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12 May 2022

Chill Brands Group plc

("Chill Brands" or the "Company")

Business Update

(London, UK, 12 May 2022) Chill Brands, the international consumer packaged goods company, is pleased to provide an update on its status and business strategy ahead of its General Meeting at 10:00am on 12 May 2022.

Highlights

●    Online traffic to Chill.com increased following sustained organic growth.

●    Company engaged in comprehensive audit to optimise effectiveness of website and digital marketing activities.

●    Work underway to further commercialise Chill.com domain by establishing a selective online marketplace for premium lifestyle and functional products.

●    End of Ox Distributing 'master distributor' status and establishment of direct distribution model.

Fundraising Activity

As announced on 26 April 2022 (the "Fundraising Announcement"), the Company has conditionally raised £3,500,000 (before expenses) subject to the passing of the resolutions proposed at a General Meeting of the Company's shareholders to be held today, 12 May 2022 at 10:00 am.

The fundraising consists of two parts in the amounts set out in the Fundraising Announcement. The first part is by means of a Subscription for new ordinary shares of 1 pence each ("Ordinary Shares"), and the second part is by means of convertible loan notes ("Loan Notes") which will automatically convert into Ordinary Shares on the publication of an approved Prospectus or any change of regulation resulting in the publication of the Prospectus not being required. Both the Ordinary Shares and the Loan Notes are at a price of 2 pence.

On 9 May 2022, the Company announced a proposed Open Offer ("Open Offer") to provide shareholders with the opportunity to invest in the Company on equivalent terms to the Fundraising. Ordinary Shares and Loan Notes with an aggregate value of up to approximately £484,000 will be available under the Open Offer. The Company aims to circulate the necessary documentation for the Open Offer to shareholders before the end of the month, again subject to the passing of the resolutions at the General Meeting and will make a further announcement when it does so.

Digital Sales Channel Update

In Chill Brands' January 2022 Interim Financial Report (the "Interim Report"), the Company announced that it would be focusing its efforts on digital growth with a view to capitalising on the Chill.com domain.

Subject to shareholders approving all resolutions at the upcoming General Meeting, a portion of the funds riased will be used to invest in digital activities. This will include settling the outstanding balance due of $800,000 (circa £650,000) for the purchase of the Chill.com domain, an amount that was reflected as part of the accrued liabilities in the Interim Report Balance Sheet. Once the remaining balance has been settled, the Company will have paid a total of $1,600,000 for the Chill.com domain. 

Following settlement of this outstanding liability, the Company intends to engage with brokers and other industry professionals to fully and thoroughly appraise the value of the Chill.com domain. This exercise will be complex due to the intangible nature of the domain, however the Company intends to provide an update as soon as it is practicable to do so.

Current Status of Online Operations

Aside from purchasing the Chill.com domain, the Company has yet to make a significant financial investment in its online activities. Despite this, its online operations have enjoyed organic growth. Chill.com now welcomes more than 10,000 unique visitors each month, with monthly online store sessions having increased by 34% during the past 90 days. 

The site has now served customers in all 50 US states and individual orders made via Chill.com are typically higher than comparable sales in retail stores. The average online customer spends $44.31 per visit, while returning customers currently account for almost 30% of all orders placed on the site demonstrating an improved retention rate as compared to previous periods. 

Digital Strategy

With minimal financial investment, Chill Brands has already seen incremental growth of its digital sales channel. The Company will continue to build on this foundation with targeted spending and is undertaking a comprehensive site audit to identify opportunities to improve click-through and conversion rates.  

The Company will also prioritise Search Engine Optimisation (SEO), User Experience (UX), and email marketing strategies with a view to attracting and retaining relevant customers who are interested in its CBD wellness and tobacco alternative products. It is believed that these activities will not only improve the sales performance of the website at large, but also of the Chill subscription portal with the aim of delivering predictable recurring revenue.

Following the 2021 UK launch of the Chill brand, work has now commenced to onboard the Company's UK-facing website (currently hosted on thechillwayuk.com) to Chill.com. This will allow the Company to provide UK consumers with a comparable experience to those shopping in the US while maintaining a brand identity that is appropriate for the local market.

Marketplace Model

In addition to sales of its own products, Chill Brands intends to establish Chill.com as a premier online destination for highly differentiated lifestyle and functional products.

The Company is actively engaging with external partners in the US regarding the listing of synergistic, non-competing products on Chill.com. It will adopt a highly selective approach to all brand partnerships and intends to onboard products with strong demographic and SEO correlations to complement its existing range.

It is hoped that this project will drive additional traffic to Chill.com while creating a new route to revenue generation. Further updates will follow as discussions progress.

Retail Sales Channel Update

In its January Interim Report, the Company also announced that it would not continue to follow the rollout timeline set out in 2021. This decision was made on the basis that such rapid scaling would require high levels of capital expenditure with no guarantee of a timely return. It was also determined that the Company was not adequately resourced for widespread store activations as high levels of ongoing investment and significant internal sales and marketing infrastructure would be required to commence and maintain operations across thousands of stores.

To date, the Company has operated a retail distribution model utilising Ox Distributing LLC ("Ox") as its 'master distributor'. This meant that all sales into bricks and mortar retail stores were first made to Ox who would then sell to sub-distributors that would ultimately pass products into convenience store chains. The complexities of this distribution model have prevented the Company from fully controlling its sales channels and gathering business-critical data. This, combined with logistical and supply challenges along with general disruption to the convenience store environment during the pandemic, has prompted the Company to reassess its approach to retail distribution.

Establishment of Direct Distribution Model

During the past few weeks, Chill Brands dispatched personnel to conduct site visits of existing national retail partners. The visits generated valuable insights that highlight past mistakes and future opportunities.

To refine its retail distribution model, the Company and Ox have mutually agreed to terminate the latter's 'master distributor' status. This will allow the Company to sell directly into the physical retail channel without the involvement of multiple distribution agents. In concert with this new strategy, the Company will initially apply its direct support model to a core group of individual convenience stores and specialist outlets in Colorado and the surrounding states where it will aim to develop reportable sales data and a consistent product sell-through rate.  Ox and the Schrader family remain engaged and highly supportive of Chill Brands as evidenced by their involvement in the fundraising activity announced by the Company on 26 April 2022. This transition has not resulted in any change to the funds due to be received from Ox under the Promissory Note referenced in the Company's announcement on 15 March 2022.

As part of this simplified model, the Company will concentrate on building closer ties with retail partners by equipping them with the marketing collateral, product knowledge, and on-demand sales support needed to establish the Chill brand as a leader within targeted areas and demographics. In connection with its wider digital strategy, the Company will also seek to provide a more convenient and cost-effective way for store operators to order Chill products. Work has already commenced on a sophisticated wholesale order portal and the Company intends to launch a trade customer subscription service to ensure high-performing stores benefit from a continuous and expedient supply of Chill products.

Eric Schrader, Non-Executive Director, commented: "Having supported the Company as its master distributor, the Ox team and I are now pleased to transition into a new working relationship that will facilitate future growth and success for the Chill Brand. After launching into a difficult retail environment and enduring the COVID-19 pandemic, we are excited to continue this journey as we work to put Chill firmly on the map."

Callum Sommerton, Chill Brands' Chief Executive Officer, said: "The past year has been exceptionally challenging for Chill Brands and its shareholders, but it is important for us to look forward to the opportunities ahead.

The Company benefits from a highly differentiated brand, premium quality products, and access to broad sales channels both online and via retail stores. It is time for us to capitalise on those advantages and we intend to do so through consistent execution of our digital and retail sales strategies.

I am grateful to Ox and the Schrader family for their support of Chill and look forward to working with them to deliver value for all shareholders."

About Chill Brands Group

Chill Brands Group plc (LSE: CHLL, OTCQB: CHBRF) is an international company focused on the development, production, and distribution of best-in-class hemp-derived CBD products, tobacco alternatives and other consumer packaged goods (CPG) products. The Company operates primarily in the US, where its products are distributed online and via some of the nation's most recognizable convenience retail outlets. The Group's strategy is anchored around lifestyle marketing that is designed to enhance the popularity of its products, channelling visitors to its landmark chill.com website.

Publication on website

A copy of this announcement is also available on the Company's website at http://www.chillbrandsgroup.com