Revolution Beauty accounting probe uncovers ‘unacceptable’ issues

An accounting investigation into Revolution Beauty has uncovered a string of serious accounting and management failures. 

After failing to publish its final results for the year ended 28 February 2022, the beauty player’s auditor, BDO, opened an investigation into the accounting concerns.

The report found that co-founders Adam Minto and Tom Allsworth had made personal loans of around £1m to distributors and a senior employee.

None of these arrangements were disclosed to the company's board at an appropriate time.

BDO’s investigation also found serious issues with Revolution Beauty’s acquisition of pharmaceutical company Medichem.

The company was acquired on 26 October 2021 and was wholly owned by Allsworth.

But the probe found that only £7m had been paid on completion, with the deal being worth an estimated £26m.

Revolution Beauty agreed it would pay the remaining sum yearly over the next four years, but it was unable to make its first payment in October 2022.

BDO also raised concerns about sales made to Revolution Beauty’s three key distributors in February 2022, the final month of its full-year accounting period for 2022.

The distributors have not been named, but various discrepancies were identified in the investigation such as the sales volumes, timing, terms and rationale.

This included larger than normal orders placed in February 2022, in each case at the request of Revolution Beauty.

Additionally, sales to one of the distributors accounted for around 56% of all FY22 orders with that company.

BDO stressed that this was a “departure from normal practice”, as the majority of orders were placed in the final month of the financial year.

Derek Zissman, Investigation Committee Chair and Senior Independent Non-Executive Director of Revolution Beauty, said the group has had “material leadership issues”.

He added Revolution Beauty had 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,” said Zissman.

Minto stepped down as CEO in November 2022 during the middle of the company’s accounting probe.

The news came after he had temporarily stepped back from his day-to-day duties while the investigation into the group’s auditing failures was completed.

Two more members then resigned from Revolution Beauty’s board of directors in December 2022.

Gita Samani and Edward Rumsey both resigned as Non-Executive Directors with immediate effect.

The fast beauty retailer has not provided a reason for the duo’s departure.

Revolution Beauty has since been under the leadership of Holt, former Interim Chief Operating, and Chief Financial Officer Elizabeth Lake.

The duo said they have already taken “swift” action to address the historical issues identified in the investigation

The company’s board added that it recognised there is further work to do.

"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,” said Holt.

“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."

Cosmetics Business has reached out to Revolution Beauty for comment.