REVOLUTION BEAUTY GROUP PLC                                                                                     

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

FOR THE HALF-YEAR ENDED 31 AUGUST 2024

REVOLUTION BEAUTY GROUP PLC                                                                                     

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

FOR THE HALF-YEAR ENDED 31 AUGUST 2024

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 18 November 2024.

2.       Material accounting policies

The condensed consolidated unaudited interim financial statements ("interim financial statements") for the period 1 March 2024 to 31 August 2024 are unaudited. The group has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing the interim financial information. The condensed consolidated interim financial statements incorporate unaudited comparative figures for the interim period from 1 March 2023 to 31 August 2023 and the audited financial year ended 31 March 2024.

The Interim financial statements for the six months ended 31 August 2024 have been prepared on the basis of the accounting policies expected to be adopted for the year ended 28 February 2025. These are in accordance with the accounting policies as set out in the Group's last annual consolidated financial statements for the year ended 29 February 2024.

The comparative figures for the year ended 31 March 2024 do not constitute the Group's statutory accounts for 2024 as defined in Section 434(3) of the Companies Act 2006. Statutory accounts for 2024 have been delivered to the Registrar of Companies. The Independent Auditor's report on the Annual Report and Financial Statements for 2024 was qualified in and contained a statement by way of emphasis in respect of going concern. The independent auditor's report for 2024 filed with the Registrar of Companies contains information in respect of each matter that has contributed to a qualified opinion.

These Condensed Consolidated Interim Financial Statements do not include all the information required for full Annual Financial Statements and should be read in conjunction with the Annual Financial Statements of the Group as at and for the year ended 29 February 2024.

Tax charged within the 6 months ended 31 August 2024 has been calculated by applying the effective rate of tax which is expected to apply to the Group for the year ending 29 February 2024.

The interim 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 interim 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 interim financial statements are rounded to the nearest £1,000.

New Policies and Standards

At the date of authorisation of these Condensed Consolidated Interim Financial Statements, several new standards and amendments to existing standards have been issued, some of which are effective. None of these standards and amendments have a material impact on the Group.

The preparation of the Condensed Consolidated Interim Financial Statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. The resulting accounting estimates will, by definition, seldom equal the related actual results. The Group's latest Annual Financial Statements for the year ended 29 February 2024, which are available via Revolution Beauty Group plc's website, set out the key sources of estimation uncertainty and the critical judgements that were made in preparing those Financial Statements.

Going concern

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 Underlying Adjusted EBITDA in H1 all represent key improvement in the Group's financial stability since the previous assessment. Steps taken to improve the financial position of the Group include the amendment of lending arrangements and rationalising the Group's core number of SKUs.

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 strategic changes have enabled the Group to continue its recovery from this challenging period. The Directors are working to build on this period of stabilisation with the renewed strategy to keep 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 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 24 financial statements.

The Group's Revolving Credit Facility matures in October 2025. The Group is currently discussing the life of the facility with its banking partners, with the intention to extend the facility 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, represents a 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 identified a number of balances which were previously classified as trade and other payables which should have been offset against the trade receivables and other receivables. These balances are deductions from revenue, relating to shortages and damages, that are payable to the customer from whom the revenue was recognised. This adjustment is solely a balance sheet reclassification, and therefore only has an impact on the Statement of Financial Position. The total of £1,515k has been reclassified as at 31 August 2023, resulting in a decrease to both trade and other receivables and trade and other payables.

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.       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.

7.       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 payment charges and releases and adjusting items. 

Underlying gross profit and underlying gross profit margin

Underlying gross profit is defined as reported gross profit adjusted for non-recurring charges or releases related to inventory provisions. During the period, an additional inventory provision was recognised, as set out in note 9. In addition to this increase, a charge of £2.3m has been incurred on additional provision for non-strategic SKUs during H1 of FY25.

Underlying Adjusted EBITDA

Underlying 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 including and adjustment for the one-off provision charges related to non-strategic stock and the release of the stock provision in FY24 related to the sale of aged stock.

Operating adjusting items

During the period, the Group incurred legal fees associated with the following matters, each of which were determined to be exceptional and outside the normal course of business, these included the ongoing regulator investigation in relation to certain matters in the period from July 2021 to September 2022, the uninsured element of the settlement of a legal claim made for copyright infringement on music rights in the US. Costs were also incurred on other legal claims contested in the period and the extension of the Group's financing facility.

During the period the Group incurred £154k in restructuring and redundancy costs.

During the period, an additional inventory provision was recognised, as set out in note 9. In addition to this increase, a charge of £2.3m has been incurred on additional provision of £7.9m for non-strategic SKUs during H1 of FY25.

Thess charges are recorded through costs of sales, but do not relate to the ongoing sell out of goods through the business. Therefore, they do not represent part of the underlying cost base of the business, or the expected gross profit margin achievable on the strategic assortment. Therefore, these charges will be recognised and disclosed as adjustments to Adjusted EBITDA, outside of the Group's underlying performance in the financial statements.

8.       Borrowings

9.       Inventories

The total cost of inventories recognised as an expense in cost of sale in the period was £49,192,000 (Period ended August 2023: £45,673,000, full year ended February 2024: £123,131,000).

As set out in note 3 to the financial statements in the Group's Annual Report. The Group's inventory provision methodology is made up of a net realisable value (NRV) component and a slow-moving component. The slow-moving component includes a provision for inventory that has recently been launched and therefore has limited sales history and also for more mature inventory, which is assessed based on its sales cover, which gives rise to the key source of estimation uncertainty.

The NRV provision is determined by assessing the latest sales price of a Stock Keeping Unit ("SKU"), less the cost of selling it, against the cost of purchasing it. There is judgment applied in assessing the costs included in selling each SKU. The Group determines cost to sell on an average basis across all SKUs. The cost to sell includes the incremental costs of selling, such as commissions, as well as non-incremental selling costs including expected marketing costs and expected costs to hold the inventory until the anticipated time of sale.

During the current period, following the rationalisation of the Group's SKU assortment, it was determined that, where a SKU no longer forms part of the Group's strategic selling assortment, recent selling price is no longer an appropriate measure of the value a SKU can be sold for going forward. This is due to discontinued SKUS no longer being sold though primary channels.

Therefore, it has been determined that, for non-strategic SKU that will not form a part of the Group's strategic assortment going forward, where excess units are on hand above the amount forecast to be required for the coming three months, clearance prices achievable should be used in place of recent selling prices in calculated the NRV provision required.

This increased provision resulted in an additional charge of £7.9m during the period, which when added to the £2.3m described in note 7 above, results in an additional charge of £10.2m.

10.     Trade and Other Receivables

11.     Trade and Other Payables

Trade and other payables are initially recognised at fair value less transaction costs and subsequently measured at amortised cost using the effective interest rate method, with all movements being recognised in the statement of comprehensive income. Cost is considered to approximate fair value.

12.     Contingent Liabilities

FCA Investigation

The Group announced on 21 July 2023 that the Financial Conduct Authority ("FCA") had commenced an investigation into potential breaches of the Market Abuse Regulation (EU) 596/2014 (as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018) in relation to certain matters in the period from July 2021 to September 2022. The Group is cooperating fully with the FCA. Until such time as more information is available on the outcome of the investigation, no assessment can be made of any potential liabilities that may arise from it.

Chrysalis Investments Limited

As previously announced, the Group received notice from Chrysalis Investments Limited ("Chrysalis") on 22 November 2023, stating that Chrysalis believed it had certain potential claims against the Group in relation to its purchase of Revolution Beauty Plc shares in July 2021 and the sale of those shares in late 2022. Chrysalis had not commenced formal legal proceedings at this point.

On 19 April 2024, the Group received a further letter from Chrysalis's legal advisers, including draft particulars of Chrysalis's alleged claims and details of the quantum of Chrysalis' thereof. These were stated as a claim of £39m, together with a claim for consequential losses of a further £6.2m. Further to this additional letter, no claim has yet been filed with the court.

The Company strongly contests the Chrysalis allegations and believes that the claim is fundamentally flawed in a number of respects. Nonetheless, the Company continues to engage with Chrysalis and its advisers, as it is required to do under the UK's civil procedure rules, with a view to reaching a resolution of this matter.

13.  Events after the reporting period

No reportable events arose between to the 31 August 2024 and the release of this statement.