Revolution investigation finds number of wrongdoings
The independent investigation into Revolution Beauty has revealed several concerns about the running of the company, including over historical sales, methods of inventory provisioning and personal loans made by a former CEO.
Revolution’s shares were suspended in September 2022 after it twice failed to post its annual results and has since been the subject of an investigation by law firm McFarlanes and accountancy Forensic Risk Alliance.
The company’s auditor, BDO, wrote to the board of Revolution on September 21 highlighting a number of serious concerns that had arisen during the course of its work on the audit of the accounts for the 2022 financial year (ending 28 February 2022).
The findings highlighted concerns related to Revolution’s acquisition of Medichem, a pharmaceutical company wholly owned by Tom Allsworth, who is an executive chairman and co-founder of the beauty brand. It was revealed that outstanding payments to Medichem of £7m had still not been fulfilled.
Issues were also raised over sales made to three key distributors in February 2022, relating to the sales volumes, timing, terms and rationale for the sales to each of the distributors.
According to the report, materially larger than normal orders were placed by each of the distributors in February 2022, in each case at the request of Revolution Beauty. It also found that the majority of sales to the distributors took place in February, the final month of the financial year, a departure from normal practice.
It was also found that from July 2021, Tom Allsworth and Adam Minto, co-founder and former CEO, made personal loans or other investments of approximately £1m to one of the distributors, while in January 2022 Minto also provided a personal loan of £0.3m to another distributor. These arrangements were not disclosed to the company’s board at the relevant time.
The investigation concluded that these sales were only undertaken for the purposes of meeting sales targets for the 2022 financial year, and not all of the products ordered were required by the Distributors at the time. It was also revealed that each of the Distributors ordered the products following a request from the company’s management at the time and obtained advantageous and non-standard payment terms.
The investigation also found that personal loans were made by Allsworth and Minto to a number of senior managers of Revolution, which were also not disclosed to the board.
Since its May trading update, Minto, amongst others, has resigned from the board, with several senior managers leaving the business. Bob Holt was appointed as CEO in October 2022 and Elizabeth Lake became the company’s CFO in May 2022.
Tom Allsworth has also taken a step back from the day-to-day running of the business.
Derek Zissman, investigation committee chair, deputy chairman and senior independent non-executive director of Revolution Beauty said: “It is clear the Group has had material leadership issues, and failed to meet the standards required of a UK plc. Under new CEO, Bob Holt, we have already begun taking action to ensure we have strengthened processes and the right team in place to deliver the true potential of Revolution Beauty for our shareholders, employees and all our stakeholders. Over the coming months we will be taking further steps to implement change and take the company forward.”
In November, boohoo upped its stake in Revolution, now controlling 26.47% of the business’s share capital.