Seed Innov Regulatory News (SEED)

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Seed Innovations Ltd / AIM: SEED / Sector: Closed End Investments

20 April 2023

SEED Innovations Ltd ("SEED" or, the "Company")

Sale of South West Brands to OTO International for £6.2 million

SEED Innovations Ltd, the AIM quoted company focusing on making investments in fast growing and industry leading businesses with a focus on the medical cannabis, health and wellness space, is pleased to announce that its portfolio company, South West Brands Limited ('SWB') has entered into a Sale & Purchase Agreement ('SPA') for the sale of SWB to female founded OTO International Limited ('OTO') for an enterprise value of £6,235,000 to be paid in OTO shares (the 'Sale'). OTO is an omni-channel premium wellness brand renowned for its use of holistic plant ingredients and CBD in its portfolio products and since inception in 2018 has delivered year-on-year revenue growth of 100% and is in a strong position to scale and reach profitability in the near term, whilst continuing to build significant brand equity across multiple territories.

SEED will receive a total of £423,000 in OTO ordinary shares following conversion of the CLN's SEED holds in SWB and will be repaid cash of £167,000, being repayment of the £150,000 8% Convertible Loan Note ('CLN') plus accrued interest of £17,000, invested on 4 October 2021. Following a total investment into SWB of £500,000 by SEED, the total return represented by the Sale is £590,000, a blended return of 1.18 times the original investment.

Following the completion of the Sale, SEED will hold 71,502 ordinary shares representing 1.4% of OTO.

About OTO

OTO is a premium wellness brand renowned for its use of holistic plant ingredients and CBD in its portfolio products.  Founded by Gemma Colao and launched in the Harrods Beauty Hall in 2019, OTO's positioning as the premium wellness brand of choice has enabled the business to build three diversified and robust revenue streams (including retail, spa and e-commerce) across multiple territories including the UK, USA, Japan and Europe. Desirable premium and luxury partners include global 5* properties such as the Mandarin Oriental, Soho House and Rosewood Hotels, online retailers including Lookfantastic, and luxury retailers including Harrods, Liberty of London and Selfridges to name a few.  

OTO has raised £8.7 million to date, predominantly from early-stage venture capital and high net worth individuals. Capital has been deployed to establish a first-class in-house R&D and product innovation capability, and to build design, sales and marketing capability.

OTO has delivered c.£4 million of sales to date with a gross margin of over 60% and year to date is showing year-on-year revenue growth of over 100%.

Ed McDermott, CEO of SEED, commented:

"I am pleased to be able to report the sale of South West Brands to OTO International in what I consider to be a good outcome for both SWB and for SEED. As we have spoken about on several occasions in recent months, it has been a very hard market for both small cap companies in general, and in particular CBD and cannabis related companies, and for SWB to be acquired for some £6.2 million is testament to the hard work and dedication shown by Rebekah Hall and her team in such a testing environment.

"I welcome the diversification of risk inherent in being part of a broader stable of brands, as well as the strong fund-raising history of OTO, which bodes well for any future support as the enlarged OTO Group further develop their brands and markets. As a new investor in OTO, the board and I look forward to reporting on future success and developments of both OTO and its underlying brands as they develop and leverage their cross-category expertise."

Rebekah Hall, Founder, South West Brands said: "The acquisition of SWB by OTO provides huge acceleration in our mission to build a portfolio of global female focused wellness brands that serve our customers at the cutting edge of innovation. Women's health and wellbeing has long been underserved in the consumer goods industry. In OTO, a fellow female founded and focused business, we have found a shared vision, ethos and drive. The enlarged OTO Group will undoubtedly be an exciting and dominant force in the wellness industry which I look forward to being part ofI."

James Bagley, CEO at OTO Group said: "The consumer need for well-being and self-care products is on the rise, with the global wellness market already worth trillions, and still growing at c.5.5% CAGR. The market is at an inflection point, as early players and sub-standard products make way for leading brands and lifestyle propositions that are thoughtful, effective, and set to drive explosive growth."

Having worked with, and for, so many exceptional people over the years - it's the privilege of a lifetime to now be working for such extraordinary female founders in Gemma and Rebekah, as well as the board and the whole team. I'm proud of what we've achieved, and enthusiastic about what's next!"

Further Details

SWB has entered into an SPA for the sale of SWB to OTO International Limited for an enterprise value of £6,235,000 to be paid in OTO shares.

To date, SEED has invested a total of £500,000 into SWB via four CLN's, as previously announced, and summarised as follows:

1. £250,000 into CLN1 - a two year, 6% CLN

2. £50,000 into CLN2 - a 12-month, 8% CLN (later rolled into CLN4 as announced on 8 August 2022)

3. £150,000 into CLN3 - 12-month, 8% CLN*.

4. £50,000 into CLN4 - a three year, 8% CLN (£50,000 new money, plus roll up of CLN2's £50,000) 

* CLN3 came to maturity in October 2022 and was extended to January 2023 following which SEED requested repayment. A repayment plan has been agreed and will occur during 2023 (post-closing of the Sale)

SWB management have agreed the sale of SWB to OTO for a headline price of £6,235,000 (excluding the £167,000 CLN repayable to SEED), payable in equity to be issued by OTO based on a £23.5 million valuation (that valuation being implied by the issue price of shares at OTO's most recent fundraising). On completion of the Sale, OTO will be valued at c.£30 million.

SEED will receive a total of £423,000 in OTO ordinary shares and will be repaid cash of £167,000, being the £150,000 8% Convertible Loan Note ('CLN') plus accrued interest of £17,000, invested on 4 October 2021. The £167,000 will be repaid during 2023 on a time frame yet to be agreed.

Following a total investment into SWB of £500,000 by SEED, the total return represented by the Sale is £590,000, a blended return of 1.18 times the original investment.

The balance of the investment of £350,000 plus accrued interest, a total of c.£390,000 will convert to SWB equity as part of the sale process and will be sold to OTO at a price of £423,000, an effective return of 1.2 times against the original investment of £350,000, such proceeds to be settled by the issue of OTO shares. Following the completion of the Sale, SEED will hold 1.4% of OTO.

In the last published financial statements for the 18-month period ended 30 September 2021 OTO reported a Loss of £2.5M.

- ENDS-

For further information on the Company please visit www.seedinnovations.co or contact:

Notes

SEED Innovations is an AIM quoted investment company focused primarily on disruptive high growth life sciences and technology businesses particularly within the medical cannabis arena. The Company's strategy is to identify early-stage opportunities that have an upcoming investment catalyst and grow its portfolio in terms of value whilst limiting the number of investee companies to a level where relevant time can be devoted to each.

The OTO Group offering, on completion, consists of an exciting and uniquely positioned portfolio of brands in fast growing consumer sectors, with products perfectly positioned to take share across beauty, female wellness, personal care and spa.

● OTO - Aspirational wellness by lifestyle brand with premium skincare and a innovative spa and hotels proposition (including iconic, global 5* properties such as Mandarin Oriental), luxury retail (Harrods, Liberty's, Selfridges to name a few) and DTC route to market, featuring some of the most awarded wellness and beauty products of a start-up over the last three years.

● FEWE - The leading UK brand for female menstrual/perimenopausal wellness; The product range targets fully inclusive cycle care and includes supplements, intimate care and fragrance; 30-50 year-old 'masstige' market.

● LoveMeMeMe - A TikTok creator-led skin and bodycare brand. Relatable, gender-neutral, and unashamedly promoting self-love through acts of self-care; Utilising active skincare ingredients to promote affordable, yet effective skin and body-care routines; Viral brand, Gen-z focused

● Botanic Lab - The first brand in Europe to create a CBD-infused soft drink; Grocery,

 With Novel Food clearance, Botanic Lab is one of under 10 brands able to sell CBD drinks in the UK and Europe.