IDP.L Regulatory News (IDP)

InnovaDerma PLC

("InnovaDerma", the "Company" or the "Group")

Final results

InnovaDerma (LSE: IDP), a UK developer of beauty, personal care and life science products, is pleased to announce its final results for the year ending 30 June 2020.

Financial Highlights

*on a constant currency basis

** Underlying operating profit is calculated before share based payments

Operational Highlights

· Revenue up by 3% to £13.3m against an unprecedented market backdrop

· Skinny Tan Direct to Consumer ("DTC") customer list grew by 48% to c.900,000:

o UK list grew by 41% to 759,000

o Subscribed customers stood at 550,000 with recurring customer rate over the year of 34%. During lock down, recurring customer rate peaked at over 60%

· Strong DTC performance in Australia and the US

· Continued strong relationships with key retail partners including Boots, Superdrug, Tesco, Priceline, Myer and David Jones

· Launched new brand Nuthing into 800+ Superdrug stores and online

· Strong New Product Development ("NPD") with 23 new products released

· Charles + Lee expansion in David Jones and further store distribution into Myer in Australia

· ERP group wide implementation; move to new integrated and more robust platform through Microsoft Business Central software

Outlook

· Further inroads being sought for product distribution in the US and Australia.

· Full year contribution of Nuthing and deferred launch activity from March to support revenue growth

· Roots development will be accelerated by a new media campaign and the roll out of new products and packaging

· Prolong expected to make further contribution as regulatory approvals are on target for being granted in Korea and Hong Kong

· Strong pipeline of NPD in topical brands expected at the end of H1 in readiness for peak season in Northern Hemisphere

· A positive start to the new financial year, trading up 3% compared to the previous year and in line with management's expectations

Joe Bayer, Executive Chairman of InnovaDerma, said:

"In the first half, we traded very positively and made significant investments for our peak season in the second half which was unfortunately beset by the outbreak of COVID-19, creating the toughest business environment we have encountered. The significant impact of COVID-19 and the associated closure of our bricks and mortar retail channels has combined with higher on-line advertising costs, lower margins of DTC product bundles to impact our profit disappointingly. Pleasingly, our revenue increased by 3% to £13.3m, underpinned by the strength of our brands and our multi-channel strategy which has enabled the business to be more agile and resilient in unprecedented times. Cash management has been a key area of focus and the Group has benefitted from good cash flows. As at 30 June 2020, the Group had c.£1.2m in cash and cash equivalents and continues to be debt free.

"Our people have been core to our agility. They have been unfaltering and demonstrated an extraordinary ability to adapt to change, while working tirelessly to deliver to our customers. On behalf of the Board, I would like to express our heartfelt thanks for their hard work and commitment.

"Current trading is positive and in line with expectations. We've taken time to review the way we spend and market products on DTC with the expectation of improved returns in addition to ensuring our overhead structure remains appropriate to business conditions. The appointment of PCA as our distributor in the Americas is an important step forward in diversifying our revenue streams outside the UK. Pleasingly Nuthing has launched in Priceline, Australia, which is a great achievement for a young brand. We expect the pandemic will likely continue to cause further uncertainty for some time yet, however we believe we are well positioned and have the right strategy, financial strength and expertise to deliver further growth."

 Further enquiries:

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

Further enquiries

The management of InnovaDerma will deliver an online results presentation open to all existing and potential investors via the Investor Meet Company platform today at 9am UK time. Investors can sign up for free via: https://www.investormeetcompany.com/innovaderma-plc/register-investor

Executive Chairman's Statement

Introduction

This financial year has been a tale of two halves. In the first half, we delivered an excellent performance and benefitted from a diversified portfolio of brands and increased scale across our retail network and DTC channels. We made significant plans and investment to position the Group strongly for a typically busy second half, but the outbreak of COVID-19 presented immense challenges to our business. For us and for many businesses around the world, lockdown measures had a material impact on our sales, particularly through our bricks and mortar channel.  However, our business benefits from having a diverse distribution channel and we generated strong levels of revenue in the early months of the pandemic.

The very high cost of online advertising and intense competition from traditional bricks and mortar retailers crowding the online space had a significant negative impact on group profits in the last three months of trading. The impact was compounded by the continued closure of stores and subsequent declining retail activity during our busiest and most profitable months of sales.

We delivered a robust revenue performance of £13.3m, up 3% (2019: £12.9m) primarily driven by our own DTC platform and through online beauty e-tailers. Gross margin decreased by 11% to £7.3m (2019: £8.1m) and operating loss before tax was £0.3m (2019: £1.4m profit) as a result of the culmination of the aforementioned events above.

In line with our prudent liquidity risk management, our cash levels remained at a healthy level and we had readily available stock for any potential incremental sales activity. The business continues to be appropriately funded with no debt.

Business Review

Topical

Skinny Tan has continued to gain in popularity. The brand benefitted from the rollout into Boots, Tesco, continued support from Superdrug and exceptional demand for Wonder Serum and the Choc range. The US DTC market performed exceptionally well, particularly benefitting from the relaunch of several leading Skinny Tan SKU's. Revenue for our core brand increased by 3% over the previous year with revenue from online up 13% compared with the same period last year. Our total customer base increased by 48%. The pandemic disruption to retailers in the last 4 months severely impacted what would have been strong growth.

Revenue for our premium hair care brand fell by 26% which is the result of no new pipeline fill in distribution in 2019, no new distributors added and fewer new triallists entering the brand. We conducted a review of the brand which included product claims and target demographics, sustainable packaging and formats, revised pricing and promotional strategy. The pandemic has delayed the relaunch of Roots, however we are seeking to relaunch the brand in to Boots and Superdrug in the first half of the new financial year.

Charles + Lee, our affordable alternative premium range of men's skin care products, has continued to perform well. It is stocked in 75 high end retail stores (FY2019: 30) and in more than 400 Priceline stores. It delivered year on year growth of 35% driven by a larger retail presence and its popular gift packs especially over the Christmas period. Despite the lockdown in Australia, we are seeing strong repeat purchases from Priceline and the brand has been rolled out in nine of David Jones' stores, an upmarket chain of department stores. Additionally, we are launching Charles + Lee online in the UK and the US whilst retail distribution in the UK is being discussed and our US partner will be commencing presenting the brand to retail customers there. As we approach Christmas, we have a strong pipeline of new products to launch in time for this busy retail period.

We launched our new brand Nuthing, an innovative range of products for hair removal in February this year. The brand is currently stocked in all of c.800 Superdrug stores as well as being sold online and via the Company's own DTC platform. The brand has been well-received by consumers and performed well despite being only launched a few months ago. Post-period end, we secured ranging in 152 of Priceline stores, the largest beauty retailer in Australia, proving its global applicability and the quality of our brand.

As announced on 28 September, we appointed The PCA Group as the exclusive distributor for all the Company's topical brands in North America and South America. The distribution agreement will include all major retailers and e-commerce companies in these regions including Amazon. This agreement is core to our strategy for diversifying our revenue streams outside the UK.

Life Sciences

Life Sciences delivered slightly lower revenues with Prolong decreasing by 9% from the £295k in the previous year. Despite the lower activity over the lockdown months, it was highly profitable with margins in excess of 80%.

As previously announced, we have signed two major distribution agreements in Hong Kong and for the Gulf countries. Regulatory approval for Korea and Hong Kong is progressing well. In addition, we expect to gain our CE mark early next year, following a prolonged process as a result of Brexit which has delayed many applications. Whilst we will be able to sell in Korea and in Hong Kong, the CE mark is required for the Gulf countries and Europe. Further distribution agreements are being progressed in line with gaining regulatory approvals.

We are in advanced discussions with a Korean manufacturer on a new generation helmet, however, the requirement to check regulatory approvals in various countries is taking some time to confirm. The lockdown of activities by manufacturers and regulatory authorities over the pandemic period has slowed our progress. Whilst we are positive about the opportunities in this space, we do not envisage any progress until the second half of the year.

Business Strategy

The second half of the year was unprecedented and presented many challenges, though we believe the business has proven to be resilient. The Board is mindful that we need to continue to be agile and deliver upon our strategic objectives in order to navigate what are likely to be continued uncertain times. Our objectives are:

· Profitability: to restore profitability through gross margin and cost management to pre-pandemic levels

· Customer: continue to develop our direct to consumer strategies and harness our customer relationships to enhance the customer journey

· Sustainability: to continually adopt sustainable practices and create positive social impact. Our aim is to create sustainable growth through our brands, reduce costs and risks and build organisational capability, in order to generate long-term value for our stakeholders.

· Innovation: to be forward thinking, progressive and agile in our development of products and services to our customers

· Diversity and Expansion: to develop our brands and products both organically and through accretive acquisitions and build our global distribution network

People

On behalf of the Board, I would like to thank the highly dedicated team who worked so diligently under some very challenging conditions. The hard work, creativity and commitment to our business has been unfaltering. We will continue to develop our teams to ensure we have the skills and leadership required to make the business an on-going success.

Board and CEO changes

During the year, Haris Chaudhry, Executive Chairman, stepped down from the board and resigned from the business. Post year-end, Kieran Callan, Chief Executive Officer, stepped down as Chief Executive Officer and as a Director of the Group, by mutual agreement with the Board.

Warren Dockary was appointed Chief Financial Officer and will report to the Board. Warren is a Chartered Accountant and has been with the business since November 2018. He is a graduate from Massey University in New Zealand and has held senior finance roles in the consumer products and logistics industries.

The Group is making good progress for the identification and appointment of a new CEO and will provide an update as soon as an appointment is made. In the meantime, Joe Bayer is serving as Interim CEO as well as Executive Chairman.

Outlook

The continued impact of COVID-19 is difficult to quantify as the situation changes rapidly. We are however seeing positive signs of trading with the new financial year having begun positively and current trading is line with management's expectations, up 3% on the same period last year.

We have a resilient and agile business which is well-positioned to deliver further growth in our brands and distribution channels. Going forward, we have a number of new products which will be launched towards the end of the first half across our topical business. The way we spend and market products on DTC has been reviewed, with the expectation of improved returns. We will be making inroads into North America and South America and we expect these territories will begin to contribute to the business in the second half of the year.

UK retailers are showing signs of increased activity, albeit very cautiously, with the major retailers committing to promotional activity to increase footfall. A lot will depend on the future pandemic environment.

Prolong has regulatory approvals well advanced in Korea and is expecting Hong Kong approval very soon which will open up these new markets.

While we are mindful of the very challenging environment, the Board is confident of the future and that we have the resources and are well-positioned to navigate these uncertain times.

Financial Review

Overview

The Group delivered a positive revenue performance against unprecedented trading conditions. This was driven by some good overall gains in the first half and strong UK and Australian DTC sales in the second half. The Group revenues grew 3% to £13.3m (FY2019: £12.9m). Underlying operating profit before tax was reduced to a loss of £0.3m (FY2019: £1.4m profit).

The reported underlying operating profit is shown before the expensing of share-based payments, with a charge being made of £0.08m. This is the initial issue of share options by the Group and is put in place to incentivise and ensure alignment exists between directors, employees and shareholders.

Gross margins decreased by 800bps to 57% in FY2020 as compared to FY2019 of 63%. The demand and competition grew incrementally more competitive during the lockdown period and consequently bundling propositions had to be more competitive. The significant lack of more stable retail revenue over the last four months also had a substantial impact.

Marketing expenditure was £4.3m,16% higher than the previous year (FY2019: £3.7m) driven by highly competitive on-line promotions, re-marketing, and incremental acquisition growth of DTC customers in all regions. Skinny Tan customer lists grew by 48% overall to 900,000 customers. There were on-going challenges in the major online marketing platforms during the pandemic lockdown as the beauty category became an easy target for new entrants and the bidding value for target customers increased significantly. There was lower advertising and gate fee spend in all major retailers as stores were either closed or on restricted trading during the peak period.

The Company has continued to take a conservative approach to valuing the customer list intangible assets carried on the balance sheet. There was an amount of £0.8m capitalised in the past financial year, which has valued the entire Skinny Tan data base at just over £3 per customer. The industry standard for acquisition costs of a new on-line customer in our category and bundle size vary between £7-£12.

Cash and net debt

The Group has preserved cash well during the pandemic and continues to carry no external debt. Cash and equivalents balance were £1.2m as at 30 June 2020 down from £2.0m in the previous year. Inventory levels increased to £3.1m (FY2019: £2.4m) as a result of the lack of retailer sales during the lockdown. Inventory was planned and ordered in line with pre-COVID budgeted activity. Trade and other payables decreased to £2.5m (FY2019: £3.0m) with receivables decreased to £1.2m (FY2019: £3.3m) as a result of much lower sales in the last two months of the year when retail was effectively closed.

Taxation

The Group has no recognised tax expense against the period loss (FY2019: £0.4m). The Group has recognised a small timing difference as a deferred tax liability.

Dividends

The Board has elected not to declare a dividend at this time.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 1 JULY 2019 TO 30 JUNE 2020

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 1 JULY 2019 TO 30 JUNE 2020

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020

1. Accounting Policies

1.1 Basis of Preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements are drawn up under the historical cost convention, except for the revaluation of financial assets.

IFRS, issued by the International Accounting Standards Board (IASB) set out accounting policies that the IASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Material accounting policies adopted in the preparation of the consolidated financial statements are presented below and have been consistently applied unless otherwise stated.

1.2 Going Concern

This report has been prepared on the going concern basis, which contemplates the continuation of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.

1.3 Principles of Consolidation

The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by InnovaDerma PLC at 30 June 2020. A controlled entity is any entity over which InnovaDerma PLC has the power to govern the financial and operating policies so as to obtain benefits from its activities.

In preparing the consolidated financial statements, all intragroup balances and transactions between entities in the consolidated group have been eliminated in full on consolidation.

Business Combinations

Business combinations occur where an acquirer obtains control over one or more businesses.

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exceptions).

When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured in each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date.

All transaction costs incurred in relation to business combinations are expensed to the statement of comprehensive income. The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase.

Goodwill

Goodwill is carried at cost less any accumulated impairment losses. Goodwill is calculated as the excess of the sum of:

(i) the consideration transferred;

(ii) any non-controlling interest (determined under either the full goodwill or proportionate interest method); and

(iii) the acquisition date fair value of any previously held equity interest;

over the acquisition date fair value of net identifiable assets acquired.

Goodwill on acquisition of subsidiaries is included in intangible assets.

Goodwill is tested for impairment annually and is allocated to the Parent Company's cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored being not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of.

Changes in the ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions and do not affect the carrying amounts of goodwill.

Non-controlling interests

The interest of non-controlling shareholders in subsidiary companies (holdings of greater than 0%, but less than 50%), are initially recognised at fair value. Subsequent results of the subsidiary are apportioned to the non-controlling interests in proportion to their shareholding.

1.4 Foreign Currencies

Functional and presentation currency

An entity's functional currency is the currency of the primary economic environment in which it operates. Since incorporation, InnovaDerma PLC has had global operations, with its trading subsidiaries using different functional currencies including British pounds, Australian dollars, and United States dollars, reflective of their local operating environments.

At 1 July 2016, the directors reviewed the Group's spread of economic activity in its different functional currencies and decided to change the presentation currency of the Group from Australian Dollars to British Pounds. The directors believe this will better reflect the levels of activity within the Group, as well as enhance comparability with its industry peer group. The change in presentation currency represents a voluntary change in accounting policy and has been applied retrospectively.

To give effect to the change in presentation currency, the assets and liabilities of the Group, which were presented in Australian dollars as at 30 June 2016, were converted into British pounds at a fixed exchange rate on 1 July 2016 of A$1: £0.5763 and the contributed equity, reserves and retained earnings were converted at applicable historical rates.

The Australian dollar assets and liabilities at 1 July 2015 were converted at the rate of A$1: £0.5085 in order to derive British pound opening balances. Revenue and expenses for the twelve months ended 30 June 2016 were converted at the exchange rates ruling at the date of the transaction to the extent practicable (at an average of A$1: £0.5117 for the reporting period), and equity balances were converted at applicable historical rates.

The above stated procedures resulted in the recognition of a foreign currency translation reserve of (£158,726) on 1 July 2016, as set out in the statement of changes in equity.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of the transactions.

Foreign currency monetary assets and liabilities at the reporting date are translated at the exchange rate existing at the reporting date. Exchange differences are recognised in the statement of comprehensive income in the period in which they arise.

1.5 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts, returns and value added taxes. The group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the group's activities, as described below. The group bases its estimate of return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Sales of goods - retail

The group manufactures and sells a range of personal care and beauty products for sale to the retail market. Sales of goods are recognised when an order is executed, and stock is segregated from the Group's inventory, ready for collection in accordance with that customer's terms of trade.

The life science products are often sold with volume discounts; customers have a right to return faulty products in the wholesale market. Sales are recorded based on the price specified in the sales contracts, net of the estimated volume discounts. The volume discounts are generally agreed at the time of placing the order or based on anticipated annual purchases.

Internet revenue

Revenue from the provision of the sale of goods on the internet is recognised as at the date that payment is received, because that is the point the buyer accepts legal responsibility for the good being sold. Transactions are settled by credit or payment card or by an intermediary that provides a direct debit facility.

1.6 Finance income

Interest income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

1.7 Intangible Assets

Brands

Externally acquired brands, where identifiable, are capitalised as assets of the group. Brands are initially capitalised at historical cost, or attributable value, when acquired as part of a business combination.

Brands have a limited legal life; however, the Group monitors global expiry dates and renews registrations where required. Brands recorded in the financial statements are not currently associated with products which are likely to become commercially or technically obsolete. Accordingly, the Directors are of the view that brands have an indefinite life.

Brands are tested annually for impairment and carried at cost less accumulated impairment charges.

Digital Asset

A specific website/e-commerce platform developed by InnovaDerma PLC is an intangible asset, and therefore subject to the same recognition and measurement requirements. Expenditure on websites in existence (which were previously expensed in prior financial statements) cannot be later recognised as part of the cost of an intangible asset at a later date.

The stages of a website's development and treatment of these expenditures is as follows:

a) Planning - includes undertaking feasibility studies, defining objectives and specifications, evaluating alternatives and selecting preferences.

b) Application and Infrastructure Development - includes obtaining a domain name, purchasing and developing hardware and operating software, installing developed applications and stress testing

c) Graphical Design Development - includes designing the appearance of web pages.

d) Content development - includes creating, purchasing, preparing and uploading information, either textual or graphical in nature, on the website before the completion of the website's development. This information may either be stored in separate databases that are integrated into (or accessed from) the website or coded directly into the web pages.

Accounting treatment - providing for purposes other than to advertise and promote InnovaDerma's products (e.g. digital photographs of products) and not previously recognised as an expense, then to capitalise.

Amortisation Useful life, InnovaDerma is to assess whether the useful life of an intangible asset is finite or indefinite. An intangible asset has an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. An intangible asset with a finite useful life is to be amortised over its useful life. The amortisation method should reflect the pattern in which the asset's future economic benefits are expected to be consumed. If that pattern cannot be determined reliably, the straight-line method is to be used. Amortisation is to be charged in relation to the asset from the first day that it is put into use and to cease at the earlier of the date that the asset is classified as held for sale in accordance with AASB 5 Non-Current Assets held for Sale and Discontinued Operations and the date that the asset is derecognised.

The amortisation period and method for an intangible asset with a finite useful life are to be reviewed at least at the end of each annual reporting period. If the expected useful life or expected pattern of consumption of the future economic benefits is different from previous estimates, the amortisation period or the method is to be changed accordingly. Guidance given in relation to amortisation of websites is that the best estimate of a website's useful life shall be short.

Intangible assets with an indefinite useful life are not to be amortised.

An intangible asset shall be derecognised on disposal, or when no future economic benefits are expected from its use or disposal. Any gain or loss arising is to be recognised in the statement of comprehensive income when the asset is derecognised. Gains must not be classified as revenue but shown as a gain in the statement of comprehensive income.

Operating stage - follows completion of development, when InnovaDerma is maintaining and enhancing the applications, infrastructure, graphical design and content of the website.

Accounting treatment - recognise as an expense when incurred unless the definition and recognition criteria still apply, and these costs have been subsequently incurred in order to add to, replace part of or service the existing intangible asset.

This does not apply to expenditure on purchasing, developing, and operating hardware (e.g. web servers, staging servers, production servers and laptops) of a website. This expenditure is to be accounted for in line with IAS 16.

Customer Lists

Separately identifiable direct costs incurred in the creation of Customer Lists (Lists of previous buyers maintained in order to continue business relationship) are recognised as an intangible asset, in accordance with the provisions of IAS 38. The asset is an identifiable asset from which future economic benefits are expected. InnovaDerma has full control over the databases as they are linked to website domains and only the Company can engineer the data. InnovaDerma generates close to 60% of its group revenue from direct to consumer (DTC) sales. A material proportion of sales are driven by customer lists and the economic value to the business of this customer list is an integral component of the future of the business.

Costs have been recognised with the specific task of customer acquisition and include the relevant costs from digital suppliers and other avenues where the intention is to grow the lists.

Amortisation Useful life, InnovaDerma is to assess whether the useful life of an intangible asset is finite or indefinite. An intangible asset has an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. An intangible asset with a finite useful life is to be amortised over its useful life. The amortisation method should reflect the pattern in which the asset's future economic benefits are expected to be consumed. If that pattern cannot be determined reliably, the straight-line method is to be used.

Customer lists are tested annually for impairment and carried at cost less accumulated impairment charges if seen appropriate with regards to infinite/finite useful life.

1.8 Impairment

At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, to the asset's carrying amount. Any excess of the asset's carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard. Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard.

1.9 Research and Development

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project is expected to deliver future economic benefits and these benefits can be measured reliably.

Capitalised development costs have a finite useful life and are amortised on a systematic basis based on the future economic benefits over the useful life of the project. At this stage, the useful life of the project has not been determined as development is incomplete, hence amortization has not commenced.

1.10 Cash & Cash Equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within borrowings in current liabilities.

1.11 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Costs of inventories include the transfer from equity of any gains/losses on qualifying cash flow hedges for purchases of raw materials.

1.12 Trade Receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

1.13 Trade Payables

Trade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. They are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method. Current liabilities represent those amounts falling due within one year.

1.14 Goods and Services Tax (GST) & Value Added Tax (VAT)

Revenues, expenses and assets are recognised net of the amount of GST/VAT, except where the amount of GST/VAT incurred is not recoverable from the Australian Taxation Office (ATO) or His Majesty's Revenue & Customs (HMRC)

Receivables and payables are stated inclusive of the amount of GST/VAT receivable and payable. The net amount of GST/VAT recoverable from, or payable to, the ATO/HMRC is included with the receivables or payables in the statement of financial position.

1.15 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

1.16 Income Tax

Income tax expense or benefit represents the sum of current corporation tax payable and provision for deferred income taxes.

Current income tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group's liability for current corporation tax is calculated using tax rates and laws that have been enacted or substantively enacted at the period-end date.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the date of the statement of financial position where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exceptions:

Deferred tax assets are recognised only to the extent that the Directors consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the period-end date.

1.17 Post-Retirement Benefits

For salaries paid (all by the Australian subsidiary):

A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. Superannuation - the Australian defined contribution pension scheme - is mandated by Australian law and presently set at 9.5% of gross salary payable to an employee.

The group pays contributions to publicly or privately administered pension insurance plans on a mandatory basis. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.

1.18 Contributed Equity

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.

If the Company reacquires its own equity instruments, e.g. as the result of a share buy-back, those instruments are deducted from equity and the associated shares are cancelled. No gain or loss is recognised in the profit or loss and the consideration paid including any directly attributable incremental costs (net of income taxes) is recognised directly in equity.

1.19 Segment Reporting

The operating segments were reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segment, has been identified as the board of directors, which has overall control for strategic decisions.

1.20 Estimates and Judgements

The directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation or future events and are based on current trends and economic data, obtained both externally and within the Group.

Estimation of useful lives of assets

The Group determines the estimated useful lives and related depreciation and amortisation charges for its property, plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

Goodwill and other indefinite life intangible assets

The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policies described in Note 1.6 and Note 1.7. The recoverable amounts of cash-generating units (required to determine fair value less costs to sell) have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows.

1.21 New accounting standards for application in future periods

(a) New and amended standards adopted by the group

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial period beginning on 1 July 2017 that would be expected to have a material impact on the group.

(b) New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 July 2017 and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the financial statements of the group, except the following set out below:

IFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in July 2014. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories:

1) those measured as at fair value and 2) those measured at amortised cost. The determination is made at initial recognition.

The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The group is yet to assess IFRS 9's full impact. The group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board.

2. Parent Information

Guarantees

InnovaDerma PLC has not entered into any guarantees, in the financial period, in relation of the debts of its subsidiary.

Contingent Liabilities

At 30 June 2020, InnovaDerma PLC did not have any contingent liabilities.

Contractual Commitments

At 30 June 2020, InnovaDerma PLC had not entered into any contractual commitments.

3. Operating segments

The Group has three (3) geographical/regional segments it operates in the United Kingdom, the United States of America, and the Asia Pacific region respectively. Each region is subject to differing rates of profitability, stage of development, opportunities for growth, future prospects, and risks in the Group's growth stage. The Group's internal management and reporting structure is geographically structured with senior executives responsible for each region. We have specific customers in line with these regions and have acquired assets within each region.

4. Operating profit/(loss)

The following items have been included in arriving at the operating profit:

All remuneration payable to the auditors has been disclosed above. No benefits in kind are payable to the auditors.

Contributions to superannuation (money purchase pension schemes) were made on behalf of four directors of the group during the year.

5. Staff and Directors

The average monthly number of staff (including executive Directors) employed by the Group during the period amounted to:

Directors Costs

Remuneration with respect to Executive and Non-Executive directors during the year ended 30 June 2019 are disclosed below:

During the period, there were no advances, credits or guarantees subsisting on behalf of the directors.

Directors and former Directors interests in share-based options;

The total number of share options which could be issued as shares stands at 600,000 which represents 4.1% of the Company's issued share capital.

6. Taxation

Factors affecting current tax charge

The effective rate of tax for the period is higher than the standard rate of corporation tax in the UK of 19% due to tax on subsidiaries located in higher tax jurisdictions.  The differences are explained below:

7. Revenue

8. Cash and cash equivalents

Cash at bank is included as cash and cash equivalents in connection with the statement of cash flows.

When in overdraft, this balance is included in trade and other payables.

9. Trade and other receivables

10. Inventory

The costs of inventories recognised as an expense and included in cost of sales amounted to £4,102,834 for the year.

11. Prepayments and Sundry Assets

12. Intangible Assets

*Refer to note 1.7 for definition and recognition criteria for intangible assets

13. Deferred tax asset

14. Trade and other payables

15. Borrowings

16. Deferred tax liability

17. Contributed equity

The holder of the ordinary shares is entitled to one vote per share at any meeting of the Company whether in person or by proxy. The holder is entitled to receive dividends declared from available profits and to the surplus of assets on a winding up.

18. Merger reserve

InnovaDerma PLC acquired 100% of the share capital of InnovaDerma AUS & NZ Pty Ltd, InnovaDerma International Limited, InnovaDerma NZ Limited, and ID Philippines, Inc, on 28 November 2014.

These transactions are noted as being completed under common control - all companies involved in the deal were controlled by Mr Haris Chaudhry before and after the transaction was processed.

This condition falls under a scope exemption for IFRS 3. Per IAS 8.12, the company may, in this circumstance, utilise pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards.

As a UK company, the directors decided to apply UK Generally Accepted Accounting Principles, which make provision for Pooling of Interests in a common control situation, also commonly referred to as Merger Accounting.

In this circumstance, the difference between the consideration transferred and the nominal value of share capital acquired is taken to equity, creating a Merger Reserve.

28 November 2014 Acquisitions:

19. Retained Profits

20. Intercompany loan - parent company

21. Investment in subsidiaries

During the year, the Company held interests in the following subsidiaries:

a) During the year, InnovaDerma PLC paid £108,000 to acquire a further 1.5% of Skinny Tan Pty Ltd, and through direct holding, SkinnyTan UK Limited.

b) During the financial year FY17 InnovaDerma PLC acquired Ergon Medical Limited, owner of Prolong. The following table shows the allocation of consideration paid for Ergon Medical Limited, the fair value of assets acquired, liabilities assumed, and the non-controlling interest at the acquisition date.

22. Related party transactions

23. Commitments and contingencies

At 30 June 2020, the Group did not have any contingencies.

At 30 June 2020, the Group had an obligation to pay £6,489 in rent for the forthcoming 1 month as we have ceased this lease as of 31 July 2020, this is under a non-cancellable operating lease.

24. Reconciliation of operating profit to net cash outflow from operations

25. Financial risk management

The Group's financial instruments consist mainly of deposits with banks, accounts receivable and payable & loans from related parties.

The Group's financial instruments at 30 June 2020 were classified as follows:

Fair value versus carrying amounts

All items shown in the preceding table as either financial assets or financial liabilities are short term instruments whose carrying value is equivalent to the fair value. There is not considered to be a material difference between the fair value and the carrying value.

Specific Financial Risk Exposures and Management

The Group's activities expose it to a number of financial risks that include market risk, credit risk and liquidity risk.

(a) Market Risk

i) Foreign exchange risk

The Group does not hold any material financial assets denominated in a foreign currency at the period end, hence it is not exposed to foreign exchange risk.

ii) Interest rate risk

The Group did not have any interest-bearing liabilities during the period so is not exposed to interest rate risk. The group does not have any liabilities to financial institutions as at 30 June 2018. As such, sensitivity analysis with regard to movements in interest rates would not be meaningful.

(b) Credit risk

Exposure to credit risk relating to financial assets arises from the potential non-performance of counter-parties of contract obligations that could lead to financial losses to the group.

Credit risk exposures

The Group had no significant concentrations of credit risk.

(c) Liquidity risk

Liquidity risk arises from the possibility that the group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The group manages this risk through careful cash management policies.

For loans receivable and payable, please refer to Note 9 - Trade and Other Receivables, Note 14 - Trade and Other Payables & Note 15 - Borrowings. Loans are unsecured and have no fixed repayment date.

26. Share Based Payments

Executive and Managers Share Option Scheme

The Group operates both a qualifying and non-qualifying EMI share option plan.

There have been a number of options granted throughout the financial year ended 30th June 2020. The details are below:

Date of grant Number of options Exercise Price Fair Value Amount Expensed

 22/1/2020 525,000 £1.20 £0.15 £78,421

The company has used the Black Scholes based option pricing model to calculate the fair value of the share options issued.

27. Earnings per share

Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

The following reflects earnings and share data used in the earnings per share calculation.

29. Subsequent Events

There were no subsequent to report.

30. Company Details

The registered office of InnovaDerma PLC is:

27 Old Gloucester Street

London

United Kingdom

WC1N 3AX

The principal place of business is:

Level 10, Suite 1031, 1 Queens Road

Melbourne VIC 3004

Australia