plus £0.08 million of Retra
staff restructuring costs incurred in the year (2017: £0.4 million of Retra acquisition costs) and £2.3 million of amortisation of
intangible assets (2017: 0.5 million) and £0.8 million of Retra impairment costs in the year (2017: Nil)
Highlights
• Revenue increased by 49.2% to £48.5 million (2017: £32.5 million)
• Adjusted profi t from operations £8.3 million (2017: £7.7 million)
• Adjusted earnings per share 9.1p (2017: 9.6p)
• Net cash at the year end of £1.3 million (31 December 2017: £2.0 million)
• Cash generated from operating activities £4.3 million (2017: 4.8 million)
• Final dividend for the year of 2.9p per share, total dividend for the year of 4.4p per share (2017: 4.0p per share)
• Strategic acquisition of US distributor LMS, for US$2.08 million (£1.6 million) on 2 August 2018
• International revenue increased by 59.2% to £25.1 million (2017: £15.8 million)
• UK revenue now 48% of total business (2017: 52%) as strategic emphasis on international expansion continues
• Close-out revenue increased by 34.3% to £7.6 million (2017: £5.7 million)
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Warpaint London P LC
Chairman’s Statement
Clive Garston
2018 was a challenging year for
the Company as it faced continuing
uncertainty caused by the prospect of
Brexit, a fl uctuating Sterling exchange rate
and a severe decline in retail sales on the
UK high street.
During the year Retra was integrated
into the enlarged Group and Marvin
Leeds Marketing Services, Inc. (“LMS”),
our US distributor was acquired. The
acquisition of LMS will accelerate our
growth into the largest colour cosmetics
market in the world and provide the Group
with dollar income. A new showroom was
opened in Manhattan which is beginning
to drive increased sales and US prospects
are encouraging. US sales were up 108%
compared to 2017. EU sales in 2018 were
also ahead with Spain, in particular,
trending up.
At Retra we have concentrated on
introducing all year round product, so that
gifting is not so dominant for that business
and we expect results for the fi rst half of
2019 to refl ect this.
Results
Like for like numbers and adjusted
numbers will be quoted where appropriate
in this annual report in order to give
shareholders clarity in understanding the
results for the year. Like for like numbers
include the trade of Retra for the whole of
2017, as if it had been part of the Group
for the whole of that year. Like for like
numbers have not been adjusted for the
business of LMS in 2017 as it was the
exclusive distributor for our W7 brand
into the US in that year and therefore
the business conducted through LMS
is already included in the consolidated
statement of comprehensive income for the
year ended 31 December 2017. Adjusted
numbers exclude acquisition costs, staff
restructuring costs, amortisation in relation
to acquisitions and impairment costs.
Adjusted profi t before tax was
£8.2 million (2017 £7.7 million) on revenue
of £48.5 million (2017 £32.5 million) with
basic earnings per share of 4.7p (2017
8.3p) and adjusted earnings per share of
9.1p (2017 9.6p). Net cash at 31 December
2018 was £1.3 million (31 December 2017
£2.0 million after having paid in the year
£1.6 million for LMS, emphasising the
Group’s strong cash generation. Sales
margin reduced in 2018 and our priorities
are to return to previous margins and
increase earnings. The main reason for
the reduced margin was the increased
proportion of Group sales attributed to
the close-out division. Sales from the
close-out division are at a lower margin
historically than of our own brands.
The UK is Warpaint’s largest market and
accounted for 48% of Group sales in 2018.
Sales in the closeout division were 34%
ahead of 2017, and Group sales outside of
the UK were ahead of 2017 by 8% on a like
for like basis.
Dividend
In accordance with the Group’s
progressive dividend policy, the board is
pleased to recommend a fi nal dividend
of 2.9p per share (2017 2.6p) which, if
approved by shareholders at the AGM, will
be paid on the 1 July 2019 to shareholders
on the register at 14 June 2019. The shares
will go ex-dividend on the 13 June 2019.
Board and People
I would like to thank my fellow board
members and all the Group’s employees
for their dedication and commitment
throughout the year. Notwithstanding the
challenges in 2018, Warpaint remains
a progressive, energetic and dynamic
company and this is driven by the
commitment of its employees.
Sally Craig joined the board as General
Counsel & Company Secretary on
17 September 2018. Sally has been
Warpaint’s Company Secretary since
February 2017. She is a solicitor, has
previously practised as a corporate lawyer
and has many years’ experience providing
company secretarial services to public
and private companies in the UK. This
appointment provides additional skills
and experience to the board.
Nowhere is the culture of Warpaint
demonstrated more than by the dedication
and ambition of the executive directors and
senior management. They are determined
to drive Warpaint forward. The non-
executive directors, Keith Sadler and Paul
Hagon make a very meaningful contribution
to the board and I regard it as a privilege
and pleasure to work alongside them all.
As outlined in my statement last year a
LTIP has been introduced to incentivise
senior employees.
Annual General Meeting
The annual general meeting will be held
on 21 May 2019 at 11am at the offi ces of
DAC Beachcroft LLP, 25 Walbrook, London
EC4N 8AF. I look forward to meeting all
shareholders who are able to attend.
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Annual Report 2018
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The Group has a sound fi nancial footing
with a strategy for growth across all
our markets. The board is cautiously
optimistic for the 2019 fi nancial outturn,
with growth in sales and EBITDA
anticipated.
Clive Garston
Chairman
10 April 2019
Outlook
Despite the challenges of 2018 I believe
the Company is well placed for the future.
Whilst trading conditions remain diffi cult
in the UK, we have had a promising start
to the current fi nancial year. We continue
to grow internationally and expect our
sales outside the UK to be an ever greater
proportion of Group sales going forward.
In particular, I am encouraged by the sales
of the Retra brands, which are growing
strongly compared to 2018 and, our
growth in the US. As with all International
businesses results for 2019 may be
impacted by prevailing exchange rates.
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Warpaint London P LC
Joint Chief Executive s’ Statement
Sam Bazini
Eoin Macleod
2018 was a challenging year for
Warpaint nevertheless, at the same
time the business has shown resilience
and adapted to the changing market
conditions, managing to increase
international sales by 8% on a like for like
basis.
Our strategy of producing a wide range
of high quality cosmetics at an affordable
price has remained our key focus and we
are very pleased with the reaction that our
expanding product range received during
the year.
With the acquisition of Retra in November
2017 now fully integrated into the Group,
sales of own brand colour cosmetics
accounted for 79% of revenue (2017:
82% on a like for like basis), the small
drop in overall percentage is because of
the increase in close-out opportunities
bought and sold in 2018. The own brand
cosmetics business remains the primary
strategic focus of the Group.
The Group’s lead brand remains W7 with
sales in 2018 being 48% of total revenue
(2017: 51% on a like for like basis). In the
UK, revenue of W7 was down 24% due to
the tough trading conditions in the high
street as footfall continues to decline
and certain retailers struggle to survive
in their present form. We believe the
consumer is behaving (possibly because
of Brexit fatigue) as if the UK economy is
in recession, despite real wage growth and
high employment levels. This is affecting
spending patterns, shopping behaviour
and consumer attitude. In our opinion the
UK high street was also impacted in 2018
by the cold winter with snow in February
and the record hot summer. We have
implemented a strategy in the UK which
we believe will increase sales of the W7
brand in the medium term. Whilst the UK
was challenging, the W7 brand continued
to grow in Europe up 15% and the US up
67%, in the Rest of the World if we adjust
for the timing of a large order to Australia
in December 2017, sales were fl at year on
year.
The Retra business has a large proportion
of gifting within its sales mix, in 2018
this was 53% of Retra sales (2017: 54%).
UK high street conditions meant that some
retailers reduced forecasts and orders for
Christmas gifting and as a consequence
sales were down in the year at £9.4 million,
compared to £10.1 million in 2017. We have
taken steps to improve the sales of the
all year round cosmetics sold under the
Retra brands, and have already seen an
improvement in the start of 2019.
The close-out division represented 16%
of the overall revenue of the Group (2017:
11% on a like for like basis). Whilst not a
core focus for the Group, this side of the
business provides a signifi cant source
of intelligence in the colour cosmetics
market and access to new market trends.
Although close-out is less signifi cant for
the Group’s strategy, it has had a very
good year with sales ahead of 2017 by 34%
to £7.6 million. There are more close-out
opportunities available due to the current
retail climate in the UK and from contacts
acquired in the US after purchasing LMS.
We announced, on 23 April 2018, that
Warpaint had been awarded the Queen’s
Award for Enterprise – International Trade.
This is a very prestigious award of which
we are very proud and is testament to
the efforts we have made in recent years
on international expansion. We intend
to continue to drive export sales to new
and existing markets and develop our
increased portfolio of brands.
We continue to use manufacturing
partners in China and Europe for our own
brand business giving us the fl exibility
to choose those manufacturers we feel
produce the best product for the best
price, and meet our legal and ethical
compliance requirements. Helping in
this process is the Hong Kong based
subsidiary sourcing offi ce (acquired as
part of the Retra transaction) and its
locally based China subsidiary (Jinhua
Badgequo Cosmetics Trading Company
Ltd) with local employees able to explore
new factories and oversee quality control
and ethical sourcing from new factories.
The China company has started to conduct
sales locally in China and Hong Kong with
sales for the year of £0.3 million (2017:
£0.2 million).
The W7 brand is supported by an informed
customer base, driven by the success of
beauty blogs, celebrity endorsement and
social media. We have applied the same
approach during the year to the Retra
brands with Technic and Man’stuff now
having their own bespoke e-commerce
sites. A similar marketing strategy has
been deployed for our US e-commerce
site launched during 2018, with sales
made in local currency and with local
fulfi lment in place.
Acquisition of Marvin Leeds Marketing
Services, Inc. (“LMS”)
On 2 August 2018 the Group acquired
its US distributor, LMS, for US$2.08
million in cash (£1.6 million). Prior to
the date of acquisition two thirds of
LMS revenue was from distributing
W7 products, the remainder being the
sale of other branded cosmetics through
its close-out activities. LMS sells W7
to retail groups in the US and Canada
including TJ Maxx and Winners, and has
recently opened new accounts for the
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W7 brand with Century 21, Forever 21 and
Macys Backstage. The US is the largest
colour cosmetics market in the world
and developing sales into the region is
a strategic goal for the growth of our
brands. We have relocated the sales offi ce
of LMS to the heart of Manhattan, New
York, with a showroom displaying all the
Group brands and situated in a building
where other health and beauty businesses
are located. This will be more convenient
for buyers and should help increase sales.
We have made an encouraging start in
the fi rst quarter of 2019 with sales year
on year made by LMS up 36% and, in
particular for the W7 brand, up 38%.
Strategy
In early 2018 the board adopted a three
year strategic plan for the business, which
is measured, monitored and reviewed
regularly. The plan is designed to drive
shareholder value and has defi ned
targets for sales, EBITDA, earnings per
share, cash and share price. Recently
the strategic plan has been amended by
the board and includes six revised key
strategic priorities. Understanding and
following the six key strategic priorities
will help deliver the expected growth in the
business:
1. Continue to develop and build our brands
We continue to build our major brands,
by utilising brand ambassadors, bloggers
and vloggers to engage with our target
audience. Much of this is done through
social media campaigns to educate and
interact with our loyal brand users.
Other brands will continue to be used
for customer bespoke orders and we
are actively seeking sales partnerships
with high street retailers. The bestselling
lines in each range and brand have
been identifi ed to be launched in trial
programmes in new retail outlets with the
goal of delivering increased presence in
the high street and grow market share.
2. Provide New Product Development (“NPD”)
that meets consumers changing needs and
tastes
A key focus of the business and NPD
team is to supply our customers with
a wide range of affordable, high quality
cosmetics. The NPD team is made
aware of our required margin and
minimum sales revenue per item before
development begins, but affordability and
quality remain important drivers in the
development process.
While most of our brand ranges include
core colour cosmetic items, we add on
trend items and colourways developed
by our growing NPD team, especially
in our all year round ranges of our lead
brands, W7 and Technic. This on trend and
quick to market model is something our
customers demand and expect from us.
Our Body Collection brand is being
developed further to cater for the growing
mature female cosmetics market, the
Man’stuff brand allows us the opportunity
to develop a growing male grooming
market and our Very Vegan range
continues to grow as a vegan lifestyle or
product choice becomes more prevalent.
With our lead brands we are exploring
opportunities into new sales channels
and product categories e.g. tattoos, body
scented sprays, and health and beauty
accessories.
3. Grow Market Share in the UK
Following the Retra acquisition, we have
started developing the combined customer
base of the enlarged business to sell all
brands to all customers in the UK and
overseas. Over 75% of the UK market
remains unexploited by us, in particular
pharmacy chains and several high street
multiples and grocers. Expanding the UK
customer base is a focus of management
and plans are in place to gain market
share.
4. Grow Market Share in the US and China
The US strategic goal is underway with
the acquisition of LMS; this locally
based resource together with the US
e-commerce site will enable a more rapid
expansion in the US. A more detailed sales
and marketing plan for growth in the US
is currently in development, including the
use of a locally based digital PR agency.
In China, we are conducting business
locally through our China subsidiary
company. Sales are made to our exclusive
distributor after individual products
are registered with the authorities in
China. The distributor is overseeing local
promotional and social media based
marketing campaigns. We participate in
and contribute to marketing activity and
provide online content to support our
brands through the distributor. We are
continuing to register products for sale in
China in order to grow our total offering
and increase sales.
5. Develop an online / e-commerce strategy
for online brand development and sales
Of W7’s target customers, 45% are buying
colour cosmetics online. We are currently
considering a differentiated own brand
offering which will be available exclusively
online.
6. Develop the appropriate Organisational
Structure and People Plan
Our roles have been further defi ned to
avoid overlap of time and effort as the
business continues to grow.
We continue to review the structures,
resources and capabilities in the business
with the objective of delivering the three
year strategic plan, and communicate the
plan throughout the Group to key staff.
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Warpaint London P LC
Joint Chief Executive s’ Statement (continued)
Brands
During 2018 Warpaint continued to focus on the development of
its own brands.
Our Very Vegan range launched in 2017 has continued to sell well
with revenue of £0.5 million in 2018 (2017: £0.3million). For 2018,
this range included 22 Stock Keeping Units (“SKUs”) and for
2019 we are adding 8 SKUs as we continue to build the range and
provide greater variety for the consumer. We are also updating
and modernising the packaging to be more eco-friendly.
Outdoor Girl now has 22 SKUs in its range and there are 50 new
SKUs planned for 2019 of which 35 are an assortment of nail
varnish colours, plus further eye and lip products. Sales of
Outdoor Girl were £0.2 million in the year (2017: £0.2 million). We
believe there is an opportunity in the value sector in the US for a
larger range of Outdoor Girl given that the pricing at retail is less
than the lead brand W7.
The W7 range has now grown to 1115 live SKUs (2017: 762). The
increase is partly from additional new ranges i.e. face masks, and
from providing existing product as carded single item SKUs (ideal
for selling through certain grocery and multiple retailers).
Products
W7’s largest selling product categories are eye products, face
makeup and lip products, which together represented 80% of the
W7 brand revenue in 2018. For the Retra portfolio of brands the
largest selling product categories are gift sets, face makeup and
eye products which together represented 76% of Retra business
sales in 2018.
The 12 months to 31 December 2018 product sales split for Group
own brands is shown below:
2018 Group Own Brand Sales by Product
Make Up Brushes
3%
Eye Products
31%
Accessories
& Sets
4%
Others
4% Man'stuff
4%
Nail Products
5%
Lip Products
7%
Gifting
20%
Warpaint also own the brands Smooch, Copy Cat and Taxi which
are used occasionally for bespoke one off orders.
Face Make Up
22%
The total SKU count for all the Retra brands (Technic, Body
Collection, Man’stuff, Vintage and Chit Chat) was 762 live SKUs
(2017: 672). Retra has a wide gifting range and this is redeveloped
and redesigned each year. There were 151 SKUs in the gifting
range for 2018.
Group own brand sales
W7 brand
Technic brand
Other own brands
2018
59%
27%
14%
100%
2017
(like for like)
61%
26%
13%
100%
Customers & Geographies
In 2018 our top ten customers represented 49% of revenues (2017:
55%). Group sales are now made in 67 countries (2017: 62 countries).
US
We have continued to see growth in the US through our now
acquired distributor LMS. Group sales for all our brands and
close-out sold into the US were up in the year, increasing 102%
compared to 2017 (in local currency the increase was 99%, the
difference being due to exchange rates). Sales of W7 into the US
were up 67% in the year compared to 2017. Current customers
include Century 21, Forever 21, Macys Backstage and TJ Maxx.
Europe
Group sales in Europe increased by 111% compared to 2017. On
a like for like basis including sales made by Retra for the whole
of 2017 sales increased in Europe by 10%. This increase was
predominantly for our lead brand W7 which was 15% up in the
year, with signifi cant growth in Spain and Scandinavia.
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Annual Report 2018
Rest of the World
Sales in our Rest of the World region for the Group are down by 41% in the year compared to 2017. This was due to the timing of a
large order supplied to our Australian distributor for W7 late in 2017, if we adjust for this order sales were fl at year on year across the
Group. We expect sales to the Rest of the World region to improve in 2019.
UK
Trading conditions in the UK remain challenging because of the UK high street slow down and ongoing Brexit anxiety. Group sales in
the UK were down by 13% in the year on a like for like basis compared to 2017. The W7 brand was down in the UK by 24%, and Retra
brands collectively were down 9% in the UK on a like for like basis.
Key
Country’s where Group own brands are sold
Country’s where Group own brands are not yet sold
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Warpaint London P LC
Joint Chief Executive s’ Statement (continued)
The 12 months to 31 December 2018 and 31 December 2017 regional sales split for Group total sales is shown below:
Group Sales by Region 2018
Group Sales by Region 2017
RoW/AUS/NZ
6%
USA
11%
EU
35%
UK
48%
RoW/AUS/NZ
16%
USA
8%
EU
24%
UK
52%
Summary
We are extremely grateful to our employees for their continued loyalty, commitment and hard work during 2018, a year that has
seen yet another big change for Warpaint following the acquisition of Retra at the end of 2017, and as we welcomed the LMS team
into our enlarged Group.
Sam Bazini & Eoin Macleod
Joint Chief Executive Offi cers
10 April 2019
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Financial Review
Neil Rodol
Our KPIs of revenue and adjusted profi t before tax improved in the year by 49% and 7%
respectively (on a like for like basis including the Retra business for the whole of 2017 revenue
fell 3%). We remain focused on margin, being net debt free, generating cash and delivering a
progressive dividend policy.
In order to aid shareholders’ understanding of the underlying performance of the business we
have focused our comments on the consolidated statement of comprehensive income for the
year ended 31 December 2018 compared with the consolidated statement of comprehensive
income for the year ended 31 December 2017, with reference where appropriate to “like for
like” numbers which include the Retra business for the whole of 2017. Like for like numbers
include the trade of Retra for the whole of 2017 as if it had been part of the Group for the whole
of that year. Like for like numbers have not been adjusted for the business of LMS in 2017. LMS
was a customer of the Group prior to acquisition and distributed the W7 brand throughout the
period 1 January 2017 to 1 August 2018. The business conducted by LMS prior to acquisition is
already included in the consolidated statements of comprehensive income for the years ended
31 December 2017 and 31 December 2018.
Headline results, shown below, represent the performance comparisons between
the consolidated statements of income for the years ended 31 December 2017 and
31 December 2018.
KPIs
2014
2015
2016
2017
2018
Revenue (£m)
2018: £48.5 million + 49%
Adjusted profi t before tax* (£m)
2018: £8.2 million +7%
17.0
22.3
27.0
32.5
48.5
2014
2015
2016
2017
2018
4.1
5.4
0
10
20
30
40
50
60
0
2
4
6
6.8
7.7
8.2
8
10
*Adjusted for £0.16 million of LMS acquisition costs,
plus £0.10 million of Retra acquisition costs, plus £0.08
million of Retra staff restructuring costs incurred in
the year (2017: £0.4 million of Retra acquisition costs)
and £2.3 million of amortisation of intangible assets
(2017: 0.5 million) and £0.8 million of Retra impairment
costs in the year (2017: Nil)
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Financial Review (continued)
Acquisitions
On 2 August 2018, the Group acquired
its US distributor LMS. In the year to
31 December 2017 LMS had revenue
of US$5.9 million and profi t before
tax (adjusted for non-recurring costs
after completion of the acquisition) of
approximately US$0.4 million. Net Assets,
adjusted for a capital reorganisation
on completion of the acquisition, as at
31 December 2017, were US$1.1 million.
The fi nal consideration paid in cash was
$2.08 million (£1.6 million) after applying
a net assets adjustment to the purchase
price. The fi nal net assets position
acquired was $0.6 million. The US is the
largest colour cosmetics market in the
world and developing sales into the region
with the help of LMS is a strategic goal for
the growth of the business. (see note 8).
Revenue
Group revenue for the year grew by 49.2%
from £32.5 million in 2017 to £48.5 million
in 2018. Like for like revenue fell by 3.2%
from £50.1 million in 2017 to £48.5 million
in 2018. Like for like revenue for 2017
includes £17.6 million from the Retra
business being the sales made from
1 January 2017 to 30 November 2017,
prior to its acquisition.
Internationally, like for like revenue
grew 8.0% from £23.2 million in 2017, to
£25.1 million in 2018. Our international
growth strategy remains on track and
in 2018 we received the Queen’s Award
for Enterprise – International Trade as
testament to this.
Strategy for growth includes continuing
to develop and build our brands, provide
new product development that meets
consumers changing needs and tastes,
to grow market share in the UK, US and
China, develop an online strategy for
brand development and sales and, to
put in place appropriate organisational
structure and people in the business.
A detailed commentary on our sales
growth strategy and trading performance
is included in the CEO’s report.
The sales of W7 branded product fell
by 9.3% from £25.5 million in 2017 to
£23.2 million in 2018. The decline in
sales was partly due to the UK where the
market remains challenging, but also
the timing of a large order for Australia
received at the back end of 2017 which
was not repeated in 2018. However, in
the US and Europe there were signifi cant
increases for the W7 brand, with sales
ahead by 66.5% and 14.8% respectively.
The own brands acquired with Retra
in November 2017 contributed sales of
£14.9 million in the year, this was down
3.5% on a like for like basis on 2017.
Retra in particular, because of their high
proportion of Christmas gifting, suffered
from reduced uptake against original
forecasts and orders from some UK high
street retailers, with sales in the UK down
8.7% on a like for like basis. The white
label business of Retra was also down in
the year 19.9% to £2.7 million on a like
for like basis. The white label business is
traditionally cost competitive and Retra
choose which projects to embark on based
on commercial viability, in particular
margin. In 2018 it was decided not to tender
for certain projects when the margin went
below the minimum requirement. Retra
business to Europe is the only other region
of signifi cant sales and this was down
12.9% on a like for like basis and most of
this decline was from the lower white label
business.
The issue in the UK high street is
demonstrated when we look at Christmas
gifting across the Group which is signifi cant
and mostly delivered to UK customers.
Sales for Christmas gifting in the year were
£11.0 million compared to £12.8 million in
2017 on a like for like basis. At the half year,
we reported a growing order book totalling
£8.2 million, compared to £7.2 million at
30 June 2017 on a like for like basis. The
expected uplift, experienced in prior years
from UK customers on the initial half year
order book, did not materialise.
The close-out business revenue grew
by 34.3% from £5.7 million in 2017 to
£7.6 million in 2018.
Product Gross Margin
Gross margin for the Group decreased
by 3.3% from 38.8% to 35.5%. The main
reason for the reduced margin was our
margin mix across the Group. Sales
from the close-out division are at a lower
margin historically than our own brands,
and close-out sales at a lower margin
were a greater proportion of total sales
than we expected for the year. In addition,
the lower margin sales from Retra brands
in particular gifting were not included
in 2017 until the date of acquisition on
the 30 November 2017. Sales at LMS
since acquisition were also below the
W7 margin as this business changed from
being a distributor on commission only
basis.
We are not experiencing cost pressure
on our manufactured pricing and making
good use of our Hong Kong buying offi ce
to ensure this continues. Currency
pressure due to Brexit is mitigated with
a discount mechanism linked to the
US dollar exchange rate from our key
supplier in China, by moving production
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to new factories of equal quality to retain
or improve margin, and from US dollar
revenue which continues to provide a
natural hedge. We remain focused on
improving gross margin in both our own
brand and close-out businesses and now
in the enlarged Group including Retra
and LMS.
W7 margin excluding sales made by
LMS after acquisition was down 0.9% to
39.6% for the year, this was the effect of
currency translations in the year with the
gain on currency shown in overheads.
The Retra margin for the year decreased
0.6% on a like for like basis to 34.7%.
Currency, whilst a concern for Retra,
is built into the costing margin at the
start of the year when selling in advance
to customers especially for the gift
offering, with any dollar or euro exposure
covered at the time of receiving orders.
The reason for the fall in margin is the
adoption of the Group stock ageing policy
in the year, which addressed some small
value older stock SKUs that needed
selling off or providing against in the year
and sales commissions payable for the
fi rst time from using the integrated sales
network of the Group.
Gross margin for LMS was low at 3.2%
on sales of £2.4 million. Up to the date
of acquisition this business earned
commission on W7 sales, and Warpaint
would sell stock to its US distributor at
full margin, effectively the price charged
to the customers in the US. Since the
acquisition, commission is not charged
back to Warpaint, so the majority of
sales made by LMS of its stock holding
on hand at the date of acquisition were
sold through at little to no margin. As
the initial stock holding is sold through,
margin will recover to similar levels to
the rest of the Group and we have seen
this happen as 2019 starts.
Close-out margin improved 4.3% to
35.4% for the year, much of this gain was
from buying several large parcels in the
year where the opportunity, margin and
capital commitment were attractive.
Operating Expenses
Total operating expenses before
exceptional items, amortisation and
impairment costs, depreciation, foreign
exchange movements and share based
payments increased by £4.0 million to
£8.6 million in the year. This increase
was from the addition of Retra operating
expenses for the full year (£3.8 million)
and for the fi rst time LMS, from the date
of acquisition (£0.2 million).
The most signifi cant costs in the Group
are wages and salaries of £5.0 million,
rent and rates of £1.1 million and PR and
marketing for our brands of £0.6 million.
In 2017 on a like for like basis these
costs were, £4.8 million, £1.0 million and
£0.7 million respectively. The increase in
wages is infl ationary plus the cost of auto
enrolment across the Group, the increase
in rent and rates is in our Retra business
which leased an extra warehouse facility
rather than using third party logistics to
fulfi l orders, and the decrease in PR and
marketing is a function of not having a
long term brand ambassador on contract
for the W7 brand and instead using ad
hoc PR activity across a broader range of
celebrity infl uencers.
Warpaint remains a business with most
operating expenses relatively fi xed and
evenly spread across the whole year.
We continue to monitor and examine
signifi cant costs to ensure they are
controlled and strive to reduce them.
In addition, the increased scale of the
business has given the Group increased
buying power.
Profit Before Tax and Exceptional Items
Group profi t before tax was £4.7 million
compared to £6.9 million in 2017, a
fall of 32%. Adding back amortisation
of intangibles, impairment charges,
depreciation charges, exceptional
items and fi nance costs would adjust
profi t before tax to £8.8 million in 2018,
compared to £7.9 million for 2017 on
the same basis, an increase of 11%.
The increase in profi t before tax for 2018
is due to the profi ts included for the full
year for the fi rst time from the Retra
business.
Exceptional Items
Exceptional costs in 2018 included
£0.16 million of acquisition costs as they
were one off legal and professional fees
incurred in acquiring LMS on 2 August
2018, plus £0.10 million of professional
fees relating to the acquisition of
Retra in 2017, plus £0.08 million of
staff restructuring costs at Retra
(2017: £0.40 million of acquisition costs
as they were legal and professional fees
and commissions incurred in acquiring
Retra on 30 November 2017. Total
acquisition costs were £1.2 million of
which £0.8 million related to the issue of
new shares to fund the purchase of Retra
and these were charged against the
share premium account).
Tax
The tax rate for the Group for 2018 was
24.5% compared to the UK corporation
tax standard rate of 19.0% for the year.
Some of the costs of the acquisition of
Retra and LMS have been disallowed for
tax purposes, as have the impairment
charge for Retra this year which has
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Financial Review (continued)
increased the effective tax rate. Since
the acquisition of LMS, the Group is
exposed to tax in the US at an effective
rate of approximately 25% and in other
jurisdictions the Group operates cost
centres, but these are not materially
exposed to changes in tax rates. We
would expect the tax rate on adjusted
profi ts to be approximately 19% in
2019 and falling in line with the UK
Government measures to reduce
corporation tax to 17% by 2020.
Earnings Per Share
The statutory basic earnings per share
was 4.66p in 2018, a decrease of 44.1%
on the 8.34p achieved in 2017.
Adjusted earnings per share before
exceptional items, amortisation costs and
impairment charges was 9.1p in 2018,
a decrease of 5.2% on the 9.6p achieved
in 2017.
Dividends
The board is recommending a fi nal
dividend for 2018 of 2.9 pence per share,
making a total dividend of 4.4 pence per
share of which 1.5 pence per share was
paid on 16 November 2018 (2017: Total
dividend of 4.0 pence per share, of which
the interim dividend was 1.4 pence
per share and the fi nal dividend was
2.6 pence per share). The dividend for
the year is covered 2.1 times by adjusted
earnings per share.
Long Term Incentive Plan (“LTIP”) &
EMI Share Options
On 24 September 2018, the Company
announced the implementation of a new
LTIP with initial grants to six senior team
members including Sam Bazini and
Eoin Macleod, the Joint Chief Executive
Offi cers, and Neil Rodol, the Chief
Financial Offi cer. The LTIP has been
established to incentivise management to
increase shareholder value over the long
term. Share options were granted with
an exercise price of 254.5p, equal to the
closing mid-market value immediately
prior to the date of grant, and subject to
the achievement of demanding Earnings
Per Share and Total Shareholder Return
performance conditions measured over a
period of up to 5 years. The entire award
represents 5.0% of the current issued
share capital of the Company.
On 29 June 2017 EMI share options were
granted over 277,788 ordinary shares
of 25p each in the Company under
the Warpaint London PLC Enterprise
Management Incentive Scheme. The
options provide the right to acquire
277,788 ordinary shares at an exercise
price of 237.5p per ordinary share.
The LTIP and EMI share options had no
dilutive impact on earnings per share in
the period. The share-based payment
charge of the LTIP and EMI share
options for the year was £0.12 million
(2017: £0.05 million) and has been taken
to the share option reserve. (see Note 21).
Cash Flow and Cash Position
Net cash fl ow generated from
operating activities was £4.3 million
(2017: £4.8 million), after payment of
the £0.3 million (2017: £0.4 million)
exceptional items previously referred
to. The Group’s cash balance increased
by £0.6 million to £4.0 million in 2018
(2017: £3.4 million). The cash generated
was principally used to make dividend
payments in the year, and to pay from
cash the consideration for the acquisition
of LMS.
Capital expenditure requirements of the
Group remain modest and we expect it to
continue to be so. In 2018 £0.39 million
(2017: £0.56 million) was spent on display
stands for use in store by customers, on
refurbishment works necessary as a one
off cost in the new leased warehouse
for Retra and general fi xtures and plant
upgrades.
Balance Sheet
Management are continually monitoring
trade receivables and stock levels to avoid
working capital lock up as the business
continues to grow.
Trade receivables are monitored by
management to ensure collection is
made to terms, to reduce the risk of
bad debt and to control debtor days.
At the year end trade receivables were
£11.1 million (2017: £12.1 million),
the decrease on 2017 is mainly due
to the timing at the back end of 2017
of a large order for one customer in
Australia that has not repeated at
the same time in 2018. In 2018 there
was a bad and doubtful debt credit of
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Foreign Exchange
The Group imports the majority of its
fi nished goods from China paid for in US
dollars, which this year weakened on
average against Sterling by 4% compared
to 2017 ($1.341 v $1.289). Although
Sterling has recovered a little in 2018 this
is the second year following the Brexit
referendum of a strong dollar. The Group
has a natural hedge from sales to the US
which are entirely in US dollars, in 2018
these sales were higher at $6.3 million
(2017: $3.2 million). Together with the
discount mechanism from our main
supplier in China, sourcing product from
new factories where it makes commercial
sense to do so and by buying dollars
when rates are favourable, we have been
able to mitigate the effect of the strong
US dollar against Sterling.
Neil Rodol
Chief Financial Offi cer
10 April 2019
£0.008 million because of the collection
of debts previously provided for in 2017
(2017: £0.052 million). The provision
at the year end for bad and doubtful
debts carried forward is £0.11 million,
1.0% of gross trade receivables (2017:
£0.17 million, 1.4%).
Stock was higher at the year end at
£15.5 million (2017: £11.6 million), this
increase was due to the increase in
range offering across the Group and the
acquisition of LMS who hold stock of our
brands locally in the US. The provision
for old and slow stock was £0.11 million,
0.7% at the year end (2017: £0.11
million, 1.0%). The reduction in provision
percentage refl ects the close attention
of management in dealing with slower
stock items as they occur and on stock
purchase order levels that are reasoned.
Whilst provisioning for older and slow
stock is prudent, the reality is that any
such items are generally sold through
our close-out division without a loss to
the business.
On acquiring Retra in 2017 the Group
took on their debt of £8.7 million being
£7.6 million of invoice and trade fi nance
facilities, term loans of £0.3 million
and HP contracts of £0.8 million. At
31 December 2017, after repaying some
of these amounts through cash fl ow,
£1.4 million of debt remained outstanding
of which £1.1 million related to term
loans and HP contracts. In 2018 a further
£0.3 million of the term loans and
HP contracts has been repaid leaving
£0.8 million outstanding at the year end.
The remaining loans and HP contracts
are being repaid to terms in order to
avoid unnecessary early settlement
charges. At the year end £1.9 million of
invoice fi nance remained outstanding and
was repaid in full February 2019.
Working capital increased by £3.6 million
in the year (2017: £11.3 million) with the
main components an increase in stock
of £3.8 million, a decrease in trade and
other receivables of £0.9 million, and
an increase in cash at the year end of
£0.7 million.
Free cash fl ow remained strong at
£3.9 million (2017: £4.2 million).
The Group’s balance sheet remains in
a very healthy position being net debt
free. Net assets totaled £41.0 million
at 31 December 2018, an increase of
£0.6 million from 2017. The impairment
charge of £0.8 million on the Retra
acquisition for the year has impacted
retained profi ts leaving a smaller
than expected surplus after payment
of dividends, it is expected that the
impairment is a one off charge and
that the balance sheet will continue to
grow from retained profi ts ongoing. The
majority of the balance sheet is made up
of liquid assets of stock, trade receivables
and cash. Included in the balance
sheet is £7.1 million of goodwill (2017:
£7.5 million) and £9.5 million of intangible
fi xed assets (2017: £10.7 million) arising
from acquisition accounting.
17
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Risk Management
Warpaint London is exposed to a
variety of risks that can have fi nancial,
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.
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.
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
profi tability.
Reliance on Key Suppliers
In 2018 one key supplier from China
was responsible for approximately 24%
(2017: 44%) of the Group’s own brand
ranges 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 fi nancial position, results
of operations and future prospects.
Product Liability
All products are manufactured in
facilities approved by relevant authorities.
The Directors have every colour cosmetic
item independently checked by a
qualifi ed chemist for compliance with
EU legislation and maintain adequate
product and public liability insurance so
as to ensure that any claims have little
impact on the Group’s profi tability.
Significant Customers
The Group has one customer in Spain
with over 90 stores. In 2018 this customer
represented 9.7% (2017: 5.4%) of own
brand and close-out revenues, we
currently have an excellent working
relationship with this customer.
Signifi cant goodwill in our own brands
has been built up by this customer.
The Directors believe that, should the
customer decide not to sell our brands,
a large amount (if not all) of the existing
business will be taken up by other
retailers in Spain.
Location
The Group, half of its operations and
assets are at one location in Iver, with the
other half based in Silsden; if a fi re were
to befall either of the premises occupied
by the Group, half of its assets might be
destroyed or damaged and – although the
Group has insurance cover in place – the
Group’s business, fi nancial results and
prospects might be negatively affected by
such an event.
Brexit
The UK Brexit referendum decision
to leave the EU has led to a period of
economic and political uncertainty, which
is likely to continue until the exit process
has concluded and possibly thereafter.
Brexit may continue to dampen consumer
demand and impact Group customers on
the UK High Street. The Group is closely
watching developments in the Brexit
process and adapting its strategy as the
effect of Brexit becomes clearer.
Cyber Attacks
There is an increasing risk that
cybercrime will cause business
interruption, loss of key systems, loss of
online sales, theft of data or damage to
reputation. The Group regularly review
and invest in the development and
maintenance of our IT infrastructure,
systems and security. We have in place
disaster recovery and business continuity
plans that are tested annually.
This Strategic Report was approved by
the board on 10 April 2019 and signed on
its behalf.
Neil Rodol
Chief Financial Offi cer
10 April 2019
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Members of the Board
From left to right: Paul Hagon, Neil Rodol, Clive Garston, Sam Bazini, Sally Craig, Eoin Macleod and Keith Sadler
320
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Board of Directors
Clive Garston (73), Non-Executive Chairman (Insider Committee (Chair), Remuneration Committee, Audit Committee)
Clive has been Non-Executive Chairman of the Group since November 2016. He has been a corporate lawyer
for over 40 years specialising in corporate fi nance 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 signifi cant 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 fi nance forum.
Sam Bazini (56), Joint Chief Executive Offi cer (Insider Committee)
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. Together with
Eoin Macleod, Sam developed the business which resulted in the formation of W7.
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Eoin Macleod (56), Joint Chief Executive Offi cer
Eoin’s fi rst 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. Together with Sam Bazini, Eoin
developed the business which resulted in the formation of W7.
Neil Rodol (56), Chief Financial Offi cer (Insider Committee)
Neil joined the Group in August 2015, having previously been an adviser to the business for several years.
He has overseen the introduction of new systems and procedures. He joined the board as Chief Financial
Offi cer in November 2016. 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.
Sally Craig (58), Group Counsel & Company Secretary
Sally has been Company Secretary to Warpaint London plc since February 2017 and was appointed to
the board in September 2018. She is a solicitor and has previously practised as a corporate lawyer. She
has many years’ experience providing company secretarial services to private and public companies in
the UK including then AIM listed, Osmetech plc. She holds an honours degree in law from Manchester
Metropolitan University.
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Board of Directors (continued)
Paul Hagon (55), Non-Executive Director (Remuneration Committee (Chair), Audit Committee)
Paul joined the Group as a Non-Executive Director in November 2016. Having worked in the Grocery Sector
for over 30 years in both wholesaling and major branded suppliers, Paul is currently providing consultancy
services for a number of retail, manufacturing and wholesale businesses to assist with strategies, change
programmes and the implementation of practical business plans. Prior to this, Paul has worked in selling,
marketing and business management roles with Nestle and more recently, Palmer and Harvey, where
his latter role was as Group Strategy and Development Director. Paul has also served as Chairman of the
Association of Convenience Stores for whom he had also been a board Member for 20 years.
Keith Sadler (60), Non-Executive Director (Audit Committee (Chair), Remuneration Committee)
Keith joined the Group as a Non-Executive Director in November 2016. 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 formerly chief fi nancial offi cer of A Spokesman Said Limited, a radio station operating
under the name Love Sport and an online price comparison site and, until December 2014, chief fi nancial
offi cer of Dods Group PLC, a political communications business, and formerly chief operations offi cer and
group fi nance director of WEARE 2020 plc. Prior to this he was chief executive and group fi nance director of
SPG Media Group plc, a marketing services business, group fi nance 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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Corporate Governance Report
Chairman’s Introduction
I am pleased to introduce the
Corporate Governance Report for the
year ended 31 December 2018. As
an AIM listed company, we recognise
the importance of sound corporate
governance in supporting and delivering
the strategy of the Company and its
subsidiaries (together the “Group”).
This involves managing the Group in an
effi cient manner for the benefi t of its
shareholders and other stakeholders
whilst maintaining a corporate culture
which is consistent with our values. The
Company adopted the QCA Corporate
Governance Code (“QCA Code”) on 25
September 2018 and the Company’s
Corporate Governance Statement is
available to view on the Company’s
website at www.warpaintlondon.com
The board of directors is responsible for
the long term success of the Company
and, as such, devises the Group strategy
and ensures that it is implemented.
The board is determined to ensure that
the Company protects and respects
the interests of all stakeholders and,
in particular, is very focused upon
creating the right environment for our
staff. We want a happy workplace and
we want our employees to be fully and
properly rewarded and to feel that they
are an integral part of the Warpaint
family. A reward structure is therefore
in place, which includes the grant of
share options, enabling members of
staff to participate in the growth of the
Company, as appropriate. We want our
suppliers, who are an essential part of
the Company, to also feel part of the
Warpaint family and we work closely
with them to ensure that this is the case.
Above all, the Company wishes to ensure
that shareholders obtain a good return on
their investment and that the Company
is managed for the long-term benefi t of
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all shareholders and other stakeholders.
Appropriate Corporate Governance
procedures will ensure that that is the
case and reduce the risk of failure.
This section of the Report from pages
21 to 33 sets out our approach to
governance and provides further
information on the operation of the board
and its committees and how the Group
seeks to comply with the QCA Code.
The instances where we do not comply
are very few and explanations for non-
compliance are provided in the report
below.
Clive Garston
Chairman
10 April 2019
Strategy
The Group has established a strategy and
business model which aims to promote
long term shareholder value. The Group’s
strategy is reviewed each year and is set
out in the Strategic Report on page 9.
The Board of Directors
The board is responsible for the long-term
success of the Company. This includes
formulating, reviewing and approving the
Group’s strategy, budgets, major items of
capital expenditure and acquisitions and,
reporting to the shareholders.
The board currently comprises of three
non-executive directors (including the
Chairman), Clive Garston, Paul Hagon
and Keith Sadler, and four Executive
Directors, Sam Bazini, Eoin Macleod,
Neil Rodol and Sally Craig. Sally has
been Company Secretary of the Group
since February 2017 and was appointed
to the board on 17 September 2018 as
General Counsel. She continues to act as
Company Secretary. The board considers
its composition to be appropriate at this
stage of the Company’s development, but
this remains constantly under review as
the Group grows in size. The two non-
executive directors are independent.
No single director is dominant in the
decision-making process. At this stage
in the Company’s development the board
does not consider that having a senior
independent director is appropriate but
this will also remain under review.
The board retains a range of fi nancial,
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 including
cosmetics, retailing, fi nance and
computing, innovation, international
trading, ecommerce, marketing and public
markets. The non-executive directors have
been appointed on merit and for their
specifi c areas of expertise and knowledge.
This enables them to bring independent
judgement on issues of strategy and
performance and to debate matters
constructively.
Directors attend seminars and other
regulatory and trade events where
appropriate to ensure that their knowledge
and industry sector contacts remain current.
The Articles of Association of the Company
(the “Articles”) require that one-third of
the directors must stand for re-election
by shareholders annually in rotation and
that any new directors appointed during
the year must stand for re-election at
the annual general meeting (“AGM”)
immediately following their appointment.
The biographies of each of the directors,
including the committees on which they
serve and chair, are shown on pages 21
to 22.
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Corporate Governance Report (continued)
Board Operation
There is a formal schedule of matters
reserved to the board for its decision.
These include formulating, reviewing and
approving the Group’s strategy, budgets,
major items of capital expenditure
and acquisitions, and reporting to the
shareholders.
The board aims to meet ten times
each year for regular board meetings,
which are scheduled prior to the
commencement of each fi nancial
year. These meetings are scheduled
to coincide with the announcement of
the Company’s annual and half yearly
accounts and throughout the remainder
of the year at regular monthly intervals
(apart from in August and December).
These are supplemented by additional
meetings where required for business
including informal business reviews, to
review budgets and focus on strategy.
Dialogue occurs regularly between
directors outside of scheduled meetings.
A formal agenda is produced for each
meeting and for formal board meetings
which includes the review and approval
of minutes recorded, matters arising, a
review of material operational matters
relating to Group’s businesses and
other special items for discussion
or consideration. Board papers are
circulated to board and committee
members in advance to allow directors
adequate time for consideration. Any
specifi c actions arising from such
meetings are agreed by the board or
relevant committee, circulated after
the relevant meeting by the Company
Secretary and then followed up by the
Company’s management.
Board Meetings
The board met 18 times during the
fi nancial year ended 31 December
2018. 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 with at least one meeting on
the premises of its subsidiary Retra,
providing the board an opportunity to
meet with its senior management and
be involved with the business of the
wider Group. In addition, the board
held a focused, dedicated meeting on
strategy on 14 January 2019 and intends
to continue to schedule similar meetings
annually.
The executive directors are each required
to commit at least the following number
of days per week to their roles: The Joint
Chief Executive Offi cers, fi ve days; the
Chief Financial Offi cer, four days and the
General Counsel & Company Secretary,
two days. The non-executive directors
are required to provide such time as is
required to fully and diligently perform
their duties. All board members are
expected to attend all meetings of the
board and the committees on which they
sit, wherever possible.
Audit, Remuneration and Insider
Committees
The board has established the Audit
Committee, Remuneration Committee
and Insider Committee with formally
delegated duties and responsibilities and
with written terms of reference. The full
terms of reference of each committee are
available from the Company’s website at
www.warpaintlondon.com
The Reports of the Audit Committee
and the Remuneration Committee
can be found on pages 28 to 31 and
describe the work undertaken by the
Committees throughout the year. The
Audit Committee comprises three non-
executive directors: Keith Sadler (Chair),
Clive Garston and Paul Hagon. The
Remuneration Committee comprises
three non-executive directors: Paul
Hagon (Chair), Clive Garston and Keith
Sadler. The Insider Committee comprises
one non-executive director and two
executive directors: Clive Garston (Chair),
Sam Bazini and Neil Rodol. During the
fi nancial year ended 31 December 2018,
the Audit Committee met twice, the
Remuneration Committee four times
and the Insider Committee twice. From
time to time separate committees are
set up by the board to consider specifi c
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.
Board and Committee attendance for
the year ended 31 December 2018
There were nine formal board meetings
and nine telephone board meetings
held during the year. Eoin Macleod was
unable to attend one formal and two
telephone meetings due to ill health. In
the event that directors are unable to
attend a meeting, their comments on
papers submitted may be discussed in
advance with the Chairman enabling their
contribution to be included in the wider
board discussion.
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The following table shows directors’ attendance at all board and committee meetings during the year.
Clive Garston
Sam Bazini
Eoin Macleod
Neil Rodol
Sally Craig *
Paul Hagon
Keith Sadler
Board
18/18
17/18
13/18
18/18
6/6
15/18
18/18
*Sally Craig was appointed on 17 September 2018.
Audit
Remuneration
Insider
2/2
n/a
n/a
n/a
n/a
2/2
2/2
4/4
n/a
n/a
n/a
n/a
4/4
4/4
2/2
2/2
n/a
2/2
n/a
n/a
n/a
Roles of the Chairman, Joint Chief Executive Officers, Chief Financial Officer and General Counsel & Company Secretary
The Chairman is responsible for running the business of the board and for ensuring appropriate strategic focus and direction.
The Joint Chief Executive Offi cers are responsible for proposing the strategic focus to the board, implementing it once it
has been approved and overseeing the management of the Company through the executive team. There is a clear division of
responsibility between the Chairman and the Joint Chief Executive Offi cers. Whilst the Joint Chief Executive Offi cers operate
together in the majority of areas and on matters of strategy there is a delineation of duties between them within the day to day
business of the Group.
The Chief Financial Offi cer works closely with the Joint Chief Executive Offi cers and is primarily responsible for the provision of
monthly fi nancial information to the board, control of working capital, overseeing the audit and preparation of all Group company
statutory accounts and consolidated Interim Statements along with the overall fi nancial management of the Group and its
processes. The executive offi cers are responsible for formulation of the proposed strategic focus for submission to the board, the
day-to-day management of the Group’s businesses and its overall trading, operational and fi nancial performance in fulfi lment of
that strategy, as well as plans and budgets to be approved by the board of directors.
The General Counsel & Company Secretary is responsible for the oversight of legal issues and regulatory compliance along
with executive share schemes, investor queries, HR matters, insurances and policy implementation. In addition, she assists the
Chairman and other committee chairs in ensuring all meetings of the board and committees are informed and effective.
Board Performance and Evaluation
The Group’s performance is reported monthly against headline performance and agreed budgets and reviewed by the board (as a
minimum) at each monthly board meeting. The board challenges the executive directors and senior management on performance
against budgets, forecasts and key business milestones. The board have adopted a set of KPI’s against which the performance of
the Company and therefore the board, can be measured.
The Company is at a relatively early stage in its development as a listed company and is yet to adopt a formal performance
evaluation procedure for the board and directors individually. This will remain under review and the board will consider the
implementation of performance evaluations facilitated by external advisers for the board, both individually and as a group, to ensure
the effi cient and productive operation of the board. As the business of the Group grows, the expertise required at management level
is expanded and developed although there are no prescribed procedures for succession planning at board level.
Internal Financial Control and Risk Management
The board is responsible for establishing and maintaining the Group’s system of internal controls and reviewing its effectiveness. The
procedures, which include fi nancial, compliance and risk management, are reviewed on an on-going basis. 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. The principal risks identifi ed by the board are set out in the Strategic Report on page 18. The assessment and
management of risk is primarily the function of the executive offi cers, most specifi cally the Joint Chief Executive Offi cers for strategic
and business risk and the Chief Financial Offi cer for fi nancial risk. Where appropriate, matters of risk are referred to the board for
consideration. In addition, the Financial Controller reports to the board each month, including on key risk issues.
25
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Corporate Governance Report (continued)
Conflicts of Interest
At each meeting the board considers
Directors’ confl icts of interest. The
Company’s Articles provide for the board
to authorise any actual or potential
confl icts of interest.
External Advice
The board seeks external advice from
time to time to enable it to effectively
perform its duties including from
its lawyers, accountants, nominated
adviser and corporate broker, fi nancial
PR advisers and insurance brokers.
Advice regarding the implementation of
an executive reward scheme has been
provided to the board by h2glenfern
Limited. All directors have access to
the advice and services of the General
Counsel & Company Secretary, who
is responsible for ensuring that board
procedures are followed and that the
Company complies with applicable rules,
regulations and obligations.
Corporate Culture
The board maintains a corporate culture
consistent with the Group’s strategic
objectives which aims to promote an
ethical and responsible business. The
Company places enormous importance
on the contributions of its employees
and aims to keep them informed of
developments in the Company through a
combination of meetings and electronic
communication. The Group operates
an open-door policy, everyone is known
by name to the senior managers and
executive directors with the Chief Executive
Offi cers engaging daily with employees
across the business. Communication is
encouraged on an informal basis, usually
verbal. Communication channels within the
business are key and the open-door policy
aides this. Feedback from employees
led to the introduction of fl exible working
and a revision to the warehouse operating
hours at Iver. The Group has an extremely
loyal work force with a low staff churn
Modern Slavery and Human
Traffi cking
The Group has relationships with
businesses around the world and
is opposed to modern slavery and
human traffi cking wherever it may
occur. The Group’s processes and
supply chains are examined and
reviewed at least annually to ensure
that slavery and human traffi cking are
prevented in its business and supply
chains. Compliance with the Modern
Slavery Act 2015 or equivalent anti-
slavery, human traffi cking laws are
mandatory in all supply contracts.
• Employees and Equal Opportunities
The Group’s employment policy is set
out in the Directors’ Report. During the
year, Sally Craig was appointed to the
board of directors as General Counsel,
whilst retaining her role as Company
Secretary. At senior management level
there are eleven female managers
and nine male managers. Throughout
the Group, the proportion of female to
male employees is approximately 65%
to 35%.
• Environment
The business consumes signifi cant
amounts of cardboard and paper and
the Group utilises a regular recycling
collection service. The Group’s
products and packaging use paper
and cardboard which enables the
Group, the wholesaler and end user to
recycle the waste effectively.
Relations with Shareholders
The Company’s principal means of
communication with shareholders is
through the Annual Report and Financial
Statements, the full-year and half-year
announcements and the AGM.
The board recognises that the AGM
is an important opportunity to meet
private shareholders. Each substantially
•
rate, promoting from within, offering
staff mobility from the warehouse fl oor
to administrative roles and managerial
positions. Employees have the opportunity
to purchase extra holiday and child care
vouchers. A reward structure is in place,
which includes the grant of share options,
enabling members of staff to participate in
the growth of the Company, as appropriate.
The corporate culture is monitored by
the Joint Chief Executive Offi cers who
appraise the board of any issues arising.
In addition, the board receives monthly
reports from the Financial Controller on
HR and employee matters. The culture
is implemented through a number of
policies on Anti-Bribery, Whistleblowing,
Modern Slavery, Employment and the
Environment which are described below
and regularly reviewed:
• Anti-Bribery
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.
• Whistleblowing
The Group’s ’whistleblowing’
procedures ensure that arrangements
are in place to enable employees
and suppliers to raise concerns
about possible improprieties on a
confi dential basis. Any issues raised
are investigated and appropriate
actions are taken. Should any
signifi cant issue arise they are
highlighted to the board.
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views were taken into consideration
when implementing the Long Term
Incentive Plan which was introduced on
21 September 2018.
Investor queries may be addressed
to the Company Secretary at
investors@warpaintlondonplc.com A
range of corporate information (including
all Company announcements) is also
available to shareholders, investors and
the public on the Company’s corporate
website www.warpaintlondon.com
separate issue is the subject of a
separate resolution at the AGM and all
shareholders have the opportunity to
put questions to the board. All board
directors endeavour to attend AGMs and
answer questions put to them which
may be relevant to their responsibilities.
In addition, the directors are available
to listen informally to the views of
shareholders immediately following
the AGM. For each vote, the number of
proxy votes received for, against and
withheld is announced at the meeting.
The results of the AGM are published on
the Company’s corporate website. The
executive directors participate in retail
investor events such as Mello South,
where feasible.
The board receives regular updates
on the views of shareholders through
briefi ngs and reports from the executive
directors, the Company’s brokers and
PR advisers. The Joint Chief Executive
Offi cers and the Chief Financial Offi cer
make presentations to institutional
shareholders and participate in
Investor Road Shows both following
the announcement of the full-year
and half-year results and, at other
times throughout the year. Not every
executive offi cer participates in every
investor presentation. The Chairman
will participate in these presentations in
future where appropriate and is always
available to speak with shareholders.
Dialogue with individual institutional
shareholders also takes place in order to
understand and work with these investors
to seek to comply with their investor
principles where practicable. During the
year ended 31 December 2018, the board,
through the Remuneration Committee,
consulted with two of the Company’s
major institutional shareholders, whose
27
Warpaint London P LC
Audit Committee Report
Keith Sadler
On behalf of the board, I am pleased to
present the Audit Committee Report for
the year ended 31 December 2018.
The Audit Committee is responsible for
ensuring that the fi nancial performance
of the Group is properly reported on and
reviewed, and its role includes monitoring
the integrity of the fi nancial 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 fi ndings of an audit with the
auditors, meeting regularly with the
auditors and advising on the appointment
of external auditors.
During the year, the Committee consisted
of three non-executive directors: me (as
Chairman), Clive Garston and Paul Hagon.
The Audit Committee is convened as
required and met two times during the
year ended 31 December 2018 to discharge
its responsibilities inter alia in connection
with the Group’s Financial Statements
for the year ended 31 December 2017
and the Interim Financial Statements
for the six months ended 30 June 2018.
A further planning meeting took place
with the external auditor BDO LLP during
the year. The Chief Financial Offi cer and
the external auditor normally attend
committee meetings. The committee
met with the external auditor without
management present during the year.
The board is satisfi ed that I, as Chairman
of the Committee, have recent and relevant
fi nancial experience. I am a Chartered
Accountant and, over the past 25 years
have served on the board of a number of
public limited companies in fi nance roles
including as Chief Financial Offi cer, Group
Finance Director and Treasurer.
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
fi nancial reporting and the effectiveness of
the Group’s systems of fi nancial internal
controls.
External auditor
BDO LLP was appointed by the board as
the Company’s external auditor on 12 June
2018 for the 2018 reporting period and it
is their intention to put them forward at
the AGM to stand as auditors for the next
fi nancial period. There are no contractual
obligations that restrict the Committee’s
choice of external auditor.
The Group paid £113,500 to BDO for
audit services in 2018, relating to the
statutory audit of the Group and Company
fi nancial statements, the audit of Group
subsidiaries, and audit-related assurance
services. In addition, the Group paid
£10,000 to BDO in 2018, for tax advice and
interim reviews.
Committee performance and
effectiveness
The Company is at a relatively early stage
in its development and is yet to adopt a
formal performance evaluation procedure
for the board, its committees and directors
individually.
Audit Committee Report
This Audit Committee Report was
reviewed and approved by the board on
10 April 2019.
Keith Sadler
Audit Committee Chairman
10 April 2019
The key responsibilities of the
Committee are to:
•
Monitor the integrity of the Group’s
fi nancial statements and other
statements and announcements
relating to its fi nancial performance,
reviewing and challenging the
methodology and assumptions used
where necessary;
Consider the Group’s accounting
policies and practices along with its
application of accounting standards
and signifi cant judgements;
Review the effectiveness of the Group’s
system of internal controls, including
fi nancial reporting and controls and
risk management systems;
Review the adequacy and security of
the Group’s procedures and controls
for whistleblowing; the detection of
fraud and the prevention of bribery;
Consider and make recommendations
to the board on the appointment,
reappointment, removal or resignation
and remuneration of the external
auditor; and
Oversee the relationship with the
Group’s external auditor including
consideration of the objectivity and
independence of the external audit
process.
•
•
•
•
•
The full terms of reference for the
Committee can be found on the Company’s
website at www.warpaintlondonplc.com
328
Annual Report 2018
Remuneration Committee Report
Paul Hagon
On behalf of the board, I am pleased to present the Remuneration Committee Report for the year ended 31 December 2018.
The main objectives of the Remuneration Committee are to develop and implement compensation packages designed to attract
and retain staff, creating opportunities for senior management and employees to participate in share option schemes and develop
bonus arrangements which reward performance and incentivise employees, thus increasing shareholder value over the long term.
The Remuneration Committee 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 Offi cers) 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.
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The Remuneration Committee consists of three non-executive directors: me (as Chairman), Clive Garston and Keith Sadler. The
Remuneration Committee is convened not less than twice a year and otherwise as required. The committee met four times during
the year ended 31 December 2018.
The full terms of reference for the Committee can be found on the Company’s website at www.warpaintlondonplc.com
Activity during the Year – Introduction of Long-Term Incentive Plan (“LTIP”)
On 24 September 2018, the Company announced the implementation of a new LTIP with initial grants to six senior team members
including Sam Bazini and Eoin Macleod the Joint Chief Executive Offi cers and Neil Rodol, the Chief Financial Offi cer. The LTIP has
been established to incentivise management to increase shareholder value over the long term.
The Remuneration Committee is keen to ensure that remuneration for the Company’s senior team is effective and fair and motivate
them to deliver success for the Company, its shareholders and employees. Share options with an exercise price of 254.5p, equal to
the closing mid-market value immediately prior to the date of grant, and subject to the achievement of demanding Earnings Per
Share (“EPS”) and Total Shareholder Return (“TSR”) performance conditions measured over a period of up to 5 years were granted
to Sam Bazini, Eoin Macleod and Neil Rodol on 21 September 2018 as set out in the table below:
S Bazini
E Macleod
N Rodol
Share Options
Exercise Price
1,534,986
1,534,986
306,996
254.5p
254.5p
254.5p
The share options are exercisable up to 10 years from the date of grant. Vesting is subject to the performance conditions set out below:
50% of the award is subject to an adjusted EPS growth performance condition. One third of this portion of the award will be tested
and vest after three, four and fi ve years. Vesting is based on adjusted EPS in the years ending Dec 2020, 2021 and 2022. Threshold
vesting of 20% of the award is achieved at 12.5% compound annual EPS growth and full vesting at 22.5% compound annual EPS
growth, measured from 31 December 2017.
50% of the award is subject to an absolute TSR performance condition tested following the announcement of results for the years
ending 31 December 2020, 2021 and 2022. Threshold vesting of 20% of the award is achieved at 8% compound annual TSR and
straight line vesting up to 100% vesting at 18% compound annual TSR, measured from 31 December 2017.
An additional grant of 460,494 share options with the same terms was made to three senior management individuals of the
Company, each of whom was granted 153,498 share options. The entire award represents 5.0% of the current issued share capital
of the Company.
29
Warpaint London P LC
Remuneration Committee Report (continued)
External Advice and consideration of Shareholder Views
The Remuneration Committee was assisted in meeting its responsibilities by h2glenfern Limited, who provided advice relating to
the implementation of the LTIP, for which they received fees of £13,000. The Remuneration Committee is satisfi ed that the advice it
received was objective and independent. The Committee also consulted with two of the Company’s major institutional shareholders
and took their views into account when implementing the Plan.
Directors Remuneration Policy
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.
Directors’ Remuneration for the year ended 31 December 2018
Salary
Pension
Benefi ts
S Bazini
E Macleod
N Rodol
S Craig *
C Garston
P Hagon
K Sadler
200,000
200,000
150,000
29,000
60,000
40,000
40,000
-
-
1,000
1,000
-
-
1,000
8,000
6,000
-
-
-
-
-
*S Craig joined the board on 17 September 2018
Bonus
Total
Remuneration
2018 £
Total
Fair Value Remuneration
2017 £
of Options £
-
-
-
-
-
-
-
208,000
206,000
151,000
29,000
60,000
40,000
41,000
2,102,931
2,102,931
511,987
8,683
-
-
-
206,000
205,000
112,000
-
60,000
40,000
40,000
Directors’ interests in share options for year ended 31 December 2018
As at 31 December 2018 the following directors held the following performance related share awards (Enterprise Management
Incentive Scheme Options or LTIPs) over ordinary shares of 25p each under the Warpaint London plc Enterprise Management Incentive
Scheme. For details of the share option schemes see Note 21 on Page 60
Type of
Share
Award
LTIP
LTIP
EMI
LTIP
EMI
-
-
-
Date of
Grant
21.09.2018
21.09.2018
29.06.2017
21.09.2018
29.06.2017
-
-
-
Number of
Shares at 31
December 2018
1,534,986
1,534,986
105,262
306,996
10,000
-
-
-
Exercise
Price
254.5p
254.5p
237.5p
254.5p
237.5p
-
-
-
End of
Performance
Period
31 Dec 2022
31 Dec 2022
29 June 2020
31 Dec 2022
29 June 2020
-
-
-
S Bazini
E Macleod
N Rodol
S Craig *
C Garston
P Hagon
K Sadler
Number of Shares at
31 December 2017
(or date of
appointment if later)
-
-
105,262
-
10,000
-
-
-
*S Craig joined the board on 17 September 2018
330
Annual Report 2018
The directors, who held offi ce at 31 December 2018, had the following interests in the shares of the Company:
Number of share
options held at
31 December 2018(c)
Number of
Ordinary Shares held
at 31 December 2018
Ordinary Shares as %
of issued share
capital
Number of
Ordinary Shares held
at 31 December 2017
S Bazini(a)
E Macleod(b)
N Rodol
S Craig*
C Garston
P Hagon
K Sadler
1,534,986
1,534,986
412,258
10,000
–
–
–
17,695,208
17,695,208
103,961
–
126,315
31,145
31,145
*S Craig joined the board on 17 September 2018
In addition to the above holdings:
(a) 1,750,000 (2017: 3,000,000) shares are held by the wife of S Bazini
(b) 1,750,000 (2017: 3,000,000) shares are held by the wife of E Macleod
(c) For details of the share option schemes see Note 21 on Page 60
23.06
23.06
0.14
–
0.16
0.04
0.04
17,545,208
17,545,208
103,961
–
126,315
31,145
31,145
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There were no changes in the shareholdings of the directors between 31 December 2018 and the date of this report.
Service Contracts and non-executive directors’ Letters of Appointment
The executive directors have rolling contracts that are terminable on 12 months’ notice, in the case of Sam Bazini and Eoin Macleod
(the Joint Chief Executive Offi cers) and 6 months’ notice, in the case of Neil Rodol (Chief Financial Offi cer) and Sally Craig (General
Counsel & Company Secretary). The Chairman and each of the non-executive directors have entered into a letter of appointment which
is terminable on three months’ notice.
Shareholder Approval of Directors’ Remuneration Report
Shareholders are asked to approve this directors’ Remuneration Report (excluding the directors’ Remuneration Policy) for the year
ended 31 December 2018 at the forthcoming Annual General Meeting. This resolution is advisory in nature.
Paul Hagon
Remuneration Committee Chairman
10 April 2019
31
Warpaint London P LC
Directors Report
The Directors present their annual report on the affairs of the Group, together with the fi nancial statements and auditor’s report for
the year ended 31 December 2018. The Corporate Governance statements on pages 21 to 33 forms part of this report.
Going concern
The Company’s going concern statement can be found in the Consolidated Financial Statements on page 42.
Results and dividends
The Group’s results for the year ended 31 December 2018 are set out in the Consolidated Income Statement on page 37. The directors
recommend a fi nal dividend of 2.9 per ordinary share (2017: 2.6p) to be paid on 1 July 2019 for the year ended 31 December 2018
which, when added to the interim dividend of 1.5p (2017: 1.4p), gives a total dividend for the period of 4.4p per share (2017: 4.0p).
Directors
The following directors who held offi ce during the year and to the date of authorisation of the accounts are as follows:
Non-Executive Chairman
C Garston
Executive Directors
S Bazini
E Macleod
N Rodol
S Craig (appointed 17 September 2018)
Non-Executive Directors
P Hagon
K Sadler
In accordance with the Company’s Articles of Association Sally Craig, having been appointed since the last Annual General Meeting, will
stand for re-election at the forthcoming Annual General Meeting and Sam Bazini and Paul Hagon will retire and stand for re-election.
Likely Future developments
Details of the Group’s future developments are contained in the Strategic report set out on pages 3 to 18.
Substantial shareholdings
The Group is aware of the following shareholdings of 3% or more in the share capital as at 31 December 2018:
Shareholder
S Bazini (including connected parties)
E Macleod (including connected parties)
Schroders plc
Blackrock Investment Management Limited
Canaccord Genuity Group Inc.
Number of Shares
19,445,208
19,445,208
9,231,636
7,589,524
2,348,612
%
25.34
25.34
12.03
9.88
3.06
Financial instruments
The Group’s fi nancial risk management objectives and policies are discussed in note 23 to the consolidated fi nancial statements on
pages 61 to 65.
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.
332
Annual Report 2018
G
o
v
e
r
n
a
n
c
e
The Company places enormous
importance on the contributions of
its employees and aims to keep them
informed of developments in the Company
through a combination of meetings
and electronic communication. The
Group operates an open-door policy,
everyone is known by name to the senior
managers and executive directors with
the Chief Executive Offi cers engaging
daily with employees across the
business. Communication is encouraged
on an informal basis, usually verbal.
Communication channels within the
business are key and the open-door policy
aides this.
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.
On behalf of the board
Neil Rodol
Chief Financial Offi cer
10 April 2019
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.
•
United Kingdom Generally Accepted
Accounting Practice;
prepare the fi nancial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
Directors’ Responsibilities
The directors are responsible for
preparing the annual report and the
fi nancial statements in accordance with
applicable law and regulations.
Company law requires the directors
to prepare fi nancial statements for
each fi nancial year. Under that law the
directors have elected to prepare the
Group fi nancial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union, and the Company
fi nancial statements in accordance with
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). Under
company law the directors must not
approve the fi nancial statements unless
they are satisfi ed that they give a true and
fair view of the state of affairs of the Group
and Company and of the profi t or loss of
the Group and Company for that period.
The directors are also required to prepare
fi nancial statements in accordance with
the rules of the London Stock Exchange
for companies trading securities on AIM.
In preparing these fi nancial statements,
the directors are required to:
•
•
•
select suitable accounting policies and
then apply them consistently;
make judgements and accounting
estimates that are reasonable and
prudent;
state whether they have been
prepared in accordance with IFRSs
as adopted by the European Union or
The directors are responsible for keeping
adequate accounting records that are
suffi cient to show and explain the Group
and Company’s transactions and disclose
with reasonable accuracy at any time the
fi nancial position of the Group and the
Company and enable them to ensure that
the fi nancial statements comply with the
requirements of the Companies Act 2006.
They are also responsible for safeguarding
the assets of the Group and the Company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
Website publication
The directors are responsible for
ensuring the annual report and the
fi nancial statements are made available
on a website. Financial statements are
published on the Company’s website in
accordance with legislation in the United
Kingdom governing the preparation and
dissemination of fi nancial statements,
which may vary from legislation in other
jurisdictions. The maintenance and
integrity of the Company’s website is
the responsibility of the directors. The
directors’ responsibility also extends
to the ongoing integrity of the fi nancial
statements contained therein.
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.
33
Warpaint London P LC
Independent Auditors’ Report
to the members of Warpaint London P LC
Opinion
We have audited the fi nancial statements of Warpaint London Plc (the
‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 December 2018 which comprise the consolidated statement of
comprehensive income, the consolidated and company statement of
changes in equity, the consolidated and company statements of fi nancial
position, the consolidated statement of cash fl ows and notes to the
fi nancial statements, including a summary of signifi cant accounting
policies.
The fi nancial reporting framework that has been applied in the
preparation of the group fi nancial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The fi nancial reporting framework that has been
applied in the preparation of the parent company fi nancial 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 directors have not disclosed in the fi nancial statements any
identifi ed material uncertainties that may cast signifi cant 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 fi nancial statements are authorised
for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment,
were of most signifi cance in our audit of the fi nancial statements of the
current period and include the most signifi cant assessed risks of material
misstatement (whether or not due to fraud) we identifi ed, 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
fi nancial 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 identifi ed by us as the most signifi cant
assessed risks of material misstatement:
• the fi nancial 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 2018
and of the group’s profi t for the year then ended;
Impairment of intangible assets and goodwill
See accounting policy and details of judgements and accounting
estimates given in note 1.
• the group fi nancial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
• the parent company fi nancial statements have been properly prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice; and
• the fi nancial 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 fi nancial statements section of our report. We are
independent of the group and the parent company in accordance with
the ethical requirements that are relevant to our audit of the fi nancial
statements in the UK, including the FRC’s Ethical Standard as applied to
listed entities, and we have fulfi lled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence
we have obtained is suffi cient 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 fi nancial statements is not appropriate; or
The issue – the group is required to consider whether impairment
of goodwill is required in respect of the acquisition of Retra Holdings
or Marvin Leeds Marketing. Judgement is required in respect of this
consideration, and the use of an inappropriate model or inappropriate
assumptions within the model in respect of discount rate, long term
growth rate or underlying short-term forecasts may lead to any
impairment being materially misstated.
The group has engaged third party experts to assist with the preparation of
the impairment model and to assist in determining the key assumptions
within the model. The results of the model are extremely sensitive to
changes in the discount rate in particular as explained in note 9 to the
fi nancial statements.
We have highlighted this as a key audit matter due to the size of the
acquisition of the Retra business, the judgements involved in determining
any impairment charge, and the challenging trading conditions currently
experienced by the business.
How we addressed the issue –
We checked that management had appropriately determined the carrying
amount for each Cash Generating Unit (CGU).
We confi rmed the cash fl ow forecasts prepared by management were
consistent with those approved by the Board and examined the cashfl ow
forecasts by testing the underlying models, including an analysis of
underlying assumptions and a comparison to recent performance trends
and results after the year end.
334
Annual Report 2018
We assessed the competence and independence of the third party experts
engaged by management in preparing the underlying impairment model.
The key assumptions of the discount rate and long term growth rate
underlying the impairment test were addressed using the expertise of
our own valuation specialists to benchmark the key assumptions against
comparator companies and general market indicators.
We used profi t before tax, amortisation, impairment and exceptional
items as a benchmark given that this represents the underlying trading
position of the business and it is this fi gure which is considered most
important for shareholders in assessing the performance of the Group.
Each component of the Group was audited to a lower level of materiality.
Component materiality ranged from £100,000 to £330,000.
We checked that appropriate and adequate disclosures were included in
the fi nancial statements which were in accordance with the requirements
of the accounting standards.
We discussed the key assumptions used within the model and how we
challenged the discount rate applied with the audit committee.
Performance materiality is the application of materiality at the individual
account or balance level set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the fi nancial statements as a
whole. Performance materiality was set at £303,750 (2017: £271,600)
which represents 75% (2017: 70%) of the above materiality levels.
Carrying value of inventory
See accounting policy and details of judgements and accounting
estimates given in note 1.
We agreed with the audit committee that we would report to them
misstatements identifi ed during our audit above £20,250. We also agreed
to report differences below these thresholds that, in our view, warranted
reporting on qualitative grounds.
G
o
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n
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The issue - The group holds signifi cant 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.
How we addressed the issue - 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 identifi cation of slow moving and obsolete items. We
considered the inventory write off fi gure 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 tested the unprovided inventory balance by
reviewing sales volumes and values after the balance sheet date.
We discussed the key assumptions within the inventory provision and the
movements and aging of inventory with the audit committee.
Our application of materiality
The scope of our audit was infl uenced 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 fi nancial statement
areas and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the fi nancial statements as a whole.
We determined materiality for the fi nancial statements as a whole to be
£405,000 which represents 5% of profi t before tax, amortisation, impairment
and exceptional items. In the prior year materiality was calculated at
£388,000 which was based on 5% of profi t before tax and exceptional items.
Materiality of the company was set at £105,000 with performance materiality
set at £78,750 based on 75% of materiality. Materiality was based on a
capped asset basis and is equivalent to 0.2% of assets of the company.
An overview of the scope of our audit
The group consists of four trading subgroups, all of which are run from
the UK except for Marvin Leeds Marketing Services Inc. which is based in
the United States of America. In establishing the overall approach to the
group audit, we completed full scope audits on the underlying subgroups
and the parent company, except for Marvin Leeds Marketing Services Inc,
on which we tested specifi c account balances. All audit work was carried
out by BDO LLP.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report,
other than the fi nancial statements and our auditor’s report thereon. Our
opinion on the fi nancial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do
not express any form of assurance conclusion thereon.
In connection with our audit of the fi nancial statements, our responsibility
is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the fi nancial 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 fi nancial 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.
35
Warpaint London P LC
Independent Auditors’ Report (continued)
to the members of Warpaint London P LC
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 fi nancial year for which the fi nancial statements are prepared is
consistent with the fi nancial statements; and
• the strategic report and the directors’ report have been prepared in
accordance with applicable legal requirements.
Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to
infl uence the economic decisions of users taken on the basis of these
fi nancial statements.
A further description of our responsibilities for the audit of the fi nancial
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.
Matters on which we are required to report by exception
Use of our report
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.
Mark RA Edwards
(Senior Statutory Auditor)
For and on behalf of BDO LLP,
Statutory Auditor
London, UK
10 April 2019
BDO LLP is a limited liability partnership registered in England and
Wales (with registered number OC305127).
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 identifi ed 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, or returns adequate
for our audit have not been received from branches not visited by us; or
• the parent company fi nancial statements are not in agreement with
the accounting records and returns; or
• certain disclosures of directors’ remuneration specifi ed 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 set out
in the Directors’ report, the directors are responsible for the preparation
of the fi nancial statements and for being satisfi ed that they give a true
and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of fi nancial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the fi nancial statements, the directors are responsible
for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the fi nancial statements
Our objectives are to obtain reasonable assurance about whether the
fi nancial 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.
336
Consolidation Statement of Comprehensive Income
for the year ended 31 December 2018
Revenue
Cost of sales
Gross profi t
Administrative expenses
Analysed as:
Adjusted profi t from operations1
Amortisation
Impairment losses
Exceptional items
Profi t from operations
Finance expense
Profi t before tax
Tax expense
Profi t for the year attributable to equity holders of the parent company
Other comprehensive income:
Item that will or maybe reclassifi ed to profi t or loss:
Exchange gain on translation of foreign subsidiary
Total comprehensive income attributable to equity holders of the parent company
Basic earnings per share (pence)
Diluted earnings per share (pence)
Annual Report 2018
Year ended 31 December
Note
1,2
2018
£’000
48,477
2017
£’000
32,549
(31,263)
(19,911)
17,214
3,4
(12,330)
8,303
(2,272)
(812)
(335)
4,884
(150)
4,734
(1,159)
3,575
48
3,623
4.66
4.66
3,9,10
3,9,10
3
3
5
6
27
27
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
12,638
(5,744)
7,749
(469)
–
(386)
6,894
(37)
6,857
(1,384)
5,473
–
5,473
8.34
8.34
Note 1 – Adjusted profi t from operations is calculated as earnings before interest, taxation, amortisation, impairment and exceptional items.
The notes on pages 42 to 70 form part of these fi nancial statements.
37
Warpaint London P LC
Consolidated Statement of Financial Position
as at 31 December 2018
Registered Number: 10261717
Non-current assets
Goodwill
Intangibles
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Loans and borrowings
Corporation tax liability
Derivative fi nancial instruments
Total current liabilities
Non-current liabilities
Bank loan
Deferred tax liability
Total non-current liabilities
Total liabilities
NET ASSETS
The notes on pages 42 to 70 form part of these fi nancial statements.
338
Note
9
10
11
12
13
14
15
16
23
16
17
Year ended 31 December
2018
£’000
7,051
9,486
1,358
17,895
15,362
12,761
4,041
32,164
50,059
(3,489)
(2,169)
(1,034)
–
2017
(restated)
£’000
7,532
10,653
1,497
19,682
11,531
13,676
3,369
28,576
48,258
(3,537)
(582)
(939)
(3)
(6,692)
(5,061)
(553)
(1,796)
(2,349)
(9,041)
(814)
(1,959)
(2,773)
(7,834)
41,018
40,424
Consolidated Statement of Financial Position
as at 31 December 2018
Registered Number: 10261717
Equities
Share capital
Share premium
Merger reserve
Other reserves
Retained earnings
TOTAL EQUITY
Annual Report 2018
Note
19
20
2018
£’000
19,187
19,359
2017
£’000
19,187
19,359
(16,100)
(16,100)
209
18,363
41,018
45
17,933
40,424
The fi nancial statements of Warpaint London PLC were approved and authorised for issue by the Board of Directors on 10 April 2019 and were signed
on its behalf by:
Neil Rodol
Chief Financial Offi cer
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The notes on pages 42 to 70 form part of these fi nancial statements.
39
Warpaint London P LC
Consolidated Statement of Changes in Equity
for the year ended 31 December 2018
Share Capital
Share Premium
Merger Reserve exchange reserve
option reserve
Foreign
Share
£’000
£’000
£’000
At 1 January 2017
16,135
Note
£’000
£’000
1,806
–
–
–
–
–
–
2,789
18,410
263
–
–
–
(857)
–
(17,995)
–
–
–
–
1,895
–
–
Comprehensive Income
for the year
Profi t for the year
Dividends paid
Total comprehensive
income for the year
Transactions with
owners
Shares issued during
the year
Shares issued for Retra
Holdings
Share issue costs
Movement in other
reserves
Total transactions with
owners
18
19
19
19
3,052
17,553
1,895
As at 31 December 2017
19,187
19,359
(16,100)
Comprehensive Income
for the year
On translation of foreign
subsidiary
Profi t for the year
Total comprehensive
income for the year
Transactions with
owners
Movement in other
reserves
Dividends paid
Total transactions with
owners
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
18
As at 31 December 2018
19,187
19,359
(16,100)
The notes on pages 42 to 70 form part of these fi nancial statements.
340
Retained
Earnings
£’000
14,332
Total Equity
£’000
14,278
5,473
5,473
(1,872)
(1,872)
3,601
3,601
–
–
–
–
–
21,199
2,158
(857)
45
22,545
17,933
40,424
–
48
3,575
3,575
3,575
3,623
–
116
(3,145)
(3,145)
(3,145)
(3,029)
18,363
41,018
–
–
–
–
–
–
–
–
–
–
48
–
48
–
–
–
48
–
–
–
–
–
–
–
45
45
45
–
–
–
116
–
116
161
Annual Report 2018
Year ended 31 December
2018
£’000
4,734
150
812
2,272
529
7
116
1,574
(2,524)
(1,753)
48
5,965
(1,565)
(150)
4,250
(48)
(392)
2017
(restated)
£’000
6,857
37
–
469
184
6
45
419
224
(1,356)
–
6,885
(2,077)
(37)
4,771
(52)
(555)
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
(1,591)
(15,750)
272
–
242
33
(1,759)
(16,082)
–
–
(261)
1,587
(3,145)
(1,819)
672
3,369
4,041
4,041
4,041
21,199
(857)
(20)
(7,273)
(1,872)
11,177
(134)
3,503
3,369
3,369
3,369
Note
5
9
10
11
10
11
8
8
18
Consolidated Statement of Cash Flows
for the year ended 31 December 2018
Operating activities
Profi t before tax
Interest paid
Impairment of goodwill
Amortisation of intangible assets
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Share based payment
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventories
Decrease in trade and other payables
Foreign exchange translation differences
Cash generated from operations
Tax paid
Interest paid
Net cash fl ows from operating activities
Investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Acquisition of business
Bank balances acquired
Proceeds from sale of property, plant and equipment
Net cash used in by investing activities
Financing activities
Proceeds from new share capital subscribed
Share issue costs
Repayment of borrowings
Increase/(decrease) in stock and invoice fi nance facilities
Dividends
Net cash (used in)/ generated by fi nancing 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
The notes on pages 42 to 70 form part of these fi nancial statements.
41
Warpaint London P LC
Notes to the Consolidated Financial Statements
for the year ended 31 December 2018
1.
Signifi cant accounting policies
Basis of preparation
The fi nancial statements of Warpaint London PLC (the “Company” or
“Warpaint”) and its subsidiaries (together the “Group”) for the year ended
31 December 2018 were authorised for issue by the board of directors on
10 April 2019 and the statement of fi nancial position was signed on the
board’s behalf by Neil Rodol.
Warpaint London PLC is a public limited company incorporated and
registered in England and Wales. Its registered offi ce is Units B&C,
Orbital Forty Six, The Ridgeway Trading Estate, Iver, Bucks, SL0 9HW.
The Group’s fi nancial 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 fi nancial statements
are presented in pounds sterling because that is the currency of the
primary economic environment in which the Group operates. All values
are rounded to the nearest thousand (£’000) except where otherwise
indicated.
The annual fi nancial statements have been prepared on the historical
cost basis, except for certain fi nancial assets and liabilities which are
carried at fair value or amortised cost as appropriate.
The preparation of fi nancial 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 fi nancial statements and the reported amounts of
revenues and expenses during the reported period. Although these
estimates are based on management’s best knowledge of current events
and actions, actual results ultimately may differ from those estimates.
The principal accounting policies adopted are set out below.
Basis of consolidation
Where the Company has control over an investee, it is classifi ed as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable
returns from the investee, and the ability of the investor to use its power
to affect those variable returns. Control is reassessed whenever facts
and circumstances indicate that there may be a change in any of these
elements of control.
Exchange differences recognised profi t or loss in Group entities’ separate
fi nancial statements on the translation of long-term monetary items
forming part of the Group’s net investment in the overseas operation
concerned are reclassifi ed to other comprehensive
income and
accumulated in the foreign exchange reserve on consolidation.
On disposal of a foreign operation, the cumulative exchange differences
recognised in the foreign exchange reserve relating to that operation up
to the date of disposal are transferred to the consolidated statement of
comprehensive income as part of the profi t or loss on disposal.
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 fi nancial
statements on the basis of going concern.
Revenue Recognition
The Group has adopted IFRS 15 from 1 January 2018. The standard
provides a single comprehensive model for revenue recognition.
Performance obligations and timing of revenue recognition
The Group’s revenue is derived from selling goods with revenue
recognised at a point in time when control of the goods has transferred
to the customer. This is generally when the goods are delivered to the
customer. However, for export sales, control might also be transferred
when delivered either to the port of departure or port of arrival,
depending on the specifi c terms of the contract with a customer. There
is limited judgement needed in identifying the point control passes: once
physical delivery of the products to the agreed location has occurred,
the group no longer has physical possession, usually will have a present
right to payment (as a single payment on delivery) and retains none of the
signifi cant risks and rewards of the goods in question.
UK sales are recognised and invoiced to the customer once the goods
have been delivered to the customer. Overseas sales are recognised
and invoiced to the customer once the goods have been delivered to
the customer or collected by the customer from the Group’s warehouse
according to the terms of sale.
The consolidated fi nancial statements present the results of the Company
and its subsidiaries as if they formed a single entity. Intercompany
transactions and balances between Group companies are therefore
eliminated in full. All subsidiaries have a reporting date of December.
Where the Group 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 Group’s overseas supplier or from the Company’s UK
warehouse. Revenue is therefore recognised on the date of dispatch.
The consolidated fi nancial statements incorporate the results of business
combinations using the acquisition method. In the statement of fi nancial
position, the acquiree’s identifi able assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control ceases.
On consolidation, the results of overseas operations are translated
into pound sterling at rates approximating to those ruling when the
transactions took place. All assets and liabilities of overseas operations,
including goodwill arising on the acquisition of those operations, are
translated at the rate ruling at the reporting date. Exchange differences
arising on translating the opening net assets at opening rate and the
results of overseas operations at actual rate are recognised in other
comprehensive income and accumulated in the foreign exchange reserve.
Determining the transaction price
Most of the Group’s revenue is derived from fi xed price contracts and
therefore the amount of revenue to be earned from each contract is
determined by reference to those fi xed prices. Exceptions are as follows:
• Some contracts provide customers with a limited right of return. These
relate predominantly, but not exclusively, to online sales direct to
consumers and retailers. Historical experience enables the group to
estimate reliably the value of goods that will be returned and restrict
the amount of revenue that is recognised such that it is highly probable
that there will not be a reversal of previously recognised revenue when
goods are returned.
342342
Annual Report 2018
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
1.
Signifi cant accounting policies (continued)
Intangible assets acquired separately
• Variable consideration relating to volume rebates has been considered
in estimating revenue in order that it is highly probable that there will
not be a future reversal in the amount of revenue recognised when the
amount of volume rebates has been determined.
Allocating amounts to performance obligations
For most contracts, there is a fi xed unit price for each product sold, with
reductions given for bulk orders placed at a specifi c time. Therefore,
there is no judgement involved in allocating the contract price to each
unit ordered in such contracts (it is the total contract price divided by
the number of units ordered). Where a customer orders more than
one product line, the Group is able to determine the split of the total
contract price between each product line by reference to each product’s
standalone selling prices (all product lines are capable of being, and are,
sold separately).
Practical Exemptions
The Group has taken advantage of the practical exemptions:
• not to account for signifi cant fi nancing components where the time
difference between receiving consideration and transferring control of
goods (or services) to its customer is one year or less; and
Intangible assets with fi nite 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 indefi nite 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 and
brands so as to write off the carrying value over the expected useful
economic life of fi ve years. Other details of the acquisition are detailed
in note 8.
Goodwill
• expense the incremental costs of obtaining a contract when the
amortisation period of the asset otherwise recognised would have
been one year or less.
Goodwill represents the excess of the cost of a business combination
over the Group’s interest in the fair value of identifi able assets, liabilities
and contingent liabilities acquired.
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.
Cost comprises the fair value of assets given, liabilities assumed, and
equity instruments issued, plus the amount of any non-controlling
interests in the acquiree. Contingent consideration is included in cost at
its acquisition date fair value and, in the case of contingent consideration
classifi ed as a fi nancial liability, remeasured subsequently through profi t
or loss.
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Retirement Benefi ts: Defi ned contribution schemes
Contributions to defi ned contribution schemes are charged to the
consolidated statement of comprehensive income in the year to which
they relate.
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 relate to legal and professional fees incurred on
the acquisition of Marvin Leeds Marketing Services, Inc. (2017: Retra
Holdings Limited). Neither ‘underlying profi t or loss’ nor ‘exceptional
items’ are defi ned by IFRS however the directors believe that the
disclosures presented in this manner provide clear presentation of the
fi nancial performance of the Group.
Intangible assets
Patents
Patents are used by the Group in order to generate future economic value
through normal business operations. Patents are acquired separately
and carried at cost less amortisation and impairment. The underlying
assets are amortised over the period from which the Group expects to
benefi t, which is typically between fi ve to ten years.
Goodwill is capitalised as an intangible asset with any impairment
in carrying value being charged to the consolidated statement of
comprehensive income. Where the fair value of identifi able assets,
liabilities and contingent liabilities exceed the fair value of consideration
paid, the excess is credited in full to the consolidated statement of
comprehensive income on the acquisition date.
Impairment of non-fi nancial assets (excluding inventories and
deferred tax assets)
Impairment tests on goodwill and other intangible assets with indefi nite
useful economic lives are undertaken annually at the fi nancial year end.
Other non-fi nancial assets are subject to impairment tests whenever
events or changes in circumstances indicate that their carrying amount
may not be recoverable. Where the carrying value of an asset exceeds
its recoverable amount (i.e. the higher of value in use and fair value less
costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an
individual asset, the impairment test is carried out on the smallest group
of assets to which it belongs for which there are separately identifi able
cash fl ows; its cash generating units (‘CGUs’). Goodwill is allocated
on initial recognition to each of the Group’s CGUs that are expected to
benefi t from a business combination that gives rise to the goodwill.
Impairment charges are included in profi t or loss, except to the extent
they reverse gains previously recognised in other comprehensive income.
An impairment loss recognised for goodwill is not reversed.
43
43
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
1.
Signifi cant accounting policies (continued)
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future
economic benefi ts are expected from use or disposal. Gains or losses
arising from derecognition of an intangible asset, measured as the
difference between the net disposal proceeds and the carrying amount of
the asset, are recognised in profi t or loss when the asset is derecognised.
of the trade receivables is assessed. This probability is then multiplied by the
amount of the expected loss arising from default to determine the lifetime
expected credit loss for the trade receivables. For trade receivables, which
are reported net, such provisions are recorded in a separate provision
account with the loss being recognised within administrative expenses in the
consolidated statement of comprehensive income. On confi rmation that the
trade receivable will not be collectable, the gross carrying value of the asset
is written off against the associated provision.
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.
The Group’s fi nancial assets measured at amortised cost comprise trade
and other receivables, and cash and cash equivalents in the consolidated
statement of fi nancial position.
Depreciation is provided on all items of property, plant and equipment
so as to write off their carrying value over the expected useful economic
lives. It is provided at the following rates:
Plant and machinery
- 25% reducing balance and 20%
straight line
Fixtures and fi ttings
- 25% reducing balance and 20%
Cash and cash equivalents include cash in hand, deposits held at call
with banks, other short term highly liquid investments with original
maturities of three months or less, and – for the purpose of the statement
of cash fl ows - bank overdrafts. Bank overdrafts are shown within loans
and borrowings in current liabilities on the consolidated statement of
fi nancial position.
straight line
Financial liabilities
Computer equipment
- 25% reducing balance and 33.33%
Motor vehicles
Financial assets
straight line
- 20% straight line
The Group has adopted IFRS 9 from 1 January 2018. The standard introduced
new classifi cation and measurement models for fi nancial assets.
The Group classifi es its fi nancial assets into one of the categories
discussed below, depending on the purpose for which the asset was
acquired. Other than fi nancial assets in a qualifying hedging relationship,
the Group’s accounting policy for each category is as follows:
Fair value through profi t or loss
This category comprises in-the-money derivatives and out-of-money
derivatives where the time value offsets the negative intrinsic value (see
“Financial liabilities” section for out-of-money derivatives classifi ed as
liabilities). They are carried in the statement of fi nancial position at fair
value with changes in fair value recognised in the consolidated statement
of comprehensive income in the fi nance income or expense line. Other
than derivative fi nancial instruments which are not designated as
hedging instruments, the Group does not have any assets held for trading
nor does it voluntarily classify any fi nancial assets as being at fair value
through profi t or loss.
Amortised cost
These assets arise principally from the provision of goods and services
to customers (eg trade receivables), but also incorporate other types
of fi nancial assets where the objective is to hold these assets in order
to collect contractual cash fl ows and the contractual cash fl ows are
solely payments of principal and interest. They are initially recognised
at fair value plus transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost using
the effective interest rate method, less provision for impairment.
The Group classifi es its fi nancial liabilities into one of two categories,
depending on the purpose for which the liability was acquired. The
Group’s accounting policy for each category is as follows:
Fair value through profi t or loss
This category comprises out-of-the-money derivatives where the time
value does not offset the negative intrinsic value (see “Financial assets”
for in-the-money derivatives and out-of-money derivatives where the
time value offsets the negative intrinsic value). They are carried in the
consolidated statement of fi nancial position at fair value with changes
in fair value recognised in the consolidated statement of comprehensive
income. The Group does not hold or issue derivative instruments for
speculative purposes, but for hedging purposes. Other than these
derivative fi nancial instruments, the Group does not have any liabilities
held for trading nor has it designated any fi nancial liabilities as being at
fair value through profi t or loss.
Other fi nancial liabilities
Other fi nancial liabilities include the following items:
• Bank loans which are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the instrument.
Such
interest-bearing liabilities are subsequently measured at
amortised cost ensuring the interest element of the borrowing is
expensed over the repayment period at a constant rate.
• Trade payables, other borrowings and other short-term monetary
liabilities, which are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
Derivative fi nancial instruments
The Group enters into a variety of derivative fi nancial instruments to
manage its exposure to foreign exchange rate risk, through the use of
foreign exchange rate forward contracts.
New impairment requirements use an ‘expected credit loss’ (‘ECL’) model
to recognise an allowance. Impairment is measured using a 12- month
ECL method unless the credit risk on a fi nancial instrument has increased
signifi cantly since initial recognition in which case the lifetime ECL method is
adopted. For receivables, a simplifi ed approach to measuring expected credit
losses using a lifetime expected loss allowance is available and has been
adopted by the Group. During this process the probability of the non-payment
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 profi t or loss immediately unless the derivative is
designated and effective as a hedging instrument, in which event the
timing of the recognition in profi t or loss depends on the nature of the
hedge relationship.
344
Annual Report 2018
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
1.
Signifi cant accounting policies (continued)
Foreign currencies
Transactions entered into by Group entities in a currency other than the
currency of the primary economic environment in which they operate
(their “functional currency”) are recorded at the rates ruling when the
transactions occur. Foreign currency monetary assets and liabilities are
translated at the rates ruling at the reporting date. Exchange differences
arising on the retranslation of unsettled monetary assets and liabilities
are recognised immediately in profi t or loss, except for foreign currency
borrowings qualifying as a hedge of a net investment in a foreign
operation, in which case exchange differences are recognised in other
comprehensive income and accumulated in the foreign exchange reserve
along with the exchange differences arising on the retranslation of the
foreign operation.
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 benefi t of lease incentives is recognised as a reduction of the
rental expense over the lease term on a straight-line basis.
Leased assets
Assets obtained under hire purchase contract and fi nance leases are
capitalised as tangible fi xed assets. Assets acquired by fi nance 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 benefi ts and risks
of ownership are assumed by the Company. Obligations under such
agreements are included in creditors net of the fi nance charge allocated
to future periods. The fi nance element of the rental payment is charged
to the statement of comprehensive income so as to produce a constant
periodic rate of charge on the net obligation outstanding in each period.
Taxation
Income tax expense represents the sum of the tax currently payable and
deferred tax.
Current tax
The tax currently payable is based on taxable profi t for the year. Taxable
profi t differs from ‘profi t before tax’ as reported in the consolidated
statement of comprehensive income and other comprehensive income
because of items of income or expense that are taxable or deductible in
other years and items that are never taxable or deductible.
• 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 profi t will be available against which the
difference can be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the end of the reporting period
and are expected to apply when the deferred tax liabilities or assets are
settled or recovered. Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
• the same taxable group company; or
• different company entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which signifi cant
amounts of deferred tax assets and liabilities are expected to be settled
or recovered.
Inventories
Inventories are initially recognised at cost, and subsequently at the lower
of the cost and net realisable value. Cost comprises all costs of purchase,
costs of conversion and other costs incurred in bringing the inventories to
their present location and condition.
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief
operating decision maker has been identifi ed as the management team
including the Chief Executive Offi cers and the Chief Financial Offi cer.
The Board considers that the Group’s project activity constitutes two
operating and two reporting segments, as defi ned under IFRS 8.
Management reviews the performance of the Group by reference to total
results against budget.
The total profi t measures are operating profi t and profi t 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 fi gures in the Group fi nancial information.
The Group’s current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the reporting period.
Earnings per share
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying
amount of an asset or liability in the combined statement of fi nancial
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 profi t; and
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 benefi t 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.
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45
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
1.
Signifi cant accounting policies (continued)
IFRS 16 ‘Leases’
Share Capital
The Group’s ordinary shares are classifi ed as equity instruments.
Share-based payments
Where equity settled share options are awarded to employees, the fair
value of the options at the date of grant is charged to the consolidated
statement of comprehensive income over the vesting period. Non-market
vesting conditions are taken into account by adjusting the number of equity
instruments expected to vest at each reporting date so that, ultimately,
the cumulative amount recognised over the vesting period is based on
the number of options that eventually vest. Non-vesting conditions and
market vesting conditions are factored into the fair value of the options
granted. As long as all other vesting conditions are satisfi ed, a charge is
made irrespective of whether the market vesting conditions are satisfi ed.
The cumulative expense is not adjusted for failure to achieve a market
vesting condition or where a non-vesting condition is not satisfi ed.
Where the terms and conditions of options are modifi ed before they vest,
the increase in the fair value of the options, measured immediately before
and after the modifi cation, is also charged to the consolidated statement
of comprehensive income over the remaining vesting period.
Where equity instruments are granted to persons other than employees,
the consolidated statement of comprehensive income is charged with the
fair value of goods and services received.
Dividends
Dividends are recognised when they become legally payable. In the case
of interim dividends to equity shareholders, this is when declared by the
directors. In the case of fi nal dividends, this is when approved by the
shareholders at the annual general meeting.
Changes in accounting policies
a) New standards, interpretations and amendments effective from
1 January 2018
New standards impacting the Group that will be adopted in the annual
fi nancial statements for the year ended 31 December 2018, and which
have given rise to changes in the Group’s accounting policies are:
• IFRS 9, Financial Instruments (IFRS 9); and
• IFRS 15, Revenue from Contracts with Customers (IFRS 15)
Details of the impact these two standards have had are given above.
Other new and amended standards and Interpretations issued by IASB
and adopted by the EU that will apply for the fi rst time in the next annual
fi nancial statements are not expected to impact the Group as they are
either not relevant to the Group’s activities or require accounting which is
consistent with the Group’s current accounting policies.
b) At the date of authorisation of these fi nancial statements, certain
new standards, amendments and interpretations to existing standards
have been published by the IASB and adopted by the EU but are not yet
effective and have not been adopted early by the Group. Management
anticipates that all of the relevant pronouncements will be adopted in
the Group’s accounting policies for the fi rst period beginning after the
effective date of the pronouncement. Information on new standards,
amendments and interpretations that are expected to be relevant to
the Group’s fi nancial statements is provided below. Certain other new
standards and interpretations have been issued but are not expected to
have a material impact on the Group’s fi nancial statements.
IFRS 16 is effective for the periods commencing 1 January 2019 and the
fi rst reporting date when IFRS 16 will be applied will be the interim period
ending 30 June 2019. IFRS 16 introduces new or amended requirements
with respect to lease accounting. It introduces signifi cant changes to the
lessee accounting by removing the distinction between operating and
fi nance leases and requiring the recognition of a right-of-use asset and
a lease liability at the lease commencement for all leases, except for
short-term leases and leases of low value assets.
The Group intends to adopt the modifi ed retrospective approach. Under
this approach, a lessee does not restate comparative information.
Consequently, the date of initial application is the fi rst day of the annual
reporting period in which a lessee fi rst applies the requirements of the
new leases standard. At the date of initial application of the new leases
standard, lessees recognise the cumulative effect of initial application
as an adjustment to the opening balance of equity as of 1 January 2019.
The Directors have estimated the impact of adopting this new standard
and it is anticipated the Group will recognise right-of-use assets in
respect of the properties it leases with a value of approximately £5.0m
being attributed to right-of-use assets and a lease liability of the same
amount.
Effect of changes in accounting policies
IFRS 15 establishes a single comprehensive model for entities to use
in accounting for revenue arising from contracts with customers.
IFRS 15 has superseded the previous revenue recognition guidance
including IAS 18 Revenue, IAS 11 Construction Contracts and the related
interpretations. The group has adopted IFRS 15 for the year ended
31 December 2018 and has applied the modifi ed retrospective approach
without restatement of comparatives.
Under IFRS 15, volume rebates and early settlement discounts represent
variable consideration and is estimated and recognised as a reduction
to revenue as performance obligations are satisfi ed. Management
recognises revenue based on the amount of estimated rebate to the
extent that revenue is highly probable of not reversing. Management
monitors this estimate at each reporting date and adjusts it as necessary.
There has been no material impact to the recognition of revenue relating
to variable consideration.
The Group has applied IFRS 9 from 1 January 2018. The Group has elected
not to restate comparatives on initial application of IFRS 9.
With respect to the classifi cation and measurement of fi nancial assets,
the number of categories of fi nancial assets under IFRS 9 has been
reduced compared to IAS 39. Under IFRS 9 the classifi cation of fi nancial
assets is based both on the business model within which the asset is held
and the contractual cash fl ow characteristics of the asset. There will be
no change in the accounting for any other fi nancial liabilities.
The impairment model under IFRS 9 refl ects expected credit losses,
as opposed to only incurred credit losses under IFRS 9. Under the
impairment approach in IFRS 9, it is not necessary for a credit event
to have occurred before credit losses are recognised. Instead, an entity
always accounts for expected credit losses and changes in those expected
credit losses. The amount of expected credit losses should be updated at
each reporting date.
346
Annual Report 2018
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
The valuation of the customer list is based on judgement involved in
assessing the projected future cashfl ows 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. A one per cent increase in the discount rate from 20.1%
to 21.1% would reduce the fair value of customer lists by approximately
£22,000.
c)
Impairment of goodwill
Following the assessment of the recoverable amount of goodwill allocated
to Retra Holdings Limited, the directors consider the recoverable amount
of goodwill to have been impaired by £812,000. The assessment of the
recoverable amount of goodwill was based on a value in use calculation
which involved judgement in assessing the projected future cashfl ows
arising from the CGU and a suitable discount rate to be used to measure
the future cash fl ows to present value. A one per cent increase in the
discount rate from 16.7% to 17.7% would reduce the recoverable amount
by approximately £1.25 million.
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1.
Signifi cant accounting policies (continued)
The new impairment model applies to the Group’s fi nancial assets that
are debt instruments measured at amortised costs or FVTOCI.
The Group has applied the simplifi ed approach to recognise lifetime
expected credit losses for its trade receivables, as required or permitted
by IFRS 9. To measure the expected credit losses on a collective basis,
trade receivables are grouped based on aging and the group believes that
all trade receivables are on a similar credit risk. The Group’s calculation
of the loss allowance for these assets as at 31 December 2017 is £19,000
lower compared to the amount disclosed previously under IAS 39. The
expected loss rates are based on the Group’s historical credit losses
over the three-year prior period end. The rates have not been adjusted
for current and forward looking information, including macroeconomic
factors affecting its customers, as the impact is immaterial to the group
as a whole.
Prior year restatement
During the year ended 31 December 2018, the consideration for the
acquisition of Retra Holdings Limited was fi nalised. The previously
disclosed purchase price of £18.36 million was reduced by £450,000, on
delivery of a fi nal EBITDA statement to the previous owners of Retra,
resulting in a reduction in the goodwill fi gure arising on acquisition from
£7,469,000 to £7,019,000. The comparative fi gures at 31 December 2017
have been adjusted retrospectively. This has no impact on the reserves or
the shareholders’ funds.
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 signifi cant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next fi nancial 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.
The Group makes a 50% provision for perishable items of stock that are
greater than two years old. Should the Group increase the provision to
100% of perishable items that are greater than two years old, this would
decrease profi t by £130,000.
b)
Intangible assets acquired
On acquisition of Marvin Leeds Marketing Services, Inc. (“LMS”) 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 cashfl ows 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.
47
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
2.
Segmental information
For management purposes, the Group is organised into two operating segments; Branded and close-out. The segment ‘Branded’ relates to the sale
of own branded products whereas ‘close-out’ relates to the purchase of third party stock which is then repackaged for sale. These segments are the
basis on which the Group reports internally to the Board.
2018
2018
Own Brand
Close-out
Year ended 31 December
Revenue
Cost of sales
Gross profi t
Administrative expenses
Exceptional items
Impairment losses
Segment result
Reconciliation of segment result to profi t
before tax:
Segment result
Finance expense
Profi t before tax
Analysis of total revenue by geographical
market:
UK
Europe
USA
Australia and New Zealand
Rest of World
Total
£’000
40,875
(26,188)
14,687
(10,213)
(327)
(812)
3,335
3,335
(150)
3,185
18,430
15,121
4,227
1,282
1,815
40,875
2018
Total
£’000
48,477
(31,263)
17,214
(11,183)
(335)
(812)
4,884
4,884
(150)
4,734
23,384
16,678
5,296
1,302
1,817
2017
Own Brand
£’000
26,890
(16,012)
10,878
(4,423)
(386)
–
6,069
6,069
(37)
6,032
2017
Close-out
£’000
5,659
(3,899)
1,760
(935)
–
–
825
825
–
825
2017
Total
£’000
32,549
(19,911)
12,638
(5,358)
(386)
–
6,894
6,894
(37)
6,857
12,330
4,460
16,790
7,132
2,419
4,062
947
767
198
232
2
7,899
2,617
4,294
949
£’000
7,602
(5,075)
2,527
(970)
(8)
–
1,549
1,549
–
1,549
4,954
1,557
1,069
20
2
7,602
48,477
26,890
5,659
32,549
During the year ended 31 December 2018, the Group had no customers that exceeded 10% of total revenue. During the year ended 31 December 2017,
the Group had one customer that exceeded 10% of total revenue being 11%.
Information regarding segment assets and liabilities as at 31 December 2018 and capital expenditure for the period then ended:
Total assets
Total liabilities
Tangible asset additions
Intangible asset additions
Total capital expenditure
2018
2018
2018
Own Brand
Close–out
Eliminations*
£’000
79,925
(6,115)
292
786
1,078
£’000
4,172
(763)
£’000
(34,038)
(2,163)
–
–
–
–
–
–
2018
Total
£’000
50,059
(9,041)
292
786
1,078
2017
2017
2017
Own Brand
Close-out
Eliminations*
£’000
76,389
(5,112)
1,483
12,539
14,022
£’000
3,108
(817)
£’000
(31,239)
(1,905)
–
–
–
–
–
–
2017
Total
£’000
48,258
(7,834)
1,483
12,539
14,022
* The eliminations are as a result of adjustments arising on consolidation of the fi nancial statements.
348
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
3.
Operating profi t
Operating profi t for the period is stated after charging/(crediting):
Foreign exchange (gain)/loss
Depreciation
Amortisation
Impairment
Loss on disposal of fi xed asset
Operating lease costs
– Land and buildings
– Equipment
Reversal of write-down inventories at net realisable value
Reversal of stock provision
Exceptional costs
Annual Report 2018
Year ended 31 December
2018
£’000
(359)
529
2,272
812
7
557
71
114
335
2017
£’000
71
184
469
–
6
360
70
189
386
Exceptional costs in 2018 included £0.16 million of acquisition costs as they were one off legal and professional fees incurred in acquiring LMS USA
on 2 August 2018, plus £0.10 million of professional fees relating to the acquisition of Retra in 2017, plus £0.08 million of staff restructuring costs at
Retra (2017: £0.40 million of acquisition costs as they were legal and professional fees and commissions incurred in acquiring Retra on 30 November
2017. Total acquisition costs were £1.2 million of which £0.8 million related to the issue of new shares to fund the purchase of Retra and these were
charged against the share premium account).
Analysis of auditor’s remuneration is as follows:
i
F
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a
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c
i
a
l
S
t
a
t
e
m
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n
t
s
Year ended 31 December
2018
£’000
36
78
114
7
3
–
10
2017
£’000
20
66
86
1
2
114
117
Year ended 31 December
2018
£’000
4,252
521
68
4,841
2017
£’000
2,789
243
19
3,051
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 advice
Other assurance
Transaction related services
Total non-audit fees
4.
Staff costs
Wages and salaries
Social security costs
Pension costs
49
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
4.
Staff costs (continued)
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
Pension contributions
Remuneration in respect of Directors was as follows:
Executive Directors
C Garston
S Bazini
E Macleod
N Rodol
S Craig
Non-executive Directors
K Sadler
P Hagon
Year ended 31 December
2018
No.
6
40
3
45
6
12
112
2018
£’000
719
3
722
2017
No.
6
6
3
25
4
8
52
2017
£’000
653
–
653
Salary/fees
Benefi ts
contribution
£’000
£’000
£’000
2018
£’000
2017
£’000
Pension
60
200
200
150
29
40
40
719
–
8
6
–
–
–
–
14
–
–
–
1
1
1
–
3
60
208
206
151
30
41
40
736
60
206
205
112
–
40
30
653
Number of Share
Number of Share
Number of share
Number of Share
options
options Awarded
options Lapsed
options
Earliest Exercise
Exercise Expiry
at January 2018
in the year
in the year
at December 2018
Exercise Price
Date
Date
N Rodol
105,262
306,996
S Bazini
E Macleod
S Craig
–
–
10,000
1,534,986
1,534,986
–
Total share options
115,262
3,376,968
The directors of the Group are the only key management personnel.
–
–
–
–
–
350
412,258
1,534,986
1,534,986
105,262
@237.59p
306,996
@254.5p
254.5p
254.5p
29/06/2020
29/06/2027
21/09/2021
21/09/2028
21/09/2021
21/09/2028
21/09/2021
21/09/2028
10,000
237.59p
29/06/2020
29/06/2027
3,492,230
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
5.
Finance expense
Loan interest
Hire Purchase interest
Other interest
6.
Income tax
Current tax expense
Current tax on profi ts for the period
Adjustment in respect of previous periods
Deferred tax expense
Origination and reversal of temporary differences
Total tax expense
Annual Report 2018
Year ended 31 December
2018
£’000
28
59
63
150
2017
£’000
15
5
17
37
Year ended 31 December
2018
£’000
1,660
–
1,660
(501)
1,159
2017
£’000
1,473
(30)
1,443
(59)
1,384
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
profi t for the year as follows:
Profi t for the period before tax
Expected tax charge based on corporation tax rate of 19% (2017: 19.25%)
Expenses not deductible for tax purposes
Other adjustments
Different tax rates applied in overseas jurisdiction
Prior year adjustments
Adjustment to deferred tax to average rate
Total tax expense
The UK corporation tax at the standard rate for the year is 19.0% (2017: 19.0%).
Year ended 31 December
2018
£’000
4,734
899
47
12
20
–
181
1,159
2017
£’000
6,857
1,319
178
4
–
(30)
(87)
1,384
In the Finance Act 2016 the UK government announced its intention to reduce the standard corporation tax rate to 17% by 2020. The measure to reduce
the rate to 17% for the fi nancial year beginning 1 April 2020 was substantively enacted on 6 September 2016 and has, where applicable, been refl ected
in the fi nancial statements.
The Group’s effective tax rate for the year is 24.5% (2017 : 20.2%).
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51
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
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*
Warpaint Cosmetics Inc.
Retra Holdings Limited
Badgequo Limited*
Retra Own Label Limited*
Badgequo Deutschland GmbH*
Badgequo Hong Kong Limited*
Nature of business
Holding company
Wholesaler
Wholesaler
Holding company
Dormant
Holding company
Wholesaler
Dormant
Place of incorporation
England and Wales
England and Wales
England and Wales
England and Wales
U.S.A.
England and Wales
England and Wales
England and Wales
Supply chain management
Supply chain management
Germany
Hong Kong
Jinhua Badgequo Cosmetics Trading Co., Ltd*
Wholesaler
People’s Republic of China
Marvin Leeds Marketing Services, Inc.
Wholesaler
U.S.A.
* indicates indirect interest
Percentage owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
On 2 August 2018, the Company acquired 100% of the issued share capital of Marvin Leeds Marketing Services, Inc.
All the other entities detailed above have been in existence for the whole of the reporting period.
The registered offi ce for all UK incorporated subsidiaries is Units B&C, Orbital Forty Six, The Ridgeway Trading Estate, Iver, Bucks. SL0 9HW.
The registered offi ce for Warpaint Cosmetics Inc.is 445 Northern Boulevard – Great Neck, New York 11021.
The registered offi ce for Marvin Leeds Marketing Services, Inc. is 34W. 33rd St. – Suite 1015, New York NY 10001.
The registered offi ce for Badgequo Deutschland GmbH is Robert-Bosch-Straße 10, Haus 1, 56410 Montabaur, Germany.
The registered offi ce for Badgequo Hong Kong Limited is 12F, 3 Lockhart Road, Wanchai, Hong Kong.
The registered offi ce for Jinhua Badgequo Cosmetics Trading Co., Ltd is Room 1401, Gongyuan Building No. 307 South Shuanglong Street,
Wucheng District, Jinhua, Zhejiang, China 321000.
8.
Acquisitions
Marvin Leeds Marketing Services, Inc.
On 2 August 2018, the Group acquired the entire share capital of Marvin Leeds Marketing Services, Inc. (“LMS”), the Group’s US distributor. The
principal reason for acquiring LMS was to provide direct access to the Warpaint brand to some key existing customers and to open a number of new
opportunities in the US and the Americas more widely. LMS has contributed £2,356,000 to revenue for the period between the date of acquisition and
the balance sheet date. Had LMS been consolidated from 1 January 2018, the consolidated income statement for the year ended 31 December 2018
would show additional revenue of $5,500,000 (£4,093,000) and a loss before tax of $198,000 (£148,000).
The provisional fair value of the net assets at the acquisition date is as follows:
Book value Fair value adjustment
Customer lists
Property, plant and equipment
Stock
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax asset
Deferred tax liability
Net assets acquired
Goodwill arising on acquisition
Consideration
$’000
–
11
1,708
546
356
(2,228)
219
–
612
$’000
1,381
–
–
–
–
–
–
(346)
1,035
Book value
Fair value adjustment
£’000
–
8
1,307
418
272
(1,705)
168
–
468
£’000
1,057
–
–
–
–
–
(265)
792
Total
$’000
1,381
11
1,708
546
356
(2,228)
219
(346)
1,647
433
2,080
Total
£’000
1,057
8
1,307
418
272
(1,705)
168
(265)
1,260
331
1,591
The gross contractual amount of trade receivables is equal to the fair value. The fair value adjustment is based on level 3 inputs.
Goodwill comprises the value of expected synergies and other opportunities arising from the acquisition, management know how, the skilled work
force employed by LMS and other intangible assets that do not qualify for separate recognition. None of the goodwill recognised is expected to be
deductible for tax purposes.
352
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
8.
Acquisitions (continued)
The fair value of consideration paid is as follows:
Cash consideration
Costs associated with the acquisition of LMS are £160,000 and are disclosed within exceptional costs in note 3.
The profi t and loss for LMS from the date of acquisition to 31 December 2018 is as follows:
Revenue
Cost of sales
Gross profi t
Administrative expenses
Loss before tax
Tax expense
Total comprehensive loss for the period
Retra Holdings Limited
Annual Report 2018
$’000
2,080
2,080
$’000
3,029
(2,935)
94
(442)
(348)
75
(273)
£’000
1,591
1,591
£’000
2,356
(2,284)
72
(344)
(272)
58
(214)
On 30 November 2017, the Group acquired the entire share capital of Retra Holdings Limited (“Retra” or “Retra Holdings”), a cosmetics wholesaler
based in the UK. The principal reason for acquiring Retra Holdings was due to the company operating in the same industry, it also holds additional
customer base, product ranges and brands.
Retra has contributed £1,323,000 to revenue for the period between the date of acquisition and the balance sheet date, 31 December 2017. Had Retra
Holdings been consolidated from 1 January 2017, the consolidated statement of comprehensive income for the year ended 31 December 2017 would
show additional revenue of £18,944,000 and profi t before tax of £1,849,000.
The fair value of the net assets at the acquisition date is as follows:
Brands
Customer lists
Property, plant and equipment
Stock
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Corporation tax
Loans
Deferred tax liability
Net assets acquired
Goodwill arising on acquisition (as restated)
Consideration (as restated)
The gross contractual amount of trade receivables is equal to the fair value.
The fair value adjustment is based on level 3 inputs.
Book value
£’000
–
–
929
4,088
8,698
242
(2,234)
(74)
(8,687)
–
2,962
Fair value
adjustment
£’000
3,802
5,865
–
–
–
–
–
–
–
(1,740)
7,927
Total
£’000
3,802
5,865
929
4,088
8,698
242
(2,234)
(74)
(8,687)
(1,740)
10,889
7,019
17,908
Goodwill comprises the value of synergies and other opportunities arising from the acquisition, management know how, the skilled work force
employed by Retra Holdings and other intangible assets that do not qualify for separate recognition. None of the goodwill recognised is deductible
for tax purposes.
The fair value of consideration paid is as follows:
Cash consideration (as restated)
Share consideration
53
£’000
15,750
2,158
17,908
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Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
8.
Acquisitions (continued)
Share consideration is based on the issue of 1,052,631 shares at a market value on 30 November 2017 at £2.05 per share.
The fi nal consideration amount was based on a completion statement according to the sale and purchase agreement terms and delivery of the
statutory accounts of Retra Holdings. The purchase price was £17.7536 million (£15.75 million in cash and £2 million of consideration shares) which
takes into account a reduction of up to £450,000 following the delivery of the fi nal EBITDA statement, as a result the comparatives were restated by
reducing Goodwill by £450,000 and the inclusion of a receivable for the same amount.
The profi t and loss for Retra Holdings from the date of acquisition to 31 December 2017 is as follows:
Revenue
Cost of sales
Gross profi t
Administrative expenses
Finance expense
Profi t before tax
Tax expense
Total comprehensive income for the period
9.
Goodwill
Cost
At 1 January 2017
Arising on acquisition of Retra Holdings Limited
At 31 December 2017 (as restated)
Arising on acquisition of Marvin Leeds Marketing Services, Inc.
At 31 December 2018
Impairment
At 1 January 2017 and 2018
Impairment during the year
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017 (as restated)
£’000
1,323
(796)
527
(368)
(20)
139
(21)
118
£’000
513
7,019
7,532
331
7,863
–
812
812
7,051
7,532
Goodwill represents the excess of consideration over the fair value of the Group’s share of the net identifi able assets of the acquired subsidiary at the
date of acquisition. The carrying value at 31 December 2018 includes Treasured Scents £513,000, Retra £6,207,000 and LMS £331,000.
Goodwill arising on acquisition in the year ended 31 December 2017 relates to the Group’s acquisition of Retra Holdings. During the year ended
31 December 2018, the consideration for the acquisition of Retra Holdings was fi nalised. The previously disclosed purchase price of £18.36 million
was reduced by £450,000 resulting in a reduction in the goodwill fi gure arising on acquisition from £7,469,000 to £7,019,000. The comparative fi gures
at 31 December 2017 have been adjusted retrospectively. Goodwill arising on acquisition in the year ended 31 December 2018 relates to the Group’s
acquisition of LMS.
Impairment is calculated by comparing the carrying amounts to the recoverable amount being the higher of value in use derived from discounted cash
fl ow projections or the fair value less costs to sell. A CGU is deemed to be an individual division, and these have been grouped together into similar
classes for the purpose of formulating operating segments as reported in note 2. Value in use calculations are based on a discounted cash fl ow model
(“DCF”) for the subsidiary, which discounts expected cash fl ows over a fi ve-year period using a pre-tax discount rate of 16.7% (2017: 15%) for Retra
Holdings Limited and 20.1% for LMS. Cash fl ows beyond the fi ve-year period are extrapolated using a long term average growth rate of 2% (2017:
4.5%). The average growth rate beyond the fi ve-year period is lower than current growth rates and is in line with Management’s expectations for the
business. The fair value less costs to sell was based on a multiple of earnings less estimated costs to sell. Management have performed the annual
impairment review as required by IAS 36 and have concluded that no impairment is indicated for Treasured Scents Limited or LMS as the recoverable
amount exceeds the carrying value but that for Retra Holdings goodwill should be impaired by £812,000 as the recoverable amount was assessed as
being £6,207,000 compared to the carrying value of £7,019,000.
354
Annual Report 2018
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
9.
Goodwill (continued)
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 – for LMS this is based on forecasts incorporating growth of approximately 75% for the fi rst-year post-acquisition reducing to 10%
growth rate for years two to fi ve. For Retra, the growth rate over the next year is anticipated to be 9.1% reducing to approximately 4.3% in years 2 to 5.
EBITDA percentages for both LMS and Retra are based on historical rates achieved.
• Discount Rate – pre-tax discount rate of 16.7% for Retra Holdings and 20.1% for LMS refl ects 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 2% for LMS and
Retra.
Sensitivity to changes in assumptions
The impairment review of the Group is sensitive to changes in the key assumptions, most notably the pre-tax discount rate, the terminal growth rate
and projected operating cash fl ows. Reasonable changes to these assumptions are considered to be:
• 1.0% increase in the pre-tax discount rate.
• 1.0% reduction in the terminal growth rate.
• 10.0% reduction in projected operating cash fl ows.
Reasonable changes to the assumptions used, considered in isolation, would not result in an impairment of goodwill for LMS. For LMS, the value-in-
use exceeded the goodwill value by £3.3m.
At 31 December 2018, Retra’s goodwill was impaired as its value-in-use fell below the goodwill value. A 1% increase in the pre-tax discount rate
would increase the impairment by £1.25 million, a 1% reduction in the terminal growth rate would increase the impairment by £0.8 million and a 10%
reduction in projected operating cash fl ows would increase the impairment by £2.6m.
i
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S
t
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e
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e
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t
s
10.
Intangible assets
Cost
At 1 January 2017
On acquisition of subsidiaries
Additions
At 31 December 2017
On acquisition of subsidiaries
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2017
Charge for the year
At 31 December 2017
Charge for the year
Impairment losses
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
At 1 January 2017
Patents
£’000
Website
£’000
Licences
£’000
132
–
42
174
–
43
217
34
16
50
20
–
70
147
124
98
30
–
10
40
–
5
45
4
7
11
8
–
19
26
29
26
6
–
–
6
–
–
6
1
1
2
1
–
3
3
4
5
Total
£’000
1,486
9,667
52
11,205
1,057
48
12,310
83
469
552
2,272
–
2,824
9,486
10,653
1,403
Brands
£’000
–
3,802
–
3,802
–
–
3,802
–
63
63
761
–
824
2,978
3,739
–
Customer lists
£’000
1,318
5,865
–
7,183
1,057
–
8,240
44
382
426
1,482
–
1,908
6,332
6,757
1,274
55
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
11.
Property, plant and equipment
Costs
At 1 January 2017
Additions
On acquisition of subsidiary
Disposals
At 31 December 2017
Additions
On acquisition of subsidiary
Disposals
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Charge for year
On disposals
At 31 December 2017
Charge for year
On disposals
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
At 1 January 2017
Plant and machinery
Fixtures and fi ttings Computer equipment
Motor vehicles
£’000
£’000
£’000
£’000
91
5
731
–
827
73
–
(3)
897
40
25
–
65
170
(2)
233
664
762
51
73
440
60
–
573
192
6
–
771
12
122
–
134
194
–
328
443
439
61
68
22
137
–
227
114
2
(12)
331
12
16
–
28
137
(3)
162
169
199
56
80
88
–
(40)
128
13
–
–
141
11
21
(1)
31
28
–
59
82
97
69
Total
£’000
312
555
928
(40)
1,755
392
8
(15)
2,140
75
184
(1)
258
529
(5)
782
1,358
1,497
237
The net book value of assets held under fi nance leases or hire purchase contracts, included above are as follows:
Plant and machinery
Computer equipment
12.
Inventories
Finished goods
Provision
As at 31 December
2018
£’000
12
41
53
2017
£’000
21
67
88
As at 31 December
2018
£’000
15,472
(110)
15,362
2017
£’000
11,645
(114)
11,531
The cost of inventories recognised as an expense and included in ‘cost of sales’ amounted to £28,299,077 in the year ended 31 December 2018 (2017:
£19,215,000).
356
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
13.
Trade and other receivables
Trade receivables – gross
Allowance for doubtful debts
Trade receivables – net
Other receivables
Prepayments and accrued income
Deferred tax asset
Total
Annual Report 2018
As at 31 December
2018
£’000
11,139
(114)
11,025
485
1,010
241
12,761
2017
(restated)
£’000
12,076
(173)
11,903
1,022
751
–
13,676
The directors consider that the carrying value of trade and other receivables measured at book value and amortised cost approximates to fair value.
Trade receivables amounting to £1,909,000 are pledged as collateral against an invoice fi nancing facility.
The individually impaired receivables relate to the supply of goods to customers. A provision is recognised for amounts not expected to be recovered.
Movements in the accumulated impairment losses on trade receivables were as follows:
Accumulated impairment losses at 1 January
Additional impairment losses (released)/recognised during the year, net
Amounts written off during the year as uncollectible
Accumulated impairment losses at 31 December
As at 31 December
2018
£’000
173
(14)
(45)
114
2017
£’000
110
93
(30)
173
The impairment losses recognised during the year are net of a reversal of £14,000 (2017: loss of £93,000) relating to the recovery of amounts previously
written off as uncollectable.
14.
Cash and cash equivalents
Cash and cash equivalents include the following for the purposes of the cash fl ow statement:
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Cash at bank and in hand
15.
Trade and other payables
Current
Trade payables
Social security and other taxes
Other payables
Accruals and deferred income
Total
As at 31 December
2017
£’000
3,369
3,369
As at 31 December
2017
£’000
1,671
568
41
1,257
3,537
2018
£’000
4,041
4,041
2018
£’000
1,435
476
847
731
3,489
The directors consider that the carrying value of trade and other payables measured at book value and amortised cost approximates to fair value.
57
57
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
16.
Loans and borrowings
Bank loans
Repayable within 1 year
Repayable within 2 – 5 years
Hire purchase fi nance
Repayable within 1 year
Repayable within 2 – 5 years
Total
Repayable within 1 year
Repayable within 2 – 5 years
The interest rates expected are as follows:
Finance loans
Bank loans
Invoice fi nancing
Secured loans
As at 31 December
2017
£’000
401
221
622
181
593
774
582
814
1,396
As at 31 December
2017
%
7
10
–
2018
£’000
1,992
139
2,131
177
414
591
2,169
553
2,722
2018
%
7
10
3.5
The borrowings of the group are secured by a debenture including a fi xed charge over all present freehold and leasehold property, a fi rst fi xed charge
over book and other debts and a fi rst fl oating charge over all assets.
17. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using tax rate of 17% – 25%.
The movement on the deferred tax account is as shown below:
Opening balance
On acquisition of subsidiary
Recognised in profi t and loss:
Tax expense
Closing balance
Deferred tax liability
Year ended 31 December
Deferred tax asset
Year ended 31 December
2018
£’000
(1,959)
(265)
428
(1,796)
2017
£’000
(278)
(1,740)
59
(1,959)
2018
£’000
–
168
73
241
2017
£’000
–
–
–
–
The deferred tax liability has arisen due to the timing difference on accelerated capital allowances amounting to £51,000 (2017: £57,000) and on the
intangible assets acquired in a business combination amounting to £1,057,000 (2017: £1,902,000).
In the Finance Act 2016 the UK government announced its intention to reduce the standard corporation tax rate to 17% by 2020. The measure to reduce
the rate to 17% for the fi nancial year beginning 1 April 2020 was substantively enacted on 6 September 2016 and has, where applicable, been refl ected
in the fi nancial statements.
Deferred tax asset has arisen from loss carry forward for LMS amounting to £964,000 and recognised at a rate of 25%.
358
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
18. Dividends
Year to December 2018
Final dividend – 2017
Interim dividend – 2018
Year to December 2017
Final dividend – 2016
Interim dividend – 2017
19.
Called up share capital
Allotted and issued
Ordinary shares of £0.25 each:
At 1 January 2017
New share issue
At 31 December 2017 and 2018
All ordinary shares carry equal rights.
20. Reserves
Share premium
Annual Report 2018
Paid
Amount per share
10 Jul 18
13 Nov 18
2.6p
1.5p
Paid
Amount per share
13 Jul 17
13 Nov 17
1.5p
1.4p
Date
No of shares
'000
30 Nov 17
64,538
12,211
76,749
Total
£’000
1,995
1,150
3,145
Total
£’000
968
904
1,872
£’000
16,135
3,052
19,187
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The share premium reserve contains the premium arising on the issue of equity shares, net of issue expenses incurred by the Company.
Retained earnings
Retained earnings represent cumulative profi ts or losses, net of dividends and other adjustments.
Merger reserve
The merger reserve arose due to the group reconstruction in 2016. The effect of the application of merger accounting principles on the merger reserve
is that the share capital and other distributable reserves that existed in Warpaint Cosmetics Group Limited as at the point Warpaint London PLC legally
acquired Warpaint Cosmetics Group Limited is accounted for as if it had been in existence as at 31 December 2015 and as at the 1 January 2015. The
corresponding entry being the merger reserve so the overall net assets as at the comparative dates are not affected.
The 2016 movement on the merger reserve arose due to the acquisition of Treasured Scent (2014) Limited on 11 November 2016. The shareholders of
Treasured Scent (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.
The 2017 movement in merger reserve represents the difference between the issue price and the nominal value of shares issued as consideration for
the acquisition of subsidiary undertaking.
Other reserves
‘Other reserves’ have arisen from the share-based payment charge. The shares over which the options were issued are that of the parent company.
‘Other reserves’ have also arisen on translation of foreign subsidiaries.
59
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
21.
Share based payments
Movements in the number of options and their weighted average exercise prices are as follows:
Outstanding at the beginning of the year
Granted during the year
Expired during the year
Outstanding at the end of the year
Weighted average
Weighted average
exercise price (pence)
Number of options
exercise price (pence)
Number of options
2018
237.5
244.0
237.5
243.6
2018
255,892
3,837,462
(22,737)
4,070,617
2017
–
237.5
–
237.5
2017
–
277,788
(21,986)
255,892
The weighted average remaining contractual life of the options is 5.0 years.
The following options over ordinary shares have been granted by the Company:
29 June 2017
21 September 2018
Exercise price
Exercise period
Pence
237.50
254.5
(years)
Number of options
3
5
255,051
3,837,462
At the date of grant, the options were valued using the Black-Scholes option pricing model. The fair value per options granted and the assumptions
used in the calculations were as follows:
Expected volatility
Expected life (years)
Risk-free interest rate
Expected dividend yield
Fair value per option (£)
24 Sept 18
29 June 17
78%
10
1.61%
1.53%
0.422
64%
3
0.38%
2%
0.963
On 21 September 2018, share options with an exercise price of 254.5p, equal to the closing mid-market value immediately prior to the date of grant,
and subject to the achievement of demanding Earnings Per Share (“EPS”) and Total Shareholder Return (“TSR”) performance conditions measured
over a period of up to 5 years were granted to certain directors.
The share options are exercisable up to 10 years from the date of grant. Vesting is subject to the performance conditions set out below:
• 50% of the award is subject to an adjusted EPS growth performance condition. One third of this portion of the award will be tested and vest after three, four
and fi ve years. Vesting is based on adjusted EPS in the years ending Dec 2020, 2021 and 2022. Threshold vesting of 20% of the award is achieved at 12.5%
compound annual EPS growth and full vesting at 22.5% compound annual EPS growth, measured from 31 December 2017.
• 50% of the award is subject to an absolute TSR performance condition tested following the announcement of results for the years ending 31 December
2020, 2021 and 2022. Threshold vesting of 20% of the award is achieved at 8% compound annual TSR and straight line vesting up to 100% vesting at
18% compound annual TSR, measured from 31 December 2017.
An additional grant of 460,494 share options with the same terms was made on the same date to three senior management individuals of the Company.
On 29 June 2017, the Company granted in aggregate over 277,788 ordinary shares of 25 pence each in the Company under the Enterprise Management
Incentive Scheme to all staff members, including the Company’s Chief Financial Offi cer, Neil Rodol, but excluding all other directors at that time.
The Options are exercisable for a period of seven years from 29 June 2020, subject to certain performance conditions being met, including that the
compound annual growth rate in the Company’s earnings per share must exceed 8 per cent over the three fi nancial years commencing 1 January
2017, subject to the discretion of the Company’s remuneration committee.
The charge in the statement of comprehensive income for the share based payments during the year was £116,000 (2017: £45,000).
360
Annual Report 2018
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
22. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Related party transactions
are considered to be conducted at arm’s length.
Key management personnel are considered to be the directors. Compensation of the directors is disclosed in note 4 with the exception of dividends
and drawings which are disclosed in note 18.
During 2018, Warpaint Cosmetics (2014) Ltd paid rent in the sum of £120,000 (2017: £120,000) to Direct Supplies Group Ltd, of which Mr S Bazini is a
director. At the year end the amount due to Direct Supplies Group Ltd was £39,518 (2017: £80,000).
During 2018, Warpaint Cosmetics (2014) Ltd paid rent in the sum of £120,000 (2017: £120,000) to Warpaint Cosmetics Ltd, of which Mr E Macleod and
Mr S Bazini are directors. At the year end the amount due to Warpaint Cosmetics Ltd was £nil (2017: £36,000).
During 2018, Retra Holdings Limited paid rent in the sum of £197,083 (2017: £nil) to Warpaint Cosmetics Ltd, of which Mr E Macleod and Mr S Bazini
are directors.
During the year, the Company advanced £nil (2017: £12,500) to Mr S Bazini, a director of the Company. During the year, the director repaid £100 (2017:
£26,276). Mr S Bazini incurred expenses on behalf of the Company totalling £nil (2017: £1,804). At the year end the Company owed the sums of £100
(2017: £nil) to Mr S Bazini.
During the year, the Company advanced £nil (2017: £12,500) to Mr E Macleod, a director of the Company. During the year, the director repaid £100
(2017: £17,711). Mr E Macleod was reimbursed expenses on behalf of the Company totalling £nil (2017: £4,071). At the year end the Company owed the
sums of £100 (2017: £Nil) to Mr E Macleod.
23.
Financial instruments
Capital risk management
The board has overall responsibility for the determination of the Group’s risk management objectives and policies. The overall objective of the board
is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and fl exibility. The Group reports in
Sterling. All funding requirements and fi nancial 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 £37,550,000 as at 31 December 2018 (2017: £37,120,000) as
shown in the statement of changes in equity.
The Group maintains or adjusts its capital structure through the payment of dividends to shareholders and issue of new shares.
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Year ended 31 December
2018
£’000
4,041
11,510
15,551
(3,013)
(2,722)
(5,735)
9,816
2017
(restated)
£’000
3,369
12,925
16,294
(2,969)
(1,396)
(4,365)
11,929
Financial assets
Financial assets at amortised cost (2017: loans and receivables) including cash and cash equivalents:
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables
Bank loan
Net
Financial assets measured at fair value through the income statement comprise cash and cash equivalents.
Financial assets measured at amortised cost comprise trade receivables and other receivables.
Financial liabilities measured at amortised cost comprise trade payables and other payables, and bank loans.
61
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
23.
Financial instruments (continued)
Cash and cash equivalents
This comprises cash and short-term deposits held by the Group. The carrying amount of these assets approximates their fair value.
General risk management principles
The Group’s activities expose it to a variety of risks including market risk (interest rate risk), credit risk and liquidity risk. The Group manages these
risks through an effective risk management programme and through this programme, the board seeks to minimise potential adverse effects on the
Group’s fi nancial 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 fi nancial risks of the
Group is in place to ensure appropriate risk management of its operations.
The following represent the key fi nancial risks that the Group faces:
Market risk
The Group’s activities expose it to the fi nancial risk of interest rates.
Interest rate risk
The Group’s interest rate exposure arises mainly from its interest-bearing borrowings. Contractual agreements entered into a fl oating rates expose the
entity to cash fl ow 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 fl uctuations. An increase in the rate of interest by 100 basis points would decrease profi ts by
£18,000 (2017: £13,000) with an increase in profi ts by the same amount for a decrease in the rate of interest by 100 basis points.
Credit risk
Credit risk is the risk of fi nancial loss to the Group if a customer or a counterparty to a fi nancial instrument fails to meet its contractual obligations.
The Group’s principal fi nancial 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 fi nancial condition of accounts receivable using independent
ratings where available or by assessment of the customer’s credit quality based on its fi nancial 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 identifi ed. The Group makes a provision in the fi nancial statements for expected credit
losses based on an evaluation of historical data and applies percentages based on the ageing of trade receivables.
The maximum exposure to credit risk in respect of the above is the carrying value of fi nancial assets recorded in the fi nancial statements. At
31 December 2018, the Group has trade receivables of £11,025,000 (2017: £11,903,000).
The following table provides an analysis of trade receivables that were due, but not impaired, at each fi nancial year end. The Group believes that the
balances are ultimately recoverable based on a review of past impairment history and the current fi nancial status of customers.
Current
1 – 30 days
31 – 60 days
61 – 90 days
91 + days
Allowance for doubtful debts
Total trade receivables – gross
As at 31 December
2018
£’000
4,206
3,014
2,597
924
398
(114)
2017
£’000
4,241
3,550
2,623
868
794
(173)
11,025
11,903
The directors are unaware of any factors affecting the recoverability of outstanding balances at 31 December 2018 and, consequently, no further
provisions have been made for bad and doubtful debts.
The allowance for bad debts has been calculated using a 12 month expected credit loss model, as set out below, in accordance with IFRS 9. There are
no receivables subject has been subject to a signifi cant increase in credit risk. The fi gures presented below for 2017 are for comparison purposes only.
The actual doubtful debt allowance for 2017 was £173,000 and the comparatives have not been restated.
362
Annual Report 2018
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
23.
Financial instruments (continued)
As at 31 December
2018
As at 31 December
2017
£’000
4,206
3,014
2,597
924
398
%
0.122
0.366
1.098
3.294
9.882
£’000
5
11
29
30
39
114
£’000
4,241
3,550
2,623
868
794
%
0.122
0.366
1.098
3.294
9.882
£’000
5
13
29
29
78
154
Current
1 – 30 days
31 – 60 days
61 – 90 days
91 + days
Credit quality of fi nancial assets
Trade receivables, gross (Note 13):
Receivable from large companies
Receivable from small or medium-sized companies
Total neither past due nor impaired
Past due but not impaired:
Less than 30 days overdue
30 – 90 days overdue
Total past due but not impaired
Individually determined to be impaired (gross):
Less than 30 days overdue
30 – 90 days overdue
Total individually determined to be impaired (gross)
Less: Impairment provision
Total trade receivables, net of provision for impairment
Cash and cash equivalents, neither past due nor impaired (Moody’s ratings of respective counterparties):
A rated
AA rated
BAA rated
Total cash and cash equivalents
For the purpose of the groups monitoring of credit quality, large companies or groups are those that, based on information available to management
at the point of initially contracting with the entity, have annual turnover in excess of £100,000 (2017: £100,000).
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter diffi culty in meeting its fi nancial
obligations as they fall due. The Group’s policy is to ensure that it will always have suffi cient 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 suffi cient funds to meet the obligations as they fall due.
The board receives regular forecasts which estimate cash fl ows over the next eighteen months, so that management can ensure that suffi cient
funding is in place as it is required.
63
As at 31 December
2018
£’000
3,617
589
4,206
3,014
3,805
6,819
16
98
114
(114)
11,025
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2017
£’000
3,929
312
4,241
3,550
4,112
7,662
–
173
173
(173)
11,903
As at 31 December
2018
£’000
434
1,086
2,521
4,041
2017
£’000
800
–
2,569
3,369
Warpaint London P LC
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
23.
Financial instruments (continued)
The tables below summarise the maturity profi le of the combined group’s non-derivative fi nancial liabilities at each fi nancial year end based on
contractual undiscounted payments, including estimated interest payments where applicable:
Year ended 31 December 2018
Trade payables
Other payables
Accruals
Bank loans
Estimated interest
Year ended 31 December 2017
Trade payables
Other payables
Accruals
Bank loans
Estimated interest
Less than 6 months
Between 6 months
and 1 year
£’000
1,435
847
731
1,910
50
4,973
£’000
–
–
–
259
125
384
Less than 6 months
Between 6 months
and 1 year
£’000
1,671
41
1,257
–
102
3,071
£’000
–
–
–
582
63
645
Between 1
and 5 years
£’000
–
–
–
553
491
1,044
Between 1
and 5 years
£’000
–
–
–
814
201
1,015
Total
£’000
1,435
847
731
2,722
666
6,401
Total
£’000
1,671
41
1,257
1,396
366
4,731
The borrowings of the group are secured by a debenture including a fi xed charge over all present freehold and leasehold property, a fi rst fi xed charge
over book and other debts and a fi rst fl oating charge over all assets.
Foreign exchange risk
The Group operates in a number of markets across the world and is exposed to foreign exchange risk arising from various currency exposure in
respect of cash and cash equivalents, trade receivables and trade payables, in particular with respect to the US dollar. The Group mitigates its foreign
exchange risk by negotiating contracts with key suppliers that offer a fl exible discount structure to offset any adverse foreign exchange movements
and through the use of forward currency contracts. At December 2018, there were total sums of £72,345 (2017: £304,527) held in foreign currency.
The Group is also exposed to currency risk as the assets of its subsidiary are denominated in US Dollars. At 31 December 2018 the net foreign assets
were £0.3m (2017: £nil). Differences that arise from the translation of these assets from US dollar to sterling are recognised in other comprehensive
income in the year and the cumulative effect as a separate component in equity. The Group does not hedge this translation exposure to its equity.
A 5% weakening of sterling would result in a £4,000 increase in reported profi ts and equity, while a 5% strengthening of sterling would result in £3,000
decrease in profi ts and equity.
Derivatives carried at fair value:
Exchange (loss)/gain on forward foreign currency contracts
2018
£’000
–
2017
£’000
(3)
The Group, along with other businesses, will face the risk of infl ationary pressures through commodities cost increases, further driven by currency
weakness post Brexit.
Forward contracts and options
The Group enters into forward foreign exchange contracts and options to manage the risk associated with anticipated sale and purchase transactions
which are denominated in foreign currencies.
As at 31 December 2018, the group has 4 (2017: 1) forward foreign exchange contracts outstanding. Derivative fi nancial instruments are carried at
fair value.
364
Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
23.
Financial instruments (continued)
The following table details the foreign currency contracts outstanding as at the balance sheet date.
a) Contracted exchange 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
Annual Report 2018
2018
£/€
1.1293
1.1275
2018
£’000
779
195
974
2018
€’000
880
220
1,100
2017
£/$
1.3393
–
2017
£’000
359
–
359
2017
$’000
481
–
481
Fair value of fi nancial assets and liabilities
Financial instruments are measured in accordance with the accounting policy set out in Note 1. All fi nancial instruments carrying value approximates
its fair value with the exception of foreign currency forward contracts and options which are considered Level 2. The directors consider that there is no
signifi cant difference between the book value and fair value of the Group’s fi nancial assets and liabilities and is considered to be immaterial.
24. Pension costs
The Group operates a defi ned 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 profi t in each period was £62,900 (2017: £13,800).
25. Operating lease commitments – Group company as lessee
The Group leases offi ces and warehouses under non-cancellable operating lease agreements. The lease terms are between 5 and 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
26.
Controlling party
In the opinion of the directors there is no ultimate controlling party.
27. Earnings per share
2018
£’000
700
2,800
2,345
5,845
2017
£’000
466
1,542
1,290
3,298
Basic earnings per share are calculated by dividing profi t or loss attributable to ordinary equity holders by the weighted average number of ordinary
shares in issue during the period.
The weighted average number of shares for the current year includes the shares issued as consideration for the acquisition of Retra Holdings on
30 November 2017.
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Notes to the Consolidated Financial Statements (continued)
for the year ended 31 December 2018
27. Earnings per share (continued)
Basic earnings per share (pence)
Diluted earnings per share (pence)
The calculation of basic and diluted earnings per share is based on the following data:
Earnings
Earnings for the purpose of basic earnings per share, being the net profi t
Number of shares
Weighted number of ordinary shares for the purpose of basic earnings per share
Potentially dilutive shares awarded
Weighted number of ordinary shares for the purpose of diluted earnings per share
2018
4.66
4.66
2018
£’000
3,575
2017
8.34
8.34
2017
£’000
5,473
2018
2017
76,749,125
65,575,658
–
–
76,749,125
65,575,658
The 4,092,513 share options (2017: 255,862) in issue during the year has not been included in the computation of diluted earnings per share, as per
IAS 33, the share options are not dilutive as they are not likely to be exercised given that the exercise price is higher than the average market price.
28. Notes supporting statement of cash fl ows
Signifi cant non-cash transactions from investing activities is the equity consideration for the business combination of £2,158,000 during the year
ended 31 December 2017. The non-cash transactions arising on the acquisition of LMS during the year ended 31 December 2018 and Retra during the
year ended 31 December 2017 are as follows:
2018
Total
£’000
8
1,307
417
168
272
(1,704)
–
–
468
Current
loans and
borrowings
£’000
–
7,855
(7,273)
582
261
1,326
2,169
2017
Total
£’000
929
4,088
8,698
–
292
(2,234)
(74)
(8,687)
2,962
Total
£’000
–
8,689
(7,293)
1,396
–
1,326
2,722
Non-current
loans and
borrowings
£’000
–
834
(20)
814
(261)
–
553
Property, plant and equipment
Stock
Trade and other receivables
Deferred tax
Cash and cash equivalents
Trade and other payables
Corporation tax
Loans
Non-cash transactions from fi nancing activities are shown in the table below.
At 1 January 2017
Non-cash fl ows:
Amounts recognised on business combinations
Cash fl ows
At 31 December 2017
Non-cash fl ows: reclassifi cation of loans
Cash fl ows
At 31 December 2018
366
Company Statement of Financial Position
for the year ended 31 December 2018
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
Merger reserve
Share option reserve
Retained earnings
Shareholders’ funds
Annual Report 2018
2018
£’000
35,833
35,833
14,988
113
15,101
67
–
67
15,034
50,867
19,187
19,359
1,895
169
10,257
50,867
2017
(restated)
£’000
34,248
34,248
11,249
149
11,398
189
–
189
11,209
45,457
19,187
19,359
1,895
45
4,971
45,457
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Note
3
4
5
6
7
8
As permitted by section 408 of the Companies Act 2006, the profi t and loss account is not presented. The profi t for the year amounted to £8,433,000
(2017: £4,592,000).
The fi nancial statements on pages 67 to 70 were approved and authorised for issue by the board of directors on 10 April 2019 and were signed on its
behalf by:
Neil Rodol
Chief Financial Offi cer
The notes on pages 42 to 70 form part of these fi nancial statements.
67
Warpaint London P LC
Company Statement of Changes in Equity
for the year ended 31 December 2018
As at 31 December 2016
Shares issued during the year
Shares issued for Retra Holdings
Share issue costs
Movement in other reserves
Profi t for the year
Dividends paid
Notes
6/7
6/7
Share Capital
Share Premium
Merger reserve
£’000
16,135
2,789
263
–
–
–
–
£’000
1,806
18,410
–
(857)
–
–
–
£’000
–
–
1,895
–
–
–
–
As at 31 December 2017
19,187
19,359
1,895
Movement in other reserves
Profi t for the year
Dividends paid
–
–
–
–
–
–
–
–
–
Share Option
Reserve
£’000
–
–
–
–
45
–
–
45
124
–
–
Retained
Earnings
£’000
2,251
–
–
–
–
Total
Equity
£’000
20,192
21,199
2,158
(857)
45
4,592
4,592
(1,872)
(1,872)
4,971
45,457
–
8,433
124
8,433
(3,147)
(3,147)
As at 31 December 2018
19,187
19,359
1,895
169
10,257
50,867
The notes on pages 42 to 70 form part of these fi nancial statements.
368
Annual Report 2018
Notes to the Company Financial Statements
for the year ended 31 December 2018
1.
Signifi cant accounting policies
Basis of preparation
Where equity instruments are granted to persons other than employees,
the profi t and loss account is charged with the fair value of goods and
services received.
These separate fi nancial 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 fi nancial statements are presented in GBP.
In preparing the separate fi nancial statements of the parent company,
advantage has been taken of the following disclosure exemptions
available to qualifying entities:
• Only one reconciliation of the number of shares outstanding at the
beginning and end of the period has been presented as the reconciliations
for the group and the parent company would be identical;
• No cash fl ow statement or net debt reconciliation has been presented
for the parent company;
• Disclosures in respect of the parent company’s income, expense, net
gains and net losses on fi nancial instruments measured at amortised
cost have not been presented as equivalent disclosures have been
provided in respect of the group as a whole;
• Disclosures in respect of the parent company’s share-based payment
arrangements have not been presented as equivalent disclosures have
been provided in respect of the group as a whole; and
• No disclosure has been given for the aggregate remuneration of the key
management personnel of the parent company as their remuneration
is included in the totals for the group as a whole.
The fi nancial 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 fi nancial statements except
as set out below.
Investments
Investments in subsidiaries are measured at cost less accumulated
impairment.
Share-based payments
Where share options are awarded to employees, the fair value of the options
at the date of grant is charged to profi t or loss over the vesting period. Non-
market vesting conditions are taken into account by adjusting the number
of equity instruments expected to vest at each balance sheet date so that,
ultimately, the cumulative amount recognised over the vesting period is based
on the number of options that eventually vest. Market vesting conditions are
factored into the fair value of the options granted. The cumulative expense is
not adjusted for failure to achieve a market vesting condition.
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
fi nancial statements.
Critical accounting estimates and judgements
The Company 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 signifi cant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next fi nancial year are discussed below.
Judgements and accounting estimates and assumptions
Impairment of investments
An impairment test is undertaken where there are indicators of the
value of the investment being impaired. The directors use judgement in
assessing the value of investments held.
Recoverability of intercompany balances
The directors assess the recoverability of balances from group companies
based on the estimated trading results of the subsidiary companies.
Dividends
Dividends are recognised when they become legally payable. In the case
of interim dividends to equity shareholders, this is when declared by the
directors. In the case of fi nal dividends, this is when approved by the
shareholders at the annual general meeting.
Prior year restatement
During the year ended 31 December 2018, the consideration for the acquisition
of Retra Holdings Limited was fi nalised. The previously disclosed purchase
price of £18.36 million was reduced by £450,000, on delivery of a fi nal EBITDA
statement to the previous owners of Retra, resulting in a reduction in the
investment and an increase in the other receivable. The comparative fi gures
at 31 December 2017 have been adjusted retrospectively. This has no impact
on the reserves or the shareholders’ funds.
2.
Staff costs
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Year ended 31 December
2018
£’000
169
19
2
190
2017
£’000
147
16
–
163
The fair value of the award also takes into account non-vesting conditions.
These are either factors beyond the control of either party (such as a
target based on an index) or factors which are within the control of one
or other of the parties (such as the company keeping the scheme open
or the employee maintaining any contributions required by the scheme).
Wages and salaries
Social security costs
Pension costs
Where the terms and conditions of options are modifi ed before they
vest, the increase in the fair value of the options, measured immediately
before and after the modifi cation, is also charged to profi t or loss over the
remaining vesting period.
69
Warpaint London P LC
Notes to the Company Financial Statements (continued)
for the year ended 31 December 2018
2.
Staff costs (continued)
The average monthly number of employees during the period was as
follows:
Year ended 31 December
5.
Creditors due within one year
Directors
Directors’ remuneration, included in staff costs
Salaries
2018
No.
6
6
2018
£’000
169
169
2017
No.
6
6
2017
£’000
147
147
The directors are the only key management personnel.
3.
Investments
Trade payables
Other taxation and social security
Accruals and deferred income
6.
Called up share capital
Allotted and issued
Ordinary shares of £0.25 each
2018
£’000
–
29
38
67
2017
£’000
135
27
27
189
No of shares
Date
’000
£’000
Cost
At January 2018 (as restated)
Additions
At December 2018
Net book value
At 31 December 2018
At 31 December 2017 (as restated)
At 31 December 2018
At 1 January
£’000
New share issue
30 Nov 17
At 31 December 2017 and 2018
64,538
12,211
76,749
16,135
3,052
19,187
34,248
1,585
35,833
35,833
34,248
All ordinary shares carry equal rights.
7.
Share premium
Share premium
2018
£’000
19,359
2017
£’000
19,359
During the year ended 31 December 2018, the consideration for the
acquisition of Retra Holdings Limited was fi nalised. The previously disclosed
purchase price of £18.36 million was reduced by £450,000 resulting
in a reduction in the investment fi gure by £450,000. The comparative
fi gures at 31 December 2017 have been adjusted retrospectively and the
corresponding reductions is recognised in other debtors.
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 2017, the Company issued 11,157,894 ordinary £0.25 shares
at a price of £1.90 for cash and 1,052,631 shares at a price of £2.05 per
share as consideration for an acquisition, resulting in share premium of
£20,216,000 less directly attributable share issue costs of £857,000.
On 3 August 2018 Warpaint London PLC acquired the entire share capital
in Marvin Leeds Marketing Services Inc.
8.
Other reserves
The Company subsidiaries, as at the period end are shown in note 8 of the
consolidated fi nancial statements.
4.
Debtors (as restated)
Due from group undertakings
Other debtors
Prepayments and accrued income
2018
£’000
14,975
1
12
14,988
2017
(restated)
£’000
10,791
450
8
11,249
Amounts due from related undertakings are unsecured, non-interest
bearing and payable on demand.
The movement in merger reserve represents the difference between the
issue price and the nominal value of shares issued as consideration for
the acquisition of subsidiary undertaking.
The share option represents share-based payment charges on the share
options that were in issue.
9.
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 22 of the Consolidated Financial Statements.
370
Officers and Professional Advisers
Directors
Registered Offi ce
C Garston
S Bazini
E Macleod
N Rodol
S Craig
K Sadler
P Hagon
Chairman
Joint Chief Executive Offi cer
Joint Chief Executive Offi cer
Chief Financial Offi cer
General Counsel & Company
Secretary
Non-Executive Director
Non-Executive Director
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
100 Wood Street
London
EC2V 7AN
BDO LLP
55 Baker Street
London
W1U 7EU
DAC Beachcroft LLP
25 Walbrook
London
EC4N 8AF
Neville Registrars Limited
Neville House
Steel Park Road
Halesowen
West Midlands
B62 8HD
IFC Advisory Limited
24 Cornhill
London
EC3V 3ND
Perivan Financial Print 254163
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Units B&C
Orbital Forty Six
The Ridgeway Trading Estate
Iver
Buckinghamshire
SL0 9HW