CEO & CFO Q&A with Warpaint London PLC (LON:W7L)

Warpaint London PLC (LON:W7L) Chief Executive Officer’s Eoin Macleod and Samuel Bazini and Chief Financial Officer Neil Rodol caught up with DirectorsTalk for an exclusive interview to discuss their final results for the year ended 31st December 2017.

 

Q1: Neil, congratulations on another strong set of results, can you talk us through the highlights?

A1: Well, the highlights of the results are proforma revenue we’re pleased to say is 15.6% up to £31.2 million, that excludes Retra which we purchased in the last month of the year, notwithstanding a tough UK marketplace, our W7 brand which is 82% proforma revenue was up 17% in the UK and internationally.

Proforma operating margin was 24.4%, that’s before exceptional items and amortisation but on a like-for-like basis without certain PLC and FX costs in the year our proforma operating margin, which is important to us to measure business, is 25.4% against 25.1% last year so that’s improved.

Proforma earnings per share is up to 9.4p, that’s up 8% on the year before and net cash at the year-end was £2 million and that’s after deducting £1.4 million of Retra loans that remain in the business and we intend to pay these off during the year to be debt-free again at the end of the year.

£5.2 million cash generated from operations in the business, we remain low on working capital demands and this enables a progressive dividend policy or indeed for us to look at other acquisitions if they come along.

The final dividend proposed of 2.6p which makes 4p for the whole year and our dividend cover is 2.4 times so there’s room for growth there as we continue through the years.

W7 is now sold in 60 plus countries around the world, 50 countries last year, and that resulted in the award on Monday, on the Queen’s birthday, the Queen’s Award for Enterprise.

As well as achieving these good results which the Board and staff have worked hard to deliver, we identified and purchased Retra, a cosmetics business. It’s growing, complimentary, strong in gifting, this acquisition is earnings-enhancing and has integrated very well.

More closely, further highlights include gross margins actually gone up 39%, 38% last year and W7 margins have been maintained at 41% despite a 5% average fall in US dollars year-on-year. Close-out margin has improved 31% which we were very pleased with, although it remains a smaller part of the business and our EBITDA margin which is a very good measure for us that we watch closely is 20 plus percentage points.

Beyond the income statement, we also have a robust balance sheet of £40 million, mainly liquid assets, stock and cash, low capex model, our debtor days has fallen to 64 days as larger customers dominate the top echelon of our customer list. We have little debt which is just the £1.4 million from Retra which will be cleared at the year-end as I said, cash at the year-end on the balance sheet of £3.4 million.

So, in conclusion, we’ve a year of dedicated hard work from a growing team has delivered a strong set of results plus an acquisition which will see the group increase in size materially with increased earnings.

 

Q2: Sam, as Neil’s just mentioned, Warpaint acquired Retra Holdings in November 2017, how has this added to Warpaint’s operations?

A2: Well, first and foremost, the most exciting thing for us is we’ve got a much larger and more diverse customer base. We used to serve mainly the discounters in Warpaint and W7, we’d supply TK Maxx, Savers, these types of people, now we’ve added to our portfolio some of the larger retailers, Sainsbury’s, Argos, Boots, just to name a few. We feel that with the acquisition it will give us access to these retailers much more easily and in fact, we’re already talking to some of them.

We’ve got a much larger export market than they have so we’re introducing them to our customers abroad, they currently serve 26 countries approximately, we’re serving over 60 so it’s increased their customer base as well.

They’ve a large gifting business which gives us good visibilities for the second half of the year which pleases our Board and our investors. They also have a Hong Kong office, and this is helping to save costs, we’ve also got a quality control team there that are checking products and ensuring that the lead times are met. We are also saving on freights, we’ve doubled our requirement for containers and shipping so obviously there’s a saving there.

Overall, it was a good acquisition for us, the businesses have integrated well, and it was a good acquisition for us and everything is going according to plan.

 

Q3: Eoin, we’ve seen some impressive growth from Warpaint London, can you tell me what’s been driving this and will it continue to drive that growth forward?

A3: A lot of the growth we are achieving is because we are in the discount sector. The area of the market we’re in, a lot of these retailers are expanding year-on-year, maybe opening up 50 or 100 stores and naturally, as they grow and they’re carrying our brand, we grow alongside with them because the products are selling.

Not only that, as we’ve become a bigger brand in the market, there’s a lot kore brand awareness, people are following us so we’re picking up a lot more sales there.
Sam obviously mentioned, with the acquisition of Retra, because there’s a lot of new markets that we can go into, there’s huge potential for growth with some of the supermarket chains and also in the pharmacy chains.

We’re going to continue obviously grow with our export market which as Neil mentioned was up over 16% last year, some of these markets it’s very early days where we’re trading with them but as the brand becomes bigger or more well-known, obviously we’ll increase sales.

Finally, we’re doing very very well with our Very Vegan range where we extended a lot of new products in that and there’s a lot more awareness and support behind the vegan range as well as accessories including bags, files and just general accessories where we’re breaking into new market there.

So, overall, we’re very very pleased and we see a huge amount of potential for growth in the future.

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