Corporate Governance

Warpaint London plc -Statement of Compliance with the QCA Corporate Governance Code


Chairman's Statement

The Board is responsible for the long term success of the Company and, as such, devises the Group strategy and ensures that it is implemented. The Board is determined to ensure that the Company protects and respects the interests of all stakeholders and, in particular, is very focused upon creating the right environment for our staff. We want a happy workplace and we want our employees to be fully and properly rewarded and to feel that they are an integral part of the Warpaint family. A reward structure is therefore in place, which includes the grant of share options, enabling members of staff to participate in the growth of the Company, as appropriate. We want our suppliers, who are an essential part of the Company, to also feel part of the Warpaint family and we work closely with them to ensure that this is the case. Above all, the Company wishes to ensure that shareholders obtain a good return on their investment and that the Company is managed for the long-term benefit of all shareholders and other stakeholders. Appropriate Corporate Governance procedures will ensure that that is the case and reduce the risk of failure.

Clive Garston, Chairman


Adoption of the Quoted Companies Alliance (QCA) Corporate Governance Code

The Board adopted the QCA Corporate Governance Code (“QCA Code”) on 25 September 2018 following recent changes to the Corporate Governance regime, requiring all AIM-listed companies to adopt and comply with a recognised corporate governance code. The Board believes that this is the most appropriate Code for the Company to adopt at this stage in its development. The QCA Code is built around ten broad principles and a set of disclosures. The Board has considered each principle individually and the extent to which it is appropriate in the circumstances. This Corporate Governance Statement sets out in general terms how the Company complies with the ten principles of the QCA Code at present and any proposals for further compliance. Annual updates will be provided on our compliance with the QCA Code and more information will be set out in the Company’s Annual Report for the year ended 31 December 2018.


Deliver Growth 

Principle 1: Establish a Strategy and Business Model which promote long-term value for Shareholders

The Company is a producer and supplier of colour cosmetics. We are extremely creative and design-focused, aiming to provide our customers with a wide range of high quality colour cosmetics at an affordable price.  The Group is made up of two divisions: close-out and own-brand.  The second and larger own brand division primarily consists of the Group's flagship brand, W7, together with the Technic, Body Collection and Man’Stuff brands. The Board recently adopted a three year strategic plan for the business which identified six key strategic priorities:

Continuing to develop and build our Brands - We continue to build our major brands by utilising brand ambassadors, bloggers and vloggers to engage with our target audience. Much of this is done through social media campaigns to educate and interact with our loyal brand users. Other brands will continue to be used for customer bespoke orders and we are actively seeking sales partnerships with high street retailers and fashion brands to cross promote our brands. The bestselling lines in each range and brand have been identified to be launched in trial programmes in new retail outlets with the goal to deliver increased presence in the high street and grow market share. 

Providing New Product Development (“NPD”) that meets consumers changing needs and tastes - A key focus of the business and NPD team is to supply our customers with a wide range of affordable, high quality cosmetics. The NPD team is made aware of our required margin and minimum sales revenue per item before development begins, but affordability and quality remain important drivers in the development process and on the odd occasion, if necessary, we will sacrifice a small amount of margin in order to get the desired quality and price. While most of our brand ranges include core colour cosmetic items, we add on trend items and colourways developed by our growing NPD team, especially in our all year-round ranges of our lead brands, W7 and Technic. This on trend and quick to market model is something our customers demand and expect from us, which we repeatedly deliver on.

Our Body Collection brand is being developed further to cater for the growing mature female cosmetics market, the Man’stuff brand allows us the opportunity to develop a growing male grooming market and our Very Vegan range continues to grow as a vegan lifestyle or product choice becomes more prevalent.

With our lead brand W7 we are exploring opportunities into new sales channels and product categories e.g. sun protection, fragrance, and health and beauty accessories.

For our brand ranges to remain relevant we identify products for exit through our close-out business effectively and profitably.

Growing Market Share in the UK -  Our e-commerce platform has now been in operation for over a year. The sales revenue coming from online sales in the UK, although modest, contributes to overall marketing costs. We have strategies in place to further develop revenue through the UK site and improve the online consumer experience as it provides a shop window for customers. Following the acquisition of Retra Holdings Limited (“Retra”), we have started developing the combined customer base of the enlarged business to sell all brands to all customers in the UK and overseas. Over 75% of the UK market remains unexploited, in particular, pharmacy chains and several high street multiples and grocers. Expanding the UK customer base is a focus of management and plans are in place to gain market share including the use of short term experts to open doors and gain accounts.

Growing USA awareness and sales of the W7 brand and launch W7 successfully in China - The USA strategic goal is underway with the acquisition of our USA distributor, Leeds Marketing; this locally based resource together with the e-commerce site now soft launched will enable a more rapid expansion in the USA. In China, we have several initiatives underway including a Chinese facing e-commerce site with the functionality to transact in local currency. We have developed some good relationships locally with wholesale customers and this business is gradually growing. The acquisition of Retra included a People’s Republic of China subsidiary which we are currently changing the status of so that it can become a trading entity locally in China.

Reducing Costs - Throughout the Group, costs are monitored against budget to identify potential savings. We are developing our supply chain to be more efficient and have the capacity to match our growth, this may involve supplier consolidation to help reduce the cost of goods. We are maximising the cost saving synergy opportunities from recent acquisitions and looking at how Group administration functions can be made more efficient and costs can be reduced.

Driving Shareholder Value - The Board has developed a three year rolling plan for the Group, which can be measured, monitored and reviewed each year. The plan has defined targets for sales, EBITDA, earnings per share, cash and share price.

Understanding and following the six key strategic priorities will help deliver growth in the business leading to growth for our shareholders and stakeholders.

Principle 2: Seek to understand and meet Shareholder needs and expectations

The Company remains committed to communicating openly with all of its shareholders, both private and institutional. This enables the Company to ensure that its strategy, business model and performance are clearly understood. It also enables the Company to appreciate the needs and expectations of shareholders and respond to queries promptly and comprehensively. The Company is committed to a progressive dividend policy.

All individual investor queries should be addressed to the Company Secretary at investors@warpaintlondonplc.com

Private Investors

The Board recognises that the AGM is an important opportunity to meet private shareholders. Each substantially separate issue is the subject of a separate resolution at the AGM and all shareholders have the opportunity to put questions to the Board. All Board Directors endeavour to attend AGMs and answer questions put to them which may be relevant to their responsibilities. In addition, the Directors are available to listen informally to the views of shareholders immediately following the AGM. For each vote, the number of proxy votes received for, against and withheld is announced at the meeting. The results of the AGM are published on the Company’s corporate website. The Executive Directors participate in retail investor events such as Mello South, where feasible.

Institutional Shareholders

The Joint Chief Executive Officers and the Chief Financial Officer make presentations to institutional shareholders and participate in Investor Road Shows both following the announcement of the full-year and half-year results and, at other times throughout the year. Not every Executive Officer participates in every investor presentation. The Chairman will participate in these presentations in future where appropriate and is always available to speak with shareholders. Dialogue with individual institutional shareholders also takes place in order to understand and work with these investors to seek to comply with their investor principles where practicable. The Board responds to and will take account wherever possible of recommendations made by proxy adviser companies.

Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success.

Engagement with the Company’s stakeholders is important in strengthening these key relationships and providing vital information with which business decisions can be made.  Apart from our shareholders, our stakeholders include our suppliers, distributors, customers and most importantly, our employees. Stakeholder feedback is principally gathered by meetings, conversations, electronic communications and social media comment, The Executive Directors and other key management  work extremely closely with our suppliers, distributors and customers across all aspects of the business and have developed strong relationships over several years. The Board is regularly updated on wider stakeholder engagement feedback enabling the Board to make informed business decisions based on understanding and consideration of the issues that matter to these stakeholders and the impact on our business.

Suppliers

Suppliers are visited at least annually and regular contact maintained at other times through trade shows, meetings and other close communications. The Group’s principal suppliers are made to feel part of the organisation with an open and honest dialogue encouraged so that feedback can be communicated and a rapid response provided. Following the acquisition of Retra, the Group now retains an office in Hong Kong enabling more frequent visits and enhanced supplier contact.

Distributors

We seek to strengthen our relationships with our distributors to garner feedback and provide support with regular meetings, attendance at trade shows and maintaining close contact with them through our sales representatives. Our Distributors provide feedback on product suitability including in regions of the world such as the Middle East where there may be cultural sensitivities in the product packaging and branding. Different regions may also call for particular colour mixes and shades and such feedback enables us to optimise and tailor products in these regions.

Customers

Feedback with our trade customers is initially directed through dedicated account managers followed by engagement with our administration teams. For end user customers feedback is garnered through social media such as Facebook, Twitter, Instagram and Pinterest. Our customers frequently contact us in writing and through our website www.w7cosmetics.co.uk  where they are also able to leave comments. We endeavour to respond to all customers who contact us. Trends in the cosmetic business are dynamic and swift reaction to feedback is vital in introducing new products and updating our product range.

Employees

The Company places enormous importance on the contributions of its employees and aims to keep them informed of developments in the Company through a combination of meetings and electronic communication. We operate an open-door policy, everyone is known by name to the senior managers and Executive Directors with the Chief Executive Officers engaging daily with employees across the business. Communication is encouraged on an informal basis, usually verbal. Communication channels within the business are key and the open-door policy aides this.

Feedback from employees led to the introduction of flexible working and a revision to the warehouse operating hours.  We have a low staff churn rate, promoting from within, offering staff mobility from the warehouse floor to administrative roles and managerial positions. Employees have the opportunity to purchase extra holiday and child care vouchers. A reward structure is in place, which includes the grant of share options, enabling members of staff to participate in the growth of the Company, as appropriate. 

Communities

Where ever possible we employ staff from the local area and encourage the use of car sharing and public transport to reduce the impact on local roads. We manage the times of our incoming and outgoing deliveries in order to limit any disturbance to residents in the local area. As a rule, we use local trade’s people for goods and services creating employment and income within the area.

We often support local charities, including South Bucks Hospice and provide donations of our products for local school fairs and fetes, these requests coming via our local suppliers.

Environment

The business consumes significant amounts of cardboard and paper and the Company utilises a regular recycling collection service. Our products and packaging use paper and cardboard which enables the Company, the wholesaler and end user to recycle the waste effectively.

 

Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Company is exposed to a variety of risks that can have financial, operational and regulatory impacts on our business performance. The Board recognises that creating shareholder returns is the reward for taking and accepting risk. The effective management of risk is therefore critical to supporting the delivery of the Group’s strategic objectives.

Currency/Foreign Exchange

Due to the Group’s goods being manufactured overseas and its extensive export business, it both generates revenues and incurs manufacturing costs in foreign currencies. As a result, the Group is exposed to the risk that adverse exchange rate movements cause the value (relative to its reporting currency) of its revenues to decrease, or costs to increase, resulting in reduced profitability.

Reliance on Key Suppliers

In 2017 one key supplier from China was responsible for approximately 44% of the Group’s W7 brand range of colour cosmetics. If there were some catastrophic event that reduced or stopped the supply from this key supplier then the Directors are able to place orders with other existing suppliers. However, this would take several months to implement and such an event would therefore have a material adverse effect on the Group’s financial position, results of operations and future prospects.

Product Liability

All products are manufactured in facilities approved by relevant authorities. The ingredients in each product are compliant with and meet the relevant standards required by the markets to which the products will be sold into. There is however always the risk that an end user could have an allergic or other reaction to an individual product leading to the possibility of compensation claims and potentially damaging the good reputation of the Group’s brands.

The Directors have every colour cosmetic item independently checked by a qualified chemist for compliance with EU legislation and maintain adequate product and public liability insurance so as to ensure that any claims have little impact on the Group’s profitability.

Significant Customers

The Group has one customer in Australia with over 300 stores who has an exclusive rolling one year distribution agreement for the W7 brand of colour cosmetics in Australia. In 2017 this customer represented 14.6% of own-brand/W7 revenues and we currently have an excellent working relationship with this customer. Significant goodwill in the W7 brand has been built up by this customer. The Directors believe that, should the customer decide to end the distribution agreement, a large amount (if not all) of the existing business will be taken up by other retailers, local wholesalers or other distributors in Australia. In addition, the Group’s USA distributor represented 9.6% of own-brand/W7 revenues in 2017. The Company acquired its USA distributor on 2 August 2018.

Location

The Group, its operations, and most of its assets are sited at two principal locations, Iver, Buckinghamshire and Keighley, West Yorkshire. If a fire were to befall the premises occupied by the Group, most of its assets might be destroyed or damaged and – although the Group has insurance cover in place – the Group’s business, financial results and prospects might be negatively affected by such an event.  The Group would seek to occupy rented premises within the immediate short term. All communications, IT systems (including financial systems) are backed up externally and would be operative within 24-48 hours.

 

Maintain a Dynamic Management Framework 

Principle 5: Maintaining the Board as a well-functioning, balanced team led by the Chair  

The Board

The Board currently comprises of three Non-Executive Directors (including the Chairman), Clive Garston, Paul Hagon and Keith Sadler, and four Executive Directors, Sam Bazini, Eoin Macleod, Neil Rodol and Sally Craig. The Board considers this to be appropriate at this stage of the Company’s development, but will reconsider this as the Group grows in size. The two Non-Executive Directors are independent. No single Director is dominant in the decision-making process. At this stage in the Company's development the Board does not consider that having a Senior Independent Director is appropriate but this will remain under review.

The Board of Directors is responsible for formulating, reviewing and approving the Group’s strategy, budgets, major items of capital expenditure and acquisitions, and reporting to the shareholders. Dialogue occurs regularly between the Chairman and other board members and between the directors themselves outside of scheduled meetings. Meeting agendas include review and approval of minutes recorded, matters arising, a review of material operational matters relating to Group’s businesses and other special items for discussion or consideration. Board papers are circulated in advance to allow Directors adequate time for consideration.

Board Meetings

The Board holds regular monthly meetings throughout the year (apart from in August and December) with a full agenda of business for consideration with further meetings in between for matters including informal business reviews, to review budgets and focus on strategy. The Board met 16 times during the financial year ended 31 December 2017. All Board members attended all meetings they were invited to, save that Paul Hogan gave his apologies for one meeting. It is intended that the Board will meet at least ten times a year to review, formulate and approve the Group’s strategy, budgets, corporate actions and oversee the Group’s progress towards its goals with at least one meeting on the premises of its subsidiary Retra, providing the Board an opportunity to meet with its senior management and be involved with the business of the wider Group.  The Executive and Non-Executive Directors provide such time as is required to fully and diligently perform their duties.

Audit, Remuneration and Insider Committees

The Board has established the Audit Committee, Remuneration Committee and Insider Committee with formally delegated duties and responsibilities and with written terms of reference. During the financial year ended 31 December 2017, the Audit Committee met three times, the Remuneration Committee twice and the Insider Committee, once.  From time to time separate committees are set up by the Board to consider specific issues when the need arises. Due to the size of the Group, the Directors have decided that issues concerning the nomination of Directors will be dealt with by the Board rather than a committee, but will regularly reconsider whether a Nominations Committee is required.

Principle 6:  Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities

The Board retains a range of financial, commercial and entrepreneurial experience and there is a good balance of skills, independence, diversity and knowledge of both the Company and the sectors in which it operates including cosmetics, retailing, finance and computing, innovation, international trading, e-commerce, marketing and public markets. The Non-Executive Directors have been appointed on merit and for their specific areas of expertise and knowledge. This enables them to bring independent judgement on issues of strategy and performance and to debate matters constructively.

The Board seeks external advice from time to time to enable it to effectively perform its duties including from its lawyers, accountants, Nominated Adviser and corporate broker, financial PR advisers and insurance brokers. Accounts are prepared internally and reviewed and developed by Adler Shine, the Group accountants. Independent external advice is provided to the Company in such areas as Health and Safety, product safety and materials and regulatory compliance. Advice regarding the implementation of an executive reward scheme has been provided to the Board by H2glenfern.

The skills brought to the Board are as follows:

Clive Garston (Chairman)

Corporate Finance, Public Companies and Markets, Corporate Governance

Sam Bazini (Joint Chief Executive Officer)

Co-Founder of W7, Entrepreneurship, Industry Knowledge and Experience

Eoin Macleod (Joint Chief Executive Officer)

Co-Founder of W7, Entrepreneurship, Industry Knowledge and Experience

Neil Rodol (Chief Finance Officer)

Financial skills, Industry and Public Company Experience

Sally Craig (General Counsel and Company Secretary)

Legal, Company Secretarial and Public Company Experience

Keith Sadler (Non-Executive Director)

Financial Skills, Communications, Public Companies

Paul Hagon (Non-Executive Director)

Retail and Wholesale Business Experience, Strategic Planning  

Directors attend seminars and other regulatory and trade events where appropriate to ensure that their knowledge industry sector contacts remains current.

Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

The Group’s performance is reported monthly against headline performance and agreed budgets and reviewed by the Board (as a minimum) at each monthly board meeting. The Board challenges the Executive Directors and senior management on performance against budgets, forecasts and key business milestones. The Board have adopted a set of KPI’s against which the performance of the Company and therefore the Board, can be measured.

The Company is at a relatively early stage in its development as a listed company and is yet to adopt a formal performance evaluation procedure for the Board and Directors individually. This will remain under review and the Board will consider the implementation of performance evaluations facilitated by external advisers for the Board, both individually and as a group, to ensure the efficient and productive operation of the Board. As the business of the Group grows, the expertise required at management level is expanded and developed although there are no prescribed procedures for succession planning at Board level.

 

Principle 8: Promote a culture that is based on ethical values and behaviours

Product Testing, Manufacture and Materials

We do not test any of our cosmetic products on animals and cosmetic animal testing has been officially banned in Europe since 2013. We are aware that in other parts of the world there is still a requirement to test on animals. Wherever and whenever we come across this requirement and are given no choice, we withdraw from our sales activity in the territory concerned. We are keen for cruelty free alternatives to animal testing to become compulsory and animal testing overall to be ceased globally.

Suppliers provide Good Manufacturing Practice Certificates for all of the factories used in the manufacture of our goods. Our main suppliers also produce for worldwide brands, we take comfort from the public ethical and sustainability stance around the world of these brands. We encourage our suppliers to share with us the results of the BSCI and Sedex audits when they have taken place.

Heavy metals such as TBTO (preservative) and other ingredients of concern are not added to our colour cosmetic products and we ensure all raw materials comply with the strict regulations applicable in the EU, USA and Canada.

Charitable Causes

Along with local charities and events, the Company supports national charities including Save The Children -Christmas Jumper Day and MacMillan Cancer - Coffee Morning. We invite our employees to choose charities and events that are close to their hearts and we collaborate with them. These events are often put out on our social media and are linked to the charity to raise their profile. In 2017 our nominated charity was Blue Cross, which was allied to our very vegan product launch and social media campaign.

There are ongoing discussions regarding the formation by the Board of the W7 Foundation to provide financial assistance to charities that endeavour to support the protection of animals.

Modern Slavery

We have relationships with businesses around the world and we are opposed to modern slavery and human trafficking wherever it may occur. We review our processes and examine our supply chains at least annually to ensure that we are preventing slavery and human trafficking in our business and supply chains. We make compliance with the Modern Slavery Act 2015 or equivalent anti-slavery, human trafficking laws mandatory in all of our supply contracts.

 

Principle 9:  Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

Board Operation

The Board is responsible for the long term success of the Company. There is a formal schedule of matters reserved to the Board for its decision. These include formulating, reviewing and approving the Group’s strategy, budgets, major items of capital expenditure and acquisitions, and reporting to the shareholders.

The Board meets ten times each year for regular Board meetings, which are scheduled prior to the commencement of each financial year. These meetings are scheduled to coincide with the announcement of the Company’s annual and half yearly accounts and throughout the remainder of the year at regular monthly intervals (apart from in August and December). These are supplemented by additional meetings where required for business including informal business reviews, to review budgets and focus on strategy. Dialogue occurs regularly between Directors outside of scheduled meetings.

A formal agenda is produced for each meeting and for formal board meetings include the review and approval of minutes recorded, matters arising, a review of material operational matters relating to Group’s businesses and other special items for discussion or consideration. Board papers are circulated to Board and Committee members in advance to allow Directors adequate time for consideration. Any specific actions arising from such meetings are agreed by the Board or relevant Committee, circulated after the relevant meeting by the Company Secretary and then followed up by the Company’s management.

The business reports monthly on its headline performance against its agreed budget, and the Board reviews the monthly update on performance and any significant variances are reviewed at each scheduled meeting. The Board challenges the Executive Directors and senior management on performance against budgets, forecasts and key business milestones. Monthly updates on performance are reviewed at each formal board meeting. The Board have adopted a set of KPI’s against which the performance of the Company and therefore the Board, can be measured.

The Company’s Articles of Association require that one-third of the Directors must stand for re-election by shareholders annually in rotation and that any new Directors appointed during the year must stand for election at the AGM immediately following their appointment.

Roles of the Chairman, Joint Chief Executive Officers, Chief Financial Officer and General Counsel & Company Secretary

The Chairman is responsible for running the business of the Board and for ensuring appropriate strategic focus and direction. The Joint Chief Executive Officers are responsible for proposing the strategic focus to the Board, implementing it once it has been approved and overseeing the management of the Company through the executive team. There is a clear division of responsibility between the Chairman and the Joint Chief Executive Officers. Whilst the Joint Executive Officers operate together in the majority of areas and on matters of strategy there is a delineation of duties between them within the day to day business of the Group.

The Chief Financial Officer works closely with the Joint Chief Executive Officers and is primarily responsible for the provision of monthly financial information to the Board, control of working capital, overseeing the audit and preparation of all Group company statutory accounts and consolidated Interim Statements along with the overall financial management of the Group and its processes. The Executive Officers are responsible for formulation of the proposed strategic focus for submission to the Board, the day-to-day management of the Group’s businesses and its overall trading, operational and financial performance in fulfilment of that strategy, as well as plans and budgets to approved by the Board of Directors.

The General Counsel and Company Secretary is responsible for the oversight of legal issues and regulatory compliance along with executive share schemes, investor queries, HR matters, insurances and policy implementation. In addition, she assists the Chairman and other Committee chairs in ensuring all meetings of the Board and Committees are informed and effective.

Audit, Remuneration and Insider Committees

The Board has established the Audit Committee, Remuneration Committee and Insider Committee with formally delegated duties and responsibilities and with written terms of reference. The full terms of reference of each committee can be found as follows:

Audit Committee Here.

Remuneration Committee Here.

Insider Committee Here.

From time to time separate committees are set up by the Board to consider specific issues when the need arises. Due to the size of the Group, the Directors have decided that issues concerning the nomination of Directors will be dealt with by the Board rather than a committee, but will regularly reconsider whether a nominations committee is required.

Build Trust

Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Company’s principal means of communication with shareholders is through the Annual Report and Accounts, the full-year and half-year announcements and the Annual General Meeting (AGM). Investor queries may be addressed to the Company Secretary at investors@warpaintlondonplc.com

A range of corporate information (including all Company announcements) is also available to shareholders, investors and the public on the Company’s corporate website here. 

In addition, the Board receives regular updates on the views of shareholders through briefings and reports from the Executive Directors, the Company’s brokers and PR Advisers. The Joint Chief Executive Officers and the Chief Financial Officer make presentations to institutional shareholders and participate in Investor Road Shows both following the announcement of the full-year and half-year results and, at other times throughout the year. Not every Executive Officer participates in every investor presentation. The Chairman will participate in these presentations in future where appropriate and is always available to speak with shareholders. Dialogue with individual institutional shareholders also takes place in order to understand and work with these investors to seek to comply with their investor principles where practicable.

 

This Statement was adopted on 25 September 2018.