Brand Architekts : Final Results 2020

Brand Architekts Group plc

("Brand Architekts" or the "Group")

Final Results

Brand Architekts Group plc announces its final results for the 52 weeks ended 27 June 2020.

Overview of Results:

		Group	Continuing Operations
	2020		2019	2020	2019
Revenue	£23.7m		£77.3m	£16.3m	£19.7m
Underlying operating (loss) / profit 1	£(0.8)m		£4.4m	£0.1m	£2.4m
(Loss) / Profit before taxation	£2.2m		£4.1m	£(4.3)m	£1.8m
EPS	12.9p		20.7p
Net cash / (debt)	£18.0m		£(7.2)m

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

Financial headlines:

• Revenues for the 52 weeks of £16.3m (excluding sales from discontinued operations), a decline of 17% on the prior year.
• UK sales declined by 16%, driven by low consumer confidence and pressure within the retail environment, and the impact of store closures as a result of the outbreak of COVID-19.
• International sales declined by 24% following the heavy impact of currency devaluation in Turkey, the effect of increased tariffs on cosmetic goods shipped from China to USA and the impact of COVID-19 across several of our markets.
• Underlying Gross Profit Margin, excluding exceptional inventory provisions and write offs made at the year end of £2.5m, was 35.2%. Gross profit margin including these items declined to 19.6% (2019: 35.6%).
• Continuing operations made an underlying operating profit of £0.1m, while the Group made an underlying operating loss of £0.8m (2019: underlying operating profit £4.4m).
• Group Profit before tax decreased to £2.2m (2019: profit before tax £4.1m).
• Net cash position at the year ended June 2020 was £18.0m (2019: net debt £7.2m).

Operational highlights:

• Creation of a solely Owned Brands business following the disposal of the Contract Manufacturing Business for £35 million.
• Operational transition now complete.
• Appointment of new Executive team to build scale and deliver further profitable growth.
• Detailed review of operations undertaken including full review of brand portfolio.

Quentin Higham, Chief Executive, commented:

"Since joining in May, I have been impressed with the depth of our product portfolio and the professionalism of the team, who have endured the most difficult of trading conditions with great resilience and determination. Following a detailed review of all operations, I believe we now have the right strategy to deliver sustainable, profitable growth over the coming years."

Roger McDowell, incoming Non-Executive Chairman, commented:

"Having already been involved with the business for a number of years as a Senior Independent Director, I am very excited to be working with the new management team. I have no doubt that we have the model and depth of resources to position us for success over the next few years.

I would like to thank Brendan Hynes for his stewardship, as he has overseen the transformation of the Group to a fully focused branded business with a very strong balance sheet.

I look forward to working with the rest of the Board as we seek to deliver growth organically, through transformational investment and focus on DTC (direct to consumer) and through targeted acquisitions."

For further information please contact:

Brand Architekts plc

Roger McDowell	Incoming Non-Executive Chairman	via Alma
Quentin Higham	Chief Executive
Tom Carter	Chief Finance Officer
Shaun Dobson / Jen Boorer	N+1 Singer (Nomad)	0207 496 3000
Josh Royston / Sam Modlin	Alma PR	07780 901979

CHAIRMAN'S STATEMENT

This financial year has been one of transformation for the Group, while presenting both opportunities and challenges in equal measure.

In August 2019 we concluded the disposal of our manufacturing business, leaving a company solely focused on owned-brands, and with a strong balance sheet. While this deal was transformational, it also required the business to go through a period of significant operational transition. We needed to recruit a fresh management team with the necessary experience and ambition to reflect this change of focus, and who could put in place their own strategic vision for delivering shareholder value.

While the search was underway, we were fortunate to be able to call on the experience of Chris How to act as Interim Chief Executive, and I would like to thank him for providing executive management continuity during this challenging period. Even so, the distractions of managing the sale and realigning our management structure inevitably impacted business performance during the reporting period.

With these issues now behind us, I am pleased to say that in Quentin Higham as CEO and Tom Carter as CFO, I am confident that we have the right team in place to develop and execute an exciting new strategic plan to deliver shareholder value for the business. They have identified and will build the right platform of systems and processes to drive the business forward.

This new executive team joined the business as we were starting to see the effects of the COVID-19 pandemic. This had an immediate effect on the buying habits of both consumers and retailers alike, presenting both risks and opportunities for the Group.

Performance review

The final quarter of the financial year was heavily impacted by COVID-19, with non-essential retailers closed during this period and International business effectively on hold.

As a result net sales for FY20 were £16.3m, (excluding sales from discontinued operations), a decline of 17% on the prior year. Sales in the first half were £10.6m, a decline of 15% when compared to H1 2019 (£12.5m). Sales in the second half of FY20 declined by 21%, to £5.7m (H2 2019: £7.2m).

Following the heavy impact of currency devaluation in Turkey and the effect of increased tariffs on cosmetic goods shipped from China to USA, international sales declined by 24%. Looking forward, should the tariffs be reversed, the Board believes that the Group is well placed to recover a large proportion of the affected USA business.

UK sales declined by 16%, despite encouraging volume growth across our three 'drive' brands, two of which were re-launched within the period. The decline was largely due to one significant customer, however, overall low consumer confidence and pressure within the retail environment has resulted in a reduction of both category space and the effectiveness of promotional activity.

Gross profit margin declined to 19.6% (2019: 35.6%). Underlying Gross Profit Margin, which excludes Gross Profit of £2.5m from exceptional inventory provisions and write offs made at the year end, was 35.2%. As part of the business transformation to focus on Owned Brands with a new management team, a number of decisions were taken to reshape the brand portfolio, triggering adjustments to these brands and related inventory. This includes brands being exited, de-listed,re-launches and clearance of older products which may have historically been sold through discount channels. These

costs are one off as part of the business transformation, therefore margins are expected to normalise in FY20/21.

Profit before tax decreased to £2.2m (2019: profit before tax £4.1m). This included exceptional items of £3.5m comprising the profit made on the disposal of the manufacturing business of £8.9m offset with exceptional costs of £5.4m.

Impact of COVID-19

Clearly, the outbreak of COVID-19 in March presented us with a challenge that no business had experienced before. We took immediate steps to ensure the health and well-being of our employees, clients and suppliers and this still remains the top priority for the Group. I would like to thank all our employees for their tireless work and dedication throughout these challenging times.

Encouragingly, overall sales performance during H2 was stronger than the Board had anticipated. Even so, we weren't immune to the fluctuating demands of customers and end-consumers, and during the last quarter of FY20 the impact of the pandemic had a significant effect on the sales mix.

Our brands' performance within UK grocers showed single digit growth, while our online sales channels, whether through large e-tailers such as Amazon or our own branded websites, have delivered high double digit growth. As a result of the shift to online we stepped up promotional activity to capitalise on this route to market.

These gains did not offset the significant decline in other high street outlets, whose store traffic was impacted during lockdown. Additionally, several key international markets did not place orders during Q4 FY20 due to the closure of most general merchandise and department stores.

Unsurprisingly, sales of handcare products increased significantly and we were able to secure extra supply to support retailer demand. But it was also no surprise that sales of male haircare and shaving products saw a major decline.

Response to COVID-19

In order to mitigate the impact of COVID-19 on the business, the Group took a number of decisions to reduce operating costs and associated cash requirements. These included:

• a number of short-term reductions on our discretionary expenditure
• a short-term suspension of rent payments for our offices in Teddington
• steps to manage staff costs, including a hiring freeze across a number of vacant positions
• all Board directors agreeing to a 20% reduction in their respective salaries or fees (April-June).

However, the business took the decision not to participate in the furlough scheme, so that the team could focus on its response to consumer behaviour post COVID-19, and to plan for FY21.

Board changes

Over the period, and following the sale of our manufacturing business, we made a number of changes to the executive team and Board. We now believe that we have the team in place to build scale and deliver further profitable growth.

Quentin Higham became CEO, effective from 4 May 2020. Despite the difficulties of joining the business in the midst of lockdown, his deep industry experience and passion for brands has been