17 March 2021
 

SCIENCE IN SPORT PLC

("Company" or "Group")

Final Results for the Year ended 31 December 2020

Science in Sport plc (AIM: SIS), the premium performance nutrition company serving elite athletes, sports enthusiasts and the gym lifestyle community, is pleased to announce its audited final results for the financial year ended 31 December 2020.

HIGHLIGHTS

During a challenging year, the Group performed well, delivering an underlying EBITDA¹ profit of £1.1m (2019: loss of £0.2m) as we strengthened the critical building blocks of long-term profitable growth.

Revenue of £50.4m was in line with the prior year (2019: £50.6m), as Online grew 39% year on year and increased to 50% of total Group sales.

Gross margin improved to 49% (2019: 44%) due to Supply Chain efficiencies, together with sales channel shift to our Digital platform and improved pricing. 50% gross margin was achieved for the second half, reflecting further benefits flowing through.

Key SiS growth markets of Australia, Football, Italy and the USA contributed 28% of total SiS revenue at £7.2m. The USA made good progress with 33% revenue growth to £3.5m and significantly reduced cash burn.

UK Retail was adversely affected by COVID-19 delivering revenues of £16.1m (2019: £21.8m). The £9.3m of International Retail revenue was 14% behind last year (2019: £10.8m). We saw a good recovery in several markets and a resilient rate of sale in key UK product lines in Q4.

While we held some Innovation back given the pandemic, sales from new products still contributed well at £2.2m, some 4% of total Group revenues. The 2021 new product pipeline is extremely strong.

The balance sheet remained strong, with £10.5m of cash (2019: £5.4m) and an £8m unused flexible credit facility. We raised £4.2m net in April 2020 to strengthen the balance sheet, given the COVID-19 pandemic.

Announced a new 160,000 sq. ft. Supply Chain site, together with a new gel processing and packing line. The site will open in Q1 2022 and will support growth to around £150m in revenue.

CURRENT TRADING AND OUTLOOK

Trading for January and February is in line with the same period in 2020, despite the current COVID-19 lockdown in the UK and other key markets. We have continued to make gross margin improvements, and this will underpin EBITDA progress.

Our Online business continues to perform very well with strong growth of 65% versus the same period in 2020, representing 54% of group sales and offsetting the adverse effect of COVID-19 on UK Retail. We continue to see good recovery in our International Retail business.

Trading in March is in line with plan, and we are well placed for growth as lockdown lifts in our key markets. 

¹ excludes depreciation, amortisation, share-based payments, 2019 PhD acquisition costs and foreign exchange variances on intercompany balances

Stephen Moon, Science in Sport's Chief Executive Officer, commented:

"Delivering a robust underlying EBITDA profit was a key goal for 2020, and this was achieved through a focus on developing our fundamental building blocks of long-term profitable growth. We realised all expected synergies from the PhD acquisition and saw strong performance across the whole supply chain. Together with our strategic shift to online, this underpinned a step change in gross margin.

The very strong momentum in our online business continues into 2021 with growth in all markets. We see recovery in international retail, and the US business is well ahead of last year. Revenue is on track for the first half, despite continued lockdown restrictions in many key markets. We are well-positioned to accelerate as restrictions are lifted.

Our long-term and proven profitable growth strategy remains unchanged. We have demonstrated the business's resilience in 2020 and are continuing to invest for growth in the key strategic areas of online and technology. This year will see us roll out our premium brands to several key European and Asian markets.

Whilst it is too early to reinstate market guidance, given the current COVID-19 lockdown, we are well funded and remain very optimistic about the long-term growth prospects for the Group".

For further information:

Notes to Editors

About Science in Sport plc

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 gym lifestyle community. The Company has two highly regarded brands: PhD Nutrition, a premium active-nutrition brand targeting the gym lifestyle community, and SiS, a leading endurance nutrition brand among elite athletes and professional sports teams.

The two brands are sold internationally through our own phd.com and scienceinsport.com digital platform, together with third-party online sites, including Amazon and Tmall. We have 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, forecast to be £13 billion worldwide by 2023.

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, based on its core protein powders, since its launch in 2005. The range now comprises powders, bars and supplements, including the high protein, low sugar range, PhD Smart. PhD brand ambassadors include leading fitness influencers Ross Edgley and Obi Vincent. The PhD brand is an official partner to the Tough Mudder Challenge and Race Series.

SiS, founded in 1992, has a core range comprising gels, powders and bars focused on energy, hydration and recovery. SiS is the official sports nutrition supplier to many professional teams and organisations, including INEOS Grenadiers Cycling Team, Team INEOS UK (America's Cup Team) and Manchester United Football Club. SiS supplies more than 100 professional football clubs in the UK, Europe and the USA and is Performance Research Partner to the English Football Association.

Science in Sport is headquartered in London. Its shares joined the AIM market of the London Stock Exchange in August 2013 and trade under the ticker symbol SIS.

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

CHAIRMAN'S STATEMENT

In an unprecedented year for the Group, we demonstrated the resilience of the business. Despite COVID-19 related disruption, we delivered positive underlying EBITDA¹ and positive free cash flow. The company adapted at speed and maintained a focus on delivering the strategic plan during a year of significant disruption and change.

Given the progress made, we exited 2020 with an agile and leaner business, underpinned by a robust balance sheet. We enhanced our people and technology capabilities, ready for the next stage of our Online and International growth ambition.

COVID-19

Our priority during the pandemic continues to be the health and safety of our employees. In the factory, we rapidly introduced additional safety and hygiene measures, including segregating facilities, breaks between shifts and increased cleaning routines. Operations have continued uninterrupted throughout the period.

Our office employees moved to remote working well ahead of government lockdown guidance, supported by our technology team. Whilst uncertainty remains as to the overall duration and impact of COVID-19, we continue to work closely with our customers, suppliers and partners to manage effectively through this period.

Overview

We are delighted to announce a robust set of results for the year ended 31 December 2020. Group revenue was £50.4m, in line with £50.6m revenue in 2019, in spite of the considerable disruption caused by COVID-19.

Underlying EBITDA¹ was £1.1m net of one-off costs of £0.3m related to COVID-19 (2019: loss of £0.2m) This reflected gross margin improvement from Supply Chain efficiencies and Online growth. The reported loss before tax was £2.3m (2019: £5.1m loss).

Our cash position remains strong with a year-end balance of £10.5m, of which £4.2m net was from the April equity raise. The business was cashflow positive, generating £0.9m of cash in the period. Our HSBC invoice credit facility of £8.0m remains unused.

We demonstrated our business's resilience during a year of disruption and made good progress in delivering our strategic objectives.

Our proven growth strategy remains unchanged, focusing on science-led product innovation, building brand equity, driving global Online scale supported with world-class customer service, through an efficient Supply Chain.

Our People

During this challenging year, the continued high performance of the Group is due to the resilience, energy, and focus of all the people who work for our PhD and SiS brands. Their leadership and ability to navigate change have ensured we have come through this stronger together as a business.

I would especially like to extend my gratitude to the team at our Nelson manufacturing and fulfilment facility, which continued to produce, pack and ship product to our customers during this challenging time without disruption.

We continued to strengthen the executive and senior leadership teams during this period with a new Chief Technology Officer, Asia Online Director and Head of Customer Experience to drive the next stage of our Online, International growth.

Development of the Board

It is the Board's duty to ensure the Group is managed for the long‐term benefit of all shareholders, with effective and efficient decision‐making. Corporate governance is an essential part of that role, reducing risk and adding value to our business.

During the period, the Company has appointed Roger Mather to the Board and nominated him as Chair of the Audit Committee. Tim Wright, an existing Board member, has been nominated as Chair of the Remuneration Committee.

John Clarke

Non-Executive Chairman

16 March 2021

CEO REPORT

Strategic Intent

We see a significant opportunity ahead with the global sports nutrition category growing consistently and forecast to be worth £13 billion by 2023. The COVID-19 pandemic has driven an increased focus on wellbeing and nutrition. Customers are exercising more and shopping online more frequently. Ethical consumption and plant-based diets are of growing importance in the sector.

We remain well-positioned to benefit from these trends, and the key drivers of our proven growth strategy remain unchanged:

·      Performance Innovation: a robust new product pipeline based on science-led technology

·      Premium Brand: investment in brand awareness, driving conversion and usage with the highly engaged consumers in the category

·      World-Class Customer Experience: supporting our customers in all channels and markets whilst creating brand loyalty

·      Global Online Scale: growth led by our Digital platform and underpinned by Marketplace, based on an agile technology platform that delivers deep consumer insight

·      Efficient Supply Chain: simpler, more cost-effective, scalable and increasingly in-house, with a new single site planned

Supporting these strategic pillars is investment in technology and people, underpinned by a strong balance sheet.

Online

Online channels performed strongly during the year, with total Online sales growing 39% year on year. Online sales mix reached 50% of total revenue through our Digital platform and Marketplace channels.

We see the switch to Online continuing and in line with our strategy. Key growth drivers are a strengthened Online team, diverting over 60% of marketing investment to Online in 2021, launching a new scalable website platform to drive International roll-out, and acquiring a new leading-edge customer data platform.

We continue to expand the reach of our Marketplace offering, opening new stores for both brands on Amazon across Germany, Spain and the Netherlands.

In the last quarter, we saw strong momentum and launched new PhD websites in Germany, Italy and Europe. The rate of launch of new websites for both brands will accelerate further in 2021, with our new commercial and technology teams in place to drive this.

UK Retail

UK Retail was adversely affected by the extended UK lockdown restrictions, delivering £16.1m of revenue, versus £21.8m in 2019. We will continue developing and growing the channel in the future, which we see as a critical brand awareness and product trial driver, with a positive cash contribution.

We see opportunities in targeted growth areas: retailers with a developed online presence, such as Holland & Barrett; the Convenience sector, where we recently secured listings with the UK's largest independent forecourt operator; and the growing Discounter segment.

International

In line with our strategy, we streamlined the International retail business, focussing on selected key accounts in scale markets to drive profitable growth. As a result, we exited over 60 sub-scale accounts in late 2020. International retail sales were £9.3m, 14% less than the prior year, as COVID-19 restrictions impacted consumer behaviour in many of our markets.

Product Innovation

Revenue from new products was £2.2m for the period, although we decided to delay some launches into 2021 to maximise their impact. We continued to invest in new product development during the economic downturn. 2020 key product launches included PhD Smart Plant bars and protein powder and PhD high protein, low sugar Smart Cake. July saw the launch of SiS Turbo+, the world's first endurance nutrition range designed for indoor training. PhD relaunched the best-selling Diet Whey range at the end of the year in an industry-first recyclable pouch.

2021 sees PhD Diet Whey Clear, Keto and Diet Plant and SiS Whey 20 launching in Q1, with a very strong pipeline of new products in the balance of the year.

Supply Chain

The new protein powder filling line, part of the PhD integration, delivered cost savings and production efficiencies ahead of plan in 2020, increasing in-house production and Supply Chain control.

We streamlined our Supply Chain by removing over half of our product line count during the year, removing significant complexity and cost, and focussing inventory on our best-selling lines.

A strong focus on improved buying, cost-saving initiatives, production efficiencies and increased in-house production drove an improved gross margin of 49% (2019: 44%) supported by favourable channel and product mix benefits. These improvements are considered structural and sustainable, and indeed we saw further progress in the second half of the year.

We have committed to a new leased Supply Chain facility, which we will take possession of in December 2021. We expect it to be fully operational in Q1 2022. The 160,000 square foot facility will consolidate the Group's operations into one site and give us the headroom to grow to more than £150m in revenue. We are to install a new 8-lane gel manufacturing plant in the facility to meet the continued strong growth in this highly profitable product line.

Of the £4.3m total new factory and gel machine cost, £2.1m will be funded from cash reserves, together with £2.2m of equipment leasing finance. The project is expected to contribute to EBITDA in FY22 and deliver cash payback in FY23 through increased operating efficiencies.

Outlook

As our strong performance in 2020 demonstrates, this year was an inflexion point for the business, as we shifted to profitable growth and cash generation. We emerged from the year a more resilient and agile company, having made good progress delivering our strategic objectives and are well-positioned to return to strong growth once the COVID-19 restrictions ease.

We have confidence in our proven strategic growth model and remain committed to our vision of becoming the world's number one premium performance nutrition business.

Stephen Moon

Chief Executive Officer

16 March 2021

ENVIRONMENTAL, SOCIAL & GOVERNANCE

At Science in Sport, we take great pride in both our brand and products. We are committed to ensuring the highest standards of corporate responsibility covering environmental, social and governance are maintained and understand the importance of these to our customers. In 2020 we prepared our first ESG report, which can be found on our sisplc.com corporate website.

Environmental

We now use recyclable pouch packaging for our protein powders, and this is a first for the sports nutrition industry globally. The PhD Nutrition pouch range moved to recyclable material, commencing with the Diet Whey range at the start of December 2020, with a full range change completed by early 2021, followed by Science in Sport later in 2021. We expect to save one million pouches from landfill waste in 2021.

In February 2021, we launched a partnership to allow customers to recycle gel, bar and sachet wrappers. Customers add a postage-paid recycling bag to their basket at no extra cost, which can be returned with up to 30 wrappers avoiding landfill waste.

We have continued to increase the manufacture of products in our Nelson factory, bringing protein powder production in house and away from multiple suppliers, reducing transport miles and products' carbon footprint.

A lease was signed in early January 2021 for a new combined Supply Chain site at Blackburn comprising factory, warehouse and e-commerce dispatch facility driving significant environmental improvements by reducing transport miles and carbon emissions.

Under the SECR (Streamlined Energy and Carbon Reporting) framework, SiS plc Scope 1 & 2 energy use in 2020 is 1,523,146 kWh from electricity, gas and own transport consumption, with 308 tCO2e emissions. Our energy intensity ratio is 6.1 tCO2e per £m sales.

Social

A Wellbeing & Mental Health Initiative was launched this year to support employees through COVID-19 lockdown. An Employee Assistance Programme, online counselling, and drivers of wellbeing monthly sessions led by experts such as Sir Chris Hoy were provided. We also offered line manager mental health awareness training and signed up for the Inside Out Wellbeing Charter.

We strengthened the SiS plc People team with a new senior function lead and apprenticeship role to drive increased employee engagement and support across the business

Health & Safety is an essential element of our ESG policy and a critical operational focus to which all employees contribute. The last lost-time accident in the business was on 12 April 2018, nearly three years ago. No reportable incidents occurred in 2020.

We signed up to the Business in the Community, Race at Work Charter, committing to five actions to ensure that ethnic minority employees are represented at all levels in an organisation. We have launched a business-wide diversity initiative and initiated regular group-wide diversity reporting to monitor progress. We have a CEO diversity statement and a diversity blog on our websites and are proud to support the Black Cyclists Network and Los Angeles Bike Academy.

We launched a partnership with Career Ready, a national social mobility charity, offering mentors from across the business and paid summer internships in 2021.

Governance

The Board has adopted the QCA corporate governance Code in line with the LSE requirement that AIM-listed companies adopt and comply with a recognised corporate governance code. This policy is reviewed and updated annually. Full corporate governance disclosure can be found on our sisplc.com website.

Due to our accumulated losses which generated a deferred tax asset, we are not a significant corporation taxpayer and continue to make VAT, PAYE and NI contributions. In 2020 we formalised a Group Taxation Policy and were proud that we contribute to the development of the economies in which we operate and take our responsibility to pay our fair share of tax seriously whilst maximising shareholder returns.

FINANCIAL REVIEW

Revenue

The Group delivered £50.4m revenue in the year ended 31 December 2020, in line with the prior year (2019: £50.6m).

Online channels grew 39% year on year and now represent 50% of Group sales, as customers shifted online, offsetting the decline in UK Retail & International channels due to the impact of extended lockdown restrictions on customers in many of the key markets where we trade.

Gross margin

The Group generated a gross profit of £24.6m (2019: £22.2m) with a gross margin of 49% compared with 44% in 2019. Gross margin improved due to increased Supply Chain efficiencies from in-house production, purchasing savings and input prices, online mix and margin growth and non-recurring prior-year impacts.

Underlying EBITDA

2020 Underlying EBITDA¹ was £1.1m (2019: loss of £0.2m) driven by improved gross margin and reduced overheads. Loss from operations was £2.2m (2019: loss of £5.0m)

We made good progress in removing non-strategic overhead cost across the business. Total overhead is down on the prior year despite increased investment in growth overhead in key strategic areas such as NPD and e-commerce employees.

The Group has chosen to report underlying EBITDA as the Board believes that EBITDA before items such as depreciation, amortisation, non‐cash share-based payments and 2019 PhD acquisition-related expenses provides additional useful information for Shareholders to assess profit performance. This measure is used for internal performance analysis. A reconciliation of underlying EBITDA to profit from operations is presented in note 1.

Working capital

As at 31 December 2020, the Group held inventory of £7.0m (31 December 2019: £6.1m). Inventory levels increased as we managed supply chain disruption risk due to the uncertainty around the Brexit trade negotiations at year-end, increasing stock levels to provide resilience into the new year. Trade and other receivables were down £1.1m at £9.8m (31 December 2019: £10.9m).

Cash position

We exited the year with a £10.5m cash balance as at 31 December 2020 (31 December 2019: £5.4m). In April, we undertook a proactive capital raise of £4.2m net to provide additional liquidity during the COVID disruption and to enable us to continue investing in our growth strategy. The business also generated £0.9m from a significant increase in underlying EBITDA and improved working capital discipline.

In addition, we secured an £8.0m flexible invoice credit facility with HSBC, our principal bankers, which remains unused.

Share-based payments

The Company operates both a Short-Term Incentive Programme ("STIP") and a Long-Term Incentive Programme ("LTIP"). Together, the Share Option Plan ("SOP") was approved by the Remuneration Committee in June 2014 in line with the proposal contained in the Company's AIM Admission document published in August 2013. A LTIP scheme for financial years 2019‐2021 is in place. Options were granted for the 2019 financial year based on the achievement of 2019 performance targets.

No award was made under the LTIP or STIP schemes for 2020 performance.

Taxation

The tax benefit recognised for the year is £0.5m (2019: £0.6m tax expense). The Group has cumulative tax losses of £15.5m (2019: £14.1m), which the Group will look to use to cover future profits.

Losses and dividends

The loss attributable to equity holders of the parent for the year was £1.7m (2019: £5.6m), and the basic and diluted loss per share was 1.3p (2019: 4.6p loss). The payment of a dividend has not been recommended.

Going concern

The Group made a loss after tax for the year attributable to owners of the parent of £1.7m (2019: loss of £5.6m). The net increase in cash and cash equivalents in the year ended 31 December 2020 was £5.1m (2019: £2.6m decrease). As at 31 December 2020, the Group had cash balances of £10.5m (31 December 2019: £5.4m).

As the extended UK and international lockdown restrictions impacted consumer demand and revenue growth, management took pro-active and decisive steps to improve profitability and generate operating cash flow. Sensitivity analysis and scenario planning different revenue outcomes stress-tested potential impacts on the cash position of the business, ensuring that sufficient liquidity was in place. The Directors have prepared projected cash flow information for the period ending 31 December 2022.

Accordingly, the Directors have a reasonable expectation that the Company will have sufficient cash to meet all liabilities as they fall due for a period of at least 12 months from the date of approval of these financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

All amounts relate to continuing operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

These consolidated financial statements were approved and authorised for issue by the Board on 16 March 2021 and signed on its behalf by:

STEPHEN MOON

Director

CONSOLIDATED STATEMENT OF CASH FLOWS