InnovaDerma PLC

("InnovaDerma" or the "Company")

Interim Results for the 6 months ended 31 December 2021

InnovaDerma (LSE: IDP), a leading digitally focused UK beauty brand developer, announces its unaudited half year results for the period ended 31 December 2021.

Financial Highlights

¹ See note 2.3 for a description of the prior year restatement.

² On a constant currency basis

³ Adjusted EBITDA defined as EBITDA before non-recurring items, including impairments, abortive and restructuring costs. A reconciliation of adjusted EBITDA can be found in note 5 below.

Operational Highlights

Our strategy of driving increased profitable sales through gross margin improvement, radical simplification of business operations, rigorous cost control and the prioritisation of our Skinny Tan brand, is working.

Financial performance is markedly improved vs H1 2020. Our previously announced strategy has been implemented with a disciplined approach to marketing and overhead costs.

Short-term impact on revenue (revenues of c. £3.7m versus H1 20: £4.1m) primarily driven by ceasing loss-making sales promotions and reducing marketing investment in lower priority brands such as Nuthing.

Adjusted EBITDA improved significantly to £0.7m loss (H1 21 restated: £1.2m loss).

We have further improved our return on marketing spend to 38.1% (H1 21: 40.0%, H2 21: 39.2%) and have reduced less-efficient marketing spend during the low tanning season to ensure we have the right ammunition to maximise returns over the peak H2 tanning season (UK + US).

Our Liberty Poole collaboration continues to yield benefits and is helping to increase the share of our business in the key 18-25 age group.

Global Amazon relationship already delivering material sales in lead UK market at a healthy margin.

Enhanced e-commerce operational excellence with 76% of customers giving Skinnytan.co.uk 5 stars.

Joint venture agreement signed in December 2021 to accelerate sales of the Prolong medical device, with InnovaDerma plc retaining 45% stake in the business, and enabling the Group to focus on its topical products.

Outlook

The Board remains optimistic that the transformation plan enacted this year, as well as underlying improved consumer consumption and retail momentum versus last year will enable the business to continue its improvement trajectory over the second half year with a return to profitability this year remaining the Board's intention. The second half of our financial year has historically been considerably stronger than the first, driven by Skinny Tan in the UK, and this is expected to be the case again this year.  We continue to closely monitor residual impacts of COVID-19 and other global impacts on underlying beauty category consumption and we believe they will continue to improve towards the peak tanning season in the UK. 

Blake Hughes, CEO InnovaDerma plc, commented:

"We continue to make good progress in simplifying and reshaping our business as we focus on delivering sustainable, profitable revenue growth. It is pleasing to see that our strategy is delivering tangible financial improvements.

"We have a strong foundation for the second half of the year, especially as the focus on Amazon and our Liberty Poole collaboration are delivering strong benefits, even before peak tanning season. This will be supported by our well-honed digital capabilities and conversion optimised e-commerce site and exciting new Skinny Tan product launches which have already received excellent retailer support."

Further enquiries

Non-Executive Chairman's statement

I am pleased to deliver the Company's interim results for the period ended 31 December 2021.

The Company's change in strategy, to concentrate on driving increased profitable sales, ceasing loss making promotions and prioritising Skinny Tan, has been endorsed by the improvement in the Company's operating performance for the six months to 31 December 2021, as outlined in the Trading Update issued on 12 January 2022 and in the interim results announced today.

I am pleased to be able to report an improvement in gross margin, EBITDA and EPS.

Strategic report: Chief Executive's report

As previously detailed in our annual results published in December, the Group has implemented a number of necessary operational and financial interventions to transform and future-proof the business. The action plan focused on:

Our business is only as strong as our people and how they collaborate as a team. The focus remains to ensure that we have the right people, in the right country, with the right skills, focused on the right targets and powered by the right mindset.

During H1 21 we have significantly reduced the EBITDA loss versus the prior year, with a laser-like focus on improving gross margins, reducing non-productive inventory, cutting low return costs and introducing real time accurate financial profitability metrics.

Skinny Tan is our flagship brand and number one priority. Despite its ongoing success there remain significant profitable growth opportunities when compared to successful global beauty brands. Given the effects of the pandemic we have further strengthened our e-commerce foundations in the UK market, through the previously untapped potential of Amazon as a key driver of future profitable growth.

Our enhanced brand architecture and new packaging is rolling out on priority brands Skinny Tan and Charles + Lee, and we expect both to enhance the consumers' online and instore shopping experience. Initial consumer and retailer reaction to the new packaging, as well as our new product innovations for 2023, has been extremely positive..

We now have in place a modern, nuanced digital marketing strategy that leverages the full gamut of digital media. As well as our expertise in social media advertising, the model now includes a strong focus on cost-effective e-mail marketing and high-return influencer marketing, all supported by a conversion optimised e-commerce site.

Our performance

Our strategy of driving increased profitable sales through gross margin improvement, radical simplification of business operations, rigorous cost control and the prioritisation of our Skinny Tan brand, is working.

Skinny Tan is the Company's largest brand (84% of revenue) and highest priority future growth driver. The previously communicated strategic decision to move away from certain loss leading sales led to a reduction in sales but is consistent with the Group's strategic focus on longer-term profitability. Amazon is now the Company's 3rd largest retailer, with further significant future growth anticipated as we enter the peak tanning season. This sales channel is becoming increasingly significant whilst allowing us to achieve a healthy margin.

Charles + Lee has shown excellent retail sales growth though revenues of c. £0.3m remain slightly below last year (H1 20: £0.4m) with the difference driven by shipment phasing. Positioned around 'No-nonsense, high-performance Aussie-made male grooming' we are successfully focusing the brand at the entry premium tier, adjusting pricing up c.10%, and with excellent growth potential.

Investment in Roots and Nuthing has been deprioritised as we focus on Skinny Tan and Charles + Lee as the Company's priority growth brands.

As previously announced, the Company entered into a Joint Venture for the Prolong brand in Dec 2021. Prolong revenues prior to the partnership agreement are included in our consolidated figures. Revenues after the partnership agreement are excluded from our consolidated figures and from future forecasts, however, InnovaDerma will directly benefit from any future dividends which are paid by the Joint Venture and/or any proceeds achieved by a future sale of the business.

Financial review

The Group has reported an increased gross profit of £2.1m, up 3.1% compared to the same period in the prior year, despite a decrease in revenue of 9.5% versus the previous year. This is due to a gross margin improvement of 690 basis points to 56.3% as the Group continues to focus on profitable sales, rather than revenue generation at the expense of profits.

Marketing efficiency continues to improve, to 38.1% (H1 21: 40.0%, H2 21: 39.2%), as the Group diversifies its digital strategy, including a strong focus on cost effective e-mail marketing and a conversion optimised e-commerce site, that goes beyond a pure Facebook play.

Adjusted EBITDA improved to £0.7m loss, as compared to £1.2m loss in the same period in the prior year, as a consequence of improved gross margin, diversified marketing strategy, greater recovery of e-commerce delivery costs, and tighter overhead cost control.

Cash

Cash reaches a seasonal low at the half year as we invest in appropriate levels of inventory ahead of the peak Skinny Tan UK sales peak months in H2. We reached this position at 31 December 2021 with cash at hand of £1.3m (H1 21: £0.15m), less structured, low-cost borrowings of £1.2m repayable in 2-5 years. The prior year cash position was achieved via extreme creditor position which precipitated the H2 21 fundraise.

Previous ad hoc funding, including seasonal invoice factoring, deferred VAT (COVID-19), and HMRC repayment plans, have been replaced by a single CBILS loan of £950k drawn down in full on 2 July 2021.

Dividends

The Board has elected not to declare an interim dividend.

Directors' report: Directors' responsibility statement

The Directors confirm that this condensed, consolidated interim financial information has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union, and that the half year management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

Unaudited consolidated statement of comprehensive income

For the six months ended 31 December 2021

¹ See note 2.3 for a description of the prior year restatement.

Unaudited consolidated Statement of Financial Position

As at 31 December 2021

¹ See note 2.3 for a description of the prior year restatement.