Warpaint London PLC (LON:W7L), the specialist supplier of colour cosmetics and owner of the W7 and Technic brands, has announced today its unaudited interim results for the six months ended 30 June 2019.
Commenting, Sam Bazini and Eoin Macleod, Joint Chief Executives, said: “In a challenging retail market, particularly in the UK, the business is showing resilience and adapting to the changing market conditions, increasing international sales by 7.8% and seeing an improvement in the performance of Retra.
“Now that LMS is part of the enlarged Group this has accelerated our growth into the largest colour cosmetics market in the world and provides useful dollar based income.
“The Group’s cosmetic brands remains the primary strategic focus of the Group, with significant sales of Christmas gifting being delivered in the second half of the year. As in 2018, we expect overall Group earnings to be weighted to the second half of this financial year.
“We have implemented a strategy in the UK which we believe will increase sales of the W7 brand over the medium term. In the US, we have made an encouraging start in H1 2019 with sales made by LMS up 36% on a like for like basis, and for the W7 brand, up 45% (“like for like” numbers are comparisons year on year of the US business LMS as if it had been part of the Group throughout 2018 and in US$). We have increased our marketing spend in the US to drive brand awareness and to help support sales initiatives, which should deliver revenue in the second half of 2019.
“With our strong financial foundation and having net cash, prospects remain encouraging and Warpaint is well positioned to deliver future growth. The outlook for the Group as we follow our growth strategy, remains positive.
“Our previous guidance remains unchanged. Group sales are expected to be approximately £50 million and adjusted profit before tax (excluding amortisation in connection with acquisitions, share incentive scheme costs and exceptional items, which the board expects to total approximately £2.8 million) will be in the range of £6 million to £7 million, for the financial year to 31 December 2019.”
· Sales up 2.9% to £18.9 million in H1 2019 (H1 2018: £18.4 million)
· International Group revenue increased by 7.8% to £11.1 million (H1 2018: £10.3 million)
· W7 brand delivered continued export sales growth year on year in the EU +12.4% and US +45.4%*1 on a like for like US$ basis
· Gross profit margin reduced to 34.9% (H1 2018: 36.5%) due to impact of lower margin US sales
· Gross profit margin (excluding business conducted in the US) has improved to 37.8% (H1 2018: 36.4%)
· Adjusted profit from operations of £1.2 million in H1 2019 (before exceptional Items and amortisation costs) (H1 2018: £2.6 million). The majority of the movement in adjusted profit is due to:
o Inclusion of Leeds Marketing Services Inc (“LMS”) £0.5 million operating costs in H1 2019;
o Overall reduction in gross profit margin;
o Increased PR and marketing spend of £0.3 million to support sales initiatives; and
o The effect of a charge of £0.1 million in H1 2019 in connection with IFRS 16 (leases),
· Retra (the business acquired by the Group in November 2017, including the Technic brand) achieved breakeven EBITDA in H1 2019 (H1 2018: £0.5 million loss)
· Reported loss before tax of £0.2 million (H1 2018 profit before tax of £1.3 million)
· Cash generated from operations of £2.0 million (H1 2018: £4.0 million) after investment in stock of £6.1 million to cover inventory in the US and Retra stock to maximise the sales opportunity
· Cash of £3.7 million at 30 June 2019 (30 June 2018: £5.5 million)
· Interim dividend maintained at 1.5 p per share
· International growth strategy in place and delivering
· Action taken at Retra to reduce costs and improve new product development
· Improved Christmas order book to be delivered by Retra, underpinning H2 outlook. Retra order book of £10.1 million at 30 June 2019 (30 June 2018: £9.5 million)
· Action taken at LMS to reduce cost base, improve margin and provide full range of Group product and brands
· PR spend to support growth and customers
*1 Like for like numbers are comparisons year on year of the US business LMS as if it had been part of the Group throughout 2018.