Lush Fresh Handmade Cosmetics Financial report
With the majority of Global Lush shops closed at some point in 2020 this has been the worst financial year we have experienced, and despite booking a pre-tax loss of £45.2m we fared better than many retail businesses that have collapsed around us. Most importantly, we have succeeded in preserving our cash position and maintaining headroom against the loan facilities that are available to us. We have achieved this by applying forensic attention to every aspect of our business and reducing costs in every area possible. We stopped investing in shop growth, streamlined our supply chain and renegotiated rents worldwide.
We gratefully acknowledge external help – the UK Government giving a business rates holiday; a genuinely simple to access state backed loan in France for our retail business there; and NatWest bank being flexible with our covenants. With over 10,000 staff worldwide, we thank all those Governments globally who provided help with wages and furlough schemes without which the job security outlook for us, and so many other businesses, would have been far bleaker. There is no dividend this year or next.
The flexibility of our staff moving from manufacture to fulfilling web sales helped mitigate against a significant number of redundancies. Our main priority being to preserve the business and as many people’s jobs as possible, whilst looking after the wellbeing of employees. The work on embedding Equity and Diversity started, with a focus on sustaining support for the Black Lives Matter movement. You can read more about that here.
Since the start of the pandemic consumers worldwide have been able to buy cosmetics from competing “essential retailers”, who we believe have benefited from the 23% of lost sales we have experienced over our last 2 financial years. One of the things we have done to win these customers back is to address their concerns with plastic waste. Having used 100% recycled plastic in our bottles and jars for years, Lush now offers customers a generous deposit to return their plastic packaging to the UK shops while also investing in our own recycling plants to roll this out worldwide.
Our consolidated financial statements have been filed this week. You can find highlights below.
As of 30th June 2020, the Lush Brand operated through retail outlets in 47 countries and manufacturing facilities in 6 countries through its subsidiaries, joint ventures, associates and licensees. The total number of shops at 30 June 2020 was 937 (2019: 928) of which 438 were in Group subsidiaries (owned by Lush Ltd) (2019: 438).
Group turnover of £437.8m represents a 19.7% decrease on 2019 and a 19.8% decrease when converted at consistent exchange rates.
Including joint ventures, associates, licensees and franchises, Brand turnover was £803.8m which represents a decrease of 17.8% on 2019 and an 18.3% decrease when converted at consistent exchange rates.
Even though the figures show a Group loss before tax of -£45.2m, this is after several accounting adjustments totalling £37.9m – the majority being around impairment and onerous lease provisions in respect of our ‘Anchor’ stores where profit margins were heavily impacted as a result of the pandemic. Whilst according with accounting best practice these adjustments do not have any impact on our liquidity which has been our main area of focus since the pandemic struck. We also remain committed to making our Anchor stores a success and continue to look for opportunities for them.
Our underlying Group EBITDA for the year remained positive at +£8.7m despite suffering an £80m and 36% drop in sales in the second half of the year as most of our physical stores were forced to close at some point; at its height 417 of our 438 Group shops were closed. We are incredibly grateful to have received £16.8m of furlough income during this period from all the Government support schemes around the world and also benefited from the UK rates holiday and some Covid related rent savings, whilst also implementing our own cost savings.
The Group finished the year with net debt of -£0.6m having recorded a net cash deficit (excluding movements in bank borrowings) of -£3.4m in the year. The balance sheet reflects a healthy position with net assets of £120.8m and net current assets of £18.6m.
Revenues in the next financial year to 30 June 2021 have been impacted further by continued lockdowns and restrictions in most of our markets, and in particular the UK and mainland Europe. Total sales are currently 23% below our last ‘normal’ pre Covid year of 2019.
The lockdown period provided time for reflection on the business and accordingly it went through the ‘Covid rinse’ which is contributing to an improved profit performance in the year ended 30 June 2021. We finessed the product range, had a hard look at staffing levels and improved our digital presence.
With regards to our property portfolio, whilst our initial aim was to defer rent payments to preserve liquidity, the main focus has been on agreeing permanent reductions on rents going forward and one-off discounts for the periods of closure or significantly reduced sales. Sadly, there are still a few landlords who have not engaged at all since the start of the pandemic or who believe that this is purely a problem for retailers to deal with, our property teams continue to do an outstanding job in these negotiations.
Despite the reduced sales, our underlying EBITDA in the financial year to 30 June 2021 will be considerably stronger than pre Covid levels, helped by government support income but more significantly due to measures we have put in place ourselves and the higher profit margin associated with our online sales. We are very grateful for the various types of vital government support received during this difficult period. This has included the Job Retention Scheme in the UK with similar schemes in our global markets, the business rates holiday in the UK (we would love to see this a permanent thing please!) and a Retail, Hospitality and Leisure Grant Fund in the UK. Specific non-staff related measures in other markets include a non-residential tax credit decreed in Italy and a pension payment deferral scheme in Japan whereby contributions could be deferred for a year.
Our improved financial position in 2021 means that there is no reference to ‘material uncertainty over going concern’ in our Audit Report within the financial statements filed this week. We are in a good position to face this next period of uncertainty, having done all we could since the pandemic first struck to conserve cash, mainly through improved profitability in the financial year to 30 June 2021, the postponement of any significant capital investment and negotiations with landlords. We now need to get our sales back to pre-pandemic levels to be able to confidently commit to re-investing.
Our online sales are predicted to surpass £100m in FY21 compared to £46m in our last pre-Covid year of FY19, and accounts for 30% of total sales (compared to 10% in FY19). As the pandemic struck we put a temporary pause on new online orders in some markets whilst we made the necessary changes to our Digital Fulfilment operation in order to make it Covid safe and capable of dealing with the significantly increased order volumes.
The strong sales have been enhanced by additional initiatives such as introducing free P&P over a certain order value, investing in ‘paid search’ in order to protect the brand and drive traffic to our website, personalisation features, introducing subscription boxes such as Fresh & Flowers and Kitchen for our online customers, and the introduction of a new App. In June 2021 we also launched a new website and started selling a selection of kits through online retailer ASOS. We await to see what the new equilibrium will be between physical stores and online when we do return to some normality and our shops are fully open, but do believe that online habits will stick as more customers have now been converted to shopping digitally.
The audit report does contain a qualification in respect of lack of appropriate audit evidence to support the Group share of profit and net assets in our joint ventures in the US and Canada. The Lush Group is continuing discussions on purchasing the remaining shares of the business from our current NA business partners.
We see every moment within our business as an opportunity to leave the world Lusher than we found it. Through buying ingredients, emphasis is placed on land protection, restoration and regeneration through improved practices such as agroecology and agroforestry vs chemically driven monocultures. We continue to actively fight against animal testing through promoting alternative in-vitro testing and push for innovation to combat over-packaging such as the development of ‘naked’ product and the introduction this year of our ‘bring it back’ scheme where customers get 50p towards their next Lush purchase for returning any of their plastic packaging which are then fully recycled at our Green Hub (Lush’s own recycling centre).
Lush worldwide (including all subsidiaries, joint ventures, associates, licensees and franchisees) raised and set aside funds of £8,140,000 (2019: £12,630,000) and donated a total of £8,142,000 (2019: £12,079,000) of funds to charities and other good causes. Funds raised in the year but not donated are carried forward for distribution in the following year. We remain committed to supporting these causes even in a loss making year – the impact the pandemic has had on small grass root groups and charities is huge, so we are happy to continue to support where we can.
Our charitable giving focus remains on innovative, effective giving through support of small, grassroots organisations or campaigning groups working in the areas of environment, human rights and animal protection.
The majority of funds raised in the year were through the sale of Charity Pot body lotion, which is sold in various sizes online and in our shops. This year, Lush globally raised £6,618,000 (2019: £9,801,000) and donated £6,720,000 (2019: £9,194,000) in 36 countries, with 100% of the retail price of the product, less VAT, going to a variety of good causes working in the focus areas.
We expect to see business in Britain, France and Germany continuing to be disrupted by Brexit and are still meeting weekly to sort out the mess it continues to create. At present we don’t anticipate upside for any party.
Lush invents, manufactures and retails fresh handmade cosmetics, such as the fizzing Bath Bomb and solid Shampoo Bars. A beauty company with a campaigning heart, Lush is on a mission to create a product for every need and a cosmetic revolution to save the planet. The ultimate goal is to leave the world Lusher than we found it. Lush operates a strict policy against animal testing and lead the cosmetics industry in combating over-packaging by developing products that can be sold ‘naked’ to the consumer. Today Lush operates in 47 countries with over 900 shops, 38 websites shipping worldwide and a global network of native apps and digital communities in over 30 languages. Lush.com
For media enquiries and interview requests, please contact Karen Huxley in the Lush Press Office on 020 7434 3948 or email [email protected]