CHLL Chill Brands Group Plc

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF REGULATION 11 OF THE MARKET ABUSE (AMENDMENT) (EU EXIT) REGULATIONS 2019/310.

17 July 2024

Chill Brands Group plc

("Chill Brands" or the "Company")

Directorate changes
and

Business and trading update

Further to the Company's announcements made on 4 and 10 June 2024, the board of directors of Chill Brands (the "Board") today provides the following update on trading and changes to the composition of the Board.  The Board will continue to provide further updates, however for the reasons outlined below, trading in the Company's ordinary shares will remain suspended until certain matters set out in the "Business and trading update" section are fully rectified.

Highlights

·    Conclusion of historic investigations, with CEO Callum Sommerton cleared of misuse of inside information allegations

·    Proposed appointment of Company's former CEO, Nick Tulloch, as a Non-Executive Director

·    Establishment of Nomination and Remuneration Committees

·    Continuation of large-scale UK retail roll-out during final quarter of the financial year ending 31 March 2024

·    Expanded sales programme into the United States' largest smoke shop chain

·    Debut of prototype rechargeable, reusable product at World Vape Show, attracting interest from multinational distribution agents

·    Appointment of US legal advisers and status of asset recovery process

Update on investigations

As announced on 4 June 2024, the Board unanimously agreed to discontinue the investigation into allegations relating to the use of inside information made against the Company's Chief Executive Officer, Callum Sommerton. Following a thorough review and consultation with various professional advisors, it has been determined that the allegations of the misuse of inside information, which stemmed from Mr. Sommerton's investment in the Company's equity fundraising announced on 26 January 2024, are completely without merit. The investigation has clearly shown that the information concerned, relating in part to the Company's development of new products, does not meet the criteria for inside information and had been appropriately disclosed to the market, including in the Company's announcements of 19 September 2023 and 3 January 2024. Consequently, the Board has concluded that Mr. Sommerton has no case to answer and should be fully exonerated from these allegations.

On 3 June 2024, the Company announced a further investigation into certain commercial arrangements connected to its UK vape business. The Company engaged industry advisers to review various commercial agreements and provide best practice recommendations. These matters were thoroughly examined by advisers, including Allenby Capital, and it has been determined that no further investigation is warranted. The Company continues to collaborate with its partners to refine its operations, ensuring they are both scalable and commercially viable within the evolving vaping industry.

Directorate changes and new Board Committees

Scott Thompson, a current Non-Executive Director, has informed the Board of his decision not to seek re-election at the forthcoming Annual General Meeting (the "AGM"). Mr Thompson will therefore stand down as a Director at the 2024 AGM.

The Board is pleased to announce the proposed appointment of Nick Tulloch as a Non-Executive Director. It is intended that Nick will be appointed at the 2024 AGM. Mr Tulloch was an executive director of the Company between 2019 and 2020, initially as Finance Director and subsequently as Chief Executive Officer.

Nick Tulloch is a director of several publicly traded companies: AIM-quoted gold explorer, ECR Minerals plc, where he is chairman; founder and CEO at Aquis-quoted Voyager Life plc, a health & wellness company; and Non-Executive Chairman of DG Innovate plc, the advanced research and development company developing pioneering solutions in sustainable mobility and energy storage.  Earlier in his career, Nick advised companies on the UK capital markets for over 20 years, working for several well-known investment banks and stockbrokers, including Cazenove, Arbuthnot, Cenkos and Cantor Fitzgerald, having initially trained as a solicitor with Gouldens.  He holds a master's in law from Oxford University. 

The Board will continue its search for an additional Non-Executive Director and expects to appoint one prior to this year's AGM.

In addition to its Audit Committee, the Company has established a Nomination Committee and a Remuneration Committee in line with corporate governance best practice. The Non-Executive Directors, being Harry Chathli and Scott Thompson, will be members of all committees and any further Non-Executive Directors are expected to join them as they are appointed.

Business and trading update

As set out in the announcement of 10 June 2024, the Company has faced challenges resulting from actions taken in the period between the receipt of the notice of requisition (on 15 April 2024) and conclusion of the general meeting held on 4 June 2024 (the "GM"), matters which are further outlined in this announcement.  In spite of these difficulties the Company has sustained its trading activities.

During the year to 31 March 2024, the Company received purchase orders for its vapour products from US trade customers with a total net value of approximately US $66,113.96. Purchase orders received during the same period from UK trade customers had a total net value (i.e. excluding VAT) of approximately £1,813,972.40. Chill vapour products were launched in the UK during August 2023.

The Company is reviewing its revenue recognition policies to ensure they align with best practices and regulatory standards. The Board looks forward to reporting on revenue upon the publication of the 2024 Annual Report.

UK trading

As stated at the time of the interim results in December 2023, Chill Brands "made significant progress in developing a route to market for its vape products". This progress continued throughout the final quarter of the financial year ending 31 March 2024, with the rollout of products into UK forecourt convenience stores and the commencement of a rollout into Morrison's convenience store locations. Substantial 'pipe fill' orders were received by the Company during the third quarter of the financial year to service rollouts and the initial inventory requirements of major retailers carrying the products for the period following their launch.

Since their UK launch in August 2023, Chill ZERO products have been placed into more than 900 independent retail locations. As set out in various announcements made in the Summer and Autumn of 2023, the Company has established a variety of distribution channels into the independent retail sector. Approximately 40% of these stores are supported with regular account management, refreshed sales collateral, and sales incentives.  Almost half of independent retail accounts that are actively managed following an initial purchase go on to place recurring orders. This reorder rate is considered very positive in the context of fast-moving consumer goods (FMCG) sector, where industry benchmarks typically indicate reorder rates ranging from 20% to 30%.  Reorder rates are more variable and generally lower for passive distribution channels.

Ongoing account management and customer aftercare are clear catalysts for improved reorder rates, and as such, the Company is exploring ways to provide the appropriate resources to ensure that a higher proportion of independent retail accounts are actively managed following initial sales.

The Company has engaged in numerous discussions with existing retail partners who have expressed a keen interest in carrying Chill vapour products in an expanded number of their high street stores. These discussions are ongoing and further information will be announced as any future distribution agreements are reached.

US trading

The Company continues to progress its sales operations in the United States, in particular with sales to distributors servicing Smoker Friendly Stores. Initial sales volumes in these stores have been encouraging, demonstrating strong consumer interest and acceptance of Chill products.

Since the end of the last financial year on 31 March 2024, distributors servicing these store accounts have placed purchase orders with a combined value of approximately US $63,000. These distributors continue to actively present Chill vapour products to new store chains in numerous US states, further expanding the Company's potential distribution footprint.

Regulatory changes and new product development

In January 2024, the then UK Government announced a proposed ban on disposable vapour products alongside numerous other measures, including a restriction on certain advertising practices. As a result of the UK General Election held on 4 July 2024, these proposed regulatory changes have fallen off the legislative agenda and did not become law. While this development provides a degree of temporary relief to the Company's retail and distribution partners concerning its existing high puff count nicotine-free disposable products, Chill Brands remains committed to releasing an expanded range of vapour products, including reusable, rechargeable devices.  The Board anticipates that similar changes to the law as were previously proposed will be introduced during the term of the new government.

Further to announcements made in September 2023 and January 2024 regarding product development, the Company is pleased to confirm that prototypes of its newly developed multi-pod vapour device were showcased at the World Vape Show held in June in Dubai.

The product was met with enthusiasm and positive feedback from potential distributors and customers. Initial indications of interest have been recorded from customers in numerous markets including the UK, North America, Africa, Southern Asia, and the Middle East.

The Company is working with its manufacturing partners to refine the prototype and progress necessary steps to ensure compliance with UK regulations. Further updates will follow as the product progresses towards launch.

Recovery of the Company's assets from the former directors

As set out in the announcement of 10 June 2024, the former directors (both of whom were removed at the GM) transferred, before the GM, certain intellectual property (the chill.com domain and certain trademarks) out of the control of the Company.  The Board has engaged legal advisers in the US who are actively engaged in the recovery of this intellectual property. Discussions have commenced with the former directors for the return of the chill.com domain and the legal advisers of both parties are negotiating in good faith.

The Company will update the market as matters progress and it is hoped that a resolution can be reached without needing to progress recovery proceedings through the courts.

Completion of the audit and publication of the Company's annual report and accounts

The Company had commenced its audit process in April 2024. This was paused by the Company during May 2024. The Company is in the process of regaining control of its financial data, accounts and systems from banks and other parties in order to supply its auditors with all necessary information. The Company expects to progress its audit process presently, however, upon consulting with its auditors, the Company does not expect to be in a position to publish audited financial statements and annual report for the year to 31 March 2024 (the "Annual Report") by the required deadline of 31 July 2024.

Under the direction of the recently appointed Finance Director, Graham Duncan, the Company has been establishing revised arrangements for its accounting function and anticipates that the Annual Report will be published in late September/early October 2024. The Company anticipates that it convene the AGM for late September 2024 in order to hold it within the timescales set forth in the Companies Act 2006, however that the resolutions relating to the Annual Report will be adjourned and the meeting reconvened for November 2024.

Callum Sommerton, Chief Executive Officer of Chill Brands, said:

"Over the past month we have been working hard to restore confidence in our business. We thank our customers and suppliers for continuing to work with us through this period. We recognise that there is much work to do to ensure that the Company can progress from a position of strength, but I am pleased that Chill Brands has maintained its trading activities.

"I am particularly excited about the prospects of our new multi-pod vapour device. The initial feedback from its debut at the Dubai World Vape Show has been incredibly encouraging, with significant interest from potential distributors and customers globally. This enthusiasm reinforces our confidence in the product's potential and our commitment to innovation and growth in the vaping industry."

Harry Chathli, Non-Executive Chairman of Chill Brands, said: "Recognising the challenges posed by the delays, we understand the paramount necessity of conducting a comprehensive assessment to safeguard the Company's integrity. The Board stands united in its commitment not only to act in the Company's best interests but also to restore our presence in the market with strengthened corporate governance practices that underscore a compelling investment proposition. Hence we are delighted that Nick Tulloch will be joining later in the year to bolster our Board and provide it with the necessary capital markets experience.

Our goal is to emerge from this period with renewed clarity and confidence, ready to advance our strategic objectives and deliver value to our shareholders."

-ENDS-

About Chill Brands Group

Chill Brands Group plc (LSE: CHLL, OTCQB: CHBRF) is an international consumer packaged goods company focused on the development, marketing and distribution of wellness and recreational products. The Company's proprietary nicotine-free vapour products cater to the rapidly growing market for tobacco alternatives and are distributed by some of leading retail stores in the US and UK. Chill Brands also operates the chill.com e-commerce website, on which it is building a marketplace of products from third-party brands.

Publication on website

A copy of this announcement is also available on the Group's website at http://www.chillbrandsgroup.com

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