Results for the year ended 31 December 2021

WARPAINT LONDON PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT ENDED 31 DECEMBER 2021

 

1.            Significant accounting policies

 

Basis of preparation

The financial statements of Warpaint London PLC (the "Company" or "Warpaint") and its subsidiaries (together the "Group") for the year ended 31 December 2021 were authorised for issue by the board of directors 25^th April 2022.

 

Warpaint London PLC is a public limited Company incorporated and registered in England and Wales. Its registered office is Units B&C, Orbital Forty-Six, The Ridgeway Trading Estate, Iver, Buckinghamshire, SL0 9HW.

 

The Group's financial statements have been prepared in accordance in accordance UK adopted international accounting standards and in conformity with the requirements of the Companies Act. The functional currency of the parent and its subsidiaries is pounds sterling because that is the currency of the primary economic environment in which the Group operates. The financial statements are also presented in pounds sterling. All values are rounded to the nearest thousand (£'000) except where otherwise indicated.

 

The annual financial statements have been prepared on the historical cost basis, except for certain financial assets and liabilities which are carried at fair value or amortised cost as appropriate.

 

The preparation of financial statements in accordance with UK adopted international accounting standards  requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates. The principal accounting policies adopted are set out below.

 

Basis of consolidation

Where the Company has control over an investee, it is classified 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.

 

The consolidated financial 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.

 

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable 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 pounds 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.

 

Exchange differences recognised profit or loss in Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified 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 profit or loss on disposal.

 

Going concern

 

The Directors have concluded that it is reasonable to adopt a going concern basis in preparing the financial statements. This is based on a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of signing of these accounts. The Group made a statutory profit of £2.8 million in the year to 31 December 2021 (2020: £1.0 million loss) and had net current assets of £24.8 million at 31 December 2021 (2020: £24.0 million). The Group occasionally makes use in its Retra subsidiary of a £8.5 bank million facility that can be used for confidential invoice discounting and stock finance, the facility renews each year at the end of August. As at the year end £nil of the bank facility was utilised. At the 31^st March 2022 the Group had cash of £2.3 million, £nil hire purchase and term debt having repaid these in full during 2021, and had used £nil of its bank facility.

The Directors have prepared forecasts covering the period to December 2023, built from the detailed Board-approved budget for 2022. The forecasts include a number of assumptions in relation to varying levels of sales revenue. Whilst the Group's trading and cash flow forecasts have been prepared using current trading assumptions, the operating environment presents a number of challenges which could negatively impact the actual performance achieved. Excluding the potential impact of a pandemic, which is considered below, these risks include, but are not limited to, achieving forecast levels of sales and order intake, the impact on customer confidence as a result of general economic conditions and leaving the European Union, achieving forecast margin improvements, supply side price inflation, increases in freight costs, and the director's ability to implement cost saving initiatives in areas of discretionary spend where required.  The forecasts used in the analysis of the Group's ability to continue in operational existence for the foreseeable future include both the base plan and downside scenarios which although the Group has no significant connections with Russia or Ukraine through its operations (no employees located there nor any major customers or suppliers in the region), include assumptions taking into account macro-economic potential indirect impacts of the events unfolding.

The Group's cash flow forecasts and projections, taking account of reasonable and possible changes in trading performance excluding the potential impact of a pandemic (which is considered below), offset by mitigating actions within the control of management including reductions in areas of discretionary spend, show that the Group will be able to operate comfortably through to the end of December 2023, and in Retra within the level of its facility.

The uncertainty as to the future impact on the Group of a pandemic has been separately considered as part of the directors' consideration of the going concern basis of preparation. In the stress test scenario analysis performed, the directors have considered the reasonably plausible impact of another significant a pandemic outbreak on the Group's trading and cash flow forecasts, together with supply side cost inflation and further increases in freight costs.

In preparing this analysis, a number of scenarios were modelled with the benefit of experience having come through the three COVID-19 lockdowns in the UK in 2020. The scenarios modelled were all based on varying levels of sales revenue, including one that assumes no growth for 2022 and 2023 as a reasonable downside scenario, and more extreme falls in revenue of up to 30% in both years as a worst-case scenario. In each scenario, mitigating actions within the control of management have been modelled. Under each of the scenarios modelled, the Group has sufficient cash to meet its liabilities as they fall due and consequently, the directors believe that the Group has sufficient financial strength to withstand the possible disruption to its activities.

Based on the above indications the directors believe that it remains appropriate to prepare the financial statements on a going concern basis.

 

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 specific 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 significant 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.

 

Where the Group has entered into distributor arrangements the satisfaction of performance obligations and transfer of control to the distributor is from the date of dispatch from either the Group's overseas supplier or from the Group's UK warehouse. Revenue is therefore recognised on the date of dispatch.

 

Customer loyalty

The Group operates a loyalty reward scheme for 'digital' customers where points are earned for products purchased online, with 10 points equivalent to £1. The Group accounts for loyalty points when redeemed as a sales discount on the sales transaction. A sales discount provision is recognised in the accounts in relation to points issued but not yet redeemed. When estimating this provision, the Group considers the likelihood that the customer will redeem the points. At the year-end there were 2.8 million points yet to be redeemed, leading to a provision of £14,000.

 

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 satisfied. Management recognises revenue based on the amount of estimated rebate to the extent that revenue is highly probably of not reversing. Management monitors this estimate at each reporting date and adjusts it as necessary.

 

Determining the transaction price

Most of the Group's revenue is derived from fixed price contracts and therefore the amount of revenue to be earned from each contract is determined by reference to those fixed 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.

·    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 fixed unit price for each product sold, with reductions given for bulk orders placed at a specific 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 significant financing components where the time difference between receiving consideration and transferring control of goods (or services) to its customer is one year or less; and

·    expense the incremental costs of obtaining a contract when the amortisation period of the asset otherwise recognised would have been one year or less.

 

Government Grants

 

Grants from the government are recognised at their fair value where there is reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants which are revenue in nature are recognised on a systematic basis within Other operating income in the Statement of Comprehensive income over the period in which the Group recognises as expenses the related costs for which the grants are intended to compensate.

 

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 relating to a past event and where the amount of the obligation can be reliably estimated.

 

Retirement Benefits: Defined contribution schemes

Contributions to defined contribution schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Exceptional items and Alternative Performance Measures

Exceptional items which have been disclosed separately on the face of the Consolidated Statement of Comprehensive Income in order to summarise the underlying results. Exceptional items in the current period relate to restructuring costs and legal and professional fees. Neither 'underlying profit or loss' nor 'exceptional items' are defined by IFRS however the directors believe that the disclosures presented in this manner provide a clearer presentation of the underlying financial performance of the Group.

Alternative performance measures (APM's) are used by the Board to assess the Group's performance and are applied consistently from one period to the next. They therefore provide additional useful information for shareholders on the underlying performance and position of the Group. Additionally, adjusted profit from operations is used to determine adjusted EPS which is used as a key performance indicator for the Long-Term Incentive Plan (LTIP) and the Company Share Option Scheme (CSOP). These measures are not defined by IFRS and are not intended to be a substitute for IFRS measures. The Group presents underlying profit / (loss) from operations, profit / (loss) before tax and EPS which are calculated as the statutory measures stated before non-underlying items, including exceptional items, amortisation of intangible assets and share-based payments where applicable.

Underlying results are used in the day-to-day management of the Group. They represent statutory measures adjusted for items which could distort the understanding of performance and comparability year on year. Non-underlying items include the amortisation of intangible assets, exceptional items and share-based payments. Exceptional items are those items which the Group consider to be significant in nature and not in the normal course of business or are consistent with items that were treated as exceptional in prior periods.  

 

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 benefit, which is typically between five to ten years.

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Amortisation is provided on Licences and Website costs so as to write off the carrying value over the expected useful economic life of five years.

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 five years. Other details of the acquisition are detailed in note 10.

Goodwill

Goodwill represents the excess of the cost of a business combination over the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired.

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 classified as a financial liability, remeasured subsequently through profit or loss.

Goodwill is considered to have an indefinite useful economic life and 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 identifiable 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-financial assets (excluding inventories and deferred tax assets)

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial 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 identifiable cash flows; its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from a business combination that gives rise to the goodwill.

 

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

 

Derecognition of intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs.

 

Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over the expected useful economic lives. It is provided at the following rates:

 

Plant and machinery                                       -              25% reducing balance and 20% straight line

Fixtures and fittings                                        -              25% reducing balance and 20% straight line

Computer equipment                                    -              25% reducing balance and 33.33% straight line

Motor vehicles                                                  -              20% straight line

 

Right-of-Use Assets
Right-of-use assets are measured at cost, which is made up of the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the asset at the end of the lease, less any lease incentives received.

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

The Group also assesses the right-of-use asset for impairment when such indicators exist.

The right-of-use assets are included in a separate line within non-current assets on the Consolidated Balance Sheet

Financial assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship, the Group's accounting policy for each category is as follows:

Fair value through profit 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 classified as liabilities). They are carried in the statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income in the finance income or expense line. Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Amortised cost

These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows 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.

Financial assets (continued)

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 financial instrument has increased significantly since initial recognition in which case the lifetime ECL method is adopted. For receivables, a simplified 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 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 confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The Group's financial assets measured at amortised cost comprise trade and other receivables, and cash and cash equivalents in the consolidated statement of financial position.

 

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 flows - bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated statement of financial position.

Financial liabilities

The Group classifies its financial 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 profit 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 financial 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 financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.

 

Other financial liabilities 

 

Other financial 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 financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risk, through the use of foreign exchange rate forward contracts.

 

Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

 

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 profit 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.

 

Leases

All leases are accounted for by recognising a right-of-use asset and a lease liability except for:

·    Leases of low value assets; and

·    Leases with a duration of 12 months or less.

 

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

 

On initial recognition, the carrying value of the lease liability also includes:

·    amounts expected to be payable under any residual value guarantee;

·    the exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option; and

·    any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

 

Leases (continued)

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease

incentives received, and increased for:

·    lease payments made at or before commencement of the lease;

·    initial direct costs incurred; and

·    the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.

 

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.

 

When the Group renegotiates the contractual terms of a lease with the lessor, the accounting depends

on the nature of the modification:

·    if the renegotiation results in one or more additional assets being leased for an amount commensurate with the standalone price for the additional rights-of-use obtained, the modification is accounted for as a separate lease in accordance with the above policy

·    in all other cases where the renegotiated increases the scope of the lease (whether that is an extension to the lease term, or one or more additional assets being leased), the lease liability is remeasured using the discount rate applicable on the modification date, with the right-of-use asset being adjusted by the same amount

·    if the renegotiation results in a decrease in the scope of the lease, both the carrying amount of the lease liability and right-of-use asset are reduced by the same proportion to reflect the partial of full termination of the lease with any difference recognised in profit or loss. The lease liability is then further adjusted to ensure its carrying amount reflects the amount of the renegotiated payments over the renegotiated term, with the modified lease payments discounted at the rate applicable on the modification date. The right-of-use asset is adjusted by the same amount.

 

For contracts that both convey a right to the Group to use an identified asset and require services to be provided to the Group by the lessor, the Group has elected to account for the entire contract as a lease, i.e. it does allocate any amount of the contractual payments to, and account separately for, any services provided by the supplier as part of the contract.

 

Nature of leasing activities (in the capacity as lessee)

The Group leases a number of property, plant and equipment in the jurisdictions from which it operates with a fixed periodic rent over the lease term. The Group has a total of 6 property leases and 1 plant and machinery lease.

 

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 profit for the year. Taxable profit differs from 'profit 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.

 

The Group's current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

 

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the combined statement of financial position differs from its tax base, except for differences arising on:

·    the initial recognition of goodwill;

·    the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

·    investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

 

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

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 significant 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 identified as the management team including the Chief Executive Officers and the Chief Financial Officer.

The Board considers that the Group's project activity constitutes the two operating and two reporting segments presented in Note 2, as defined under IFRS 8. Management reviews the performance of the Group by reference to total results against budget.

The total profit measures are operating profit and profit for the year, both disclosed on the face of the combined income statement. No differences exist between the basis of preparation of the performance measures used by management and the figures in the Group financial information.

Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares and shares in employee benefit trusts, determined in accordance with the provisions of IAS 33 earnings per Share. Diluted earnings per share is calculated by dividing earnings attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares outstanding during the year adjusted for the potentially dilutive ordinary shares.

 

Share Capital

The Group's ordinary shares are classified 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 considered 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 satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

 

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, 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 final dividends, this is when approved by the shareholders at the annual general meeting.

 

Changes in accounting policies

 

New standards, interpretations and amendments effective from 1 January 2021.

 

There were no new standards or interpretations impacting the Group that will be adopted in the annual financial statements for the year ended 31 December 2021, and which have given rise to changes in the Group's accounting policies.

 

At the date of authorisation of these financial 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 first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

		Effect annual periods beginning before or after
IFRS 3	Amendments updating a reference to the Conceptual Framework	1st January 2022
IFRS 4	Amendments regarding the expiry date of the deferral approach	1st January 2023
IFRS 9	Amendments resulting from the annual improvements to IFRS Standards 2018-2020 (fees in the '10 per cent' test for derecognition of financial liabilities)	1st January 2022
IFRS 17	Insurance contracts	1st January 2023
IAS 1	Amendments to defer the effective date of January 2020 amendments   Amendments regarding the disclosure of accounting policies	1st January 2023
IAS 8	amendments regarding the definition of accounting estimates	1st January 2023
IAS 12	Amendments regarding deferred tax on leases and decommissioning obligations	1st January 2023
IAS 16	Amendments prohibiting a Company from deducting from the cost of property, plant and equipment amounts received from selling items while the Company is preparing the asset for its intended use	1st January 2022
IAS 37	Amendments regarding the costs to include when assessing whether a contract is onerous	1st January 2022

 

Critical accounting judgements and key sources of estimation uncertainty  

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including the expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

Key sources of estimation uncertainty

 

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. Inventory is carried at a value of £18,139,000 at the year end.

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 profit by £382,955. The Group does not provide any provision on its non-perishable goods that are greater than two years old on the basis that the products have long shelf life. Should the Group increase the provision to 100% of non-perishable items that are greater than two years old, this would decrease profit by £112,370.

b)    Valuation of goodwill

The assessment of the recoverable amount of goodwill allocated to Retra Holdings Limited, Marvin Leeds Marketing Services, Inc. and Treasured Scents Limited, as detailed in note 9, was based on fair value less costs to sell and value in use calculations which involved judgements over the assumptions applied. For Retra Holdings Limited, a 1% increase in the discount rate from 10.0% to 11.0% would reduce the value in use by approximately £3.9 million leaving headroom of £22.2m above the carrying value. For Marvin Leeds Marketing Services, Inc., a 1% increase in the discount rate from 11.4% to 12.4% would reduce the value in use by approximately £0.8 million leaving headroom of £4.6m above the carrying value. For Treasured Scents Limited, a 1% increase in the discount rate from 10% to 11% would reduce the value in use by approximately £0.3 million leaving headroom of £1.6m above the carrying value.  None of these scenarios would therefore result in any impairment of the goodwill.

c)    Provision for content use and associated legal costs

The Group have recorded a provision of £370,000 at 31 December 2021 in respect of a claim relating to historic content use and associated legal costs (see note 17). The estimation of this provision is by its nature subject to some uncertainty, and whilst the Directors are satisfied that they have recorded their best estimate of the value of the potential outflow, it is nevertheless considered to be a key source of estimation uncertainty.

Critical accounting judgements

 

a)    Deferred tax assets

Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.

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 the Group's 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.

Year ended 31 December	2021	2021	2021	2020	2020	2020
	Group  Brands	Close-out	Total	Group  Brands	Close-out	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	45,525	4,478	50,003	35,397	4,889	40,286
Cost of sales	(30,131)	(2,964)	(33,095)	(24,375)	(3,367)	(27,742)
Gross profit	15,394	1,514	16,908	11,022	1,522	12,544
Administrative expenses	(11,389)	(1,120)	(12,509)	(11,853)	(1,637)	(13,490)
Exceptional items	(586)	-	(586)	(279)	(38)	(317)
Other operating income	2	-	2	317	44	361
Segment result	3,421	394	3,815	(793)	(109)	(902)
Reconciliation of segment result to profit before tax:
Segment result	3,421	394	3,815	(793)	(109)	(902)
Finance expense	(90)	-	(90)	(212)	-	(212)
Profit / (loss) before tax	3,331	394	3,725	(1,005)	(109)	(1,114)
Analysis of total revenue by geographical market:
UK	21,358	3,965	25,323	16,909	4,233	21,142
Europe - Other	5,627	41	5,668	5,271	48	5,319
Europe - Spain	5,484	138	5,622	4,555	72	4,627
Europe - Denmark	6,741	8	6,749	4,987	171	5,158
Rest of World - USA	2,650	326	2,976	1,790	358	2,148
Rest of World - Australia and New Zealand	2,567	-	2,567	1,206	-	1,206
Rest of World - Other	1,098	-	1,098	679	7	686
Total	45,525	4,478	50,003	35,397	4,889	40,286

 

 

During the year ended 31 December 2021, revenues of approximately £5,033,980 were derived from a single external customer based in Denmark (10%). During the year ended 31 December 2020, there was no single material external customer from which revenues were derived exceeding 10% of annual sales.

 

The Directors are not able to attribute the Group's assets and liabilities by reportable business segment.

Analysis of non-current assets by geographical market.
Year ended 31 December	2021	2021	2021	2020	2020	2020
	UK	USA	Total	UK	USA	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Goodwill	6,720	554	7,274	6,720	554	7,274
Customer lists	1,072	374	1,446	2,454	585	3,039
Brand	683	-	683	1,456	-	1,456
Patents	127	-	127	148	-	148
Website	4	-	4	8	-	8
Property, plant and equipment	1,379	6	1,385	1,142	7	1,149
Right of use assets	2,995	78	3,073	3,684	115	3,799
	12,980	1,012	13,992	15,612	1,261	16,873

 

3.           Other operating income

	Year ended 31 December
	2021	2020
	£'000	£'000
Government grants receivable	-	361
Interest received	2	-
	2	361

 

The Group did not apply for government support programs in 2021 (2020: £361,000).

Included within the consolidated statement of comprehensive income is £1,745 of interest received during the year ended 31 December 2021.

 

4.    Operating profit / (loss)

Operating profit / (loss) for the period is stated after charging:

	Year ended 31 December
	2021	2020
	£'000	£'000
Foreign exchange (gain)/loss	(614)	420
Depreciation	648	385
Amortisation of right-of-use assets	690	867
Amortisation of intangible assets	2,394	2,443
Movement of inventories at net realisable value	(5)	312
Exceptional costs	586	317

 

The expenditure incurred within the table above falls wholly within Administrative expenses except movement of inventories which falls within cost of sales.

 

 

Exceptional costs

	Year ended 31 December
	2021	2020
	£'000	£'000
Non-recurring legal and professional fees	187	76
Content use and associated legal fees (See note below)	370	-
Restructuring costs	29	241
	586	317

 

Non-recurring costs of £187,000 relate to the costs associated with a historic legal claim connected to an acquisition that the Group is pursuing.

 

The Group is currently in dispute with a third party relating to the historic use of content on our social media platforms, in the period 2018 through to early 2021. As a result of legal advice received as to the likely quantum of liability a provision of £370,000 at 31 December 2021 has been made as the directors' best estimate of the expected liability and associated legal costs. The payment and the restriction of content use will not affect the ongoing running of the business.

 

Restructuring costs of £29,000 are considered exceptional as they form the conclusion of a restructuring process that was initiated in the previous period.

 

Auditor's Remuneration

 

Analysis of auditor's remuneration is as follows:

	Year ended 31 December
	2021	2020
	£'000	£'000
Fees payable to the Company's auditor for the audit of the Group's annual accounts	64	60
Fees payable to the Company's auditor for the audit of subsidiary companies	101	89
	165	149
Other services pursuant to legislation:
Tax advice	28	26
Other assurance	2	3
Total non-audit fees	30	29

 

5.            Staff costs

 

	Year ended 31 December
	2021	2020
	£'000	£'000
Wages and salaries	5,232	4,889
Social security costs	553	407
Pension costs (note 26)	90	83
	5,875	5,379

 

The average monthly number of employees during the period was as follows:

	Year ended 31 December
	2021	2020
	No.	No.
Directors	7	6
Administrative	27	27
Finance	8	7
Warehouse	48	53
Sales	11	8
Other	12	12
	113	113
	2021	2020
Directors' remuneration, included in staff costs	£'000	£'000
Salaries	858	838
Share based payments (note 23)	117	545
Benefits	20	18
Pension contributions	4	3
	999	1,404

 

Remuneration in respect of Directors was as follows:

	Salary/fees and bonus	Share based payment	Benefits	Pension contribution	2021	2020
	£'000	£'000	£'000	£'000	£'000	£'000
Executive Directors
S Bazini	230	40	11	-	281	480
E Macleod	230	40	9	-	279	478
N Rodol	185	36	-	2	223	244
S Craig	60	1	-	2	63	61
P Hagon	40	-	-	-	40	-
Non-executive Directors
C Garston	60	-	-	-	60	60
K Sadler	40	-	-	-	40	40
P Hagon		-	-	-		40
J Collier	13	-	-	-	13	-
	858	117	20	4	999	1,403

 

	Number of Share options at January 2021	Number of Share options awarded in the year	Number of Share options lapsed in the year	Number of Share options at December 2021	Exercise Price	Earliest Exercise Date	Exercise Expiry Date
N Rodol	412,258	250,000	-	662,258	105,262 @237.5p 306,996 @254.5p 24,590 @122.0p 225,410 @122.0p	29/06/2020   21/09/2021 24/05/2024 24/05/2024	29/06/2027   21/09/2028 24/05/2031 24/05/2031
S Bazini	1,534,986	-	-	1,534,986	254.5p	21/09/2021	21/09/2028
E Macleod	1,534,986	-	-	1,534,986	254.5p	21/09/2021	21/09/2028
S Craig	20,000		-	20,000	10,000 @237.5p 10,000 @49.5p	29/06/2020   20/05/2023	29/06/2027   20/05/2030
Total share options	3,502,230	250,000	-	3,752,230

 

The directors of the Group are the only key management personnel.

 

6.                            Finance expense

	Year ended 31 December
	2021	2020
	£'000	£'000
Loan interest	5	18
Lease liability interest (note 18)	84	143
Other interest	1	51
	90	212

 

7.    Income tax

	Year ended 31 December
	2021	2020
	£'000	£'000
Current tax expense
Current tax on profits for the period	1,262	429
	1,262	429
Deferred tax expense
Origination and reversal of temporary differences	(367)	(544)
Total tax expense / (credit)	895	(111)

 

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profit for the year as follows:

 

	Year ended 31 December
	2021	2020
	£'000	£'000
Profit/(loss) for the period before taxation	3,725	(1,114)
Expected tax charge based on corporation tax rate of 19% (2020: 19%)	708	(212)
Expenses not deductible for tax purposes	74	29
Other adjustments	1	2
Different tax rates applied in overseas jurisdiction	30	(69)
Adjustments in relation to prior year	-	-
Adjustment to deferred tax	82	139
Total tax expense / (credit)	895	(111)

 

The UK corporation tax at the standard rate for the year is 19.0% (2020: 19.0%).

 

On 24 May 2021, the UK Government enacted that from 1 April 2023 the corporation tax rate would increase to 25% for companies with profits of over £250,000. A small profits rate will also be introduced for companies with profits of £50,000 or less so that they will continue to pay corporation tax at 19%. From this date companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate.

 

Deferred tax balances in these financial statements account for the change in the UK Corporation Tax rate from 19% to 25% based on enacted legislation.

 

The Group's effective tax rate for the year is 24.03% (2020: 9.96%).

 

8.                            Subsidiaries

 

At the period end, the Group has the following subsidiaries:

Subsidiary name	Nature of business	Place of incorporation	Percentage owned
Warpaint Cosmetics Group Limited	Holding Company	England and Wales	100%
Warpaint Cosmetics (2014) Limited*	Wholesaler	England and Wales	100%
Treasured Scents (2014) Limited	Holding Company	England and Wales	100%
Treasured Scents Limited*	Dormant	England and Wales	100%
Warpaint Cosmetics Inc.	Holding Company	U.S.A.	100%
Retra Holdings Limited	Holding Company	England and Wales	100%
Badgequo Limited*	Wholesaler	England and Wales	100%
Retra Own Label Limited*	Dormant	England and Wales	100%
Badgequo Deutschland GmbH*	Supply chain management	Germany	100%
Badgequo Hong Kong Limited*	Supply chain management	Hong Kong	100%
Jinhua Badgequo Cosmetics Trading Co., Ltd*	Wholesaler	People's Republic of China	100%
Marvin Leeds Marketing Services, Inc.*	Wholesaler	U.S.A.	100%
Warpaint Cosmetics (ROI) Limited	Wholesaler	Republic of Ireland	100%

* indicates indirect interest

 

All entities detailed above have been in existence for the whole of the reporting period.

 

The registered office for all UK incorporated subsidiaries is Units B&C, Orbital Forty-Six, The Ridgeway Trading Estate, Iver, Bucks. SL0 9HW.

 

The registered office for Warpaint Cosmetics Inc.is 445 Northern Boulevard - Great Neck, New York 11021.

 

The registered office for Badgequo Deutschland GmbH is Robert-Bosch-Straße 10, Haus 1, 56410 Montabaur, Germany.

 

The registered office for Badgequo Hong Kong Limited is 12F, 3 Lockhart Road, Wanchai, Hong Kong.

 

The registered office for Jinhua Badgequo Cosmetics Trading Co. Ltd is Room 1401, Gongyuan Building No. 307 South Shuanglong Street, Wucheng District, Jinhua, Zhejiang, China 321000.

 

The registered office for Marvin Leeds Marketing Services, Inc. is 34W. 33rd St. - Suite 301, New York NY 10001.

The registered office for Warpaint Cosmetics (ROI) Limited is 6^th Floor, South Bank House, Barrow Street, Dublin 4, D04 TR29.

9.            Goodwill

Cost	£'000
At 1 January 2020	8,086
At 31 December 2020	8,086
At 1 January 2021	8,086
At 31 December 2021	8,086
Impairment
At 1 January 2020	812
Impairment during the year	-
At 31 December 2020	812
At 1 January 2021	812
Impairment during the year	-
At 31 December 2021	812
Net book value
At 31 December 2021	7,274
At 31 December 2020	7,274

 

Goodwill represents the excess of consideration over the fair value of the Group's share of the net identifiable assets of the acquired business/CGU at the date of acquisition. The carrying value at 31 December 2021 includes Treasured Scents Limited (Close-out business) of £513,000, Retra Holdings Limited £6,207,000 and Marvin Leeds Marketing Services, Inc. £554,000.

Impairment is calculated by comparing the carrying amounts to the recoverable amount being the higher of value in use derived from discounted cash flow 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 flow model ("DCF") for the subsidiary, which discounts expected cash flows over a five-year period using a post tax discount rate of 10.0% (2020: 10.1%) for Retra Holdings Limited and 11.4% (2020: 8.0%) for Marvin Leeds Marketing Services, Inc. and 10% for Treasured Scents Limited. Cash flows beyond the five-year period are extrapolated using a long-term average growth rate of 2.0% (2020: 2.0%). The average growth rate beyond the five-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, Retra Holdings Limited or Marvin Leeds Marketing Services, Inc. as the recoverable amount exceeds the carrying value.

Key Assumptions and sensitivity to changes in assumptions

The key assumptions are based upon management's historical experience. The calculation of VIU is most sensitive to the following assumptions:

·    Sales and gross margin - for LMS this is based on forecasts incorporating a compound annual growth rate of 19.3%   revenue over the next five years. For Retra, the compound annual growth rate over the next five years is anticipated to be 4.8%. For Treasured Scents the compound annual growth rate over the next five years is anticipated to be 4%. The gross margins  for LMS, Retra and Treasured Scents are based on historical rates achieved.

·    Administrative expenses are expected to increase by 18% in LMS, 23% in Retra and 5% in Treasured Scents in the year ending 31 December 2022 with 5% incremental increases annually thereafter.

·    Discount Rate - pre-tax discount rate of 10.0% for Retra Holdings Limited, 11.4% for Marvin Leeds Marketing Services, Inc. and 10% for Treasured Scents reflects the Directors' estimate of an appropriate rate of return, considering the relevant risk factors.

·    Growth Rate - used to extrapolate beyond the budget period (5 years from year end date) and for terminal values based on a long-term average growth rate of 2.0%.

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, the projected operating cash flows. Reasonable changes to these assumptions are considered to be:

·    1.0% increase in the pre-tax discount rate;

·    Reduction in the terminal growth rate to 1%;.and

·    10.0% reduction in projected operating cash flows

Reasonable changes to the assumptions used, considered in isolation, would not result in an impairment of goodwill for LMS, Retra or TS2014.

10.          Intangible assets

	Brands	Customer lists	Patents	Website	Licences	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January 2020	3,802	8,240	252	45	6	12,345
Additions	-	-	12	-	-	12
At 31 December 2020	3,802	8,240	264	45	6	12,357
Additions	-	-	3	-	-	3
At 31 December 2021	3,802	8,240	267	45	6	12,360
Accumulated amortisation
At 1 January 2020	1,585	3,554	92	28	4	5,263
Charge for the year	765	1,644	24	9	1	2,443
At 31 December 2020	2,350	5,198	116	37	5	7,706
Charge for the year	765	1,600	24	4	1	2,394
At 31 December 2021	3,115	6,798	140	41	6	10,100
Net book value
At 31 December 2021	687	1,442	127	4	-	2,260
At 31 December 2020	1,452	3,042	148	8	1	4,651

 

 

11.          Property, plant and equipment

 

	Plant and machinery	Fixtures and fittings	Computer equipment	Motor vehicles	Total
	£'000	£'000	£'000	£'000	£'000
Costs
At 1 January 2020	250	848	302	141	1,541
Additions	2	825	42	-	869
Disposals	-	-	-	(21)	(21)
At 31 December 2020	252	1,673	344	120	2,389
Additions	15	558	23	-	596
Transfer from right-of-use assets *	760	-	-	-	760
At 31 December 2021	1,027	2,231	367	120	3,745
Accumulated depreciation
At 1 January 2020	59	528	181	89	857
Charge for year	41	257	70	17	385
On disposals	-	-	-	(2)	(2)
At 31 December 2020	100	785	251	104	1,240
Charge for year	189	410	39	11	649
Transfer from right-of-use assets *	471	-	-	-	471
At 31 December 2021	760	1,195	290	115	2,360
Net book value
At 31 December 2021	267	1,036	77	5	1,385
At 31 December 2020	152	888	93	16	1,149

 

* Transferred from right of use assets category represents the return of ROU assets at expiry of the lease and where title is transferred to the Group.

 

12.          Right-of-use assets

 

	Leasehold property	Plant and machinery	Computer equipment	Total
	£'000	£'000	£'000	£'000
Costs
At 1 January 2020	4,960	760	77	5,797
Additions	139	-	-	139
Disposals	(303)	-	-	(303)
At 31 December 2020	4,796	760	77	5,633
Additions	253	-	-	253
Transfer to Plant and Machinery	-	(760)	-	(760)
At 31 December 2021	5,049	-	77	5,126
Accumulated amortisation
At 1 January 2020	729	321	62	1,112
Charge for the year	702	150	15	867
Disposals	(145)	-	-	(145)
At 31 December 2020	1,286	471	77	1,834
Charge for the year	690	-	-	690
Transfer to Plant and Machinery	-	(471)	-	(471)
At 31 December 2021	1,976	-	77	2,053
Net Book Value
At 31 December 2021	3,073	-	-	3,073
At 31 December 2020	3,510	289	-	3,799

 

Transferred from right of use assets category represents the return of ROU assets at expiry of the lease and where title is transferred to the Group.

 

The weighted average incremental borrowing rate applied to measure lease liabilities is 3.73% (2020: 3.61%) for leasehold property, nil% (2020: 0.88%) for plant and machinery and nil% (2020: 0.88%) for computer equipment.

 

13.          Inventories

 

	As at 31 December
	2021	2020
	£'000	£'000
Finished goods	18,655	14,934
Provision for impairment	(516)	(521)
	18,139	14,413

The cost of inventories recognised as an expense and included in 'cost of sales' amounted to £28.56 million in the year ended 31 December 2021 (2020: £24.30 million).

 

 

14.          Trade and other receivables

	As at 31 December
	2021	2019
	£'000	£'000
Trade receivables - gross	8,755	7,750
Provision for impairment of trade receivables	(66)	(44)
Trade receivables - net	8,689	7,706
Other receivables	92	600
Prepayments and accrued income	1,541	881
Total	10,322	9,187

The directors consider that the carrying values of trade and other receivables measured at book value and amortised cost approximates to their fair value.

 

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:

 

	As at 31 December
	2021	2020
	£'000	£'000
Accumulated impairment losses at 1 January	44	44
Additional impairment losses recognised during the year, net	66	256
Amounts written off during the year as uncollectible	(44)	(256)
Accumulated impairment losses at 31 December	66	44

 

The impairment losses recognised during the year of £66,000 (2020: losses of £256,000 relating to the recovery of amounts previously written off as uncollectable).

 

Contract Liabilities

 

	As at 31 December
	2021	2020
	£'000	£'000
At 1 January	292	321
Amounts included in contract liabilities that was recognised as revenue during the period	530	611
Amounts settled during the period	(603)	(640)
At 31 December	219	292

 

Contract liabilities are included within "trade and other receivables" in the face of the statement of financial position being settled net of the trade debtor balances. They arise from the Group's brand segment, which enter into contracts with customers for early settlement discounts, marketing contributions and volume rebates, because the invoiced amounts to customers at each balance sheet date do not consider the amount or rebate and discounts the customers are entitled to until settlement of the debtor balance at a certain time.

 

15.          Cash and cash equivalents

 

Cash and cash equivalents include the following for the purposes of the cash flow statement:

 

	As at 31 December
	2021	2020
	£'000	£'000
Cash at bank and in hand	4,072	4,875
	4,072	4,875

 

16.          Trade and other payables

 

	As at 31 December
	2021	2020
	£'000	£'000
Current
Trade payables	1,847	1,439
Social security and other taxes	293	523
Other payables	66	32
Accruals and deferred income	4,087	1,127
Total	6,293	3,121

 

The directors consider that the carrying values of trade and other payables measured at book value and amortised cost approximates to their fair value.

 

17.          Provision

The Group is currently in dispute with a third party relating to the historic use of content on the Group's social media platforms in the period 2018 through to early 2021. As a result of legal advice received as to the likely quantum of liability a provision of £370,000 at 31 December 2021 has been made as the directors' best estimate of the expected liability and associated legal costs. The payment and the restriction of content use will not affect the ongoing running of the Group's business.

 

18.          Loans and borrowings

 

	As at 31 December
	2021	2020
	£'000	£'000
Bank loans
Repayable within 1 year	-	48
	-	48
Lease liabilities
Repayable within 1 year	610	866
Repayable within 2 - 5 years	2,261	2,375
Repayable in more than 5 years	276	670
	3,147	3,911
Total
Repayable within 1 year	610	914
Repayable within 2 - 5 years	2,261	2,375
Repayable in more than 5 years	276	670
	3,147	3,959

 

 

Undiscounted lease payments

 

	As at 31 December
	2021	2020
	£'000	£'000
Lease liabilities
Repayable within 1 year	684	995
Repayable within 2 - 5 years	2.390	2,599
Repayable in more than 5 years	281	506
Total	3,355	4,100

 

 

Lease liabilities

	As at 31 December
	Leasehold property	Plant and machinery	Computer equipment	Total
	£'000	£'000	£'000	£'000
At 1 January 2020	4,326	398	16	4,740
Lease additions	139	-	-	139
Lease disposals	(158)	-	-	(158)
Interest expense	97	44	2	143
Lease payments	(745)	(190)	(18)	(953)
As at 31 December 2020	3,659	252	-	3,911
Lease additions	253	-	-	253
Interest expense	84	-	-	84
Lease payments	(765)	(252)	-	(1,017)
Adjustments	(84)			(84)
As at 31 December 2021	3,147	-	-	3,147

 

 

Nature of lease liabilities

The Group leases a number of properties in the United Kingdom and United States of America as well as certain items of plant and equipment.

 

An additional £1,061 (2020: £2,617) has been expensed to the statement of comprehensive income in respect of low value operating leases. Interest payments of £Nil (2020: £4,051) have also been expensed in respect of leases that expired during the period.

 

The interest rates expected are as follows:

	As at 31 December
	2021	2020
	%	%
Finance loans	7.0	7.0
Bank loans	8.75	8.75
Invoice financing	3.25	3.25

 

Secured loans

The borrowings of the subsidiary companies, Retra Holdings Limited and Badgequo Limited, are secured by a debenture including a fixed charge over the present leasehold property, a first fixed charge over book and other debts and a first floating charge over all assets of those companies.

 

Bank borrowings include stock and invoice financing facilities amounting to £Nil (2020: £Nil). The carrying value of assets pledged as collateral approximates to £8,205,000 (2020: £8,763,000).

 

19.          Deferred tax

 

Deferred tax is calculated in full on temporary differences under the liability method using tax rate of 19% - 25%.

The movement on the deferred tax account is as shown below:

 

	Deferred tax liability		Deferred tax asset
	Year ended 31 December		Year ended 31 December
	2021	2020	2021	2020
	£'000	£'000	£'000	£'000
Opening balance	(1,000)	(1,324)	581	374
Foreign exchange adjustment	-	3	-	(16)
Recognised in profit and loss:
Tax expense	443	321	(81)	223
Closing balance	(557)	(1,000)	500	581

 

 

The deferred tax liability has arisen due to the timing difference on accelerated capital allowances amounting to £46,000 (2020: £42,000) and on the intangible assets acquired in a business combination amounting to £1,057,000 (2020: £1,057,000).

 

Deferred tax asset has arisen from taxable losses carry forward for LMS amounting to £1,995,000 (2020: £2,323,000) and recognised at a rate of 25%.

 

20.  Dividends

 

Year to December 2021	Paid	Amount per share	Total £'000
Final dividend - 2020	05 July 21	3.0p	2,303
Interim dividend - 2021	11 Nov 21	2.5p	1,919
			4,222
Year to December 2020	Paid	Amount per share	Total £'000
Final dividend - 2019	-	-	-
Interim dividend - 2020	20 Nov 20	2.8p	2,149
			2,149

 

The Group has proposed a final dividend for the year ended 31 December 2021 of 3.5p per share.

 

21.  Called up share capital

 

	No. of shares
	'000	£'000
Allotted and issued
Ordinary shares of £0.25 each:
At 1 January 2019 and 2020	76,749	19,187
Issued at 12 May 2021	3	1
At 31 December 2021	76,752	19,188

 

During the year, Company issued 3,230 equity shares with par value of £0.25 per share for £0.495 per share. Entire amount was paid in cash. No shares were allotted other than for cash.

 

All ordinary shares carry equal rights.

 

22.  Reserves

 

Share premium

The share premium reserve contains the premium arising on the issue of equity shares, net of issue expenses incurred by the Company.

 

Retained earnings

Retained earnings represent cumulative profits 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 (the Company) as at the point Warpaint London PLC legally acquired Warpaint Cosmetics Group Limited is accounted for as if it had been in existence as at 31 December 2015 and as at 1 January 2015. The corresponding entry being the merger reserve so the overall net assets as at the comparative dates are not affected.

 

Share option reserves

'Share option 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.

 

23.  Share based payments

 

Movements in the number of options and their weighted average exercise prices are as follows:

 

	Weighted average exercise price (pence)	Number of options	Weighted average exercise price (pence)	Number of options
	2021	2021	2020	2020
Outstanding at the beginning of the year	233.50	4,528,962	253.45	4,088,302
Granted during the year	122.0	400,000	49.50	454,686
Expired during the year	115.0	(68,132)	83.36	(14,026)
Outstanding at the end of the year	226.0	4,860,830	233.50	4,528,962

 

The weighted average remaining contractual life of the options is 2.6 years (2020: 3.0 years).

 

The following options over ordinary shares have been granted by the Company:

	Exercise price	Exercise period	Number of options
	Pence	(years)
29 June 2017	237.50	3	255,051
24 September 2018	254.50	5	3,837,462
20 May 2020	49.50	3	454,686
25 May 2021	122.0	3	400,000

 

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:

	25 May 2021	20 May 2020	24 Sept 18	29 June 17
Expected volatility	78%	76%	78%	64%
Expected life (years)	3	3	2-4	3
Risk-free interest rate	0.15%	0.01%	1.61%	0.38%
Expected dividend yield	1.76%	2.08%	1.53%	2%
Fair value per option (£)	0.552	0.213	0.422	0.963

 

On 25 May 2021, the Company granted, in aggregate, 400,000 share options with an exercise price of 122.0 pence per Ordinary share under a Company Share Option Plan (CSOP). Key persons discharging managerial responsibilities (PDMR's) were awarded a cumulative 400,000 share options as part of their annual remuneration and incentivisation packages. The options are exercisable for a period of seven years from 24 May 2024 and are not subject to the satisfaction of any performance criteria.

 

On 20 May 2020, the Company granted, in aggregate, 454,686 share options with an exercise price of 49.50 pence per Ordinary share under a Company Share Option Plan (CSOP). Key persons discharging managerial responsibilities (PDMR's) were awarded a cumulative 112,106 share options as part of their annual remuneration and incentivisation packages. The remaining 342,580 options granted have been awarded to other members of the Company's workforce. No directors of the Company were awarded options in relation to this CSOP. The options are exercisable for a period of seven years from 20 May 2023, subject to the same performance conditions dictated by the Enterprise Management Incentive Scheme detailed below.

 

On 24 September 2018, share options with an exercise price of 254.50p, 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 five 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 Officer, Neil Rodol, but excluding all other directors. 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 financial 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 £177,000 (2020: £656,000).

 

24.          Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.

 

Key management personnel are considered to be the directors. Compensation of the directors is disclosed in note 5 with the exception of dividends and drawings which are disclosed in note 19.

 

During 2021, Warpaint Cosmetics (2014) Limited paid rent in the sum of £120,000 (2020: £120,000) to Direct Supplies (2014) Group Limited, of which S Bazini is a director. At the year end the amount due to Direct Supplies (2014) Group Limited was £30,000 (2020: £Nil). During 2021, Warpaint Cosmetics (2014) Limited paid rent in the sum of £120,000 (2020: £120,000) to Trading Scents Group Limited, of which E Macleod is a director. At the year end the amount due to Trading Scents Group Limited was £30,000 (2020: £1,000).

 

During 2021, Retra Holdings Limited paid rent in the sum of £340,000 (2020: £340,000) to Warpaint Cosmetics Limited, of which E Macleod and S Bazini are directors.

 

As announced on 6 February 2020, the Group appointed Ward & Hagon, a provider of practical business solutions, to assist it in implementing its strategic growth plan.  As a result of a successful initial period, whereby they assisted the Group in accessing new retail channels (including Tesco) the Group is pleased to announce that the Contract with Ward & Hagon, has been renewed for a further 12 months.

 

The Contract has a total annual value of £210,000 (which will be satisfied from the Group's operating cash flows), and includes the services of Paul Hagon, an executive director of the Company and Martyn Ward, amongst other members of the Ward & Hagon team.  In addition, Ward & Hagon will be paid a commission of 3% on all sales generated from their introductions in the 12-month period from the point of first sale, and 4% on all sales generated from their introductions in the 12-month period thereafter. 

 

The board is of the view that the services provided under the Contract represent value to shareholders through assisting the Group achieving is near term objectives.  Accordingly, Ward & Hagon will continue to focus on assisting the Group access new retail channels both in the UK and overseas.

 

Paul Hagon, an executive director of Warpaint, is a member of Ward & Hagon.  Accordingly, the renewal of the contract is classified as a related party transaction pursuant to the AIM Rules for Companies. The independent directors of the Company (being all executive and non-executive directors except Mr Hagon), having consulted with N+1 Singer, the Company's Nominated Adviser, consider that the terms of the Contract renewal are fair and reasonable insofar as the Company's shareholders are concerned.

 

Also note Ward & Hagon were paid £200,000 fees (2020: £200,0000, £20,010 commission (2020: £Nil) and expenses of £7,941 in 2021 (2020: £7,299).

 

25.          Financial instruments

 

Capital risk management

The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. The Group reports in Sterling. All funding requirements and financial risks are managed based on policies and procedures adopted by the Board of Directors.

The Group manages its capital to ensure its ability to continue as a going concern and to maintain an optimal capital structure to reduce cost of capital. The capital structure of the Group comprises equity attributable to equity holders of the Company consisting of invested capital as disclosed in the Statement of Changes in Equity and cash and cash equivalents.

The Group's invested capital is made up of share capital, share premium and retained earnings totalling £50,358,000 as at 31 December 2021 (2020: £51,748,000) 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.

 

	Year ended 31 December
	2021		2020
	£'000		£'000
Financial assets
Financial assets at amortised cost:
Trade and other receivables	8,781		8,306
Financial assets measured at fair value through the profit and loss:
Cash and cash equivalents	4,072		4,875
Derivative financial instruments	545		40
	13,398		13,221
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables	(1,913)		(2,598)
Loan and borrowings	(3,147)		(3,959)
Financial liabilities measured at fair value through the profit and loss:
Derivative financial instruments	-		(400)
	(5,060)		(6,957)
Net	8,338		6,264

 

Financial assets measured at fair value through the profit and loss comprise cash and cash equivalents and derivative financial instruments.

 

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.

 

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 financial performance. The Directors have an overall responsibility for the establishment of the Group's risk management framework. A formal risk assessment and management framework for assessing, monitoring and managing the strategic, operational and financial risks of the Group is in place to ensure appropriate risk management of its operations.

 

The following represent the key financial risks that the Group faces:

 

Market risk

The Group's activities expose it to the financial risk of interest rates.

 

Interest rate risk

The Group's interest rate exposure arises mainly from its interest-bearing borrowings. Contractual agreements entered into a floating rate expose the entity to cash flow risk. Interest rate risk also arises on

the Group's cash and cash equivalents. The Group does not enter into derivative transactions in order to hedge against its exposure to interest rate fluctuations. An increase in the rate of interest by 100 basis points would decrease profits by £18,000 (2020: £7,000) with an increase in profits by the same amount for a decrease in the rate of interest by 100 basis points.

 

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual obligations.

 

The Group's principal financial assets are trade and other receivables and bank balances and cash. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

 

The Group's credit risk is primarily attributable to trade receivables. The Group has a policy of assessing credit worthiness of potential and existing customers before entering into transactions. There is ongoing credit evaluation on the financial condition of accounts receivable using independent ratings where available or by assessment of the customer's credit quality based on its financial position, past experience and other factors. The Group manages the collection of its receivables through its ongoing contact with customers so as to ensure that any potential issues that could result in non-payment of the amounts due are addressed as soon as identified. The Group makes a provision in the financial 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 financial assets recorded in the financial statements. At 31 December 2021, the Group has trade receivables of £8,689,000 (2020: £7,706,000).

 

The following table provides an analysis of trade receivables that were due, but not impaired, at each financial year end. The Group believes that the balances are ultimately recoverable based on a review of past impairment history and the current financial status of customers.

 

	As at 31 December
	2021	2020
	£'000	£'000
Current	4,811	4,682
1 - 30 days	2,006	1,801
31 - 60 days	1,516	944
61 - 90 days	183	220
91 + days	239	103
Provision for impairment of trade receivables	(66)	(44)
Total trade receivables - net	8,689	7,706

 

The Directors are unaware of any factors affecting the recoverability of outstanding balances at 31 December 2021 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 lifetime expected credit loss model, as set out below, in accordance with IFRS 9.

 

	As at 31 December			As at 31 December
	2021			2020
	£'000	%	£'000	£'000	%	£'000
Current	4,811	0.135	6	4,682	0.135	6
1 - 30 days	2,006	0.405	8	1,801	0.405	7
31 - 60 days	1,516	1.215	18	944	1.215	11
61 - 90 days	183	3.645	8	220	3.645	8
91 + days	239	10.935	26	103	10.935	12
			66			44

 

Credit quality of financial assets

	As at 31 December
	2021	2020
Trade receivables, gross (note 14):	£'000	£'000
Receivable from large companies	2,600	4,270
Receivable from small or medium-sized companies	2,211	412
Total neither past due nor impaired	4,811	4,682

 

	As at 31 December
	2021	2020
Past due but not impaired:	£'000	£'000
Less than 30 days overdue	2,006	1,801
30 - 90 days overdue	1,872	1,223
Total past due but not impaired	3,878	3,024

 

Lifetime expected loss provision:
Less than 30 days overdue	-	-
30 - 90 days overdue	66	44
Total lifetime expected loss provision (gross)	66	44
Less: Impairment provision	(66)	(44)
Total trade receivables, net of provision for impairment	8,689	7,706

 

 

Cash and cash equivalents, neither past due nor impaired (Moody's ratings of respective counterparties):

	As at 31 December
	2021	2020
	£'000	£'000
AAA rated	6	10
AA rated	1,723	303
A rated	-	1,115
BAA rated	2,343	3,447
Total cash and cash equivalents	4,072	4,875

 

For the purpose of the Group's 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 (2020: £100,000).

 

Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet the obligations as they fall due.

The Board receives monthly cash balance updates and weekly sales and margin reports marked against budget. At the start of each year the Board approve and adopt a budget and cash flow for the next 24 months, the CFO monitors these and reports any material divergences to the Board, so that management can ensure that sufficient funding is in place as it is required. The budget and cash flow are updated at the end of each year, for the following 24 months.

The tables below summarise the maturity profile of the combined Group's non-derivative financial liabilities at each financial year end based on contractual undiscounted payments, including estimated interest payments where applicable:

 

Year ended 31 December 2021

	Less than 6 months	Between 6 months and 1 year	Between 1 and 5 years	Over 5 years	Total
	£'000	£'000	£'000	£'000	£'000
Trade payables	1,847	-	-	-	1,847
Other payables	66	-	-	-	66
Accruals	4,087	-	-	-	4,087
Loans and borrowings	342	342	2,390	281	3,355
	6,342	342	2,390	281	9,355

 

 

Year ended 31 December 2020

	Less than 6 months	Between 6 months and 1 year	Between 1 and 5 years	Over 5 years	Total
	£'000	£'000	£'000	£'000	£'000
Trade payables	1,439	-	-	-	1,439
Other payables	32	-	-	-	32
Accruals	1,127	-	-	-	1,127
Loans and borrowings	497	498	2,599	506	4,100
	3,095	498	2,599	506	6,698

 

The borrowings of the Group are secured by a debenture including a fixed charge over all present leasehold property, a first fixed charge over book and other debts and a first floating 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 flexible discount structure to offset any adverse foreign exchange movements and through the use of forward currency contracts. At December 2021, there were total sums of £939,000 (2020: £375,000) held in foreign currency.

 

The Group is also exposed to currency risk as the assets one of its subsidiary are denominated in US Dollars. At 31 December 2021, the net foreign liability was £0.7m (2020: £0.4m). 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 £9,083 increase in reported profits and equity, while a 5% strengthening of sterling would result in £8,218 decrease in profits and equity.

Marvin Leeds Marketing Services, Inc.

		As at 31 December
		2021	2021
		USD	GBP
Profit After Tax		233,587	172,570
5% weakening of US dollar		233,587	181,653
	Increase profits		9,083
5% strengthening of US dollar		233,587	164,352
	Decrease profits		(8,218)

 

Foreign exchange risk

	2021	2020
	£'000	£'000
Derivatives carried at fair value:
Exchange gain/(loss) on forward foreign currency contracts	545	(360)

 

The Group, along with other businesses, will face the risk of inflationary 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.

 

Derivatives are recognised initially at their fair value at the date the derivative contract is entered intro and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised immediately in the profit or loss unless the derivative is designed and effective as a hedging instrument, in which event the timing and recognition in the profit or loss depends on the nature of the hedging relationship.

 

As at 31 December 2021, the Group has 40 (2020: 42) forward foreign exchange contracts outstanding. Derivative financial instruments are carried at fair value.

 

The following table details the foreign currency contracts outstanding as at the balance sheet date.

a)    Contracted exchange rate	2021	2020	2021	2020
	£/$		£/€
3 months or less	1.3730	1.3353	-	1.1082
3 to 6 months	1.3866	1.3222	1.1645	1.1099
6 to 12 months	1.3813	1.3265	1.1491	1.1024

 

 

b)     Contract value	2021	2020	2021	2020
	£/$		£/€
	£'000	£'000	£'000	£'000
3 months or less	728	2,620	-	947
3 to 6 months	13,159	7,008	1,072	2,479
6 to 12 months	5,447	3,766	2,259	1,133
	19,335	13,394	3,331	4,559

 

c)      Foreign currency	2021	2020	2021	2020
	$'000	$'000	€'000	€'000
3 months or less	1,000	3,500	-	1,050
3 to 6 months	18,250	9,254	1,250	2,750
6 to 12 months	7,535	5,000	2,600	1,250
	26,785	17,754	3,850	5,050

 

Fair value of financial assets and liabilities

 

Financial instruments are measured in accordance with the accounting policy set out in Note 1. All financial 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 significant difference between the book value and fair value of the Group's financial assets and liabilities and is considered to be immaterial.

 

26.          Pension costs

 

The Group operates a defined contribution pension scheme. Contributions payable to the Group's pension scheme are charged to the statement of comprehensive income in the period to which they relate. The amount charged to profit in each period was £88,339 (2020: £91,019).

 

27.          Controlling party

 

In the opinion of the directors there is no ultimate controlling party.

 

28.          Earnings/(loss) per share

Basic earnings per share are calculated by dividing profit or loss attributable to ordinary equity holders by the weighted average number of ordinary shares in issue during the period.

 

The weighted average number of shares for the current year includes the shares issued as consideration for the acquisition of Retra Holdings Limited on 30 November 2017.

 

	2021	2020
Basic earnings/(loss) per share (pence)	3.69	(1.31)
Diluted earnings per/(loss) share (pence)	3.68	(1.31)
The calculation of basic and diluted earnings/(loss) per share is based on the following data:
	2021	2020
Earnings	£'000	£'000
Earnings for the purpose of basic earnings per share, being the net profit/(loss)	2,830	(1,003)

 

Number of shares	2021	2020
Weighted number of ordinary shares for the purpose of basic earnings per share	76,751,187	76,749,125
Potentially dilutive shares awarded	62,699	67,040
Weighted number of ordinary shares for the purpose of diluted earnings per share	76,813,886	76,816,165

 

The 4,542,988 share options (2020: 4,088,302) in issue throughout the year 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 additional 400,000 share options granted 25 May 2021 have been included in the computation of diluted earnings per share as the exercise price of the options is below the average annual market price of Ordinary shares.

29.  Notes supporting statement of cash flows

Non-cash transactions from financing activities are shown in the table below.

	Non-current loans and borrowings	Current loans and borrowings	Total
	£'000	£'000	£'000
At 1 January 2020	3,864	2,205	6,069
Non-cash flows:	-	(19)	(19)
Cash flows	-	(2,091)	(2,091)
Reclassification from Non-current loans and borrowings to current loans and borrowings	(819)	819	-
At 31 December 2020	3,045	914	3,959
Non-cash flows:	-	169	169
Cash flows	-	(981)	(981)
Reclassification from Non-current loans and borrowings to current loans and borrowings	(508)	508	-
At 31 December 2021	2,537	610	3,147

 

30.  Post balance sheet events

On 2 March 2022, Ward & Hagon Management Consulting LLP (an LLP of which Paul Hagon is a member) were granted options to subscribe for 200,000 ordinary shares of 25p in the Company at an exercise price of 127.5 pence per share (the "Option"), being the closing mid-market price on 1 March 2022 (the last practicable date prior to this announcement).  The Option is exercisable between three and ten years from the date of grant. Save as mentioned above, there were no changes in the shareholdings of the directors between 31 December 2021 and the date of this report.