Cellular Goods Interim Results

Press release

25 May 2021

 Cellular Goods PLC

("Cellular Goods" or "the Company")

Interim results

Cellular Goods, a UK-based provider of premium consumer products based on lab-made cannabinoids (LSE: CBX), announces its half-year results to 28 February 2021.

Highlights:

·    Raised £13 million before expenses through a significantly oversubscribed flotation on the main market of the London Stock Exchange on 26 February 2021, with proceeds received after the period-end

·    Became the first provider of premium consumer products based on lab-made cannabinoids to join the London Stock Exchange

·    Secured David Beckham's DB Ventures as a significant equity investor with a 5% shareholding

·    Loss before tax increased to £2.12m (H1 2020: £0.14m) reflecting business set-up costs and a one-off non-cash charge for share-based incentives for the team in the form of warrants

·    Net cash as at 28 February amounted to £1.433m (H1 2020: £40,000). Net cash as at 25 May 2021 was £11.28m inclusive of IPO proceeds

Post-period highlights

·    Commenced planned scale-up and investment in the Company's operational infrastructure with five senior hires to strengthen product development, marketing, and sales functions

·    Proprietary product formulations, supply chain and manufacturing agreements, together with go-to-market sales strategy, are at advanced stages of being developed and finalised

·    Secured services of expert advisors from skincare, sports medicine, and veterinary sectors.

Outlook

·    On track for roll-out of the first consumer product range in Autumn 2021, starting with the launch of three skincare products followed by a 'movement' product range for the after-sport recovery market in Spring 2022

·    With excellent progress being made across the business, together with growing public acceptance and scientific validation of the benefits of cannabinoids such as CBD and CBG, the Company looks to the future with confidence

Commenting on the results, Alexis Abraham, chief executive of Cellular Goods said: "The most significant milestone we achieved in the first half was our heavily oversubscribed flotation on the London Stock Exchange which has provided us with a strong foundation and public profile to become the leading and front of mind brand for consumer cannabinoid products.

"The notable support for an IPO of our size validates the growing acceptance and potentially huge demand for cannabinoid-based products over the long term. Though it is still early days for Cellular Goods, we are making excellent progress in executing on our strategy, have a strong balance sheet and there are compelling industry fundamentals; all of this provides the Board with great confidence."

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CHAIRMAN'S STATEMENT

Introduction

I am delighted to report the Company's first set of results since its debut on the main market of the London Stock Exchange on 26 February 2021; this means that the period under review covers only three days of activities as a listed plc.

No revenue was generated and a loss before tax of £2.12m was incurred in the first half (H1 2020: £0.14m loss) as the management team focussed on developing a business strategy and raising capital to fund the expansion of the Company.

Our vision is to establish Cellular as the leading UK-based brand for consumer products incorporating lab-made cannabinoids which are legally compliant, independently tested for quality, environmentally friendly, and not tested on animals.

A major milestone in realising that goal was achieved with our stock market listing, which raised additional capital of £13m before expenses and sparked an unprecedented level of public interest in an initial public offering of our size. The IPO was significantly oversubscribed, with more than 6,000 applications received from small investors. Share allocations were scaled down to maximise the opportunity for small investors to become shareholders in Cellular Goods and gain exposure to a major new trend in consumer products that is being driven by changing attitudes to, and greater understanding of, the benefits of cannabinoids.

Market size and strategy

According to BDS Analytics and Arcview Market Research, the market for annual CBD sales in the USA will surpass $20 billion by 2024, while New York-based investment bank Cowen & Co estimated that the US CBD market could be $15 billion per annum by 2025. Meanwhile, the Centre for Medicinal Cannabis estimated that 1.3 million British consumers were using CBD products, the market was growing at double digits annually, and could be worth almost £1bn a year by 2025.

These growth projections, allied with the disparity in the quality and consistency of products currently on the market, has opened an opportunity for a supplier of premium cannabinoid-based products with known and verifiable provenance to differentiate itself in the market.

Cellular Goods was established to develop efficacy-led and research-backed cannabinoid products leveraging lab-made cannabinoids such as CBD and CBG; the manufacturing process does not involve the cultivation or processing of the cannabis sativa plant. The Company's strategic decision to source lab-made cannabinoids offers significant quality advantages, is ethically and environmentally friendly, and mitigates the regulatory risks associated with the sourcing of plant-sourced cannabinoids.

Operational review

Solid progress has been made across the business since the IPO, with a growing team executing on our growth strategy. The initial focus is on two product verticals: a premium skincare range to be launched this Autumn followed by topical athletic recovery products in Q1 of 2022, with a pet care range anticipated in late 2022.

The initial skin care range comprises a serum, a face-oil and an after-shaving moisturiser. Formulations for each of these products are due to be finalised this week after several months of extensive development in-house and at our UK-based contract manufacturer.

Cellular Goods has progressed from prototype development to the advanced stages of formulation development and product testing. These formulations are based on the Company's proprietary formulations incorporating lab-made cannabinoids; compounds which have demonstrated anti-inflammatory, anti-oxidant and anti-microbial properties. The next and final step in the rigorous product development process will commence shortly focusing on product quality, consistency, performance and other key attributes.

In line with industry best practice, the Company will conduct trials and consumer surveys for all the new products to obtain feedback to substantiate product claims. These steps are expected to take approximately three months to complete after which all notifications concerning cosmetic products will be filed in accordance with UK/EU regulations. The culmination of this process is the completion of all necessary steps for the approval and release of the first product range.

Branding and packaging design for the skincare range, led by creative director Sara Hemming, has gone through several iterations and the packaging design has now been finalised and is ready for launch upon completion of the requisite product development steps. Hemming has an established track record, having worked with luxury and lifestyle brands such as Stella McCartney and Jimmy Choo, and as creative director for David Beckham.

Development of the first two products in the 'movement' range for sports recovery and daily body maintenance is also moving at pace. The formulations for this range are currently undergoing in-vitro testing to validate the use of cannabinoid-based products for relieving muscle strain and pain relief after physical activity, an area which is already supported by a wealth of anecdotal evidence.

The skincare range is expected to go on sale initially in the UK and Europe direct to consumers through the Company's website and leading social media channels, prioritising its marketing on channels which produce the greatest customer engagement and return on investment. The existing Company website is being redeveloped to include a fully transactional platform in time for the market launch. In addition, several micro-sites tailored for social media are under development to maximise the online opportunity.

At the same time, the Company is continuing to evaluate the optimal partners through whom to sell its products via third party online retailers and traditional bricks-and-mortar players who will contribute to broader exposure, and consumer recognition and acceptance.

The Company is currently partnered with four leading cannabinoid producers and moving forward on volume supply agreements to ensure security of supply of cannabinoids including CBD and CBG. Purchase orders relating to the initial run of skincare products have been placed with two of these suppliers. We anticipate that these two volume supply agreements will be executed in the next fortnight.

All four of the producers have experience and expertise in the manufacture of pharmaceutical grade cannabinoid compounds through lab-based processes, thereby securing a consistent supply of legally compliant raw materials that are not derived from plant material.

In April 2021, the Company strengthened its operational capability with the appointment of Istok Nahtigal as the head of process and applied sciences with responsibility for developing, monitoring and optimising the Company's relationships with its manufacturing partners. Two further senior hires were made to the product development team to support quality assurance and project delivery. In addition, the Company also contracted three expert consultants to advise on the development of athletic recovery, pet care and skincare ranges.

Financial Review

No revenue was generated and a loss before tax of £2.12m was incurred in the first half (H1 2020: £143,000 loss). These reflect start-up costs of the business, professional fees principally connected with the flotation and other expenses relating to the development of the Company's business strategy.

Administrative expenses increased from £143,000 to £2.12m, partly reflecting a one-off, non-cash charge of £1.227m for share-based incentives to attract and retain management, advisers and staff.

Loss per share amounted to 0.012 pence (H1 2020: a loss of 0.001 pence).

Net cash was £1.433m at 28 February 2021 and stood at £11.28m at 25 May 2021 following receipt of net IPO proceeds.

Outlook

The tremendous public interest in Cellular Goods' launch on the London Stock Exchange has provided a strong foundation for the Company to execute on its long-term growth strategy.

Excellent progress is being made for the roll-out of the first consumer product range starting with the launch of a trio of skincare products in Autumn 2021 followed by a 'movement' line-up for the sports recovery and daily body maintenance markets in Q1 of 2022.

With Cellular Goods on track to deliver on its launch strategy, together with the continued tailwinds provided by growing public acceptance and scientific validation of the benefits of cannabinoids, the Company looks to the future with great confidence.

STATEMENT OF COMPREHENSIVE INCOME

All transactions arise from continuing operations.

The company has no other recognised gains or losses for the current period.

The accompanying accounting policies and notes form an integral part of these unaudited interim financial statements.