IDP.L Regulatory News (IDP)

 InnovaDerma PLC

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

Final results for the year ended 30 June 2018

InnovaDerma (LSE: IDP), a UK developer of life sciences, beauty and personal care products, is pleased to announce its results for the year ended 30 June 2018.

Strong revenue growth, new product developments and distribution channels secured for core brands. Post period-end, the Group is making good progress and trading in line with expectations.

Financial Highlights

· Revenue for the period increased strongly by 21% on a constant currency basis to approximately £10.7m (FY2017: £8.9m)

· Profit before tax of £0.67m (FY2017: £1.03m) due to one off investments

· No debt with cash and cash equivalents of approximately £ 1.9m (as at 30 June 2017: £0.21m)

· Excellent performance from Roots Double Effect ("Roots") which delivered almost

£1m (£917k) in sales in its first year of launch

· DTC revenue, customer base and reach, increased significantly with DTC revenue up 36% on the previous year

Operational Highlights

· Launch of multiple new sub-brands of Skinny Tan has transformed the brand from a bronzing to a beauty brand with the aim of targeting a larger market and year-round demand

· Developed multiple product extensions for Roots

· DTC channel delivered a record number of orders in the second half of the year and generated the highest ever monthly revenues during the three peak months, April, May & June

· Multiple new international retail and distribution opportunities secured for Skinny Tan and Roots

Outlook

· As announced today, Skinny Tan portfolio to be sold online and in 1,250 of Boots' stores from February and March 2019 respectively

· Strong growth in revenue and profit expected with significant new retail channels added in UK and Australia and distributors appointed in multiple regions globally

· Supply chain issues resolved with excellent product availability and strong inventory levels to support expected significant growth

· Outlook for life science portfolio remains strong with the addition of a large new manufacturer and significant reduction in manufacturing cost for Prolong

· Roots expected to add material growth to revenue and profit and to continue to build momentum throughout the upcoming financial year

· Appointment of Kieran Callan as UK based CEO to manage the strong growth expected in FY2019

Haris Chaudhry, Executive Chairman of InnovaDerma, said:

"I am pleased to report this has been a year of significant progress and achievement with our brands delivering revenue growth as they penetrate new geographical markets and distributors. Customer centricity lies at the heart of our business and our innovative DTC channel and strong social media engagement enables us to reach our customers and ensures we optimise their experience. Our DTC channel is key to our growth and remains core to retaining and driving brand loyalty.

In just three years, Skinny Tan has transformed from a bronzing only to a beauty brand, become the most followed self-tanning brand on Facebook and has set the template for other brands to follow successfully. It is particularly pleasing that we have secured Boots for our flagship brand and in 1,250 of its stores and together with our presence in Superdrug means Skinny Tan will be available in more than 2,000 stores nationwide.

Our in-house developed premium-haircare brand delivered an excellent performance and it is particularly pleasing that in 12 months, it has secured distribution in UK's leading retail chains, Superdrug, Boots and Tesco. The Company is trading in line with expectations post year end and is well positioned for future revenue and profit growth from our stable of strong brands."

Further enquiries:

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

Further enquiries

About InnovaDerma:

InnovaDerma PLC (LSE: IDP) specializes in the research, manufacture and marketing of clinically proven products in life sciences, beauty and personal care products. InnovaDerma has presence in Europe, US, Australasia, North Asia and Africa.

Executive Chairman's Statement

I am pleased to report another year of strong progress and achievement for InnovaDerma, one which has seen revenue growth, new product development, product launches and entry into major new retail chains globally.

Group revenues grew strongly by 21% on a constant currency basis to approximately £10.7m (FY2017: £8.9m), primarily driven by our Direct to Consumer ("DTC") channel which delivered a record number of orders in the second half of the year and generated the highest ever monthly revenue in May and June. Profit before tax was £0.67m (FY2017: £1.03m) and lower primarily as a result of significant investments made across the business which were critical to sustaining the future growth and included the launch of Prolong. Stock availability issues for Roots, which have since been resolved, and lower than expected revenue out of the US in June, also contributed to the lower than expected profit versus the original forecast. Our flagship brand, Skinny Tan, benefitted from new product development and delivered an excellent performance. Roots, our in-house developed premium-haircare range which was launched just one year ago, made a positive contribution to the Group's business and is now available in UK's leading retail chains.

Throughout the financial year, the Company has developed and strengthened its product portfolio and created a bedrock of multiple brands and products which will fuel the growth in revenue and profit expected in FY2019. We developed and launched multiple new sub-brands and extensions for our two core brands, Skinny Tan and Roots. The Charles + Lee and Stevie K Cosmetics product range were also extended, and we created an innovative marketing campaign for Prolong, the world's first FDA- cleared device for premature ejaculation for launch in US and Australia.

Self-tanning

The growth of the Skinny Tan brand has continued, with revenue strengthening year on year during the peak tanning season. The online customer community has grown, and brand loyalty has driven increased orders with the strengthening DTC platform.

Skinny Tan's sales-out for the period to 30 June 2018 has grown significantly. Sales-through the DTC channel were up 20% YoY showing the strength of our DTC model that has underpinned the significant growth of Skinny Tan since it was acquired by the Company in May 2015. The number of SKUs (individual product lines) increased from 31 to 45 during the period. However, as most of these new products were launched in the last quarter of the FY18, we expect the impact of this growth will be evidenced during the new financial year.

Investment into new product development is key to ensuring that Skinny Tan remains at the forefront of the bronzing category and in the period, the Company launched Bum Booster and the Skin Blur range. The Company also launched FACE by Skinny Tan, a range of innovative tanning products formulated for facial use. The exclusivity with Superdrug expires in February 2019 and, to enhance growth, the Company has undertaken increased product development work on multiple product extensions for new retail channels expected in FY2019. As announced earlier today, Skinny Tan portfolio will be ranged in 1,250 of Boots' 2,500 stores nationwide. The Skinny Tan range of products will be available online at Boots.com from February 2019 and in stores from March 2019 in time for the commencement for the peak selling season.

The Company has transitioned the brand from bronzing-only to an emerging beauty brand and aims to target a much larger market and year-round utility through developing new products aimed at a wider demographic.

The international distribution of Skinny Tan is key to driving global brand awareness and revenue. Post period end, it was announced that Skinny Tan had entered a number of new geographies including France, Germany, Ireland and appointed a significant distributor to open up and manage sales in the Nordic countries including Norway, Sweden, Denmark and The Netherlands. We will also be making our first entry into Canada, and Japan.

Haircare

Roots, a premium haircare brand launched in August 2017, was developed because the Company identified a gap in the market for high quality premium haircare brand that assists in reducing hair loss. It has the advantage of providing consistent revenue throughout the year and, as the brand grows, it will help to offset the seasonality of Skinny Tan. Additionally, it has a target market and client longevity far stronger than the self-tanning market.

The Company sold close to £1m worth of Roots products during the FY2018 despite a limited retail footprint (circa 400 Superdrug stores) and stock availability issues in its launch year which bodes extremely well for the long-term prospects of the brand. The product has gone from strength to strength and 12 months after launch this highly effective and popular brand is now available in Superdrug (789 stores), Boots (359 of the largest of Boots' 2,500 stores) and from November in Tesco (432 of the largest of 3,000+ stores) which demonstrates our ability to create a popular brand and monetize it within a very short time frame.

Roots was launched with five products and this has now been extended to nine products including heat protect spray, conditioning spray and conditioning mask, which were developed as a result of customer demand/feedback via social media. The majority of these were launched late in the FY and multiple new product lines are in the process of launching throughout the new FY which is expected to double the SKU count this year. The Company believes that Roots will become a significant brand in FY2019 and we are seeking to expand the retail footprint within the UK and elsewhere internationally. Roots has now been registered with the FDA for US launch and Health Canada for an impending launch in Canada during this financial year. 

As mentioned above, demand for Roots exceeded supply of available inventory in the second half of FY2018. These supply chain issues have now been addressed and the Company has developed a substantial inventory to supply our own DTC, our retail partners and as and when we launch into other retail chains and new territories.

Cosmetic and Skincare 

Charles + Lee is an affordable alternative premium range of men's skin care products, marketed as an effective and understated brand, containing natural and organic ingredients. It is cruelty free and has been certified by the Roundtable on Sustainable Palm Oil (the "RSPO"). Charles + Lee is performing well and gaining good momentum, especially in retail stores. We have extended the brand to incorporate a men's shaving range, oil-free moisturiser and an after-shave balm.

The Company launched Charles + Lee in 30 of Myer's stores (Australia's largest department store chain) in the first half of FY2018 which was subsequently extended to 46 stores. Terry White Chemmart, a retail chain in Australia, began to range its products in August 2018. The brand is beginning to earn recognition internationally and post period end we announced Charles + Lee will make its entry into New Zealand, South Africa and India, one of the fastest growing consumer markets globally.

The brand was presented to Australia's largest Beauty retailer Priceline (with approximately 450 stores nationally) this month and the Company has received confirmation that it will be launched in stores prior to the Christmas peak buying season.

Stevie K Cosmetics is an award winning, mid-priced, bold range of cosmetics with strong branding and eye-catching packaging. During the period the brand's new website was launched, and its lipsticks and eye makeup can be purchased through its DTC platform.  

The Company has expanded the product line for Stevie K Cosmetics and remains committed to launching the product in the UK. However, given the competition in the colour cosmetics space and the Company's significant financial investment to expand the product range across Skinny Tan, Roots and Charles + Lee, it has been decided to defer Stevie K Cosmetics' launch on DTC and retail until we are confident that a successful launch can be monetised and generate a suitable return on investment.

Life Sciences

The Company is seeking to build its life sciences product portfolio, particularly in skincare, by either developing its own devices and or acquiring businesses which are complementary to HeadMaster and Prolong™.

Prolong, the world's only FDA-cleared medical device for premature ejaculation, was launched in the United States and Australia in May. The launch was supported by a highly creative marketing campaign, a first of its kind, ground-breaking sex-positive platform with the aim to normalise and de-stigmatise discussions around sexual health and wellbeing for men. This resulted in the Company selling 622 units during the two-month period (May-June). The Company is seeking CE Mark regulatory approval for Prolong and, once obtained, the device will be launched in the UK and Europe.

The marketing campaigns were scaled back from July owing to a number of Prolong units exhibiting battery switch issues. Consequently, the Company is in discussions with a large manufacturer to start production during the first half of the new FY which will also have the benefit of reducing the cost of each unit by more than 40% compared to the current model. This development ensures that the gross profit margins are increased considerably once marketing has restarted. The packaging of the unit is also being improved and the Company remains confident of a successful relaunch prior to Christmas.

As part of wider global re-launch, the company has completed Japanese FDA registration through its distributor and is commencing registration both in China and India (two of the largest markets globally) to take advantage of the reduced cost of goods in what is traditionally price sensitive markets.

The Company is in discussions with a number of distributors around the globe to launch the devices in their territories throughout the new financial year. Post-period end, although the marketing campaign has halted, sales are consistent through DTC and is expected to grow once the marketing campaigns are scaled up.

HeadMaster, a wearable FDA-cleared helmet to aid hair generation and reduce hair loss, is expected to augment Prolong as an incremental revenue generator and the Company has placed an order for the first production run and expect to launch the brand in the first half of FY2019.

People

On behalf of the Board, I would like to welcome Kieran Callan to his new role as Chief Executive Officer. Kieran started with us as CEO this month and brings with him more than three decades of experience in senior management and Chief Executive Officer roles with a solid track record of delivering significant and profitable growth. He will be based in the UK and will manage the strong growth expected in FY2019, major new retail chains and the launch of new products. We have a highly dedicated team who work very hard and are committed to making InnovaDerma a truly exceptional business. On behalf of the Board, I would like to thank them all for their quality of work and commitment.

Post-Period End and Outlook

We recognise that as a growth business, we must be prudent on how we allocate our resources to maximise return on investment. Our priority this year will be to grow our core revenue generating brands, Skinny Tan and Roots, and expand the distribution channels for Charles + Lee and Prolong. We remain committed to our other brands and we expect product launches for Headmaster and Stevie K Cosmetics online and in certain territories in FY2019.

In three years, Skinny Tan has been transformed from bronzing-only to a beauty brand with excellent brand awareness - especially in the UK. It is particularly pleasing that Skinny Tan will be ranged in 1,250 of Boots' 2,500 stores nationwide bringing the total number of stores in which Skinny Tan will be available in to more than 2,000 in the UK. This strengthens the brand's retail footprint and our focus will be to continue to grow the brand through our DTC channel, new retail chains and in new territories.

Innovation is a key driver to ensuring brand relevance and ensuring we continue to resonate with our customers. We have a healthy innovation pipeline and expect to launch new sub products throughout FY2019 alongside securing new retail chains. Skinny Tan remains the most-followed self-tanning brand globally on the world's largest social media platform, Facebook. Skinny Tan is now also positioned to enter a number of new geographies including the Nordic countries Canada and Japan through our fast-growing distributor network.

Roots has the benefit of being non-seasonal, providing us with consistent revenue throughout the year. This exciting brand is now available in Boots and Superdrug and will be available in Tesco from November and our focus will be to expand our retail presence further within UK with new retail channels and deeper distribution within the existing retail channels. This will be augmented by expanding the brand internationally and with continued focus to launch new products for our customers. The Company expects continued roll out of new products throughout FY2019 and expects the number of SKUs to double during the period.

Charles + Lee is making excellent progress having just secured Australia's largest beauty retailer, by number of stores, and we expect the brand to be launched in new international markets including South Africa, Canada and India in the coming months. The brand is expected to be launched in the UK this financial year.

The Company is making excellent progress and trading is in line with expectations with Roots continuing to show strong growth. We have an exciting and innovative life sciences portfolio which is in its early stages and expected to make a contribution to the group's performance this FY. Our efforts this financial year will be to secure further distribution deals for Prolong and continue to normalise and de-stigmatise discussions around sexual health and wellbeing for men. Prolong has been well received internationally and we expect to launch the product in new territories including Japan.

In summary, the outlook for the Company is robust, supported by a strong brand portfolio, our ever-growing online DTC channel, international retail and distribution partners and a pipeline of new products.

Finance Director's Review

Overview

The Group delivered solid sales growth, driven predominantly by a robust UK DTC performance, strong Superdrug sales out and a very pleasing Roots introduction to the market. The key focus for the past twelve months has been supporting sales growth through DTC customer acquisition, major new product development and rolling out planned launches. Group revenues grew 21% to £10.7 (FY2017: £8.9m) Profit before tax of £0.67m was lower than the previous year (FY2017: £1.03m).

Operating Results

Costs associated with new product development and launches impacted gross margins and increased operating expenses. Gross margins declined from 63% in FY2017 to 57% in the financial year under review. The combination of product mix in Skinny Tan, which now covers a broader range of price points, and introductory launch offerings of new products into the major retailers have reduced average selling prices. However, we expect benefits will be generated from the expansion of products, price points and channels as the product offering stabilises with the major retailers.

Marketing expenditure was £2.3m, 14% lower than the previous year (FY2017: £2.7m). Whilst spend on launch costs, public relations and associated sales driven initiatives was higher than the previous year, the Group has reflected the significant investment in increasing its customer list as an intangible asset against the respective brands. Overall the direct total customer database has grown 66% from the previous year. This focussed investment has driven the growth in D2C activity over the year and is an integral platform for future growth.

The Group has continued to invest in organisational capability and brand support with the subsequent increase in salary and wage costs. Administration expenses were increased on the previous year primarily due to expansion in our facilities, higher depreciation charge and higher merchant service charges coming from increased DTC volumes.

Other income recorded of £0.08m was significantly lower than the previous period as the volume of intercompany transactions reduced significantly due to less product movement between subsidiaries as manufacturing is now fully consolidated in the UK.

Cash and net debt

The Group continues to carry no external debt and has now extinguished all related party loans (FY2017: £0.405m). The Group undertook a capital raising in October 2017 where the issue of 1,600,000 shares realised net proceeds £4.2m. Cash and equivalents was £1.9m as at 30 June 2018, which remains a comfortable level to meet business as usual requirements. Inventory levels increased to £2.9m (FY2017: £2.3) which reflected the increased product range. Trade and other payables decreased slightly to £2.3m (FY2017: £2.4).

Taxation

The Group has recognised a tax expense of £0.3m against profit (FY2017: £0.3m). The effective tax rate of 38.1% is an increase over last year (FY2017: 33%) due to the differences in tax rates in subsidiary jurisdictions. We did receive the benefit of an overprovision from previous years which reduced the impact of foreign jurisdictions on the lower UK tax rate.

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 2018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 1 JULY 2017 TO 30 JUNE 2018

In accordance with section 408 of the UK Companies Act 2006, the company is availing itself of the exemption from presenting its individual statement of profit or loss and other comprehensive income. The company's loss for the financial period as determined in accordance with IFRS's is $435,635. The company had no cashflow in the period, and therefore no cashflow statement has been prepared.

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 1 JULY 2017 TO 30 JUNE 2018

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

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 2018. 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 health 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 and returns at the time of sale. Accumulated experience is used to estimate and provide for the discounts and returns. The volume discounts are assessed 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.

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 50% 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.

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 HER 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 2018, InnovaDerma PLC did not have any contingent liabilities.

Contractual Commitments

At 30 June 2018, 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 other non-audit services have been provided. No benefits in kind are payable to the auditors.

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

5. Employees

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

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 £3,284,379 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 £208,991 to acquire a further 2%% 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

1 These loans are interest free and unsecured.

2 These expenses were settled via the issue of equity instruments in InnovaDerma PLC.

Variation in Amount due to Farris Marketing between 2017 and 2018 due to valuation of AUD loan in GBP as at 30 June 2017

Nature of related parties

Farris Marketing Concepts Pty Ltd and Zaymar Investments are related parties of Mr Haris Chaudhry, the Executive Chairman.

Cygenta Capital & Advisory Pty Ltd is a related party of Mr Joseph Bayer, the Executive Director.

Graise Partners International Pty Ltd is a related party of Mr Rodney Turner, a Non-Executive Director.

23. Key Management Personnel

All transactions with key management personnel (the directors) during the year ended 30 June 2018 are disclosed below:

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

24. Commitments and contingencies

At 30 June 2018, the Group did not have any contingencies.

At 30 June 2018, the Group had an obligation to pay £69,353 in rent for the forthcoming 12 months, under a non-cancellable operating lease.

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

26. 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 2018 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 had interest-bearing liabilities during the period but is not exposed to interest rate risk because the interest rates on their liabilities are set by private agreement, not by reference to market rates. 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. In order to meet its short-term obligations, the group has the support of several key shareholders who are willing to provide funds to the group on an as-needed basis.

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.

27. Share Based Payments

No share options have been granted to employees or directors during the current or preceding financial year. In this Financial year, an exercisable warrant for 120,00 shares at £1.10, were issued to a supplier for services provided. Instrument is to be settled by 12 December 2018.

28. 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

On the 12th of September 2018 the Warrants issued where settled at £1.10 per share with total settlement being £132,000 as per agreement.

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