Trading Statement

 LEI: 213800WRAP6W8VDL6B38

InnovaDerma PLC

("InnovaDerma" or the "Group")

Trading Statement

InnovaDerma (LSE: IDP), a UK developer of beauty, personal care and life science products, provides a trading update for the 12 months ended 30 June 2020. 

The welfare of our employees during Covid-19 continues to be our priority. With flexible working procedures and additional communication measures in place, our colleagues continued to provide uninterrupted services to our customers. As per our trading update of late May, we traded strongly online despite experiencing a material decline in contribution from our bricks and mortar retail channels. Increased demand, particularly for Skinny Tan in the UK and the US, saw a healthy growth in customer traffic with an increase in our client list of c.27% and c.65% respectively.

The Group expects revenues to be up 2.3% against the previous year at c. £13.2m (2019: £12.9m). The significant impact of COVID-19 and the combination of higher on-line advertising costs, lower margins of DTC product bundles and the closure of our bricks and mortar retail channels has unfortunately impacted profitability. It is estimated that the aggregate cost of these related factors in the normally profit weighted second half of the year has been in excess of £0.9m. As a result, the Group expects to make a much-reduced profit compared to the previous year.

The cost of advertising on Facebook rose suddenly and sharply in the last quarter of the financial year which was primarily the lock-down period. This has impacted our return on advertising spend as Facebook's charges work through an automated bidding system, the algorithms of which determine costs which, in turn, rise when there is seller demand for advertising to specific audiences. The impact of COVID-19 has also driven many traditional businesses to this dominant platform for online visibility and revenues. This has inflated the rates at which we are required to compete against, and the continuous fluctuations of these rates intensified significantly during lock-down, which meant our profitability was difficult to predict.

We experienced these fluctuations with Facebook and other platforms over the last 12 months, and in order to counter this, we placed strategic importance on the diversification of our advertising channels and invested in our own Artificial Intelligence software which will become more effective over time as it learns more about customers. This investment has, in part, helped to offset the previous spike in costs on Facebook. The continuous diversification of platforms is of priority to the Group and will help improve our return on advertising spend.

Cash management has been a key area of focus and the Group has benefitted from strong cash flows. As at 30 June 2020, the Group had c.£1.3m in cash and cash equivalents and continues to be debt free.

The business has performed resiliently during the pandemic and the subsequent impact on earnings is disappointing. However, the business is financially sound with a strong solid capital structure and operating platform that is well-placed to respond to periods of uncertainty. As lock-down eases across many countries, the Board continues to assess opportunities to strengthen the overall business with a clear focus on generating better returns on investment. We remain well-positioned and look forward to updating our shareholders at our final results which will be announced in September 2020.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

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