IDP.L Regulatory News (IDP)

InnovaDerma PLC

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

Unaudited Half Year Results for the six months ended 31 December 2016

InnovaDerma (LSE: IDP), a UK developer of 'at-home' and clinically proven treatments for hair loss, hair care, self-tanning and skin rejuvenation, is pleased to announce its unaudited half year results for the period ended 31 December 2016.

The Company undertook a number of strategic actions in the first half of the year to ensure the business has a solid foundation for long-term growth and infrastructure in place to enable it to scale up effectively. These actions have begun to have a positive financial impact, with January 2017 delivering the highest monthly revenue ever recorded. This, together with the seasonality of the business being second-half weighted, means the Board is confident of delivering a robust second half of the year.

Financial and Operational Highlights:

· Group revenue grew strongly by 125.5% to £3.187m (HY2015: £1.414m) driven by the successful penetration of the UK market through Superdrug and Direct To Consumer ('DTC') sales 1

· Gross profit increased significantly by 131% to £1.837m (HY2015: £0.795m)

· Loss before tax of £0.154m (HY2015: £0.004m) as a result of one-off exceptional listing costs and strategic initiatives to expand and scale the business

· Strategic decision to move production to the UK from Australia to improve supply chain and operating margins now fully implemented

· Strengthened team to drive and support international growth in the UK, US and Australia

· Superdrug has increased shelf space for Skinny Tan on average by a factor of four since January 2016 which has increased its visibility in their stores and enhanced the performance of the UK business

· Entered the US market and secured retail and e-tailer distribution deals

· Two successful fundraising and placings raising a total of £1.340m to support growth in the UK, European and US markets and ensure adequate levels of stock to meet growing demand

· At 31 December 2016, the Group carried a cash balance of £0.701m against an opening balance of £0.115m

· Skinny Tan brand extended to 33 products (FY2016: 25) to take advantage of the brand's growing popularity

· As at 31 December 2016, the Company had circa 3,360 retail points (FY2016: 2,500) and distribution in 9 countries including Skinny Tan and Leimo products

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

1 The Company recorded higher sales than indicated in the trading statement announced on 16 January 2017 as a result of the change from reporting in Australian Dollars to Pound Sterling, currency translations, in addition to higher sales.

Post Period End and Outlook

· Very strong start to the second half of the year with January 2017 delivering the highest ever monthly sales in what is considered to be the slowest month in the self-tanning industry

· Manufacturing move to UK resulted in significant availability of inventory to service orders from both retail and DTC channels

· US performing in line with expectations after launching in November 2016 with the Group securing opening orders for Skinny Tan from Harmon Retail Chain (a subsidiary of Bed Bath and Beyond).

· Opening order for the Professional Salon Range of Skinny Tan in the US through Artisan Tan was achieved in January

· A high degree of focus on product and inventory planning to cater for significant & consistent demand in the Skinny Tan Professional Salon Range in all regions

· New products developed in the haircare category to complement and expand our current product depth

· Development of a new self-tanning brand consisting of a range of products with a unique sales proposition for the multi-national grocery and mass market retailer channels. The product range is aimed at the more price conscious consumer and is expected to be launched in 2017 throughout multiple markets globally

· Leimo Headmaster project continues on track with FDA approval expected in the middle of the year and product launch towards the end of 2017

· Revenue and profit expected to grow in the second half driven by the above-mentioned strategic initiatives undertaken in 2016, the fast-growing DTC platform and expansion in the UK, Europe and US

Haris Chaudhry, Executive Chairman said

"The Board undertook a number of strategic actions to ensure the business has a strong platform for significant growth in 2017 and beyond and these initiatives have already begun to bear fruit. Our fast growing product portfolio, vastly improved supply chain, improving margins with the relocation of manufacturing to the UK, and recent addition of highly talented and experienced senior management team for key markets, are expected to deliver measurable, sustainable and marked improvements across the business.

"I am pleased with the sound structural changes made in the first half which has contributed to a strong start to the second half. 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, cosmetics and personal care space."

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

Enquiries:

About InnovaDerma:

InnovaDerma PLC (LSE: IDP) specializes in the research, manufacture and marketing of clinically proven products in hair loss, anti-ageing and beauty sectors. InnovaDerma has presence in the UK, US, Australia, New Zealand, Philippines, South Africa, Hong Kong and South Korea.

www.innovaderma.com

Executive Chairman's Review

Introduction

I am pleased to present our half year results for the period ended 31 December 2016. This has been a period of considerable progress for the Company and we have taken the necessary strategic actions to ensure we have strong foundations for long-term growth and the capability of expanding our product portfolio, scaling the business and improving our supply chain and gross margins. Group revenues grew strongly to £3.187m representing an increase of 125.5% driven by the growth of Skinny Tan in the UK and Direct to Consumer ('DTC') sales. The Group reported a loss before tax of £0.154m (HY2015: £0.0367m) as a result of one-off exceptional listing costs and strategic initiatives which were critical to the future growth of the business.

Improved supply chain and cost savings

We relocated a significant part of the Company's manufacturing to the UK and production began in December 2016 with the first major order under the new arrangement delivered on budget and ahead of schedule. The production move has improved the Company's supply chain to its most important growth markets and key customers and, as previously indicated in our announcement on 24 October 2016, the cost savings associated with this move have begun to have a positive impact since the commencement of the second half of our financial year. Furthermore, the Company has undertaken a careful assessment of its cost base across all operations and successfully transitioned its logistics to more efficient models in the UK and the US in November and December 2016. This is expected to deliver significant additional savings in our shipments to end users. Further reduction of costs and improvement in service levels with multiple service providers implemented in December will have a positive impact on our gross margins.

UK 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 ranged throughout all of Superdrug's outlets nationwide and as a result of its positive performance, shelf space in their stores has increased on average by a factor of four, compared with the average shelf space for our products in 2016. This has enhanced Skinny Tan's visibility and revenue growth. In DTC, customers' orders averaging 10,000+ per month are fulfilled through Skinny Tan's website. To support the growth of our UK and European business we appointed Michael Hume, formerly Senior Buyer for Skincare at Superdrug, as the Company's General Manager for the UK and Europe.

US expansion

InnovaDerma entered the US market in October 2016, began generating revenues in November 2016, and I am pleased to report is making good progress with Skinny Tan and performing in line with the Board's expectations. The Company has a retail distribution agreement with GNC Holdings, Inc. ("GNC"), a leading global speciality retailer of health and wellness products listed on the New York Stock Exchange. Skinny Tan is also distributed through Quidsi, Inc. a subsidiary of Amazon.com, Inc. Skinny Tan can be purchased on Soap.com, a retail site owned by Quidsi, its parent company, and Jet.com, a subsidiary of Wal-Mart Stores, Inc. Post period end, we secured opening orders for Skinny Tan from Harmon Retail Chain (a subsidiary of Bed Bath and Beyond). The Company also secured an opening order for our Skinny Tan Professional Range with Artisan Tan located on the West Coast of the US. To support our growth plans in the US, the Company has established Innova Science, Inc., a wholly-owned subsidiary of the Group, and appointed Joseph Panetta as Executive Vice President and President of Skincare to lead the American business. 

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. Olive Young is planning an in-store marketing campaign for Skinny Tan to coincide with its peak season in 2017. As announced on 27 January 2017, the Company is in discussions with PROS Korea to address distribution of the Company's products in China, Russia and Japan.

Product innovation

The production move to the UK 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 potential new brands and product extensions of existing brands, some of which will make their debut in the second half of the financial year. In the first half, we launched eight new Skinny Tan extensions. The Company aims to be at the forefront of the latest trends in self-tanning, product innovation and effective formulations with attractive packaging and being responsive to retail and consumer demands to satisfy the increasing shelf space at Superdrug and growing its DTC client base. Product innovation is a key driver of our business and important to growth. Our new key products are:

· Skinny Tan Professional: The professional spray tanning market is a lucrative, captive and highly brand-loyal market with thousands of beauty and tanning salons within the UK alone. The Company has developed a training manual, marketing strategy, and product portfolio. The training manual will enable therapists and tanners to become licensed professional spray tanners. The Company has secured some opening orders and is working towards capturing and capitalising on this potentially highly attractive opportunity in the UK and the US

· Lower priced tanning brand: The Company has developed a lower price, high volume self-tanning range of products with a unique appeal to the multinational grocery and mass market retailer channel. These new tanning products were developed for the more price conscious consumer and will be for retail channels. The range of new self-tanning products is expected to be launched in 2017

· Leimo: The development of the Headmaster product remains on track for a late 2017 launch. The FDA approvals are expected in the middle of the year and product prototypes have already been developed and undergone preliminary testing in readiness for FDA submission

The Market

There is a growing global trend of clients gradually moving away from traditional bricks and mortar retail with the rising popularity of digital marketing strategies through social media, direct fulfilment through Amazon, and scalability of revenue without necessarily relying on a retail footprint. The Company is 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 it is operating in and planning to enter throughout 2017.

Strategy

Our objective is to become a leading business behind strong innovative brands so we are able to deliver revenue and profitable growth. The Company will focus on growing the business in a strong yet sustainable manner now that it is on a solid footing having implemented structural changes. The key pillars of the Company's strategy are:

· Expand its product portfolio outside of self-tanning - The Company has been continuously researching the markets on both the supply and demand side to build further on its product portfolio which is complementary to its DTC and retail distribution. New products containing highly effective formulations, attractive packaging and value proposition for hair care and skin brightening range are expected to be launched in 2017 and the Company has already received strong interest from high street retailers in ranging those products once ready

· Build on DTC platform - 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. In a short period of 19 months, the Company has acquired in excess of 280,000 online community base/ fans on Facebook, 22,000 on Instagram and its direct client base of over 120,000 across the UK, Australia, New Zealand, Spain, South Africa, USA and Korea, and this continues to grow on a daily basis. This successful digital direct strategy de-risks and delineates the business model, reduces the reliance on retail chains for growth, gives it improved ownership of the client base and negates the need to spend marketing dollars to on-sell and cross-sell. It also enhances cash flow with all revenues realised within hours of ordering and before the products are shipped (versus 60-120 days for retail payments) as well as creating real-time market intelligence to optimise the development of promotional activities and new product portfolios. Furthermore, this strategy has resulted in the Company creating significant footfall into retailers through creating immediate consumer demand

· Extend the Skinny Tan brand to leverage customer and brand loyalty - Skinny Tan Professional Range and lower priced tanning products

· Seek value added acquisition targets to integrate into the business - the Company remains on the lookout for acquisition targets with a ready to market and complementary products portfolio in the beauty and life science space that it believes will offer significant upside to its revenue and earnings

Outlook

The Company has delivered a strong start to the second half of the year, with January 2017 achieving the highest monthly revenue ever recorded. As a business which is weighted towards the second half, together with the critical steps undertaken in the first half, this means the Board is confident of delivering a robust second half.

Our long-term strategic objective is to establish ourselves as a business offering strong innovative and diverse brands across personal care for men and women. The successful manufacturing move to the UK and disciplined expansion plans focussed on keeping its cost base at a minimum whilst scaling revenues and entering new markets with existing and new product portfolios. This is being achieved through its successful digital direct consumer acquisition strategy and expanding retail and professional channels which are expected to deliver strong yet sustainable growth in years to come.

The Company places great emphasis on product development but is mindful of large investment costs which would be unsuitable to a business of its size and scale. New product development projects over the last 12 months have been through a disciplined and careful plan, and in close consultation with its key distributors, retail, and industry experts to ensure that products are well-positioned to generate revenues immediately through our DTC strategy and retail channels. 

The trading terms with Prestige Personal Care Ltd (HMC Health & Beauty) additionally allow significant flexibility in both the quantum of the Company's orders and timing of payments. It therefore places the Company in excellent shape to maintain its healthy cash flow as it continues its growth throughout 2017.

The Board is pleased with the current direction of the business and confident of delivering further growth during the remainder of the year.

Financial Performance

Group revenue increased by 125.4% to £3.187m (HY2015: £1.414m). The results were driven by the consolidation of the Superdrug account from the commencement of business in February 2016 and strong Direct to Consumer ('DTC') sales in the UK. The US business began to deliver a steady revenue stream from November 2016. The Australian retail orders were unexpectedly slow with major retailers still carrying stock from the last financial year.

Gross margins remained steady at 57.6% with a small increase on the previous comparable period of 56.2% and slightly up on the previous full financial year of 57.4%. The reported gross margin incorporates the additional freight costs for product shipped ex our Australian manufacturers into the UK warehouse to provide for the UK manufacturing transition strategy. After allowing for these "one off" costs, gross margins would improve to 60.5%.

Overall expenses were significantly higher, increasing from £0.791m to £1.991m. Marketing expenses were £0.751m higher than the previous comparable period due to a significant increase in activity with Superdrug higher DTC marketing costs and US market establishment costs. The US establishment costs of £0.123m, while expensed in the reported period, are shown below as a "one-off" cost as the business moved to revenue generation in November.

Administrative Expenses of £0.399m was an increase of £0.161m over the previous comparable period. However, one off listing costs represented £0.074m of this cost with recurring listing costs of £0.035 expensed during the reported period. Administration and Employee costs, including listing costs, decreased as a percentage of revenue to 28.0% in the reported period as against 31.6% for the prior comparable period.

The loss before tax was reported at £0.154m with loss after tax and other income reported as £0.158m against a profit after tax for the comparable period of £0.009m. As reported in our trading update on 16 January 2017, we advised that there was significant corporate activity and strategic initiatives undertaken. These costs have been absorbed in our results. However, the table below highlights an underlying trading profit of £0.129m against a comparable period of £0.009m.

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 £0.701m at the end of the reported period as against an opening balance of £0.115m. Capital raising activities undertaken in November and December realised a net cash inflow of £1.256m and a large part of which was used to undertake a major inventory build program during the last three months of the reported and to facilitate the transition to UK manufacturing.

The Group carries no external debt whilst the balance of convertible notes issued to original Skinny Tan shareholders and related party loans reduced from £0.599m to £0.507m.

Dividends

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

Haris Chaudhry

Executive Chairman 8th February 2017

Responsibility statement

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

Haris Chaudhry Executive Chairman

Joseph Bayer Executive Director

Rodney Turner Non-executive Director

Clifford Giles Non-executive Director

Kieran Callan Non-executive Director (Appointed 8 February 2017)

Garry Lemair Non-executive Director (Resigned 10 January 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 9th February 2017

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, the ordinary share capital of InnovaDerma PLC consisted of 11,844,236 shares, valued at EUR0.10 each. During the reported period the Group acquire a holding of 9% of the shares of it's subsidiary Skinny Tan Pty Ltd from a founding shareholder. This takes the holding in that entity from 80% to 89%.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE 6 MONTHS YEAR ENDED 31st DECEMBER 2016 - Unaudited

Earnings per share

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2016 - Unaudited

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

AS AT 31st DECEMBER 2016 - Unaudited

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD 1 JULY 2016 TO 31 DECEMBER 2016 - Unaudited

Notes to the unaudited interim financial report

1. Basis of preparation

The interim financial statements for the six months ended 31 December 2015 and 31 December 2016 and for the twelve months ended 30 June, 2016 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 2016 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 2016 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 2016 statements were approved by the Board of Directors on 8th February 2016. 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 2016, 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 2016 and the comparative figures for the six months ended 31 December 2015 are unaudited. The figures for the year ended 30 June 2016 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. Change of Functional and Presentational Currency

The Company has reviewed the existing structure of reporting currencies and has decided that with the recent listing on the London Stock Exchange that the Company will be funded in Pounds Sterling ("£"), alongside incurring costs in £, Euro ("€"), US$ and the AU$. Having considered the aggregate effect of all relevant factors, the Directors have concluded that £ will be the appropriate functional currency of the Company with the change becoming effective from 1 December 2016. This reflects the fact that the £ is the predominant currency in the economic environment in which the Company operates and expects to operate in going forward. In line with IAS 21 when there is a change in an entity's functional currency the change should take place with effect from the date the Company determined that the characteristics required to identify the functional currency had changed. The Company determined that this change occurred during half year ended December 2016 and is effective for accounting purposes from 1 December 2016. The Group and Company will also adopt the £ as the presentational currency going forward.

3. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

 4. Related party transactions

The related party transactions that occurred in the six months ended 31 December 2016 are not materially different in size or nature to those reported in the Company's Annual Report for the year ended 31 March 2016.

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.