("InnovaDerma" or the "Company")
Interim Results for the 6 months ended 31st December 2020
InnovaDerma (LSE: IDP), a leading UK developer and supplier of beauty, personal care and life sciences products, announces its unaudited half year results for the period ended 31 December 2020.
· NEW INNOVADERMA: Organisation and business strategy transformation elements in place.
o Blake Hughes joined as CEO in November bringing over 20 years of beauty brand building experience from both blue chip FMCG and high growth entrepreneurial businesses.
o Reconstituted, UK based, digitally focused Board.
o E-commerce focus expected to deliver sustainable and profitable growth.
· As previously announced, COVID-19 materially affected our performance, with tighter social mixing restrictions, particularly in the UK, leading to a sustained reduction in category consumption.
o Category consumption expected to significantly improve as restrictions ease and as peak tanning sales season begins in the UK over April to June.
· Strong growth in key international markets, US and Australia.
o Direct-to-Consumer Skinny Tan brand expansion model is proven in three continents.
o Strong growth and repeat purchase for Charles & Lee in Australia confirms that the brand is ready for international expansion.
· New Product Development ("NPD") performance has been strong.
o Successful launches of Skinny Tan Notox Beauty Elixir and Strawberry & Cream Pink Whipped Gradual Tanner on our UK DTC platform in December.
o Notox Beauty Elixir sold at full retail price and was our best-selling item.
o Skinny Tan is well positioned with a strong roster of new products and product extensions to be launched during 2021.
· Microsoft Business Central ERP system implemented across the group globally.
o Allowing real time, multi market, financial visibility to ensure we can rapidly adapt to market and consumer demands.
· The Company is well placed to exit from the pandemic as a financially stronger business, with a more compelling proposition and moreover, with a clear road map for future profitable growth.
· Revenue adversely impacted by COVID-19, declined by 19.0% to £4.1m.
· Gross profit margin declined to 49.9% reflecting a continuation of the COVID-19 impacted mix trend from the second half of last financial year (Jan-June 20: 51.3%).
· Profit before Tax and non-recurring items declined to (£1.0m) (H1 19: (£0.3m)).
· £0.2m net cash position as at Dec 31 2020.
Profit / Loss before tax and non-recurring items**
Basic EPS (pence)
Net cash / (debt)***
* On a constant currency basis
** Non-recurring items include impairments, abortive and restructuring costs
*** Since period end the Company has announced a Placing to raise £4.0m and an Open Offer to raise a further £0.5m (Prospectus expected to be published in early April 2021 and general meeting in mid-April)
The macroeconomic environment is set to remain uncertain for the remainder of the financial year. Whilst the Government's reopening road map has been published, and vaccination rates are promising, the exact speed of a return of consumer category consumption, particularly in tanning, will only be known over the coming months as we enter peak tanning season in the UK. We remain confident that historic consumption levels will return quickly as restrictions on social interactions are lifted and that InnovaDerma will emerge from the pandemic a stronger, more digitally agile business with the right leadership to compete and win in the digital commerce world of today. Indeed, in the UK, 39% of consumers aged 18-34 plan to buy beauty products to celebrate the end of lockdown (The NPD Group/Covid-19 Study).
With the benefit of the previously announced fund raise the Company will close the financial year with a much-improved cash position, with sufficient capital to fund investment, and this, coupled with a sharpened digital and consumer led strategy, will enable InnovaDerma to benefit from the substantial growth opportunities anticipated for 2021 and beyond.
Blake Hughes, Chief Executive Officer, commented:
"There is no doubt that the impact of COVID-19, and its associated restrictions, has had a material impact on the Company's performance in 2020. In the tanning category the decreased social interaction has led to a marked decline in category usage, especially in the UK.
I do believe though that there are many reasons to be very positive about 2021 and beyond. The entrepreneurial foundations of the business are strong with key strengths in new product development and digital marketing. In the UK we do expect tanning consumption to return to historical levels as restrictions ease. Moreover, as Skinny Tan continues on its growth trajectory in international markets such as the US and Australia, we will be able to demonstrate both the international potential of this brand and our E-commerce model. Finally, the initial consumer reaction to our new products for 2021 has been excellent.
This challenging period for the business has led us to sharpen our strategic focus and to review our overall operation. The "NEW INNOVADERMA" will be built on the Company's historic brand focused foundations supported by improved organisational and financial leadership that is required to win in the digital e-commerce driven world which we live in today. We are confident that we will emerge from the pandemic as a financially stronger business, with a road map for sustained future growth."
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Geoff Nash/Kate Bannatyne
Alice Lane - Corporate Broking
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I am pleased to present my first statement as Chairman, having been appointed in January 2021. The underlying performance of the Company during the period under review was negatively affected by the continued impact of COVID-19 and tighter restrictions imposed in the UK particularly over the festive season. As a result, the cash position of the Company was materially impacted.
Over the last few months, the Company has changed substantially, reconstituting its board so that it is now entirely UK based, appointing Blake Hughes as CEO and significantly strengthening the management team, including the appointment of Andrew Dunderdale, FCA, as Group Finance Director. Andrew was previously the London Finance Director at AIM-listed digital marketing group Be Heard Group plc. Prior to this role, Andrew spent seven years at the advertising conglomerate, WPP plc. These changes have been made to ensure the Company has the digital, commercial and beauty sector expertise to drive profitable and sustainable growth.
Since joining, Blake has implemented a programme of significant change across the organisation, ensuring that the Company is focused on the areas that will drive both immediate and substantive performance improvements whilst also allowing the Board to start building the foundations for future growth. Changes have been implemented to the Company's logistics and technical platforms, which are already leading to an improvement in customer service. Google and Facebook digital marketing experts have been engaged to ensure that the Company is utilising its digital marketing spend more effectively, and the Company's primary Skinny Tan UK website is being improved in March.
New product development is key to InnovaDerma's future growth plans and I believe we now have the right structure and processes in place to support this area. A key focus will be to move the Company's brands (existing and new) away from being primarily promotion and discount led to having a more balanced innovation and value focus which we believe will improve gross margins.
The Company is also implementing a range of profit, cash and gross margin protection measures including introducing strong overhead cost reductions, operating with lower year-on-year inventory, increasing marketing and promotional hurdle rates, and lowering the cost to digitally target existing customers.
Post the period end, the Company announced a £4.0m Placing and an Open Offer to raise up to a further £0.5m. The proceeds will enable the Company to accelerate its global Direct-To-Consumer strategy through capital investment in its e-commerce infrastructure and operational capacity as well as strengthening the balance sheet.
I believe we now have a "New InnovaDerma" in place and as the restrictions on movement, implemented as a result of COVID-19 begin to ease and with the new management team in place, I am excited about the opportunities for the Company for the rest of 2021 and beyond.
Ross M Andrews
CEO Strategic Review
During my first 100 days in the business, I have conducted a strategic review of our business and global operations. The objective has been to unlock sustainable, profitable growth and thereby deliver enhanced shareholder value. The review covered strategic, operational, financial and organisation aspects of the business with input and insight from both within the Company as well as external stakeholders.
Today I am happy to report the broad elements of our action plan coming out of the review. This action plan will form the basis of our future growth strategy and the key building blocks of our multi-year financial framework. This plan will focus on delivering Sustainable, Profitable Growth, built on foundations of a clear set of strategic choices and transparency of financial management and accounting, to deliver enhanced shareholder value.
Sustainable, Profitable Growth
The statement above is key to our focus for moving forward. The Company's new ERP system will provide the real time sales, gross margin and cost expenditure insight which will flow into operational and organisational KPIs. Gross margin will be of particular focus with greater process and controls of promotional strategy and hurdle rates already leading to stronger product gross margin results. In addition, our new UK based Group Financial Director, Andrew Dunderdale, will lead an impairment review exercise on certain intangible items on the balance sheet to reflect the impact of Covid-19 and recent trading. This impairment is likely to be substantial but will have no material impact on the Company's prospects, trading outlook or working capital position. The Board expects to conclude this review ahead of the current financial year end.
Our key 'Where to play' choices:
We are an E-commerce led business
E-commerce includes both our own Direct-to-Consumer operation as well as winning with winning third party E-commerce sites, with Amazon being a particular opportunity. Physical Retail will continue to have a complimentary impulse role and will naturally benefit from our digital marketing investment.
Skinny Tan is our #1 brand and still has substantial growth potential
We are focused on developing global brands. Skinny Tan has already proven its potential across three continents but still has growth opportunities in our home UK market, our expansion markets, Australia and US, as well as future white space expansion opportunities in Europe and North America. Moving forward we will incubate our newer brands in their primary markets until there is proven performance and a strong financial case for expansion. Charles and Lee will be the next brand we start to expand globally. Finally, we will launch a specific review into how to maximise shareholder value from the Life Sciences portfolio and we will provide our findings later this year.
Our key 'How to win' choices:
The right team, with the right skills, in the right location
I am happy to report that a lot of this is now in place. A refreshed and digitally focused UK based Board and CEO, complimented by recently appointed UK based Group Finance Director, will provide the strong leadership to transform the business. This leadership team will nurture and develop the entrepreneurial culture whilst installing a data analytics backbone to unleash the individual and collective potential of the organisation.
Optimise our E-commerce Customer Journey and Experience
The entire customer journey has been mapped to deliver a multi-stage improvement roadmap. Starting with the priority brand Skinny Tan, every step of the performance funnel is being optimised. Google and Facebook digital marketing experts have been engaged to further strengthen and systematise the digital marketing funnel which is already delivering improvements in profitability. Changes have been implemented to the Company's logistics and technical platforms, which is already leading to improved customer service. There will also be functional and creative improvements to the web site experience rolling out across the coming months.
Strong Consumer Insight Driven Brands
In an e-commerce focused world, having a robust and inspiring brand strategy is the most important foundation. The 360-degree review has focused on distilling the brands to their core, articulating how they are unique and ensuring this is brought to life at every consumer touch point. Core pillars of cruelty free and vegan friendly will be augmented by an accelerated sustainability focus. We will also build further on the Company's strong innovation track record with multi-year innovation pipelines and simplified overall brand architecture for all brands.
Enhanced Shareholder Engagement
Having a UK based Board and executive leadership will benefit not only our UK business but also our UK investor community. We will be listening to investors and aiming to ensure that the Company strategy and financial performance are transparent and well understood. We remain very grateful for our continued strong shareholder support.
The continued impact of COVID-19 and tighter restrictions imposed in the UK, particularly over the important festive season, has affected our performance.
Net revenue for the period was £4.1m, a decline of 19.6% on the prior year (H1 19: £5.1m). A decline in UK sales H1 20: £2.9m (H1 19: 4.3m, down 32.3%), was partially offset by encouraging growth in our key international markets H1 20: US £0.4m, (H1 19: £0.3m, up 17.4%); and Australia £0.8m, up 52.1%) led by Skinny Tan. Both Retail as well as Direct-to-Consumer ("DTC") sales have been impacted by a reduction in beauty category consumption, particularly in the tanning category, due to COVID-19 restrictions. We expect the tanning category consumption to significantly improve as COVID-19 restrictions ease, and moreover as we enter the peak tanning season from April to June.
Skinny Tan sales have declined across both Retail and DTC to £3.4m (H1 19: £4.4m, down 23.9%). Both channels have been severely impacted by the reduction in consumer consumption of the tanning category as mentioned above. However, the launches of Notox Beauty Elixir and Strawberry & Cream Pink Whipped Gradual Tanner have been very successful on our UK DTC platform in December. Notox Beauty Elixir was sold at full retail price and was our best-selling item. Skinny Tan remains well positioned to perform with a strong roster of new products to be launched during 2021.
Charles & Lee continued to grow and show its scale potential in Australia across both Retail and DTC, H1 20: £0.3m, (H1 19: £0.2m, up 50%), despite the pandemic. Key drivers have been new product introductions as well as a very successful Retail multipack promotion, particularly in Myer and David Jones. The brand was launched in the UK through our DTC channel last year and we will further expand the brand internationally in 2021.
Roots revenues declined 29.1% H1 20: £0.3m, (H1 19: £0.4m) due to its predominant UK Retail focus. The new brand packaging is now started rolling out in the UK and the pricing repositioning has been completed in Boots with Superdrug happening over the coming months.
Nuthing sales have been subdued as the UK hair removal category is very reliant on physical Retail and has been severely impacted by category consumption decline. The 2020 brand launch coincided with the UK March lockdown and we are therefore planning further instore enhanced visibility over 2021. The Nuthing Black Cherry & Kiwi scented hair removal Wax Strips, our first product in the largest hair removal category, launched February 2021 in Superdrug.
Life Sciences revenues remain relatively modest and the Board is focusing on the US market while we await CE accreditation which has been delayed by Covid-19.
Impact of the COVID-19 pandemic on the beauty sector
COVID-19 has had a profound impact on the beauty sector, affecting both short term sector consumption levels as well as where and how consumers shop.
From a category consumption standpoint, countries that have been hardest hit by COVID-19, and have thereby also suffered more from lockdown/ social interaction restrictions, have seen their beauty category consumption hardest hit. For example, Prestige Beauty Sales in the UK have declined 24% in 2020 (The NPD Group/Covid-19 Study), with bricks and mortar sales declining 44%.
From a shopping standpoint, the trends witnessed in previous years have accelerated during the pandemic. This includes the growth of online sales, the importance of a multi-channel retail approach, and the influence of social media on a consumer's path to purchase.
Whilst the short-term sales outlook for the beauty sector remains depressed, the Board believes that the long-term attractiveness of the global beauty industry remains. Not only has it historically grown steadily, it has consistently created generations of loyal consumers.
Although the impact of the COVID-19 is significant, there are signs that the beauty industry will prove relatively resilient. As the vaccine roll out in the UK progresses, and social interaction restrictions ease, the Board expects historical levels of category consumption to return.
The Group has reported a decrease in revenues of 19.0% compared to the same period in the previous year. A decline in the UK business, impacted strong by COVID-19, was somewhat offset by the strong performance of the Australia and US Direct-to-Consumer ("DTC") business as well as Charles and Lee retail. The DTC channel continues to be the priority focus and accounted for 62.4% of total revenues in the period under review. The Company generated a loss before tax of £1.0m (H1 19: loss of £0.3m) before non-recurring items.
Group gross margins declined over the period to 49.9%, a decrease of 1080bps versus prior year, reflecting a continuation of the trend performance from the COVID-19 impacted second half of last financial year (H2 20: 51.3%). Similar to H2 last year the decline was driven by mix changes including reduced UK retail sales and a higher proportion of US and Australian DTC sales which have higher shipping costs.
Overall marketing expenditure totalled £1.6m (H1 19: £1.7m), a decrease to the previous period of £0.1m. The reduction was driven by lower digital marketing costs which flexed lower reflecting the decrease in DTC sales in the UK due to reduced overall category consumption. The Company's customer lists continue to grow but no further additions have been made to the intangible asset register ahead of the previously announced impairment review exercise which will conclude ahead of the current financial year end.
The Group continues to control wage and salary costs which were (4%) to prior year excluding exceptional items.
The Group has used the reported results to estimate the tax expense which has been reflected in the Consolidated Statement of Profit and Loss. The Group carries a Deferred Tax asset which has been calculated to reflect movements in the income tax expense.
Cash and net debt
The Group carried a cash balance of £0.2m (H1 19: £0.4m) at the end of the reported period as against an opening balance as at the 1 July 2020 of £1.2m. The reduction in cash during the period was the result of lower than expect sales as a result of continued COVID-19 impact and consumer restrictions on on-going operations, primarily in the UK.
In January the Company entered into a loan agreement in the amount of £0.5m with M. Ward, a Non-executive Director and the largest shareholder. In addition, the Company announced on 20th January 2021 a fundraising comprising the Placing, which was oversubscribed, and the Open Offer to raise up to approximately £4.5 million. It has also been agreed that following shareholder approval of the Placing, the obligation to repay the £500,000 loan facility provided by M. Ward will be satisfied by the issue of Placing Shares to him. The net proceeds of the Placing and Open Offer are intended to be used to strengthen InnovaDerma's balance sheet, provide capital to accelerate the Company's global Direct-To-Consumer strategy and to enhance its e-commerce infrastructure and operational capacity.
The Board also previously announced in January that the Company will be undertaking an impairment review exercise on certain intangible items on the balance sheet. This impairment is likely to be substantial but will have no material impact on the Company's prospects, trading outlook or working capital position. The Board expects to conclude this review ahead of the current financial year end.
The Board has elected not to declare a dividend at this time.
The names and functions of the Directors of the Company are as follows:
Ross Andrews Non-Executive Chairman
Blake Hughes Chief Executive Officer
Mark Ward Non-Executive Director
Simon Pyper Non-Executive Director
The Board confirms that to the best of its knowledge the condensed set of financial statements gives a true and fair view of the assets and liabilities, financial position and profit of the Group and has been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by the Disclosure and Transparency Rules as issued by the Financial Conduct Authority, namely:
· DTR 4.2.7: An indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year.
· DTR 4.2.8: Details of related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the enterprise during that period. Together with any changes in the related parties' transactions described in the last annual report that could have a material effect on the enterprise in the first six months of the current financial year.
By order of the Board
Non-Executive Chairman 31 March 2021
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE 6 MONTHS YEAR ENDED 31 DECEMBER 2020 - Unaudited
Earnings per share
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020 - Unaudited
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 December 2020 - Unaudited
Ordinary Share Capital
Foreign Exchange Reserve
Accumulated Earnings/ (Losses)
Balance as at 30 June 2020
Profit for the period
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, in their capacity as owners
Foreign exchange differences on translation of foreign denominated subsidiaries
Increase holding in Skinny Tan AU
Cost of Warrant
Cost of shares issued
Total transactions with owners, in their capacity as owners
Balance at 31 December 2020
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD 1 July 2020 TO 31 December 2020 - Unaudited
Half Year ended 30 December 2020
Half Year ended 30 December 2019
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Net cash used by operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Payments for product development
Payments for intangibles
Net cash paid on acquisition of subsidiaries
Net cash used by investment activities
Cash flows from financing activities
Proceeds from issue of shares
Repayments of borrowings
Payments for convertible notes
Transaction costs for shares issued
Net cash from financing activities
Increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of movement in foreign exchange rates
Cash and cash equivalents at the end of the period
Notes to the unaudited interim financial report
1. Basis of preparation
The interim financial statements for the six months ended 31 December 2019 and 31 December 2020 and for the twelve months ended 30 June 2020 do not constitute statutory accounts for the purposes of Section 434 of the Companies Act 2006. The Annual Report and Financial Statements for the year ended 30 June 2019 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 30 June 2020 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006. The 31 December 2020 statements were approved by the Board of Directors on 30 March 2021. This unaudited interim report has not been audited or reviewed by auditors pursuant to the Financial Reporting Council guidance on Review of Interim Financial Information.
The condensed financial statements in this Interim Report have been prepared in accordance with the requirements of IAS 34 'Interim Financial Reporting' as adopted by the European Union.
As required by the Disclosure and Transparency Rules of the UK's Financial Conduct Authority, the condensed set of financial statements has been prepared by applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 30th June 2020, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
The condensed interim financial statements for the six months ended 31 December 2020 and the comparative figures for the six months ended 31 December 2019 are unaudited. The figures for the year ended 30 June 2020 have been extracted from the Annual Report on which the Auditors issued an unqualified audit report and which have been filed with the Registrar of Companies.
2. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
Six months ended
Net profit from continuing operations before tax attributable to the equity holders of the parent company
3. Related party transactions
Kieran Callan, former Chief Executive Officer of InnovaDerma plc, in the period received termination payments totalling £107,640. At the period end, £nil was due to Kieran Callan.
As at the 31 December 2020, the ordinary share capital of InnovaDerma PLC consisted of 14,496,633 shares, with a nominal value of EUR0.10 each. The Company announced on 20th January, 2021 a fundraising comprising the Placing, which was oversubscribed, and the Open Offer before fees and expenses. Pursuant to the Placing and the Open Offer the Company has issued 2,897,000 ordinary shares and proposes to issue a further 9,981,040 ordinary shares of EUR0.10 each in the capital of the Company.
This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and operating margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is based on information available to InnovaDerma as of the date of the statement. All written or oral forward-looking statements attributable to InnovaDerma are qualified by this caution. InnovaDerma does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances.