Final Results

RNS Number : 6660U
Integumen PLC
16 July 2018
 


Integumen plc

 

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


FINAL RESULTS

 

 

Integumen (LSE: SKIN), the personal health care company developing and commercialising technology and products for the human integumentary system, today announces its final results for the year ended 31 December 2017.

 

Key points

·      Listed on AIM and raised £2.25m for product development, sales & marketing and working capital

·      Revenues of £238,000 (2016: £52,000)

·      EBITDA loss before exceptional items of £1,579,000 (2016: £773,000)

·      Operating loss was £9,517,000 (2016: £1,077,000) after providing for depreciation and amortisation of £863,000, an impairment to intangible assets of £6,740,000 and one-off exceptional costs of £335,000 associated to the AIM listing and business acquisitions

·      Acquisition of Stoer Skincare range for a total consideration of £510,045, issued in shares

·      As at 31 December 2017, the Group had total assets of £2,574,000

·      Post period-end, the Company has conditionally agreed to acquire 9.35% of Cellulac Plc, a leader in the production of natural oils and biodegradable plastic ingredients (the "acquisition") and to raise £700,000 through an equity placing and subscription, as part of the proposed acquisition

·      In addition, post period-end, the Company has conditionally agreed Heads of Terms to enter into a licence agreement with Cellulac granting Integumen a licence to sell certain Cellulac's products and to license Cellulac's technology to third parties in certain geographies. Integumen and Cellulac will share revenues equally (after production costs) from Integumen's sales and licensing activities under the proposed Licence Agreement.

 

Tony Richardson, Chairman of Integumensaid:

 

"This was a challenging year for Integumen, attributable to the slower than anticipated growth in sales.  The Board has therefore taken action and considerable time to identify the optimum solution to generate shareholder returns - we believe the acquisition of a stake in Cellulac will provide the Group with multiple opportunities to accelerate revenue generation and enable us to participate in the compelling market of biodegradable plastics.  I am confident the actions the Board has taken will position us strongly for the future."

 

 

Integumen plc

Chris Bell, Interim CEO

 

+ 353 (0) 86 647 9522  

SPARK Advisory Partners Limited

(Nominated Adviser)

 

Neil Baldwin/Andrew Emmott

+44 (0) 113 370 8974

Hybridan LLP

Claire Noyce

+44 (0) 20 3764 2341

TB Cardew

Shan Shan Willenbrock

Joe McGregor

 

+44 (0) 20 7930 0777

integumen@cardewgroup.com

 

 

Copies of the audited Annual Report and Accounts for the year ended 31 December 2017 will be posted to shareholders shortly and will also be available on the Company's website www.integumen.com

 

 

 

Chairman's Statement

For the year ended 31 December 2017

 

Dear Fellow Shareholder,

I present the Company's report and results for the year ended 31 December 2017. Integumen was admitted to trading on the AIM market of London Stock Exchange plc on 5 April 2017, raising £2.25 million. 

 

Our Business

Integumen Plc was incorporated and registered in England and Wales on 28 May 2016 and now consists of five wholly-owned subsidiaries: UK-based Innovenn UK Limited and Lifesciencehub UK Limited, TSpro GmbH in Germany, Integumen Inc. in the United States and Stoer Ireland Limited in Ireland.  Integumen Plc ("Integumen" or "Company") is a personal health care company focused on developing and commercialising a range of innovative products in the oral, skin and wound care markets. 

 

The Group has a portfolio of products, three of which are generating revenue.  The remaining products are in late stages of development, with a skincare range planned for commercialisation in the future. Our products are:

 

·      TS1, a tongue sanitiser designed for dental surgery and for home use

·      Labskin, a 3-dimensional human skin equivalent

·      Skincare

Stoer and Visible Youth, the cosmeceutical skincare product ranges

Clarogel, an over-the-counter cosmetic product for the treatment of blemishes

·      Woundcare, a chronic wound diagnostic tool Wound pHase and Hydrogel, a material used for the treatment of wounds

 

Further information on our products and technologies can be found in the Chief Executive's Report.

 

Results

This has been a difficult year for Integumen attributable to slower than anticipated growth in sales.  The Group made an EBITDA loss before exceptional items of £1,579,000 (2016: £773,000), based on revenues of £238,000 (2016: £52,000). Operating loss was £9,517,000 (2016: £1,077,000) after providing for depreciation of £75,000 (2016: £34,000), amortisation of £788,000 (2016: £85,000), an impairment to intangible assets of £6,740,000 (2016: £Nil) and exceptional costs of £335,000 (2016: £185,000). The exceptional costs incurred were one-off transaction costs relating to the AIM listing and business acquisitions.

 

The Company has conditionally agreed to acquire 9.35% of Cellulac plc in exchange for shares in Integumen. Cellulac has developed, acquired and integrated technologies to produce biodegradable plastic components for consumer packaging, natural oils and nutritional food ingredients for use in the cosmetics, nutritional food and health care sectors. The proposed acquisition will enable Integumen to enter the highly attractive bio-materials and nutritional food sector complementing its existing skin testing, R&D and personal care businesses.

 

As part of the proposed acquisition, the Company is in the process of raising £700,000 (before expenses) by way of an equity placing and subscription. While the outcome of this process is not certain, the Directors have a reasonable expectation that it will be successfully concluded in the coming weeks.

 

Corporate governance

I believe that good corporate governance is important to support our future growth and the Board, which has extensive experience in publicly listed companies and running companies in the personal healthcare sector, is committed to the highest standards. 

 

Outlook

It has been a challenging time for Integumen and the Board has therefore taken action to identify the best route forward for its shareholders and we believe the proposed acquisition of a stake in Cellulac, a leader in biodegradable plastics and natural oils, provides the Company with a number of opportunities to increase its revenue streams.  The economic and environmental drivers of biodegradable plastics are compelling, and we believe the actions we are taking will position us well for the future. 

 

 

Tony Richardson

Chairman

13 July 2018

 

 

Chief Executive's Statement

For the year ended 31 December 2017

Dear Fellow Shareholder,

 

I present the Company's results for the year ended 31 December 2017. This is the first set of results covering the period since its admission to trading on the AIM market of the London Stock Exchange on 5 April 2017, an important milestone in the lifetime of the Company.

 

Highlights

During the listing process, we raised £2.25 million. After listing costs, the proceeds continue to be used on product development, sales & marketing and working capital. The Company is now focused on commercialising the portfolio of products, technologies and associated know-how it has assembled, which broadly focus on applications with identified and growing markets within skincare, oral care and wound care. As a Board, we took the strategic decision to diversify our range in order to provide Integumen with a portfolio approach that reduces the risk of any one product or technology.

 

Integumen already has three product ranges on the market: the TS1 tongue sanitiser, the Labskin human skin equivalent technology targeting the cosmetic product testing sector and the Stoer men's cosmetic product range.

 

TS1 - Oral care

Integumen has developed TS1, a disposable tongue vacuum cleaner for professional use in the dental surgery, a tongue gel and a handle which turns the tongue vacuum cleaner into a tongue scraper for home use. It targets a growing segment of the global oral care market. TS1 enables the deep cleaning of the tongue and the removal of bacteria plaque from the oral cavity.  TS1 has specialist distributors who are already distributing the products to the B2B dentistry market in Germany, Austria, Switzerland and more recently in newer markets such as South Korea, South Africa and Portugal.

 

In April 2017, the Company signed its first supply agreement in Asia with Mono Dent, a leading distributor of oral hygiene products to dental surgeries and dental universities in South Korea, for an initial period of three years. The agreement provides Mono Dent with the exclusive rights to distribute three products under the TSpro brand within South Korea. Opening orders have already been received, and as part of the exclusive agreement, Mono Dent has committed to a sales and marketing strategy for TS1 to penetrate further the South Korean market.  South Korea has approximately 20,000 dental surgeries and is a growing market driven by medical tourism and cosmetic dental surgery.

 

Labskin

The overarching global cell-based assays market is expected to reach nearly $21.6 billion by 2018 with a five-year CAGR of 12.4 per cent. (Source: Cell Based Assays: Technologies and Global Markets, BCC Research), driven primarily by the reduction in or ban on using animals for testing cosmetics products.

 

Labskin is a 3-dimensional human skin equivalent model which has been designed for use in this space. It is used for basic and applied skin research, pre-clinical screening, microbial (bacterial) testing, and efficacy studies of personal care products. It is sold as both a consumable product to third parties, and a managed testing service conducting experiments from our facility in York. Sales in 2017 were to customers such as L'Occitane en Provence, Unilever and Galderma.

 

The Company continues its discussions with R&D departments of a number of cosmetic and pharmaceutical companies, independent testing companies and academic institutions, driven in part by the EU ban on animal testing in cosmetics. 

 

Stoer

The men's cosmetic skincare range StoerTM, acquired in November 2017, is a complementary premium cosmeceutical brand to the Visible YouthTM brand for women. Its patented Clima5TM technology incorporates a co-formulation five clinically-tested, skin-saving plant actives from four continents and from four very different climates. Stoer and Visible Youth will be marketed using the same channels which should provide multiple marketing and distribution synergies leveraging existing infrastructure;

 

Further products, crossed over from the patented Visible Youth range will be rolled out under the Stoer brand for the male grooming market. In addition, the Stoer For Men brand offers the potential for additional products utilising the Company's Hyoglass and Clarogel skin blemish technologies. Stoer enabled the Company to enter the large and growing male grooming market worth US$47billion in 2016 and which is expected to grow to US$60 billion by 2020 (Source: Euromonitor).

 

 

 

Chief Executive's Statement (continued)

For the year ended 31 December 2017

 

Visible Youth

Visible Youth is a woman's cosmetic skincare brand which incorporates a range of consumer and professional cosmeceutical products, following many years of R&D. The global anti-ageing products market is expected to grow at a CAGR of 8 per cent., from $150 billion in 2015 to $192 billion in 2019 (Source: Anti-ageing Market: Global Industry Analysis and Opportunity Assessment 2015-2019, Future Market Insights), and the market for anti-wrinkle products is assessed at $77.7 billion in 2016 (Source: Anti-ageing Market: Global Industry Analysis and Opportunity Assessment 2015-2019, Future Market Insights). 

 

Visible Youth Consumer and Visible Youth Professional are a range of cosmeceuticals targeting this anti-ageing market.  Visible Youth is a brand whose first six consumer launch products will comprise a cleanser, toner, face serum, eye serum, moisturising cream with SPF20 and a night cream.

 

The professional products include products for use after skin rejuvenation procedures such as chemical peel or dermabrasion, and a number of other products are planned. Formulation patents are pending or granted, and trademarks registered, in various jurisdictions.

 

Clarogel

Skin blemishes are one of the most pervasive skin conditions in younger people: over 80 per cent. of adolescents and young adults are affected by this condition at some point. (Source: National Institute of Arthritis and Musculoskeletal and Skin Diseases).

 

Clarogel is an over-the-counter cosmetic product for the treatment of blemishes (non-medical treatment of symptoms of acne). It is a late stage product and historically the product has been the subject of a clinical study against a market leading product and demonstrated a greater reduction in inflamed lesions than the comparator after one month of use and significantly reduced sebum excretion.  Clarogel is patented in Europe and the United States.

 

Woundcare

The Company has developed an innovative chronic diagnostic tool called Wound pHase.  The polymer film in disc form is applied to a wound and surrounding skin in the same way as a traditional hydrogel dressing. Responding to the acidity/alkalinity of the wound, the disc changes colour within five minutes. The colorimetric response of the disc to the wound indicates the acidity/alkalinity and changing state of the wound bed in order to vary the appropriate treatment regime.

 

Hydrogel is a product the Company is exploring as a dressing for use in the treatment of burns. This will be conducted in parallel with the development of Wound pHase.

 

Strategy

Integumen has purposefully assembled businesses which possess products, technologies and know-how which are generally in advanced stages of development or at an early stage of commercialisation.

 

The Company continues to apply the Board's collective experience, market knowledge and contacts to demonstrate the commercial potential of these products, technologies and know-how in the most effective way, given its resources. This approach could involve:

·      Direct product sales by Integumen and its subsidiaries;

·      Product sales through marketing and distribution partners with existing and proven infrastructure; and/or,

·      Selectively seeking licensing partners, once value has been added through development activity, brand creation or early market adoption.

 

We look forward to updating you on the progress of this strategy as we go forward.

 

 

 

 

Chris Bell

Interim Chief Executive Officer

13 July 2018

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

 

 

 

 

 

 

2017

2016

 

Notes

£'000

£'000

Revenue

5

238

52

Costs of sales

 

(62)

(63)

Gross (loss)/profit

 

176

(11)

Administrative Costs

6,9

(9,693)

(1,066)

Operating loss

 

(9,517)

(1,077)

  Depreciation

6,16

75

34

  Amortisation

6,15

788

85

  Impairment of intangible assets

6,15

6,740

-

  Exceptional items

7

335

185

EBITDA before exceptional items

 

(1,579)

(773)

Finance income

11

7

-

Finance costs

11

(71)

(17)

Loss before income tax

 

(9,581)

(1,094)

Income tax credit

12

941

48

Loss for the year

 

(8,640)

(1,046)

Other comprehensive income

 

 

 

Currency translation differences

 

(218)

(21)

Total comprehensive loss for the year

 

(8,858)

(1,067)

 

 

 

 

 

Loss per share attributable to owners of the parent during the year

 

Pence

Pence

Basic loss per ordinary share

13

5.8p

2.6p

Diluted loss per ordinary share

13

5.2p

2.6p

 

The notes on pages 24 to 53 are an integral part of these consolidated financial statements.

 

The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the parent Company income statement account.

 

The loss for the parent Company for the year was £9,899,000.

 

 

 

Consolidated and Company's Statement of Financial Position

As at 31 December 2017

 

 

 

 

 

 

 

 

Group

Group

Company

Company

 

 

2017

2016

2017

2016

 

 Notes

£'000

£'000

£'000

£'000

Assets

 

 

 

 

 

Non-current assets

 

 

 

 

 

Intangible assets

15

1,979

4,558

-

-

Property, plant and equipment

16

241

88

-

-

Investments in subsidiaries

17

-

-

1,479

4,732

Loan to subsidiary undertaking

17

-

-

500

2,756

Total non-current assets

 

2,220

4,646

1,979

7,488

 

 

 

 

 

 

Current assets

 

 

 

 

 

Inventories

19

174

11

-

-

Trade and other receivables

20

140

309

1,920

339

Cash and cash equivalents

21

40

30

33

-

Total current assets

 

354

350

1,953

339

Total assets

 

2,574

4,996

3,932

7,827

 

 

 

 

 

 

Equity attributable to owners

 

 

 

 

 

Share capital

25

1,904

7,365

1,904

7,365

Share premium account

27

2,075

-

2,075

-

Retained loss

26

(10,553)

(1,913)

(9,899)

-

Foreign currency reserve

27

(239)

(21)

-

-

Reverse acquisition reserve

27

(2,843)

(2,843)

-

-

Capital redemption reserve

27

9,519

-

9,519

-

Share based equity reserve

27

24

-

24

-

Total equity

 

(113)

2,588

3,623

7,365

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Deferred tax liabilities

23

212

93

-

-

Borrowings

24

509

667

-

-

Total non-current liabilities

 

721

760

-

-

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

22

1,751

1,447

309

462

Deferred tax liabilities

23

26

10

-

-

Borrowings

24

189

191

-

-

Total current liabilities

 

1,966

1,648

309

462

Total liabilities

 

2,687

2,408

309

462

Total equity and liabilities

 

2,574

4,996

3,932

7,827

 

The notes on pages 24 to 53 are an integral part of these financial statements.

 

The financial statements were approved and authorised for issue by the Board on 13 July 2018.

 

 

 

 

Chris Bell                                                                                                                                                              Integumen Plc

Chief Financial Officer                                                                                                                                      Registered no: 10205396

 

 

Consolidated and Company's Statement of Cash Flows

For the year ended 31 December 2017

 

 

 

 

 

 

 

 

Group

Group

Company

Company

 

 

2017

2016

2017

2016

 

Notes

£'000

£'000

£'000

£'000

Cash Flow from operating activities

 

 

 

 

 

Cash (used in)/generated from operations

28

(1,969)

(976)

(2,241)

123

Taxation

 

126

7

-

-

Interest (paid)/received

 

(64)

(17)

5

-

Net cash (used in)/generated from operating activities

 

(1,907)

(986)

(2,236)

123

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

 

Acquisition of investments

 

(63)

-

-

(123)

Payments to acquire intangibles

 

(179)

(945)

-

-

Purchase of property, plant and equipment

 

(2)

(2)

-

-

Net cash used in investing activities

 

(244)

(947)

-

(123)

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

Proceeds from issuance of ordinary shares

 

2,269

1,144

2,269

-

New loans

 

-

858

-

-

Capital element of finance lease

 

(24)

(25)

 

 

Repayments on borrowings

 

(136)

(39)

-

-

Net cash generated by financing activities

 

2,109

1,939

2,269

-

 

 

 

 

 

 

Net increase/ (decrease) in cash and cash equivalents

 

(42)

7

33

-

Cash and cash equivalents at beginning of year

 

30

23

-

-

Effects of exchange rate changes on cash and cash equivalents

 

(33)

-

-

-

Cash and cash equivalents at end of year

21

(45)

30

33

-

               

 

 

 

Consolidated Statement of Changes in Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

Group

 

Share capital

 

Share

premium

 

Retained

earnings

Foreign currency reserve

Reverse acquisition reserve

Capital redemption reserve

Share based equity reserve

 

 

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2016

0

746

(867)

-

-

-

-

(121)

Changes in equity for the year

ended 31 December 2016

 

 

 

 

 

 

 

 

Loss for the year

-

-

(1,046)

-

-

-

-

(1,046)

Currency translation

differences

-

-

-

(21)

-

-

-

(21)

Total comprehensive loss

for the year

-

-

(1,046)

(21)

-

 

-

 

-

(1,067)

Transactions with the owners

 

 

 

 

 

 

 

 

Shares issued during the year

7,365

1,144

-

-

-

-

-

8,509

Reverse acquisition arising

-

(1,890)

-

-

(2,843)

-

-

(4,733)

Total contributions by and

distributions to owners

7,365

(746)

-

-

(2,843)

 

-

 

-

3,776

At 31 December 2016

7,365

                   -

(1,913)

(21)

(2,843)

-

-

2,588

Changes in equity for the year

ended 31 December 2017

 

 

 

 

 

 

 

 

Loss for the year

-

-

(8,640)

-

-

-

-

(8,640)

Currency translation

differences

-

-

-

(218)

-

-

-

(218)

Total comprehensive loss

for the year

-

-

(8,640)

(218)

-

 

-

 

-

(8,858)

Transactions with the owners

 

 

 

 

 

 

 

 

Shares issued during the year

4,058

2,187

-

-

-

-

-

6,245

Costs of Share issue

-

(112)

-

-

-

-

-

(112)

Cancelled Shares

(9,519)

  -

-

-

-

9,519

-

-

Share option-based charge

-

  -

-

-

-

-

24

24

Total contributions by and

distributions to owners

(5,461)

2,075

-

-

-

 

9,519   

 

24

6,157

At 31 December 2017

1,904

2,075

(10,553)

(239)

(2,843)

9,519

24

(113)

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

 

Share capital

 

Share

premium

 

Retained

earnings

Capital redemption reserve

Share based equity reserve

 

 

Total

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

At 28 May 2016

 

 

-

-

-

-

-

-

Total comprehensive loss

for the year

 

 

-

-

-

 

-

 

-

-

Shares issued during the year

 

 

7,365

-

-

-

-

7,365

Total contributions by and

distributions to owners

 

 

7,365

-

-

 

-

 

-

7,365

At 31 December 2016

 

 

7,365

                   -

-

-

-

7,365

Changes in equity for the year

ended 31 December 2017

 

 

 

 

 

 

 

 

Loss for the year

 

 

-

-

(9,899)

-

-

(9,899)

Total comprehensive loss

for the year

 

 

-

-

(9,899)

 

-

 

-

(9,899)

Transactions with the owners

 

 

 

 

 

 

 

 

Shares issued during the year

 

 

4,058

2,187

-

-

-

6,245

Costs of Share issue

 

 

-

(112)

-

-

-

(112)

Cancelled Shares

 

 

(9,519)

  -

-

9,519

-

-

Share option-based charge

 

 

-

  -

-

-

24

24

Total contributions by and

distributions to owners

 

 

(5,461)

2,075

-

 

9,519   

 

24

6,157

At 31 December 2017

 

 

1,904

2,075

(9,899)

9,519

24

3,623

 

 

Notes to the Financial Statements

For the year ended 31 December 2017

 

1. General information

Integumen Plc is a company incorporated in England and Wales. The Company is a public limited company admitted to trading on the AIM market of the London Stock Exchange since 5 April 2017. The address of the registered office is Sand Hutton Applied Innovation Campus, Sand Hutton, York, North Yorkshire, YO41 1LZ.

 

The principal activity of the Group is that of developing technologies in the skin industry. The Group has a presence in the UK, Ireland and Germany.

 

The financial statements are presented in pounds sterling, the currency of the primary economic environment in which the Group's trading companies operate. The Group comprises Integumen Plc and its subsidiary companies as set out in note 17.

 

The registered number of the Company is 10205396.

 

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied throughout the year, unless otherwise stated.

 

Basis of preparation

The consolidated financial statements of Integumen Plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. Practice is continuing to evolve on the application and interpretations of IFRS.

 

The consolidated financial statements have been prepared under the historical cost convention.

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4.

 

Interpretations and revised standards that are not yet effective and have not been early adopted by the Group

The following interpretations to existing standards have been published that are mandatory for the Group's future accounting but which the Group has not adopted early. Management has not yet fully assessed the impact of these new standards but does not believe they will have any material impact on the financial statements.

·       IFRS 9: Financial Instruments - Replace IAS 39 in its entirety (from 1 January 2018)

·       IFRS 15: Revenue from Contracts with Customers (from 1 January 2018)

·       Clarifications to IFRS 15 Revenue from Contracts with Customers (from 1 January 2017)

·       IFRS 16: Leases - Replace IAS 17 in its entirety (from 1 January 2019)

·       IAS 16 (Amendment): Property, plant and equipment - clarification of acceptable methods of depreciation (from 1 January 2016)

·       IAS 38 (Amendment): Intangible assets - clarification of acceptable methods of amortisation (from 1 January 2016)

·       IFRS 10 (Amendment): Consolidated financial statements - applying the consolidation exception (from 1 January 2016)

 

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

 

Going concern

The Directors have considered the applicability of the going concern basis in the preparation of these financial statements.

 

The financial statements have been prepared on the assumption that the company is a going concern. When assessing the foreseeable future, the directors have looked at the forecast for the next 12 months from the date of this report, expected growth in revenues, the cash at bank available and existing liabilities as at the date of approval of this report and are satisfied that the Group should be able to cover its working capital requirements.

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

The Company has conditionally agreed to acquire 9.35% of Cellulac plc in exchange for shares in Integumen. Cellulac has developed, acquired and integrated technologies to produce biodegradable plastic components for consumer packaging, natural oils and nutritional food ingredients for use in the cosmetics, nutritional food and health care sectors. The proposed acquisition will enable Integumen to enter the highly attractive bio-materials and nutritional food sector complementing its existing skin testing, R&D and personal care businesses.

 

As part of the proposed acquisition, the Company is in the process of raising £700,000 (before expenses) by way of an equity placing and subscription. While the outcome of this process is not certain, the Directors have a reasonable expectation that it will be successfully concluded in the coming weeks.

 

After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the annual report and financial statements.

 

If the Group was unable to raise further funds it would need to seek alternative finance in order to be able to remain as a going concern. The financial statements do not include the adjustments that would result if the Group is unable to continue as a going concern.

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiary and associated undertakings. Subsidiaries are all entities over which the Group has the power to govern their financial and operating policies generally accompanying a shareholding of more than fifty per cent of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

 

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

The Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in the comprehensive income with a corresponding adjustment in the carrying amount of the investment.

 

(a) Acquisition accounting

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration agreement. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.

 

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

 

Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments.

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

 (b) Reverse acquisition accounting

The acquisition of Innovenn UK Limited and its subsidiary by Integumen Plc on 17 November 2016 has been accounted using the principles of reverse acquisition accounting. Although the Group financial statements have been prepared in the name of the legal parent, Integumen Plc, they are in substance a continuation of the consolidated financial statements of the legal subsidiary, Innovenn UK Limited. The following accounting treatment has been applied in respect of the reverse accounting:

 

The assets and liabilities of the legal subsidiary, Innovenn UK Limited are recognised and measured in the Group financial statements at the pre-combination carrying amounts, without restatement of fair value. The retained earnings and other equity balances recognised in the Group financial statements reflect the retained earnings and other equity balances of Innovenn UK Limited immediately before the business combination and the results of the period from 1 January 2014 to the date of the business combination are those of Innovenn UK Limited. However, the equity structure appearing in the Group financial statements reflects the equity structure of the legal parent, Integumen Plc, including the equity instruments issued in order to affect the business combination.

 

Foreign currency translation

(a) Functional and presentational currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in sterling, which is the functional and presentational currency of the main operating entities.

 

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement within 'administrative expenses', except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

 

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentational currency as follows:

·      assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

·      income and expenses for each income statement are translated at average exchange rates; and

·      all resulting exchange differences are recognised in other comprehensive income.

 

On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.

 

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

 

Segmental reporting

Operating segments are 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 segments, has been identified as the Executive Directors who make strategic decisions.

 

Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and any provision for impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the asset and bringing the asset to its working condition for its intended use.

 

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only where it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

 

reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Any borrowing costs associated with qualifying property plant and equipment are capitalised and depreciated at the rate applicable to that asset category.

 

Depreciation on assets is calculated using the straight-line method or reducing balances method to allocate their cost to its residual values over their estimated useful lives, as follows:

 

Fixtures and fittings                                    20% - 25%

Plant and machinery                                  16% - 20%

 

The assets' residual values and useful economic lives are reviewed regularly, and adjusted if appropriate, at the end of each reporting period.

 

An asset's carrying value is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

 

Gains and losses on the disposal of assets are determined by comparing the proceeds with the carrying amount and are recognised in administration expenses in the income statement.

 

Intangible assets

Intellectual property rights

Intellectual property rights relate to patents acquired by the Group. Amortisation is calculated using the straight-line method over the expected life of 10 years and is charged to administrative expenses in the income statement.

 

Development costs

Development costs that are directly attributable to the design and testing of identifiable and unique products controlled by the group are recognised as intangible assets when the following criteria are met:

· it is technically feasible to complete the product so that it will be available for use

· management intends to complete the product and use or sell it

· there is an ability to use or sell the project

· it can be demonstrated how the products will generate probable future economic benefits

· adequate technical, financial and other resources to complete the development and to use or sell the product are available and

· the expenditure attributable to the product during its development can be reliably measured. Directly attributable costs that are capitalised as part of the product include employee costs and an appropriate portion of relevant overheads.

 

Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use.

 

Impairment of non-financial assets

Assets that have an indefinite life such as goodwill are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount.

 

The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of the money and the risks specific to the asset which the estimates of future cash flows have not been adjusted.

 

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Impairment losses recognised for cash-generating units, to which goodwill has been allocated, are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in the prior period. A reversal of an

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

 

impairment loss is recognised in the income statement immediately. If goodwill is impaired however, no reversal of the impairment is recognised in the financial statements.

 

Inventories

Inventories are stated at the lower of cost and net realisable value.  Cost is based on the first-in first-out method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.  Net realisable value is

based on estimated selling price in the ordinary course of business, less further costs expected to be incurred to completion and disposal.  Provision is made for obsolete, slow-moving or defective items where appropriate.

 

Financial assets

Classification

The Company classifies its financial assets in the loans and receivables category. The classification depends on the purpose for which the financial assets were acquired and management determines the classification of its financial assets at initial recognition.

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Company's loans and receivables comprise 'trade and other receivables' and cash and cash equivalents in the balance sheet.

 

Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade date - the date on which the Company commits to purchase the asset. Assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the risk and rewards of ownership have been transferred.

 

Loans and receivables are subsequently carried at amortised cost using the effective interest rate method.

 

Financial liabilities

Debt is measured at fair value, being net proceeds after deduction of directly attributable issue costs, with subsequent measurement at amortised cost. Debt issue costs are recognised in the income statement over the expected term of such instruments at a constant rate on the carrying amount.

 

Research and development 


Research expenditure is written off to the statement of comprehensive income in the year in which it is incurred. Development expenditure is written off in the same way unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the period during which the company is expected to benefit.

 

Trade and other receivables

Trade receivables are initially recognised at fair value, being the original invoice amount, and subsequently measured at amortised cost less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Trade receivables that are less than three months past due date are not considered impaired unless there are specific financial or commercial reasons that lead management to conclude that the customer will default. Older debts are considered to be impaired unless there is sufficient evidence to the contrary that they will be settled. The amount of the provision is the difference between the asset's carrying value and the present value of the estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within administrative expenses. When a trade receivable is uncollectible it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against administrative expenses in the income statement.

 

Cash and cash equivalents

Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of less than three months, reduced by overdrafts to the extent that there is a right of offset against other cash balances.

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above net of outstanding bank overdrafts.

 

Share capital

Ordinary Shares and Deferred shares are classified as equity. Proceeds in excess of the nominal value of shares issued are allocated to the share premium account and are also classified as equity. Incremental costs directly attributable to the issue of new Ordinary Shares or options are deducted from the share premium account.

 

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

 

Borrowings

Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

 

Borrowing costs are expensed in the consolidated Group income statement under the heading 'finance costs'. Arrangement and facility fees together with bank charges are charged to the income statement under the heading 'administrative costs'.

 

Current and deferred income tax

The tax expense comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income where the associated tax is also recognised in other comprehensive income.

 

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

Deferred tax is recognised, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in respect of all temporary differences except where the deferred tax liability arises from the initial recognition of goodwill in business combinations.

 

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will be sufficient taxable profits against which the future reversal of the underlying temporary differences can be deducted.

 

The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been substantively enacted at the balance sheet date.

 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

 

Exceptional items

These are items of an unusual or non-recurring nature incurred by the Group and include transactional costs and one-off items relating to business combinations, such as acquisition expenses.

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

Leases

Leases which transfer substantially all the risks and rewards of ownership of an asset are treated as a finance lease. Assets held under finance leases are capitalised at their fair value at the inception of the lease and depreciated over the estimated useful economic life of the asset or lease term if shorter. The finance charges are allocated to the income statement in proportion to the capital amount outstanding.

 

All other leases are classified as operating leases. Operating lease rentals are charged to the income statement in equal annual amounts over the lease term.

 

Employee benefits

Pension obligations

Group companies operate a pension scheme with defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity with the pension cost charged to the income statement as incurred. The Group has no further obligations once the contributions have been paid.

 

Revenue recognition

(a) Revenue from sale of goods

Revenue represents the fair value of consideration received or receivable for goods delivered to customers in the normal course of business, net of trade discounts and VAT

 

(b) Revenue from services to customers

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured. Revenue represents the fees and commissions, net of discounts, derived from services provided to and invoiced to customers. Revenue is recognised in the period in which the service is performed, in accordance with contractual arrangements. Income billed in advance of the performance of service is deferred and income in respect of work carried out but not billed at the period end is accrued. In these cases, revenue is recognised by reference to the stage of completion which is measured by reference to labour hours incurred to the period end as a percentage of the total estimated labour hours for the contract. Where the contract outcome cannot be measured reliably, revenue is recognised to the extent of the expenses recognised that are recoverable.

 

(c) Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.

 

(d) Royalty and licence income

Royalty and licence income is recognised on an accruals basis in accordance with the substance of the relevant agreements.

 

Dividend distribution

Dividend distributions to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Interim dividends are recognised when paid.

 

3. Financial risk management

Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (foreign exchange risk and cash flow interest rate risk), credit risk, liquidity risk, capital risk and fair value risk. The Group's overall risk management programme focuses on the unpredictability of the financial markets and seeks to minimise the potential adverse effects on the Group's financial performance. The Group does not use derivative financial instruments to hedge risk exposures.

 

Risk management is carried out by the head office finance team. It evaluates and mitigates financial risks in close co-operation with the Group's operating units. The Board provides principles for overall risk management whilst the head office finance team provides specific policy guidance for the operating units in terms of managing foreign exchange risk, credit risk and cash and liquidity management.

 

(a) Market risk

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

(i) Foreign exchange - cash flow risk

The Group's presentational currency is sterling although it operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily between Euro, USD and the GBP such that the Group's cash flows are affected by fluctuations in the rate of exchange between sterling and the aforementioned foreign currencies.

 

Management do not use derivative financial instruments to mitigate the impact of any residual foreign currency exposure not mitigated by the natural hedge within the business model. The Group does not speculate in foreign currencies and no operating Company is permitted to take unmatched positions in any foreign currency.

 

(ii) Foreign exchange - Fair value risk

Translation exposures that arise on converting the results of overseas subsidiaries are not hedged. Net assets held in foreign currencies are hedged wherever practical by matching borrowings in the same currency. The principal exchange rates used by the Group in translating overseas profits and net assets into Euro are set out in the table below.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

                                                                                   Average rate             Year end rate              Average rate                    Year end rate  
Compared to Sterling                                                         2017                            
2017                            2016                                      2016

Euro                                                                                           0.88                              0.89                              0.82                                       0.85

US Dollar                                                                                  0.78                              0.74                              0.75                                       0.81

 

(iii) Cash flow and fair value interest rate risk

The Group has assets in the form of cash and cash equivalents and limited interest-bearing liabilities which relate to long-term borrowing. Interest rates on cash and cash equivalents are currently zero whilst interest rates on bank borrowings are 4.25% over the banks Cost of Funds Rate and therefore expose the Group to fair value interest rate risk. The Group does not speculate on future changes in interest rates.

 

Where overseas acquisitions are made, it is the Group's policy to arrange any borrowings required in local currency.

 

It is the Group's policy not to trade in derivative financial instruments. The Group does not use interest rate swaps.

 

(b) Credit risk

Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances. Each local subsidiary and operating business unit is responsible for managing and analysing the credit risk for each of their new customers before standard payment and delivery terms and conditions are offered. Credit risk is managed at the operating business unit level and monitored at the Group level to ensure adherence to Group policies. If there is no independent rating, local management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored.

 

Credit risk also arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers.

 

(c) Liquidity risk

Cash flow forecasting is performed in the individual operating entities of the Group and is aggregated by Group finance. Group finance monitors cash and cash flow forecasts and it is the Group's liquidity risk management policy to maintain sufficient cash and available funding through an adequate amount of cash and cash equivalents and committed credit facilities from its bankers. Due to the dynamic nature of the underlying businesses, the head office finance team aims to maintain flexibility in funding by keeping sufficient cash and cash equivalents available to fund the requirements of the Group.

 

The Group's policy in relation to the finance of its overseas operations requires that sufficient liquid funds be maintained in each of its subsidiaries to support short and medium-term operational plans. Where necessary, short-term funding is provided by the parent Company. Typically, excess funds are placed as short-term deposits, to provide a balance between interest earnings and flexibility.

 

The table below analyses the Group's non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

                                                                                                             Less than            Between            Between       More than
                                                                             Notes                      one year    1 and 2 years    2 and 5 years             5 years           Total
                                                                                                                    £'000                  £'000                  £'000                £'000          £'000

At 31 December 2017:                         

Borrowings                                                               24                               189                     182                     327                         -             698

Trade and other payables                                     22                            1,751                           -                           -                         -          1,751

At 31 December 2016:                         

Borrowings                                                               24                               191                     182                     485                         -             858

Trade and other payables                                     22                           1,447                           -                           -                         -          1,447

 

 (d) Capital risk management

The Group's objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

 

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including "current and non-current borrowings" as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is the sum of net debt plus equity.

 

 

4. Critical accounting estimates and judgements

In the process of applying the Group's accounting policies, management has made accounting judgements in the determination of the carrying value of certain assets and liabilities. Due to the inherent uncertainty involved in making assumptions and estimates, actual outcomes will differ from those assumptions and estimates. The following judgements have the most significant effect on the amounts recognised in the financial statements.

 

(a) Business combinations

The recognition of business combinations requires the excess of the purchase price of acquisitions over the net book value of assets acquired to be allocated to the assets and liabilities of the acquired entity. The Group makes judgements and estimates in relation to the fair value allocation of the purchase price. If any unallocated portion is positive it is recognised as goodwill.

 

(b) Impairment of goodwill and cost of investments

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates as set out in note 15. In addition, the Group has also considered the impairment of the investments in the subsidiary undertakings.

 

(c) Impairment of receivables

Trade and other receivables are carried at the contractual amount due less any estimated provision for non-recovery. Provision is made based on a number of factors including the age of the receivable, previous collection experience and the financial circumstances of the counterparty.

 

 (d) Intangible assets

The Group amortises intangible assets over their estimated useful life.  The useful lives of Goodwill and Intellectual Property Rights have been estimated by the Group as stated in note 2. The Group tests annually whether there is any indication that Intangible assets have been impaired.

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

5. Segmental reporting

Management has determined the Group's operating segments based on the monthly management reports presented to the Chief Operating Decision Marker ('CODM'). The CODM is the Executive Directors and the monthly management reports are used by the Group to make strategic decisions and allocate resources. At the year-end, no separate segments are being reported by the Executive Directors. In the future, separate segments will be established as the Group's operations develop.

 

Currently the key operating performance measures used by the CODM are revenue, adjusted EBITDA and cash resources.

 

Disclosure of group revenue by geographical location is follows:

 

 

2017

2016

 

£'000

£'000

United Kingdom

5

12

Europe

187

28

United States of America

12

12

Rest of World

34

-

Total revenue

238

52

 

Revenues of £137,000 (2016: £47,000) are derived from 2 (2016: 3) customers each representing more than 10% of the group revenue.

 

 

6. Expenses - analysis by nature

 

2017

2016

 

£'000

£'000

Employee benefit expense (note 9)

734

395

Depreciation (note 16)

76

34

Amortisation (note 15)

788

85

Impairment of intangible assets (note 15)

6,740

-

Exceptional items (note 7)

335

185

Auditors remuneration - audit of the parent company and consolidation

15

11

Auditors remuneration - other services

30

-

Foreign exchange differences

91

(30)

Operating lease payments

50

50

Other expenses

834

336

Total administrative costs

9,693

1,066

 

7. Exceptional items

 

Included within administrative expenses are exceptional items as shown below:

 

 

2017

2016

 

 

£'000

£'000

Exceptional items include:

 

 

 

- Transaction costs relating to AIM listing and business acquisitions

 

335

326

- Deemed credit on reverse acquisition

 

-

(141)

Total exceptional items

 

335

185

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

8. Directors' remuneration

 

The remuneration of the directors in Integumen Plc who held office during the period ended 31 December 2017 was as follows:

 

 

2017

2016

 

£'000

£'000

Aggregate emoluments

399

158

Contribution to defined contribution pension scheme

43

16

Total directors' remuneration

442

174

 

Aggregate contributions paid or payable during the year as noted above were in respect of 2 directors (2016: 2 directors) to defined contribution schemes.

 

For the purpose of the basis of consolidation of the reverse takeover transaction, as disclosed in note 2 to the accounts, the comparative year ended 31 December 2017 includes remuneration of £58,474 paid by Integumen Ireland Limited to directors of Integumen Plc.

 

The remuneration of the directors in Integumen Plc who held office during the period from 1 January 2016 to 17 November 2016, when the reverse takeover took place and from 17 November 2016 to 31 December 2016 was as follows:

 

 

From 1 January 2016 to 17 November 2016

From 17 November 2016 to 31 December 2016

 

 

 

Total

 

£'000

£'000

£'000

Aggregate emoluments

64

38

102

Contribution to defined contribution pension scheme

8

5

14

Total directors' remuneration

72

43

116

 

 

9. Employee benefit expense

 

2017

2016

 

£'000

£'000

Wages and salaries

386

Social security costs

85

54

Pension costs

47

11

Total employee benefit expense

825

451

 

Included in staff costs is £91,000 that was capitalised during the year to intangible assets (2016: £56,000). The net employee benefit expense therefore charged to the Statement of Comprehensive Income for the year was £734,000 (2016: £395,000).

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

10. Average number of people employed

 

2017

2016

 

No

No

Average number of people (including Executive Directors) employed was:

 

 

Administration

3

2

Operations and research

6

6

Sales and marketing

1

1

Total average number of people employed

10

9

 

The total number of employees at 31 December 2017 was 9.

 

 

11. Finance income and costs

 

2017

2016

 

£'000

£'000

Interest expense:

 

 

- Bank borrowings

(46)

(12)

- Interest on finance leases

(5)

(5)

- Other interest

(20)

-

Finance costs

(71)

(17)

Finance income:

 

 

- Interest income on loan to subsidiary undertaking pre-acquisition

7

-

Finance income

7

-

Net finance income/(expense)

(64)

(17)

 

 

12. Income tax expense

 

2017

2016

Group

£'000

£'000

Current tax:

 

 

Current tax for the year

-

-

Research and development tax credit

(126)

(47)

Total current tax (credit)/charge

(126)

(47)

 

 

 

Deferred tax (note 23):

 

 

Origination and reversal of temporary differences

(815)

(1)

Total deferred tax

(815)

(1)

Income tax (credit)/charge

(941)

(48)

 

The Finance Act 2015 which was substantially enacted in 2015 included legislation to reduce the main rate of UK corporation tax to 19% from 1 April 2019 and the Finance Act 2016 which was substantially enacted in 2016 included legislation to reduce the main rate of UK Corporation tax to 17% from 1 April 2020.

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

The tax on the Group's results before tax differs from the theoretical amount that would arise using the standard tax rate applicable to the profits of the consolidated entities as follows:

 

2017

2016

 

£'000

£'000

Loss before tax

(9,581)

(1,094)

 

 

 

Tax calculated at domestic tax rates applicable to UK standard rate of tax of 19% (2016 - 20%)

(1,820)

(219)

Tax effects of:

 

 

- Impact of actual tax rates

(635)

(36)

- Expenses not deductible for tax purposes

1,220

190

- Research and development tax credit

(126)

(47)

- Losses carried forward

420

64

Tax (credit)/charge

(941)

(48)

 

There are no tax effects on the items in the statement of comprehensive income. The effect of losses is discussed in note 23.

 

 

13. Loss per share

(a) Basic                                                

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

 

2017

2016

Loss attributable to owners of the parent

£8,640,000

£1,046,000

Weighted average number of Ordinary Shares in issue

148,000,464

40,584,133

Basic loss per share

5.8p

2.6p

 

 

 (b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Details of warrants outstanding are given in note 25.

 

 

2017

2016

Weighted average number of ordinary shares used as the denominator in calculating basic

earnings per share

148,000,464

40,584,133

Adjustments for calculation of diluted earnings per share:

 

 

    Warrants

19,196,336

-

Total

167,196,800

40,584,133

Diluted loss per share

5.2p

2.6p

 

 

14. Dividends

There were no dividends paid or proposed by the Company in either year.
 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

15. Intangible fixed assets

Group

 

Development Costs and Intellectual Property Rights

£'000

Total

£'000

Cost

 

 

At 1 January 2016

549

549

On acquisition of subsidiary (note 34)

524

524

On acquisition of trade and assets (note 34)

3,260

3,260

Additions1

153

153

Exchange differences

203

203

At 31 December 2016

4,689

4,689

 

 

 

Amortisation

 

 

At 1 January 2016

39

39

Charge for the year

85

85

Exchange differences

7

7

At 31 December 2016

131

131

 

 

 

Net book value

 

 

At 31 December 2016

4,558

4,558

 

 

 

Cost

 

 

At 1 January 2017

4,689

4,689

On acquisition of subsidiary (note 34)

5,044

5,044

On acquisition of trade and assets (note 34)

-

-

Additions1

179

179

Exchange differences

(277)

(277)

At 31 December 2017

9,635

9,635

 

 

 

Amortisation

 

 

At 1 January 2017

131

131

On acquisition of subsidiary (note 34)

11

11

Charge for the year

788

788

Impairment

6,740

6,740

Exchange differences

(14)

(14)

At 31 December 2017

7,656

7,656

 

 

 

Net book value

 

 

At 31 December 2017

1,979

1,979

 

1Additions are development costs capitalised during the period

 

At 31 December 2017, the Group had intangible assets with a net book value of £8,719,000 arising from intellectual property recognised on acquisitions and development costs on certain research and development projects relating to skincare testing.

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

Management performed an impairment analysis to determine the fair value of the intangible assets.  In assessing fair value, the estimated future cash flows of each underlying business unit were discounted to their present value using a pre-tax discount rate of 11% that reflects management's current market assessments of the time value of the money and were adjusted for risks specific to each business.

The intangible asset value of £8,719,000 originates primarily from the formation of the Company following the issue of 10.7 million shares of £1 in a share for share acquisition of four businesses. While this implied a then group valuation of £10.7 million, at the time the focus was more on the relative value of each acquisition rather than the absolute aggregate value, the latter to be eventually proven by long-term business performance of the group and share price post-admission to AIM.

 

The result of the impairment analysis showed a fair value of £1,979,000 for the Company's intangible assets at 31 December 2017. As a result, the directors have decided to impair the value of the intangible assets by charging £6,740,000 to the income statement. 

 

The Company had no intangible assets.

 

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

16. Property, plant and equipment

Group

 

Fixtures and fittings

£'000

Plant and machinery

£'000

Total

£'000

Cost

 

 

 

At 1 January 2016

138

-

138

Additions

2

-

2

Exchange differences

5

-

5

At 31 December 2016

145

-

145

Amortisation

 

 

 

At 1 January 2016

21

-

21

Charge for the year

34

-

34

Exchange differences

2

-

2

At 31 December 2016

57

-

57

Net book value

 

 

 

At 31 December 2016

88

-

88

 

 

 

 

Cost

 

 

 

At 1 January 2017

145

-

145

Additions

2

-

2

On acquisition of subsidiary (note 34)

-

296

296

Exchange differences

-

11

11

At 31 December 2017

149

307

456

Amortisation

 

 

 

At 1 January 2017

57

-

57

Charge for the year

37

39

76

On acquisition of subsidiary (note 34)

-

77

77

Exchange differences

1

4

5

At 31 December 2017

95

120

215

Net book value

 

 

 

At 31 December 2017

54

187

241

 

Fixtures and fittings includes the following amounts where the group is a lessee under a finance lease (note 24):

 

2017

2016

 

£'000

£'000

Cost

92

92

Accumulated depreciation

44

26

Net book value

48

66

 

Bank borrowings as detailed in note 24 are secured with a floating charge against the assets of Innovenn UK Limited, which include the above fixtures and fittings.

 

The Company had no property, plant and equipment.

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

17. Investments in subsidiaries

 

Investments

Loan to Subsidiary

Company

2017

2017

Carrying amount:

£'000

£'000

At 1 January

4,732

2,756

Additions during the year

3,695

-

Impairment provision

(6,948)

(2,256)

End of the year

1,479

500

 

Investments in subsidiaries are recorded at cost, which is the fair value of the consideration paid, less impairments.

 

At 31 December 2017, the Group had Investments in subsidiaries with a book value of £11,183,000 arising from acquisitions.

Management performed an impairment analysis to determine the fair value of the investments in and loans to subsidiaries.  In assessing fair value, the estimated future cash flows of each investment were discounted to their present value using a pre-tax discount rate of 11% that reflects management's current market assessments of the time value of the money and were adjusted for risks specific to each investment.

The Investments in subsidiaries of £11,183,000 originates primarily from the formation of the Company following the issue of 10.7 million shares of £1 in a share for share acquisition of four businesses. While this implied a then group valuation of £10.7 million, at the time the focus was more on the relative value of each acquisition rather than the absolute aggregate value, the latter to be eventually proven by long-term business performance of the group and share price post-admission to AIM.

The result of the impairment analysis showed a fair value of £1,979,000 for the Company's Investments in subsidiaries at 31 December 2017. As a result, the directors have decided to impair the value of the Investments in subsidiaries by charging £9,204,000 to the income statement.

The subsidiaries of Integumen Plc are as follows:

                               

Name of Company                                                          Proportion Held     Class of Shareholding    Country of Incorporation

Innovenn UK Limited                                                               100% (direct)          Ordinary                      United Kingdom

Integumen Ireland Limited                                                     100% (indirect)      Ordinary                      Ireland

Lifesciencehub UK Limited                                                     100% (direct)          Ordinary                      United Kingdom

Lifesciencehub Ireland Limited                                             100% (indirect)      Ordinary                      Ireland

Integumen Inc.                                                                          100% (indirect)      Ordinary                      United States of America

Visible Youth Limited                                                              100% (direct)          Ordinary                      United Kingdom

Visible Youth Ireland Limited                                                100% (indirect)      Ordinary                      Ireland

TSpro GmbH                                                                              100% (direct)          Ordinary                      Germany

Stoer Ireland Limited                                                               100% (direct)          Ordinary                      Ireland

 

 

All the subsidiaries are included in the consolidation. The proportions of voting shares held by the parent Company do not differ from the proportion of Ordinary Shares held.

 

The loan to Integumen Inc. arises on the acquisition of the trade, assets and certain liabilities of Enhance Skin Products Inc. in exchange for the issue of shares of the Company.

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

18. Financial instruments by category

(a) Assets

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

31 December

 

 

 

 

Assets as per balance sheet

 

 

 

 

Trade and other receivables excluding prepayments and corporation tax

75

296

1,889

339

Cash and cash equivalents

40

30

33

-

Total

115

326

1,922

339

 

(b) Liabilities

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

31 December

 

 

 

 

Liabilities as per balance sheet

 

 

 

 

Borrowings

698

858

-

-

Trade and other payables

1,751

1,447

309

462

Total

2,449

2,305

309

462

 

Liabilities in the analysis above are all categorised as 'other financial liabilities at amortised cost' for the Group and Company.

 

 (c) Credit quality of financial assets

The Group is exposed to credit risk from its operating activities (primarily for trade receivables and other receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

 

The Group's maximum exposure to credit risk, due to the failure of counter parties to perform their obligations as at 31 December 2016, in relation to each class of recognised financial assets, is the carrying amount of those assets as indicated in the accompanying balance sheets.

 

Trade receivables

The credit quality of trade receivables that are neither past due date nor impaired have been assessed based on historical information about the counterparty default rate. The Group does not hold any other receivable balances with customers, whose past default has resulted in the non-recovery of the receivables balances.

 

Cash at bank

The credit quality of cash has been assessed by reference to external credit ratings, based on reputable credit agencies' long-term issuer ratings:

 

2017

2016

 Rating

£'000

£'000

A - AAA

40

30

Total

40

30

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

19. Inventories

 

Group

Group

 

2017

2016

 

£'000

£'000

Raw materials and finished goods

174

11

Inventory

174

11

 

There are no inventories in the Company. The Directors consider that the carrying amount of inventory approximates to their fair value.

 

 

20. Trade and other receivables

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

Trade receivables

18

9

-

-

Less: provision for impairment of trade receivables

-

-

-

-

Trade receivables - net

18

9

-

-

Prepayments and accrued income

65

13

31

-

Amounts owed by subsidiary undertakings

-

-

1,854

339

Taxation

42

40

20

-

Other receivables

15

247

15

-

 

140

309

1,920

339

 

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

 

Other receivables in 2016 include £247,000 due from TSpro GmbH, a company acquired by the Company on 24 March 2017.             

 

The carrying amounts of the Group's trade and other receivables denominated in foreign currencies were as follows:

 

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

Sterling

98

53

1,472

339

Euro

41

256

448

-

 

140

309

1,920

339

 

21. Cash and cash equivalents

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

Cash at bank and on hand

40

30

33

-

Cash and cash equivalents (excluding bank overdrafts)

40

30

33

-

 

The Group's cash and cash equivalents are held in non-interest-bearing accounts. The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

22. Trade and other payables

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£

£

£

£

Bank overdraft

85

-

-

-

Trade payables

249

155

116

-

Amounts due to group companies (note 29)

-

-

20

153

Amounts due to connected parties (note 29)

610

311

-

-

Social security and other taxes

42

48

6

-

Accrued expenses and deferred income

262

933

167

309

Other creditors

503

-

-

-

 

1,751

1,447

 309

 462

 

 

23. Deferred income tax

 

Deferred tax liabilities

Deferred tax balances were as follows:

Group

Group

 

2017

2016

 

£'000

£'000

Deferred tax liability to be recovered after more than one year

212

93

Deferred tax liability to be recovered within one year

26

10

 

238

103

 

 

 

Deferred tax liabilities were made up as follows:

 

 

Accelerated tax depreciation

238

103

 

238

103

 

The movement on the deferred tax income tax account is as follows:

Group

Group

 

2017

2016

 

£'000

£'000

At 1 January

103

-

On acquisition of subsidiary

950

104

Income statement movement (note 12)

(815)

(1)

 

238

103

 

 

 

There were no deferred tax liabilities in the Company

 

Deferred tax assets

Deferred income tax assets are recognised to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognise deferred income tax assets of approximately £782,000 (2016: £491,000) mainly in respect of tax losses amounting to approximately £3,865,000 (2016: £2,103,000) that can be carried forward against future taxable income. An average tax rate of 20% has been used.

 

There was no deferred tax asset recognised for the Company.

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

24. Borrowings

 

Group

Group

 

2017

2016

 

£'000

£'000

Non-current

 

 

Bank borrowings

509

653

Finance leases

-

14

 

509

667

 

 

 

Current

 

 

Bank borrowings

175

167

Finance leases

14

24

 

189

191

 

The Company has no borrowings.

 

The maturity profile of bank borrowings was as follows:

 

Group

Group

 

2017

2016

 

£'000

£'000

Amounts falling due

 

 

Within 1 year

175

167

Between 1 and 2 years

182

168

Between 2 and 5 years

327

485

Total bank borrowings

684

820

 

 

Bank borrowings

Bank borrowings mature in 2021 and bear a fixed coupon of 4.33% annually over the bank's cost of funds.

 

Bank borrowings are secured with a floating charge against the assets of Innovenn UK Limited. Venn Life Sciences Holdings plc has also provided guarantees against those bank borrowings.

 

The Company has been compliant with its banking covenants throughout the year.

 

The bank borrowings are repayable by monthly instalments. The Company is not exposed to interest rate changes or contractual re-pricing dates at the end of the reporting period, as the borrowings are fixed in nature.

 

The fair value of both current and non-current borrowings equals their carrying amount, as the impact of discounting is not significant.

 

The Group's bank borrowings are denominated in Euro.

 

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

Finance leases

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

 

 

 

 

 

 

2017

 

2016

 

 

 

 

 

£'000

 

£'000

Gross finance lease liabilities - minimum payments

 

 

 

 

No later than 1 year

 

 

 

 

17

 

30

Later than 1 and no later than 5 years

 

 

 

0

 

17

 

 

 

 

 

17

 

47

Future finance charges on finance leases

 

 

 

(3)

 

(9)

Present value of finance lease liabilities

 

 

 

14

 

38

 

 

 

 

 

 

 

 

Present value of finance lease liabilities is as follows:

 

 

 

 

No later than 1 year

 

 

 

 

14

 

24

Later than 1 and no later than 5 years

 

 

 

-

 

14

 

 

 

 

 

14

 

38

 

 

25. Share capital

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

190,351,899 (2016: 7,365,324) Ordinary shares of £0.01 (2016: £1)

 

1,904

7,365

1,904

7,365

Total

1,904

7,365

1,904

7,365

 

 

During the year, the following ordinary shares were issued:

 

-       On 24 March 2017, the Company issued 3,354,325 ordinary shares of £1 to acquire the shares in TSpro GmbH. 


 

-       On 24 March 2017, the Company issued 16 ordinary shares of £1 to certain shareholders of the company.

 

-       On 24 March 2017, each ordinary existing share of £1 was sub-divided into one deferred share of 84.32p and one ordinary share of 15.68p. Each ordinary share of 15.68p was then subdivided into 56 ordinary shares of 1.4p each for every 5 in issue, and all of the deferred shares were cancelled and extinguished. Each ordinary share of 1.4p was then sub-divided into 1 ordinary share of 1p each and 1 deferred share of 0.4p, and all of the deferred shares were cancelled and extinguished. As a result, the Company had an issued share capital of 120,060,248 ordinary shares of 1p each

 

-       On 29 March 2017, the Company was re-registered as a public limited company.

 

-       On 5 April 2017, the Company's ordinary shares of 1p each were admitted to trading on the AIM market of London Stock Exchange plc with ISIN number GB00BYWJ6269. On Admission:

the Company issued 45,000,000 ordinary shares of 1p each at a placing price of 5p per ordinary share raising a total of £2.25 million.

the Company granted warrants over 22,500,000 ordinary shares of 1p to subscribers in the Placing which are exercisable at 7.5p per ordinary share of 1p at any time during the two years from Admission.

the Company granted warrants over 1,800,000 ordinary shares of 1p each to Turner Pope Investments (TPI) Ltd which are exercisable at 6.25p per ordinary share of 1p at any time during the five years from Admission.

the Company granted warrants over 1,650,602 ordinary shares of 1p each to SPARK Advisory Partners Limited which are exercisable at 5p per ordinary share of 1p at any time during the five years from Admission.

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

Furthermore,

-       On 11 April 2017, the Company issued 800,000 ordinary shares of 1p each at a placing price of 5p per ordinary share

 

-       On 22 November 2017, the Company issued 20,818,182 ordinary shares of 1p each at a placing price of 2.45p per ordinary share to acquire the shares in Stoer Ireland Ltd. 


 

-       On 22 November 2017, the Company issued 3,673,469 ordinary shares of 1p each at a placing price of 2.45p per ordinary share.

As at 31 December 2017, the Company had an issued share capital of 190,351,899 ordinary shares of 1p each.

 

In the prior year, the following ordinary shares were issued:

 

-       On 28 May 2016, the Company issued two ordinary shares of £1 each at par.

 

-       On 21 October 2016, the Company issued 401,338 ordinary shares of £1 each to acquire the shares in Lifesciencehub UK Limited.

 

-       On 17 November 2016, the Company issued 4,061,570 ordinary shares of £1 each to acquire the shares in Innovenn UK Limited.

 

-       On 2 December 2016, the Company issued 2,632,868 ordinary shares of £1 each to enable its subsidiary company, Integumen Inc., to acquire the trade, assets and certain liabilities of Enhance Skin Products, Inc.

 

-       On 7 December 2016, the Company issued a further 269,546 ordinary shares of £1 each as further consideration for the acquisition of shares in Innovenn UK Limited.

 

As at 31 December 2016, the Company had an issued share capital of 7,365,324 ordinary shares of £ each.

 

26. Retained earnings

 

 

Group

Company

 

£'000

£'000

At 1 January 2016

(867)

-

Loss for the year

(1,046)

-

At 31 December 2016

(1,913)

-

At 1 January 2017

(1,913)

-

Loss for the year

(8,640)

(9,899)

At 31 December 2017

(10,553)

(9,899)

 

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

27. Other reserves

Group

 

 

Share premium

Foreign currency reserve

Reverse acquisition reserve

Capital

Redemption

reserve

Share based equity reserve

 

 

£'000

£'000

£'000

£'000

£'000

At 1 January 2016

 

746

-

-

-

-

Issue of ordinary shares (note 25)

 

1,144

-

-

-

-

 

(1,890)

-

(2,843)

-

-

 

-

(21)

-

-

-

At 31 December 2016

 

-

(21)

(2,843)

-

-

At 1 January 2017

 

-

(21)

(2,843)

-

-

 

2,187

-

-

-

-

 

(112)

-

-

-

-

 

-

(218)

-

-

-

 

-

-

-

9,519

-

 

-

-

-

-

24

At 31 December 2017

 

2,075

(239)

(2,843)

9,519

24

               

 

The reverse acquisition reserve arose as result of the reverse acquisition of Innovenn UK Limited and its subsidiary by Integumen Plc.

 

Currency translation differences arose from the translation of the net investment in foreign subsidiaries.

 

Company

 

 

 

Share premium

Capital

Redemption

reserve

Share based equity reserve

 

 

 

£'000

£'000

£'000

At 1 January 2016

 

 

-

-

-

At 31 December 2016

 

 

-

-

-

At 1 January 2017

 

 

-

-

-

Issue of ordinary shares (note 25)

 

 

2,187

-

-

Costs of Share issue

 

 

(112)

-

-

Cancelled Deferred Shares (note 25)

 

 

-

9,519

-

Share option-based charge (note 33)

 

 

-

-

24

At 31 December 2017

 

 

2,075

9,519

24

             

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

28. Cash used in operations

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

Loss before income tax

(8,640)

(1,046)

(9,899)

-

Adjustments for:

 

 

 

 

- Depreciation and amortisation

7,604

119

-

-

- Foreign currency translation of net assets

38

(54)

-

-

- Impairment of investments

-

-

9,204

-

- Exceptional Item on reverse acquisition accounting

-

(141)

-

-

- Net finance costs

64

17

(5)

-

- Taxation

(941)

(48)

-

-

- Share option-based charge

24

-

24

-

Changes in working capital

 

 

 

 

- Inventories

2

(3)

-

-

- Trade and other receivables

(73)

(5)

(1,581)

(339)

- Trade and other payables

(47)

185

16

462

Net cash (used in)/generated from operations

(1,969)

(976)

(2,241)

123

 

 

29. Related Party Disclosures

 

Amounts due to connected parties

 

Group

Group

Company

Company

 

2017

2016

2017

2016

 

£'000

£'000

£'000

£'000

Charles Service's estate

13

13

-

-

Coolford Limited

33

33

-

-

Venn Life Sciences Holdings plc and subsidiaries

421

265

-

-

MediNova AG

38

-

-

-

Mercuriali Limited

105

-

-

-

 

610

311

-

-

 

Charles Service was related to Declan Service. Declan Service is a shareholder and was a director of the Company during the year.

Tony Richardson is a director of Coolford Limited, a company registered in the Republic of Ireland.

Tony Richardson is a director of Venn Life Sciences Holdings plc. Venn Life Sciences Limited, a subsidiary of Venn Life Sciences Holdings plc, is a shareholder in the Company.

During the year, Venn Life Sciences Holdings plc and its subsidiaries charged management charges of £6,000 (2016: £91,000) to Innovenn UK Limited.

During the year, MediNova AG charged management charges of £237,000 to TSpro GmbH. MediNova AG is a shareholder in the Company.

During the year, Mercuriali Limited charged management charges of £100,000 to Integumen Inc.. Donald Nicholson, a director in the Company, is the owner of Mercuriali Limited.

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

The Company

 

Amounts due from group companies

 

                                                                                                                      Company                  Company

 

                                     2017                           2016

 

                                    £'000                         £'000

Innovenn UK Limited

                                     909                                233

Lifesciencehub UK Limited

                                     156                                106

TSpro GmbH

                                     448                                106

Integumen Inc.

                                             341                                     -

 

                                                                                                           1,854                                339

     

 

Amounts due to group companies

 

                              Company                  Company

 

                                     2017                           2016

 

                                    £'000                         £'000

Integumen Ireland Limited

                                                                               20                             153

 

                                     20                             153

     

 

 

During the year, the Company charged management charges of £212,000 (2016: £424,000) to Innovenn UK Limited and £50,000 (2016: £106,000) to Lifesciencehub UK Limited.

 

During the year, the Company was recharged costs by Innovenn Limited of £397,000 (2016: £153,000) and by Innovenn UK Limited of £Nil (2016: £67,000).

 

 

30. Capital commitments

The Group had no capital commitments at 31 December 2017.

 

 

31.  Financial commitments

 

Operating Leases

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

 

Group

 

Minimum Operating Lease Payments

 

 

 

2017        

£'000

2016

£'000

Within one year

 

 

50

50

Between 1 and 2 years

 

 

25

50

Within second to fifth year inclusive

 

 

-

25

 

 

 

75

125

 

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

33. Share options

 

On 5 April 2017, the Company awarded options to key management over 6,720,000 ordinary shares of 1p each. The options are exercisable after two years provided that the holder of the options is still an employee of the Company. Of these, 3,360,000 have an exercise price of 5p and 3,360,000 have an exercise price of 6p each. 


 

Number of outstanding options at 31 December 2017:

Director

Date granted

No. of ordinary shares under option

Exercise
price

Exercise period

Tony Richardson

5 April 2017

963,200

5p-6p

From 5 April 2017 to 5 April 2027

Declan Service

5 April 2017

2,240,000

5p-6p

From 5 April 2017 to 5 April 2027

Chris Bell

5 April 2017

2,240,000

5p-6p

From 5 April 2017 to 5 April 2027

Ross Andrews

5 April 2017

638,400

5p-6p

From 5 April 2017 to 5 April 2027

Paul Kennedy

5 April 2017

638,400

5p-6p

From 5 April 2017 to 5 April 2027

 

 

The estimated fair value of the options issued during the year was calculated by applying the Black-Scholes option pricing model. The assumptions used in the calculation were as follows:

 

Date options granted

5 April 2017

5 April 2017

Options is issue 31 December 2016

3,360,000

3,360,000

Exercise price

5p

6p

Expected volatility

40%

40%

Expected dividend

0%

0%

Expected life of options

3 years

3 years

Risk free rate

1.25%

1.25%

Estimate fair value of each option

1.11p

0.84p

 

Charge for the year was £24,000 (2016: Nil)

 

 

 

34. Business combinations

 

On 24 March 2017, 3,354,325 fully paid ordinary shares of £1 each were issued by the Company as consideration for the acquisition of 100% of the share capital of TSpro GmbH.

On 22 November 2017, 20,818,182 fully paid ordinary shares of £0.01 each were issued by the Company as consideration for the acquisition of 100% of the share capital of Stoer Ireland Limited.

The Company's strategy is to acquire unique, complementary and undervalued brands at an early stage of commercialisation.  The acquisition of TSpro GmbH enables the Company to enter the oral hygiene market while the acquisition of Stoer Ireland Limited enables the Company to enter the large and growing male grooming market. Management believes that the acquisitions should provide significant economies of scale as the Company builds its infrastructure.

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

The following table summarises the consideration paid, and the amounts of the assets acquired, and liabilities assumed at the acquisition date of TSpro GmbH and Stoer Ireland Limited:

 

TSPro

GmbH

£'000

Stoer

Ireland Ltd

£'000

Fair value consideration

 

 

Deemed consideration of acquisition of share capital

3,185

510

Deemed consideration of acquisition of loans

169

-

Total fair value consideration

3,354

510

Recognised amounts of identifiable assets acquired, and liabilities assumed

 

 

Intellectual Property (note 15)

4,601

432

Plant, Property and Equipment

219

-

Trade and other receivables

11

-

Inventory

5

160

Trade and other payables

(122)

-

Bank overdraft

(63)

-

Amounts due to Group Companies

(255)

-

Other creditors

(174)

-

Deferred tax liabilities (note 23)

(868)

(82)

Total fair value of identifiable net assets

3,354

510

Excess of net assets over consideration

-

-

 

The book value of the assets acquired is the same as their fair value other than Intellectual Property, the value of which was ascribed on acquisition

The fair value of acquired trade receivables is £11,000. The gross contractual amount for trade receivables due is £11,000, all of which is expected to be collectible.

TSpro GmbH contributed revenues of £145,000 and net losses of £252,000 to the Group for the period from 24 March to 31 December 2017. If the acquisition had occurred on 1 January 2017, consolidated pro-forma revenue and losses for the year ended 31 December 2017 would have been £278,000 and £10,323,000 respectively

 

Stoer Ireland Ltd contributed revenues of £2,000 and net losses of £29,000 to the Group for the period from 22 November to 31 December 2017. As Stoer Ireland Ltd was a newly-formed entity, if the acquisition had occurred on 1 January 2017, consolidated pro-forma revenue and losses for the year ended 31 December 2017 would have been the same as reported in the Group's Consolidated Statement of Comprehensive Income.

 

Prior-year Business combinations

On 21 October 2016, 401,338 fully paid ordinary shares of £1 each were issued by the Company as consideration for the acquisition of Lifesciencehub UK Limited. 


On 17 November 2016, 4,061,570 fully paid ordinary shares of £1 each were issued by the Company as initial consideration for the acquisition of Innovenn UK Limited. On 7 December 2016, 269,546 fully paid shares ordinary shares of £1 each were issued by the Company as further consideration for the acquisition of Innovenn UK Limited. The total number of shares issued as consideration for the acquisition of Innovenn UK Limited was 4,331,116. The acquisition of Innovenn UK Limited by Integumen Plc has been accounted as reversal acquisition accounting.

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

On 2 December 2016, the Company issued 2,632,868 ordinary shares of £1 each to enable its subsidiary company, Integumen Inc., to acquire the trade, assets and certain liabilities of Enhance Skin Products, Inc. The assets included Intellectual Property Rights of £3,259,632. The acquired liabilities amounted to £549,674.

 

The following table summarises the consideration paid, the amounts of the assets acquired and liabilities assumed at the acquisition date of reversal acquisition of Integumen Plc and Lifesciencehub UK Limited by Innovenn UK Limited:

 

Integumen Plc and Lifesciencehub UK

£'000

Enhance Skin Products, Inc.

£'000

Fair value consideration

 

 

Deemed consideration of acquisition

400

2,633

Cash consideration

-

77

Total fair value consideration

400

2,709

Recognised amounts of identifiable assets acquired, and liabilities assumed

 

 

Intellectual Property (note 15)

524

3,260

Trade and other receivables

576

-

Trade and other payables

(454)

(550)

Deferred tax liabilities (note 23)

(105)

-

Total fair value of identifiable net assets

541

2,710

Excess of net assets over consideration

141

-

 

The book value of the assets acquired is the same as their fair value other than Intellectual Property, the value of which was ascribed on acquisition

The excess consideration over identifiable net assets have been written to the Consolidated Statement of Comprehensive Income as deemed reverse acquisition costs.

 

Company

 The following table summarises the consideration paid, and the amounts of the assets acquired and liabilities assumed at the acquisition date of the acquisition of Lifesciencehub UK Limited by Integumen Plc:

 

Total

£'000

Fair value consideration

 

Consideration of acquisition Lifesciencehub UK Limited

401

Total fair value consideration

401

Recognised amounts of identifiable assets acquired, and liabilities assumed

 

Intellectual Property (note 15)

524

Trade and other payables

(123)

Total fair value of identifiable net assets

401

Excess of net assets over consideration

-

 

The book value of the assets acquired is the same as their fair value other than Intellectual Property, the value of which was ascribed on acquisition

 

 

 

Notes to the Financial Statements (continued)

For the year ended 31 December 2017

 

35. Ultimate controlling party

 

There is no one controlling party.

 

 

36. Post balance sheet events

 

The following events have taken place since the year end:

 

On 5 January 2018:

-       the Company issued 33,333,333 ordinary shares of 1p each at a placing price of 1.5p per ordinary share raising a total of £500,000.

-       the Company granted warrants over 33,333,333 ordinary shares of 1p to subscribers in the Placing which are exercisable at 1.5p per ordinary share of 1p at any time during the five years from Admission.

-       the Company granted warrants over 1,000,000 ordinary shares of 1p each to Hybridan LLP which are exercisable at 1.5p per ordinary share of 1p at any time during the five years from Admission.

-       the Company granted warrants over 300,000 ordinary shares of 1p each to Turner Pope Investments (TPI) Ltd which are exercisable at 1.5p per ordinary share of 1p at any time during the five years from Admission.

 

On 16 April 2018, the Company announced that it had conditionally agreed to acquire Cellulac plc in an all share transaction as further detailed in Note 2. Trading on AIM for the Company's shares was temporarily suspended from that date, pending an announcement and publication of an admission document in relation to the acquisition.

 

 

 

 

 


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