SkinBioTherapeutics plc (SBTX) Earnings Call Transcript & Summary

Good morning, and welcome to the SkinBioTherapeutics plc Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to Acting Chair, Alyson Levett. Good morning to you.

Good morning. Welcome, everybody, to this morning's presentation from SkinBioTherapeutics. I'm Alyson Levett, and I'm the acting Chair of the company, and I joined the Board at the beginning of January 2026. I'm accompanied this morning by Rachel Parsonage, Interim CEO, who was appointed in March of this year.

Good morning, everyone.

As a reminder to those of you who might not know the company, SkinBioTherapeutics is a life sciences company focused on skin health. Next slide. Please see our disclaimer. So this slide is an overview of what we will be covering today. The normal half year results process was significantly disrupted. So before we talk about half year '26 results, I want to cover what happened post period end and the chain of events that ensued. We will then talk through the adjustments that have been made to the last year's restated FY '25 accounts, and then Rachel will take us through the operational and financial highlights of the first half of FY '26. He will also cover how the business has traded in the second half of the financial year. As we said in the recently published results, we started the new financial year with optimism. But in February 2026, there was significant disruption to the business, which I'll go through now. This slide reflects how the last 6 months have panned out since the year-end. I'm going to pause there for a moment for you to look at this. Matters of concern were flagged in February by our former CFO, Emily Bertram. This triggered a series of events, including the full suspension then resignation of the CEO. All the events marked here represent an RNS statement. We have deliberately split the time line of events into 3 sections: governance, investigation and reporting to demonstrate the distinct multiple lanes of actions that we've taken. Our fundamental aim and responsibility to shareholders was to ensure that we had the clarity of the FY '25 results, a clear view of operational performance and prospects and also clear guidance on what improvements are needed to be made in our governance processes going forward. We have said repeatedly, we wanted to be able to draw a line and then move on positively and strongly. The whole process took time. And understandably, there were many questions about how long the time it was taking. Both Rachel and I were on the investigation panel, and we can assure you that the time taken matched what needed to be done. No one dragged their feet. no one overstepped the scope of the investigation. So let's take you through the key steps we took. We recognized that there were 3 areas where we needed to set a firm strategy to mitigate the impact to the business. Firstly, we needed to recruit an interim CEO with operational and commercial experience relevant as soon as possible, and we were fortunate to find Rachel for that role. Secondly, we needed to stabilize the business and make sure that the team maintained a business as usual mindset. And we believe that was achieved, and we really appreciate all the work that was done by our team in order to do that. Finally, our partnerships are clearly very important to us. So communications with our lead contacts were essential to reassure and reset where necessary. These were essential steps before taking a more strategic sense around delivery and considering what the company could do more of with respect to opportunities around its assets and partnerships. Before I go through the disclosable points from the FRP report, I want to stress that any reference to the investigation and FRP's report is not intended to waive and should not be taken as waiving legal professional privilege. This is still an active legal situation, which is why we have to be careful what is said publicly. The wording is largely taken from what we said in the results statement, and we cannot really say any more. However, the important points to draw out are the originally identified item referenced in the statement was the accrued royalty income of GBP 0.77 million, where the supporting documentation was identified as fabricated by the former CEO alone. No other matters relating to FY '25 revenue were found. There were no issues around the cash column. There were, however, weaknesses identified around corporate governance and certain processes. Prior to these findings, the Board had already implemented some changes and now has a comprehensive list of actions that are being tackled by Rachel and I as quickly as we can. You will see very clear evidence of these in our FY '26 apologies, annual report and accounts. On the next slide, I'm going to go into more detail about the Board's takeaways. Our following takeaways are really aimed to address the key questions that have been raised by shareholders in the period. So I will spend some time going through them. Firstly, I can assure you that the Croda relationship is good. It's a robust commercial agreement with a high-quality partner, and it remains one of the company's most strategic important assets. Understandably, there has been significant discussion regarding individual license arrangements. In line with financial reporting best practice, we have reviewed our reporting segments. These were clearly identified in our half year results RNS earlier this month. It is our intention to report all license revenues consistently through our product segments, along with other revenues derived from IP and product-related activities. Rachel will explain in more detail how this segment is made up later. We do not intend to provide ongoing commentary on individual license arrangements unless disclosure obligations require us to do so. There have been questions and speculation around our cash position and future funding requirements. Our pathway towards cash breakeven is centered on growing the 2 operating businesses whilst maintaining strict financial discipline. Underlying cash burn is coming down. Rachel will talk later on what we've been doing around cost control. It is important to note that we will be preparing our FY '26 results on a going concern basis. And in accounting terms, this means being able to evidence cash runway for at least 12 months from the date of audit sign-off. Around regulatory matters and recovery actions, there are still some matters ongoing, and we will be cooperating fully with all relevant parties. We are considering whether opportunities exist to recover costs and losses incurred by the company. Any action we take will be assessed through a straightforward shareholder lens. What's the likelihood of success, what's the cost, the timing and importantly, the overall value that will be created by pursuing that. We will be commercial and pragmatic in our approach. The Board has changed considerably, and we have commenced the search for an additional Nonexecutive Director, who will bring relevant sector and commercial expertise to complement my financial and governance expertise and also support Rachel's industry and operational experience. I have taken on the acting Chair role as I evaluate how being the permanent Chair might work within my other portfolio commitments. However, I just want to say from my point of view, SkinBio is a fascinating business. I'm really excited to be part of it, and I believe it is at a pivot point in its evolution. With Rachel, she's only 4 months into a 6-month contract. However, it's been clear even in this short time that she is laser focused and has shown a really deep commitment to SkinBio. We also unfortunately announced last week about Emily Bertram's departure. We can't say any more than what we said in the RNS. However, she goes with thanks and our very best wishes. We've appointed an interim CFO, which will be a non-board role, and we will be looking for a permanent CFO in due course. We also have solid support from our in-house and local accounting teams, ensuring the financial operations continue as normal. On governance, it is the Board's responsibility to ensure lessons are learned and embedded throughout the organization. Working alongside external advisers and drawing upon the recommendations arising from the review process, we have developed a detailed program of governance and control improvements. Good progress has already been made and further work is underway. This will be summarized in the annual report accounts for FY '26. And finally, Rachel and I strongly believe in maintaining open and constructive relationships with shareholders. However, we also believe management time must be directed primarily towards rebuilding, strengthening and growing the business. We, therefore, intend to engage actively with shareholders through appropriate and structured channels, including results presentations, investor meetings such as this and periodic road shows as well as the SkinBio IR inbox, which is being monitored regularly. Our objective is to ensure shareholders remain appropriately informed whilst allowing management and the Board to remain focused on execution. I will now go through the FY '25 results, highlighting the adjustments we have made before I pass over to Rachel to talk through the half year '26 results and current trading. This slide sums up what we said in the RNS statement. Key areas to highlight are the adjustment to the revenue line of the GBP 0.77 million accrued royalty revenue. To clarify, this has been removed completely. This was not merely a timing issue. However, as we stated in the RNS of 8th June, actual initial licensing income was recognized in half year '26 results and continues to do so in line with the contract. We have also removed GBP 0.23 million of certain directors' bonus payments. Some directors have voluntarily paid back the amounts they were paid, and we will see this reflected in the FY '26 results. We also have new auditors, Saffery LLP. Moving on to the cash position. In my slide on takeaways, I talked about that cash position. The cost of the formal forensic investigation alongside associated legal fees was always going to be considerable. But as I said before, we needed to be able to draw a line and move forward with confidence. We will be pursuing recovery of costs where possible and reasonable. On the operational front, our pathway towards cash breakeven is centered on growing the 2 operating businesses whilst maintaining strict financial discipline. The Board has undertaken a detailed review of the business, its cost base and its funding requirements. Actions have already been taken to reduce cash expenditure and additional opportunities remain available to us. That is where management's focus is today. Finally, as I've said before, we intend to prepare our FY '26 results on a going concern basis, indicated at least 12 months cash runway at the time of sign-off. I will now pass over to Rachel to take you through the half year results and discuss current trading.

Thank you, Alyson. My role when I was first appointed was one of stabilization. I wanted to review all the material contracts, review the assets, the partnerships and the IP for future growth and the commercial opportunities. Alyson has already touched on some of the work we've done to stabilize the business. We've highlighted this in the half year report, and we've also mentioned some of the improvements we've put in place, and I'm going to take you through some of that now. Before I start, I wanted to run through how we've restructured the operational business and how we're going to report on that going forward. It's been split into 2 divisions: products, and services. So product is split into Topical. For the moment, that's Dermatonics and oral supplements, that's AxisBiotix and IP licensing and commercialization, which is SkinBiotix and other technologies. For the purpose of simplicity, I'm going to go through each division, talking about their performance in half 1 and then what we've been focusing on in half 2. Let's take the 2 segments separately, and we'll start with Products first. Next slide. So we have 2 main streams of topical products. The first is built around clinically validated ingredients and then the second is focused on microbiome-based active ingredients. And we sell these products through a combination of direct and indirect retail channels. We sell them through commercial distribution partnerships, and we also have licensing. Dermatonics is going to be a priority for us. It's brand trusted by clinicians. It's for barrier repair and foot health. The demand remains stable, and we have a high-quality customer base. That includes the NHS, Boots, Superdrug, and we also have specialist podiatrists. Dermatonics provides us with a solid revenue foundation. It delivers constant consistent margins, and it offers clear opportunities for future growth. AxisBiotix focuses on skin health from the inside out and is a food supplement. It's a brand built on solid science with a really strong clinical story, and it centers around that gut-skin Axis. But that being said, Axis is still in a start-up phase. It's an early-stage consumer brand. It requires ongoing investment while that awareness builds. Because Axis is a food supplement, there are regulatory limits on the health claims that we can make. We cannot make medical claims unless they are supported by extensive and clinical trials. That's why our language focuses on the benefits of helping skin feel calmer and clearer rather than referring to a specific medical condition. For Axis, our aim is to reach those customers that would benefit the product the most, but we have to keep within those boundaries of regulatory. And that's challenging. That requires creative brand and partnership work, and that's what we've been focusing on in H2. All microbiome beneficial food supplements are facing the same challenge. In the meantime, we're managing the brand carefully and ensuring that investment remains aligned with the resources available to us. And SkinBiotix, we've licensed that to Croda, who then in turn developed Zenakine, a neuroactive ingredient for the cosmetics industry. It's a really important asset for our business, and it does represent a solid opportunity for medium-term shareholder value. But we cannot predict the speed or the scale that will emerge. And from my experience with ingredient commercialization, these programs typically follow a long and fairly unpredictable path. It's never linear. There is patterns, and I'll take you through some of those now. Initially, what you'll see is founder-led incubator brands. They adopt those ingredients first. They're agile. They can take a product to market under 18 months. They have less red tape within their new product development processes. You then have small, medium enterprises, the SMEs, they're more considered. They tend to have a new product development pipeline, and they have established brand equity. They might be looking for ingredients to enhance their brand estate. And those time lines for SMEs would tend to be 1 to 3 years. And then you have the global players. And these are global considerations, and they will be reviewing ingredients somewhere in the region of 3 to 5 years out. So we know there's a lot of speculations and questions around the royalty growth, but it's important to say that we can't predict that at the precise moment. One important clarifying point, again, from the questions that we've had, we are paid for bulk orders. We are not paid for samples, and that's very usual for this industry. There are also 2 documents. There is an NDA in place, which predates the license and it's very typical for companies when they begin research and development together. That allows both parties to open up about expertise, science, IP and technology. And then we have the license agreement. And we will not be divulging any further data on the license agreement. It's confidential. We will, of course, update shareholders when commercial milestones occur and when they're disclosable under AIM rules. But meaningful revenue will be measured in years versus quarters. But I do want to say that we are working with a really highly respected partner in Croda, and we should be incredibly proud of that. We are receiving initial royalty and those incomes are included in our total product revenues for half year '26. Let's move on now to the Services. Next slide, please. So Bio-Tech Solutions, similar to Dermatonics is a priority area for management attention. It's another generator of short-term revenues and cash. A significant amount of work has been carried out by the new management of Bio-Tech to improve operations and make the business run more profitably. They have been focusing on driving efficiencies across all areas of production planning in order to maintain margins and especially in light of higher energy and fuel prices. So how does this look financially across the full year 2026? Next slide. So the focus for the first half was driving growth across Products and Services. As you can see from the numbers, revenues increased to GBP 2.17 million, up from GBP 1.58 million in the prior period. That growth was driven by a full 6 months contribution from BTS following its acquisition together with the steady trading from both BTS and Dermatonics. Axis performed more softly than we'd hoped. That's not unusual for an incubator brand in this stage of development, even with the additional visibility that comes from Superdrug. We also started seeing the first contributions from our licensing income, which is a really encouraging early step. As revenue has increased, cost of sales has moved broadly in line with that growth, which means our gross profit margin is remaining stable at around 56%. We also delivered a modest reduction in operational losses compared to the previous period last year despite continuing to invest in our brands. So overall, the first half has demonstrated stable performance, resilient margins and improving operational efficiencies. Let's now take a look at how the business has been trading in the second half. So despite the disruption of the investigation, it really has been business as usual. The team have shown great determination and dedication and the current trading, especially from our main operational drivers, Dermatonics and BTS have shown solid performance. Axis is all about building the brand for direct and indirect sales, and we've been really focusing on margin and cost improvements. For example, the team have worked on reducing packaging, single outers, which just sit through less boxes. This can reduce waste and cost. And we need to do more of these small but necessary initiatives going forward. We're pleased to see Zenakine being recognized in various awards within the industry and long may that continue. So overall, we've got great products on the market. We've got a good manufacturing base that we can leverage both external and internal growth. In the short term, I spent at the company, I've seen great opportunity with SkinBio's assets, partnerships and IP. So we're now going to conclude. Over to you, Alyson.

Thanks, Rachel. So in conclusion, it has been a really turbulent time for SkinBio, but the aim is to draw a line under what's gone before. As I said in the Chair's statement, the new financial year started with great optimism. We had a strategy laid out. However, events in February 26 disrupted these plans significantly. The Board and management focus had to pivot to significant investigation, resulting in a restatement of last year's accounts. We are now, however, focused on the future. The aim now is to face forward to return the company to growth. There's going to be 3 areas that we're going to focus on. So strategically, our priorities are going to be the engines of the group, which is Dermatonics and BTS. They're steady businesses, good customer profiles, and we're actually going to take some advantage of low-hanging opportunities available to us, and that's where the management team needs to focus on for the moment. Axis is still in early stage. So we're going to be careful with the management against available resources there. And for our IP, the opportunities are less in our control. We have our first IT license agreement that provides us with royalty income. And the ingredient is a novel skin care ingredient, which is an area of interest and it's growing space within the skin care industry. But it is important we allow our partners to do what they do best, and we don't want to be a distraction or a hindrance to them or their customers. And then the second part, we're going to look at operational focus. The business does need major work to bring the operational infrastructure into the right place. That's not particularly glamorous. It's essential. We've got to make sure there are better reporting facilities, better compliance, better process improvement. And only once that work is done, will we then scale well. Then the third aspect is corporate governance, which we've mentioned a number of times. Clearly, one of the responsibilities of the Board following the review is to ensure that lessons are learned. Good progress has already been made and further work is underway. Shareholders should expect to see tangible evidence of these improvements reflected in our FY '26 annual report and accounts. I would just like to emphasize that both Rachel and I have nearly 50 years of Board level roles between us. I have been on commercial boards as a CFO for over 20 years and now as an NED for 5 years. I sit on 3 other Boards, including 2 public sector adjacent boards at the financial services compensation scheme and the ordinance survey. As you can imagine, these organizations, the standard of corporate governance are exemplary, and I chair the Audit and Risk Committee of both those organizations. We've already started and will continue to ensure that all the appropriate governance structures are in place and functioning correctly. On Board composition, as mentioned above, we have started a search for an additional Nonexecutive Director, who we expect to materially enhance the depth and breadth of the Board's combined experience. We are also looking for a new permanent CFO. I'd just like to thank you all for your attention during these slides, and I'll now pass you back to the IMC team to open the Q&A session.