Revolution Beauty investigation reveals "serious issues"
An independent investigation into Revolution Beauty by law firm Macfarlanes and accountant Forensic Risk Alliance has found several concerns, including some historical sales and personal loans made by its former CEO.
These issues include "materially larger than normal" orders. Some sales were "only undertaken for the purposes of meeting sales targets for FY22, and not all of the products ordered were required by the distributors at the time," with each of the distributors receiving a request from the group's management and given advantageous and non-standard payment terms.
The investigation also identified concerns with the group's acquisition of Medichem in October 2021, which was wholly owned by Tom Allsworth, Executive Chairman and Co-founder of Revolution Beauty. The business was acquired at an initial consideration of £7 million, later rising to £26 million. The deferred consideration of £19 million plus interest remains outstanding.
In addition, Revolution Beauty's auditor raised concerns about personal loans made by Adam Minto and Tom Allsworth to an employee that appeared to be "unusual and required investigation".
It also identified other personal loans made to a number of senior managers and non-executive directors of the group, as well as loans from Adam Minto and Tom Allsworth to the distributors or their affiliates. As part of this, the investigation flagged loans or other investments of about £1 million to one of the distributors, adding that none of these loans had been disclosed.
Bob Holt, CEO of Revolution Beauty, 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 CFO, and the board, we are committed to addressing past deficiencies so that we can deliver the true potential of this business."
Investigation timeline
As announced on 23 September 2022, the company's auditor, BDO, identified a number of "serious concerns" that had arisen during the course of its work on Revolution Beauty's accounts for the financial year ending 28 February 2022. As a result, BDO was unable to complete its audit, which was due to be published by 31 August 2022.
Following this, BDO recommended the appointment of external advisers to undertake an independent investigation, resulting in the appointment of Macfarlanes and Forensic Risk Alliance. Revolution Beauty also formed an Investigation Committee to lead the process with Macfarlanes and FRA.
In October, Revolution Beauty's Executive Chairman Tom Allsworth and CEO Adam Minto agreed to temporarily step away from the business amid the ongoing investigation.
In November, Adam Minto announced his resignation. Shortly after, Bob Holt OBE was appointed as the group's new CEO. Holt had previously been providing leadership to the business as interim Chief Operating Officer.
In December, Revolution Beauty announced the resignation of Gita Samani and Edward Rumsey as Non-Executive Directors.
What's next?
Revolution Beauty said it is working with BDO to finalise the FY22 audit. The issues identified in the investigation mean that the group now expects a number of material adjustments to the results, in particular in relation to inventory provisioning and revenue.
It is also anticipates that Tom Allsworth will step down from the board prior to the publication of the FY22 accounts.
The group is currently seeking new Non-Executive Directors, with a view to ensuring that the board has the "appropriate skills, experience and balance to provide appropriate challenge to management and the executive team as the group looks to the future".
