KOOV.L Regulatory News (KOOV)

29 July 2016

Preliminary Results for the year ended 31 March 2016

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

Koovs plc (AIM:KOOV), the fashion-forward business focused on the young Indian e-commerce market, today announces its preliminary results for the year to 31 March 2016.

Preliminary results highlights for the year to 31 March 2016

· Strong sales* growth at KOOVS.COM of 189% to INR981 million / £10.0 million in the year to 31 March 2016

· Visits to the website up 110% from 20.9 million to 43.8 million, exceeding one million visits a week and one million registered users

· Continued delivery on strategy and business plan as outlined in the Chairman's Statement.

· Koovs plc revenue in the year up 148% at INR512.4 million / £5.2 million (2015: INR204.1 million / £2.1 million) and loss before tax of INR1,650.4 million / £16.7 million (2015: INR922.6 million / £9.4 million).

* Gross sales order value placed through the KOOVS.COM website including taxes. This does not represent the revenue of the Koovs plc Group. The revenue of the Koovs plc Group is the wholesale value of products sold to the independent operator of the Koovs.com website under a licence granted by Koovs Group.

Mary Turner, CEO, said:

"We are pleased to report another set of strong results as we continue to deliver on our strategy. During the period we successfully closed the recent tranche of capital raising, and brought ownership of KOOVS India to 100% at Group level.

"The Indian market continues to grow rapidly, particularly in ecommerce and fashion where online only fashion is growing at 48% a year¹ and Koovs is growing significantly faster than this market rate. Koovs remains focused on our unique brand promise to deliver exclusive, on-trend, affordable western fashion for the style-conscious, aspirational young adult in India."

¹Annual growth forecast online only fashion 2015-17 48% CAGR - Technopak 2015.

Preliminary results

# Koovs plc revenue reflects the wholesale value of products supplied for sale on the KOOVS.COM website

Notes to Editors

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

CHAIRMAN'S STATEMENT FOR THE YEAR TO 31 MARCH 2016

I'm pleased to report that our business plan and strategy continues to deliver growth in sales, brand awareness and traffic to the web site, with Gross Order Value in the year to March 2016 reaching INR 981m (£10m), an increase of 189% on the previous year. Web site traffic has increased by 110% and conversion by 55%, resulting in more than a threefold increase in the number of orders shipped.

The opportunity in the e-commerce market in India continues to grow and we are successfully positioning Koovs as the fashion leader in the market by maintaining our exclusive focus on fashion, by offering leading brands from around the world, by broadening the range of our exclusive own-label products, and by maintaining our delivery and price promises which position us at the heart of the market.

While revenues are growing strongly, the costs of operations has resulted in a loss for the period of INR1,650.4 / £16,741k. Our business plan envisages rapid growth in revenues and improvement in margins so that the combination of increased scale and improved profitability results in a profitable and cash-generative business. To achieve this, the Board expect to implement the next phase of the staged equity funding plan in the latter part of the current financial year.

Mary Turner has brought a wealth of expertise to the company, the fruits of which were seen in our first TV-led marketing campaign in the autumn of 2015 which successfully raised our brand awareness significantly with a resulting strong growth in website traffic and ultimately sales. The next phase of the campaign is now under way to drive the on-going growth in sales.

I am also pleased to report that we have received strong support for our capital raising plans with INR3,079.3 million / £31.75 million invested over the past nine months since October 2015 providing the capital required to both support to the business development plans and also to allow us to "normalise" the Group structure through the acquisition of the remaining shares in Koovs India which saw that business become a wholly-owned subsidiary in May 2016.

It has been a very busy and dynamic period for the Koovs group and I thank all of our staff in both the UK and India for their focus and hard work, while looking forward to an exciting and even busier period ahead.

Waheed Alli

Chairman

28 July 2016

OPERATING REVIEW

Objectives and strategy

Our objective is to build KOOVS.COM into India's leading western fashion destination by 2020.

Our strategy continues to focus on five elements:

Build the Koovs private label - which has been extended into denim and a range of fashion basics to support the more directional products. The Koovs label accounts for 45% of our sales and we intend to increase that to over 50%;

Bring international brands to India - we constantly review and amend our range of brands and currently carry over 150 different brands from around the world. During the year we added Boohoo which has achieved great success in the UK.

Extend fashion credentials - we have continued our run of exclusive collaborations with high profile designers including Pankaj & Nidhi, star designers from Mumbai, and shortly to include Hattie Stewart from London.

Delivery and price promise - our refinement of our pricing architecture has resulted in a lower average sale price across the ranges, providing a more accessible offer for our customers and we are now working with six courier companies in order to access the best delivery options for our customers.

Technology - the Koovs fashion hub "The Hotlist" provides a constantly updated feed of fashion news, style advice, celebrity updates and guides to interesting events, providing more reason for our customers to visit the site. Our app continues to be the most-used access to the site and an update is being prepared for launch in the early autumn. The main site also continues to be developed, with recent changes including easier check-out, the ability to offer "complex promotions" and improved size guides.

Operations and trading performance

As shown by the Key Performance Indicators discussed below, the business achieved very strong growth during the financial year, supported by a focussed and efficient advertising campaign in the autumn of 2015 which achieved its aim of increasing brand awareness among Koovs' target customers from below 1% to 8% at the peak. The campaign was targeted at the major conurbations and used a combination of TV, outdoor and press advertising with an innovative and eye-catching creative exuding the style, fun and youthfulness of the Koovs brands.

Our overall aim is to increase our share of the youth fashion market to over 10% by 2020 and to do this we will continue to invest in strong, targeted and efficient marketing campaigns. The second phase of the "Step into Koovs" campaign launched in late April 2016, again using TV and press and covering a broader range of cities. Subsequent campaigns are being planned for autumn 2016.

Our database of customers now stands at over 1.2 million and the proportion of customers who are returning to buy again shows a steady increase even as the total number of active customers (those who have purchased in the last 12 months) increases, now standing at over 300,000.

Key performance indicators

The Group supplies branded fashion garments and accessories for exclusive distribution through the KOOVS.COM website including international fashion brands, iconic British high street brands and Koovs own-label product designed by a talented team based in London. We monitor the Group's performance in a number of ways including assessing the performance of KOOVS.COM, which, although it is operated by Marble E-retail Private Limited ("Marble"), an independently owned and managed company, reflects the performance of the products and marketing managed by the Group. The statistics are generated internally with the use of website monitoring tools and data supplied by the operator of the website. The Group monitors such metrics as the gross value of orders received (value of orders placed, including VAT), visits to the website (number of times the website is accessed; "traffic"), the rate of conversion of that traffic to sales orders (number of orders generated divided by the number of visits to the site), and the average value of orders placed and the net sales (value of sales orders including VAT, net of orders cancelled, not delivered or returned by the customer). Each of these reflect the success of the Koovs brand and the KOOVS.COM website which is the Group's major customer and whose success is fundamental to the success of the Group. 

Over the past year, compared with the previous year, we have achieved the following:

*in relation to the Koovs.com website

The Board also monitors the Gross Margin generated by the business. The reported Group gross margin is currently negative, reflecting the limitations caused by the business's limited scale and the resulting purchase prices of goods offered for sale along with the effect of offering a broad range of products while volumes are low.

The group gross margin reported in these financial statements is the margin generated on the sales of product to Marble, the operator of the KOOVS.COM website. The Group also monitors the "trading gross margin". The trading gross margin considers the gross profit implied by the net price at which goods are sold to consumers by Marble and the cost which Koovs incurs in buying the products from suppliers. The helps the business understand the dynamics of the market and to properly plan its product strategy. This trading gross margin, which is currently in the mid-single digits, has shown good improvement in the year.

Current trading and outlook

In the early weeks of the new financial year we have continued to achieve strong year-on-year growth in traffic to the website and gross order values. Our aim is to carry on building market share and significantly grow the orders placed on the website over the year through maintaining a strong and carefully targeted product offering and increasing awareness of the brand through carefully selected but high-profile marketing campaigns, the first of which launched in May 2016. The Group's business plan envisages rapid growth in revenues and improvement in margins so that the combination of increased scale and improved profitability results in a profitable and cash-generative business. To achieve this, the Board expect to implement the next phase of the staged equity funding plan in the latter part of the current financial year.

FINANCE REVIEW

The financial results of the Koovs plc Group in this report cover the year ended 31 March 2016.

The Group's principal activity is that of supplying branded fashion garments and accessories for sale by a third party through a branded website principally in the Republic of India.

Financial results

The Group achieved revenue of INR512.4 million / £5,198k (2015: INR204.1 million / £2,075k) during the year from the wholesale of fashion garments and accessories to its sole customer for onward sale to consumers. In these early days of development and relatively low volumes, gross margins are low and therefore the Group generated a gross loss of INR235.0 million /£2,383k (2015: INR85.6 million /£869k).

Overhead costs comprise the costs of the design and merchandising team in the UK, the creative, content, marketing and IT teams in India, infrastructure costs, marketing expenditure and corporate costs. Altogether this amounted to INR1,452.8 million / £14,738k (2015: INR977.2 million / £9,932k) during the year to give an operating loss of INR1,687.8 million / £17,121k (2015: INR1,062.8 million / £10,801k).

Interest income arising mainly in India, net of finance expenses, amounted to INR37.4 million / £380k (2015: INR140.2 million / £1,425k) to give a loss before tax of INR1,650.4 million / £16,741k (2015: INR922.6 million / £9,376k).

Taxation

Due to the losses generated in the period, and the likelihood that it will be some time before tax losses can be utilised, no deferred tax has been accounted for and therefore there is no tax charge or credit in the current or prior period.

Loss for the period

The loss for the period was INR1,650.4 million / £16,741k (2015: INR922.6 million / £9,376k). As described in this Strategic Report, the business is in the early phase of a plan to create a significant business in India and the losses reflect the low but rapidly growing sales revenue and the overhead base which has been put in place to support significantly larger volumes.

Basic earnings per share

Earnings per share amounted to a loss of 36.7 rupees / 37.2 pence per share based on the loss attributable to equity holders of INR1,045.2 million / £10,602k and weighted shares in issue of 28,482,540. The loss per share in the previous period was 27.1 rupees / 27.6 pence based on the weighted shares in issue of 24,110,719.

Cash flow and funds

During the year to 31 March 2016 the Group utilised INR1,537.2 million / £15,594k (2015: INR1,044.4 million / £10,614k) in operations mainly funding the operating losses and increasing inventory in support of the growing sales.

During the year to 31 March 2015 excess funds were deposited with a range of banks in India. Subsequently, during the year to 31 March 2016, the majority of these funds were withdrawn in order to provide funding for the business. After allowing for the interest generated on the deposits and investments in fixed assets, the net increase in cash from these activities was INR1,157.2 million / £11,738k (2015: net decrease in cash of INR1,179.2million / £11,983k).

As noted in the Annual Report for the year to 31 March 2015, the Board of Directors implemented a Capital Raising process during the year resulting in the issue of new equity shares. The proceeds from the Capital Raising process during the year to 31 March 2016 amounted to INR545.3 million / £5,550k (2015: nil) before costs of INR27.6 million / £280k (2015: nil). In addition a loan of INR62.2 million / £631k was put in place to provide further flexibility in the funding of the business.

As a result of these movements, the net increase in cash and cash equivalents was INR191.8 million / £1,962k (2015: net decrease of INR2,226.0 million / £22,601k). The closing net cash and cash equivalents was INR127.6 million / £1,340k (2015: overdraft of INR54.7 million / £592k).

Taken along with the bank deposits the Group had access to INR241.5 million / £2,536k (2015: INR1,266.9 million / £13,712k) at the end of the financial period as described in Note 5.

Financial position

At the end of the financial period the net assets of the Group amounted to INR844.2 million / £8,865k (2015: INR1,967.3 million / £21,290k). This included INR621.2 million /£6,524k of goodwill arising from the acquisition of Koovs India. Further information on the funding position of the Group is given in the Directors' Report and in the next section of this report.

Principal risks and uncertainties

There are a number of market and business risks that could affect the Company and the Group. We set out below the Group's view of the main risks which, should any actually materialise, could materially adversely affect the Group's business, financial condition and returns to shareholders. Further risks and uncertainties which are not presently known to the Directors at the date of this document, or that the Directors currently deem less significant, may also have an adverse effect on the business, financial condition or results of the Group.

Funding

The Group's business plan envisages a period of investment in marketing, product and the warehouse in order to grow the business to significant scale over the next three years and through to profitability.

In September 2015 the Board set out its intention to raise new equity funding over the next three years and subsequently announced an intention to normalise the Group structure at an additional cost of approximately INR900 million / £9 million.

Initial equity issues were successfully concluded in October 2015 and January 2016 generating new investment amounting to INR545.3 million / £5,550k. Subsequently, in April and May 2016, a further INR2,534.0 million / £26,200k was raised. Of this, INR869.8 million / £9,039k was utilised in May 2016 to acquire the remaining portion of Koovs India not already owned by the Company.

The capital raising process has therefore secured a total of INR2,209.5 million / £22,711k for the funding of the business. The Board is planning to resume its capital raising process in the autumn of 2016 and based on the success of the process so far, is confident that appropriate funding will be secured in due course.

Market and Economic Risks

Economic outlook

The Group's revenue is dependent on the sales by Koovs India to Marble which, in turn, is dependent on the retail sales Marble achieves, so the Group is sensitive to the impacts of the general economic climate in India and on the population's propensity to spend on fashion clothing and accessories. Global economic factors may impact the costs of inputs such as cotton and fuel and the Group's ability to pass on such cost increases may be limited. The Board monitors projections for the Indian economy on a regular basis and amends plans based on the expected growth.

Market and competition

The retail fashion industry and market is subject to changing customer tastes. The Group's performance is dependent upon effectively predicting and quickly responding to changing consumer demands and translating market trends into saleable merchandise. Internet fashion retailing is global and highly competitive. Any failure by KOOVS.COM to compete effectively with bricks and mortar retailers and other internet retailers may affect the Group's revenue. The Group uses third parties to provide assessments of the developments of fashion in the global markets and designers attend international trade shows to provide direction and inspiration.

Suppliers

The Group makes arrangements with manufacturers for the supply of products designed by the Group. The ability to source products promptly at competitive prices and at appropriate quality is key to the success of the business and while there is a broad range of potential suppliers and well-developed competition in the market, the Group is dependent on being able to find appropriate manufacturing capability for its products in order to meet delivery, quality and price expectations. The Group uses a broad range of suppliers within the Indian market and also internationally and ensures that there is no concentration of supply. The employment of experienced sourcing experts ensures access to a broad range of manufacturing capability.

Foreign country and political risk

Most of the Group's personnel, operations and other assets including Koovs India's warehouse, all inventory and computer servers are located in India and, consequently, the Group is subject to changes in regulations or market conditions in that country. With the majority of operations located in India, local management maintain close monitoring of local developments and amend plans as necessary.

Financial risks

Interest rate risk

The Group's exposure to interest rate risk arises from the fluctuations in the rate of interest income or charges on cash and cash equivalent balances. In the period under review, the Group has operated in a net cash position. UK interest rates continue to be very low and therefore the potential adverse interest rate risk in the UK is very low. Interest rates in India are in the region of 9% and the majority of the Group's cash is held in Indian Rupees in India. There is therefore a potential adverse interest rate risk affecting the interest income generated in India. No interest rate hedging is in place. The bank deposits are made for a variety of tenures to balance liquidity and security of interest generation.

Currency risk

The Group operates in the United Kingdom and India. Following the acquisition of Koovs India, all revenues and the majority of costs are denominated in Indian Rupees. However, approximately half of the Group's overheads are incurred in Sterling and therefore the Group results are susceptible to fluctuations as a result of changes in exchange rates. No foreign currency hedging is in place to mitigate this risk.

Credit and customer risk

The Group's revenues arise predominately from invoices for goods to a single customer. As Marble is currently the only channel through which Koovs India's products are sold to consumers, the Group's revenue is dependent upon the relationship with Marble and upon the success of Marble in servicing its customers, delivering products as promised, recovering payment from its customers and maintaining high levels of customer service. The Group has considered the credit risk associated with the customer and has assessed the credit worthiness of the customer to be good. The Group minimises the risk through a requirement for prompt, monthly payment of invoices issued to which the customer is committed and has demonstrated consistent adherence.

Liquidity risk

Liquidity risk is managed through the assessment of short, medium and long-term cash flow forecasts to ensure the adequacy of funding in order to meet the Group's working capital requirements. As described in the Directors' Report, in September 2015 the Board set out its intention to raise up to INR3,500 million / £35 million of equity funding over the next three years and subsequently announced an intention to normalise the Group structure at a further cost of INR900 million / £9 million. The Board and its advisors have therefore been engaged in a staged capital raising process which has secured additional equity funding amounting to INR3,079.3 million / £31.75 million by the date of this report. The Company has completed the normalisation of the Group structure and has retained sufficient funds to support the next phase of the business plan. Plans for the next phase of the Capital Raising will be prepared in due course.

Other risks

Technological risks

The Group is dependent on its IT infrastructure and any system performance issues (for example system or infrastructure failure, damage or denial of access) could seriously affect our ability to trade. The infrastructure has been designed specifically for robustness, flexibility and scalability and these objectives form a core part of the IT development strategy.

Warehouse disruption

Any disruption to the Group's warehousing facility due to physical property damage, breakdown in warehouse systems, capacity shortages or poor logistics management could lead to significant operational difficulties in order fulfilment, which may have a consequent adverse effect on the Group's business. The Group has recruited an experienced logistics manager to oversee these operations.

Intellectual property and content liability

The business of the Group carries with it the risk of intellectual property right infringement. The Group may need to engage in litigation to enforce its intellectual property rights, or to protect itself from third party claims. Our designers are professionally trained to ensure that intellectual property rights are appropriately handled. Competitors' products are regularly monitored and any infringement brought to managements' attention.

Key personnel

The Group depends on the services of its key technical, marketing and management personnel. The Group personnel structure is being developed as the business grows to provide appropriate quality, depth of experience and succession planning.

On behalf of the Board of Directors

Mary Turner Robert Pursell

Director Director

28 July 2016 28 July 2016

Consolidated Income Statement

for the year to 31 March 2016

All results relate to continuing operations.

Consolidated Statement of Comprehensive Income

for the year to 31 March 2016

All results relate to continuing operations.

Consolidated Statement of Financial Position

at 31 March 2016

Consolidated Statement of Changes in Equity

for the year to 31 March 2016

Consolidated Statement of Cash Flows

for the year to 31 March 2016

1. Basis of preparation

Whilst the information included in this condensed consolidated financial information ("preliminary announcement") has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs") as adopted for use in the European Union, this preliminary announcement does not itself contain sufficient information to comply with IFRSs.

The financial information contained within this preliminary announcement for the period to 31 March 2016 does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. The Report and Financial Statements for the period to 31 March 2015 have been filed with the Registrar of Companies and those for the period to 31 March 2016 will be filed by 30 September 2016. This preliminary announcement has been prepared on a basis consistent with the financial accounting policies set out in the Accounting Policies section of the Report and Financial Statements for the period ended 31 March 2016.

The Group's annual report for the period ended 31 March 2015 is available for viewing and downloading from the Group's corporate website: www.koovs.com/corporate. The annual report will also be circulated to shareholders.

The Auditors' Report on those accounts states contains a statement under s498(3) of the Companies Act 2006 that an emphasis of matter has been included referring to the matters described in the going concern section below.

The condensed consolidated financial information contained in this report should be read in conjunction with the Group's Report and Financial Statements for the period ended 31 March 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

The Group's business activities together with the factors that are likely to affect its future developments, performance and position are set out in the Operating Report. This describes the Group's financial position and cash flows and also highlights the principal risks and uncertainties facing the Group. The Report and Financial Statements for the period ended 31 March 2016 includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.

Going concern

These condensed consolidated financial statements have been prepared on the assumption that the business is a going concern.

The Board identified, in the Annual Report for the year ended 31 March 2015 (published in September 2015), that approximately INR3,500 million / £35 million of additional funding would be required over the next three years. In addition to the operational funding, shareholders have requested that the ownership structure of the Koovs Group should be "normalised", requiring that the remaining shares in Koovs India which were not already owned by the Group should be purchased, a process which required a further INR900 million / £9 million of funding, bringing the total investment required to INR4,400 million / £44 million.

The Board and its advisors have therefore been engaged in a staged capital raising process which has secured additional equity funding amounting to INR3,079.3 million / £31.75 million by the date of this report. Of this, INR869.8 million / £9 million was used, during May 2016 to acquire the remaining shares in Koovs India, which is now a wholly-owned subsidiary.

The remaining operational funding secured during the capital raising is sufficient to fund the business until May 2017, subject to the level of marketing investment during year and the achievement of the growth forecasts. The Board expects to resume the staged capital raising process in the autumn of 2016 with the aim of securing sufficient funding to carry the business to positive cash flows based on, and subject to achieving, any revised forecasts.

The success of the recently completed capital raising and the on-going support from existing shareholders give the Board a high level of confidence that further funding will be secured in due course and therefore the Board has reasonable expectation that the Group and Company will have adequate resources to continue in operational existence for the foreseeable future.

The Directors therefore consider it appropriate for these financial statements to be prepared on a going concern basis.

Given the requirement for further funding, there remains material uncertainties related to the next stages of the Capital Raising and the achievement of the growth forecasts that casts significant doubt on the entity's ability to continue as a going concern and, therefore, that the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. These condensed consolidated financial statements do not contain the adjustments that would result if the company was unable to continue as a going concern.

2. Revenue

Revenue recognised in the Income Statement is analysed as follows:

The Group's sole operation was that of supplying fashion garments at wholesale to third parties. All of the revenue was generated in the Republic of India, based on the location of the customers.

Operating segment

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

Information about major customers

All of the revenue arising from the sale of fashion garments arises from one customer.

3. Operating loss

Operating loss is stated after charging / (crediting):

All operating expenses are administrative by nature. 

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 dividing the earnings attributable to the owners of the Parent Company by the weighted average number of ordinary shares in issue during the period, adjusted for the effects of potentially dilutive share options. The effect of the share options in issue is anti-dilutive and therefore no adjustment has been made to the weighted average shares in issue for 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.