KOOV.L Regulatory News (KOOV)

Koovs plc ("Koovs" or "Group" or the "Company")

Interim Results for the six months ended 30 September 2018

Firm foundation for future growth supported by new funding

Koovs plc (AIM:KOOV), the fashion-forward business focused on the young Indian e-commerce market, today announces its interim results for the six months to 30 September 2018.

Successful fundraising

The Group successfully secured commitment of up to c.£45m of funding in H1 2019 (with £21.8m already received in Q2) to deliver on the Group's ambitions to achieve scalable growth over the coming years. The funding is comprised of:

· Future Lifestyle Fashion Limited (FLFL), part of Future Group, India's largest retail group, invested £5.8m in July 2018, with an additional £9.5m to £10.5m to be subscribed for upon satisfaction of certain conditions. Once the subscription is completed FLFL will be Koovs' largest shareholder with approximately 29% of the issued share capital.

· HT Media - one of India's largest media companies and owner of the Hindustan Times - media-for-equity investment worth £17.1m over 4 years, completed and announced on 22 August 2018.

· £12m secured from Directors and existing and new shareholders.

H1 2019 financial headlines:

· Prior to securing funding in September 2018 marketing spend was reduced by 46% and stock levels by 49% to conserve cash.

· Gross order value* down by 32% to INR442.8m / £4.8m (H1 2018: INR651.7m / £7.8m) significantly impacted by the reduction in marketing and stock.

· Trading margin** decreased to 14% (H1 2018: 18%) as full price sales were impacted by a lack of new stock.

· Koovs plc revenue down by 40% at INR195.9m / £2.1m (H1 2018: INR328.7m / £3.9m), due to reduced gross order value and an increase in sales tax (GST).

· Operating expenses reduced by 28% to INR460.7m / £5.0m (H1 2018: INR638.8m / £7.7m).

· Pre-tax loss reduced by 10% to INR580.9m / £6.4m (H1 2018: INR647.4m / £7.8m) driven by cash preservation and cost saving initiatives.

Current Trading

With funding now secured, in H2 the Group has begun to rebuild stock levels and resume marketing activities, delivering encouraging green shoots.

Lord Alli, Chairman of Koovs, said:

"There is no doubt that the business faced significant challenges over the past year.

Our primary focus in H1 was to secure new funding to support Koovs' growth and conserve cash to sustain the business by reducing marketing and our stock levels. In spite of these necessary short-term actions, we were able to maintain high brand awareness, increase customer engagement through our social media channels, and deliver market-leading customer satisfaction, demonstrating the resilience and strength of our brand.

I am delighted that during the period we secured commitment for up to £45m of new investment, which includes funding from a landmark new investor in FLFL, part of India's largest retail business Future Group, and further strategic investment from existing partner HT Media, one of India's largest media organisations.

I am grateful to our people and partners for their continued support and commitment to the business."

Mary Turner, Chief Executive Officer, Koovs, said:

"The funding secured in H1 allows us to get back to business and in H2 to date we have restarted marketing activities and expanded the product range, increasing the current trading margin. Longer-term, the successful fundraising represents a transformational opportunity for Koovs to drive sustainable growth, enhance margins and build a path to profitability, with partners that will help us to consistently build our brand, enhance our supply chain, and grow our product range."

Kishore Biyani, Future Group Managing Director and Group CEO, said:

"As an integrated branded fashion player, we invest in and grow leading Indian fashion brands. We are excited to have invested in Koovs, the best established affordable western fashion brand in India. Its combination of technology, content, fashion and customer service will ensure success in the years ahead. We are excited about what we can achieve through this highly complementary partnership."

About Future Group

Future Group is among India's leading retail and consumer goods companies with brands and retail networks in the fashion, food and homeware segments. It owns over 60 brands, operates close to 2,000 retail stores spanning over 22 million square feet and attracts footfalls of over 500 million annually. Future Group also has one of India's most unique digital payment platforms, Future Pay, which has an active user base of over 6.5 million and is growing rapidly. Future Group sells some 300 million garments in volume making it one of the top 10 fashion apparel companies in the world.

Notes to Editors

About Koovs

Koovs is focused on building KOOVS.COM into the leading fashion destination in India. The Group is headquartered in London, where the majority of its design and buying team is based, with all other operational functions based in India.

* Gross Order Value: Value of orders taken and not cancelled

** Trading Margin: Due to foreign direct investment rules Koovs India cannot currently ship directly to the end consumer. Trading margin is the implied gross margin that would be reported in the group's accounts if Koovs India were able to ship products directly to the end consumer and is a key performance indicator of the Group. The group gross margin reported in these financial statements is the margin generated on sales of product to Marble, the operator of the KOOVS.COM website.

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CHAIRMAN'S STATEMENT FOR THE SIX MONTHS TO 30 SEPTEMBER 2018

The first half of this financial year has been focused on securing additional investment and prudently conserving cash to sustain the business by reducing marketing and our stock levels. In spite of this, we have maintained high brand awareness, grown our social media following, and continue to deliver market-leading customer satisfaction, demonstrating the resilience and strength of our brand. 

We are delighted with the scale and quality of funding secured with support from Directors and institutional investors, further strategic investment from our long-term partner HT Media and a transformational investment from Future Lifestyle Fashions Limited (FLFL) 

With over 400 retail fashion stores across India, FLFL will be a game-changing partner for Koovs with synergies across the value chain from manufacturing and distribution, to marketing and market reach. This new strategic partnership and investment will bring enormous benefits to our customers and partners as well as significant value for all shareholders.

This not only puts Koovs back on track but adds a further dimension to the opportunities available to Koovs in the future, and I am therefore extremely excited about the Group's growth prospects for the years ahead. 

Once confirmed (subject to regulatory approval), the additional subscription by FLFL will mean that 45% of investors in Koovs will be based in Asia, showing the breadth of support and confidence in the Group here and in its home market.

The focus going forward is to continue to build the brand through marketing, making Koovs the favourite fashion destination for India's twenty-somethings. There is a clear opportunity to capitalise on the platform we have built to date to unlock superior shareholder value over the coming years, and we have been delighted with the reaction from investors who share our vision.

I would like to take this opportunity to thank all our colleagues in the UK and India for their continuing hard work, dedication and enthusiasm.

Waheed Alli

Chairman

12th December 2018

INTERIM REVIEW

Strategy

Koovs' commercial strategy and goal is to become India's number one western fashion destination, to be delivered through rapid and scalable growth. We will do this by following the strategic objectives detailed in the latest annual report for the year to March 2018 and listed below:

Ø Expand the product range

Ø Engage customers through content

Ø Amplify the brand

Ø Extend distribution

We aim to deliver a seamless, engaging customer experience across web, mobile and tablet through fashion and lifestyle related content.

Furthermore, Koovs aims to be the undisputed affordable western fashion brand for the style-conscious and globally connected twenty-somethings in India through high profile and targeted marketing campaigns across multiple channels in India's major cities.

Trading performance

Gross order value, representing sales generated on the KOOVS.COM website during the six months to 30 September 2018, amounted to INR 442.8m / £4.8m, a 32% fall on the previous year. The fall in sales was a result of a reduction in marketing spend and stock purchases, to preserve cash until funding was received. Marketing spend during the period was reduced by 46% to INR 164.5m / £1.8m (six months to 30 September 2017: INR 303.8m / £3.6m), stock levels were reduced by 49% to INR 112.0m / £1.2m (six months to 30 September 2017: INR 219.5m / £2.6m).

Trading margin for the period of 14% (six months to 30 September 2017: 18%) was depressed by a lack of new stock impacting full price sales. This trend has reversed in early trading in H2, as marketing activities have restarted and the product range is being expanded, currently operating at a trading margin of 24%.

Marketing spend in the period reduced by 46% to INR 164.5m / £1.8m (six months to 30 September 2017: INR 303.8m / £3.6m). Activities in the period primarily focused on driving traffic through digital campaigns and maintaining brand awareness through social media. Marketing efficiency improved by 35% with the cost per visit reducing to 6.2 rupees / 7p (six months to 30 September 2017: 9.5 rupees / 11p).

Other operating costs in the period (excluding marketing costs) reduced by 12% to INR 296.3m / £3.2m (six months to 30 September 2017: INR 335.1m / £4.0m)

Cash utilised in the period, excluding the prepayment of media assets to HT Media Ltd, was INR 324.2m / £3.5m (six months to 30 September 2017: INR 564.4m / £6.8m) a reduction of 43% on the comparative period.

Financial results, cash flow and funds

Revenue in the period, representing the wholesale price of products sold was INR 195.9m / £2.1m (six months to 30 September 2017: INR 328.7m / £3.9m). Gross loss in the period was INR 39.9m / £0.4m (six months to 30 September 2017: INR 1.1m / £0.0m). Gross margin % in the period was -20.4% (six months to 30 September 2017: -0.3%).

After cost of sales and overhead costs, the net loss before tax in the period was in line with management's expectations at INR 580.9m / £6.4m (six months to 30 September 2017: INR 647.4m / £7.8m). The reduction in net loss resulted from reduced expenditure.

During the period, INR 715.7m / £7.84m (six months to 30 September 2017: INR 564.4m / £6.8m) was utilised in funding losses and additional working capital. Of this INR 391.2m / £4.28m (six months to 30 September 2017: nil) related to the prepayment of media assets from HT Media Ltd.

Investing activities utilised INR 388.9m / £4.3m (six months to 30 September 2017: cash generated of INR 122.3m / £1.5m) primarily though placing funds in short term interest bearing deposit accounts.

Financing activities generated INR 1,869.9m / £20.5m (six months to 30 September 2017: INR 748.1m / £9.0m) primarily through the issue of equity shares.

At 30 September 2018, including both short and long-term deposits, the business had access to INR 1,506.3m / £15.9m (1 April 2018: INR 298.3m / £3.3m) for the purposes of funding the business. The funds are held in term deposits or current accounts, mainly in India. Additionally, INR 796.4m / £8.7m (1 April 2018: INR 470.1m / £5.4m) of marketing funds have been prepaid to secure significantly reduced media rates and been recorded in the Statement of Financial Position under "Trade receivables, other receivables, prepayments and other assets".

Principal risks and uncertainties

The Group's business activities, together with the factors likely to affect its future development, financial position, financial risk management objectives, details of its financial instruments and its exposures to price, credit, liquidity and cash flow risk are described in the Chairman's Statement and the Strategic Report published in the annual report for the period ended 31 March 2018.

The Board considers the principal risks and uncertainties facing the Group to be unchanged from those set out in the Annual Report and Accounts for the period ended 31 March 2018, summarised as follows:

· Funding risk, including the ability of the Board to secure additional funding required to implement its plans;

· Market and economic risks, including the economic climate and competition in India;

· Financial risks, including interest rate and currency risk;

· Technological risk;

· Warehouse disruption; and

· Reliance on key personnel.

These are set out in detail in the Group's Annual Report and Accounts for the period ended 31 March 2018, a copy of which is available on the Group's website.

Capital Raising

In March 2018 the Board announced its intention to raise up to £50m to fund the existing strategic plan. As at the date of this report £22m has been raised and the Group has secured commitments from:

· Future Lifestyle Fashion Limited to invest a further £9.5m to £10.5m at 15p per 1p ordinary share

· HT Media Ltd to invest a further £13m, as media/equity swap, at a price to be the lower of Koovs' then 3-month average closing share price or the price per 1p ordinary share received by the Group on the most recent cash fundraising closed in the 3 months prior to the investment

On behalf of the board of directors

Mary Turner Robert Pursell

Director Director

12th December 2018 12th December 2018

Consolidated Statement of Profit and Loss

for the six month period to 30 September 2018

All results relate to continuing operations.

Consolidated Statement of Comprehensive Income

for the six month period to 30 September 2018

Consolidated Statement of Financial Position

at 30 September 2018

Consolidated Statement of Cash Flows

for the six month period to 30 September 2018

Notes 

1. Basis of preparation and accounting policies

1.1. Basis of preparation

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31 March 2018 Annual Report. The financial information for the half years ended 30 September 2018 and 30 September 2017 does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and both periods are unaudited.

The annual financial statements of Koovs Plc ('the Group') are prepared in accordance with IFRS as adopted by the European Union. The comparative financial information for the year ended 31 March 2018 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2018 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 March 2018 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) - (3) of the Companies Act 2006.

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2018 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2018 and will be adopted in the 31 March 2019 financial statements. New standards impacting the Group that will be adopted in the annual financial statements for the year ended 31 March 2019, and which have given rise to changes in the Group's accounting policies are:

· IFRS 9 Financial Instruments; and

· IFRS 15 Revenue from Contracts with Customers

Details of the impact of these two standards are given below. Other new and amended standards and interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to have a material impact on the Group.

IFRS 9 Financial Instruments:

IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had an effect on the Group in the following areas:

The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) have been calculated in accordance with IFRs 9's expected credit loss model, which differs from the incurred loss model previously required by IAS 39. This has not resulted in a material change to the impairment provision at 30 September 2018.

IFRS 15 Revenue from Contract with Customers: 

IFRS 15 has replaced IAS 18 Revenue and IAS 11 Construction Contracts as well as various Interpretations previously issued by the IFRS Interpretations Committee, noting the Group has adopted the modified retrospective approach. There is no material impact on any revenue stream for the Group, noting the following as it relates to the Group's revenue streams:

· Sale of fashion garments in India at wholesale to third party. There is no material impact on this revenue stream for the Group by adopting IFRS 15.

There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to 31 March 2019 (the date on which the Group's next annual financial statements will be prepared up to) that the Group has decided not to adopt early. The most significant of these is IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019).

The Board of Directors approved this interim report on 12 December 2018.

1.2. Going concern

This Interim Report has been prepared on the assumption that the business is a going concern.

The Group's business activities, together with the factors likely to affect its future development, financial position, financial risk management objectives, details of its financial instruments and its exposures to price, credit, liquidity and cash flow risk are described in the Chairman's Statement and the Strategic Report set out in the Annual Report for the year ended 31 March 2018.

The directors have concluded that the going concern assumption is appropriate given funding secured and the cash and bank deposits available to the Group.

1.3. Reporting currency

To assist UK-based readers of the accounts, translations into Sterling have be supplied on a memorandum basis to allow a clear understanding of the results and financial position of the business. The memorandum information does not form part of the financial reporting of the Group representing, as they do, simple translations of the Rupee information. The exchange rates used are shown in the table below.

2. Revenue

All of the Group's revenue is generated by the Group's subsidiary in India through its operations as a supplier of branded fashion products. The chief operating decision maker is the Chief Executive Officer who makes resource allocation decisions based on Group management accounts and operating reports for the entire Group. The Group therefore represents a single cash generating unit and a single operating segment.

All of the Group's revenue in both periods was generated in the Republic of India.

3. Taxation

No income tax liability arose during the six months to 30 September 2018 and 2017, or the year ended 31 March 2018. There is no tax charge or credit relating to items charged or credited to other comprehensive income.

4. Earnings Per Share

Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Parent Company by the weighted average number of ordinary shares in issue during the period. Diluted earnings per share is calculated by amending the weighted average number of ordinary shares in issue during the period for the effect of dilutive share options in issue.

The effect of the share options in issue and the convertible loan notes are anti-dilutive and therefore no adjustment has been made to the weighted average shares in issue when calculating diluted earnings per share.

5. Cash and bank deposits

Cash and cash equivalents comprise cash in hand and cash held in bank accounts from which deposits can be drawn without any substantial delay and which have not been deposited under any agreement for a fixed term, net of any bank overdrafts which are utilised for operational cash flow purposes.

6. Cautionary statement

This document contains certain forward-looking statements relating to Koovs plc. The Company considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Company to differ materially from those contained in any forward-looking statement. These statements are made by the directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.