Brand Architekts Group plc

("Brand Architekts" or the "Group")

Interim results

Brand Architekts Group plc, a market leader in the development and supply of beauty and personal care brands, announces its interim results for the 6-month period ended 31 December 2022

Business highlights:

·      Business focussed on driving our solution-led Invest & Nurture brands that can command higher retail prices, engender strong consumer loyalty and deliver stronger margins.

·      Initial stages of the InnovaDerma integration complete, core functions now based in the UK.

·      Skinny Tan launched into Sainsbury in September; new listings confirmed in Boots in January 23, Superdrug in March 23  and new launch into Waitrose for Spring 23.

·      Launched New Super Facialist Clear Skin, targeting problematic teenage skin care needs, on Amazon in September. Listing confirmed in Boots for June 23.

·      Planned launch of new Super Facialist D2C site in Spring 23, benefitting from InnovaDerma D2C and digital communications expertise.

·      35% growth vs the prior year in International channel sales driven by post covid rebound in volumes from General Merchandise stores across North America and Europe, benefitting in particular Dirty Works.

·      New distribution gains for Dirty Works in Ecuador and Guatemala and new launches confirmed in 200 Watsons stores in Thailand and Vietnam in June 23.

·      Strong sell through of Dirty Works Christmas gift sets in Sainsbury and to International customers.

Financial highlights:

·      Revenues for the period of £10.6m, an increase of 45% on the prior year (£7.4m) as a result of the acquisition of Innovaderma Plc at the end of May 2022.

·      Gross Profit Margin improved to 38.9% (H1 2022: 32.5%), reflecting the impact of the Innovaderma brand portfolio.

·      Underlying operating loss of £0.8m was in line with the prior year (H1 2022: £0.8m). Excluding Innovaderma, underlying operating loss improved by £0.3m to £0.5m from higher revenue and cost savings.

·      Loss before tax increased by £0.7m to £1.8m (H1 2022: £1.1m) owing to Innovaderma related exceptional costs and intangibles amortisation.

·      Net cash position as at the period end was £8.1m.

¹ Underlying operating (loss)/profit is calculated before exceptional items, share-based payments and amortisation of acquisition-related intangibles.

Quentin Higham, Chief Executive, commented:

"Throughout the period we focused upon driving the strategic benefits of the enlarged Group together with delivering the integration plan and simplifying the organisational structure. We have secured new distribution gains against our key Invest (Skinny Tan and Super Facialist) and Nurture (Dirty Works and The Solution) brands, both online and offline, domestically and Internationally. Our focus has been on implementing strategies that focus on profitability, whilst capitalising on the Group's new online and digital communications capabilities.

Despite facing a very challenging marketplace, with well documented headwinds including inflation and reduction of consumer discretionary spend, we are pleased that our results for the first half are in line with our expectations.  In the second half, as we enter the self-tanning season, we will look to implement an awareness and customer acquisition program for Skinny Tan so as to capitalise on its recent omnichannel distribution gains."

For further information please contact:

Brand Architekts Group PLC                                                                                      via Alma

Quentin Higham / Tom Carter

CEO's Review

The trading environment throughout the last six months has continued to be challenging, with the ongoing impact of the wider macroeconomic and geopolitical issues having reduced consumer disposable income and therefore consumption rates. The business has focused on mitigating the impact of cost price inflation on its gross margins by increasing its selling prices and tight control of costs.

Post Covid we have seen consumers reverting back to high street shopping behaviour which reinforces the need for an omnichannel sales approach. I am pleased to see some positive momentum in our brand reach deliverables, in particular confirmed brand launches and distribution gains planned for 2023. We will continue to focus on securing additional omnichannel distribution gains within the UK and Internationally.

Given the dynamic nature of the beauty and personal care space, it is vital that we continue to innovate and we are excited by the NPD planned for FY24, notably exciting problem solving initiatives for Skinny Tan; Super Facialist; The Solution as well as the relaunch of Fish and Dirty Works. We will be applying a digital first mindset to all new brand and product initiatives, whilst ensuring that we either meet or exceed our corporate sustainability pledge.  

Key achievements include:

·      Skinny Tan launched into Sainsbury in September; new listings confirmed in Boots in January 23, Superdrug in March and new launch into Waitrose for Spring 23.

·      Launched New Super Facialist Clear Skin, targeting problematic teenage skin care needs, on Amazon in September, launch confirmed in Boots for June 23.

·      Planned launch of new Super Facialist D2C site in Spring 23, benefitting from InnovaDerma D2C and digital communications expertise.

·      35% growth vs the prior year in International channel sales driven by post covid rebound in volumes from General Merchandise stores across North America and Europe, benefitting in particular Dirty Works.

·      New distribution gains for Dirty Works in Ecuador and Guatemala and new launches confirmed in 200 Watsons stores in Thailand and Vietnam in June 23.

Performance review

Revenues for the period of £10.6m, an increase of 45% on the prior year (£7.4m) as a result of the acquisition of Innovaderma Plc at the end of May 2022. Excluding Innovaderma, revenue improved by 4%, driven by strong international sales that were partially offset by lower UK retail and DTC trading. Gross Profit Margin improved to 38.9% (H1 2022: 32.5%), reflecting the margin accretive impact of the Innovaderma brand portfolio.

Underlying operating loss of £0.8m was in line with the prior year (H1 2022: £0.8m). Excluding Innovaderma, underlying operating loss improved by £0.3m to £0.5m from higher revenue and cost savings. Loss before tax increased by £0.7m to £1.8m (H1 2022: £1.1m) owing to exceptional costs relating to integration restructuring activities and an increase in amortisation from Innovaderma acquired intangibles.

Net cash position as at the period end was £8.1m, absorbing the operating loss in the period, payment of accrued acquisition transaction and restructuring costs and other working capital changes.

Progress made against the Group's new strategic pillars is outlined below:  

1.   Brand Development

The brand portfolio has now been split into 3 brand categories: Invest; Nurture and Harvest.

Invest Brands are those that have an omnichannel distribution and either have, or will have, their own DTC platform. Skinny Tan and Super Facialist have a masstige positioning and provide existing scale, but also have significant potential. Both brands are widely recognised within their respective categories and reflect key consumer trends.

Nurture brands encompass those brands within the portfolio that have exciting potential to broaden, from both a brand development and brand reach perspective, such as Dirty Works. Alternatively, they could be high-performance propositions, with a clear point of difference that answer the specific needs of the consumer, such as The Solution and MR.

Whilst we undergo this business transition to focus on margin accretive efficacious brands, it is important that we continue to manage a portfolio of low investment Harvest Brands. These brands, such as Argan and Root Perfect require minimal investment, competing on price and provide us with a stronger category share of voice and credibility with key customers

The following strategic Brand Development tenets have been applied to our Invest and Nurture brands:

·      Profitability:

Profitability remains the number one priority. A&P investment is focused only on the Invest and Nurture brands, thereby improving the profitability of the Harvest portfolio. We have also reduced the size and use of secondary packaging, which reduces impact on shelf but meets our sustainability pledge (recent examples are Fish Root Boost powder and the Dirty Works Shower Puff and Mitt products).

·      NPD/Consumer Insights

In H1 we launched a Limited Edition Skinny Tan mouse in collaboration with the breast cancer awareness charity CoppaFeel!. We launched the Super Facialist Clear Skin sub brand (targeting problematic teen skin) onto Amazon as well as two new Salicylic Acid products. We launched a Dr Salts+ 2kg Muscle Ease bath salts, specifically for Amazon and Costco. In January 2023 we will launch several exciting Skinny Tan extensions - Coconut Water; two Tanning Whips; an Instant 1 Day Tanner; a Miracle Tan Eraser and two tanning brush accessories. In the spring Skinny Tan will also launch an online exclusive 10-year celebration tanning mouse and a Cherry Tanning Drop. We will relaunch the Super Facialist for Men range and the MR Haircare brand, alongside some channel exclusive brand extensions, such as Dirty Works Skincare in TJ Maxx and three All Year Round Dirty Works gifts. NPD is an integral tenet to our long-term success and we are excited by the plans in place for the future, in particular with the 2024 launch of The Solution Menopause collection.

·      Digital 1st

To successfully transition our business it is vital that we not only put digital activity at the heart of our organisation, but that we drive our awareness and reach through 360-degree integrated plans. The Innovaderma D2C and social communications team is now fully integrated into the wider organisation. The Skinny Tan community has over 1 Million followers across channels and we are beginning to see improvements in Super Facialist's digital metrics. The digital team continues to push boundaries and the UGC (user generated content) programs have been extended across our key brands with investments made in Skinny Tan's TikTok activity, including TikTok Live Shopping and Creator (influencer) Affiliation activity.

·      Advertising & promotions (A&P)

A&P is prioritised to support our Invest and Nurture brands, with the objective of raising awareness; stimulating consumer trial and driving distribution. Skinny Tan has the largest A&P budget that is now spent to maximise omnichannel profitability. The appointment of a new PR agency for Super Facialist has seen a positive impact on brand impressions across digital and traditional press. The brand has appointed Charlotte Connolly as its residential skincare expert and brand ambassador, who has already delivered substantial coverage by providing educational content (i.e. video demonstrations). This will also be used for the new website, which will significantly improve the overall brand experience and drive brand consideration across channels.

2.   Brand Reach

Within the constraints of retailer range cycles, we have made some good progress in securing new distribution domestically and Internationally.

·      UK & International

In the UK, we launched the new Super Facialist Clear Skin range onto Amazon in early H1 and Boots have confirmed that they will be launching the range and The Solution Salicylic Body Gel into 271 stores in June 23. Skinny Tan launched in Sainsbury in September and launched in Waitrose in February. From January 23 we have listed all the Skinny Tan NPD into Boots; rolled out the Tan & Tone Wonder Serum collection into Superdrug and have extended our distribution of the brand in Boots and Asda.

The Solution launched into 100 new stores in Lily Drogerie in Serbia and in January the brand will launch into 160 dm stores in Croatia, as well as a roll out into Bosnia in March 23. Dirty Works launched in Guatemala in December and launched into Ecuador in February. Watsons have confirmed that the brand will be launching in over 200 stores in Thailand and Vietnam in June 23. 

·      D2C

The focus for spring 2023 is to further improve customer acquisition, improve customer retention (through better loyalty mechanics and more targeted emails using automation). Our UK CRM database has grown to 340k.  An omnichannel brand awareness campaign will start pre-peak season across all primarily social channels (skewed towards younger audiences), as well as influencer & PR initiatives. In addition, Skinny Tan's website will feature upgraded technology and incorporate new brand assets. By the Spring Super Facialist will has its own D2C site which will strengthen its omnichannel brand experience.

In 2024 we will launch The Solution D2C site to coincide with the Menopause range launch.

3.   ESG

Our 2020 sustainability pledge states that all brands are 100% recyclable, reusable and use bio-sourced plastic and packaging by 2025, we are currently at 76%. Any brand relaunch or any new product development must incorporate PCR and the sustainability of all raw materials are checked and verified. We now have 14 brands that are Animal Test-free, which has been certified by PETA.

Outlook

Despite the challenging headwinds, we believe we are beginning to see the benefits of the team's hard work over the past eighteen months, in particular with regards to new distribution gains. Our attention will remain on delivering our strategy and returning the Group to profitability.