Revolution Beauty finally reports 2022 numbers, swings to loss

Revolution Beauty Group finally published its audited results for the year ended 28 February 2022 on Friday, with its results coming in seriously below previous expectations after concerns were raised by its auditors last year.

Those concerns led to a major delay to the results, as an independent investigation was launched.

Revolution reported revenue of £184.6m for the year, representing an increase of 35% compared to the prior period.

However, its adjusted EBITDA showed a loss of £0.8m, reflecting a decline of 107%.

“As announced on 23 September, the company’s auditor wrote to the board on 21 September 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 2022 financial year,” Revolution explained in its report, with the outcome of the Investigation announced on 13 January.

“The board appointed independent external advisors Macfarlanes and FRA to undertake an independent investigation.

“A number of the financial accounting issues arising from the audit and the investigation have delayed the completion of these audited accounts.”

During the investigation, Revolution said certain factors were identified that could have affected the reported results of Medichem Manufacturing before its acquisition.

The independent valuers commissioned by the board before exercising the call option disclosed at the initial public offering (IPO) did not consider those factors, and as a result, Revolution commissioned a new independent valuation in December, which indicated a significantly lower value than originally recorded.

The firm said it was currently in negotiations with the previous owner of Medichem to reach a revised agreement on the consideration due, and the payment terms.

The investigation also discovered irregularities in revenue recognition.

Sales made in February last year to three distributors were found not to meet all the requirements of IFRS15, particularly concerning extended credit terms and undelivered stock.

The sales made during the month were abnormally high compared to other months in the financial year.

Additionally, it was revealed that two board members - Adam Minto and Tom Allsworth - made personal loans or investments to one of the distributors without disclosing that information to the board.

Those sales were thus not included in the 2022 results.

Elsewhere, the investigation identified irregularities regarding supplier rebates recognised in the 2019 financial year, and capital support payments to the same two suppliers in 2021.

Those transactions did not involve any cash movements, and were reversed as prior-year adjustments.

Revolution said it had now adopted a revised inventory provisioning methodology, which it described as robust, consistent with financial reporting standards, and based on historical data.

As a result, the company made a significant additional inventory provision for 2022 totalling £11.3m.

An adjustment to opening reserves of £27.2m as of 1 March 2021 was also made, due to practical limitations in retrospectively adjusting comparative information.

The new methodology considered factors including the expected cost of selling inventory, inventory cover, and the sales performance of newly-developed products.

Finally, Revolution said concerns were raised over personal loans made by Minto and Allsworth to senior managers, non-executive directors, employees of the company, and the distributors previously mentioned.

None of those loans were disclosed to the Revolution Beauty board at the relevant time.

“The delay in the publication of our 2022 results has clearly been frustrating for all involved,” said non-executive chairman Derek Zissman.

“Following the completion of the independent investigation and the release of its findings, we continue to take action to ensure we have the right processes and governance in place across our business.

“We are making significant progress to resolve the issues that were raised.”

Zissman said that while the results were “significantly below” that forecast by the previous management team, they still reflected a “robust business” with a “strong brand, loyal following, and significant potential” in terms of both sales and profitability.

“We now expect Revolution Beauty to return to normalised trading and to capitalise on its position as a business with outstanding products, talented colleagues, and a loyal customer base.”

Revolution said it was intending to publish its interim results for the period ended 31 August within the next fortnight.

It said that announcement would also update the market on the 2023 financial year, current trading during 2024 to date, and progress towards the lifting of the suspension of trading in the group's shares.

Reporting by Josh White for Sharecast.com.