Half-year Report - Amendment

This announcement replaces RNS number 8813M issued on 19 September 2019, correcting note 4.1. All other information in the announcement remains unchanged.

 

 

19 September 2019

VENTURE LIFE GROUP PLC

 

("Venture Life" or the "Group")

 

Unaudited interim results for the six months ended 30 June 2019

 

Venture Life Group plc (AIM: VLG), a leader in developing, manufacturing and commercialising products for the self-care market, presents its unaudited interim results for the six months ended 30 June 2019.

 

Financial highlights:

•      Revenues increased 14% to £9.4 million (H1 2018: £8.3 million)

•      Gross profit increased 18% to £3.5 million (H1 2018: £3.0 million)

•      Gross profit margin percentage increased to 37.3% (H1 2018: 36.0%)

•      Increased investment in Dentyl marketing and new medical devices

•      Adjusted EBITDA increased 5.5% to £0.7 million (H1 2018: £0.7 million)

•      Profit before tax, amortisation and exceptional items increased to £0.3 million (H1 2018: £0.1 million)

•      Adjusted profit per share[1] of 0.04p (H1 2018: adjusted loss of 0.3p)

•      Net cash generated from operating activities of £1.3 million (H1 2018: £0.2 million)

•      Cash at period end of £10.9 million (31 December 2018: £9.6 million)

 

Commercial highlights:

·      Lloyds Pharmacy to launch Dentyl in the UK

·      Increased distribution of Dentyl in Superdrug

·      BB Mints launch into Morrisons

·      Launch of UltraDEX in ASDA grocery chain and Well Pharmacy, the 3^rd largest pharmacy chain in the UK, behind Boots and Lloyds

·      UltraDEX Whitening mouth rinse launched in Superdrug

·      UltraDEX and Dentyl marketing campaigns launched to UK consumers

·      4 long-term development and manufacturing agreements completed

·      7 new international partnering agreements signed, including Dentyl line extensions in China

·      VLG's products launched with 11 international partners in H1 2019

 

Post-period end highlights:

·      Long-term international agreement signed on Dentyl in France

·      Venture Life Group plc was once again included in the 'London Stock Exchange's 1000 Companies to Inspire Britain 2019' list, for the fourth consecutive year

 

[1]Adjusted profit per share is loss after tax excluding amortisation, exceptional items and share-based payments.

 

Jerry Randall, Chief Executive Officer of Venture Life, commented: ''In the first half of 2019 we saw revenue growth of 14% with strong cash generation from operating activities of £1.3 million. Despite a challenging trading environment, I am pleased with the Group's continued commercial progress, particularly the seven new international partnering agreements signed, which further expand the Venture Life footprint and reach.  These agreements include increased distribution of the Dentyl range in China as well as the launch of UltraDEX in ASDA and Well Pharmacy, and the launch of Dentyl into Lloyds Pharmacy in the UK. Traditionally, we enjoy a stronger second half and, with a very healthy order book, we expect that to be the case this year.

Meanwhile, our development and manufacturing business has made positive headway in the first half of 2019. Revenues grew 10% to £6.6 million with four long-term agreements completed.

As the UK moves closer towards a possible Brexit at the end of October, we have undertaken significant mitigation planning against associated risk and remain well-prepared to manage possible disruptions to the business, including ensuring there is adequate UK stock and good short-term supply. Despite the challenges, Venture Life has a strong pipeline ahead and we approach the future with confidence."

For further information, please contact:

 

Venture Life Group PLC                                                                      

Jerry Randall, Chief Executive Officer                                        +44 (0) 1344 578004

Andrew Waters, Chief Financial Officer

 

Cenkos Securities Ltd (Nomad and Broker)                              +44 (0) 20 7397 8900

Stephen Keys / Cameron MacRichie (Corporate Finance)

Russell Kerr / Michael Johnson (Sales)

 

Alma PR                                                                                          +44 (0) 203 405 0208

Helena Bogle/ Hilary Buchanan / Jessica Joynson                   [email protected]

 

 

 

 

Non-Executive Chair's and Chief Executive Officer's Statement

Overview

The Group is pleased to report significant progress across all areas of the business. In the first half of 2019, revenues grew by 14% to £9.4 million (H1 2018: £8.3 million), with improvements in EBITDA, profit before tax and profit after tax. Significantly, there has been strong cash generation from operating activities of £1.3 million (H1 2018: £0.2 million).

 

Revenues for the Venture Life brands business were £2.8 million, a 22% increase on the first half of 2018, while revenues from the Development and Manufacturing business, where we develop and manufacture products on behalf of third parties, grew 10% to £6.6 million. The growth in the Venture Life brands revenue has been driven by the impact of full year revenues from the Dentyl brand, which was acquired by the Group in August 2018. The increased revenue growth, combined with our current product offering, has also improved the gross profit margin, which rose to 37.3%, up from 36.0% in the first half of 2018. Increased investment in Dentyl marketing and higher investment in product assets for the new medical device regulations offset this increased gross margin, along with some one-off costs incurred within the period.

 

Revenues in the first half were ahead of last year, although they have been lower than anticipated, primarily due to delayed orders from two of our Chinese partners, as referenced in our 2018 Full Year Results, which did not generate any revenue during the period, due to specific market reasons. Our Chinese partner for Dentyl experienced some product packaging issues in the first half of 2019 that affected its sell-through, and consequently delayed new orders from Venture Life. However, we are pleased to report that these issues have been resolved, sell out in China has resumed. Additionally, we have signed new agreements with this partner on Dentyl Toothpaste and Dentyl Fresh Breath Beads (formally BB Mints), the latter of which will start contributing revenue in the second half of 2019 and we expect them to continue to be important contributors to our revenues and profitability going forward.

 

Our Chinese partner for Lubatti bought a significant amount of stock in H1 2018 (£0.6 million); whilst there were no orders in H1 2019, we are beginning to see new orders come through and there is further commitment to the brand as we move into H2 and beyond.  For some of their key brands, there has been a strategic shift from off line to online stores exclusively, as footfall declines and the rise in online sales has an ever greater impact; Lubatti is one of these brands and is responding well to this new approach.

 

Even after taking account of these challenges, the Group had strong cash generation in the first half and, consistent with prior years, has a strong order book (35% higher than at the same point last year), meaning that we expect to see second half revenues significantly higher than those in the first half.

 

To ensure our product supply to the UK market remains uninterrupted, we prepared ourselves for a possible Brexit impact in March 2019, which entailed minor cost. We are preparing for a similar situation in October 2019, chiefly by ensuring that there is adequate stock in the UK and that our international manufacturers are able to continue supply in the short term. In the longer term, with a major part of the Group's operations based in Italy and distributing to multiple countries, we believe the operational impact of Brexit will be limited.  Even with the pressurised sales environment of the UK grocery and high street retailers, we are pleased our UK brands continue to have robust sales and hold their position.

 

Following on from the 2018 fundraise, we continue to review strategic M&A opportunities. During the period we considered an opportunity for a potentially transformational transaction for the Group in terms of size and scope. As shareholders would expect, we conducted extensive due diligence which, on this occasion, led us to ultimately decide not to proceed with this transaction, with there being an exceptional cost of £90,000. We will update shareholders on any future opportunities as appropriate.

 

Venture Life Brands

The Venture Life brands business revenues for the first half of 2019 were £2.8 million, a 22% increase on first half of 2018. Of this, £2.4 million came from UltraDEX and Dentyl in the UK, with the remainder from international sales.

The two largest Venture Life brands are our oral care products - UltraDEX and Dentyl, which are mainly sold in the UK.    

UK - UltraDEX

UltraDEX revenues for the first half were £1.3 million (H1 2018: £1.4 million), outperforming the oral market generally, which, whilst still declining, is expected to do so at slower rate in 2019. We believe that UltraDEX's out-performance is a result of loyal customer retention, a premium, well-developed product and our efforts to obtain new listings for the product. Whilst the wider market conditions in the UK are expected to remain challenging, taking these strengths together, we expect to outperform the UK mouthwash market again in 2019.

Confirmation was received in H1 2019 that UltraDEX (both rinse and spray) will launch in ASDA from September onwards, in addition to Well Pharmacy, the third largest pharmacy chain in the UK.  Superdrug has also confirmed they will launch UltraDEX Spray both on and off-shelf as well as launch UltraDEX Whitening. We believe these developments further demonstrate the strength of our brands.

As well as there being many reasons to be satisfied with the brands performance, this has to be balanced with  one de-list of the brand in one of our smaller grocer distributors and no repeat of the new product pipe fill seen last year.  With the oral care sector under pressure, it has been difficult to gain new users into the new products in the consumer setting, and the One-Go and Fresh Breath Kit will be delisted from two of the larger pharmacy distributors from July 2019. Management have been quick to identify better opportunities and the Fresh Breath Kit will instead be positioned towards the dental channel, as this presents a practical solution for dental practitioners and patients alike.

It is pleasing to report that Alliance (the wholesale arm of Walgreens Boots Alliance) will launch UltraDEX Whitening later in 2019.  There are also a number of initiatives in place for the remainder of the year that we anticipate will positively impact H2 2019. The new UltraDEX marketing campaign began towards the end of the period, with a focus on sampling to drive trial and purchase, and initiatives for increasing brand awareness via social media. Further marketing initiatives are planned for H2 2019.

UK - Dentyl

Dentyl revenues were £1.1 million in the first half of 2019, in line with management's expectations.  The impact of order patterns before we acquired the brand acquisition and legacy delists/one-offs seen in 2018 prior to the acquisition continued to affect the business in the first half and are expected to continue throughout 2019. However, we have seen some positive gains in the UK market; a key pharmacy retailer increased distribution of Dentyl in H1 2019 and ASDA increased distribution of the Dentyl Fresh Clove during H1 2019. Additionally, Morrisons launched BB Mints and AAH, a pharmacy wholesaler, agreed to list both Dentyl and BB Mints - with the latter paving the way for Dentyl to be launched in pharmacies.  Furthermore, Lloyds pharmacy also launched Dentyl Smooth Mint and will promote Dentyl Fresh Clove in store also. 

International

The International Brands business delivered revenues of £0.5m during the period (H1 2019: £0.9m), with the decline mainly due to the lack of orders from our Chinese partner for Lubatti, as mentioned.

With the acquisition of Dentyl in August 2018, we also acquired a new partner in China.  As previously announced, there have been some issues with product packaging, which have now been resolved. This has however impacted the promotion of Dentyl in China during H1 2019, and the partner is now rebuilding momentum through a fresh marketing approach. We expect orders of Dentyl mouthwash to resume by the end of the year or early next year. We are pleased to report that we have strengthened our relationship with our key partner and new agreements were signed on Dentyl Fresh Breath Beads (previously BB Mints) and Dentyl Toothpaste (to launch in 2020). We expect further newsflow from this partner as we move into the second half of the year.

We have a strong order book for H2 2019, with seven new long-term distribution agreements having been signed in H1 2019, and one post-period end, which will have a positive impact on H2 2019 and beyond. Our first significant deal on Dentyl was signed in France with our existing partner La Brosse et Dupont, that will launch Dentyl into the mass market in Q1 2020.  Dentyl is now present in eight markets and interest remains strong.

 

Customer Brands
Development and Manufacturing 

 

Our Development and Manufacturing business (Biokosmes) in Italy services both our own Venture Life brands as well as our customer brands. We continue to increase output through the plant, which in turn will utilise the operational leverage we have and deliver increased profitability to the business.

 

The revenues for the customer brands business grew 10% to £6.6 million in the first half of 2019, with growth coming from existing partners and new partners. Some of the highlights include:

 

·      A range of new products developed for Menarini in 2018, launched in Italy in 2019. These products will begin to be launched internationally, including Asia, and we are expecting to see growing revenues from this partner.

·      A new long-term agreement signed with Athena Cosmetics Corporation in the US, to manufacture two products. First production will commence from August 2019 and a second manufacturing order is expected before the end of 2019.

·      A new long-term agreement has been signed with AlfaSigma in Italy, to develop and manufacture a new product. Development is due to finish in October 2019, with first production confirmed by the end of 2019.

·      A manufacturing order to produce a new product to be sold by Italfarmaco in Chile, with potential to expand to further international markets.

·      Development and production of a new product for B3Glam, Italy, to be sold in the US.

·      Development has commenced for Logus Pharma in Italy, to produce a Medical Device.

·      A new long-term agreement with Italian pharmaceutical company Giellepi S.P.A, to develop and manufacture a new Medical Device by the end of 2019.

 

In addition, we have developed a new medical device - DermaRisOn® which helps to restore the skin barrier and to prevent and treat various dermatitis, irritations and skin inflammations. We are now promoting this product to pharmaceutical partners in the international business arena.

 

Our Development and Manufacturing business has built an excellent reputation within our industry for the development and manufacture of products for sale globally, validated by the approvals from regulatory authorities in many markets. This regulatory expertise allows Venture Life and our customers to develop new products with the assurance that these can be sold in the major global markets.

 

The recent changes in the regulatory rules for medical devices also represent a significant opportunity for Venture Life. It is obligatory for customers to undertake a review of their medical devices in order to ensure they comply with new regulations. We are undertaking these reviews both for our own products and customers' products, which will enhance the value for our business in the future and we are investing heavily in 2019 in order to maximise this opportunity. We believe that this new compliance will secure significant future revenues for the Group.

 

In addition we have invested in the facility's product labeling capabilities. We have implemented procedures, machinery and internal skills to be aligned with new UDI (unique device identification) labeling requirements, to ensure we offer the highest level of manufacturing expected by customers. The first UDI operations have been successfully implemented and we expect new business opportunities to arise from this investment.

 

Outlook

Whilst the market conditions for retailers in the UK remain challenging, we believe that Venture Life has the brands and the expertise to continue to perform strongly. The marketing initiatives that have been put in place are expected to have an impact in the second half of the year, which is traditionally our stronger period, and the Company is well set to capitalise on opportunities and deliver a positive outcome for the year.

 

 

 

Financial Review

 

Statement of comprehensive income

Group revenue for the six-month period was £9.4 million, an increase of 14% on the £8.3 million reported for the same period in 2018. The growth included the Dentyl sales following the brand's acquisition during H2 2018. On a like-for-like basis, Group revenue was flat in the six-month period compared to the first six months of 2018.

The Venture Life Brands business, including Dentyl, increased 22%, with revenues for the six-month period of £2.8 million compared to £2.3 million reported in H1 2018.

The Development and Manufacturing business continued to represent the larger proportion of Group revenue. Revenues were £6.6 million in H1 2019 compared to £6.0 million for H1 2018 (up 10%) and reflecting different revenue phasing compared to the prior year. The current manufacturing order book is well ahead of the same period last year, and the Group expects a stronger H2 2019.

The Group generated gross profit of £3.5 million, representing a gross margin of 37.3%. This compares to a gross margin of 36.0% for the same period in 2018 on a reported basis. This slight improvement was due to the counteracting effects of cost increases for raw materials and other components offset by a higher margin product mix.   

Administrative expenses increased in the period to £3.6 million from £3.0 million in H1 2018 due to several factors, some of which were one-off, including our marketing campaign for Dentyl in the UK. We have also incurred higher R&D expenditures as a result of changes to the medical device regulations. We will continue to have this higher level of R&D expenditure in the second half of the year, however the Group will benefit from this short-term cost through securing long-term future revenues for the Group. The Group had some significant changes in the finance function at the start of 2019, which precipitated some one-off costs in the first half. Of the total increase in administrative costs of £0.6 million, we estimate more than half to be one-off in nature in 2019 with the balance representing small administrative cost growth and investment in Dentyl marketing.

H1 2019 generated a positive adjusted EBITDA of £0.7 million, up 5.5% compared to H1 2018 of £0.7 million.

The loss after tax remained slightly ahead of the prior year at £0.4m (H1 2018: loss of £0.5 million). Loss per share was 0.45p (H1 2018: loss of 1.35p).

The Adjusted profit per share was 0.15p compared to an adjusted loss per share of 0.36p in H1 2018.