TIDMFCE
FACES COSMETICS PLC
("FACES" OR THE "COMPANY")
FINAL RESULTS
FOR THE YEAR ENDED 31 JULY 2008
Highlights of the Year
* Group revenue of C$3,297,994, a decrease of 6.9% on 2007 (C$3,541,000)
* Operating loss increased 42.4% to C$4,268,536 (2007: C$2,998,362)
* Loss before tax of C$4,275,379, an increase of 34.7% on 2007 (C$3,174,133)
* Cash and short term investment balance of C$5,691,000 available on 31 July
2008 to continue investing in the infrastructure of FACES and position it
for growth (2007: C$0)
* Expansion in Honduras and Ecuador
* Plans agreed for the first kiosk in India and to build a retail network
* Negotiations have commenced for expansion in the Middle East, Russia and
Eastern Europe
CHIEF EXECUTIVE OFFICER'S STATEMENT
Overview: Introduction
The progress achieved in the first half was partially sustained in the second
half, in spite of increasingly uncertain trading conditions.
In this relatively short period the Company has continued to lay the
foundations for its expansion in established and international markets.
Financial Overview
Revenue for the period was C$3,297,994 (2007: C$3,541,000) and the loss before
tax was C$4,275,379 (2007: C$3,174,133).
Earnings/(loss) per share, basic and diluted, were C$(0.03) (2007: C$(0.06)).
Cash used in operations in the period was C$2,254,510 (2007: C$1,635,567).
The Group balance sheet remains strong. Total capital and reserves attributable
to equity shareholders of the Company at year end were C$5,883,444 (2007: C$
(115,685)).
Business Overview
The Directors consider the key performance indicators of the Group to be:
* Revenue decreased 6.9% to C$3,297,994 (2007: C$3,541,000)
* Operating loss increased 42.4% to C$4,268,536 (2007: C$2,998,362)
* Losses after tax increased 34.7% to C$4,275,379 (2007: C$3,174,133)
Operational Overview
Since admission to AIM in September 2006, the Company has concentrated on
laying the foundations for expansion in the international market, more recently
with its ongoing development in India as the principal source of growth.
Commencing in spring 2009 the Company expects to start opening its retail
outlets in India.
In Canada, during the year ended 31 July 2008, in line with the FACES strategy
to expand its branded cosmetics and skincare business through its franchise
model, the Group has completed the sale of one Group-owned retail location in
Winnipeg, Canada to a new franchisee. In addition, it has opened new franchise
locations in Alberta and Quebec.
In the United States, during the year ended 31 July 2008, the Company has
grouped into four geographical multi-franchise territories focused on
California, Northern Virginia, Maryland and Texas. The area developer
franchisees have been constrained by the lack of development funding available
following the banking crisis in the United States but plan to open stores
progressively as the market economy improves.
In Mexico, during the year ended 31 July 2008, the FACES licensee added three
new locations to its existing store portfolio under the initiative launched in
the previous year to establish FACES branded departments within host stores.
The initiative is expected to have further expansion planned in 2009.
In Central America, during the year ended 31 July 2008, a franchised store has
opened at City Mall in San Pedro Sula, Honduras. San Pedro Sula is the second
largest city in the country and considered the economic heartland and
Industrial Capital of Honduras. The Company also signed a second location for
development in Honduras. The second location opened in the capital city of
Tegucigalpa in December 2008 and further opportunities for expansion in Central
America could follow.
In South America, during the year ended 31 July 2008, an area development
agreement has been signed for the establishment of a network of franchised
locations throughout Ecuador. The first FACES location in South America opened
in September 2008 in the Mall del Rio Shopping Centre in Cuenca, Ecuador.
In Eastern Europe, during the year ended 31 July 2008, a franchise location
opened in Pristina, Kosovo.
New Product Development
In line with the trends in the cosmetic market, the Group has expanded its
existing range of skin care products and is planning to launch a line of body
care products and a perfecting skin foundation line. In addition, the Company
has developed a line of 14 products for the mass market in India.
The Group intends to expand its product line under all categories into mineral
makeup.
Dividend
In the light of the likely slow-down in consumer spending which may impact our
trading, the Board has decided to conserve cash and considers it prudent not to
recommend the payment of a dividend at this stage.
People
I would like to thank all our employees for their continuing dedication to
serving our customers effectively. We have strong teams in each of the
businesses, and I am confident in the more challenging times I see ahead they
will respond and outperform their competition.
Prospects
The current economic environment is expected to have an impact on the Group's
performance in 2009. This economic crisis has led to significant falls in the
value of global stock markets, which have been exaggerated in small cap, low
liquidity stocks. It is the opinion of the Board that the financial instability
and a weakening of retail trading conditions in the Company's key markets have
put pressure on its growth plans in the US and Europe and stagnated growth in
the Company's established markets of Canada and Mexico. Working capital remains
tightly controlled and the Board believes that the Group has sufficient
resources for at least 12 months from signing these financial statements. In
addition, the Group's major shareholder, Indivision Ventures II has stated that
they will provide financial support to the Group, if required, until 31 July
2010.
The Group plans to roll-out its kiosks through the existing key retail formats
in India, across the key Indian cities. The Group is in discussions with
leading retailers in the Middle East to roll out FACES through their retail
formats in the region. The Company hopes to conclude arrangements for the
launch of FACES products in the Middle East region during the year to 31 July
2009. The Group is in similar discussions in other countries, including Russia,
Central Africa and Central Eastern Europe.
The Group's international focus will be to strengthen its business with
existing franchisees, to expand distribution and to develop the Group's
personnel by providing effective regional management, supervision and training.
Brand awareness will be enhanced by promoting a cost effective regional
communications program, building trade and customer recognition and attracting
new franchisees.
At the time of writing, it seems inevitable that there will be minimal growth
in consumer spending during 2009. In these circumstances, I remain cautious as
to the overall prospects for 2009 but confident that our management teams will
continue to expand the business and maximize profitability and return on
capital employed and, build on the solid foundations that have been established
and position the Group to take advantage of the economic upturn when it occurs.
Ramesh Jolly
Chief Executive Officer
24 February 2009
FACES COSMETICS PLC
CONSOLIDATED INCOME STATEMENT
YEAR ENDED 31 JULY 2008
(audited) (restated)
2008 2007
Note C$'000 C$'000
Revenue
- Continuing 3,298 3,541
Cost of sales (2,699) (2,005)
Gross profit 599 1,536
Administration and operating expenses 4,098 3,472
Amortisation 163 101
Depreciation 62 99
Share warrant and option expenses 545 399
Share issue costs - 463
(4,868) (4,534)
Operating loss (4,269) (2,998)
Finance income 234 29
Finance expenses (241) (205)
Net finance (expense)/income (7) (176)
Loss before tax (4,276) (3,174)
Taxation - -
Loss for the year (4,276) (3,174)
Loss per share
- basic and diluted 5 $(0.03) $(0.06)
FACES COSMETICS PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 JULY 2008
(audited) (restated)
2008 2007
Notes C$'000 C$'000
Assets
Non-current assets
Notes and loans receivable 80 56
Property, plant and equipment 178 257
Intangible assets 440 586
698 899
Current assets
Inventories 3 1,054 2,121
Notes and other loans receivable 65 65
Trade and other receivables 405 460
Other debtors, deposits and prepaid expenses 213 123
Cash and short term investments 5,691 20
7,428 2,789
Total assets 8,126 3,688
Equity
Capital and reserves attributable to equity
holders of the Company
Share capital - ordinary shares 4 3,626 1,092
Share capital - preference shares 4 645 646
Share premium 5,926 474
Share warrants and options reserve 2,649 399
Merger reserve 4,248 4,248
Translation reserve 86 45
Retained losses (11,296) (7,020)
Total equity 5,884 (116)
Liabilities
Non-current liabilities
Long term debt 34 48
Current liabilities
Bank loan and overdraft 102 857
Current portion - long term debt 306 549
Loans from related parties 323 1,052
Trade and other payables 1,294 1,009
Deferred income 183 289
2,208 3,756
Total liabilities 2,242 3,804
Total equity and liabilities 8,126 3,688
These financial statements were approved by the Board of Directors on 24
February 2009 and were signed on its behalf by Dr Ramesh Jolly, Chief Executive
Officer.
FACES COSMETICS PLC
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 JULY 2008
(audited) (restated)
2008 2007
C$'000 C$'000
Cash flow from/(used in) operating activities
Net earnings (loss) (4,276) (3,174)
Items not involving cash:
Amortisation 163 101
Depreciation 62 99
Share warrant and option expenses 545 399
Write-down of inventory 555 235
Changes in non-cash operating working capital:
Inventory 512 106
Trade and other receivables 55 11
Other debtors, deposits and prepaids (90) (88)
Trade and other payables 285 367
Deferred income (106) 264
Gain (loss) on foreign currency 41 45
Net cash used in operations (2,254) (1,635)
Cash flow from/(used in) investing activities
Proceeds from disposal of tangible fixed assets 17 99
Proceeds due from disposal of plant and equipment - (78)
Acquisition of intangible assets (17) (111)
(Increase)/decrease in note and loans receivable (24) 197
Net cash (used in)/generated from investing (24) 107
activities
Cash flow from/(used in) financing activities
Common shares issued for cash 9,950 2,496
Share issue costs (475) (1,865)
Proceeds from/(repayment of) long term debt (42) (509)
Loans from related parties (729) 753
Net cash generated from financing activities 8,704 875
Increase/(decrease) in cash and cash equivalents 6,426 (653)
Cash and cash equivalents at the beginning of the (837) (184)
year
Cash and cash equivalents at the end of the year 5,589 (837)
NOTES TO THE FINANCIAL INFORMATION
1. Basis of preparation
(a) Statement of compliance:
The consolidated financial statements have been prepared and presented in
accordance with International Financial Reporting Standards (IFRSs).
The consolidated financial statements were approved by the Board of Directors
on 24 February 2009.
A number of new standards, amendments to standards and interpretations are not
yet effective for the year ended 31 July 2008 and have not been applied in
preparing these consolidated financial statements.
IFRS 8, Operating Segments, introduces the "management approach" to segment
reporting. IFRS 8, which becomes mandatory for the Group's 2010 financial
statements, will require the disclosure of segment information based on their
internal reports regularly reviewed by the Group's Chief Operating Decision
Maker in order to assess each segment's performance and to allocate resourcesto them.
Currently the Group presents segment information in respect of its business and
geographical segments, however this will be revised under IFRS 8 to reflect the
internal reports used by management to monitor the business.
(b) Going concern:
The financial information has been prepared on a going concern basis which the
directors believe to be appropriate for the following reasons.
Although the Group is in a start-up phase and is generating operating losses to
date and has breached its bank loan covenants, the Group meets its day to day
working capital requirements through cash and cash equivalents, which was
C$2,870,405 as at 20 February 2009.
The directors have prepared projected cash flow information for a period ending
more than twelve months from the date of their approval of this financial
information. The forecasts prepared make key assumptions in respect of
successfully entering into a new market and the ability to establish new retail
outlets in the new market.
On the basis of this cash flow information, the directors believe they have
sufficient cash to meet the Group and Company's liabilities as they fall due
for payment. However, the availability of sufficient funding is based on
substantially achieving these cash flow forecasts and the margin is not large.
The Group has sufficient cash available to settle its bank loan obligations
totalling C$340,000 as at 31 July 2008, which have been in breach since the
balance sheet date. A further C$90,525 has been repaid since the balance sheet
date.
As a result, the Company may be dependent on the receipt of additional
financial support from its shareholders, Indivision Ventures II, the Group's
major shareholder. Indivision Ventures II has indicated that for at least the
period up to 31 July 2010 it will continue to make available such funds as are
needed by the Company. The directors consider that this should enable the
Company to continue in operational existence for the foreseeable future by
meeting its liabilities as they fall due for payment. As with the Group placing
reliance on its shareholders for financial support based on its forecasts, the
directors acknowledge that there can be no certainty that this support will
continue although, at the date of approval of these financial statements, they
have no reason to believe that it will not do so.
(c) Functional and presentation currency:
The reporting currency of the Group is the Canadian Dollar (C$), which is also
the financial currency of the principal business of the Faces Group in the
period except for its US subsidiary which has the United States Dollar (US$) as
its functional currency. All financial information presented in C$ have been
rounded to the nearest thousand.
(d) Use of estimates and judgements:
The preparation of financial statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
2. Significant accounting policies
(a) Basis of consolidation
Subsidiaries are entities controlled by the Group. Control exists where the
Group has the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities. In assessing control, potential
voting rights that currently are exercisable are taken into account. The
financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control
ceases. The accounting policies of subsidiaries have been changed when
necessary to align them with the policies adopted by the Group. Subsidiaries
are accounted for under the equity basis.
(b) Inventories
Inventories are measured at the lower of cost and net realisable value. Cost is
determined based on the specific identification method. The cost of inventories
includes, where appropriate, expenditure incurred in acquiring the inventories,
production or conversion costs and other costs incurred in bringing them to
their existing location and condition. In the case of manufactured inventories
and work in progress, cost includes an appropriate share of production
overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of
business, less the cost of completion and selling expenses.
(c) Employee benefits
Share-based payment transactions
The Company operates a share option scheme for granting share options, for the
purpose of providing incentives and rewards to eligible employees of the Group.
The cost of share options granted is measured by reference to the fair value at
the date at which they are granted to employees. It is recognised together with
a corresponding increase in equity, over the period that the employees become
unconditionally entitled to the options. The cumulative expense recognised at
each reporting date until the end of the vesting period reflects the extent to
which the vesting period has expired and the number of shares that in the
opinion of the Directors of the Group at that date will ultimately vest.
3. Inventories
2008 2007
C$'000 C$'000
Restated
Raw materials 317 869
Finished goods 737 1,252
1,054 2,121
During the year, the Company made slow moving adjustments of raw material
inventory of $285,000. The Company also made net realizable value adjustments
to finished goods inventory of $270,000 ($235,000 in 2007).
4. Share capital
Company Company
2008 2007
GBP GBP
Authorised
305,000,000 Ordinary shares of GBP0.01 each 3,050,000 1,000,000
(100,000,000 in 2007)
30,172,631 Convertible preference shares of GBP0.01 301,726 301,726
each
During the year, the authorised number of ordinary shares was increased by
205,000,000.
The preference shares may be redeemed at the option of the Company for C$0.17
per share. The shares may be converted to common shares on a 1 to 1 basis at
the option of the holder subject to a maximum quarterly conversion amount.
(i) On 24 August 2006, shareholders of FACES Holdings Inc. entered into an
agreement under which the entire issued share capital of FACES Holdings Inc.
was acquired by FACES Cosmetics plc in consideration for the issue of
50,900,000 ordinary shares and 30,172,361 preference shares in FACES Cosmetics
plc.
(ii) On 18 September 2006, 100,000 ordinary shares of GBP0.01 ($0.02) were
issued for cash of GBP0.12 ($0.26) per share, representing a premium of GBP0.11
($0.24) per share.
(iii) On 22 December 2006, 40,000 ordinary shares were issued for cash of
GBP0.1215 ($0.26) per share, representing a premium of GBP0.1115 ($0.24) per
share.
(iv) On 20 February 2007, 6,570 shares were issued for cash of GBP0.0873
($0.19) per share, representing a premium of GBP0.0773 ($0.17) per share.
(v) On 10 August 2007, 1,000,000 ordinary shares of GBP0.01 ($0.02) were issued
as a result of the exercise of a convertible loan note at GBP0.0475 ($0.09) per
share, representing a premium of GBP0.0375 ($0.08) per share.
(vi) On 13 November 2007, 125,000,000 ordinary shares of GBP0.01 ($0.02) were
issued for cash of GBP0.04 ($0.08) per share. 48,750,000 warrants were awarded
with this issue. A value of $1,186,000 was computed for these warrants and a
value of $519,846 was computed for warrants issued to Charterhouse in
connection with this investment which reduced the share premium from $7,462,500
to $5,756,654.
(vii) On 14 November 2007, 1,263,157 ordinary shares of GBP0.01 ($0.02) were
issued were issued as a result of the exercise of a convertible loan note at
GBP0.0475 ($0.09) per share, representing a premium of GBP0.0375 ($0.08) per
share.
(viii) On 15 February 2008, 53,616 preference shares were converted for 53,616
ordinary shares.
5. Earnings per share
In accordance with IAS 33, as the Group has reported a loss for the period, the
shares are not dilutive.
Group Group
2008 2007
C$'000 C$'000
Restated
Loss after taxation (4,276) (3,174)
Number Number
Basic and fully diluted weighted average ordinary 142,421,836 50,139,477
shares in issue during the period
Basic and diluted earnings per share based on the $ (0.03) $ (0.06)
issued capital as at 31 July 2008
6. Lease commitments
The Company leases offices, a warehouse, and retail stores in Canada under
leases maturing from 2009 to 2012. Annual minimum lease payments for the
remainder of the lease terms are as follows:
2008 2007
Land and Land and
buildings buildings
C$'000 C$'000
Restated
Operating leases which expire:
Within one year 999 910
In two to five years 696 1,658
After five years 817 -
2,512 2,568
The minimum rental payments as well as additional rent on the above leases are
paid directly by the franchisees to landlord and hence these are not included
as revenues and expenses in the Statement of Operations. The franchisee has
also guaranteed such payments to the Company.
In addition, the Company is liable for its proportionate share of realty taxes,
operating costs and percentage rent for some stores which in 2008 amounted to
$196,000 ($160,000 in 2007).
7. AIM compliance committee
In accordance with AIM Rule 31 the Company is required to have in place
sufficient procedures, resources and controls to enable its compliance with the
AIM Rules; seek advice from its nominated adviser ("Nomad") regarding its
compliance with the AIM Rules whenever appropriate and take that advice into
account; provide the Company's Nomad with any information it requests in order
for the Nomad to carry out its responsibilities under the AIM Rules for
Companies and the AIM Rules for Nominated Advisers; ensure that each of the
Company's directors accepts full responsibility, collectively and individually,
for compliance with the AIM Rules; and ensure that each director discloses
without delay all information which the Company needs in order to comply with
AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that
information is known to the director or could with reasonable diligence be
ascertained by the director.
In order to ensure that these obligations are being discharged, the Board has
established a committee of the Board (the "AIM Committee"), chaired by Michael
Walter, a non-executive director of the Company.
Having reviewed relevant Board papers, and met with the Company's Executive
Board and the Nomad to ensure that such is the case, the AIM Committee is
satisfied that the Company's obligations under AIM Rule 31 have been satisfied
during the year under review.
8. Distribution of the Annual Report
A copy of the Annual Report and Financial Statements has been posted to
shareholders today. Further copies will be available to the public from the
Company's registered office at 27/28 Eastcastle Street, London W1W 8DH or from
the Group website, www.faces-cosmetics.com.
For further information, please contact:
www.faces-cosmetics.com
Faces Cosmetics plc Tel: +1 (905) 760 0110 Ext. 112
Ramesh Jolly, CEO
Nominated Adviser Tel: +44 (0) 20 7492 4777
Dowgate Capital Advisers Limited
Liam Murray/Aaron Smyth
END
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