IDP.L Regulatory News (IDP)

InnovaDerma PLC

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

Final results for the year ended 30 June 2017

An excellent performance with results well ahead of expectations

InnovaDerma (LSE: IDP), a UK developer of life sciences, beauty and personal care products, is pleased to announce its final results for the year ended 30 June 2017.

Financial Highlights

* As announced in the unaudited interim results for the period ended 31 December 2016, the Company reported one-off costs of £0.287m, which would result in a normalised pre-tax profit for the year ended 30 June 2017 of £1.316m.

Operational Highlights

The Company has delivered solid organic growth since its successful admission to the main market of the London Stock Exchange in 2016.

Robust performance from Skinny Tan™

· This flagship and emerging cult brand became the No.1 selling brand in Superdrug by revenue in its category as the Group added 10 new products to the fast-growing brand during the period.

Established multiple channels which has driven growth and profit

· Proven and differentiated Direct to Consumer ("DTC") platform with the followers on social media doubling from 151,000 to more than 300,000 in the period under review demonstrating growing momentum in the brand's appeal to a significant and engaged direct target audience.

· Distribution agreements with leading e-tailers and retailers in the UK, US, Europe, South Korea, South Africa and Australia

Continued focus on product innovation

· Launched hair loss and hair care brand Roots™ Double Effect through DTC and Superdrug's top 400 stores

· Developed Body Glow™ for skin care (an extension of Skinny Tan™), an everyday moisturiser range and stocked in the skin care section in more than 500 Superdrug stores

· Launched Skinny Tan™ in South Korea's largest beauty chain, Olive Young, alongside a skin brightening range

· Skinny Tan™ Professional launched in the London School of Beauty & Make-up and, post-year end, Regis Salons

Synergistic acquisitions

· Acquired early stage brands Stevie K™ Cosmetics™, a makeup brand, and Charles + Lee™, a men's skin care range, for A$50,000 to grow the Group's stable of brands and monetise them through the Group's DTC platform and retail distribution channels

· Acquired Prolong™, the world's only medical device for premature ejaculation cleared by the U.S. Food & Drug Administration ("FDA") to be sold through the Group's DTC platform & other distribution channels in multiple territories globally

Improved supply chain

· Successfully relocated manufacturing from Australia to UK, with significant COGS and overseas freight reductions, and with considerable shortening of supply chain lead times

Balance Sheet

· Company has no external debt with cash and cash equivalents of £0.207m as at 30 June 2017 (30 June 2016: £0.120m)

Post-Period End and Outlook 

The Company remains focused on continuing to grow Skinny Tan™ and launching its other brands into multiple markets particularly in the first half of the new financial year. As in FY 2017 the Board expects revenue and profit growth to be strongly weighted to the second half.

Skinny Tan™

· Skinny Tan™ has become the second best-selling brand out of 18 brands in its category for Boots Ireland for the month of August, despite only being made available in stores since July 2017. Owing to the success of Skinny Tan™ in Ireland, a number of the largest retail chains in Ireland have initiated distribution discussions with the Company for stocking Skinny Tan™

· Newly-packaged Skinny Tan™ launched in Australia and New Zealand supported by a new marketing and DTC campaign. The new range launch is expected to accelerate revenue generation from Australia and New Zealand during this financial year

· Continued product innovation with new product extensions expected in the new financial year, including for the Body Glow™ range which has been performing strongly in Superdrug stores in the UK

· Developed and launched a new Skin Brightening/ Skin Toning and Sun care range with SPF 50+, "Skinny Tan Whitening", in 650 independent pharmacy stores in Korea after securing KFDA (Korea Food & Drug Administration) approval. This range will be relaunched under the brand EnBright™ in various new markets including Asia, Africa and Australia, and relaunched in Korea with new high-end branding and packaging

Future product launches

· Secured ranging of Charles + Lee™ in Australia's largest department store chain Myer with discussions ongoing with multiple retail chains in the region to stock the product

· New product extensions have been developed for Stevie K Cosmetics™ and the brand is expected to be launched in Q1 2018 in the UK in a high street retail chain and on our DTC platform in the UK and Europe

· Finalising a launch and "go to market" strategy for FDA-cleared Prolong™ and HeadMaster prior to the end of 2017 in the US, followed by launch in Australia, UK and Europe in 2018

· Product innovation is a core driver of growth and the Company was pleased to announce as part of its most recent Operational Update two new brands in skincare and facial care which are expected to be launched on its DTC platform and with a large high street retail chain in the UK in early 2018. Together with these two new innovative products the Company will have a retail product portfolio covering bronzing and tanning, body care, skin care and facial skin care

Team expansion

· Appointed Ross Andrews as a UK based Non-Executive Director

· Appointed various business development and marketing staff in UK and Australia tasked to oversee successful launch of new brands in those key markets

· Appointed Amy Newman as Head of UK & Ireland Sales & Marketing

Haris Chaudhry, Executive Chairman of InnovaDerma, said:

"We have delivered a robust financial performance and exceeded nearly every key performance indicator we set for ourselves in FY 2017. The journey, however, has just begun as we prepare to launch multiple new brands that we have either successfully developed in-house or acquired during the past 12 months. The strength in our proven international DTC platform and retail distribution channels should allow us to replicate the success we are experiencing with Skinny Tan™.

"Our sights are set on growing Skinny Tan™ which is fast becoming a cult brand with a large loyal customer base, and launching our highly innovative life science product portfolio in the US.

"This new chapter of becoming a true multi-brand global business in life science, beauty and personal care will be exciting, challenging and I believe very rewarding. Our successful journey thus far has been underpinned by agility, razor-sharp focus on outcome and enabling our core team of decision makers to merge their creativity and commercial acumen using technology and social media to monitor market dynamics and create value for our shareholders.

"On behalf of the Board of InnovaDerma, I would like to express our gratitude to our supportive shareholders and our talented and hardworking team and together we look forward to achieving further successes in this new financial year."

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, Asia and Africa.

Executive Chairman's Statement

Introduction

I am pleased to present an excellent set of results for the year ended 30 June 2017, which are well ahead of our initial expectations. The Group's financial performance reflects management's ability to transform and grow a brand and create a highly effective DTC platform using social media campaigns, which enables greater customer engagement and ownership. This has created a strong platform for sustainable future growth.

Our revenue and profit performance has been consistently strong throughout the year, reflecting the success and popularity of Skinny Tan™ and it is pleasing to note that five out of six months in the second half of the year delivered record revenues. The Group delivered revenues of £8.858 million in the period under review up 105.8% (FY2016: £4.305m). Profit before tax increased by 325.7% to £1.029m (FY2016: £0.242m).

Self-tanning

The Skinny Tan™ brand has gone from strength to strength and since acquisition in May 2015 we have witnessed an ever-increasing demand for the product range. This has been backed largely through our highly innovative and scalable DTC strategy. We have worked tirelessly with our retail partners to keep growing the product range through product extensions, increasing shelf space and innovative marketing initiatives. Skinny Tan™'s brand appeal has seen it attract more than 300,000 followers on its social media platforms. It is now sold in 12 countries and is fast becoming a cult brand. In the period under review, we launched exciting new product extensions including Skinny Tan™ Salon Effects Spray, a coconut-scented salon quality self-tanner spray for customers who want to attain a salon quality, streak-free instantly-bronzed skin at home. Additionally, we entered the skin care market through Body Glow™, a body moisturising range which is available in 500 Superdrug stores and is performing strongly.

As we enter new regions, products and packaging are tailored to meet market and customer preferences and to this end, we have developed a new Skin Brightening / Skin Toning and Sun Care range with SPF 50+ 'Skinny-Tan Whitening'. This product has been launched in to 650 independent pharmacy stores in Korea after securing KFDA (Korea Food & Drug Administration approval). This range will be relaunched under the brand EnBright™ in various new markets including Asia, Africa and Australia, and relaunched in Korea with new high-end branding and packaging. The decision was taken to bring a globally-consistent brand to a segment the Company believes presents worldwide appeal.

Product innovation is a core driver of growth and the Company was pleased to announce as part of its most recent Operational Update two new brands in skincare and facial care which are expected to be launched on its DTC platform and with a large high street retail chain in the UK in early 2018. Together with these two new innovative products the Company will have a retail product portfolio covering bronzing and tanning, body care, skin care and facial skin care.

Cosmetic and Skincare

We acquired Stevie K Cosmetics™ and Charles + Lee™ in February 2017. Stevie K Cosmetics™ is an award winning, mid-priced, bold range of cosmetics with strong branding and eye-catching packaging targeted at the irreverent individual in the Millennial and Generation Zero market. Founded in 2016, the brand is positioned as Australian made, cruelty free, high quality and edgy.

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").

Both brands are early stage and revenue generating which are well suited for social media, one of the keys to driving brand loyalty and revenue. Charles + Lee™ was launched in April this year through our DTC platform and has since secured distribution in 30 of Myers' 60 stores. Myer is Australia's largest department store chain, and adds significant credibility to the brand. The Group expects to launch Charles + Lee™ in further new retail channels throughout Australia, New Zealand, UK and Europe during the new financial year. Further momentum will be created through our DTC platform as we grow the product range to include multiple new men's skin care, hygiene and shaving product extensions.

The Company launched Stevie K Cosmetics™'s new website and lip-only products through its DTC platform in Australia in August. Stevie K Cosmetics™'s range of cruelty-free, award winning products include face and eye make-up, and we expect to launch in the UK through our DTC platform and in a high street retail chain in the first quarter of 2018. We plan to launch the brand in other international markets shortly thereafter.

Despite only being launched this year, the two brands are performing in line with management expectations.

Haircare

In August, we launched Roots™ Double Effect, an innovative and highly-effective topical hair care range for men and women to aid hair regrowth and hair thickening. The hair care range currently consists of five products, including uniquely formulated shampoos and conditioners in attractive packaging and is available in Superdrug's top 400 stores. The range of products is available online and will be launched elsewhere in Europe and Australia later in the year. The Company is embarking on creating highly visual and appealing marketing assets and collateral which it will deploy through its DTC channel to create client demand, footfall for its retail channels and to establish the brand in multiple markets globally. It expects gradual and consistent building of the brand in various markets throughout the new financial year.

With product innovation at its core, the Company is developing new products in hair styling and a dry-shampoo range which it expects to launch both in DTC and retail channels.

Life Sciences

In May 2017, we acquired Ergon Medical Limited, the owner of the intellectual property rights of Prolong™, the world's only medical device for premature ejaculation cleared by the U.S. Food & Drug Administration ("FDA"). Prolong™ can be sold without prescription, is patented in 72 countries and ready for mass-market distribution.

The Company is currently finalising its launch strategy for Prolong™ for the US and Australia and has also started receiving interest from distribution companies in Europe and Asia. The Company remains confident of creating a successful launch strategy and in positioning the brand as a highly effective, world leading and side effect-free treatment option for a problem affecting one in four men globally.

Headmaster, a wearable helmet to aid hair generation, is expected to receive regulatory clearance towards the end of this year. The Company is finalising a 'go to market' strategy for FDA- cleared Prolong™ and Headmaster prior to the end of 2017 in the US, followed by launch in Australia, UK and Europe in 2018.

With the aim of creating a significant portfolio of Life Science products, the Company is looking at developing a new range of devices complementary to HeadMaster and Prolong™ in the fast-growing market for acne and skin tightening/wrinkle reducing treatments. These devices will be FDA-cleared before being launched in the US and other regions, and will result in economies of scale with a wider product portfolio in our Life Sciences segment.

People

On behalf of the Board, I would like to welcome Ross Andrews to the Board of Directors. Ross brings with him extensive PLC experience and we look forward to working with him to grow the business. We have made a number of operational appointments including that of Amy Newman who will be working alongside Michael Hume to further the growth in the UK and Europe. We have a very talented team who believe in speed, creativity and work hard for this business. On behalf of the Board, I would like to thank them sincerely for their commitment and helping to deliver this excellent performance.

Our strategy and outlook

We have a very disciplined approach to our strategy which has enabled us to deliver exceptional revenue and profit growth.

The outlook for the Company remains very strong on many fronts; the continuous growth of Skinny Tan™ through new channels and new territories, the ever-growing size of our online community DTC channel, the launch of our new brands through retail and DTC, both for our topical as well as life science portfolio.

With this level of growth expected to continue, we need to invest in new talent in multiple markets, especially growing our teams in the US and Australia. We are on the hunt for new people to underpin the new phase of our growth, backed by high quality but lean marketing campaigns as we launch these brands.

In our quest to become a very significant and fast growing global player, we believe our core strategy is to gain scale through DTC and to create initial footfall to retailers. This requires investment of time and resources but as the momentum grows, the speed of growth will deliver significant return. The first half of this new financial year will see investment in our brands and people to create a solid foundation as we embark on our next stage of growth.

The first half of this financial year will be focused on new brand development and market launch activities in conjunction with growing our established distribution channels. As a result of this activity in the first half, we expect FY 2018 to be more second-half weighted.

In summary, the Company is positioning itself to deliver sustainable future revenue growth. We have developed an agile corporate culture which is centred around delivering expectations and encouraging our highly commercial executive team to deliver value to shareholders. We look forward to sharing this exciting journey.

Finance Director's Review

Overview

The Group has delivered a strong profit result on the back of significant sales growth in the UK with the Skinny Tan™ brand and the strategy of moving manufacturing from Australia to the UK, resulting in gross margin improvements. Group revenues grew 105.8% to £8.858m (FY2016: £4.305m) with the growth in the popularity of the Skinny Tan™ brand in the UK reaching across the DTC and retail channels. Profit before tax of £1.029m was 325.2% up on the previous year (FY2016: £0.242m).

The Group has increased Net Asset value to £4.940m as at 30 June 2017. Intangibles increased £1.639m principally as a result of the acquisitions of Ergon Medical, Stevie K™ and Charles + Lee™.

Operating results

The Group's operating profit was driven by strong sales and a significant improvement in gross margins. Gross margins lifted 560 basis points to 63.0% (FY2016: 57.4%). The increase was primarily influenced by lower cost of manufacture coupled with lower shipping costs. As highlighted in our half year interim results, a substantial investment was focussed on building stock during the first half of this financial year, to facilitate the transfer of manufacturing from Australia to the UK and to provide adequate inventory for the forecasted expansion in to Superdrug. The full benefits of this investment were realised during the second half with lower manufacturing and shipping costs with a much reduced supply chain.

Underlying operating profit was driven higher with the combination of stronger sales and improvements in gross margins. The result of £1.029m was 11.6% of revenue compared to the previous year of 5.6%. Overheads grew 109.9% to £4.752m (FY2016: £2.264m) however the ratio to sales remained consistent at 53.6% (FY2016: 52.5%). There was a focused effort to resource the Company with experienced people capable of driving performance. This has resulted in an increase in personnel numbers in the UK and Australia. We are now in the position to see this investment realised over the coming year.

The key cost driver in the Company is marketing spend both in driving the Skinny Tan™ brand but also the introduction of new brands. Overall marketing spend increased 134.7% to £2.711m (FY2016: £1.155m). This was 30.6% of revenue (FY2016: 26.8%) which reflected the base investment in the UK market and the required further investment in the US and Australian DTC markets which are developing.

Other income of £0.205m was made up of the intercompany profit from internal inventory transfers of £0.140m, the payment of the Australian Export Marketing and Development Grant for £0.059m and a small reduction in our money back guarantee scheme for Leimo™.

Other Comprehensive income of -£0.158m has been recorded as a prior year foreign exchange translation adjustment on equity balances. This came as a result of the move from reporting in AUD ($A) to GBP (Pounds Sterling). This is a "one off "adjustment as the calculation readjusts to GBP all equity movements back to financial year 2015.

Cash and net debt

The Group has no external debt and has reduced related party loans outstanding. Cash and cash equivalents as at the 30 June 2017 were £0.207m (FY2016: £0.120m). Related party loans reduced by £0.217m to £0.405m (FY2016: £0.622m). Funding of the business was enhanced by two capital raisings in November and December 2016 which provided gross funds of £1.340m. As highlighted in our interim result announcements, these funds were targeted to assist in the manufacturing transition and market growth inventory build. Overall inventory has grown to £2.259m (FY2016: £0.638m) which comes as the Company meets the requirements of "in full/on time" deliveries to Superdrug. Furthermore, the Company is well placed to supply the growing markets of Ireland and the inventory requirements for other UK customers, Australia and the US markets. At the same time trade and other payables, excluding tax payables, have increased to £2.419m (FY2016: £1.443m).

Taxation

A total tax expense of £0.340m has been charged against profit (FY2016: £0.064m). The Group has not recognised any deferred tax liability at this stage and as such no entry has been made in the annual accounts this year.

All corporate tax liabilities across the various geographical regimes have been accounted for.

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 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 1 JULY 2016 TO 30 JUNE 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 1 JULY 2015 TO 30 JUNE 2016

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 $222,216. 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 2016 TO 30 JUNE 2017

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2017

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 2017. 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.

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)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO).

Receivables and payables are stated inclusive of the amount of GST receivable and payable. The net amount of GST recoverable from, or payable to, the ATO 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 2016 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 2017, InnovaDerma PLC did not have any contingent liabilities.

Contractual Commitments

At 30 June 2017, 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 £3,281,747 for the year.

11. Prepayments and Sundry Assets

12. Intangible Assets

13. Deferred tax asset

14. Trade and other payables

15. Borrowings

Convertibles

During the period to 30 June 2015, the Group issued convertible notes worth a total of £63,730. The bonds would mature two years from the issue date (29 May 2015) at their nominal value, or could be converted into shares at the holder's option at any point between the date of the Group's public listing and the maturity date. If exercised, the number of shares issued was to be calculated based on the Group's share price at the exercise date. During the Financial year the relevant notes were repaid in full.

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 £224,593 to acquire a further 11% of Skinny Tan™ Pty Ltd, and through direct holding, SkinnyTan UK Limited.

b) During the financial year 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 2016 and 2017 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.

23. Key Management Personnel

All transactions with key management personnel (the directors) during the year ended 30 June 2017 are disclosed below:

1 Geert Lemair resigned from the Board on the 10th of January 2017

2 Kieran Callan was appointed to the board on the 30th of January 2017

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

24. Commitments and contingencies

At 30 June 2017, the Group did not have any contingencies.

At 30 June 2017, the Group had an obligation to pay £67,283 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 2017 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 2017. 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.

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 26th July 2017, the Company allotted shares in settlement of the final consideration to the sellers of Ergon Medical Limited (the "Allottees"). 45,249 Ordinary Shares (the "Final Consideration Shares") were allotted as the final consideration of shares to the Allottees following the finalisation of the completion accounts and were allotted at a price of £1.6575 per share.

30. Company Details

The registered office of InnovaDerma PLC is:

27 Old Gloucester Street

London, WC1N 3AX

United Kingdom

The principal place of business is:

Level 10, Suite 1031, 1 Queens Road

Melbourne VIC 3004

Australia