CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2023

		Year ended 31 December
		2023	2022
	Note	£'000	£'000
Operating activities
Profit before tax		18,118	7,690
Finance expense	5	369	281
Finance income	5	(6)	(4)
Amortisation of intangible assets	9	187	1,995
Depreciation of property, plant, and equipment	10	662	761
Depreciation on right of use assets	11	1,111	965
Loss on disposal of property, plant, and equipment		40	1
Share based payments	21	134	193
Increase in trade and other receivables		(1,836)	(1,370)
Increase in inventories	12	(9,248)	(576)
Increase/(decrease) in trade and other payables		3,588	(675)
Movement in deferred tax assets		(51)	(306)
Fair value (gain)/loss on derivative financial instruments		(74)	1,139
Foreign exchange translation differences		(7)	(26)
Cash generated from operations		12,987	10,068
Tax paid		(2,569)	(1,546)
Net cash flows from operating activities		10,418	8,522
Investing activities
Purchase of intangible assets	9	(3)	(12)
Purchase of property, plant, and equipment	10	(515)	(831)
Net cash used in investing activities		(518)	(843)
Financing activities
Lease payments	16	(1,144)	(836)
Proceeds from issued share capital		492	-
Lease liability interest	5	(230)	(185)
Interest paid	5	(139)	(96)
Interest received	5	6	4
Dividends	18	(5,785)	(4,682)
Net cash used in financing activities		(6,800)	(5,795)
Net increase in cash and cash equivalents		3,100	1,884
Cash and cash equivalents at beginning of period		5,865	4,072
Exchange gain/(loss) on cash and cash equivalents		88	(91)
Cash and cash equivalents at end of period	14	9,053	5,865
Cash and cash equivalents consist of:
Cash and cash equivalents	14	9,053	5,865
		9,053	5,865
The notes form part of these financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT ENDED 31 DECEMBER 2023

 

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 2023 were authorised for issue by the board of directors on 23 April 2024

 

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 £13.9 million in the year to 31 December 2023 (2022: £6.3 million) and had net current assets of £36.7 million at 31 December 2023 (2022: £27.7 million).

The Group occasionally makes use in its Retra Holdings Limited ("Retra") subsidiary of a £6.0 million bank facility that can be used for confidential invoice discounting, and a £3.5 million bank facility that can be used for stock finance, which is used if needed during the peak gift buying season. These facilities are ongoing without a fixed term. In addition, the Group has a £5.0 million (2022: £3.0 million) general purpose bank facility in its Warpaint Cosmetics (2014) Limited ("Warpaint Cosmetics") subsidiary which was agreed in March 2024. This facility will renew annually and was put in place to support the continued growth of the business. As at the year end £nil of the bank facilities were utilised and the Directors expect that in 2024 the facilities will only be used to modest levels well within the facility limits, to support the day to day working capital of the business. At the 2 April 2024 the company had cash of £7.5 million (31 March 2023: £8.5 million), no debt and had used £nil of its bank facilities.(31 March 2022: No debt and £nil bank facilities were used).

The Directors have prepared forecasts covering the period to December 2025, built from the detailed Board-approved budget for 2024. 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. These challenges 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, 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 Group's cash flow forecasts and projections, taking account of reasonable and possible changes in trading performance, 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 2025, and in Retra and Warpaint Cosmetics within the level of their own bank facility.

In preparing this analysis, a number of scenarios were modelled.. The scenarios modelled were all based on varying levels of sales revenue, including one that assumes no growth for 2024 and 2025 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. Online sales are recognised and invoiced to the customer once the goods have been delivered to the customer.

 

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 9.3 million points yet to be redeemed, leading to a provision of £18,568 (2022: 6.5 million points leading to a provision of £32,471).

 

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 sales made to certain large 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.

 

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 2022 relate to a royalty claim and associated legal 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 from operations, profit 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 9.

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 or 20% straight line
Fixtures and fittings	-	25% reducing balance or 20% straight line
Computer equipment	-	25% reducing balance or 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.

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.

 

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 a revised discount rate. 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 ; and

·    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 properties in the jurisdictions from which it operates with a fixed periodic rent over the lease term. The group has a total of 7 property leases.

 

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, Managing Director 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  paid to the shareholders. 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 that are effective for the first time for the financial year beginning 31 December 2023

IFRS 4	Amendments regarding the expiry date of the deferral approach
IFRS 17	Insurance contracts
IFRS 17	Amendments regarding comparative information for initial application of IFRS 17 and IFRS 9
IAS 1	Amendments regarding disclosure of accounting policies
IAS 8	Amendments regarding the definition of accounting estimates
IAS 12	Amendments resulting from deferred tax assets and liabilities arising from a simple transaction

 

New standards, interpretations and amendments effective from 1 January 2024

 

 

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 16	Amendments to clarify seller-lessee subsequently measured sale and leaseback transactions	1st January 2024
IFRS S1	General Requirements for Disclosure of Sustainability-related Financial Information	1st January 2024
IFRS S2	Climate-related Disclosures	1st January 2024
IFRS 7	Amendments regarding supplier finance arrangements	1st January 2024
IAS 1	Amendments regarding  to the classification of liabilities with covenants as either current or non-current	1st January 2024
IAS 7	Amendments regarding supplier finance arrangements	1st January 2024

 

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 £27.9 million 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 £0.27 million. 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 £0.04 million. 

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 5% increase in the discount rate from 7.6% to 12.6% would reduce the value in use by approximately £66 million leaving headroom of £64 million above the carrying value. For Marvin Leeds Marketing Services, Inc., a 5% increase in the discount rate from 7.5% to 12.5% would reduce the value in use by approximately £12.6 million leaving headroom of £11.7 million above the carrying value. For Treasured Scents Limited, a 5% increase in the discount rate from 7.6% to 12.6% would reduce the value in use by approximately £5.6 million leaving headroom of £5.9 million above the carrying value. None of these scenarios would therefore result in any impairment of the goodwill.

Critical accounting judgements

 

c)    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 own branded products whereas 'Close-out' relates to the purchase of third-party stock which is then repackaged for sale. These segments are the basis on which the Group reports internally to the Board. The executive directors Sam Bazini, Eoin Macleod and Neil Rodol together with members from the Groups senior management teams are the chief operating decision makers of the whole business.

Year ended 31 December	2023	2023	2023	2022	2022	2022
	Own Brand	Close-out	Total	Own Brand	Close-out	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	87,068	2,522	89,590	60,288	3,770	64,058
Cost of sales	(52,341)	(1,516)	(53,857)	(38,327)	(2,397)	(40,724)
Gross profit	34,727	1,006	35,733	21,961	1,373	23,334
Administrative expenses	(16,765)	(487)	(17,252)	(14,319)	(896)	(15,215)
Exceptional items	-	-	-	(143)	(9)	(152)
Segment result	17,962	519	18,481	7,499	468	7,967
Reconciliation of segment result to profit before tax:
Segment result	17,962	519	18,481	7,499	468	7,967
Finance Income	6	-	6	4	-	4
Finance expense	(369)	-	(369)	(281)	-	(281)
Profit before tax	17,599	519	18,118	7, 222	468	7,690
Analysis of total revenue by geographical market:
UK	30,097	2,308	32,405	24,277	3,287	27,564
Europe - Other	8,213	11	8,224	6,942	13	6,955
Europe - Spain	11,223	82	11,305	8,005	194	8,199
Europe - Denmark	25,499	28	25,527	12,822	98	12,920
Rest of World - USA	7,213	93	7,306	5,163	178	5,341
Rest of World - Australia and New Zealand	3,067	-	3,067	1,565	-	1,565
Rest of World - Other	1,756	-	1,756	1,514	-	1,514
Total	87,068	2,522	89,590	60,288	3,770	64,058

 

 

During the year ended 31 December 2023, revenues of approximately £23.2 million (2022: £11.2 million) were derived from a single external customer based in Denmark (25.9%; 2022: 17.5%).

 

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	2023	2023	2023	2022	2022	2022
	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	-	-	-	-	160	160
Brand	-	3	3	-	3	3
Patents	83	-	83	105	-	105
Website	7	-	7	9	-	9
Property, plant and equipment	1,239	6	1,245	1,427	5	1,432
Right of use assets	5,214	66	5,280	5,624	35	5,659
	13,263	629	13,892	13,885	757	14,642

3.    Operating profit

 

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

	Year ended 31 December
	2023	2022
	£'000	£'000
Foreign exchange loss/(gain)	433	(133)
Depreciation	662	761
Amortisation of right-of-use assets	1,111	965
Amortisation of intangible assets	187	1,995
Exceptional costs	-	152
Staff costs (note 4)	8,115	6,942
Write off/(back) of inventories	13	(151)
Inventories recognised as an expense (note 12)	45,900	35,087

 

The expenditure incurred within the table above falls wholly within Administrative expenses.

 

Exceptional costs

	Year ended 31 December
	2023	2022
	£'000	£'000
Royalty claim and associated legal fees	-	152
	-	152

 

During the year ended 31 December 2022 the Group agreed a settlement regarding a dispute with a third party relating to the historic use of content on the Group's social media platforms in the period from 2018 through to early 2021.  The total settlement including associated legal costs was £0.52 million, of which £0.37 million was provided for in the year to 31 December 2021.  The payment and the restriction of content use will not affect the ongoing operations of the Group's businesses. 

 

Auditor's Remuneration

 

Analysis of auditor's remuneration is as follows:

	Year ended 31 December
	2023	2022
	£'000	£'000
Fees payable to the Company's auditor for the audit of the Group's annual accounts	99	91
Fees payable to the Company's auditor for the audit of subsidiary companies	142	106
Total audit fees	241	197
Tax advice	16	15
Other assurance	-	3
Total non-audit fees	16	18

 

4.            Staff costs

 

	Year ended 31 December
	2023	2022
	£'000	£'000
Wages and salaries	7,130	6,103
Social security costs	863	738
Pension costs (note 24)	122	101
	8,115	6,942

 

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

	Year ended 31 December
	2023	2022
	No.	No.
Directors	7	7
Administrative	24	24
Finance	12	9
Warehouse	65	58
Sales	14	13
New Product Development and PR	19	14
	141	125

 

	2023	2022
Directors' remuneration, included in staff costs	£'000	£'000
Salaries	1,273	985
Share based payments (note 21)	75	125
Benefits	27	23
Pension contributions	2	2
	1,377	1,135

Remuneration in respect of Directors was as follows:

		Salary/ fees and bonus	Share based payment	Benefits	Pension contribution	2023
		£'000	£'000	£'000	£'000	£'000
Executive Directors
S Bazini		375	-	15	-	390
E Macleod		375	-	12	-	387
N Rodol		298	50	-	1	349
S Craig		68	1	-	1	70
P Hagon*		42	24	-	-	66
Non-executive Directors
C Garston		69	-	-	-	69
K Sadler		46	-	-	-	46
J Collier**		-	-	-	-	-
		1,273	75	27	2	1,377

 

* Shares granted to consultancy company Ward & Hagon Management Consulting LLP, of which director Paul Hagon is a member.

** Appointed 1 September 2021 and resigned 31 December 2022.

		Salary/ fees and bonus	Share based payment	Benefits	Pension contribution	2022
		£'000	£'000	£'000	£'000	£'000
Executive Directors
S Bazini		260	27	13	-	300
E Macleod		260	27	10	-	297
N Rodol		212	50	-	1	263
S Craig		63	1	-	1	65
P Hagon*		40	20	-	-	60
Non-executive Directors
C Garston		66	-	-	-	66
K Sadler		44	-	-	-	44
J Collier**		40	-	-	-	40
		985	125	23	2	1,135

 

* Shares granted to consultancy company Ward & Hagon Management Consulting LLP, of which director Paul Hagon is a member.

** Appointed 1 September 2021 and resigned 31 December 2022.

Directors' interests in share options for year ended 31 December 2023

As at 31 December 2023, the following Directors held the following performance related share awards (Enterprise Management Incentive Scheme Options, or CSOPs) over ordinary shares of 25p each under the Warpaint London plc Enterprise Management Incentive Scheme and the Warpaint London plc Company Share Option Plan.  For details of the share option schemes see Note 21 in the Financial Statements.

	Type of Share Award	Date of Grant	Number of Shares at 31 December 2023	Exercise Price	End of Performance Period/First Exercise Date	Number of Shares at 31 December 2022 (or date of appointment if later)
S Bazini	LTIP	21.09.2018	-	254.5p	31.12.2022	1,534,986
E Macleod	LTIP	21.09.2018	-	254.5p	31.12.2022	1,534,986
N Rodol	EMI	29.06.2017	-	237.5p	29.06.2020	105,262
	LTIP	21.09.2018	-	254.5p	31.12.2022	306,996
	EMI (Non-Qualifying)	24.05.2021	225,410	122.0p	24.05.2024	225,410
	CSOP	24.05.2021	24,590	122.0p	24.05.2024	24,590
	CSOP	24.11.2023	9,230	325.0p	24.11.2026	-
	EMI (Non- Qualifying)	24.11.2023	110,770	325.0p	24.11.2026	-
S Craig	EMI	29.06.2017	10,000	237.5p	29.06.2020	10,000
	CSOP	24.11.2023	10,000	325.0p	24.11.2026	-
	CSOP	20.05.2020	10,000	49.5P	20.05.2023	10,000
P Hagon	EMI (Non-Qualifying)	01.03.2022	200,000	127.5p	01.03.2025	200,000*
C Garston	-	-	-	-	-	-
K Sadler	-	-	-	-	-	-
J Collier**	-	-	-	-	-	-

 

* Shares granted to consultancy company Ward & Hagon Management Consulting LLP, of which director Paul Hagon is a member.

** Appointed 1 September 2021 and resigned 31 December 2022.

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

5.            Finance income and finance expenses

	Year ended 31 December
	2023	2022
	£'000	£'000
Finance income
Interest received	6	4
	6	4
Finance expenses
Lease liability interest (note 16)	(230)	(185)
Other interest relating to trade finance facilities	(139)	(96)
	(369)	(281)

6.            Income tax

	Year ended 31 December
	2023	2022
	£'000	£'000
Current tax expense
Current tax on profits for the period	4,245	1,817
	4,245	1,817
Deferred tax expense
Origination and reversal of temporary differences	(26)	(377)
Total tax expense	4,219	1,440

 

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 before tax as follows:

	Year ended 31 December
	2023	2022
	£'000	£'000
Profit for the period before taxation	18,118	7,690
Expected tax charge based on UK effective corporation tax rate of 23.5% (2022: 19% UK standard rate)	4,258	1,461
Expenses/(Income)/ not deductible/(allowable)	20	(11)
Other adjustments	(74)	(41)
Different tax rates applied in overseas jurisdiction	18	31
Differences due to an increase in tax rate	23	-
Movement in deferred tax	(26)	-
Total tax expense	4,219	1,440

The standard rate of UK corporation tax changed from 19% to 25% on 1 April 2023. (2022: 19.0%).

The Group's effective tax rate for the year is 23.29% (2022: 18.73%).

 

7.                            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 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%
Beaute Sales EU Limited	Dormant	England & Wales	100%

* indicates indirect interest

 

All entities detailed above have been in existence for the whole of the reporting period, except for Beaute Sales EU Limited which was incorporated on the 27^th of January 2023.

 

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 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. 33^rd 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.

The registered office for Beaute Sales EU Limited is Units 3 & 4 Zodiac Business Park, High Road, Cowley, Uxbridge, UB8 2GU.

8.            Goodwill

Cost	£'000
At 1 January 2022,31 December 2022 and 31 December 2023	8,086
At 31 December 2023	8,086
Impairment
At 1 January 2022,31 December 2022 and 31 December 2023	812
Net book value
At 31 December 2023	7,274
At 31 December 2022	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 2023 includes Treasured Scents (2014) Limited ("TS2014") (the 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. The discount rate for the CGU has been calculated using various assumptions to arrive at the Weighted Average Cost of Capital ("WACC").  The WACC has been calculated by weighting the required returns of interest bearing debt and common equity in line with an estimate split of the capital structure. Value in use calculations are based on a discounted cash flow model ("DCF") for the subsidiary, which discounts expected cash flows over a five-year period using a pre-tax discount rate of 7.6% (2022: 13.3%) for Retra Holdings Limited and 7.5% (2022: 10.4%) for Marvin Leeds Marketing Services, Inc. and 7.6% for TS2014 (2022: 13.3%). Cash flows beyond the five-year period are extrapolated using a long-term average growth rate of 2.0% (2022: 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 TS2014, Retra Holdings Limited ("Retra") or Marvin Leeds Marketing Services, Inc.  ("LMS") as the recoverable amounts exceeds the respective carrying values.

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 15% revenue over the next five years. For Retra, the compound annual growth rate over the next five years is anticipated to be 9% to 13%. For Treasured Scents the compound annual growth rate over the next five years is anticipated to be 2.5%. The gross margins for LMS, Retra and Treasured Scents are based on historical rates achieved.

·    Administrative expenses are expected to increase by 10% in LMS, 4% in Retra and decrease by 5% in Treasured Scents.

·    Growth Rate - used to extrapolate beyond the budget period 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:

·    5.0% 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.

9.    Intangible assets

	Brands	Customer lists	Patents	Website	Licences	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January 2022	3,802	8,240	267	45	6	12,360
Additions	-	1	3	8	-	12
At 31 December 2022	3,802	8,241	270	53	6	12,372
Additions	-	-	3	-	-	3
Disposals	-	-	(29)	(4)	-	(33)
At 31 December 2023	3,802	8,241	244	49	6	12,342
Accumulated amortisation
At 1 January 2022	3,115	6,798	140	41	6	10,100
Charge for the year	684	1,283	25	3	-	1,995
At 31 December 2022	3,799	8,081	165	44	6	12,095
Charge for the year	-	160	25	2	-	187
Amortisation on disposals	-	-	(29)	(4)	-	(33)
At 31 December 2023	3,799	8,241	161	42	6	12,249
Net book value
At 31 December 2023	3	-	83	7	-	93
At 31 December 2022	3	160	105	9	-	277

 

10.          Property, plant and equipment

 

	Plant and machinery	Fixtures and fittings	Computer equipment	Motor vehicles	Total
	£'000	£'000	£'000	£'000	£'000
Costs
At 1 January 2022	1,027	2,231	367	120	3,745
Additions	301	409	91	30	831
Disposals	-	(349)	(3)	(72)	(424)
Foreign exchange gain/(loss)	(37)	-	16	-	(21)
At 31 December 2022	1,291	2,291	471	78	4,131
Additions	146	221	148	-	515
Disposals	-	(749)	-	-	(749)
Foreign exchange loss	-	(2)	(1)	-	(3)
At 31 December 2023	1,437	1,761	618	78	3,894
Accumulated depreciation
At 1 January 2022	760	1,195	290	115	2,360
Charge for year	181	538	37	5	761
Disposals	-	(349)	(1)	(72)	(422)
At 31 December 2022	941	1,384	326	48	2,699
Charge for year	108	492	56	6	662
Disposals	-	(709)	-	-	(709)
Foreign exchange loss	-	(2)	(1)	-	(3)
At 31 December 2023	1,049	1,165	381	54	2,649
Net book value
At 31 December 2023	388	596	237	24	1,245
At 31 December 2022	350	907	145	30	1,432

 

11.          Right-of-use assets

 

		Leasehold property	Computer equipment	Total
		£'000	£'000	£'000
Costs
At 1 January 2022		5,049	77	5,126
Additions		3,551	-	3,551
At 31 December 2022		8,600	77	8,677
Additions		732	-	732
Disposals		(334)	-	(334)
At 31 December 2023		8,998	77	9,075
Accumulated amortisation
At 1 January 2022		1,976	77	2,053
Charge for the year		965	-	965
At 31 December 2022		2,941	77	3,018
Charge for the year		1,111	-	1,111
Disposals		(334)	-	(334)
At 31 December 2023		3,718	77	3,795
Net Book Value
At 31 December 2023		5,280	-	5,280
At 31 December 2022		5,659	-	5,659

 

 

The weighted average incremental borrowing rate applied to measure lease liabilities is 4.10% (2022: 3.99%) for leasehold property.

 

12.          Inventories

 

	As at 31 December
	2023	2022
	£'000	£'000
Finished goods	28,341	19,080
Provision for impairment	(378)	(365)
	27,963	18,715

The cost of inventories recognised as an expense and included in 'cost of sales' amounted to £45.9 million in the year ended 31 December 2023 (2022: £35.1 million).

 

The cost of inventories recognised as an expense includes a write down of inventory to net realisable value of £13,000 (2022: £151,000 write back).

 

 

 

 

13.          Trade and other receivables

	As at 31 December
	2023	2022
	£'000	£'000
Trade receivables - gross	10,997	9,935
Provision for impairment of trade receivables	(129)	(70)
Trade receivables - net	10,868	9,865
Other receivables	397	213
Prepayments and accrued income	2,264	1,615
Total	13,529	11,693

 

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
	2023	2022
	£'000	£'000
Accumulated impairment losses at 1 January	70	66
Additional impairment losses recognised during the year, net	101	4
Amounts written off during the year as uncollectible	(42)	-
Accumulated impairment losses at 31 December	129	70

 

The impairment losses recognised during the year are net of a credit of £Nil (2022: £9,000) relating to the recovery of amounts previously written off as uncollectable.

 

Contract Liabilities

 

	As at 31 December
	2023	2022
	£'000	£'000
At 1 January	243	219
Amounts included in contract liabilities that was recognised as revenue during the period	503	525
Amounts settled during the period	(469)	(501)
At 31 December	277	243

 

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 own 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.

 

14.  Cash and cash equivalents

 

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

 

	As at 31 December
	2023	2022
	£'000	£'000
Cash at bank and in hand	9,053	5,865
	9,053	5,865

 

 

15.  Trade and other payables

 

	As at 31 December
	2023	2022
	£'000	£'000
Current
Trade payables	1,892	1,368
Social security and other taxes	1,355	1,294
Other payables	86	101
Accruals	6,243	3,225
Total	9,576	5,988

 

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

 

16.          Lease liabilities

 

	As at 31 December
	2023	2022
	£'000	£'000
Lease liabilities
Repayable within 1 year	1,259	1,015
Repayable within 2 - 5 years	3,227	3,498
Repayable in more than 5 years	963	1,349
	5,449	5,862

 

Undiscounted lease payments

 

	As at 31 December
	2023	2022
	£'000	£'000
Lease liabilities
Repayable within 1 year	1,459	1,200
Repayable within 2 - 5 years	3,673	4,027
Repayable in more than 5 years	1,031	1,465
Total	6,163	6,692

 

 

Lease liabilities

			As at 31 December
			Leasehold property	Total
			£'000	£'000
At 1 January 2022			3,147	3,147
Lease additions			3,551	3,551
Interest expense			185	185
Lease payments			(1,021)	(1,021)
Prior period adjustment			-	-
As at 31 December 2022			5,862	5,862
Lease additions			731	731
Interest expense			230	230
Lease payments			(1,374)	(1,374)
As at 31 December 2023			5,449	5,449

 

 

Nature of lease liabilities

The group leases a number of properties in the United Kingdom and United States of America.

 

The interest rates expected are as follows:

	As at 31 December
	2023	2022
	%	%
Invoice financing	7.24¹	5.49¹
Note 1: Base rate + 1.99%

 

 

 

17.          Deferred tax

 

Deferred tax is calculated in full on temporary differences under the liability method using tax rate of 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
	2023	2022	2023	2022
	£'000	£'000	£'000	£'000
Opening balance	(180)	(557)	429	500
Foreign exchange adjustment	-	-	-	(71)
Recognised in profit and loss:
Release of deferred tax on intangible assets	(115)	-	-	-
Deferred tax on share based payment recognised in the income statement	-	-	100	-
Deferred tax on share-based payments recognised in the share option reserve	-	-	214	-
Tax expense	115	377	(74)	-
Adjustment in respect of previous periods	-	-	(77)	-
Closing balance	(180)	(180)	592	429

 

 

The deferred tax liability has arisen due to the timing difference on accelerated capital allowances amounting to £115,000 (2022: £65,000) and on the intangible assets acquired in a business combination amounting to £Nil (2022: £115,000).

 

The deferred tax asset has arisen from loss carry forward for LMS amounting to £1,451,944 (2022: £1,716,000) and recognised at a rate of 21% and from share options amounting to £314,000, of which £214,000 has been recognised in the share option reserve, in the Statement of Changes in Equity.

 

18.          Dividends

 

Year to December 2023	Paid	Amount per share	Total £'000
Final dividend - 2022	04 July 23	4.5p	3,471
Interim dividend - 2023	24 Nov 23	3p	2,314
			5,785
Year to December 2022	Paid	Amount per share	Total £'000
Final dividend - 2021	05 July 22	3.5p	2,686
Interim dividend - 2022	25 Nov 22	2.6p	1,996
			4,682

 

The Group has proposed a final dividend for the year ended 31 December 2023 of 3p per share.

 

 

19.          Called up share capital

 

	No. of shares
	'000	£'000
Allotted and issued
Ordinary shares of £0.25 each:
At 1 January 2022 and 31 December 2022	76,752	19,188
Issued at 6 June 2023	376	94
Issued at 9 October 2023	24	6
Issued at 21 November 2023	105	26
At 31 December 2023	77,257	19,314

 

On 6^th June 2023, the Company issued 375,633 equity shares with par value of £0.25 per share for £0.495 per share. The entire amount was paid in cash. No shares were allotted other than for cash.

 

On 9^th October 2023, the Company issued 23,578 equity shares with par value of £0.25 per share for £2.375 per share. The entire amount was paid in cash. No shares were allotted other than for cash.

 

On 21^st November 2023, the Company issued 105,262 equity shares with par value of £0.25 per share for £2.375 per share. The entire amount was paid in cash. No shares were allotted other than for cash.

 

All ordinary shares carry equal rights.

 

20. 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.

 

 

21. 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
	2023	2023	2022	2022
Outstanding at the beginning of the year	222.20	5,069,514	226.00	4,860,830
Granted during the year	325.00	808,500	127.95	220,000
Exercised	97.80	(501,473)	-	-
Expired and lapsed during the year	253.31	(3,861,304)	55.40	(26,842)
Other adjustments	-	-	80.09	15,526
Outstanding at the end of the year	237.94	1,515,237	222.20	5,069,514

 

The weighted average remaining contractual life of the options is 7.39 years (2022: 1.34 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	96,737
20 May 2020	49.50	3	10,000
25 May 2021	122.00	3	400,000
01 March 2022	127.50	3	200,000
24 November 2023	325.00	3	808,500

 

At the date of grant, the options were valued using the Black-Scholes option pricing model. The fair value of options granted and the assumptions used in the calculations were as follows:

				24 Nov 23	01 Mar 22	25 May 21	20 May 20	29 June 17
Expected volatility				40%	54%	78%	76%	64%
Expected life (years)				3	3	3	3	3
Risk-free interest rate				4.35%	0.99%	0.15%	0.01%	0.38%
Expected dividend yield				1.79%	4.94%	1.76%	2.08%	2%
Fair value per option (£)				0.918	0.354	0.552	0.213	0.963

 

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 (three years after the grant date), 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.

 

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 above.

 

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 1 March 2022, the Company granted in aggregate 200,000 ordinary shares of 25 pence each at an exercise price of 127.5 pence each under an unapproved scheme. These were granted to a consultancy company Ward & Hagon Management Consulting LLP ("Ward & Hagon") appointed to assist with the implementation of the Company's strategic growth plan in recognition of the success of the arrangements at the time and to incentivise the consultancy company to align with the long-term interest of shareholders. The options are exercisable between three and ten years from the date of grant.

 

On 24 November 2023, the Company granted in aggregate 641,191 ordinary shares of 25 pence each at an exercise price of 325 pence each under a Company Share Option Plan (CSOP) scheme. Key persons discharging managerial responsibilities (PDMR's) were awarded a cumulative 58,691 share options as part of their annual remuneration and incentivisation packages. The remaining 582,500 options granted have been awarded to other members of the company's workforce. The options are exercisable between three and ten years from the date of grant, with the usual first exercise date being the 3rd anniversary of the date of the grant.

 

On 24 November 2023, the Company granted in aggregate 167,309 ordinary shares of 25 pence each at an exercise price of 325 pence each under an unapproved Enterprise Management Incentive (EMI) scheme. Key persons discharging managerial responsibilities (PDMR's) were awarded a cumulative 167,309 share options as part of their annual remuneration and incentivisation packages. The options are exercisable between three and ten years from the date of grant, with the usual first exercise date being the 3rd anniversary of the date of the grant.

 

The charge in the statement of comprehensive income for the share-based payments during the year was £134,284 (2022: £192,986).

 

22. 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 4 with the exception of dividends which are disclosed in note 18.

 

The lease between Warpaint Cosmetics (2014) Limited and Direct Supplies (2014) Group Limited is a 10 year lease which commenced on the 3 August 2016, with annual rental payments of £138,800.

 

During 2023, Warpaint Cosmetics (2014) Limited paid rent in the sum of £138,800 (2022: £138,000) 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 £34,500 (2022: £34,500).

 

The lease between Warpaint Cosmetics (2014) Limited and Trading Scents Group Limited is a 10 year lease which commenced on the 3 August 2016, with annual rental payments of £138,800.

 

During 2023, Warpaint Cosmetics (2014) Limited paid rent in the sum of £138,800 (2022: £138,000) 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 £34,500 (2022: £34,500).

 

During the year ended 31 December 2023, Warpaint Cosmetics (2014) Limited entered into two lease agreements, for two additional units with Warpaint Cosmetics Limited. The agreements relate to two leases to the 2 August 2026, with annual rental payments of £138,000 and £110,250 respectively.

 

During 2023, Warpaint Cosmetics (2014) Limited paid rent in the sum of £303,966 (2022: £138,000) to Warpaint Cosmetics limited, of which S Bazini and E Macleod are directors. At the year end the amount due to Warpaint Cosmetics Limited was £62,063 (2022: £34,500).

 

Warpaint Cosmetics (2014) Limited also entered into a 10 year lease agreement with Warpaint Cosmetics Limited on the 3 August 2016, with annual rental payments of £138,800.

 

During 2023, Retra Holdings Limited paid rent in the sum of £410,107 (2022: £404,265) to Warpaint Cosmetics Limited, of which E Macleod and S Bazini are directors.

 

The leases between Retra Holdings Limited and Warpaint Cosmetics Limited are two 10 year leases which commenced on 11^th March 2018 with annual rental payments of £225,000, and £185,107 respectively.

 

Paul Hagon, an executive director of Warpaint London plc ("Warpaint"), is a member of Ward & Hagon.  Ward & Hagon were paid £190,000 fees (2022: £177,437), £116,763 commission (2022: £169,172) and expenses of £9,346 in 2023 (2022: £7,404) and were issued with 200,000 share options in 2022, details of which are disclosed in note 21.

 

23.  Financial instruments

 

Capital risk management

The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and 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 £62,095,000 as at 31 December 2023 (2022: £51,926,000) 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
	2023		2022
	£'000		£'000
Financial assets
Financial assets at amortised cost:
Trade and other receivables	11,265		10,078
Financial assets measured at fair value through the profit and loss:
Cash and cash equivalents	9,053		5,865
Derivative financial instruments	-		8
	20,318		15,951
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables	(8,221)		(4,694)
Loan and borrowings	(5,449)		(5,862)
Financial liabilities measured at fair value through the profit and loss:
Derivative financial instruments	(518)		(600)
	(14,188)		(11,156)
Net	6,130		4,795

 

 

 

 

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 £4,000 (2022: £12,000) 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 2023, the Group has trade receivables of £10,835,000 (2022: £9,865,000).

 

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
	2023	2022
	£'000	£'000
Current	5,680	5,502
1 - 30 days	3,514	2,680
31 - 60 days	980	1,164
61 - 90 days	547	375
91 + days	276	214
Provision for impairment of trade receivables	(129)	(70)
Total trade receivables - net	10,868	9,865

The Directors are unaware of any factors affecting the recoverability of outstanding balances at 31 December 2023 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
	2023			2022
	£'000	%	£'000	£'000	%	£'000
Current	5,680	0.135%	8	5,432	0.135	8
1 - 30 days	3,514	0.405%	14	2,680	0.405	11
31 - 60 days	980	1.215%	12	1,164	1.215	14
61 - 90 days	547	3.645%	20	375	3.645	14
91 + days	276	27.174%	75	214	10.935	23
			129			70

 

 

Credit quality of financial assets

	As at 31 December
	2023	2022
Trade receivables, gross (note 13):	£'000	£'000
Receivable from large companies (see below for definition)	5,190	5,115
Receivable from small or medium-sized companies	490	386
Total neither past due nor impaired	5,680	5,501

 

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 (2022: £100,000).

 

	As at 31 December
	2023	2022
Past due but not impaired:	£'000	£'000
Less than 30 days overdue	3,514	2,680
30 - 90 days overdue	1,674	1,684
Total past due but not impaired	5,188	4,364

 

Lifetime expected loss provision:
Less than 30 days overdue	-	-
30 - 90 days overdue	129	70
Total lifetime expected loss provision (gross)	129	70
Less: Impairment provision	(129)	(70)
Total trade receivables, net of provision for impairment	10,868	9,865

 

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

	As at 31 December
	2023	2022
	£'000	£'000
AAA rated	3	-
AA rated	3,292	-
A rated	-	5,862
BAA rated	5,758	3
Total cash and cash equivalents	9,053	5,865

 

 

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 2023

	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	1,892	-	-	-	1,892
Other payables	86	-	-	-	86
Accruals	6,243	-	-	-	6,243
Lease liabilities	729	730	3,673	1,031	6,163
	8,950	730	3,673	1,031	14,384

 

 

Year ended 31 December 2022

	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	1,368	-	-	-	1,368
Other payables	101	-	-	-	101
Accruals	3,225	-	-	-	3,225
Lease liabilities	605	595	4,027	1,465	6,692
	5,299	595	4,027	1,465	11,386

 

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.

 

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. At December 2023, there were total sums of £2,384,899 (2022: £1,828,145) 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 2023, the net foreign liability was £0.2m (2022: £0.5m). 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 £11,085 increase in reported profits and equity, while a 5% strengthening of sterling would result in £10,030 decrease in profits and equity.

Marvin Leeds Marketing Services, Inc.

		As at 31 December
		2023	2023
		USD	GBP
		$	£
Profit After Tax		268,316	210,626
5% weakening of US dollar		268,316	221,711
	Increase profits		11,085
5% strengthening of US dollar		268,316	200,596
	Decrease profits		(10,030)

 

Foreign exchange risk

	2023	2022
	£'000	£'000
Derivatives carried at fair value:
Exchange loss on forward foreign currency contracts	(518)	(592)

 

The Group, along with other businesses, will face the risk of inflationary pressures through commodities cost increases.

 

Derivatives: Foreign currency forward contracts

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 into 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 2023, the group has in total 52 (2022: 34) forward foreign exchange contracts outstanding, made up of regular forward foreign exchange contracts.

 

Regular forward foreign exchange contracts:

At 31 December 2023, there were 52 (2022: 30) regular forward foreign exchange contracts, to buy US dollars and sell Euros, for an agreed amount of foreign currency on a specific future date. The purchase or sale is made at a predetermined exchange rate. The outcome is certain and will deliver a known fixed amount. The following table details the regular forward foreign exchange contracts outstanding as at the balance sheet date.

a)     Contracted exchange rate	2023	2022	2023	2022
	£/$		£/€
3 months or less	1.2660	1.2707	n/a	n/a
3 to 6 months	1.2526	1.1447	1.1491	1.1485
6 to 12 months	1.2546	1.1407	1.1435	1.1414
12 months or more	n/a	n/a	n/a	1.1192

 

 

b)      Contract value	2023	2022	2023	2022
	£/$		£/€
	£'000	£'000	£'000	£'000
3 months or less	10,310	1,448	-	-
3 to 6 months	16,554	699	872	849
6 to 12 months	6,792	438	2,382	1,095
12 months or more	-	-	-	1,385
	33,656	2,585	3,254	3,329

 

 

c)       Foreign currency	2023	2022	2023	2022
	$'000	$'000	€'000	€'000
3 months or less	12,943	1,840	-	0
3 to 6 months	20,750	800	1,000	975
6 to 12 months	8,500	500	2,725	1,250
12 months or more	-	-	-	1,550
	42,193	3,140	3,725	3,775

 

Window Barrier Accrual forward foreign exchange contracts:

At 31 December 2023, there were no Window Barrier Accrual forward foreign exchange contracts to buy US dollars (2022: 3)

 

Window Barrier Accruals have an agreed US dollar purchase Forward Rate, a start date known as the Barrier date, an end date known as the Expiration date, a rate below which the forward foreign exchange contract becomes worthless known as the Knock Out Rate, and a Notional Amount of currency to purchase at the Forward Rate depending on the US dollar Spot Rate at the Expiration Date.

 

Each Window Barrier Accrual contract has been designed to cover the currency needs of the business throughout 2023 and includes 12 Barrier and Expiration dates, one in each calendar month, so that the forward foreign exchange contract is split evenly across the year.

 

If from month to month between the Barrier date and the following Expiration date, the Spot Rate of the US dollar falls below the Knock Out Rate, then there is no obligation, and no US dollars can be purchased. Otherwise, if on the Expiration date Spot Rate is below the Forward Rate, then the Notional Amount of US dollars will be purchased at the Forward Rate, however if on the Expiration date Spot Rate is above the Forward Rate, then double the Notional Amount of US dollars will be purchased at the Forward Rate.

 

Counter TARN forward foreign exchange contracts:

At 31 December 2023, there were no Counter TARN forward foreign exchange contract to buy US dollars (2022: 1).

 

Counter TARNs have an agreed US dollar purchase Forward Rate, an end date known as the Expiration date, a Target which is the agreed number of times the contract allows the purchase of dollars when the Spot Rate is less than the Forward rate at the Expiration date, a Fixing Count which increments by 1 each time the contract allows the purchase of dollars when the Spot Rate is less than the Forward rate, a Notional Amount of currency to purchase at the Forward Rate depending on the US dollar Spot Rate at the Expiration Date, and a Knock Out Event which is when the Fixing Count total has reached the agreed Target and thereafter the forward foreign exchange contract becomes worthless.

 

The Counter TARN contract has been designed to cover the currency needs of the business throughout 2024 and includes 12 Expiration dates, one in each calendar month, so that the forward foreign exchange contract is split evenly across the year.

 

If from month to month on the Expiration dates Spot Rate is below the Forward Rate, then the Notional Amount of US dollars will be purchased at the Forward Rate and the Fixing Count will increment by 1, however if on the Expiration dates Spot Rate is above the Forward Rate, then double the Notional Amount of US dollars will be purchased at the Forward Rate and the Fixing Count will not change. If at any time the Fixing Count reaches the Target for the contract, then this triggers a Knock Out Event which ends the contract and no further US dollars can be purchased.

Foreign currency forward contract assets and liabilities are presented in the line 'Derivative financial instruments' (either as asset or as liabilities) within the Statement of Financial Position.

 

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.

 

24.  Pension costs

 

The Group operates a defined contribution pension scheme. Contributions payable to the company's pension scheme are charged to the statement of comprehensive income in the period to which they relate. The amount charged to profit in each period was £121,682 (2022: £101,003).

 

25.  Controlling party

 

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

 

26.  Earnings per share

 

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

 

                                                                                                                                                                                               

	2023	2022
Basic earnings per share (pence)	18.05	8.14
Diluted earnings per share (pence)	17.98	8.11
The calculation of basic and diluted earnings per share is based on the following data:
	2023	2022
Earnings	£'000	£'000
Earnings for the purpose of basic earnings per share, being the net profit	13,899	6,250

 

Number of shares	2023	2022
Weighted number of ordinary shares for the purpose of basic earnings per share	76,983,311	76,752,355
Potentially dilutive shares awarded	325,443	296,256
Weighted number of ordinary shares for the purpose of diluted earnings per share	77,308,754	77,048,611

 

905,237 share options (2022: 4,063,881) in issue 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 10,000 share options granted on 20 May 2020, additional 400,000 share options granted 24 May 2021 and 200,000 share options granted 01 March 2022 have been included in the computation of diluted earnings per share as the exercise prices of the options are below the average annual market price of Ordinary shares. 

27.  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 2022	2,537	610	3,147
Non-cash flows	3,551	-	3,551
Cash flows	-	(836)	(836)
Reclassification from Non-current loans and borrowings to current loans and borrowings	(1,241)	1,241	-
At 31 December 2022	4,847	1,015	5,862
Non-cash flows	731	-	731
Cash flows	-	(1,144)	(1,144)
Reclassification from Non-current loans and borrowings to current loans and borrowings	(1,388	)                   1,388	-
At 31 December 2023	4,190	1,259	5,449

 

The above relates to payments in respect of the groups right of use assets. The Group does not have any loans  and borrowing.