Interim Results

16 September 2024

AIM: SIS

SCIENCE IN SPORT PLC

("Group" or "Company")

Focus on margin enhancement underpins encouraging EBITDA improvement

Interim results for the six months ended 30 June 2024

Science in Sport plc (AIM: SIS), the premium performance nutrition company serving elite athletes, sports enthusiasts, and the active lifestyle community, announces it's unaudited interim results for the six months to 30 June 2024 ("H1 FY24").

The Board is pleased to report the Group's unaudited interim results for H1 FY24 which are in line with the trading update released on 28^th June. In July the Company completed a significantly oversubscribed equity fundraising of c £8.5m before expenses. In conjunction, the Group has agreed amended and extended banking arrangements to 2027, providing additional flexibility in accessing liquidity to fund growth. The fundraising has provided the necessary capital to complete the ongoing restructuring of the business to drive ongoing margin improvement and over time ensure that SiS is not only a growth company but a profitable and cash generative one. 

Trading in the second half of the year has started in line with management expectations and the Board remains confident that the business will return to growth from a stronger operating platform with improving operating margins and cash generation. The strength of the two core brands, SiS and PhD, is  clearly well established, however the prior strategy of prioritising top line growth has been reset as the business focuses on controlled profitable growth to allow management to address the significant growth opportunities and demand for SiS, in particular, from a solid platform with strong commercial execution. As previously announced, the resetting of marginal revenue channels and a pivot towards controlled profitable growth has reduced revenue in the short term but importantly, margins have and are expected to continue to improve due to significant operational cost efficiencies and more disciplined pricing.

Overview

Our premium brands of SiS and PhD remain in good health, with strong brand recognition and value amongst our customer base. Our science and innovation teams remain active and agile with the SiS brand being the trusted performance nutrition partner of over 330 athletes and teams in elite sport worldwide. At the recent Paris Olympics 2024, individual athletes and teams using SiS products achieved over 100 medals, which is testament to the quality of products, level of trust and unique position SiS commands in the elite community.   We continue to pride ourselves on developing products using elite insights backed by science which translate in to mass consumption for driving athletic achievement.

Operating review

Operational highlights

Following the establishment of the new leadership team, the immediate focus has been managing cash outflow and stabilising the relationships with our various stakeholders. The prior strategy of aggressive top line growth across all channels and markets has been reset, with the model of controlled growth whilst delivering sustainable cash generative profitability at improved margins from a reduced cost base at the forefront of everything we do.

To date, a number of significant cost rationalisation actions have been taken, benefitting H1 FY24 and providing a stable platform for further improvements in H2 FY24 and beyond as benefits annualise and the business resets.

Key actions, both complete and ongoing, include;

·      Restructure of the executive and leadership team with several senior roles exiting the business. The appointments of Chris Welsh as CFO and Megan Blaylock as CCO as well as Dan Lampard moving from CFO to COO have established a well-resourced executive function capable of providing both strategic insight but also leadership to all of our employees.

·      Marginal revenue channels have been reset and measures implemented to secure and grow the Group's profitable revenue streams. Upon detailed review, a number of overseas distribution agreements were found to be uncommercial and based on prioritisation of revenue growth over profitability. While this will reduce revenues in 2024, we will ensure that our distribution arrangements are a two-way partnership whereby the strength of the brand is supported by both parties with measurable deliverables.

·      Supplier and operational reviews are underway in conjunction with product inventory rationalisation to further drive profitability and cash generation in the business.

·      Whilst brand health is robust, a significant number of uncommercial marketing contracts have been exited and further savings will be made throughout 2024. Marketing spend will be aligned to identifiable commercial traction moving forward to underpin sound commercial rationale and growth.

·      Significant operational cost savings have been extracted under the new leadership since the final quarter of 2023 and progress in implementing operational efficiencies continues to be made. This is anticipated to generate improved contribution to cashflow and earnings throughout 2024. In aggregate this will deliver annualised savings totalling £6m, the majority of which will be delivered in 2024.

·      The business successfully launched the extended and reformulated SiS Rego recovery range, underpinned by scientific studies in conjunction with Manchester Metropolitan University

·      A significant rationalisation of product SKUs across both brands is in progress to simplify the operation and improve the working capital position whilst prioritising the needs of our customers.

·      The business successfully re-designed and re-launched the SiS D2C website reinforcing the premium position of the brand.

Financial performance

·      Overall revenue declined by 25.4% due to the shift of certain overseas revenue to royalty streams, working capital constraints in H1 FY24 resulting in poor stock availability to certain key accounts and the active steps to reduce unprofitable revenue and excessive discounting. These factors were most prevalent in our PhD product offering where sales have declined by 44.8%. Our SiS product sales were more robust but revenue still declined by 8.9% primarily due to stock availability constraints. Management expect revenue to stabilise and grow from these levels heading in to FY25.

·      Underlying EBITDA performance improved by 74% to £2.0m (H1 FY23: £1.1m) with the focus in the Period shifting to higher margin, controlled growth as the cost rationalisation programme and a review of the business operating model begins to benefit margin. This programme is anticipated to deliver aggregate annualised cost savings in excess of £6m.  

·      Gross margin improved by 2.6 percentage points to 44.6% (H1 FY23: 42%), with further progress expected in H2 as the benefits of the commercial reset and robust operational cost rationalisation programme begin to annualise as well as the shift towards a royalty revenue stream for certain overseas customers.

·      Trading contribution margin improved by 6 percentage points to 26% (H1 FY23: 20%), a significant increase, driven by marketing cost efficiencies as a number of uncommercial marketing contracts were exited. The Group remains focused on delivering effective marketing with a strong commercial execution to prioritise margin performance improvement.

·      Operating costs have been reduced by £3.6m or 21% as cost saving measures take effect.

·      Subsequent to the balance sheet date, the Group completed an equity raise of £8.5m (gross) in July to fund growth in the short and medium term via investments in inventory and working capital, selective CAPEX and effective market penetration.

Current trading and FY24 outlook:

·      Gross proceeds of £8.5m from the equity raise are starting to drive improvements within the business with investment made into inventory improving product availability and reliability of service to key customers in H2, with working capital pressures easing.

·      Working capital constraints noted in H1 FY24, which adversely impacted UK retail performance, are improving significantly in H2 FY24 following the successful equity raise in July 2024.  

·      Innovative product development pipeline for both brands is underway with exciting product launches and routes to market anticipated throughout H2 FY24 and H1 FY25

·      Agreed amended and extended banking arrangements to 2027, providing additional flexibility in accessing liquidity to fund growth, demonstrating the continued confidence in the Group's operating performance from a key business stakeholder.

·      Adjusted Net debt closed H1 FY24 at £13.8m (H1 FY23: £13.2m) as annualised cost saving actions are yet to be fully realised in cash generation. Management anticipates continued margin improvements resulting in cash generation and significant deleveraging in the medium term with management expectations of leverage normalising around 1.0x EBITDA over the medium term.

·      The Group is well positioned to benefit from strong demand for products throughout the remainder of FY24 and beyond.

·      While cognisant of ongoing macro dynamics, SiS's strong market position and brand recognition, communicated plans for controlled investment in to working capital, market penetration and improvements to the manufacturing process facilities give the Board confidence for FY24 and beyond.

Dan Wright, Executive Chairman of Science in Sport plc, said:

"The Board is pleased to report that the restructuring started late in 2023 began to deliver much stronger operating margins, with Underlying EBITDA improvement of 74% year on year on the anticipated lower level of sales as the Group undergoes a necessary reset.

Following the recent appointments of Chris Welsh as Chief Financial Officer and Megan Blaylock as Chief Commercial Officer, as well as Dan Lampard moving to Chief Operating Officer, we now have a broader team in place structured for success through extensive experience in strategic development and commercial execution across all areas of the business. 

The Group has made a positive start to the second half of the year and whilst there are still key trading periods ahead the Board considers that the revenue and profitability of H1 FY24 should be a baseline from which we anticipate controlled and sustained revenue and profit growth in the medium term. This will be underpinned by our strong brands continuing to perform well in their respective market places, the launch of new product lines, the annualised impact of the rebasing of the operating cost model, as well as efficiencies in the operating model and availability of key inventory items following targeted investment from our recent significantly oversubscribed equity raise."  

For further information:

Consolidated statement of comprehensive income

Six months ended 30 June 2024

All amounts relate to continuing operations.

Consolidated statement of financial position

30 June 2024