REVOLUTION BEAUTY GROUP PLC                                                                                     

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

FOR THE HALF-YEAR ENDED 31 AUGUST 2023

REVOLUTION BEAUTY GROUP PLC                                                                                     

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 AUGUST 2023

1.       General information

Revolution Beauty Group Plc ("the Company") is a company limited by shares and is registered and incorporated in England and Wales. The registered office is 201 Temple Chambers, 3-7 Temple Avenue, London EC4Y 0DT.

The group ("the Group") consists of Revolution Beauty Group Plc and all of its subsidiaries.

The Board of Directors approved this unaudited interim financial information on 13 November 2023.

2.       Significant accounting policies

These consolidated condensed financial statements for the interim half-year reporting period ended 31 August 2023 have been prepared in accordance with IAS 34 'Interim Financial Reporting'. These interim financial statements do not constitute full financial statements and do not include all the notes of the type normally included in annual financial statements. Accordingly, these financial statements are to be read in conjunction with the annual report for the year ended 28 February 2023. The FY 23 numbers included in this report are not statutory accounts for that year (but have been derived from the statutory accounts). The FY 23 statutory accounts contain a qualified audit report which can be found on the Group's website https://revolutionbeautyplc.com/results-and-reports/.

The annual financial statements of the Group are prepared in accordance with UK-adopted International Accounting Standards ("IFRSs"). The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 28 February 2023 annual financial statements. There are no new and amended standards and/or interpretations that will apply for the first time in the next annual financial statements that are expected to have a material impact on the Group.

Tax charged within the 6 months ended 31 August 2023 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the year ending 28 February 2024 as required by IAS 34.

The financial statements have been prepared on the historical cost basis except for, where disclosed in the accounting policies, certain financial instruments that are measured at fair value. The financial statements are prepared in Sterling, which is the functional currency and presentational currency of the parent Company and primary operating subsidiary. Monetary amounts in these financial statements are rounded to the nearest £1,000.

Going concern

As reported in note 2 of the FY 23 Annual Report and Accounts, the Directors have completed a full assessment of forecast and banking arrangements to consider going concern.

The Group's revenue growth, margin improvement and return to positive adjusted EBITDA in H1 all represent key improvement in the Group's financial stability since the previous assessment. Steps taken with regard to the deferral and renegotiation of the Medichem consideration and the amendment of the Group's lending arrangements and reductions in payables are significant in strengthening liquidity and providing a base from which to grow.

Having considered the information available and recent changes to the business, the directors are satisfied that the base case supports the application of the going concern assumption in preparation of the financial statements.

However, the directors also recognise the challenges the business has faced since its listing on AIM and the underperformance of sales versus previous expectations, as well as the uncertainty in the wider economy. The strength of the Group's brand and recent reductions in expenditure and a more refined stock purchasing process have enable continued growth through a challenging period. The Directors are working to build on this period of stabilisation with a renewed strategy that keeps the Group on a stable financial footing on a long term basis.

In the event that revenue falls below the level forecast in the base case scenario, the Directors are also confident that they are able to take mitigating actions to reduce controllable costs further on a timely basis, in order to maintain compliance with the Adjusted EBITDA and minimum liquidity covenant tests.

The Directors acknowledge that, in the event either a financial or non-financial covenant were to be breached, due to either a downturn in operational activity or the impact or timing of settlement of any financial commitments, known or otherwise, arising from legacy issues, the Group would be reliant on its lenders not requiring immediate repayment of the outstanding loan or obtaining alternative finance in order to continue to operate as a going concern. The lenders have provided a waiver in respect of the covenant relating to the Auditors qualifications of their audit report on the FY 23 financial statements. Notwithstanding that the audit for the year ending 28 February 2024 has not yet commenced, the Directors anticipate that certain qualifications will be carried into the Auditors opinion on the FY2 4 financial statements. The Lenders have also confirmed their present intention to waive any further Event of Default which might occur as a result of the audit report to be issued by the Parent's Auditor in respect of the financial year of the Group ending 28 February 2024 containing qualifications which are substantially the same as qualifications on these financial statements.

The Group's Revolving Credit Facility matures in October 2024. The Group is currently in discussion with its banking partners to extend the facility on terms consistent with the existing agreement for a period of 12 months beyond the current maturity. The board is confident that the discussion will result in an extension of the facility. Whilst the board has confidence in the process and lenders remain supportive, there is uncertainty in the extension of the current facility until a further agreement is signed. Were an agreement for an extension not to be reached the Group would need to find additional financing upon maturity of the RCF, the board is confident that this would be achievable.

These factors, in conjunction with the sensitivity identified in the severe but plausible downside scenario with respect to the recently agreed Adjusted EBITDA covenant, represent material uncertainty which may cast significant doubt over the Group's ability to continue to operate as a going concern. The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer be appropriate.

3.       Correction of prior period errors

The Directors have determined that a provision which was previously disclosed as a contingent liability should have been recognised as a provision during the period ended 31 August 2022 as the process of reaching a settlement of the case had reached a stage whereby it had been established that a material settlement was likely, and a value could have been accurately estimated.

The Group has posted or reposted social media video clips which contain sound recordings and musical compositions from the music library of the relevant social media platform. A letter was received in Autumn 2020 from two music owners, claiming copyright infringement. Letters raising such allegations are common in other business sectors involved in social media. The Group, funded by its insurers, is robustly defending the allegations and, taking a cautious approach, has sought to remove any allegedly offending posts over which the Group has control. Despite the time that has passed, no court proceedings have been brought by the music owners.

The Directors have taken formal legal advice from specialist US intellectual property attorneys and engaged in a mediation process with the claimants. Based on that advice and the ongoing mediation process and settlement offers made to date, the Group believes that a liability of £4.9m should have been provided for at 31 August 2022.

In addition, it has been determined that reimbursement assets of £3.6m should have been recognised in respect of insurances and reimbursements the Group will receive when a settlement is ultimately paid. The reimbursement assets recognised relate to an insurance policy and indemnities. £2.3m has been recognised in respect of the indemnities. Further detail relating to the indemnities has not been disclosed on the grounds that such disclosure is considered to be seriously prejudicial.

The impact on the Statement of Profit or Loss for the period ended 31 August 2022 is a net charge in respect of the legal case of £336k. In addition, £0.2m in legal costs were settled on behalf of the Group by its insurance during the period ended 31 August 2022. Deferred tax assets totalling £432k should have been recognised as a result, with a corresponding credit in the Statement of Profit or Loss.

Impact on the Statement of Profit or Loss and Other Comprehensive Income

Impact on the Statement of Financial Position

4.       Segmental reporting

IFRS 8 Operating Segments requires that operating segments be identified on the basis of internal reporting and decision-making. The Group identifies operating segments based on internal management reporting that is regularly reported to and reviewed by the board of directors, which is identified as the chief operating decision maker. Management information is reported as one operating segment, being revenue from sales of products.

5.       Revenue

6.       On 7 March 2023 the Group announced that it had reached an agreement in respect of the timing of payments of deferred consideration for its acquisition of Medichem Manufacturing Limited.

A Deed of Variation dated 7 March 2023 was signed which amends the terms of the deferred consideration and completion net asset adjustment, adjusting the timing of the payments as outlined below.

·      £3.625 million payable on 21 October 2025 (being the £5.125 million consideration reduced by the £1.5 million loan due from one of the Sellers companies, Walbrook Investments Ltd)

·      £5.125 million payable on 21 October 2026

·      £5.125 million payable on 21 October 2027

·      £5.125 million payable on 21 October 2028 Interest accrues on outstanding balances at a rate of 2.5% per annum

The modification was deemed by management to be substantial. This was determined by recalculating the amortised cost of the modified deferred consideration by discounting the modified contractual cash flows using the original effective interest rate and resulting in a movement in amortised cost of greater than 10% of the original. The variance between the fair value of the modification and the amortised cost of the original deferred consideration resulted in a net gain of £2,370k, which has been recognised in the profit or loss as finance income at the date of the modification.

7.       Earnings per share      

The Group reports basic and diluted earnings per common share. Basic earnings per share is calculated by dividing the profit attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is determined by adjusting the profit attributable to common shareholders by the weighted average number of common shares outstanding, taking into account the effects of all potential dilutive common shares, including options.

Pursuant to IAS 33, options whose exercise price is higher than the value of the Company's security were not taken into account in determining the effect of dilutive instruments. The calculation of diluted earnings per share does not assume conversion, exercise, or other issue of potential ordinary shares that would have an antidilutive effect on earnings per share.

8.       Adjusted performance measures

The Group uses a number of Alternative Performance Measures ("APMs") in addition to those measures reported in accordance with IFRS. Such APMs are not defined terms under IFRS and are not intended to be a substitute for any IFRS measure. The Directors believe that the APMs are important when assessing the underlying financial and operating performance of the Group.

The APMs are used internally in the management of the Group's business performance, budgeting and forecasting, and for determining Executive Directors' remuneration and that of other management throughout the Group. The APMs are also presented externally to meet investors' requirements for further clarity and transparency of the Group's financial performance. Where items of profits or costs are being excluded in an APM, these are included elsewhere in our reported financial information as they represent actual income or costs of the Group. 

The Group's Alternative Performance Measures are set out below.

Adjusted EBITDA

Adjusted EBITDA is defined as Operating Profit adjusted for depreciation and amortisation, impairments and reversals of impairment, profits and losses on the disposal of assets, share based charges and releases and exceptional items.

Operating exceptional items

As announced on 23 September 2022, the Company's auditor wrote to the Board on 21 September 2022 to identify a number of serious concerns that had arisen during the course of its work on the audit of the Company's accounts for the year ended 28 February 2022. The Board appointed independent external advisors to undertake an independent investigation, and the Company appointed Macfarlanes (lawyers), Rosenblatt (lawyers) and FRA (forensic accountants) on 23 September 2022. As a result of issue identified through this process, exceptional legal and professional fees were incurred at a cost of £896k (FY 23: £3.5m).

During the period a major shareholder of the Group, boohoo Group Plc ("boohoo"), requisitioned a General Meeting with certain resolutions to be voted upon, the details of which are available on the Group's website. On 18 July 2023, prior to the General Meeting taking place, the Group announced a settlement agreement with boohoo. The terms of the settlement included the resignation of directors Bob Holt and Derek Zissman and the appointment of Alistair McGeorge, Neil Catto, Rachel Horsefield and Peter Hallet. Included within exceptional legal fees are £577k of cost associated with legal and professional support associated with this process.

On 20 June 2023 the Group announced that it had sent a letter of claim to one of its former directors, the claim alleges that the director breached his fiduciary, statutory, contractual and/or tortious duties to the Company, included within exceptional legal fees are £670k associated with advice in relation to this claim.

During the period the Group settled legal claims in the US totalling £176k.

During the period the Group incurred £440k in restructuring and redundancy costs. Thes included £211k paid to Bob Holt, the former CEO, £76k of costs incurred in closing one of the Group's warehouse units and £153k on restructuring undertaken at Revolutions Beauty Labs, the Group's manufacturing subsidiary.

9.       Borrowings

10.     Inventories

The total cost of inventories recognised as an expense in cost of sale in the period was £45,673,000 (Period ended August 2022: £43,984,000, full year ended February 2023: £111,861,000).

11.     Trade and Other Receivables

12.     Trade and Other Payables

13.     Contingent Liabilities

In February 2023 the Group terminated an arrangement with its Polish agent. The agent has submitted a claim for lost commission and costs as a result of the termination. The Group believes that is has performed its obligation under the arrangement and that no further commission is payable. The directors have taken legal advice with regard to this matter and currently believe that it is not probable that a material liability will arise.