- Confidential settlement reached
- Chrysalis gets ‘non-material sum’
- FCA investigation still ongoing
Shares in Revolution Beauty (REVB:AIM) soared 16% to 16p after the unloved cosmetics company agreed a settlement with disgruntled former shareholder Chrysalis Investments (CHRY).
Investment trust Chrysalis had previously threatened legal action against Revolution Beauty, alleging the makeup-to-skincare products purveyor had misled investors.
A full-blown court case could have knocked Revolution Beauty for six if found guilty, but this overhang has now been settled for a ‘non-material sum’.
NO MATERIAL IMPACT
A former shareholder in the beauty products seller, growth capital trust Chrysalis has entered into a ‘settlement agreement’ with Revolution Beauty, which will pay a sum said to be less than 1% of the Chrysalis market capitalisation.
Back in April, Chrysalis said it had issued legal claims against Revolution Beauty for a total of £45.2 million as it was not satisfied with the ‘limited responses received from Revolution Beauty and its legal advisers’ up to that point.
In today’s (2 January) statement, Revolution Beauty stressed Chrysalis ‘did not subsequently, and has not, filed any claim with the court.’
It added: ‘Revolution Beauty and Chrysalis have now reached a confidential settlement without any admission of liability by either party. Chrysalis will not proceed with any claim against the company. The company has agreed to pay Chrysalis a non-material sum which will not have a material impact on the company’s financial and cash position.’
NEW YEAR TO BRING SOME CHEER?
Backed by fast-fashion firm Boohoo (BOO:AIM), Revolution Beauty swung from a pre-tax profit of £400,000 to a £10.9 million loss after a one-off stock provision during a transitional half to August 2024, in which revenue dipped 20% to £72 million.
However, the Lauren Brindley-led beauty brand highlighted encouraging progress in its underlying profitability driven by cost savings and margin gains, and should see the benefits of significant new distribution with heavyweights including Walmart (WMT:NYSE) and Amazon (AMZN:NASDAQ), as well as Boots and DM Germany in 2025.
EXPERT VIEWS
Panmure Liberum pointed out that with Chrysalis being one of Revolution Beauty’s biggest investors at the time of its 2021 initial public offering (IPO), the settlement ‘draws a line in the sand for any similar claims as they are unlikely to be worthwhile.’
The broker added: ‘While there is still an ongoing FCA investigation, the settlement with Chrysalis makes the investment case much simpler at a time when the business is turning a corner with sales expected to return to growth from the fourth quarter of 2025 and free cash flow generation expected in full year 2026.’
Russ Mould, investment director at AJ Bell, said: ‘Revolution Beauty is not out of the woods just yet. It is still subject to an investigation by the FCA around potential market abuse that began in July 2023. The fact this is still ongoing is cause for concern. It means that Revolution Beauty’s management team cannot focus their entire attention on the company’s turnaround programme.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
