Full Year Results - swallowfield.dev

For the 52 weeksto 27 June 2020

Full YearResults

Quentin HighamChief Executive Officer

Quentin joined as CEO on 4 May 2020. He was previously Managing Director of Yardley of London Ltd/Wipro Consumer Care between 2010-2020. Prior to that, he was Marketing Director at Coty, with responsibility for the Rimmel cosmetics brand; UK Brand Director at Swatch between 1999-2001 and Head of UK Marketing at global cosmetics company, Revlon between 1992-1999. In addition, he has first-hand knowledge of our brands having been Commercial Director between 2002 and 2006 at KMI brands with responsibility for the Fish brand and King of Shaves.

Tom CarterChief Financial Officer

Tom joined as CFO on 22 June 2020. Tom was previously Group Finance and Operations Directorat Technetix Group Limited, a market leading technology company. Prior to that, he was Regional Business Controller at Alliance Boots, Financial Controller at Sky Media and Finance Managerat Procter and Gamble. Tom trained as a Chartered Accountant with PwC.

Roger McDowellNon-Executive Chairman

Roger was reappointed to the Board in March 2012 having previously served as a Non-Executive Director from July 2011 to January 2012. Roger is an experienced director of over 30 years' standing: he led the Oliver Ashworth Group through dramatic growth, main market listing and sale to St. Gobain, following which he was appointed to a number of non-executive roles, including chairmanships in both public and private equity backed businesses. Roger currently serves as Chairman of Avingtrans plc and Chairman of Flowtech Fluidpower plc. He is also a Non-Executive Director of Tribal Group plc, Proteome Sciences plc, ThinkSmart plc, Augean plc, British Smaller Companies VCT2 plc.

Presenting today

2Brand Architekts Group plc | Full Year Results

Brand Architekts is a British beauty challenger brand business that is focused on:

- Insight led brand development

- Ethical and efficient sourcing and manufacturing

- Omni-channel routes to market

- Creating noise and buzz

- Brand invigoration

Brand Architekts Group plc | Full Year Results 3

Overview

Overviewof the year


Sale of manufacturing business in August 2019 for £35m

Created Brand Architekts, focused solely on owned brandswith key attributes including:

Higher margin

Control of own destiny

Good portfolio of existing brands

Focused on NPD

Strong retailer relationships

Strong balance sheet

Transitional year


Transition from fully leveraged model

Creation of stand alone business with need for appropriate operations and finance functions

Executive management team transition out of Company

Former CEO Chris How appointed interim CEO October 2019

Outbreak of COVID-19

Appointment of new executive team

Operational headlines

7

UK sales declined by 16%

Despite encouraging volume growth across our three ‘drive’ brands, two of which were re-launched within the period

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

International sales declined by 24%

Following the heavy impact of currency devaluation in Turkey

Also impacted by increased tariffs on cosmetic goods shipped from China to USA

Brand Architekts Group plc | Full Year Results

COVID-19

8

Impact

Overall sales performance was stronger than anticipated

Fluctuating demands of customers and end-consumers in Q4 impacted the sales mix

Brands' performance within UK grocers showed single digit growth

Online sales channels, through large e-tailers such as Amazon or own branded websites, delivered high double digit growth

Sales of handcare products increased significantly. Whereas sales of male haircare and shaving products saw a major decline

Response

A number of short-term reductions on our discretionary expenditure

A short-term suspension of rent payments for our offices in Teddington

Took 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).

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.


Income statementBrand Architekts Group plc | Full Year Results 9

£'000

Brands Central Costs TOTAL Brands Central Costs TOTAL

Revenue 16,250 - 16,250 19,676 - 19,676

Cost of sales (10,533) - (10,533) (12,679) - (12,679)

Underlying Gross Profit 5,717 - 5,717 6,996 - 6,996

35% 35% 36% 36%

Commercial & administrative costs (4,513) (1,082) (5,595) (3,377) (1,264) (4,641)

Underlying Operating Profit 1,204 (1,082) 121 3,619 (1,264) 2,355

Exceptional items in Cost of Sales (2,535) (2,535)

Amortisation - (260) (260) - (260) (260)

LTIP - (4) (4) - (115) (115)

Exceptional income/(costs) (176) (1,268) (1,444) - (48) (48)

OPERATING PROFIT (1,507) (2,614) (4,122) 3,619 (1,687) 1,932

Finance Income - 77 77 - - -

Finance Costs (46) (256) (301) (18) (126) (144)

PROFIT BEFORE TAXATION (1,553) (2,792) (4,346) 3,601 (1,813) 1,788

Reported Gross Profit:

Underlying Gross Profit 5,717 5,717

Exceptional items in Cost of Sales (2,535) (2,535)

Reported Gross Profit 3,182 - 3,182

20% 20%

FY20 Full Year FY19 Full Year

Balance sheet


£'000 FY20

Year End

FY19

Year End

Tangible fixed assets 142 21

Intangible fixed assets 11,714 12,817

Deferred tax assets 2,515 1,714

Investments - -

Total non-current assets 14,371 14,552

Inventories 3,724 5,211

Trade & other receivables 3,969 3,475

Cash and cash equivalents 21,240 381

Current tax receivable 836 285

Assets held for sale - 22,700

Total current assets 29,769 32,052

Trade & other payables 4,503 6,628

Loans & borrowings 1,029 1,139

Current tax payable - 527

Total current liabilities 5,532 8,294

Loans & borrowings 1,066 2,091

Other payables 81

Pension obligations 13,237 9,417

Deferred tax liabilities 1,154 1,061

Total non-current liabilities 15,538 12,569

NET ASSETS 23,070 25,741

Share capital 862 857

Share premium 11,987 11,987

Other reserves - 1,094

Re-measurement of pension liability (10,588) (6,502)

Retained earnings 20,711 18,160

Subtotal equity 22,972 25,596

Non-controlling interest 98 145

TOTAL EQUITY 23,070 25,741

Cashflow


£'000 FY20

Full Year

FY19

Full Year

Cash and cash equivalents at beginning of period 381 934

Profit excluding depreciation, amortisation and net finance cost 3,727 5,542

Decrease / (Increase) in inventories 1,487 (2,129)

Net increase / (decrease) in trade & other payables (2,440) (1,189)

Net (increase) / decrease in trade & other receivables (494) 1,252

Purchase of fixed assets (129) (1,787)

Loans repayments (1,135) (1,127)

Net finance expenses paid (128) (263)

Tax paid (773) (593)

Dividends paid (813) (1,123)

Interest income received 77 -

Dividend income received - 1,146

Issue of new share capital 5 -

Contributions to defined benefit pension plan (318) (282)

Impact of disposal of manufacturing business 21,793 -

Increase / (decrease) in cash and cash equivalents 20,859 (553)

Cash and cash equivalents at end of period 21,240 381

Net cash / (debt) at start of period (7,168) (11,769)

Increase / (decrease) in cash and cash equivalents 20,859 (553)

Net cash outflow/(inflow) from decrease/(increase) in borrowings 4,322 5,154

Net cash / (debt) at end of period 18,013 (7,168)

CEO Initial Observations

Since joining undertaken detailed review of

Organisational structure

Operational efficiency and culture

Portfolio of brands

HR policies

Sustainability and inclusivity

13

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02

03

04

05


Strategic priorities and growth plan

14

Operational efficiency Optimising our portfolio Channel development Environmental & social responsibility

Acting responsibly is not only the right thing to do; it makes our business a better partner for our retail customers, and a choice that our end-consumers feel good to make.

- To embed our Sustainability Blueprint, launched in September 2020, across the business and our supplier partners

- Draw the roadmap that will take us to the destination of being carbon-neutral

- Assess where we can make a meaningful difference by supporting community and charitable activities

– Invest in business intelligence software that will help us anticipate future requirements, trends and opportunities (Sage BI)

– Purchase & analyse external consumer data effectively (IRI; EPOS; Nectar dashboards)

– Improve forecast accuracy and mange inventory more efficiently (Sage Planning)

Omni-channel and UK retailer-exclusive

brands. Available on the high street in

leading pharmacy and drugstore chains;

national grocery stores; e-tailers; and

through our own e-commerce websites

Further investment in new financial

control systems for the transition to a

fully functional consumer centric

brands-only business

– Invest in, and ramp up, direct-to-consumer (DTC) activity across all our main brands.

– Target DTC share to approx. 20% over the duration of Project 50 (exc. acquisition)

“Fewer, Bigger, Better” Rationalise brand & product line up. Relaunch all non performing brands within 2021. Support all omnichannel brands with relevant marketing programs

Immediate priorities

– SKU reduction of approx. 25% in the next 2 years.

– Seek M&A deals that complement our existing brand strengths

Review of Portfolio

Portfolio strategy

16

Wide portfolio of challenger brands.

Clear price positioning based on good, better, best category principles.

Each brand/product needs to answer the specific needs of the consumer.

NPD focus will be on improving productivity & relevance, rather than just new products.

Although our broad portfolio ranges from skincare, haircare, bath & bodycare to gifting and accessories, our strategic focus will be on the higher margin categories – skincare, haircare, bath & body.

Our range will remain broad, which will enable us to flex with changing consumer behaviour and macro-economic factors

Combination of both omni-channel (invest) and UK retailer-exclusive (harvest) brands.

01 02 03 04 05


Product Portfolio

17

Brand Positioning Status Haircare Facial Skincare Bath & Body Men's Accessories & Gift Self Tan

Argan+ Best UK Exclusive

Beautopia Better UK Exclusive

Dirty Works Better UK Exclusive

Dr Salts Best

Fish Better

Happy Naturals Good Change

Kind Natured Better Change

Mr Haircare Best

Quick Fix Facials Good

Real Shave Co. Good

SenSpa Best UK Exclusive

Superfacialist Better

The Solution Best 6 month

ROOT PERFECT Good

Xmas Gifting Exclusives Good UK Exclusive

Acquisition Better or Best


Red – relaunch; Orange – redesign; Green - go

Brand Building


Rationalise number of brands from 20+ to 10 (excluding acquisitions) by 2025.

- Emphasis on productivity. Look to improve each sku’s effectiveness and consumer appeal. Continual upgrade of existing, rather than 100% focus on new.

- Reducing sku count and improving productivity will lead to better inventory management; improved cash flow; higher MOQs and lower COGs.

- Consumer centricity - continual use of consumer data (IRI; Nectar; google analytics; DTC database) to understand needs and aspirations of existing, lapsed and new consumers.

- Initiate & implement transformational ATL campaigns –investment into brand building for all omnichannel brands.

- Social media engagement & investment (DTC strategy).

- Appoint a retained 360 Beauty comms agency to promote all BA brands within the UK media.

Brand Strategies

Super FacialistBrand Strategy 2020/21

Brand StrategyVISION

Drive growth on Super Facialist to become a £10m net sales brand in 5 years.Be recognised as the brand that empowers consumers to become their own Super Facialist, boosting confidence to understand and listen to

their skin.Development of proprietary technology across the brand to launch in year 3

MISSIONOffer consumers easy to understand, efficacious skincare at an affordable price point

BRAND PROMISE “Feel like you’ve had an expert

facial everyday”

Easy to tailor skincare that works with you as your skincare needs

change.

BRAND VALUES Effective: Blends the best

ingredients from science & nature.Accessible: Easy to understand

regimes, simple product messages, all at an affordable price point.Harmony: Mix & Match skincare have all been developed to work

effectively with each other and your skin.

Innovation: Pioneering ingredients that deliver on promises.

BRAND VOICE/PERSONALITY Authentic, expert, innovative,

clear and consistent, passionate

BRAND POSITIONINGABC1 Women (aged 25-55),

looking for affordable skincare.

TAGLINEBe Your Own Super Facialist


Portfolio Strategy – NPD 3 Year PlanYEAR 1 YEAR 2 YEAR 3

Premium SkincareAdvanced Anti-Ageing x3 SKUsCC Primer SerumRetinol+ Anti-Ageing Eye Cream

Sleep Smart Complex – Night Cream RefreshSalicylic Acid – 2x NPD (Spot Gel & Day Cream)SF Targeted (FE Technology)

Launch of Proprietary Technology (RIRO)Vitamin C – New StoryFirming Regime – New StorySPF

New CategoriesTeen SkincareChristmas GiftingSkincare Tools

Supplements


Portfolio Strategy – Year 1Discontinue 5x lines which are underperformingIntroduce 5x NPD lines

24

New New New NewNew


Routes to Market

Routes to market

UK Market – Drive Omni-channel distribution

- High Street

- Grocers

- e-tailers

International growth – focus on key markets

Direct To Consumer (DTC) – opportunity for significant growth

26

01

02

03


DTC Strategy

27

New Structure

Create a total new Digital & e-Comm team

Asset creation and proactive 24/7 management

E-com

Launch new upgraded websites for all brands, initially hosted in Brand Architekts.com, effectively creating a market place for all current & potential new bands

Etail Pure Play

Invest & secure listings across all beauty pure plays – Amazon; Feel Unique; Look Fantastic; Ocado, Beauty Bay

Audience

PPC & analytics

Social Media remarketing

Weekly newsletters

Affiliate investment

Onsite reviews

Head of Digital

Digital Marketing Manager

Digital Marketing Assistant

Digital Marketing Manager

Sr eCommerce Trading Manager

eCommerce Assistant

M&A

29

Any strategic acquisition will need to further strengthen the Group’s areas of core competence – category (Skincare; Haircare; Bath & Body); channel & consumer, or address areas of weakness, such as any needs gaps i.e. DTC; product; customers; and International reach.

Any acquisition will need to take into consideration current & future consumer behaviour; consumption and proprietary technology and/or product POD.

Any single brand acquisition would need to have scale or be readily scalable.

01 02 03


Outlook

Short-term outlook & near-term drivers

Difficult H1 trading conditions – Covid & caution in Christmas ranges

Six brands being relaunched & three upgraded in time for H2 buying schedules/retailer range review

Focus on new distribution – UK grocery (new Super Facialist listings in Waitrose (August 20) &

Morrisons (October 20), Happy Naturals in Morrisons (October 20)), DTC (new strategy agreed) and

International (Kind Natured launched in Walmart Mexico July 20).

Create brands of real substance – The Solution launched into Superdrug in September 20.

Strong balance sheet

Potential M&A to accelerate scale and strategic vision

31

01

02

03

04

05

06


Sole focuson profitablebranded business

32

Conclusion

New and experienced leadership teamin place

Opportunities for further growth online and internationally

Substantial netcash position

Distinctive and appealing brand portfolio

Established relationshipswith retailers both domestically and internationally

Potentialfor M&A


AppendicesSustainability strategy

Examples of Brand strategies

Replace, Respect, Support

1. Replace

▪ Committed to use ingredients that do not endanger our eco system in the way they are produced or harvested

2. Respect

▪ Working with manufacturers, raw material suppliers that are members of recognized organisations supporting ethical trading, sustainability and activism

3. Support

▪ Working toward becoming a member of a recognized organisation

4. Avoid

▪ Working towards a list of ingredients we do not want to use

Blueprint Code Of ConductsPACKAGING RAW MATERIALS

Reduce, Recycle, Remove, Replace, Respect

1. Reduce

▪ The content of virgin plastic in all our products

▪ Our use of power, water and optimise shipping methods

2. Recycle

▪ all products labelled appropriately to facilitate recycling at home

▪ Packaging information broken down to better understand whether they are recyclable

▪ For labelled products, label and primary material are the same

▪ Working in partnership with our suppliers to recycle our products/ wastage through their outlets/schemes

3. Remove

▪ Eliminate single use plastic – for example vac trays and windows in giftsets

▪ Remove black plastic from existing products (find alternatives i.e. black pigment)

4. Replace

▪ Replace plastic where possible for other biodegradable materials i.e. FSC sourced boards

▪ Move to friendlier inks and finishes

5. Respect

▪ Respect our natural resources by making sure our products come from ethical suppliers

▪ People and Planet i.e. Citizen day, clean public areas, plant trees initiatives by employees

Our Code Of Conducts


Root PerfectBrand Strategy 2020/21

VISION

Drive growth on Root Perfect in the UK to become an £2.5m Net Sale brand by 5 years.

Increase distribution outside of the Discount Sector (bricks & mortar and online) to become the Market’s essential affordable Root Concealer brand.

Extend the Brand portfolio by launching targeted NPD to give the consumer ‘at home’ DIY products.

MISSION

Provide consumers with versatile, easy to use, essential products that do what they say, all at an affordable price.

BRAND PROMISE

Effective products that offer a quick solution for all hair colours whether at home or on the go.

BRAND VALUES

Effective: Tried & tested formulations that use key ingredients to perform to high standards.

Accessible: Easy to understand products at an affordable price.

Harmony: Blended pigments cover a wide spectrum of hair colours offering a natural looking finish.

BRAND POSITIONING

All Women:

– Entry into hair colouring

– Interim salon users

– Grey cover ups

– Permanent alternatives

Brand Strategy


Root Perfect Current Line Up & Stockists


**An improved more premium aesthetic, maintaining the easy identifiable shades and ensuring strong shelf standout with colour blockingRedesign 2021


• Salon restrictions have increased the DIY mentality- this is set to continue• As we enter a recession, there will be less disposable income • BA can capitalise on the success of the entry priced Root Perfect brand during lockdown• Offer value solution products that allow a quick fix at home or on the go

Portfolio Strategy


Product: Precision application, instantly conceals grey hair. Adds moisture & shine, with light enough to spread easily no clumping. For all hair types.

RRP: EDLP £2.99 (versus market leader at £5.99)Line Up: Medium Brown, Dark Brown & Black

Supplier: Lo Mei Cosmetics, TaiwanBA Margin: (subject to shipping rates) @50%

Next Steps:• Product testing, claims & safety assessments • Confirm lead times & launch date• Design in work• Present nationwide

NPD- Instant Touch Up Concealer

40

** design tbc


BRAND Unit Sales

CLAIROL PERMANENT ROOT TOUCH-UP

2 174 744

MAGIC RETOUCH SPRAY

1 455 498

GARNIER EXPRESS RETOUCH

133 699

REVOLUTION ROOT COVER UP POWDER

113 420

ALL OTHER ROOTS 76 689

PRIVATE LABEL ROOTS

76 269

BATISTE POWDER 28 610

MAGIC RETOUCH PRECISION BRUSH

28 181

EVERPRO BEAUTY ZERO GREY ROOT CONCEALER

25 521

EVERPRO BEAUTY BACK TO BLONDE SPRAY

22 059

PHIL SMITH ROOT TOUCH UP SPRAY

21 254

SYOSS ROOT RETOUCHER SPRAY

18 892

RICHARD WARD SPRAY

14 701

JOSH WOOD COLOUR BLENDING BRUSH

11 266

JOSH WOOD ROOT SMUDGER

10 080

JOSH WOOD ROOT MARKER

6 759

IRENE GARI COVER YOUR GRAY STICK

87

COLOUR WOW ROOT COVER UP POWDER

9

Product: At home hair colour, quick and effective. Takes in just 10 minutes!

RRP: EDLP £2.99- £3.50 (Superdrug £3.69 or 2 for £7)

Line Up: 5 shades to complement the existing RP line up to assist in link sales opportunities.

1. Blonde, 2. Light Brown, 3. Medium Brown, 4. Dark Brown & 5. Black.

NPD- Root Colour


The SolutionBrand Strategy 2020/21

Brand Strategy

43

VISION

To become a trusted performance led brand, offering products driven by on trend ingredients, accessible for all.Leverage ‘skinification’ concept and brand name by year 2 & expand into other categories.

To become at £1.5m+ Net Sales brand in year 5

BRAND PROMISE

– To use effective well-known ingredients commonly associated with skincare.

– Provide great formulations with great results to target common skin concerns.

– Educate on ingredients and their benefits

– Always be 100% recyclable, use PCR material and be vegan friendly.

BRAND VALUES

Straight talking, claims-led body care that gets right to The Solution.

Effective: Uses key on trend ingredients to deliver real benefits

Inclusive: We believe in embracing your body and being body confident.

Accessible: Easy to understand, simple products that are available to buy across online and in store.

BRAND VOICE/PERSONALITY

Straight talking, positive, confident, knowledgeable, inclusive, empowering, on-trend.

THE CONSUMER

Women aged 25-35 years old

She doesn’t believe in changing her body to please the world but wants to overcome some of her concerns and insecurities.

Driven heavily by social and trends –engaging and thriving on beauty hacks

MISSION

First to market with advanced scientific led formulations heroing a key ingredient.Drawing from tried and tested skincare trends for healthier skin across the whole body. All products promote being your best self not changing you!

Products that get right to The Solution


Portfolio Strategy – NPD 3 Year Plan

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Year 1 Year 2 Year 3

BodycareBodycare:

5 x sku launch Sept 20

Range StretchHaircare exploration (2/3 skus)Hand care exploration (2 skus)

Skincare exploration (2/3 skus)Lip care inclusion


Full Year Results - swallowfield.dev

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