n investigation into cosmetics group Revolution Beauty has unveiled “serious issues” over the way the business was run under previous senior managers.
Revolution Beauty was found to have made sales to three key distributors – who supply goods to retailers – for the purpose of meeting sales targets, the probe concluded.
For example, a large majority of orders were placed by distributors in the final month of the financial year, “a departure from normal practice”, according to the investigation run by law firm Macfarlanes and consultants Forensic Risk Alliance (FRA).
None of the sales identified in the announcement should have been included in its company accounts for the full year to February 28, it concluded.
This means that around £9 million worth of revenues resulting from the orders will be removed from the revised accounts.
The investigation has brought to light a number of serious issues with the running of this business under the previous senior management team and makes clear there is more to be done
Furthermore, former chief executive Adam Minto and chairman Tom Allsworth were found to have made personal loans to an employee and to distributors which the investigators deemed “unacceptable”.
The pair made loans and other investments of around £1 million to one of the distributors, and Mr Minto provided a £300,000 personal loan to the owners of a separate distributor, which were not disclosed to the board at the time.
“The current Revolution Beauty board views these loans as unacceptable business practices that should not have occurred and will not be repeated”, it said in the announcement.
Mr Minto and Mr Allsworth could not be immediately reached for comment.
Furthermore, the investigation identified issues over Revolution Beauty’s valuation of Medichem, which it acquired from the ownership of Mr Allsworth, as well as its inventory provisioning.
The probe was launched after Revolution Beauty’s auditors flagged serious concerns over the group’s accounts.
Mr Minto resigned from the business in November after the investigation was launched, while Mr Allsworth stepped down from day-to-day involvement in the business and is expected to leave the board before its adjusted accounts are published.
Bob Holt, who took on the role of chief executive officer in October, said: “The investigation has brought to light a number of serious issues with the running of this business under the previous senior management team and makes clear there is more to be done.
“What is in no doubt is that the fundamentals of Revolution Beauty remain strong, and the mass market beauty opportunity is as compelling today as it has ever been.
“Together with Elizabeth Lake, our chief executive officer, and the board, we are committed to addressing past deficiencies so that we can deliver the true potential of this business.”
Revolution Beauty previously said that the outcome of the probe is expected to have a “material impact” on the last year’s full-year earnings of £22 million that it first had announced in May.
It also revealed that the company’s results from the 2019 and 2021 financial year could be affected by the outcome of the audit.
The group has also flagged that it faced inflation pressures and declining consumer confidence in the second half of the year.
Its shares have been suspended from the London Stock Exchange since September.
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