InnovaDerma mulling bolstering the balance sheet as new CEO looks to sharpen strategic focus

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InnovaDerma PLC (LON:IDP), the company behind the Skinny Tan product, is looking to bolster its balance sheet to capitalise on opportunities once the lockdowns end.


The UK developer of beauty, personal care and life sciences products said the continued impact of the coronavirus (COVID-19) pandemic and tighter lockdown rules hit its trading performance over the important festive season.


The company said it expects full-year revenue for 2020 to be around GBP4.1mln, versus revenue of GBP5.1mln in 2019.


UK sales fell by just under a third to around GBP2.9mln but the company saw sales grow by some 17% year-on-year in the US and by around 52% in Australia.


Both Retail, as well as Direct-to-Consumer (DTC) sales, have been affected by a reduction in beauty category consumption, particularly in the tanning category, due to COVID-19, InnovaDerma said.


The company expects the tanning category consumption to significantly improve as COVID-19 restrictions ease, particularly during the peak tanning season from April to June.


While sales of Skinny Tan in 2020 were lower than they were the year before, the company said the launches of Notox Beauty Elixir and Strawberry & Cream Pink Whipped Gradual Tanner were very successful on its UK DTC platform in December. Notox Beauty Elixir was sold at full retail price and was InnovaDerma’s best-selling item. Skinny Tan remains well-positioned to perform with a strong roster of new products to be launched during 2021, it added.


The Charles & Lee business continues to grow and show its scale potential in Australia across both Retail and DTC, despite the pandemic. Full-year revenues of around GBP300,000 were up by about 39% on the year before.


The Roots business saw revenues decline by 29% due to its predominant UK Retail focus. The new brand packaging is now being rolled out in the UK and the pricing repositioning will be fully implemented in January 2021.


Nuthing sales have been subdued as the UK hair removal category is very reliant on physical Retail and has been severely affected by category consumption decline, InnovaDerma told investors.


The 2020 brand launch coincided with the UK March lockdown and the company is therefore planning further in-store enhanced visibility over 2021. The Nuthing Black Cherry & Kiwi scented hair removal Wax Strips, the company’s first product in the largest hair removal category, will launch in February 2021 in Superdrug.


Life Sciences’ revenues remain relatively modest and the board is focusing on the US market while it awaits CE (health, safety and environmental) accreditation which has been delayed by COVID-19.


InnovaDerma said its cash position has been materially affected by the fall-out from the pandemic and it has thus agreed in principle to borrow GBP500,000 from Mark Ward, a non-executive director of the company.


The board will also be undertaking an impairment review exercise on certain intangible items on the balance sheet to reflect the impact of COVID-19 and recent trading. This impairment is likely to be substantial but will have no material impact on the company’s prospects, trading outlook or working capital position, InnovaDerma said.


As in previous years, the company expects its performance in the year to end-June 2021 will be heavily weighted to the second half of the fiscal year and it expects to be profitable at the EBITDA (underlying earnings) level.


The company will be exploring options to strengthen the balance sheet to ensure it is in a strong position to benefit from the substantial growth opportunities anticipated once restrictions begin to ease.


In boardroom news, the company said Joe Bayer, its former chairman, has left the company; he had been expected to stay on a director to the end of this month.


“I have now been the CEO of InnovaDerma for a little over seven weeks and I am very positive about the future growth potential of the business,” said Blake Hughes, the chief executive officer (CEO) of InnovaDerma in the trading statement.


“Whilst it is disappointing to be reporting the extent of the continued impact that COVID-19 has had on the beauty category, and therefore our business, particularly over the last quarter, I believe our results in the US and Australia, as well as the strong growth of Charles & Lee, show the significant international growth potential of the business. I remain confident that UK beauty category consumption will quickly improve once COVID-19 restrictions ease,” Hughes added.


“Over the coming weeks, I will be formalising our sharpened strategic focus for future growth. In addition, we will be exploring options to strengthen the balance sheet to ensure the business is well-positioned for the future. InnovaDerma was performing well going into the pandemic and with the support of our major shareholders, I have every confidence in the prospects of the company, which has some excellent brands with substantial potential, underpinned by our strong customer following and our broad DTC platform,” he concluded.


Shares in InnovaDerma were down 32% at 44.5p in early deals.

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