AIM share code: SKIN

15 June 2020

Integumen PLC

("Integumen" or "Company")

FINAL RESULTS

Transformational year with continued strong growth as business expands

Integumen today announces its final results for the year ended 31 December 2019.

Ross Andrews, Chairman of Integumen, said:

"This has been another transformational year for Integumen. Building on an already successful business model, better than expected sales growth from higher revenues per client, lower management overhead from disposal of non-performing assets, and expansion into new areas requiring an increase of both employees and capacity, have set the business on a strong footing for 2020.

COVID19 presented challenges but also major opportunities for Integumen. The initial difficulties that the Board had assumed would occur for Labskin business, as many clients went into furlough, have not materialised. Instead, we have seen significant growth of new business opportunities from our real-time water contamination detection and environment sector solutions, contributing to increased demand with additional staff recruited over the lock-down period. The outcome has resulted in an increase of new and core business from Labskin clients as they emerge from furlough.

The current level of pipeline activity continues to expand. Having integrated the data analytics and AI systems into the Labskin AI eco-system, by year-end the Board provided guidance for 2020 revenues of £4m. Orders of £2m have already been received and the Board remains confident that the business will continue to flourish as demand grows and as we expand our offering across multiple, but related, sectors."

Highlights:

·     Total 2019 revenue £1.017m including pre-acquisition Rinocloud revenue, increase of 342% from 2018 £297k revenue;

·     Consolidated group revenue £823k (2018 restated: £274k - discontinued operations);

·     EBITDA losses before exceptional items reduced by 7% to £1.055m (2018 restated: £1.128m);

·     Administration costs increased to £2.973m (2018 restated £1.629m) with Rinocloud and Labskin expansion;

·     Operating loss of £2.371m (2018 restated: £1.481m) after providing for:

o  Depreciation of £101k (2018 restated: £22k);

o  Amortisation of £442k (2018 restated: £87k);

o  Impairment of intangible asset £241k (2018 restated: £nil);

o  Exceptional costs of £532k (2018 restated: £244k) were one-off transaction costs relating to disposal and acquisition activities; 

·     Transformational £3m all-share Acquisition of Rinocloud Limited enabling scale-up of the business from a physical laboratory to an automated, real-time, real-world digital data platform;

·     May 2019: Successful fundraising of £2.75m (gross), of which;

o  £232k was Vendor sale to allow 100% of Rinocloud to be acquired;

·     Disposal of Visible Youth Group - saving £245k of future contractual liabilities;

·     Debt conversions - Open Orphan £421k carried over since April 2017 IPO;

·     Cellulac debt conversion - £400k for hi-tech laboratory equipment;

·     Litigation issues settled - saving £250k of future liabilities;

·     Dec 2019: Successful fundraising of £1.368m (gross) to maintain pace of growth into 2020.

Post Year-End Events in 2020:

·     January: Cooperative alliance agreement with Innocare Group, Shanghai, China;

·     February: First RAWTest commercial agreement and AI partnership with Acumen Software of South Africa;

·     February: Launch of ecowaterOS consortium for real-time water monitoring, recovery, treatment and recycling;

·     March: 3 year, $3.75m (£3.12m) bacteria production agreement with Modern Water plc;

·     March: Labskin expand York UK Laboratories by 100% to meet increased demand;

·     March: Production commenced of bacteria to detect water contamination amid COVID-19 public health crisis;

·     March: c£2m confirmed orders in Q1, 2020 leading to new investment of £250,000 to ramp-up production;

·     May: Double production of Modern Water reagent bacteria to meet increased demand;

·     May: RAWTest AI real-time alert system to be retrofitted in new Modern Water's Microtox units;

·     June: Labskin partners with University of Aberdeen to test COVID19 anti-viral skin and dental products.

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Dear Fellow Shareholder,

I was appointed as Chairman on 21 May 2019 and have pleasure presenting the Company's report and results for the year ended 31 December 2019.

Our Business

Integumen Plc ("Integumen", "Group" or "the Company") was incorporated and registered in England and Wales on 28 May 2016 and was admitted to trading on the AIM market of London Stock Exchange plc on 5 April 2017. Integumen has completed a strategic acquisition and disposed of non-performing assets over the last 12 months. The addition of a digital artificial intelligence platform has transformed, what was already a new business model for Labskin into a multiple revenue stream physical and digital Labskin AI combination. This cloud-based eco-system validates skincare products and ingredients, remotely for clients, and has been the focus of the strategic change in the Company business model leading to multi-year, framework agreements with many global Top 10 skincare and healthcare companies. 

Labskin is a physical laboratory-grown 3D human skin equivalent, developed specifically to host bacteria, virus and fungi on human skin in our test laboratories, incorporates a digital artificial intelligence to enhance clinical research, medical device and life science testing in physical real-world and virtual digital simulated form. Our services allow clients in skincare, healthcare, pharmaceutical manufacturers and the cosmetic industry to test and validate their product claims on human-like skin in a real-world environment with full access to multiple state-of-the-art partner technologies.

Results

This has been another transformational year for Integumen attributable to enhancing an already successful business model, better than expected growth in sales from higher revenues per client, lower management overhead from disposal of non-performing assets, increased employees in the core Labskin subsidiary laboratories and employees from our new data analytics subsidiary Rinocloud.

The 2018 comparatives have been restated for the discontinued activities. 

Highlights:

·     Total 2019 revenue £1.017m including pre-acquisition Rinocloud revenue, increase of 342% from 2018 £297k revenue;

·     Consolidated group revenue £823k (2018 restated: £274k);

·     EBITDA losses before exceptional items reduced by 7% to £1.055m (2018 restated: £1.128m);

·     Administration costs increased to £2.973m (2018 restated £1.629m) with Rinocloud and Labskin expansion;

·     Operating loss of £2.371m (2018 restated: £1.481m) after providing for:

o  Depreciation of £101k (2018 restated: £22k);

o  Amortisation of £442k (2018 restated: £87k);

o  Impairment of intangible asset £241k (2018 restated: £nil);

o  Exceptional costs of £532k (2018 restated: £244k) were one-off transaction costs relating to disposal and acquisition activities; 

·     Transformational £3m all-share Acquisition of Rinocloud Limited enabling scale-up of the business from a physical laboratory to an automated, real-time, real-world digital data platform;

·     May 2019: Successful fundraising of £2.75m (gross), of which;

o  £232k was Vendor sale to allow 100% of Rinocloud to be acquired;

·     Disposal of Visible Youth Group - saving £245k of future contractual liabilities;

·     Debt conversions - Open Orphan £421k carried over since April 2017 IPO;

·     Cellulac debt conversion - £400k for hi-tech laboratory equipment;

·     Litigation issues settled - saving £250k of future liabilities;

·     Dec 2019: Successful fundraising of £1.368m (gross) to maintain pace of growth into 2020.

Post Year-End Events:

·     January: Cooperative alliance agreement with Innocare Group, Shanghai, China;

·     February: First RAWTest commercial agreement and AI partnership with Acumen Software of South Africa;

·     February: Launch of ecowaterOS consortium for real-time water monitoring, recovery, treatment and recycling;

·     March: 3 year, $3.75m (£3.12m) bacteria production agreement with Modern Water plc;

·     March: Labskin expand York UK Laboratories by 100% to meet increased demand;

·     March: Production commenced of bacteria to detect water contamination amid COVID-19 public health crisis;

·     March: c£2m confirmed orders in Q1, 2020 leading to new investment of £250,000 to ramp-up production;

·     May: Double production of Modern Water reagent bacteria to meet increased demand;

·     May: RAWTest AI real-time alert system to be retrofitted in new Modern Water's Microtox units;

·     June: Labskin partners with University of Aberdeen to test COVID19 anti-viral skin and dental products.

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

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

This has been another transformational year for Integumen. Building on an already successful business model, better than expected sales growth from higher revenues per client, lower management overhead from disposal of non-performing assets, and expansion into new areas requiring an increase of both employees and capacity, have set the business on a strong footing for 2020.

COVID19 presented challenges but also major opportunities for Integumen. The initial difficulties that the Board had assumed would occur for Labskin business, as many clients went into furlough, have not materialised. Instead, we have seen significant growth of new business opportunities from our real-time water contamination detection and environment sector solutions, contributing to increased demand with additional staff recruited over the lock-down period. The outcome has resulted in an increase of new and core business from Labskin clients as they emerge from furlough.

The current level of pipeline activity continues to expand. Having integrated the data analytics and AI systems into the Labskin AI eco-system, by year-end the Board provided guidance for 2020 revenues of £4m. Orders of £2m have already been received and the Board remains confident that the business will continue to flourish as demand grows and as we expand our offering across multiple, but related, sectors.

Ross Andrews

Chairman

12 June 2020

Dear Fellow Shareholder,

I present the Company's results for the year ended 31 December 2019.

Integumen

We are a group of life science companies with individual domain expertise and synergies to leverage product and business development. Our focus is in the cosmetics, personal healthcare and environmental sectors with many Top 10 blue chips clients. Our domain expertise is in the areas of microbiology, AI and software.  We have a 12-year track record on working with bacteria, fungi and viruses. Our research and testing turns data (on skin microbiome, on data from E.Coli, nutrients and phosphates) monitoring into predictive insights with state of the art AI models that we've been developing and fine tuning over the past 4 years. With the expansion of the management team in 2019, our worldwide reach from research and development projects to commercialisation and building worldwide distribution is rapidly scaling the Integumen business.

Our core services

·      Regulated environmental toxicology services;

·      Human skin equivalent platform to validate and verify the safety and impact on client products for regulatory authority approval;

·      AI and microbiome platform to facilitate clinical testing of pharmacological effects;

·      Monitoring platform for pathogens in water and wastewater.

2019 and post-year-end highlights

·      Breakthrough research potential with access to SARS-CoV-2 in Containment Level 3 laboratory to research transmissibility of COVID19 to and from skin and to identify COVID-19 real time in wastewater;

·      Blue-Chip (US and EU) client agreements signed for R&D services on household name soap, cosmetic brands and personal healthcare products;

·      State of the art microbiology labs in York, UK;

·      New offices and digital hub for IT, AI infrastructure support and global sales;

·      External development facility with world renowned research partners;

·      Continuous investment in premises, staff, product development and sales and marketing;

·      Labskin models for healthy, immature, diseased, ethnic, skin;

·      Virtual clinical trials with cloning to open up CRO distribution market;

·      Toxicity testing for chemicals;

·      Producing Reagents - bacteria, chemical and trace metals;

·      AI models to replicate physical testing; and

·      AI modelling for toxicity testing models to monitor/analyse/predict water/environmental conditions.

Labskin (Innovenn)

Labskin is a human skin equivalent, made from the same primary human cells but grown to a defined specification in a laboratory. Advantages include the fact that cells are still growing and dividing and is well controlled in the lab environment unlike human volunteers who tend to complain about punch biopsies. It is also based on human cells unlike animal tests and is, of course, ethical. The core benefit for clients is that Labskin provides them a platform for testing new and existing skincare products on a human skin which was specifically designed to mimic the real-world environment of bacteria, virus and other toxins on the skins surface (Microbiome).

Prior to 2019, the Labskin business unit moved away from selling single animal-free laboratory grown HSE test kits, to a fully-fledged service provider for skincare, healthcare, personal-hygiene, pharmaceutical manufacturers, and the cosmetic industry companies. Revenues for the Group increased 371% with contracts for Labskin clinical services reaching up to 25 times the average price of selling single test kits. By the last quarter of 2019, the addition of artificial intelligence for the Labskin test model along with additional senior sales management and new sales and science team members had opened an expansion program that doubled the size of our laboratories to 3,000 square feet by November. Many global Top 10 skincare companies have recently become our clients.

Rinocloud 

On 2 May 2019, the Company acquired 100% of Rinocloud Ltd in an all share transaction for £3,000,000, The purchase consideration was paid by the Company by issuing 214,285,714 ordinary shares of 0.01p each at a price of 1.4p per share. Rinocloud Ltd is a company registered in Ireland providing specialised data management services to a global scientific and lab testing sector. Following the acquisition, Fionan Murray, became a director of the Company.

Rinocloud is an artificial intelligent software and digital automation company added the ability to extract and analyse data relating to the skin surface of Labskin by sequencing the genetic material of all microbes present in that microbiome. The size and complexity of the sequencing data sets make it difficult to analyse from basic manual research. However, adding AI and publicly available data of the skin microbiome of healthy volunteers and volunteers suffering from eczema and psoriasis Labskin has been able to identify a number of features (microbial groups) that define those skin conditions.

The outcome is an ability to isolate and transplant (clone) the skin microbiome from volunteers' to the Labskin model, together with the AI models, Rinocloud has helped the Labskin team to assess the efficacy of client skincare ingredients and products to shift the diseased microbiome to a healthy state. This is a unique service, adding claims to new and existing consumer skincare products, with major cost and time saving benefits for our clients. This Labskin AI combination is now contributing additional revenues per client and has been responsible for a large proportion of the increase in revenues in 2019, compared to 2018 and has continued into 2020.

Life Science Hub

Having Labskin in the group with such accumulated knowledge and expertise allows us to identify markers on the skin (microbiome) for many skin related conditions. Laboratory analysis allows the Labskin team to see, for example, what happens on the skin with too much sun damage or what biomarkers trigger acne, eczema, psoriasis, ageing, dandruff and, in the case of "WoundPhase", wound healing.

Labskin and WoundPhase are combining technologies to identify biology (triggers) and chemistry that allows changes in wound dressing colour depending on what is happening to the skin. While not core to the strategic growth of the Group, the advantage is that Labskin is able to demonstrate the ability to match skincare products to skin types based on the Labskin dressing as well as health applications that include visually monitoring of body temperature, without electronic devices or attaching monitors on infants or elderly patients.

STOER Skincare

STOER products are used as a control range of skin care products that offer Labskin clients' proof of concept for their products to be tested. The most notable result was completion of test protocols for the inclusion of Cannabinoid ("CBD") in client products, which resulted in bringing in our first CBD client in May 2019.

Discontinued operations

On 2 May 2019, the Company disposed of its subsidiary Visible Youth Ltd. to Enhance Skin Products Inc. for £1. The sale includes the two subsidiaries of Visible Youth Ltd, Visible Youth Ireland Ltd and Integumen Inc. The Visible Youth companies own the rights to a range of female cosmetic products. As part of the sale, the Company agree to settle certain Visible Youth liabilities of £569,397 by:

-     arranging cash payments of £238,473 and

-     issuing 23,637,429 ordinary shares of 0.01p each at a placing price of 1.4p totalling £330,924.

Disruptive Business Model

Integumen has advanced its core business model with Labskin AI platform to create a fundamental change in topical skin related clinical and medical device trial costs. Changes go far beyond incremental savings resulting in:

·      Human volunteer numbers are reduced by 50%;

·      Swab of test subject's skin is taken and applied to Labskin;

·      Instantly creates twin test subject;

·      Recruitment time is shorter;

·      Project management and supervision time and personnel are reduced in half;

·      AI integration delivers comparative analytical data plus human test response data;

·      Reduces error - highlighting test subjects who are not sticking to test regime;

·      Increases accuracy from combined twin tests;

·      Clients win, Clinical Research Organisation wins and Labskin wins extra revenues;

•     Our commercial focus is on distribution using sales, marketing and distribution channels of collaboration partners as well as adding to the combined knowledge with our team that understand bacteria, fungi and viruses;

•      We have a full team of IT and web services professionals that understand 'online' and SEO, bringing our partner businesses fully online, through ecowaterOS and RinoDrive, which is so necessary in a COVID-19 world;

•      Sales and Marketing includes an inside sales team, brand and marketing specialists that complement our partners traditional sales models;

•      Flexible enough to facilitate scientific procedures that need to be updated.

3-Step Strategic Plan

1.      Grow Profits Across Related Markets

We will continue to leverage existing blue-chip clients and collaboration partner relationships to secure additional high value product test service contracts with additional sales resources. We are building more client relationships across skincare, healthcare, wound care, personal hygiene and pharmaceuticals industries.

2.      Product & Service Investment

Roll-out of physical and digital cloud-based reporting services to keep our Labskin AI offering competitive and relevant to our clients is key to delivering more value to our clients and increasing revenue per client in return. We maintain this approach by extending our technical resources to enhance product and service development. The addition and continued development of AI data analytics capabilities from our recent Rinocloud acquisition, and the increase in revenue because of that, shows we are on the right track.

3.      Collaboration & Acquisition

We actively pursue a broader portfolio of services through revenue shared collaboration and acquisition options. These areas have been previously mentioned in RNS announcements and include, but are not limited to, data analytics, software and biophysics integration services. All of these lead to extending our Labskin AI eco-system. As mentioned above the key criteria in our collaboration and partner targets are to increase revenue per client and earnings from repurposed assets to enhance shareholder value.

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

Gerry Brandon

Chief Executive Officer

12 June 2020

Ross Andrews, Non-Executive Chairman

Ross was appointed Chairman on 21 May 2019, having been a non-executive director since April 2017. He is a corporate financier with over 30 years' experience, has a strong understanding of corporate governance regimes and is chairman and non-executive director of several UK listed companies. In 2018, he established Guild Financial Advisory, a corporate finance boutique focused on ambitious and fast-growing companies.

Gerry Brandon (Chief Executive Officer)

Gerard was appointed Director and CEO of Integumen in August 2018. Previously, he joined Cellulac Limited (Ireland) as its Chief Executive Officer in May 2012 and assumed the same role for Cellulac plc in October 2013. In 1996 he became founder and CEO of Alltracel Pharmaceuticals PLC, where he built a team that oversaw numerous patents granted on refined cellulose. Alltracel was admitted to trading on AIM in 2001. In 2004, he was appointed as a Managing Partner for Farmabrand Private Equity. In 2009, he was appointed as an Executive Consultant to Eplixo Limited. He is a Fellow of the Ryan Academy of Entrepreneurs in Dublin.

Camillus Glover (Chief Financial Officer )                      

Camillus was appointed Director and COO of Integumen in August 2018. On 29 of August he took over as Chief Financial Officer. Previously, he joined Cellulac Limited (Ireland) as Chief Financial Officer in May 2012 and assumed the same role for Cellulac plc in October 2013. He is a member of the Institute of Chartered Accountants Ireland. In 2003, he joined Alltracel as Commercial Director and was appointed Chief Operations Officer in 2005 until it was acquired in 2008 by Hemcon Medical Technologies ("Hemcon"). Between 2009 and 2012, he was VP of Global Business Development for Hemcon prior to joining Cellulac.

Fionan (Fin) Murray, (Chief Operations Officer)

Fin is the founder of Rinocloud Limited. He was appointed Sales Director of Integumen on 2 May 2019 following the acquisition of Rinocloud Ltd. On 26 February 2020 he was appointed COO of Integumen. He is a seasoned sales executive with more than 30 years' experience in worldwide distribution deals, selling complex software solutions into the multi-national corporate sectors in financial services, biotech, utilities and government departments. He is former CEO of LeT Systems Ltd and a senior executive at KBC Bank and Kindle Banking systems. He was appointed Chief Operations Officer on 26 February 2020.

Review of the business

A comprehensive review of the year is given in the Chairman's and Chief Executive's Statements on pages 2 to 6.

Principal risks and uncertainties

The Directors continually identify, monitor and manage the risks and uncertainties of the Group. Risk is inherent in all businesses. Set out below are certain risk factors which could have an impact on the Group's long-term performance and mitigating factors adopted to alleviate these risks. This list does not purport to be an exhaustive summary of the risks affecting the Group.

Management and employees

The Group's future success will be dependent on key employees and their on-going relationships with customers. The Group encourages customer contacts to be maintained by more than one individual. Key employees are incentivised through a mixture of competitive remuneration and sales commission. Main Board Directors are incentivised as detailed in the Directors' Remuneration Report.

Early stage of operations

Integumen is an early stage company, having been incorporated in 2016. Recently, the Group has experienced increased pipeline activity significantly higher than the Company has been used to in the past. This is still a relatively short-term track record of product sales and new service offerings. Therefore, for now, it is difficult to predict with accuracy the rate of market adoption and so forecasting of sales is likely to prove challenging for some time.

Delay in product launches

The Group has a number of identified product development projects to take products to market, some of which may require specific funding to proceed. There is no guarantee that these projects will be completed within anticipated timescales, or that they will result in viable products. The Group's strategy involves, inter alia, running clinical studies on its products to create verifiable data which can be used in marketing campaigns to differentiate the Group's products from competitors. If these clinical studies take longer than expected, or fail to establish these credentials, this could be damaging to the Group's prospects.

Potential funding requirement for further development

Any future collaboration, partnership, joint venture expansion, activity, acquisitions and/or business development may require additional capital and the Group may seek to raise additional funds through equity or debt financings or from other sources. There can be no guarantee that the necessary funds will be available on a timely basis, on favourable terms, or at all, or that such funds if raised, would be sufficient.

Competition risk

The Group's current and future potential competitors include, amongst others, major multinational pharmaceutical and healthcare companies with substantially greater resources than those of the Group. There can be no assurance that competitors will not succeed in developing systems and products that are more effective or economic than any of those developed by the Group, which would render the Group's products obsolete or otherwise non-competitive. The Group seeks to reduce this risk by ensuring that a professional and high standard product and service is provided to its customers, maintaining confidentiality agreements and selecting leading businesses in their respective fields as collaboration and joint development partners capable of addressing significant competition, should it arise.

Currency exchange risk

The Company's financial statements are denominated in pounds sterling, its functional currency. The Company plans to increase its sales and activities in the USA and the EU which may be impacted by exchange rate fluctuations in future. Following the acquisition of Rinocloud Ltd additional euro costs will arise which will be hedged against euro sales.

COVID-19 risk

Management are constantly reviewing the impact of COVID-19 with clients and partners to assess manufacturing and supply of services stress. These include, but are not limited to, restrictions on the supply of materials that enable the Group to supply goods and services to clients. This review process is designed to provide advance warning to be able to manage impacts on the business and to assist clients meet their needs where reliance on the delivery of our goods and services from the Group is critical.

Brexit risk

Approximately one-third of Group sales were to EU Countries during 2019.

Possible outcomes for Group sales:

•             Taxes/tariffs on any product and services from the UK to EU countries;

•             Delays of shipments are possible due to taxes and tariffs collections;

•             Licenses, registrations or certificates may be required to provide services in EU;

•             Additional documentation to ship product from the UK to EU;

•             Currently, no additional documentation is required when shipping from the UK to other EU countries;

•             Import/export documentation (commercial invoice) may be required for every shipment from the UK to EU;

•             Possibly, customers will require import permits to receive goods from the UK;

•             GBP value can further decline therefore margins may suffer.

However, all the above are at best speculation at the time of writing and the exact outcome is yet to be confirmed.

Financial risk management

The Group has instigated certain financial risk management policies and procedures which are set out in note 3 to the financial statements.

Outlook

Key Performance Indicators (KPIs)

The key performance indicators currently used by the Group are revenue, adjusted EBITDA and cash resources. The Group intends to establish other key performance indicators in due course once the Group has matured sufficiently. The Group does not use and does not at present intend to use non-financial key performance indicators.

Review of strategy and business model

Integumen Plc has completed a number of strategic acquisitions and disposed of non-performing assets over the last 12 months. These include the commercial technology licensing from Cellulac of a solvent free extraction process for oils specifically intended for skincare products and nutritional food supplements and within the Company's core physical skincare testing business, the addition of a digital platform which has created Labskin AI. This cloud-based eco-system validates skincare products and ingredients, remotely for clients, and has been the focus of the change in the Company business model since August 2018. 

This physical laboratory-grown 3D human skin equivalent, developed specifically to host bacteria, virus and fungi on human skin in our test laboratories, incorporates a digital artificial intelligence to enhance clinical research, medical device and life science testing in physical real-world and virtual digital simulated form. Labskin allows our clients in skincare, healthcare, pharmaceutical manufacturers and the cosmetic industry to test and validate their product claims on human-like skin in a real-world environment with full access to multiple state-of-the-art partner technologies.

Because of the changes to the business model the Company is seeing an improved pipeline of activity. The Rinocloud acquisition and its development team has integrated well, as much of the work in collaboration had commenced prior to completion of the transaction. Moving to a higher value service offering and entering the clinical and medical device trial sector is both exciting and challenging. With an increased order pipeline, the Company requires additional infrastructure and expertise. The announcement on 20 June 2019 of increased laboratory space and personnel has secured immediate organic growth. The Labskin Human Volunteer skin cloning capabilities opens opportunities to explore options of collaboration, partnership and acquisitive growth to achieve Company goals of meeting increased demands from our clients, regulatory compliance and enhance shareholder value.

Environment

The Directors consider that the nature of the Group's activities is not inherently detrimental to the environment.

Employees

The Group places value on the involvement of its employees and they are regularly briefed on the Group's activities. The Group closely monitors staff attrition rates which it seeks to maintain at current low levels and aims to structure staff compensation levels at competitive rates in order to attract and retain high calibre personnel.

Disabled employees

Applications for employment by disabled persons are always fully considered, bearing in mind the specific aptitudes of the applicant involved. It is the policy of the Group that the training, career development and promotion of disabled persons, as far as possible, be identical with that of other employees.

Social, community, and human rights

The Board recognises that the Group has a duty to be a good corporate citizen and to respect the laws, and where appropriate the customs and culture of the territories in which it operates. It contributes as far as is practicable to the local communities in which it operates and takes a responsible and positive approach to employment practices.

The Strategic Report was approved by the Board on 12 June 2020 and signed on its behalf by:

Gerry Brandon

Chief Executive Officer

Report of the Directors

The Directors have pleasure in submitting this report together with the audited financial statements of Integumen Plc for the year ended 31 December 2019.

2018 Financial Accounts Restated

On 2 May 2019, the Company disposed of its 100% holding of Visible Youth Ltd, and subsidiary companies, for a consideration of £1. Aggregate liabilities of £569,397 of Visible Youth Ltd were satisfied by a combination of cash and the issue of shares. The 2018 financial accounts have been restated to reflect the discontinued operation.

Corporate details

Integumen Plc is incorporated in England and Wales with registration number 10205396. The registered office is Sand Hutton Applied Innovation Campus, Sand Hutton, York, North Yorkshire, YO41 1LZ.

Directors

The Directors who held office during the year and as at the date of signing the financial statements were as follows:

Gerard Brandon                                                  

Camillus Glover                                                   

Ross Andrews                                                       (Appointed Chairman on 21 May 2019)

Fin Murray                                                            (Appointed on 2 May 2019)

Tony Richardson                                                  (Resigned on 21 May 2019)

Principal activities

The Group is a vertically integrated business, collaborating its Labskin technology platform with partners in artificial intelligence, clinical research, medical device and life science. The Group provides the following services through its:

·      Regulated environmental toxicology services;

·      Human skin equivalent platform to validate and verify the safety and impact on client products for regulatory authority approval;

·      Ai and microbiome platform to facilitate clinical testing of pharmacological effects;

·      Monitoring platform for pathogens in water and wastewater.

Dividends

There were no dividends paid or proposed by the Company during the period.

Going concern

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

On 2 May 2019, the Company raised £2,519,000 by issuing new shares. Following the settlement of certain liabilities, the Company has allocated the remaining funds to sales and marketing investment and general working capital purposes.

Also, on 2 May 2019, the Company successfully converted £1,182,000 of liabilities to ordinary shares, of which £752,000 was payable as at 31 December 2018.

On 16 December 2019 the company raised £1,368,000 by issuing new shares to fund sales and marketing investment and general working capital purposes.

The Directors have prepared cash flow projections to determine funding requirements of the Group. 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 consolidated financial statements.

Creditors' payment policy

It is the policy of the Group to agree appropriate terms and conditions for its transactions with suppliers (ranging from standard written terms to individual negotiated contracts) and for payment to be made in accordance with these terms provided the supplier has complied with its obligations.

Directors' interests

The interests of the Directors who served during the year and previous year, all of which are beneficial, in the share capital of the Company as at 31 December 2019 were as follows:      

                                                                                                                                                                                                                                                                                                                                                                                                                Ordinary Shares of 0.01p each                        

Gerard Brandon                                                                                                                  51,299,012                                                  

Camillus Glover                                                                                                                   42,506,704                                                  

Ross Andrews                                                                                                                        2,238,462                                                                    

Fin Murray                                                                                                                           87,867,758

Tony Richardson                                                                                                                       840,414                                                  

Substantial shareholdings

At the date of signing of these financial statements, the following interests in 3% or more of the issued Ordinary Share capital had been notified to the Company:  

Fionan Murray                                                                                                                     87,867,578                                                          8.15%

Helium Rising Stars Fund                                                                                                                                                     79,000,391                                                          7.32%

Gerard Brandon                                                                                                                   51,299012                                                          4.76%

Camillus Glover                                                                                                                   42,506,704                                                          3.94%

Post balance sheet events

The following events have taken place since the year end:

Significant Sales Contracts

On 18 March 2020 the Company Integumen signed a three-year revenue-sharing, manufacturing agency agreement with Modern Water plc to manufacture and provide logistic support for the Modern Water's monitoring reagent consumables. The Agreement is for $1.25m (£1.04m) per year for 3-years, worth a total of $3.75m (£3.12m). The revenue share split is 60% / 40% in favour of Modern Water, after costs, and is subject to rolling 12-month extensions thereafter.

Ordinary Shares Issued

On 28 May 2020 placing subscribers exercised warrants over 3,000,000 ordinary shares of 0.01p each at an exercise price of 1.5p per ordinary share of 0.01p raising a total of £45,000.

On 04 June 2020 placing subscribers exercised warrants over 3,333,332 ordinary shares of 0.01p each at an exercise price of 1.5p per ordinary share of 0.01p raising a total of £50,000.

At the date of signing these financial statements, the Company had an issued share capital of 1,078,750,235 ordinary shares of 0.01p each and 223,685,232 deferred shares of 0.99p each.

Director Purchase of Shares

On 18 March 2020 Gerard Brandon purchased 1,100,000 ordinary shares of 0.01p each on the open market at 0.83p per share.

On 20 March 2020 Ross Andrews purchased 1,000,000 ordinary shares of 0.01p each on the open market at 0.89p per share.

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Parent Company and of the profit or loss of the Group and the Parent Company for that period. In preparing these financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and accounting estimates that are reasonable and prudent;

·      state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Parent Company's website (www.integumenplc.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors are responsible for the maintenance and integrity of the Parent Company's website (www.integumenplc.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the annual report and the accounts, taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and the Parent Company's performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the Report of the Directors confirm that, to the best of their knowledge:

·      the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Parent Company;

·      the Parent Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Parent Company; and

·      the Chairman's Statement and Chief Executive's Statement include a fair review of the development of the business and the position of the Group and the Parent Company, together with a description of the principal risks and uncertainties that it faces.

Directors' liability insurance

The Company maintains Directors and Officers liability insurance, which is reviewed annually and is considered to be adequate by the Company and its insurance advisers.

Independent auditors

Jeffreys Henry LLP were appointed during the year and have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.

Companies Act S.172 Statement

The Directors set out their statement of compliance with S172 (1) of the Compliance Act 2006 which should be read in conjunction with the rest of the annual report and with the Corporate Governance section of the Integumen website.

The directors preside over the Group for the benefit of all stakeholders. In making decisions, the directors take into account their potential short- and long-term implications. The basic goal is the long-term sustainable growth of the business which will see returns to shareholders increasing, enable employees to realise their ambitions and help customers of the Integumen network achieve their goals.

Integumen strives to maintain a reputation for the highest standards of business conduct. The directors always endeavour to operate to the highest ethical standards in order to maintain and promote the reputation of the Company, this being its greatest asset.

Disclosure of information to the Auditors

The Directors who hold office at the date of approval of this report confirm that so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware, and each Director has taken all the steps that he ought to have taken as a Director in order to make him aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Annual General Meeting

A copy of the notice convening the Annual General Meeting will be sent out shortly under separate cover.

The Directors' report was approved by the Board on 12 June 2020 and signed on its behalf by:

Gerry Brandon

Compliance

The Directors recognise the value of the principles of the Corporate Governance Code for Small and Mid-Size Quoted Companies issued by the Quoted Companies Alliance (QCA).

The following statement describes how the Group seeks to address the principles underlying the Code where practicable and appropriate for a company of this size.

Board composition and responsibility

The Board currently comprises a non-executive Chairman, three executive Directors. The Board has determined that Ross Andrews is independent in character and judgement and that there are no relationships or circumstances which could materially affect or interfere with the exercise of their independent judgement. The Board is satisfied with the balance between executive and non-executive Directors which allows it to exercise objectivity in decision making and proper control of the Group's business. The Board considers this composition is appropriate in view of the size and requirements of the Group's business and the need to maintain a practical balance between executives and non-executives. The Board will seek to appoint a further independent non-executive Director in due course.

All Directors are subject to election by shareholders at the first Annual General Meeting after their appointment and are subject to re-election at least every three years. The Board does not automatically re-nominate non-executive Directors for election by shareholders. The terms of appointment of the non-executive Directors can be obtained by request to the Company Secretary.

The Board's primary objective is to focus on adding value to the assets of the Group by identifying and assessing business opportunities and ensuring that potential risks are identified, monitored and controlled. Matters reserved for Board decisions include strategic long-term objectives and capital structure of major transactions. There is a division of responsibilities between the Non-Executive Chairman, who is responsible for the overall strategy of the Group, and the CEO, who is responsible for implementing the strategy and day to day running of the Group. He is assisted by the CFO and the COO.

Board meetings

20 Board meetings were held during the period. The Director's attendance record during the period is as follows:

Gerard Brandon                                                                                                                                   19

Camillus Glover                                                                                                                                    19

Ross Andrews                                         (Appointed Chairman on 21 May 2019)                          8

Fin Murray                                              (Appointed 2 May 2019)                                                    5

Tony Richardson                                    (Resigned on 21 May 2019)                                              4

Audit and Risk Committee

This comprises Ross Andrews as Chairman and Fin Murray as the other member of the committee. Ross Andrews is the Company Chairman and sits on the board of a number of listed plc's. The principal duties of the committee are to review the half-yearly and annual financial statements before their submission to the Board and to consider any matters raised by the auditors. The Committee also reviews the independence and objectivity of the auditors. The terms of reference of the Committee reflect current best practice, including authority to:

·      Recommend the appointment, re-appointment and removal of the external auditors;

·      Ensure the objectivity and independence of the auditors including occasions when non-audit services are provided; and

·      Ensure appropriate 'whistle-blowing' arrangements are in place.

The Chairman may seek information from any employee of the Group and obtain external professional advice at the expense of the Company if considered necessary. Due to the relatively low number of personnel employed within the Group, the nature of the business and the current control and review systems in place, the Board has decided not to establish a separate internal audit department.

Remuneration Committee

The Company has established a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. No Director is involved in deciding his own remuneration.

This committee comprises Ross Andrews as Chairman and Fin Murray as the other member of the committee. The committee considers the employment and performance of individual executive Directors and determine their terms of service and remuneration. It also has authority to grant options under the Company's Executive Share Option Scheme. The Committee intends to meet at least twice a year.

Board appointments

The Nomination Committee comprises Ross Andrews as Chairman and Fin Murray as the other member of the committee. It identifies and nominates for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Nomination Committee intends to meet at least twice a year.

Internal control

The Directors are responsible for ensuring that the Group maintains a system of internal control to provide them with reasonable assurance regarding the reliability of financial information used within the business and for publication and that the assets are safeguarded. There are inherent limitations in any system of internal control and accordingly even the most effective system can provide only reasonable, but not absolute, assurance with respect to the preparation of financial reporting and the safeguarding of assets.

The Group, in administering its business has put in place strict authorisation, approval and control levels within which senior management operates. These controls reflect the Group's organisational structure and business objectives. The control system includes clear lines of accountability and covers all areas of the organisation. The Board operates procedures which include an appropriate control environment through the definition of the above organisation structure and authority levels and the identification of the major business risks.

Internal financial reporting

The Directors are responsible for establishing and maintaining the Group's system of internal reporting and as such have put in place a framework of controls to ensure that the on-going financial performance is measured in a timely and correct manner and that risks are identified as early as is practicably possible. There is a comprehensive budgeting system and monthly management accounts are prepared which compare actual results against both the budget and the previous year. They are reviewed and approved by the Board, and revised forecasts are prepared on a regular basis.

Relations with shareholders

The Company reports to shareholders twice a year. The Company dispatches the notice of its Annual General Meeting, together with a description of the items of special business, at least 21 days before the meeting. Each substantially separate issue is the subject of a separate resolution and all shareholders have the opportunity to put questions to the Board at the Annual General Meeting. The Chairman of the Audit and Remuneration Committees normally attend the Annual General Meeting and will answer questions which may be relevant to their work. The Chairman advises the meeting of the details of proxy votes cast on each of the individual resolutions after they have been voted on in the meeting.

The Chairman and the non-executive Directors intend to maintain a good and continuing understanding of the objectives and views of the shareholders.

Corporate social responsibility

The Board recognises that it has a duty to be a good corporate citizen and is conscious that its business processes minimise harm to the environment, contributes as far as is practicable to the local communities in which it operates and takes a responsible and positive approach to employment practices.

Statement of compliance

This report does not constitute a Directors Remuneration Report in accordance with the Directors Remuneration Regulations 2007 which do not apply to the Company as it is not fully listed. This report sets out the Group policy on Directors' remuneration, including emoluments, benefits and other share-based awards made to each Director.

Policy on Executive Directors' remuneration

Remuneration packages are designed to motivate and retain executive Directors to ensure the continued development of the Company and to reward them for enhancing value to shareholders. The main elements of the remuneration package for executive Directors are basic salary or fees, performance related bonuses, benefits and share option incentives.

Directors' remuneration

The remuneration of the Directors of the Company for the year ended 31 December 2019 and 2018 is shown below:

¹ The salary of Gerry Brandon and Camillus Glover from the period 6 August 2018 to 30 June 2019 is for non-cash consideration and these Directors

may elect to have accrued salary settled by the allotment of new ordinary shares subject to certain conditions. The element of non-cash consideration in 2019 was for Gerry Brandon £56,000 (2018: £48,000) and for Camillus Glover £51,000 (2018: £42,000).

Directors' share options

In 2017, the Company awarded options to key management over 6,720,000 ordinary shares of 1p each. These options were 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. Following the subdivision of ordinary shares on 2 August 2018 when each ordinary existing share of 1p was sub-divided into one deferred share of 0.99p and one ordinary share of 0.01p. 

During the year, options over 963,200 ordinary shares of 1p each lapsed (2018: 5,118,000) when option holders left the employment of the Company.

The share options as at 31 December 2019 were as follows:

¹ 50% of the shares will vest at an exercise price of 5p and 50% at an exercise price of 6p.