IDP.L Regulatory News (IDP)

InnovaDerma PLC

("InnovaDerma", the "Company" or the "Group")

Unaudited Half Year Results for the six months ended 31 December 2017

InnovaDerma (LSE: IDP), a UK developer of life sciences, beauty and personal care products, is pleased to announce its unaudited half year results for the period ended 31 December 2017.

The Company has made considerable progress, both in terms of revenue growth and new product development across multiple categories which it believes will create additional revenue channels and substantial profitability in the second half of this financial year, and therefore the Board remains confident in meeting market expectations for this financial year.

Financial Highlights

· Group revenue grew strongly by 31% to £4.2m (HY2016: £3.2m) driven by the continued growth of both the Direct to Consumer ("DTC") and retail channels

· Gross profit increased by 20.6% to £2.22m (HY2016: £1.84m)

· Loss before tax of £0.03m (HY2016: £0.15m) due to planned investment in people required to support international growth, and pre-launch product development expenses

· Successful fundraising of £4.4m before expenses, to support growth in the UK, Australian and US markets

· At 31 December 2017, the Group carried a cash balance of £2.05m (31 Dec 2016: £0.21m)

Operational Highlights

· Very successful launch of the new hair loss treatment and hair care brand, Roots Double Effect ("Roots") in the UK, both within DTC and Retail channels during Q1

· Successful launch of the men's skincare brand Charles + Lee into Australia's largest department store, Myer, with further product development underway, expanding on the existing product lines

· Significant expansion in the makeup brand StevieK Cosmetics with an additional 50 Stock Keeping Units ("SKUs"), taking the total range to 70 SKUs with the brand expected to be launched into multiple regions prior to the year end

· Skinny Tan brand's transition from self-tanning into a beauty brand progressed further with the launch of multiple new brand and product extensions

· Successfully launched Skinny Tan in Ireland through Boots, McCabe and other retailers and secured the launch in France through Sephora Online

· Growing DTC platform across multiple brands driving financial performance, attracting new customers and removing over-reliance on retail chains for growth

· Appointed Senior Vice President for North America to drive distribution throughout North America for multiple brands

Post Period End and Outlook

· Strong start to the second half of the year, especially for Roots which is experiencing on-average 15% week-on-week growth in revenue since mid-December

· While Skinny Tan continues to perform well, on the current growth trends both in retail and DTC, the Company believes that Roots will contribute a material level of revenue in the current financial year

· Successfully developed EnBright, its skin brightening & anti-ageing range portfolio, to launch into multiple Asian markets in the next financial year

· High degree of focus on product and inventory planning to cater for significant demand expected in both UK & USA in H2

· Campaign for Prolong™'s simultaneous launch in the US and Australia planned for Q4 of this financial year. This product is an integral part of the Group's Life Sciences division and is expected to create an incremental revenue channel

· Launch of Hair MD™' into the US planned for H2

· Revenue and profits are expected to grow considerably in the second half of the year driven by the aforementioned strategic initiatives, the fast-growing DTC platform, peak tanning season, impressive growth of Roots and further expansion in the UK, Europe and US

Haris Chaudhry, Executive Chairman said

"The Board has undertaken a number of strategic initiatives to ensure the business has a strong platform for significant growth in 2018 and beyond, and these are already beginning to bear fruit. Our fast-growing product portfolio, improved supply chain and the recent addition of a highly talented and experienced senior management team for key markets are expected to deliver marked improvements across the business. With good momentum behind the key brands and significant orders expected, the Board remains confident in meeting market expectations for this financial year.

"I am pleased with the initiatives that we have taken to progress further our core brand Skinny Tan from self-tanning into a beauty brand and in the very successful launch of Roots, both of which are expected to deliver marked improvement in revenues during this half year. We are confident in our immediate and long-term prospects and of emerging as a fast-growing international business with a diverse portfolio in the beauty, life sciences and personal care space."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

Further enquiries

About InnovaDerma:

InnovaDerma PLC (LSE: IDP) specializes in the research, manufacture and marketing of clinically proven products in life sciences, beauty and personal care products. InnovaDerma has presence in Europe, US, Australasia, Asia and Africa. 

www.innovaderma.com

Executive Chairman's Review

Introduction

I am pleased to present our half-year results for the period ended 31 December 2017. This has been a period of considerable progress for the Company and we have taken a number of strategic actions to ensure we have strong foundations for growing our core brand Skinny Tan, diversifying our product portfolio and expanding our international presence. Group revenues grew strongly to £4.2m, representing an increase of 31% on the previous year, driven by the continued growth of Skinny Tan in the UK and DTC sales. The Group reported a loss before tax of £0.03m (HY2016: £0.15m) as a result of planned investments made in strengthening our personnel, developing and launching multiple new brands and brand extensions which are critical to the future growth of the business. In addition, we are phasing out old packaged Skinny Tan inventory making way for a single form global packaging design.

Skinny Tan

Skinny Tan has continued its upward trend in growth, both in DTC where the average number of orders have increased from 10,000 per month for same period last year to more than 13,000 per month for the period as well as marked growth in retail sales-out from our largest retail chain partner, Superdrug. Additionally, owing to our very creative content generation and digital strategy, Skinny Tan has become the world's most followed self-tanning brand on Facebook with the number of its followers now exceeding 300,000, more than any other self-tanning brand globally.

Creating significant footfall into our largest retail partner, our highly-differentiated strategy propelled the brand to become No.1 in its category during 2017 in Superdrug and has enabled the Company to embark on turning it into a beauty brand with the launch of multiple brand extensions during the period with more to follow in H2. This has all been achieved in a record space of 32 months since the brand was acquired by the Company.

The IRI data (world's largest independent data provider for Fast-Moving Consumer Goods (FMCG)) highlights that in Superdrug, our revenues grew by 40% for the 12-week period ending 3 February 2018 versus the same period last year. Product revenues were up more than 100% for the 4-week period ending 3 February 2018 and 65% up week on week versus the same period last year. For the 52 weeks until the end of January 2018, revenues were up more than 105% compared to the same period in the previous year.

This impressive level of growth suggests that the brand is experiencing significant demand and that this should translate into substantial upside as we enter the tanning season beginning in March. The Company expects to build on this very positive momentum as it embarks on acquiring new retail sales channels across UK, Europe, and Ireland during H2 and into the new financial year.

The Company has added new digital marketing personnel to drive DTC in the US with the roll out of new packaging for Skinny Tan which will be consistent with all other regions globally from March this year along with finalising the process of negotiations with multiple distribution and retail chains.

Roots

The Company launched Roots through its online DTC channel and via Superdrug in August 2017. The brand was developed in-house through intensive fast-tracked work between the product development teams in the UK and Australia and is manufactured in the UK. The launch consisted of five product lines that were initially targeted to the market of 40-60-year-old females experiencing hair loss and dry, damaged hair. The paraben- free, sulphate-free, vegan friendly and cruelty-free line of products in attractive packaging has seen very strong growth in preceding months, backed by hundreds of customer testimonials on the efficacy of the products in reducing hair loss, strengthening, and nourishing thinning hair, and in making the hair appear thicker and fuller. Over the past two months, we have witnessed a significant rise in online engagement and revenue through a smartly executed DTC strategy, resulting in expansion of both the shelf space and availability of Roots in the number of Superdrug stores and a significant rise in DTC orders. The brand is in the process of being strengthened further with a host of new line extensions which is expected to increase the number of SKU's to more than 10 by the end of the current financial year. The last IRI data report for the week ending 3 February 2018 shows Roots' sales from Superdrug being half of the total of Skinny Tan's for the same week. This demonstrates the rapid growth in Roots' revenue over the past five months.

The Company expects the demand for Roots to follow Skinny Tan's growth trajectory, and in a market segment (hair loss) which is more than 10 times the size of self-tanning. On current trends, the Company believes Roots will make a material contribution to this financial year's revenues and earnings.

UK & European market

The UK market delivered an excellent performance through both Superdrug and DTC, the latter becoming an important and growing sales channel. Skinny Tan is stocked throughout all of Superdrug's outlets nationwide and as a result of its positive performance, shelf space in their stores has increased following the launch of multiple brand extensions including Body Glow and Salon Effects Spray. In DTC, customers' orders fulfilled through Skinny Tan's website have increased by 32% per month on a year-on-year basis to average more than 13,000 orders per month within the UK alone. To support the growth of the UK, and European markets, we have appointed multiple senior team members. Sephora Online in France has been secured for the launch of Skinny Tan during the current quarter and discussions are underway with multiple new retail chains across Europe.

US expansion

InnovaDerma entered the US market in second half of the last financial year through the launch of Skinny Tan through various retailers and e-tailers. The Company is in the process of phasing out old-packaged Skinny Tan which was being distributed at the launch last year and we are aiming to re-launch the new packaged Skinny Tan portfolio during the current quarter with consistent global packaging for all regions from 1 Apr 2018. In order to support our growth in the US, the Company appointed Jesse Porto, who has significant experience in the beauty industry. He is leading the transition of Skinny Tan into a beauty brand and launching multiple new brands into the territory during H2. The Company is in negotiations with a number of high profile distributors in Canada and the US and implementing a plan to re-launch Skinny Tan in its new packaging together with launching other brands into this large market. The Company is additionally executing a highly creative marketing campaign for Prolong™ with a simultaneous launch planned for the US and Australia during H2.

Asia

Skinny Tan is currently sold in Olive Young's stores nationwide and is distributed through PROS Korea, a distributor for InnovaDerma products for North East Asia. The Company made significant inroads in Korea with new orders during the period for Skinny Tan and the product expected to be marketed into new territories throughout North East Asia during H2. Additionally, the Company has been working with the distributor in planning a launch and marketing campaign for Roots into South Korea and the distributor has started the process for the Ministry of Food and Drug Safety' (formerly known as the Korean Food & Drug Agency) approval which is required for hair loss products. The distributor is also in discussions with multiple retail chains within and outside Korea for the impending launch of Charles + Lee during H2 and EnBright (the new brightening range) in the new financial year.

Product innovation

Product innovation is a key driver of our business and important to growth. InnovaDerma has been focussed in ensuring that it keeps bringing high quality and effective products to its growing global geographic and client base. To that end, its large and ever-growing DTC client base allows it to research and create brand extensions, new brands and to successfully launch acquired brands. Additionally, the move of production to the UK at the end of 2016 has enabled InnovaDerma to work efficiently with the product development and formulations teams at Prestige Personal Care Ltd (HMC Health & Beauty), our manufacturing partner in expanding the product portfolio including products outside of our self-tanning category.

In the period under review we have made significant progress with creating a portfolio of Skinny Tan's sub brands for beauty, completing the development and launch of Roots, developing and extending the product lines for Charles + Lee and StevieK Cosmetics and in preparation and subsequent launch of our FDA-cleared Prolong™ and Hair MD™ in multiple markets. The Company aims to be at the forefront of the latest trends in self-tanning, beauty, hair loss and hair care with product innovation, effective formulations and attractive packaging which responds to consumer demand.

The Market

The market for digital-native brands remains very attractive, especially within the beauty, hair loss and personal care segments. New brands have the capacity to successfully identify a niche and capitalise through the effective, disciplined and highly creative use of social media and e-commerce channels backed by relevant and smart-content to create rapid in-roads and attain a level of success, traditionally only available to global corporates via significant infrastructure and spend.

Our 30 months' journey towards understanding and building successful launch strategies digitally for our various brands has positioned us for a very exciting phase of our growth where the increasing pool of knowledge and experience, fast-expanding client and community base, new brands and geographies have delivered the template for our success. Creating incremental footfall in retail and turning newly-launched brands into one of the best-performing brands within the category in multiple markets has further cemented our relationships with our key retail partners. The Company is now well prepared through a two-way integrated growth model in first creating significant demand for its product through a differentiated digital direct strategy followed by extension into retail space. As it develops new product lines and enters new markets, it aims to replicate this strategy successfully across the markets in which it operates and plans to operate throughout 2018.

Strategy

Our objective is to become a fast-growing and leading business behind strong and innovative brands, so we are able to deliver significant and profitable growth. The Company has two lead brands in Skinny Tan and Roots to spearhead its top line and profit growth for the second half in multiple markets. The rapid success of these two brands provides the Company with the time in which to carefully analyse future growth markets and deliver profitable revenue. This successful template of our future growth is underpinned by the four key pillars of the Company's future strategy:

· Complete transition of Skinny Tan into a fully-fledged beauty brand - The Company has been continuously researching the markets on both the supply and demand sides and collaborating with its retail partners to build further on its core product portfolio in order to move into new markets by leveraging its popular core brand. Throughout 2018, we will be strengthening our core brand through expansion into new territories and in expanding into new beauty segments.

· Build Roots into the revenue leader for the group - Hair loss and the hair care market globally is more than 10 times the size of the self-tan market and our initial momentum both in online and retail space puts the Company in the very strong position of successfully replicating the fantastic growth of Skinny Tan (post acquisition by the Company) in another brand. Owing to the non-cyclical nature of demand in this space when compared to Skinny Tan and with no geographical limitations for the demand-origination, the Company is dedicating considerable internal resources to build on the substantial market opportunity for Roots.

· Strengthen the DTC platform through new brand launches - In order to attract new clients, increase revenues and improve optimization of its DTC marketing spend in the UK, USA, and Australia, the Board believes that the DTC platform remains the most leveraged channel to the Company's direct social media campaigns. The Company has approximately 400,000 members in its online community base on social media platforms and over 250,000 in its client database which continues to grow on a daily basis. This successful digital direct strategy de-risks and delineates the business model, reduces the reliance on the bricks and mortar retail channel for growth, improves ownership of the client base and negates the need to spend significant marketing dollars to on-sell and cross-sell. In addition to enhancing cash flow with all revenues realised within a couple of days of ordering, we can access real-time market intelligence to optimise the development of promotional activities and new product portfolios. In addition, this strategy has been proven to increase footfall significantly into retailers through creating immediate consumer demand.

· Successful launch of Life Sciences portfolio - The Company is aware of the costs and length of time it has taken to successfully acquire and build its portfolio of two FDA-cleared life sciences products. The importance of our diversified strategy is that we have ownership of global intellectual property and we are confident in having the required know-how along with the necessary resources to gradually build incremental revenue channels for both devices in multiple markets.

Outlook

The Company is in a strong position of having two fast-growing, diverse and differentiated brands in Skinny Tan and Roots to increase its revenues and profitability. The Company expects that this will underpin an exciting period of financial performance throughout H2 of this financial year and beyond. Coupled with its other brands including Charles + Lee, StevieK Cosmetics and the planned launch of its life sciences portfolio the Board remains confident of delivering a robust second half and in meeting market expectations for this financial year.

Our long-term strategic objective is to establish ourselves as a digitally-native low-cost business with a very strong, innovative and diverse brand portfolio across beauty, personal care and life sciences. We look forward to further progress and remain excited by the significant number of opportunities we have to scale this business across a wide range of brands and products.

Haris Chaudhry

Executive Chairman

Financial Performance

Group revenue increased by 31% to £4.2m (HY2015: £3.2m) driven predominantly by Superdrug retail UK DTC revenues.

Gross margins were slightly lower at 53.2% (HY2016: 57.6%) as the sell down of old packaged Skinny Tan inventory in Australia and the US was undertaken to make way for the introduction of new global packaging across the product range.

Overall expenses were higher, increasing from £1.99m to £2.28m. Marketing expenses of £0.72m were lower than in the previous comparable period due to a reduction UK DTC marketing costs and lower US marketing costs. Salary and wage costs increased from £0.49m to £0.84m, a reflection of increased people resources required to manage product development and the introduction of new products in H2 of this financial year.

Administrative Expenses of £0.68m show an increase of £0.28m over the previous comparable period, a result of increased support costs required for the Company's significant growth plans.

The loss before tax was reported at £0.03m, (HY2016: £0.15), which was in line with the earnings weighting for the first half as against the second half of the year. As reported in our trading update on 18 January 2018, we advised that there were significant costs relating to product development and pre-launch costs for products which will occur in H2 of the financial year.

Taxation

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 £2.05m at the end of the reported period as against an opening balance of £0.21m. Capital raising activities undertaken in October raised £4.4m before expenses and these funds were used for inventory purchases of new product lines in Roots and Skinny Tan and product development costs in the Prolong and HairMD.

The Group carries no external debt whilst related party loans were reduced by £0.09m. The subsequent impact reducing related party and intercompany borrowings from £0.41m at 30 June 2017 to £0.34m as at 31 December 2017.

Dividends

The Board has elected not to declare a dividend at this time.

Haris Chaudhry

Executive Chairman 15 February 2018

Responsibility statement

The names and functions of the Directors of the Company are as follows:

Haris Chaudhry Executive Chairman

Joseph Bayer Executive Director

Kieran Callan Non-executive Director

Rodney Turner Non-executive Director

Ross Andrews Non-executive Director (Appointed 1 August 2017)

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

Joe Bayer

Executive / Finance Director 15 February 2018

Principal risks and uncertainties

Risks

The Board regularly monitors exposure to key risks, such as those related to manufacturing of the product, cash position and competitive position relating to sales. It has also taken account of the economic situation over the past 12 months, and the impact that has had on costs and consumer purchases.

The principal risks the Company faces relate to a) the regulatory requirements in each country to which it exports and b) cash flow. If those regulations change, the Company will need to quickly adapt its strategy to ensure compliance and facilitate continuing sales. At this stage, because Australia operates very stringent policies on all products, the Company does not view this as very likely to occur but have nonetheless recognized the potential risk.

Cashflow is another principal risk as, while the Company is in its growth phase, working capital is under demand to fund the purchase and manufacture of stock in concert with trading terms to retail buyers. The Group has alleviated this risk with recent capital raisings and stands well prepared to meet the requirements of it growth plans.

Capital structure

As at the 31 December 2017, the ordinary share capital of InnovaDerma PLC consisted of 14,376,633 shares, with a nominal value of EUR0.10 each. During the reported period the Group acquired a holding of 2% of the shares of its subsidiary Skinny Tan Pty Ltd from a founding shareholder. This takes the holding in that entity from 91% to 93%.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE 6 MONTHS YEAR ENDED 31st DECEMBER 2017 - Unaudited 

Earnings per share

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017 - Unaudited

Ordinary Share Capital

Share Premium

Merger Reserve

Warrant Reserve

Foreign Exchange Reserve

Accumulated Earnings/ (Losses)

Non-controlling interests

Total Equity

£

£

£

£

£

£

£

Balance as at 30 June 2017

1,565,905

3,890,210

(721,132)

-

(52,926)

92,978

164,481

4,939,516

Comprehensive income

Profit for the period

-

-

-

-

(70,220)

37,851

(32,369)

Other comprehensive income

-

-

-

-

7,883

-

-

7,883

Total comprehensive income for the year

-

-

-

-

7,883

(70,220)

37,851

(24,486)

Transactions with owners, in their capacity as owners

Shares issued

161,865

4,813,675

-

-

-

-

-

4,975,540

Foreign exchange differences on translation of foreign denominated subsidiaries

(2,426)

-

-

-

503

(1,042)

-

(2,965)

Increase holding in Skinny Tan AU

-

-

-

-

(11,893)

(36,551)

(48,444)

Cost of shares issued

(518,254)

-

110,000

-

-

-

(408,254)

Total transactions with owners, in their capacity as owners

159,439

4,295,421

0

110,000

503

(12,935)

(36,551)

4,515,877

Balance at 31 December 2017

1,725,344

8,185,631

(721,132)

110,000

(44,540)

9,823

165,781

9,430,907

Half Year ended 30 December 2017

Half Year ended 30 December 2016

£

£

Cash flows from operating activities

Receipts from customers

5,044,414

4,008,672

Payments to suppliers and employees

(7,000,887)

(4,310,757)

Taxes Paid

(76,415)

0

Net cash used by operating activities

(2,032,888)

(302,085)

Cash flows from investing activities

Purchase of property, plant and equipment

(11,509)

(48,592)

Payments for product development

(51,814)

(27,949)

Net cash paid on acquisition of subsidiaries

(105,878)

(181,899)

Net cash used by investment activities

(169,201)

(258,440)

Cash flows from financing activities

Proceeds from issue of shares

4,454,860

1,256,479

Repayments of borrowings

(61,178)

(59,764)

Payments for convertible notes

0

(31,015)

Transaction costs for shares issued

(518,254)

0

Net cash from financing activities

3,875,428

1,165,700

Increase in cash and cash equivalents

1,673,339

605,175

Cash and cash equivalents at the beginning of the period

207,301

115,243

Effect of movement in foreign exchange rates

168,439

(19,517)

Cash and cash equivalents at the end of the period

2,049,079

700,901

Half Year ended 30 December 2017

Half Year ended 30 December 2016

£

£

Cash flows from operating activities

Receipts from customers

5,044,414

4,008,672

Payments to suppliers and employees

(7,000,887)

(4,310,757)

Taxes Paid

(76,415)

0

Net cash used by operating activities

(2,032,888)

(302,085)

Cash flows from investing activities

Purchase of property, plant and equipment

(11,509)

(48,592)

Payments for product development

(51,814)

(27,949)

Net cash paid on acquisition of subsidiaries

(105,878)

(181,899)

Net cash used by investment activities

(169,201)

(258,440)

Cash flows from financing activities

Proceeds from issue of shares

4,454,860

1,256,479

Repayments of borrowings

(61,178)

(59,764)

Payments for convertible notes

0

(31,015)

Transaction costs for shares issued

(518,254)

0

Net cash from financing activities

3,875,428

1,165,700

Increase in cash and cash equivalents

1,673,339

605,175

Cash and cash equivalents at the beginning of the period

207,301

115,243

Effect of movement in foreign exchange rates

168,439

(19,517)

Cash and cash equivalents at the end of the period

2,049,079

700,901

Six months ended

31 December

Year ended

30 June

2017 (Unaudited)

2016 (Unaudited)

2017 (Audited)

£000

£000

£000

Earnings

Net profit from continuing operations before tax attributable to the equity holders of the parent company

(32)

(158)

689

Six months ended

31 December

Year ended

30 June

2017 (Unaudited)

2016

(Unaudited)

2016 (Audited)

Number

Number

Number

Number of shares

Weighted average number of ordinary shares for the purposes of basic earnings per share

12,744,852

11,204,158

11,395,485

Weighted average number of ordinary shares for the purposes of diluted earnings per share

12,744,852

11,204,158

11,395,485

Name

Transaction

Amount received from/

Amount due from/(to)

(paid to) for the Half Year ended December

as at 31 as at 30

December June

2017

2016

2017

2017

£

£

£

£

Farris Marketing Concepts Pty Ltd

Loan payable1

(87,521)

(89,502)

Zaymar Investments Pty Ltd

Loan payable1

(90,511)

(89,610)

(226,486)

(320,231)

Mr Haris Chaudhry

Loan payable1

403

1,600

1 These loans are interest free and unsecured.