TIDMW7L
RNS Number : 6837M
Warpaint London PLC
18 September 2019
18 September 2019
Warpaint London PLC
("Warpaint", the "Company" or the "Group")
Interim Results for the six months ended 30 June 2019
Warpaint London plc (AIM: W7L), the specialist supplier of
colour cosmetics and owner of the W7 and Technic brands, is pleased
to announce its unaudited interim results for the six months ended
30 June 2019.
Financial Highlights
-- Sales up 2.9% to GBP18.9 million in H1 2019 (H1 2018: GBP18.4 million)
-- International Group revenue increased by 7.8% to GBP11.1 million (H1 2018: GBP10.3 million)
-- W7 brand delivered continued export sales growth year on year
in the EU +12.4% and US +45.4%*(1) on a like for like US$ basis
-- Gross profit margin reduced to 34.9% (H1 2018: 36.5%) due to impact of lower margin US sales
-- Gross profit margin (excluding business conducted in the US)
has improved to 37.8% (H1 2018: 36.4%)
-- Adjusted profit from operations of GBP1.2 million in H1 2019
(before exceptional Items and amortisation costs) (H1 2018: GBP2.6
million). The majority of the movement in adjusted profit is due
to:
o Inclusion of Leeds Marketing Services Inc ("LMS") GBP0.5
million operating costs in H1 2019;
o Overall reduction in gross profit margin;
o Increased PR and marketing spend of GBP0.3 million to support
sales initiatives; and
o The effect of a charge of GBP0.1 million in H1 2019 in
connection with IFRS 16 (leases),
-- Retra (the business acquired by the Group in November 2017,
including the Technic brand) achieved breakeven EBITDA in H1 2019
(H1 2018: GBP0.5 million loss)
-- Reported loss before tax of GBP0.2 million (H1 2018 profit before tax of GBP1.3 million)
-- Cash generated from operations of GBP2.0 million (H1 2018:
GBP4.0 million) after investment in stock of GBP6.1 million to
cover inventory in the US and Retra stock to maximise the sales
opportunity
-- Cash of GBP3.7 million at 30 June 2019 (30 June 2018: GBP5.5 million)
-- Interim dividend maintained at 1.5 p per share
Operational Highlights
-- International growth strategy in place and delivering
-- Action taken at Retra to reduce costs and improve new product development
-- Improved Christmas order book to be delivered by Retra,
underpinning H2 outlook. Retra order book of GBP10.1 million at 30
June 2019 (30 June 2018: GBP9.5 million)
-- Action taken at LMS to reduce cost base, improve margin and
provide full range of Group product and brands
-- PR spend to support growth and customers
*(1) Like for like numbers are comparisons year on year of the
US business LMS as if it had been part of the Group throughout
2018.
Commenting, Sam Bazini and Eoin Macleod, Joint Chief Executives,
said: "In a challenging retail market, particularly in the UK, the
business is showing resilience and adapting to the changing market
conditions, increasing international sales by 7.8% and seeing an
improvement in the performance of Retra.
"Now that LMS is part of the enlarged Group this has accelerated
our growth into the largest colour cosmetics market in the world
and provides useful dollar based income.
"The Group's cosmetic brands remains the primary strategic focus
of the Group, with significant sales of Christmas gifting being
delivered in the second half of the year. As in 2018, we expect
overall Group earnings to be weighted to the second half of this
financial year.
"We have implemented a strategy in the UK which we believe will
increase sales of the W7 brand over the medium term. In the US, we
have made an encouraging start in H1 2019 with sales made by LMS up
36% on a like for like basis, and for the W7 brand, up 45% ("like
for like" numbers are comparisons year on year of the US business
LMS as if it had been part of the Group throughout 2018 and in
US$). We have increased our marketing spend in the US to drive
brand awareness and to help support sales initiatives, which should
deliver revenue in the second half of 2019.
"With our strong financial foundation and having net cash,
prospects remain encouraging and Warpaint is well positioned to
deliver future growth. The outlook for the Group as we follow our
growth strategy, remains positive.
"Our previous guidance remains unchanged. Group sales are
expected to be approximately GBP50 million and adjusted profit
before tax (excluding amortisation in connection with acquisitions,
share incentive scheme costs and exceptional items, which the board
expects to total approximately GBP2.8 million) will be in the range
of GBP6 million to GBP7 million, for the financial year to 31
December 2019."
Enquiries:
Warpaint London c/o IFC
Sam Bazini - Joint Chief Executive Officer
Eoin Macleod - Joint Chief Executive Officer
Neil Rodol - Chief Financial Officer
Shore Capital (Nominated Adviser and Joint
Broker)
Antonio Bossi - Corporate Advisory
Fiona Conroy - Corporate Broking 020 7408 4090
N+1 Singer (Joint Broker)
Shaun Dobson - Corporate Finance
Alex Bond - Corporate Finance
Mia Gardner - Corporate Broking 020 7496 3000
IFC Advisory (Financial PR & IR)
Tim Metcalfe
Graham Herring
Florence Chandler 020 3934 6630
Warpaint London plc
Warpaint London plc is made up of two divisions.
The largest division sells 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 significant focus on the gifting market, principally for
high street retailers and supermarkets. In addition, this division
supplies white label cosmetics produced for several major high
street retailers. The Group also sells cosmetics using the smaller
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
other branded cosmetics and fragrances from around the world.
Joint Chief Executives' Review
In H1 2019 sales of colour cosmetics under the Group's brands
accounted for 82% of turnover (H1 2018: 84%). The small drop in
Group brand sales percentage is due to additional close-out sales
made in the US by LMS. Selling cosmetics under the Group's brands
remains the primary strategic focus, with significant sales of
Christmas gifting expected to be delivered in the second half of
the year. As in 2018, we expect overall Group earnings to be
weighted to the second half of this financial year.
The Group's lead brand remains W7, with sales in H1 2019
accounting for 54% of total revenue (H1 2018: 59%). In the UK, W7
revenues were down 11% in H1 2019 compared to H1 2018, due to the
continuing tough trading conditions in the UK high street. We have
implemented a strategy in the UK, in particular targeted at adding
a number of new retailers for the Group, which we believe will
increase sales of the W7 brand in the medium term. Whilst the UK
was challenging, W7 brand sales continued to grow in Europe, which
were up 12% compared to H1 2018, and the US, which were up 45% on
H1 2018 on a like for like basis ("like for like" numbers are
comparisons year on year of the US business LMS as if it had been
part of the Group throughout 2018). In the Rest of the World, W7
sales were down on H1 2018 by 36%, this region being the smallest
part of total W7 sales, primarily due to the timing of certain
larger orders.
Since the acquisition of Retra in November 2017, we have taken
steps to improve the sales of the all year round cosmetics sold
under the Retra brands, to make the business profitable throughout
the year and not only in the second half when Christmas gifting is
delivered (this being 53% of Retra sales in 2018). We have seen an
improvement in H1 2019, with Retra delivering break-even EBITDA for
the half year (H1 2018: EBITDA loss GBP0.5 million).
On 2 August 2018 the Group acquired its US distributor, LMS,
which is now fully integrated into the Group. 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.
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 office 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 H1 2019 with sales made by LMS up 36% on a like for like
basis compared to H1 2018 and, in particular, for the W7 brand, up
45%.
During the first half of the year we have increased our
marketing spend in the US to drive brand awareness and to help
support sales initiatives, which should help increase revenue in
the second half of 2019. This includes an additional member of
staff employed specifically to generate new business. We are also
taking a number of measures to improve the margin in the US
business, including changing our third party warehousing
arrangements to reduce costs.
We continue to use manufacturing partners in China and Europe
for our Group branded products, giving us the flexibility to choose
those manufacturers we feel deliver the best product for the best
price, and meet our legal and ethical compliance requirements.
Helping in this process is the Group's Hong Kong based subsidiary
sourcing office (acquired as part of the Retra transaction) and its
China subsidiary (Jinhua Badgequo Cosmetics Trading Company Ltd),
with local employees able to explore new factories and oversee
quality control and ethical sourcing.
The close-out division in the H1 2019 represented 18% of the
overall revenue of the Group. Whilst not a core focus, this side of
the business provides a significant source of intelligence in the
colour cosmetics market and access to new market trends. Although
close-out is less significant for the Group's strategy, it has had
a very good first half of 2019 with sales ahead of the same period
in 2018 by 11.8%. This increase is entirely due to the close-out
sales made in the US following the acquisition of LMS in August
2018.
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 fulfilment in place.
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 to date.
Strategy
In early 2018 the Board adopted a three year strategic plan for
the business, which is measured, monitored and reviewed annually.
The plan is designed to drive shareholder value and has defined
targets for sales, EBITDA, earnings per share, cash and share
price. The strategic plan was amended by the Board in early 2019
and includes six revised key strategic priorities:
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
additional high street retailers who serve our target demographic,
particularly in the UK. The bestselling lines in each range and
brand have been identified to be launched in trial programmes in
new retail outlets with the goal of delivering increased presence
in the high street and growing market share.
2. Provide New Product Developments ("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 in 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 and market share is a key focus of management.
4. Grow market share in the US and China
The acquisition of LMS, together with the US e-commerce site, is
enabling a more rapid expansion in the US. A 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. 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 brand development and sales
Of W7's target customers, market research indicates 45% are
buying colour cosmetics online. We are currently considering a
differentiated brand offering which will be available exclusively
online.
6. Develop the appropriate organisational structure and people plan
Our roles have been further defined 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.
Brands
In the first half of 2019 the Group continued to focus on the
development of the Group's brands. Since acquiring Retra in
November 2017 the focus has been on assisting the Retra product
development team to make an improved, all year round, cosmetics
offering and, the Retra sales team to get listings for their brands
in accounts that W7 was already listed in, particularly overseas.
This has helped the Technic brand in H1 2019 to gain a larger
proportion of Group sales compared to H1 2018.
H1 2019 H1 2018
--------- --------
Group brand sales % %
W7 66% 73%
Technic 24% 19%
Other Group brands 10% 8%
100% 100%
-------------------- -------- --------
Products
The largest selling product categories across all the Group
brands, including white label sales, are eye products, face make-up
and lip products, which together represented approximately 76% of
revenue in H1 2019 (H1 2018: 79%).
H1 2019 product sales split for all our brands was as
follows:
Eyes 38%
Face 28%
Lip 10%
Nails 7%
Gift 5%
Brushes 4%
Others 4%
Accessories
& Sets 3%
Men 1%
Customers & Geographies
The largest customers for sales of our Group brands are in the
UK, US, Australia and Europe. In 2018 our top ten Group brand
customers represented 50% of revenues, this increased to 57% of
total revenue in H1 2019.
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 products sold into the US were up in the first half,
increasing 36% compared to H1 2018 on a like for like basis.
Current customers include Century 21, Macys Backstage, Marshalls,
Bealls and TJ Maxx. Through our new showroom in New York we are now
selling all the Group brands and promoting them with local PR
activity and a larger sales team.
Europe
Group sales in Europe increased in H1 2019 by 17% compared to
the same period in 2018. The W7 brand has seen European growth of
12% in the first half of 2019 against the same period last year.
The Retra brands have seen significant European growth of 52% in H1
2019, through the introduction to existing W7 retailers.
Rest of the World
Sales in our Rest of the World region for the Group are down by
30% in the period, compared to the corresponding period last year.
This is due to a reduction in orders from our Australian
distributor for W7 in the first half of the year and a change in
distributor in China and Hong Kong. We expect sales to the Rest of
the World region to improve in the second half of 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 6% in H1 2019 compared to H1 2018.
For W7 alone, sales in the UK were down 11% for H1 2019 compared
to H1 2018, most of which was due to the loss of customers that
have gone into liquidation or closed their businesses, customers
that have restructured with less outlets, or customers that have
ongoing credit issues. We are, however, addressing this through
targeting a number of new UK retailers for the Group. The top ten
UK W7 customers accounted for 75% of W7 UK sales in H1 2019 (H1
2018: 67%). Sales to these customers grew by 2% in H1 2019,
compared to H1 2018.
As of 30 June 2019 Retra have a larger order book for Christmas
gifting than at 30 June 2018 already secured, which will be
delivered during H2 2019. This will be the primary driver of
revenues being weighted to the second half of the year, and most of
it will be in the UK. Retra sales in the UK were up 4% for H1 2019,
compared to H1 2018, some of which was from the introduction of the
Retra brands to existing UK customers of the Group. All but one
significant UK Retra customer grew sales in H1 2019 compared to H1
2018.
Summary
The first half of 2019 has presented challenging conditions for
Warpaint, particularly in the UK, and the trading environment
remains so. Nevertheless, the business has shown resilience and
adapted to the changing market conditions, managing to increase
international sales by 7.8% and seeing an improvement in the EBITDA
performance of Retra.
Having the LMS team in our enlarged Group has accelerated our
growth into the largest colour cosmetics market in the world and
provides useful dollar based income. We are now applying our
management expertise and industry knowledge to improve the results
of LMS to contribute more positively to the Group results.
With our strong financial foundation and having net cash,
prospects remain encouraging. The outlook for the Group as we
follow and adopt our growth strategy, remains positive.
Sam Bazini and Eoin Macleod
Joint Chief Executive Officers
18 September 2019
Chief Financial Officer's Review
The first half of 2019 has seen the Group continue its strategy
of building the W7 and Technic brands internationally. We remain
focused on margin, continuing to generate cash, maintaining net
cash, and delivering a progressive dividend policy.
Headline results, shown below, represent the performance
comparisons between the consolidated statements of income for the
half years ended 30 June 2019 and 30 June 2018.
Revenue
Total revenue grew by 2.9% from GBP18.4 million in H1 2018 to
GBP18.9 million in H1 2019.
Group brands sales were GBP15.6 million in the first half of the
year (H1 2018: GBP15.4 million). Our W7 brand had sales in the
first half of the year of GBP10.3 million (H1 2018: GBP11.3
million). Our Retra brands contributed sales of GBP5.3 million in
the first half of the year (H1 2018: GBP4.1 million), of this,
Technic amounted to GBP3.8 million (H1 2018: GBP2.9 million).
The close-out division had sales in the first half of the year
of GBP3.3 million (H1 2018: GBP3.0 million). Whilst encouraging
that sales increased on the same period last year, close-out
remains an opportunity business and the full year outturn is not
expected to exceed 2018.
Christmas gifting across the Group is significant and
consequently sales for the business will be more weighted to the
second half of the year. As orders are gained ahead of time,
gifting provides a greater degree of visibility. The Retra division
is heavily focused on gifting sales, their order book for gifting
at the half year point totalled GBP10.1 million, compared to GBP9.5
million at 30 June 2018.
Internationally, revenue grew 7.8% from GBP10.3 million in H1
2018, to GBP11.1 million in H1 2019.
Product Gross Margin
Gross margin was 34.9% for the half year compared to 36.5% in H1
2018. Gross margin has reduced primarily due to the geographic mix
of sales and the larger proportion of lower margin US sales.
Historically, the W7 brand achieves the highest gross margin on
sales, particularly in the UK, followed by the Retra brands, with
close-out sales being the lowest margin across the Group.
Gross margin on sales in the US by the LMS division were low at
11.5% (FY 2018: 3.2%) on sales of GBP2.1 million in H1 2019. Up to
the date of acquisition in August 2018, LMS 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 stock is sold at cost by the Group to LMS and
commission is not charged back to the Group. Most of the sales made
by LMS of its stock holding on hand at the date of acquisition have
been 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 gradually happen in
2019.
Gross margin excluding sales in the US, increased by 1.4% across
the Group from 36.4% in H1 2018 to 37.8% in H1 2019.
We are not experiencing cost pressure on our manufactured
pricing and making good use of our Hong Kong buying office 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 to new
factories of equal quality to retain or improve margin, and from
increasing US dollar revenue which provides a natural hedge. We
remain focused on improving gross margin in both our Group brand
and close-out businesses and now in the enlarged Group including
Retra and LMS.
Operating Expenses
Total operating expenses increased by GBP1.3 million from H1
2018 to H1 2019. Excluding amortisation of intangibles,
depreciation charges, exceptional items, share based payments,
foreign exchange movements and then rebasing numbers for the effect
of IFRS 16 in H1 2019, operating expenses increased by GBP0.9
million from H1 2018 to H1 2019. This increase was mostly from the
addition for the half year to June 2019 of the operating expenses
of LMS for the first time being GBP0.5 million, and an increase in
PR and marketing spend of GBP0.3 million.
Warpaint remains a business with most operating expenses
relatively fixed and evenly spread across the whole year. We
continue to monitor and examine significant costs to ensure they
are controlled and strive to reduce them. In addition, the
increased scale of the business has given the Group increased
buying power.
Profit Before Tax
Group (loss)/profit before tax for the half year to 30 June 2019
was (GBP0.2) million, compared to a profit before tax of GBP1.3
million to 30 June 2018. The material changes in profitability
between 30 June 2018 and 2019 were:
Effect on
Profit
(GBP0.3)
* Reduction in Group gross margin of 1.6% to 34.9% for million
H1 2019
(GBP0.3)
* Increased PR and Marketing spend to support sales million
initiatives
(GBP0.2)
* Impact of IFRS16 Leases on the H1 2019 numbers only million
(GBP0.5)
* Operating expenses of LMS acquired in August 2018, million
included in H1 2019 only
(GBP0.1)
* Increase in amortisation and depreciation costs million
(excluding IFRS 16 changes)
(GBP0.1)
* Increase in the cost of the LTIP and EMI share option million
schemes
Earnings Per Share
The statutory interim basic and diluted (loss)/earnings per
share was (0.22p) in H1 2019 (1.36p in H1 2018). The adjusted
interim earnings per share before exceptional items and
amortisation costs was 1.37p in H1 2019 (2.94p in H1 2018).
Long Term Incentive Plan ("LTIP") & EMI Share Options
No share awards have been granted since 24 September 2018.
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 half year to 30 June 2019
was GBP0.13 million (H1 2018: GBP0.03 million) and has been taken
to the share option reserve.
Cash Flow and Cash Position
Net cash flow generated from operating activities was GBP1.3
million compared to GBP2.9 million in H1 2018. The Group's net cash
balance decreased by GBP1.9 million to GBP2.7 million as at 30 June
2019 (30 June 2018 GBP4.6 million). Management continue to monitor
trade receivables and stock levels as the business continues to
grow.
We expect capital expenditure requirements of the Group to
remain modest. In H1 2019, GBP0.2 million (H1 2018: GBP0.2 million)
was spent on new computer software and equipment, warehouse
improvements and plant for additional warehouse storage at the
Retra location, sales display units for use in store by customers,
and other general fixtures and plant upgrades.
Acquisitions
On 2 August 2018, the Group acquired its US distributor LMS.
LMS was a customer of the Group before acquisition and
distributed the W7 brand exclusively in the US. The business
conducted with LMS prior to acquisition is included in the
consolidated statement of comprehensive income for the half year
ended 30 June 2018.
IFRS 16 Leases
The Group has adopted IFRS 16 from 1 January 2019, but has not
restated comparatives.
From 1 January 2019, in place of rent of GBP0.4 million for the
half year to 30 June 2019 charged to the consolidated statement of
comprehensive income, there were lease finance costs of GBP0.1
million and depreciation of right-of-use assets of GBP0.5 million.
The impact of IFRS 16 on the consolidated statement of
comprehensive income for the half year to 30 June 2019 is an
additional charge of GBP0.2 million (see note 2 to the financial
statements).
Balance Sheet
The Group's balance sheet remains robust having net cash. Net
assets totaled GBP38.7 million at 30 June 2019, with the majority
made up of liquid assets of stock, trade receivables and cash.
Included in the balance sheet is GBP7.1 million of goodwill and
GBP8.3 million of intangible fixed assets arising from the
acquisition accounting adopted to reflect the purchase of LMS in
August 2018, Retra in November 2017 and the purchase of the
close-out business by the much larger own-brand colour cosmetics
business in November 2016, in preparation of the Group joining
AIM.
The balance sheet also includes GBP6.2 million of property,
plant and equipment, of which GBP4.9 million is the inclusion for
the first time of the Group leasehold properties, now recognised as
right-of-use assets as directed by IFRS 16. An equivalent lease
liability is included of GBP5.1 million at the balance sheet
date.
Trade receivables at 30 June 2019 were GBP11.3 million (30 June
2018: GBP11.8 million). Collection times remain inline with the
prior half year.
Inventory at 30 June 2019 were GBP18.7 million (30 June 2018:
GBP12.5 million). The rise in inventory was due to the increase in
range offering across the Group, the acquisition of LMS who now
hold a full range of our brands locally in the US, and a decision
to accelerate the buying cycle for gifting of Retra to gain an
early sell-in opportunity and maximise sales over the gifting
season.
Loans and borrowings includes GBP1.0 million of invoice and
stock finance outstanding of Retra, which was used to help fund the
early import of its gifting business ahead of schedule compared to
H1 2018.
Management are continually monitoring trade receivables and
inventory levels to avoid working capital lock up as the business
continues to grow.
Working capital increased by GBP2.0 million from 30 June 2018 to
30 June 2019 (GBP9.3 million from 30 June 2017 to 30 June
2018).
Foreign Exchange
The Group imports most of its finished goods from China paid for
in US dollars, which this year, so far has strengthened against
Sterling. This is the third 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 H1 2019 these sales were
higher at US$2.8 million (H1 2018: US$2.2 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 in
H1 2019.
Dividend
The Board is pleased to have declared an interim dividend of
1.5p per share, to be paid on 15 November 2019 to shareholders on
the register at close of business on 1 November 2019. The ordinary
shares will be marked ex-dividend on 31 October 2019.
Neil Rodol
Chief Financial Officer
18 September 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 Months 6 Months Year ended
ended ended 31 December
Notes 30 June 2019 30 June 2018 2018
GBP'000 GBP'000 GBP'000
------------------------------------ -------- ------------------- ------------------- -------------
Revenue 18,943 18,402 48,477
Cost of sales (12,325) (11,683) (31,263)
------------------- ------------------- -------------
Gross profit 6,618 6,719 17,214
Administrative expenses 3 (6,675) (5,345) (12,330)
Analysed as:
Adjusted profit from operations(1) 1,164 2,590 8,303
Amortisation (1,221) (1,163) (2,272)
Impairment losses - - (812)
Exceptional items 3 - (53) (335)
------------------------------------ -------- ------------------- ------------------- -------------
(Loss)/profit from operations (57) 1,374 4,884
Finance expenses 4 (153) (51) (150)
------------------- ------------------- -------------
(Loss)/profit before tax 3 (210) 1,323 4,734
Tax expense 5 44 (280) (1,159)
------------------- ------------------- -------------
(Loss)/profit for the period
attributable to equity holders
of the parent company (166) 1,043 3,575
Other comprehensive income
(net of tax):
Exchange gain on translation
of foreign subsidiary - - 48
Total comprehensive (loss)/income
for the period attributable
to equity holders of the
parent company (166) 1,043 3,623
=================== =================== =============
(Loss)/earnings per share
- Basic and diluted 6 (0.22) 1.36 4.66
------------------- ------------------- -------------
Note 1 - Adjusted profit from operations is calculated as
earnings before interest, taxation, amortisation, impairment and
exceptional items.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
As at 30 June As at 30 June As at 31
2019 2018 December
2018
GBP'000 GBP'000 GBP'000
----------------------------- ----------------- ------------------- ----------
ASSETS
Non-current assets
Goodwill 7,051 7,532 7,051
Intangible assets 8,289 9,516 9,486
Property, plant and
equipment 6,220 1,475 1,358
----------------- ------------------- ----------
21,560 18,523 17,895
Current assets
Inventories 18,667 12,527 15,362
Trade and other receivables 11,290 11,782 12,761
Cash and cash equivalents 3,654 5,546 4,041
----------------- ------------------- ----------
33,611 29,855 32,164
----------------- ------------------- ----------
Total assets 55,171 48,378 50,059
----------------- ------------------- ----------
LIABILITIES
Current liabilities
Trade and other payables 5,275 3,785 3,489
Loans and borrowings 1,268 257 2,169
Dividends payable 2,256 1,995 -
Lease liabilities 5,089 - -
Corporation tax payable 582 364 1,034
14,470 6,401 6,692
Non-current liabilities
Loans and borrowings 422 682 553
Deferred tax liabilities 1,554 1794 1,796
1,976 2,476 2,349
----------------- ------------------- ----------
Total liabilities 16,446 8,877 9,041
----------------- ------------------- ----------
NET ASSETS 38,725 39,501 41,018
================= =================== ==========
EQUITY
Share capital 19,187 19,187 19,187
Share premium 19,359 19,359 19,359
Merger reserve (16,100) (16,100) (16,100)
Other reserves 338 74 209
Retained earnings 15,941 16,981 18,363
Total equity attributable
to
shareholders 38,725 39,501 41,018
================= =================== ==========
CONSOLIDATED STATEMENT OF CASH FLOW
Unaudited Unaudited Audited
6 Months ended 6 Months ended Year ended
30 June 2019 30 June 2018 31 December
Notes 2018
GBP'000 GBP'000 GBP'000
------------------------------------- ------- --------------- --------------- ------------
(Loss)/profit before tax
for the period (210) 1,323 4734
Adjusted by:
Depreciation of property,
plant and equipment 726 253 529
Impairment of goodwill - - 812
Amortisation of intangible
assets 1,221 1,163 2,272
Net interest expense 153 51 150
Loss on disposal of property,
plant and equipment and intangible
assets - - 7
Share based payment 129 29 116
Movement in inventories (3,305) (996) (2,524)
Movement in trade and other
receivables 1,471 1,894 1,574
Movement in trade and other
payables 1,780 248 (1,753)
Movement in derivative financial
instruments - (3) 48
--------------- --------------- ------------
Cash inflow generated from
operations 1,965 3,962 5,965
Income tax paid (644) (1,020) (1,565)
Interest paid 4 (55) (51) (150)
--------------- --------------- ------------
Cash flows from operating
activities 1,266 2,891 4,250
Purchase of property, plant
and equipment (196) (231) (392)
Purchase of intangible assets (24) (26) (48)
Bank balance acquired - - 272
Acquisition of business - - (1,591)
Cash flows used by investing
activities (220) (257) (1,759)
Principal elements of lease
payments (401) - -
Repayment of borrowings (129) (457) (261)
(Decrease)/increase in stock
and invoice finance facilities (903) - 1,587
Dividends - - (3,145)
--------------- --------------- ------------
Cash flows used by financing
activities (1,433) (457) (1,819)
Net change in cash and cash
equivalents (387) 2,177 672
Cash and cash equivalents
at beginning of period 4,041 3,369 3,369
--------------- --------------- ------------
Cash and cash equivalents
at end of period 3,654 5,546 4,041
=============== =============== ============
Cash and cash equivalents
consists of:
Cash and cash equivalents 3,654 5,546 4,041
--------------- --------------- ------------
3,654 5,546 4,041
=============== =============== ============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Merger Foreign Share Retained
capital Premium reserve exchange option earnings Total
reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
As at 1 January 2018 19,187 19,359 (16,100) - 45 17,933 40,424
Profit for the period - - - - - 1,043 1,043
Total comprehensive income
for the period - - - - - 1,043 1,043
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
Transactions with owners
Movement in other reserves - - - - 29 - 29
Dividends paid - - - - - (1,995) (1,995)
Total transactions with owners - - - - 29 (1,995) (1,966)
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
As at 30 June 2018 19,187 19,359 (16,100) - 74 16,981 39,501
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
As at 1 January 2018 19,187 19,359 (16,100) - 45 17,933 40,424
On translation of foreign
subsidiary - - - 48 - - 48
Profit for the year - - - - - 3,575 3,575
Total comprehensive income
for the year - - - 48 - 3,575 3,623
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
Transactions with owners
Movement in other reserves - - - - 116 - 116
Dividends paid - - - - - (3,145) (3,145)
Total transactions with owners - - - - 116 (3,145) (3,029)
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
As at 31 December 2018 19,187 19,359 (16,100) 48 161 18,363 41,018
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
As at 1 January 2019 19,187 19,359 (16,100) 48 161 18,363 41,018
On translation of foreign - - - - - - -
subsidiary
Loss for the period - - - - - (166) (166)
Total comprehensive income
for the period - - - - - (166) (166)
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
Transactions with owners
Movement in other reserves - - - - 129 - 129
Dividends paid - - - - - (2,256) (2,256)
Total transactions with owners - - - - 129 (2,256) (2,127)
-------------------------------- -------- -------- ---------- --------- -------- --------- --------
As at 30 June 2019 19,187 19,359 (16,100) 48 290 15,941 38,725
================================ ======== ======== ========== ========= ======== ========= ========
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The consolidated interim financial information has been prepared
in accordance with International Financial Reporting Standards,
International Accounting Standards and Interpretations
(collectively IFRSs), as adopted by the European Union.
The accounts have been prepared in accordance with accounting
policies that are consistent with the Group's Annual Report and
Accounts for the year ended 31 December 2018 and that are expected
to be applied in the Group's Annual Report and Accounts for the
year ended 31 December 2019. There are new or revised standards
that apply to the period beginning 1 January 2019 with further
details provided in note 2 below.
The comparative financial information for the year ended 31
December 2018 in this interim report does not constitute statutory
accounts for that period under 435 of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2018 have been
delivered to the Registrar of Companies.
The auditors' report on the accounts for 31 December 2018 was
unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of
the Companies Act 2006.
2. Changes in significant accounting policies
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the Group's consolidated financial statements as at and for the
year ended 31 December 2018. The changes in accounting policies are
also expected to be reflected in the Group's consolidated financial
statements as at and for the year ending 31 December 2019.
IFRS 16 Leases
Effective 1 January 2019, IFRS 16 has replaced IAS 17 Leases and
IFRIC 4 Determining whether an Arrangement Contains a Lease.
IFRS 16 provides a single lessee accounting model, requiring the
recognition of assets and liabilities for all leases, together with
options to exclude leases where the lease term is 12 months or
less, or where the underlying asset is of low value. IFRS 16
substantially carries forward the lessor accounting in IAS 17, with
the distinction between operating leases and finance leases being
retained. The Group does not have significant leasing activities
acting as a lessor.
Transition Method and Practical Expedients Utilised
The Group adopted IFRS 16 using the modified retrospective
approach, with recognition of transitional adjustments on the date
of initial application (1 January 1 2019), without restatement of
comparative figures. The Group elected to apply the practical
expedient to not reassess whether a contract is, or contains a
lease at the date of initial application. Contracts entered into
before the transition date that were not identified as leases under
IAS 17 and IFRIC 4 were not reassessed. The definition of a lease
under IFRS 16 was applied only to contracts entered into or changed
on or after 1 January 2019.
IFRS 16 provides for certain optional practical expedients,
including those related to the initial adoption of the standard.
The Group applied the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
IAS 17:
-- Apply a single discount rate to a portfolio of leases with
reasonably similar characteristics;
-- Exclude initial direct costs from the measurement of
right-of-use assets at the date of initial application for leases
where the right-of-use asset was determined as if IFRS 16 had been
applied since the commencement date;
-- Reliance on previous assessments on whether leases are
onerous as opposed to preparing an impairment review under IAS 36
as at the date of initial application; and
-- Applied the exemption not to recognise right-of-use assets
and liabilities for leases with less than 12 months of lease term
remaining as of the date of initial application.
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Group recognizes right-of-use assets
and lease liabilities for most leases. However, the Group has
elected not to recognise right-of-use assets and lease liabilities
for some leases of low value assets based on the value of the
underlying asset when new or for short-term leases with a lease
term of 12 months or less.
On adoption of IFRS 16, the Group recognised right-of-use assets
and lease liabilities in relation to leases of office space and
warehouses, which had previously been classified as operating
leases.
The lease liabilities were measured at the present value of the
remaining lease payments, discounted using the Group's incremental
borrowing rate as at 1 January 2019. The Group's incremental
borrowing rate is the rate at which a similar borrowing could be
obtained from an independent creditor under comparable terms and
conditions. The weighted-average rate applied was 3.75%.
The right-of-use assets were measured as follows:
a. Office space: Right-of-use assets are measured at an amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments.
b. All other leases: the carrying value that would have resulted
from IFRS 16 being applied from the commencement date of the
leases, subject to the practical expedients noted above.
The Group leases various premises and lease terms are negotiated
on an individual basis. Until the 2018 financial year, property
leases were classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor)
were charged to profit or loss on a straight-line basis over the
period of the lease.
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. The impact on the balance
sheet at 1 January 2019 was to increase the right-of-use assets by
GBP5,392,000 with a corresponding increase in lease liabilities.
Each lease payment is allocated between the liability and finance
cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The
right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
3. Profit from operations
Profit from operations is arrived at after charging/
(crediting):
Unaudited Unaudited Audited
6 Months ended 6 Months Year ended
30 June 2019 ended 31 December
30 June 2018 2018
GBP'000 GBP'000 GBP'000
------------------------------------- ---------------- -------------- -------------
Depreciation of property,
plant and equipment 726 253 529
Amortisation of intangible
assets 1,221 1,163 2,272
Impairment of goodwill - - 812
Loss on disposal of property,
plant and equipment and intangible
assets - - 7
Reversal of stock provisions - - 114
Exchange differences 62 (106) (359)
Exceptional acquisition related
costs - 53 335
Exceptional costs relate to legal and professional fees incurred
when completing acquisitions.
4. Finance expenses
Unaudited Unaudited Audited
6 Months ended 6 Months Year ended
30 June 2019 ended 31 December
30 June 2018 2018
GBP'000 GBP'000 GBP'000
------------------- ---------------- -------------- -------------
Interest on loans 25 13 28
HP interest 30 30 59
Other interest 98 8 63
---------------- -------------- -------------
Finance expenses 153 51 150
================ ============== =============
5. Tax expenses
Unaudited Unaudited Audited
6 Months ended 6 Months Year ended
30 June 2019 ended 31 December
30 June 2018 2018
GBP'000 GBP'000 GBP'000
------------------------------------ ---------------- -------------- -------------
Current tax expense
Current income tax charge 192 445 1,660
192 445 1,660
Deferred tax expense
Relating to original and
reversal of temporary differences (236) (165) (501)
---------------- -------------- -------------
Total tax in income statement (44) 280 1,159
================ ============== =============
6. Earnings per share
Profit for the period used in the calculation of the basic and
diluted earnings per share:
Unaudited Unaudited Audited
6 Months ended 6 Months ended Year ended
30 June 2019 30 June 2018 31 December
2018
GBP'000 GBP'000 GBP'000
-------------------------- ---------------- ---------------- -------------
Profit after tax for the
period (166) 1,043 3,575
================ ================ =============
The share options in issue at each period end have not been
included in the computation of diluted earnings per share, as per
IAS 33, the share options are not dilutive as they are not likely
to be exercised given that the exercise price is higher than the
average market price.
The weighted average number of shares for the purposes of
diluted earnings per share reconciles to the weighted average
number of shares used in the calculation of basic earnings per
share as follows:
Unaudited Unaudited Audited
6 Months ended 6 Months ended Year ended
30 June 2019 30 June 2018 31 December
2018
------------------------------ ---------------- ---------------- -------------
Weighted average number of
shares
Weighted number of ordinary
shares for the purpose of
basic earnings per share 76,749,125 76,749,125 76,749,125
Potentially dilutive shares - - -
awarded
Weighted number of ordinary
shares for the purpose of
diluted earnings per share 76,749,125 76,749,125 76,749,125
---------------- ---------------- -------------
Earnings per share (pence)
- Basic and Diluted (0.22) 1.36 4.66
================ ================ =============
Earnings per share (pence)
- Adjusted(1) 1.37 2.94 9.11
================ ================ =============
Note 1: Adjusted earnings per share has been calculated before
amortisation, impairment and exceptional items.
7. Availability of Interim Results
Copies of this announcement are available on the Investors
section of the Company's website, www.warpaintlondonplc.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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