Science Sprt Regulatory News (SIS)

AIM: SIS

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018.

SCIENCE IN SPORT PLC

("Group" or "Company")

Interim results for the six months ended 30 June 2022

External headwinds adversely impacted H1

Action taken to re-position business for profitable growth

Science in Sport plc (AIM: SIS), the premium performance nutrition company serving elite athletes, sports enthusiasts, and the active lifestyle community, announces interim results for the six months to 30 June 2022.

Revenue Growth In A Challenging Environment

Despite a challenging environment, revenue grew by 10% in H1. After a strong start in Q1, following our consistent ten-year high growth pattern, the business was impacted by global events and specific one-off events affecting sales and costs.

A range of actions to lower costs and underpin sales growth has subsequently been taken, and we see this reflected in September trading. We expect this momentum to carry into the final quarter of the year.

Underlying EBITDA* is lower than planned, with an adjusted loss of £2.3m for H1, with lower than expected growth given sharply reduced shopper confidence, input price increases, supply chain issues in the USA, and the closure of the Russia business. The decisive corrective actions are expected to restore monthly EBITDA profit during 2023.

Rapid Action To Offset External And One-Off Cost Issues

Unbudgeted raw material and carriage costs, as notified in the July trading update, and £0.3m in restructuring costs will add £2.9m to costs in 2022. We have made cost reductions in several areas, totalling £1.9m savings and annualising to £2.7m in 2023. We are in the closing stages of implementing price increases across all channels and customers, and this will deliver up to £1m incremental revenue in 2022.

Several longer-term projects and tertiary markets have been closed to preserve capital further. We have also driven aggressive reductions in inventory levels.

The closure of our business in Russia, supply chain issues in the USA, plus a July and August supply issue for PhD Smart Bars have cost us £4.3m in sales in the year to date. With inventory in the USA and Smart Bar supply back to normal, we expect a stronger close to the year.

Strategic Investment Is Complete

Our decade-long high growth trajectory required us to invest in additional manufacturing and supply chain capacity to meet our strategic plan and maintain our competitive edge in gross margin. We completed a £7.5m investment in our 160,000 sq. ft. world-class supply chain site with supply capability for over three times current sales. It opened on schedule as a logistics operation in April. In September, we finished the commissioning of the gel line, two protein lines and installed our e-commerce packing operation. We are pleased to report that the operation is delivering savings in line with the investment case, with further efficiencies anticipated in 2023.

Proposed Fundraise

The Company is launching an equity fund-raise by way of a placing of ordinary shares of approximately £5.0m (the "Placing"), before expenses, immediately following this announcement. The purpose of the Placing is to strengthen the Company's balance sheet in the event there is any further downturn in the economy or any unexpected input material cost or other costs.

Full details of the Placing will be set out in an announcement to be published by the Company immediately following the publication of this announcement.

HIGHLIGHTS

· Revenue up 10% to £32.3m (H1 2021: £29.3m), double-digit growth despite a challenging economy and sharply reduced consumer demand

o  strong PhD performance with sales up +25% to £16.7m and SiS sales in line with last year at £15.5m

o  non-UK sales increased to 45% of total sales (H1 2021: 40%)

· Retail sales showed strong growth +9% to £14.7m

o  International retail sales up by +7% to £5.5m (H1 2021: £5.2m)

o  UK retail sales up by +10% to £9.2m (H1 2021: £8.4m)

· Online sales growth of 11% to £17.5m with Marketplace up +24% on strong Amazon trading and China growth. Online sales are 54% of overall sales (H1 2021 £15.7m; 54%).

· Gross margin 43% (H1 2021: 52%), reflecting material cost inflation (5.9%), increased fuel costs (0.6%), brand mix (2.0%), stock clearance (1.6%) and China margin impact (2.2%).

· Underlying* EBITDA loss of £2.3m (H1 2021: underlying operating profit of £0.6m) excluding non-recurring non-cash items totalling £0.5m for inventory consolidation and R&D.

· Capital investment increased to £4.6m (H1 2021: £2.7m), representing the final investment in the new supply chain facility in Blackburn, which is fully commissioned with the gel line operational.

· Headroom of £5.1m and net debt of £7.2m at 30 June 2022 reflecting investment in the Blackburn facility and the impact of external economic conditions on trading in the half (31 Dec 2021: £2.7m cash and 30 June 2021: £7.5m)

* Underlying EBITDA excludes interest, tax, depreciation, amortisation, share-based payments, foreign exchange variances on intercompany balances and non-cash & non-recurring items set out in note 3 to the financial statements.

Stephen Moon, Chief Executive Officer of Science in Sport plc, said:

"After a strong start to the year, weakening consumer demand, temporary supply chain issues and input cost increases have combined to impact our trading. Positively, our premium brands have enabled us to increase prices across all channels to help offset external factors and we have responded proactively, reducing costs with a focus on cash generation.

Our investment in our new Blackburn site and in digital technology is complete and is delivering returns in line with the investment cases. Whilst sales are broadly in line for the year, there remain uncertainties and headwinds due to the macroeconomic environment. However, we are confident that our leaner operating model, the investment in our platform and the strength of our brands, together with our proven growth record, will result in a profitable growth business."

About Science in Sport plc

www.sisplc.com

Headquartered in London, Science in Sport plc is a leading sports nutrition business that develops, manufactures, and markets innovative nutrition products for professional athletes, sports and fitness enthusiasts and the active lifestyle community. The Company has two highly regarded brands, PhD Nutrition, a premium active‐nutrition brand targeting the active lifestyle community, and SiS, a leading endurance nutrition brand among elite athletes and professional sports teams.

The two brands sell through the Company's phd.com and scienceinsport.com digital platforms, third‐party online sites, including Amazon and Tmall, and extensive retail distribution in the UK and internationally, including major supermarkets, high street chains and specialist sports retailers. This omnichannel footprint enables the Company to address the full breadth of the sports nutrition market, forecast to be £13 billion1 worldwide by 2023.

PhD is one of the UK's leading active nutrition brands with a reputation for high quality and product innovation. The brand has grown rapidly since its launch in 2005. The range now comprises powders, bars, and supplements, including the high protein, low sugar range, PhD Smart. PhD brand ambassadors include leading fitness influencers Ross Edgley and Obi Vincent.

SiS, founded in 1992, has a core range comprising gels, powders and bars focused on energy, hydration, and recovery. SiS is an official sports nutrition supplier to over 330 professional teams, organisations, and national teams worldwide, including INEOS Grenadiers Cycling Team. SiS supplies more than 150 professional football clubs in the UK, Europe, and the USA. SiS is Performance Research Partner to the English Football Association and Official Vitamins and Supplements Partner to the Milwaukee Bucks, 2021 National Basketball Association Champions.

For further information, please visit phd.com and scienceinsport.com

1 Euromonitor Passport Database Global Assessment (December 2020)

INTERIM REPORT

Introduction

Trading over the first quarter of the financial year was robust, with 18% growth to the end of February and a record sales month in March. The second quarter saw consumer demand drop sharply in all channels in the sports nutrition sector, with online especially affected. We also saw an adverse sales impact as we exited our Russia business, and supply chain issues in the USA affected inbound shipping to the market. Sharp raw material price increases, such as whey and soy protein and maltodextrin, and fuel and logistics costs, adversely impacted gross margin.

Despite these headwinds, revenue rose by 10% to £32.3m, double-digit growth, although below expectations. Group gross margin percentage decreased to 43% from 52% in the prior year due to cost headwinds, brand mix, and stock clearance as part of inventory reduction. Underlying EBITDA* loss was £2.3m compared to £0.6m underlying operating profit in the prior year. This Underlying EBITDA loss excludes £0.5m of non-cash items, further described below and in note 3.

We have taken strong action to restructure the business, reducing costs and capital investment to ensure a leaner, more efficient operating model, providing greater resilience against ongoing external economic factors. We have leveraged our premium brands to secure price increases in all channels averaging 10%.

The new 160,000 sq. ft. Blackburn site is now fully operational and delivering expected efficiencies and cost savings in line with the business case. The project payback is less than three years, with savings from reduced logistics costs, lower manufacturing labour costs, and elimination of gel co-manufacturing. The accelerated investment cycle, which started in 2021 to deliver the strategic growth model, is now completed, with capital investment returning to historic levels of around £2m annually from 2023.

Financial Results

Revenue for the six months to 30 June increased by 10% to £32.3m (2021: £29.3m). PhD showed strong growth, with sales increasing 25% to £16.74m (H1 2021: £13.4m). Sales of SiS products were broadly in line with the prior year at £15.5m (H1 2021: £15.9m) following a very strong 33% growth in H1 2021. We continued to increase sales from international markets, with the reset of our China business commercials driving sales up 66% in the half. Non-UK sales now account for approximately 45% of the total (H1 2021: 40%).

Online sales increased by 11% to £17.5m (H1 2021: £15.7m) and made up 54% of total revenue (H1 2021: 54%), in line with the prior year. Sales via the Group's digital platforms were broadly flat at £7.5m (H1 2021: £7.7m), and sales from third-party marketplace sites rose by 24% to £10.0m (H1 2021: £8.0m).

Gross profit was £13.8m (H1 2021: £15.2m) with a gross margin of 43% (H1 2021: 52%) due to raw material and fuel price increases, brand mix, stock clearance and margin effect of the China trading relationship. Underlying EBITDA* loss of £2.3m was due to lower revenue growth, lower gross margin, higher logistics costs, and people retention costs (H1 2021: underlying operating profit £0.6m).

Underlying EBITDA excludes £0.5m of non-recurring, non-cash items. £0.32m of the non-cash non-recurring items were a provision for stock categorised as obsolete as part of our product range rationalisation, intended to be sold in the second half of the year. £0.1m is a stock write-down as part of consolidating four manufacturing and warehousing sites into the new Blackburn site. There is also a non-material item related to ceasing an R&D project.

Capital investment during the period was £4.6m (H1 2021: £2.7m), which was up on the prior year as we completed the Blackburn single-site facility, which is now fully operational. This transformational project delivering capacity for over £200m sales completes the multi-year accelerated capital investment cycle of supply chain and technology investment. This investment is integral to our growth strategy and provides a platform to drive future profitable growth.

Headroom was £5.1m and net debt was £7.2m at 30 June 2022 (31 December 2021 : £2.7m cash, 30 June 2021: £7.5m cash). This included £3.6m asset financing and hire purchase obligations. Cash at bank was £1.7m with £4.4m drawn down on the £8m flexible credit facility.

* Underlying EBITDA excludes interest, tax, depreciation, amortisation, share-based payments, foreign exchange variances on intercompany balances and non-cash & non-recurring items set out in note 3 to the financial statements.

Operational Review

We continue to target profitable revenues of £100m in the medium term, and our proven decade-long growth strategy remains unchanged.

Growing brand strength

Our product strategy focuses on elite and science-led innovation underpinning and strong premium brand. The integrity of our products is a critical differentiator, and we believe that our approach to banned-substance control is unmatched. The relationships and partnerships we have established as an official sports nutrition supplier to over 330 professional teams, organisations and national teams around the world demonstrate the world-class credentials of our products. 

We retain relationships with many leading professional sports teams and in August 2022 Tottenham Hotspur announced SiS as the Club's first Official Performance Solutions Partner for a 4-year term. SiS has developed a bespoke Performance Solutions Framework, custom designed to shape the Club's nutrition strategy.

Our Performance Solutions experts are similarly embedded in many leagues and sports associations across a wide range of sports, including the English FA, England and India's national cricket teams, and National Basketball Association teams.

Product innovation

Product innovation in the first half of the year focussed on developing specific products for Elite teams SiS partners with such as the Milwaukee Bucks, Ineos Grenadiers and Tottenham Hotspur and extending the specialist SiS Lab range. This elite-led, science-backed product innovation approach led to the development of the Beta Fuel range, which reset the limits for endurance fuelling. The science has been published in a leading peer review journal.

Online sales growth

Online sales are a major focus of our growth strategy, particularly internationally. We increased sales by 11% to £17.5m from £15.7m last year, with 54% of total sales now being generated digitally, in line with H1 2021, as retail sales growth has stepped up following the full easing of lockdown restrictions.

Our focus on our websites is primarily on the high-margin SiS sites, and we see positive trends in key metrics, with new technology driving growth. We adopted a new pricing and promotion strategy in June to underpin our premium brand strategy.

We have reduced investment in PhD on our websites, driving volume to third-party platforms to maximise growth and cash contribution.

We saw continued strong growth in key trading metrics from our websites, including average order value up 17%, conversion up 27% to 6.9% and average selling price up 35%. Sales were broadly flat at £7.5m (H1 2021: £7.7m) due to flat website traffic, a theme across the sports nutrition sector.

Sales via third-party marketplace sites, including Amazon, rose by 24%. Amazon traffic grew 3%, with Amazon Europe driving growth, especially the PhD brand, with China showing 66% growth as we strengthened our third-party marketplace presence as a category leader.

Increasing Retail sales growth

UK and international retail sales were resilient as we leveraged our strong UK business and implemented our focused international strategy. Retail remains a highly profitable channel and a key driver of brand awareness and product trial. UK retail sales were 10% higher at £9.2m (H1 2021: £8.4m) with growth in grocers, convenience, and discounters. International retail sales increased by 7% to £5.5m (H1 2021: £5.2m) with strong growth with strategic partner Shimano across Europe and distributor progress in Eastern Europe, Singapore, and Malaysia.

Blackburn facility

Our new facility in Blackburn was officially opened by Sir Chris Hoy in July and is delivering cost savings and efficiencies in line with the business case. The Blackburn site is a manufacturing, logistics, and e-commerce packing facility for both brands. The new eight-lane gel manufacturing plant is installed and successfully commissioned and producing gels with a significantly reduced production cost. Two protein lines are in place and fully operational.

Payback on the £7.5m investment is under three years, with savings from logistics, manufacturing cost reductions and elimination of gel co-manufacturing costs. We believe there are further efficiencies from 2023 as we bring the manufacturing operation up to speed.

We locked in energy costs at highly beneficial prices in February, with the contracts expiring in 2025 and 2027.

Environmental, Social & Governance

The move to the new Blackburn single site will reduce carbon emissions linked to internal material movements with further benefits from new energy-efficient equipment and lighting.

In the summer, we took on our second intake of interns in our new initiative with Career Ready, a national social mobility charity. This was supported by mentors from across the business. We continue to support three community sports programmes in Africa, the UK and USA.

Outlook

Our investment in our new Blackburn site and in digital technology is complete and is delivering returns in line with the investment cases. Whilst sales are broadly in line for the year, there remain uncertainties and headwinds due to the macroeconomic environment. However, we are confident that our leaner operating model, the investment in our platform and the strength of our brands, together with our proven growth record, will result in a profitable growth business.

Stephen Moon

Chief Executive Officer

Consolidated statement of comprehensive income

Six months ended 30 June 2022

All amounts relate to continuing operations

Consolidated statement of financial position

30 June 2022

Consolidated statement of cash flows

Six months ended 30 June 2022

Consolidated statement of changes in equity

Notes to the interim financial information

For the six months ended 30 June 2022

1. Basis of preparation

This interim report has been prepared using the same accounting policies as those applied in the annual financial statements for the year ended 31 December 2021.

The Directors believe that operating profit / (loss) before depreciation, amortisation, share based payments and foreign exchange variances on intercompany balances and exceptional items of Blackburn transition costs and restructuring items measure provides additional useful information for shareholders on underlying trends and performance. This measure is used for internal performance analysis.

Blackburn transition costs relate to one-off costs from opening the new Blackburn single-site facility including dual-running costs as existing facilities both internal and third party have been closed. Restructuring costs includes one-off people-related expenses from reduced headcount when implementing the new leaner organisation structure.

Underlying operating profit / (loss) is not defined by IFRS and therefore many not be directly comparable with other companies' adjusted profit measures. It is not intended to be suitable substitute for, or superior to IFRS measurements of profit. A reconciliation of underlying operating profit to statutory operating profit is set out on the face of the statement of comprehensive income.

The condensed financial information herein has been prepared using accounting policies consistent with International Financial Reporting Standards in conformity with the requirements of the Companies Act 2006 ("adopted IFRS") and as applied in accordance with the provisions of the Companies Act 2006. While the financial figures included in this interim report have been prepared in accordance with IFRS applicable for interim periods, this interim report does not contain sufficient information to constitute an interim financial report as defined in IAS 34. The Company has taken advantage of the exemption not to apply IAS 34 'Interim Financial Reporting' since compliance is not required by AIM listed companies.

This interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006 and has been neither audited nor reviewed by the Company's auditors BDO LLP, pursuant to guidance issued by the Auditing Practices Board.

The interim report should be read in conjunction with the annual financial statements period ended 31 December 2021.

The statutory Accounts for the last period ended 31 December 2021 were approved by the Board on 29 March 2022 and are filed at Companies House. The report of the auditors on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 of the Companies Act 2006.

The unaudited interim report was authorised by the Company's Board of Directors on 29 September 2022.

2. Segmental reporting

Operating segments are identified on the basis of internal reporting and decision making. The Group's Chief Operating Decision Maker ("CODM") is considered to be the Board, with support from the senior management teams, as it is primarily responsible for the allocation of resources to segments and the assessments of performance by segment.

The Group's reportable segments have been split into the two brands, SiS and PhD Nutrition. Operating segments are reported in a manner consistent with the internal reporting provided to the CODM as described above. The reportable segments are consistent with 2021 year end financial statements.

3. Operating expenses

The operating expenses above includes costs that were incurred in relation to transition to our consolidated supply chain facility in Blackburn along with costs arising from a restructure that has taken place.

These costs are not deemed to be recurring costs, as such they are not deemed to be part of the usual operating expenditure:

Management uses alternative performance measures as part of their internal financial performance monitoring, including Underlying EBITDA. The measure provides additional information for users on the underlying performance of the business, enabling consistent year-on-year comparison. The above non-cash non-recurring costs have been excluded in calculating Underlying EBITDA as follows:

4. Taxation

The corporation tax and deferred tax for the six months ended 30 June 2022 has been calculated with reference to the estimated effective tax rate on the operating results for the full year and taking into account movements in deferred tax assets and liabilities.

5. Loss per share

Basic and diluted loss per share is calculated by dividing the loss attributable to owners of the parent by the weighted average number of ordinary shares in issue during the period.

6. Share Capital

The number of ordinary shares in issue as at 30 June 2022 is 139,086,408 shares (31 December 2021 135,100,931).

The number of shares held by the EBT and referred to as Treasury shares was 4,618,960 (30 June 2021: 1,789,865, December 2021: 1,584,068).

7. Cautionary statement

This document contains certain forward-looking statements with respect to the financial condition, results and operations of business. These statements involve risk and uncertainty as they relate to events and depend on circumstances that will incur in the future. Nothing in this interim report should be construed as a profit forecast.

8. Copies of the interim report

The interim report for the six months ended 30 June 2022 can be downloaded from the Company's website www.sisplc.com. Further copies can be obtained by writing to the Company Secretary, Science in Sport plc, 16-18 Hatton Garden, Farringdon, London, EC1N 8AT.