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Hardman & Co

Warpaint London Plc 1H’18 interims: delivering the results

Hardman & Co Report Report DownloadsWarpaint London Plc (LON:W7L) interim results for the six months ending June 2018 showed revenue
up 38.7% to £18.4m (1H’17: £13.3m). The company’s two divisions, own-brand
and close-out, represented 84% and 16%, respectively, of the total revenue.
Exports now account for 56% of sales, of which sales to the EU grew by 110% to
£6.7m. Both of the company’s leading brands, W7 and Technic, are 2H-biased due
to the nature of the gifting market, and about two thirds of FY revenue will be
concentrated in the second half. While costs remain relatively flat, we expect
profitability to be very much 2H-weighted also.

Interim results: Group gross profit increased 30% to £6.7m, and the gross
margin fell slightly to 36.5% due to product mix. The net cash position increased
by £2.1m to £4.6m. Warpaint declared a 1.5p interim dividend – a 7.1%
increase compared to 1H’17 – in keeping with its progressive dividend policy.

Retra: Retra is now fully integrated, and its revenue contribution was £4.1m
for 1H’18, of which Technic accounted for £2.9m. Since the acquisition, Retra
has expanded its presence by attending trade shows. As a result, the Christmas
order book had increased significantly at end-June 2018, ahead of the prior

Acquisitions: The past 12 months have proved exciting for the company, with
the acquisition of Retra in Nov’17, and then the acquisition of US distribution
business, Leeds Marketing, in Aug’18. We believe these new add-ons will give
Warpaint better access to/control of the largest colour cosmetics market in the
world (the US).

Risks: For Warpaint to remain successful, several key factors have to be
considered: i) continuing growth in the discount retail sector; ii) the successful
integration of the new acquisitions; and iii) the company’s ability to deliver new
and innovative products.

Investment summary: Retra now fully integrated and with the recent
acquisition of Leeds Marketing, Warpaint is well positioned to maximise the
benefit of the additional assets. It enjoys a much faster growth rate than the
rest of the colour cosmetics sector globally, and has an attractive RoE. Warpaint
offers the opportunity to invest in the fast-growing colour cosmetics sector,
with a highly experienced management team.

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