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 2021.

Business highlights:

Financial highlights:

¹Underlying gross profit is calculated before exceptional items

² 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 have focused on implementing our four strategic pillars, which will ultimately enable the Group to reach its Project 50 goal. Our plans to relaunch seven of our brands were impacted by retail headwinds created by the COVID pandemic, which resulted in three key retailers delaying the brand relaunches by three months. In addition, cost price increases throughout the supply chain, including freight, raw materials, componentry and energy impacted our short term performance.

We are confident that effectively implementing our brand reach and brand development strategies will drive growth in the future. We are pleased with the launch of our marketplace theunexpektedstore.com, which enables us to offer consumers a fully omnichannel solution. In the second half of the year, we will look to accelerate our digital first strategy and build out further distribution gains, as we seek to add scale to our business. We have also been working hard to offset many of the price increases though the supply chain to normalise our margins. Whilst challenges remain in the markets in which we operate we remain confident in our strategy and the Group's ability to achieve our aims."

CEO's Review

The trading environment throughout the last six months has continued to be challenging, with the impact of COVID and the well publicised supply chain issues effecting retailers' buying patterns, freight costs and therefore margin. We have focused on implementing our four strategic pillars, so that we can position ourselves to take advantage of future opportunities. Despite these headwinds, I am pleased with the operational progress that has been made in the first half of the year. We will be focusing on securing omnichannel distribution gains and implementing a digital mindset, so that we can ultimately deliver our Project 50 goal.  

Key achievements include:

Performance review

Net sales for the period were £7.4m, a decrease of 19% on the prior year (H1FY 2021: £9.0m). This decline was as a result of two factors; firstly key retailers delaying the implementation of our brand relaunches, caused by the COVID pandemic  and secondly planned rationalisation of our product ranges by 25% to optimise our productivity. With many of our brands needing to be relaunched and product ranges rationalised to reflect consumer demand and improve productivity, this delay meant that sales for the first three months were affected, as stocks of the previous ranges were run down. The impact of these delays was felt across both the high street and grocer retailers, which remain our dominant revenue generators.

International sales increased, with Root Perfect rolling out to 300+ Normal stores in Europe and Dirty Works launching in Peru. We also increased both our e-commerce (Amazon and Look Fantastic) and international sales but not significantly enough to counter the high street impact.

Gross margin in the period was significantly impacted and declined to 32.5% versus 36.3% in the prior year period (on an adjusted basis). This reflects a wide range of cost pressures felt throughout our supply chain, that we could not pass onto retailers due to previously agreed pricing commitments. The main impact was the significant increase in shipping container costs for goods from overseas (principally Christmas Gift Sets and bath salts), which at the time of shipping were 500% higher than historical prices. Alongside this we have had to contend with other significant cost increases throughout the supply chain, notably in raw materials, componentry and energy. As we enter the second half and as we approach Christmas 2022 planning, we plan to offset the majority of these costs.

The Company experienced a first half loss before tax of £1.1m (H1FY 2021: profit of £0.4m).

Net cash decreased by £1.7m, as a result of a £1.0 million contribution to the defined benefit pension scheme and the factors detailed above. The Company still enjoys a very strong net cash position of £17.3m (H1 2021: £19.0m) which positions it well for future growth.

Progress against the Company's four strategic pillars are outlined below:

1.   Brand Development

Since 2020/21 we have rationalised the number of brands within the portfolio from 22 to 13 and halved our number of products. We have completed the relaunch of Dr Salts, Root Perfect, Argan +, Happy Naturals, Kind Natured, Senspa, Beautopia, giving them a contemporary look and feel which will help them gain traction with their target audiences and grow market share.

Data led insights are vital components of our new product development program and we will be looking to relaunch the balance of our portfolio in 2023. On the back of key brand Super Facialist we will be launching a new sub brand called Super Facialist Clear Skin, targeting teenagers into 220 Superdrug stores in September 2022. This is an exciting brand development initiative and will enable younger consumers to enter into the brand, thereby increasing the brand's lifetime value, whilst at the same time enabling the brand to engage with an increasingly important demographic.

The transition towards becoming a digital first business is integral to our future aspirations, and we are making steady progress. Now that many of the brands have been relaunched, we are focussing on creating and developing digital assets which we will be able to use throughout our digital footprint (DTC; e-com and social). This will help build a more engaging profile on our unique marketplace - theunexpektedstore, whilst also attracting consumers on other e-commerce sites such as Amazon and Look Fantastic.

Last year saw the company increase its advertising spend on its star brand, Super Facialist, to help drive distribution gains and take advantage of the inherent brand strength. The results to date have been in line with our ambitions and we have been able to substantially increase its distribution network with the range now available through Boots, Sainsbury's, Waitrose, Morrisons and Tesco as well as online with Amazon, Look Fantastic, Feel Unique and theunexpekted.

Portfolio Management M&A

M&A remains a key tenet of our development strategy and the Board has been working hard on identifying and advancing opportunities that meet our investment criteria. Having invested across all areas of operation efficiency and built our platform, theunexpektedstore, we are confident that adding greater scale will significantly advance our strategic objectives.

2.   Brand Reach

We are making good progress in implementing an omnichannel strategy, so that our consumers can buy our products wherever (online and offline) and whenever they want. In tandem with our brand relaunch program, we have worked hard to exit the constrictive exclusive agreements that were in place across most of our brand portfolio. Our focus in the second half of this year will now be on widening distribution. After a successful trial period in Tesco's 34 Beauty stores, Super Facialist will be launching 14 products into 200+ Tesco stores in June 2022 (2 products in 500+ stores; 5 products in 300+ stores and 7 products in 200+ stores). We are aiming to replicate the distribution success of Super Facialist, which until a few years ago had been a retailer exclusive, across other brands within the portfolio, in particular Dirty Works.

International remains a key strategic focus. We are beginning to see a number of markets that had been severely affected by the pandemic begin to open up and we will be looking to capitalise on our strong relationships with those distributors that want to support and grow a portfolio of our brands and also work with international retailers who have a presence in multiple markets. We launched Root Perfect into 300+ stores across Europe and we will be launching Kind Natured Haircare in the same number of stores in June 2022. Dirty Works distribution increased in multiple markets and we launched the brand into Peru in December 2021.

Theunexpektedstore

www.theunexpektedstore.com  launched in time for Black Friday & Cyber Monday and now all our brands and products (180+) are featured on the site. We have various initiatives in train that will substantially enhance the site's overall offering & consumer engagement. We are committed to exceed the expectations of everyday beauty. In the second half of the year, we will improve the content of the site by appointing a beauty editor; we will launch a "Friends of" initiative, whereby we can sell non-competing brands that share our values and complement our existing ranges; and we will upgrade the site with our new library of digital assets. Most importantly we will also be launching theunexpekted community, a forum where we will encourage and empower the community to share their feedback on our products efficacy; how we can improve and answer their requests for help and advice. The community will be built on collaboration and will provide a knowledge base of experience, ideas and views. Our mission is to break the mould of everyday beauty and as such we will engage with the community and respond to their needs by making affordable products that meet their needs. These initiatives resonate with our challenger identity and can help to drive a deeper engagement between consumer and brand. We are also confident that theunexpekted will let us scale new products and future acquisitions more quickly and effectively. Going forward the focus will be on building our CRM database; building awareness and engagement and ensuring that we have a positive return on ad spend (ROAS) .

3.   Environmental and Societal Responsibility

We remain committed to our pledge to ensure that all our plastic and packaging is 100% recyclable, reusable or bio-sourced by 2025. This ambition is firmly at the heart of our business and can be seen through our brand relaunch & new product development programmes, whereby all new lines contain a minimum of 30% Post Consumer Recycled (PCR) material; all UK sourced card and outer packaging is Forest Stewardship Council (FSC) certified and all products are recyclable.

4.   Theunexpekted

Over the next few years, we expect theunexpekted to become our culture and way of life, a mantra that we live by as a company. Incorporating our corporate values, we will aspire to become an Unexpekted beauty company. Our goal is to challenge the expectations of ourselves and the market we exist in, unconstrained by conventional thinking or ways of working. We want to innovate and disrupt the beauty industry by giving a voice to our community. Our focus to deliver this will be on the quality and performance of the product, our editorial content and community engagement and how we respond and react to user generated content and recommendations. If the business lives by theunexpekted mantra, we should be in a position for our brands to flourish and challenge.

Outlook

There have been a number of challenging headwinds in H1, firstly with COVID, then with a wide range of supply chain issues, while we expect cost price pressures to persist particularly with regards to energy prices following recent events in Ukraine. Despite this, we are starting to see progress on a number of fronts. We have a rationalised our portfolio of brands and we have exited the exclusive agreements that saw us tied to individual distribution channels. For the remainder of this year and beyond, we will focus strongly on building distribution gains and take advantage of the hard work done on relaunching many of our brands. This will be combined with creating much stronger brand assets, which will help improve engagement across all channels. We will be advancing our digital first focus and building brand loyalty through the unexpekted community. We also believe that the hard work of the last eighteen months, will enable us to add scale as required and that we are a stronger business as we enter the second half and remain confident in our strategy and the Groups' ability to achieve our aims.