REG - Science in Sport PLC - Trading Update

Science in SportAnnouncement

06/03/2024 07:00

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RNS Number : 7174F  Science in Sport PLC  06 March 2024

 

Science in Sport plc

("Science in Sport", "the Company" or the "Group")

 

Trading update

Fundamental Change in Operating Model and Restructuring of Cost Base

Science in Sport plc (AIM: SIS), the premium performance nutrition company
serving elite athletes, sports enthusiasts, and the active lifestyle
community, announces an unaudited trading update in respect of the financial
year ended 31 December 2023 ("FY23") and also the outlook for 2024.

Operating Model

A new leadership team has been in place from Q4 2023 and we have completed a
full business and organisational review. Whilst the strength of our two core
brands, SiS and PhD, is unquestionable the relentless pursuit of top line
growth led to some poor strategic decisions and an inflated operating
structure. The immediate challenge faced by the new team was to stem the cash
outflow and stabilise the relationships with our various stakeholders. The
prior strategy of aggressive growth across all channels and markets has been
reset, with the revised operating model focused on controlled growth, while
delivering sustainable cash generative profitability at improved margins from
a reduced cost base.

To date, a number of actions have been taken, benefiting Q4 2023 while
providing a stable platform in 2024 for the business to be reset. Key actions
completed and ongoing are:

·    Restructure of the executive and leadership team with several senior
roles exiting the business.

·    Marginal revenue channels have been reset and measures implemented to
secure and grow the Company's profitable revenue streams. In particular,
overseas distribution agreements were uncommercial and based on prioritisation
of revenue growth over profitability. Whilst core channels are expected to
return to growth during 2024 and beyond, we will ensure that our distribution
arrangements are 2-way partnerships whereby the strength of the brand is
supported by both parties with measurable deliverables.

·    Supplier and operational review underway in conjunction with product
inventory rationalisation.

·    While brand health is robust and both brands remain leading in their
respective categories, a significant number of uncommercial marketing
contracts have been exited in 2023 and further savings will be made throughout
2024. Marketing spend will be aligned to identifiable commercial traction.

·    Significant other operational cost savings have been extracted under
the new leadership in Q4 2023 and progress in implementing operational
efficiencies continues to be made. This is anticipated to generate improved
contribution to cashflow and earnings through 2024.

·    In aggregate this will deliver further annualised savings in excess
of £2.5m, the majority of which will be delivered in 2024.

Trading

FY23 delivered EBITDA in-line with market expectations despite lower revenues,
with the focus in the final quarter in particular shifting to cash and profit
as noted above.

The Group closed FY23 with revenue of £62.8m (FY22: £63.8m), a reduction of
1.6% from the prior year. The performance in FY23 was driven from growth in
the Retail (UK and International) and Marketplace channels, offset by lower
trading in China and in the Digital channel.

The SiS brand delivered annual revenue growth of 17%, with PhD closing FY23
with an annual revenue reduction of 18% compared to the prior year,
predominantly on account of interrupted trade in the Chinese markets.

Whilst gross margin improved by 1 percentage point to 43% (FY22: 42%), the
underlying improvement is better reflected by the significantly improved
trading contribution of 21% (FY22: 16%). Whilst the gross margin is adversely
impacted by the increase in international and wholesale revenue mix, the
trading margin reflects the benefit of the distributor model, particularly in
the US together with the operational efficiencies and cost savings at all
levels. The FY23 trading contribution margin percentage achieved the highest
levels during the Q4 2023 period, which gives confidence in further
improvements in FY24.

Adjusted EBITDA(1) of £2.0m (FY22: £(2.7)m loss) consistent with market
expectations despite the lower revenue forecast, this being driven from
improved margins and ongoing cost efficiencies across all areas. Excluded from
the adjusted EBITDA(1) are one-off costs, principally relating to the
organisational restructure, transition costs moving to the internally
manufactured protein bars and moving to the distributor model in the US.  In
addition, an impairment review is being undertaken on historic digital and
trading assets which will be completed prior to the signing of the FY23 annual
accounts. No impact to adjusted EBITDA and cash for FY23 is anticipated as a
result.

Cash of £2.1m (31/12/23: £0.9m) and net debt(2) of £12.9m (31/12/22:
£10.9m) with headroom in facilities of over £3.3m as at 31 December 2023.
The increase in net debt at the year-end was driven by the timing of
restructuring payments and working capital outflow associated with the early
termination of a marketing partner, both of which will result in significant
savings in 2024.

Outlook

Management is taking a balanced view on prospects for 2024. The strategic
focus areas are embedding the new operating model post the recent
restructuring; controlled growth over the medium term; continued margin
improvements resulting in cash generation and deleveraging.  With the focus
on controlled growth and profitability, revenues are expected to be broadly
flat in FY24, with a doubling of underlying EBITDA and reduction in net debt.

At the core of the business are two very strong brands operating in a growing
marketplace. Management is confident with the revised operating model and new
leadership, through re-engaging with core customers, shareholders and
financing partners the business is building a more stable platform from which
substantial shareholder value can be delivered.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE MARKET
ABUSE REGULATION (EU NO. 596/2014) AS IT FORMS PART OF UK DOMESTIC LAW BY
VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR").

 

For further information:

 Science in Sport plc                     T: 020 7400 3700
 Dan Wright, Executive Chairman

 Daniel Lampard, CFO

 Liberum (Nominated Adviser and Broker)   T: 020 3100 2000
 Richard Lindley

 John More

 

Notes to Editors

About Science in Sport plc

Headquartered in London, Science in Sport plc is a leading sports nutrition
business that develops, manufactures, and markets innovative nutrition
products for professional athletes, sports and fitness enthusiasts and the
active lifestyle community. The Company has two highly regarded brands, PhD
Nutrition, a premium active-nutrition brand targeting the active lifestyle
community, and SiS, a leading endurance nutrition brand among elite athletes
and professional sports teams.

The two brands sell through the Company's phd.com and scienceinsport.com
digital platforms, third-party online sites, including Amazon and ebay, and
extensive retail distribution in the UK and internationally, including major
supermarkets, high street chains and specialist sports retailers. This
omnichannel footprint enables the Company to address the full breadth of the
sports nutrition market.

PhD is one of the UK's leading active nutrition brands with a reputation for
high quality and product innovation. The brand has grown rapidly since its
launch in 2005. The range now comprises powders, bars, and supplements,
including the high protein, low sugar range, PhD Smart.

SiS, a leading endurance nutrition business founded in 1992, has a core range
comprising gels, powders and bars focused on energy, hydration, and recovery.
SiS is an official endurance nutrition supplier to over 320 professional
teams, organisations, and national teams worldwide. SiS supplies more than 150
professional football clubs in the UK, Europe, and the USA.

SiS is Performance Solutions partner to Ineos Grenadiers cycling team, and
Tottenham Hotspur and CGC Nice football clubs.

For further information, please visit phd.com and scienceinsport.com

 

(1) Earnings before interest, tax, depreciation, amortisation, share-based
payments and foreign exchange variance on intercompany balances, restructuring
costs, transition costs and material one-off items

(2) Net debt is defined as cash, less banking working capital facilities and
asset financing and excludes property leases

 

 

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