SKIN ELEMENTS LIMITED — Interim / Quarterly Report 2018

Feb 28, 2018

28 February 2018

Skin Elements 2017 Half Year Report – Continuing to Deliver Growth

Australian natural skin care company Skin Elements Limited (ASX: SKN) (Skin Elements, the Company) is pleased to present its Half Year Report to 31 December 2017.

The six months represented a period of consolidation and growth for Skin Elements, as the Company completed the integration of its McArthur Skincare acquisition into the business, and delivered strong results from its sales channels.

Skin Elements’ has established a growth strategy based on the core principles of delivering sustained sales growth, pursuing entry into new major markets and product development – by both brand and product extension, and value accretive acquisitions.

In the half-year ending 31 December 2017, the Company focused on the implementation and execution of its strategy. It is delighted with the tangible results delivered in the period, which continue to move Skin Elements towards its goal of becoming a recognised leading national and international skin care company.

A disciplined and structured approach to the establishment and growth of key sales channels resulted in the business delivering strong and sustained sales growth.

Customer revenue for the half-year totaled $393,476. This represented a major increase of 185% over the figure for the half-year ending 31 December 2016 ($137,931), and an increase of 128% over the previous six months, to 30 June 2017 ($172,822).

This substantial sales growth was driven by the strong performance of the Company’s distributors in the Australian and New Zealand markets, and an increased focus on its online sales channel; Skin Elements launched a new, leading edge ecommerce-focused website, which it anticipates will deliver significant new online sales moving forward.

The Company also continued to benefit from its strong relationship with its preferred manufacturing partner, Baxter Laboratories Pty Ltd, who delivered new production runs totaling 40,000 tubes of the flagship Soléo Organics 100% natural and organic sunscreen product in the half-year period. The ability of Baxter to successfully meet Skin Elements increasing production requirements is key to the effective operation of the Company’s supply chain as it continues to rapidly expand its sales footprint.

Looking forward, Skin Elements maintains a highly positive outlook. It continues to pursue expansion into major, targeted global markets including; Europe, North America, China and other significant Asian markets. The Company’s aim is to enter into distribution agreements in these markets, and the successful execution of this objective has the potential to deliver exponential sales growth.

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The Company will also seek to launch its next product, the Elizabeth Jane Natural Cosmetics skincare range, in the year ahead. There are 10 products in the Elizabeth Jane range and it is currently completing a rigorous test marketing program, ahead of a proposed commercial launch.

Skin Elements’ board and management is committed to successfully executing its growth model and delivering value for shareholders, and the Company looks forward to continuing to aggressively pursue these objectives in the year ahead.

ENDS

For further information, please contact:

Peter Malone Media and Investor Inquiries Executive Chairman James Moses Skin Elements Limited Mandate Corporate T: +61 439 430 770 T: +61 420 991 574 E: peter@senatural.com E: james@manadatecorporate.com.au

About Skin Elements

Skin Elements is an ASX-listed skin care company focused on the development of natural and organic skin care products, as an alternative to current chemical-based products. It has developed a portfolio of products which includes its lead product, the Soléo Organics 100% natural and organic sunscreen, pawpaw based McArthur natural therapeutic skincare, and the Elizabeth Jane Natural Cosmetics brand. The Company has completed a highly successful test marketing phase in major international markets for Soléo Organics and has regulatory approval with the USA FDA, TGA and other significant regulators. Skin Elements aims to become the number one recognised national and international sunscreen brand.

Further information is available via the Company website: http://skinelementslimited.com

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SKIN ELEMENTS LIMITED Appendix 4D HALF YEAR REPORT

1. COMPANY DETAILS

1. COMPANY DETAILS
Name of Entity	Skin Elements Limited
ABN	90 608 047 794
ReportingPeriod	Halfyear ended 31 December 2017
Previous ReportingPeriod	Half Year Ended 31 December 2016

2. RESULTS FOR ANNOUNCEMENT TO THE MARKET

			$’000
Revenues from ordinary activities	up	184.7% to	393
Profit (Loss) from continuing activities after tax attributable to the owners of Skin Elements Limited	up	78.6% to	(1,374)
Profit (Loss) for the half year attributable to the owners of Skin Elements Limited	up	78.6% to	(1,374)

The loss for the six months ended 31 December 2017 for the consolidated entity after income tax amounted to $(1,374,440).

The six months represented a period of consolidation and growth for Skin Elements, as the Company completed the integration of its McArthur Skincare acquisition into the business, and delivered strong results from its sales channels.

Skin Elements’ has established a growth strategy based on the core principles of delivering sustained sales growth, pursuing entry into new major markets and product development – by both brand and product extension, and value accretive acquisitions.

In the half-year ending 31 December 2017, the Company focused on the implementation and execution of its strategy. The tangible results delivered in the period reflect the continued move by Skin Elements towards its goal of becoming a recognised leading national and international skin care company.

A disciplined and structured approach to the establishment and growth of key sales channels resulted in the business delivering strong and sustained sales growth.

The financial position of the consolidated entity is very strong with excellent liquidity.

3. NET TANGIBLE ASSETS

	Reporting Period Cents	Previous Period Cents
Net tangible assetsper ordinarysecurity	0.6	3.5

4. CONTROL GAINED OVER ENTITIES

The Group did not gain any entities during the period

LOSS OF CONTROL OVER ENTITIES

The Group did not dispose of any entities during the period.

5. DIVIDENDS

The Group did not declare or pay any dividends during the period.

6. DIVIDEND REINVESTMENT PLAN

Not applicable

7. DETAILS OF ASSOCAITES AND JOINT VENTURE ENTITIES

Not applicable

8. FOREIGN ENTITIES

Not applicable

9. AUDIT QUALIFICATION OR REVIEW

The financial statements were subject to a review by the auditors and the review report is attached as part of the Interim Report.

ATTACHMENTS

The Interim Report of Skin Elements Limited for the half year ended 31 December 2017 is attached.

SIGNED

Signed______ Peter Malone Executive Chairman

Dated: 28 February 2018

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ABN 90 608 047 794

Interim Financial Report

For the six months ended 31 December 2017

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enhancing health + wellness naturally

Interim Financial Report | For the six months ended 31 December 2017

1

Corporate Directory

SKIN ELEMENTS LIMITED

ABN 90 608 047 794

DIRECTORS

Mr Peter Malone – Executive Chairman Mr Luke Martino – Non-Executive Director Mr Phil Giglia – Non Executive Director

COMPANY SECRETARY

SHARE REGISTRY

Link Market Services Limited Level 4 Central Park 152 St George’s Terrace PERTH WA 6000 Telephone (within Australia): 1300 554 474 Telephone (outside Australia): +61 1300 554 474 Facsimile: 02 9287 0303

Mr Craig Piercy

AUDITOR

REGISTERED AND PRINCIPAL OFFICE

32 Ord Street WEST PERTH WA 6005 Telephone: 08 6311 1900 www.skinelementslimited.com www.soleoorganics.com

BDO Audit (WA) Pty Ltd 38 Station Street Subiaco WA 6008

AUSTRALIAN SECURITIES EXCHANGE LISTING

ASX Code: SKN

2

Interim Financial Report | For the six months ended 31 December 2017

Contents

Contents
Directors' Report	2
Auditor’s Independence Declaration	4
Interim Financial Report
Consolidated statement of Proft or Loss and Other Comprehensive Income	5
Consolidated Statement of Financial Position	6
Consolidated Statement of Changes in Equity	7
Consolidated Statement of Cash Flows	8
Consolidated Condensed Notes to the Interim Financial Report	9
Directors' Declaration	26
Independent Auditor’s Review Report	27

Interim Financial Report | For the six months ended 31 December 2017

1

D I R E C T O R S ’ R E P O R T

The Directors present the interim financial report of Skin Elements Limited (the Company, Group or SEL ) for the half-year ended 31 December 2017 and the auditor’s review report thereon:

DIRECTORS

The Directors of the Company at any time during or since the end of the half year and until the date of this report are noted below.

Mr Peter Malone

Executive Chairman

Mr Luke Martino

Independent Non-Executive Director

Mr Phil Giglia

Independent Non-Executive Director – Appointed: 23 November 2017

Mr David Humann

Independent Non-Executive Director – Appointed: 15 August 2016 - Passed away 21 November 2017

PRINCIPAL ACTIVITIES

During the half-year ended 31 December 2017, the principal continuing activity of the Group consisted of the development and commercialisation of its proprietary all natural skincare technology.

REVIEW OF OPERATIONS

Successful Execution of Growth Strategy

Skin Elements established a growth strategy based on core principles; sustained sales growth, accessing new, major markets and product development – by brand and product extension, and value-accretive acquisition. The execution of these core principles underpins the Company’s stated goal of becoming a recognised leading national and international skin care company.

Business Growth

During the half-year, the Company completed the successful integration of its McArthur Skincare acquisition into the business. This included the integration of the McArthur Skincare business model, product range and key personnel into the Company. This integration process has now been successfully completed, but Skin Elements will continue to refine its McArthur Skincare business model in order to maximize the benefits of the acquisitions. The acquisition and integration of McArthur Skincare also saw the Company move into a new office in West Perth that enabled the operation team and management to work in a collaborative environment at one location.

Sales and Production Growth

Skin Elements achieved sustained sales growth in the half-year, and delivered its strongest six-month sales result to date. Customer receipts for the half-year totalled $393,476, an increase of 185% over the figure for the half-year ending 31 December 2016, of $137,931. Within this strong half-yearly result, the Company also achieved highly significant quarter-on-quarter sales growth. The strong sales performance was supported by its distributors in the Australian and New Zealand markets. Skin Elements also increased its focus on the direct online sales channel via the launch of a new ecommerce-focused website, which it anticipates will deliver significant new sales across its product range in the year ahead. The Company’s preferred manufacturing partner, Baxter Laboratories Pty Ltd, delivered productions runs totalling 40,000 tubes of the Soléo Organics sunscreen in the half-year to meet increasing demand. The Baxter relationship is highly positive for Skin Elements, and Baxter’s ability to deliver an end-to-end service – manufacturing, filling, warehousing and distribution – in a timely manner is of key benefit to the Company as it continues to accelerate sales growth.

Product Development

Skin Elements is committed to expanding its product range and its immediate product development focus is on finalising derivatives of its Soleo range as well as the Elizabeth Jane Natural Cosmetics skincare range. Similar to the approach taken in the development of the Soléo Organics sunscreen, the Company aims to position the Elizabeth Jane product range as an all organic and natural cosmetics skin care range as an alternative to synthetic- based skin care products. There are 10 products in the Elizabeth Jane range

Interim Financial Report | For the six months ended 31 December 2017

2

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D I R E C T O R S ’ R E P O R T ( C O N T I N U E D )

and it is currently undergoing the final stages of a rigorous test marketing program similar to that undertaken by Soléo Organics prior to its successful commercial launch. Subject to the successful completion of test marketing, the Company will seek to deliver a commercial launch of the Elizabeth Jane product range in calendar year 2018.

New Board Appointment

In November, the Company advised of the sad news of the passing of Independent Non-Executive Director, Mr David Humann. Skin Elements’ directors, management and staff extended their sympathy and condolences to David’s family, friends and colleagues. Mr Humann was a highly respected and regarded Chartered Accountant, who enjoyed a long and distinguished career with leading global accountancy practice Price Waterhouse Coopers. He was also a highly credentialed company director. At Skin Elements Mr Humann played an integral role at Board level in the Company’s growth and development. Highly experienced Chartered Accountant, Mr Phil Giglia was appointed to the board as an Independent Non-executive Director to fill the vacancy created by Mr Humann’s passing.

RESULTS

The Company incurred a loss of $1,374,440 after income tax for the half-year (2016: loss $769,588) predominantly due to the integration of the McArthur program, establishment of new operational facilities and structuring and positioning of the business for continued growth.

ISSUE OF SHARES AND OPTIONS

During the half year, Skin Elements Limited issued 1,165,000 ordinary fully paid shares for services rendered during the period with the fair value per share being $0.20 each for value of $233,000.

The Company issued Convertible Notes to a creditor, the total value of these convertible notes issued is $24,000.

EVENTS SUBSEQUENT TO REPORTING DATE

Subsequent to period end, the Company issued Convertible Notes to related parties, creditors and various third parties. These notes convert into ordinary fully paid shares at a value of $0.15 per share and not redeemable in cash, with one attaching free unlisted option exercisable at $0.22 per share exercisable within two years. On exercising of this option, a further unlisted option will be attached exercisable at $0.34 per share exercisable within a further two years. These notes have an interest rate of 10% P/A and must convert together with the applicable interest component within one year.

In January 2018 the Company issued Converting Notes for approximately $75,000 cash and approximately $300,000 for payment of amounts payable to related parties for services provided for a total facility of $550,000. Currently $100,000 remains undrawn.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

In the opinion of the Directors, there were no significant changes in the state of affairs of the Group that occurred during the half year not otherwise disclosed in this report and the interim financial statements.

AUDITOR’S INDEPENDENCE DECLARATION

Section 307C of the Corporations Act 2001 requires our auditors, BDO Audit (WA) Pty Ltd, to provide the directors of the Company with an Independence Declaration in relation to the review of the interim financial report. This Independence Declaration is set out on page 4 and forms part of this directors’ report for the half-year ended 31 December 2017.

This report is signed in accordance with a resolution of the Board of Directors made pursuant to section 306(3) of the Corporations Act 2001.

Peter Malone Executive Chairman

Dated at Perth, Western Australia this 28 day of February 2017.

Interim Financial Report | For the six months ended 31 December 2017

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Tel: +61 8 6382 4600 38 Station Street Fax: +61 8 6382 4601 Subiaco, WA 6008 www.bdo.com.au PO Box 700 West Perth WA 6872 Australia

DECLARATION OF INDEPENDENCE BY WAYNE BASFORD TO THE DIRECTORS OF SKIN ELEMENTS LIMITED

As lead auditor for the review of Skin Elements Limited for the half-year ended 31 December 2017, I declare that, to the best of my knowledge and belief, there have been:

1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

2. No contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Skin Elements Limited and the entities it controlled during the period.

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Wayne Basford

Director

BDO Audit (WA) Pty Ltd

Perth, 28 February 2018

Interim Financial Report | For the six months ended 31 December 2017

4

SKIN ELEMENTS LIMITED

HALF-YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Notes	31 Dec 2017 $ 393,476 (229,082) 164,394 181,465 (456,006) (491,515) (64,680) (421,340) - (136,664) (150,095) (1,720,299) (1,374,440) - (1,374,440) - (1,374,440) (0.0178) N/A	31 Dec 2016
		$
Revenue Sale of suncare & skincare products Cost of sales Gross profit Grant Income Expenses Administration expenses 2 Consultants fees 2 Occupancy expenses Research & development expenses Listing expenses 2 Advertising & marketing expenses Amortisation 8 Total Expenditure Profit / (loss) before income tax expense Income tax expense Profit / (Loss) after income tax from continuing operations attributable to equity holders of Skin Elements Limited Other comprehensive income Total comprehensive income for the year Profit / (loss) and total comprehensive income attributable to equity holders of Skin Elements Limited 14 Basic loss per share Diluted loss per share		137,931 (65,389)
		72,542 525 (281,906) (367,180) (11,455) - (182,114) - -
		(842,655)
		(769,588)
		-
		(769,588)
		-
		(769,588)
		(0.0140) N/A

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

Interim Financial Report | For the six months ended 31 December 2017

5

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes Current Assets Cash and cash equivalents 3 Trade receivables 4 Other receivables 5 Inventories 7 Research and development grant receivable 6 Total Current Assets Non Current Assets Intangible assets 8 Total Non Current Assets Total Assets Current Liabilities Trade and other payables 9 Borrowings - related parties 10 Total Current Liabilities Total Liabilities Net Assets Shareholders Equity Contributed equity 11 Reserves 12 Accumulated losses 13 Total Shareholders Equity	As at 31 Dec 2017 $ 655,242 106,929 22,682 440,204 181,391 1,406,449 9,360,258 9,360,258 10,766,707 896,688 44,201 940,889 940,889 9,825,818 13,266,994 155,247 (3,596,423) 9,825,818	As at 30 Jun 2017
		$
		1,407,153 48,657 125,047 422,820 196,584
		2,200,261
		9,510,353
		9,510,353
		11,710,614
		737,586 44,201
		781,787
		781,787
		10,928,826
		13,033,994 116,816 (2,221,984)
		10,928,826

This consolidated balance sheet should be read in conjunction with the notes to this interim financial report

Interim Financial Report | For the six months ended 31 December 2017

6

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 201& CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	31 December 2017
	Issued capital Accumulated losses Share based payments reserves Converting Note reserve Total Equity
	$ $ $ $
Balance at 1 July 2017	13,033,994 (2,221,984) 116,816 - 10,928,826
Loss for the half-year	- (1,374,440) - - (1,374,440)
Other comprehensive income	- - - - -
Total comprehensive income for the half-year	- (1,134,440) - - (1,374,440)
Transactions with owners in their capacity as owners
Issue of share capital	233,000 - - 233,000
Share based payments	- - 14,431 - 14,431
Issue of convertingnote	- - - 24,000 24,000
	233,000 - 14,431 24,000 271,431
Balance at 31 December 2017	13,266,994 (3,596,424) 131,247 24,000 9,825,817
Balance at 1 July 2016 Loss for the half-year Other comprehensive income Total comprehensive income for the half-year Transactions with owners in their capacity as owners Issue of share capital Share based payment Share issue costs Balance at 31 December 2016	9,245,988 (602,901) - - 8,643,087 - (769,588) - - (769,588) - - - - -
	- (769,588) - - (769,588)
	3,710,001 - - - 3,710,001 (116,816) - 116,816 - - (360,179) - - - (360,179)
	3,233,006 - 116,816 - 3,349,822
	12,478,994 (1,372,490) 116,816 - 11,223,320

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

Interim Financial Report | For the six months ended 31 December 2017

7

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017 CONSOLIDATED STATEMENT OF CASHFLOWS

Notes Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Net cash inflow / (outflow) from operating activities 3 Cash flows from investing activities Payments for businesses Receipt of Research and development tax incentive Net cash inflow / (outflow) from investing activities Cash flow from financing activities Proceeds from the issue of equity Payment for share issue costs Proceeds from borrowings Repayment of borrowings Net cash inflow / (outflow) from financing activities Cash and cash equivalents at the beginning of the financial year Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the end of the financial year 3	Period Ended 31 Dec 2017 $ 335,235 (1,113,520) 74 (778,211) (194,284) 196,584 2,300 - - 24,000 - 24,000 1,407,153 (751,911) 655,242	Period Ended 31 Dec 2016
		$
		131,802 (547,332) 525
		(415,005)
		- 156,008
		156,008
		3,710,000 (33,314) 505,742 (175,476)
		4,006,952
		8,918 3,747,955
		3,756,873

This consolidated statement of cash flows should be read in conjunction with the notes to this interim financial report

Interim Financial Report | For the six months ended 31 December 2017

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SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The half yearly report of Skin Elements Limited (the Company, Group or Skin Elements ) for the half-year ended 31 December 2017 was authorised for issue in accordance with a resolution of directors on 28 February 2017.

The Company is a public company limited by shares incorporated and domiciled in Australia whose securities are traded on the Australian Securities Exchange.

The nature of the operations and principal activities of the Company are described in the director’s report above.

(a) Basis of preparation

The principle accounting policies adopted for the preparation of interim financial report are set out below. These accounting policies have been applied consistently to all periods presented unless otherwise stated.

(i) Statement of compliance

This interim financial report for the half-year reporting period ended 31 December 2017 has been prepared in accordance with accounting standard AASB 134 Interim Financial Reporting and the Corporations Act 2001 . Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 ‘Interim Financial Reporting’.

This interim financial report does not include full disclosures of the type normally included in an annual financial report. Therefore, it cannot be expected to provide as full an understanding of the financial performance, financial position and cash flows of the Company as in the full financial report.

It is recommended that this interim financial report be read in conjunction with the any public announcements made by Skin Elements Limited up to the date of this report in accordance with the continuous disclosure requirements arising under the Corporations Act 2001 and the ASX Listing Rules.

(ii) Basis of measurement and reporting convention

This interim financial report has been prepared on an accruals basis and are based on historical cost. The interim financial report is presented in Australian dollars and all values are rounded to the nearest dollar unless otherwise stated.

The accounting policies adopted are consistent with the accounting policies adopted in the Company’s last annual financial statements for year ended 30 June 2017.

(b) Going Concern

For the half-year ended 31 December 2017 the group recorded a loss of $1,374,440, net cash outflows from operating activities of $778,211 and had net working capital of $465,560. Subsequent to year end, the Company improved this position through the issuance of convertible notes, however while the Company’s sales are still in build- up phase, the ability of the group to continue as a going concern is dependent on securing additional funding.

The Company aims to raise sufficient funds to meet its ongoing commitments, planned expanded marketing programs and expansion plans through a blend of debt and equity raisings.

However, these conditions indicate a material uncertainty about the group’s ability to continue as a going concern and therefore the Group may be unable to realize its assets and discharge its liabilities in the normal course of business. Should the group not be able to continue as a going concern, it may be required to realize its assets and discharge its liabilities other than in the ordinary course of business, and at amounts that differ from those stated in the financial statements and that the financial report does not include any adjustments relating to the recoverability and classification of recorded asset amounts and liabilities that might be necessary should the group not continue as a going concern.

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Interim Financial Report | For the six months ended 31 December 2017

9

SKIN ELEMENTS LIMITED

HALF-YEAR ENDED 31 DECEMBER 2017

CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

(c) Segment Information

Operating Segments – AASB 8 requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This is consistent to the approach used for the comparative period. Operating segments are reported in a uniform manner to which is internally provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors.

An operating segment is a component of the group that engages in business activity from which it may earn revenues or incur expenditure, including those that relate to transactions with other group components. Each operating segment’s results are reviewed regularly by the Board to make decisions about resources to be allocated to the segments and assess its performance, and for which discrete financial information is available.

The Board monitors the operations of the Company based on two segments, operational and corporate. The financial results of each segments are reported to the board to assess the performance of the Group.

The Board has determined that strategic decision making is facilitated by evaluation of the operations of the legal parent and subsidiary which represent the operational performance of the group’s revenues and the research and development activities as well as the finance, treasury, compliance and funding elements of the Group.

(d) Estimates and judgements

The preparation of the interim financial report requires the use of accounting estimates and judgements which, by definition, will seldom equal the actual results. This note provides an overview of the areas that involve a degree of judgement or complexity in preparing the interim financial report. Facts and circumstances may come to light after the event which may have significantly varied the assessment used which result in a materially different value being recorded at the time of preparing these interim financial report.

(i) Impairment of assets

The Company assesses the impairment of assets at each reporting date by evaluating conditions specific to the asset that may lead to impairment. The assessment of impairment is based on the best estimate of future cash flows available at the time of preparing the report. However, facts and circumstances may come to light in later periods which may change this assessment if these facts had be known at the time.

(ii) Deferred taxes

Deferred tax assets have not been brought to account as it is not considered probable that the Company will make taxable profits over the next 12 months. The Company will make a further assessment at the next reporting period.

(e) Principles of consolidation

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

Interim Financial Report | For the six months ended 31 December 2017

10

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

(f) Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(g) New accounting standards and interpretations that are not yet mandatory

The following new standards and amendments to standards are applicable to the Company and are mandatory for the first time for the financial year beginning 1 July 2017 and beyond. None of the standards and interpretations have affected any of the amounts recognised in the current half year or any prior half year.

Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

The following standards, amendments to standards and interpretations have been identified as those which may impact the Company in the period of initial application. They have not been applied in preparing the interim financial report.

		Application date for
Title and Reference	**Nature of Change **	entity
AASB 9 Financial	Amends the requirements for classification and measurement of	1 July 2018
Instruments AASB 9	financial assets. The available-for-sale and held-to-maturity categories
	of financial assets in AASB 139 have been eliminated.
	Adoption of AASB 9 is only mandatory for the year ending 30 June
	2018. The entity has not yet made an assessment of the impact of
	these amendments.
AASB 15 Revenue from	An entity will recognise revenue to depict the transfer of promised	1 July 2018
contracts with customers	good or services to customers in an amount that reflects the
	consideration to which the entity expects to be entitled in exchange
	for those goods or services. This means that revenue will be
	recognised when control of goods or services is transferred, rather
	than on transfer of risks and rewards as is currently the case under IAS
	18 Revenue.
	The entity is yet to undertake a full analysis of the impact of this
	standard at this stage.
AASB 16 (issued February	AASB 16 eliminates the operating and finance lease classifications for	1 Jan 2019
2016) Leases	lessees currently accounted for under AASB 117 Leases. It instead
	requires an entity to bring most leases onto its balance sheet in a
	similar way to how existing finance leases are treated under AASB
	117. An entity will be required to recognise a lease liability and a
	right of use asset in its balance sheet for most leases.
	There are some optional exemptions for leases with a period of 12
	months or less and for low value leases.

Interim Financial Report | For the six months ended 31 December 2017

11

Lessor accounting remains largely unchanged from AASB 117.

The entity has not yet made a detailed assessment of the impact of this standard at this stage.

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Interim Financial Report | For the six months ended 31 December 2017

12

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

PROFIT OR LOSS ITEMS 2 LOSS FOR THE HALF YEAR Loss for the half year included the following items: (a) Listing costs Costs of ASX listing	As at 31 Dec 2017 $ - -	As at 31 Dec 2016
		$
		182,114
		182,114

(i)

(b) Administration expenses Advertising expenses Accounting expenses Audit expenses Legal expenses Wages, super & leave Directors fees Travel expenses Other expenses c) Consulting fees Related party consulting fees (i) External consulting fees	- 44,583 11,844 13,575 125,271 70,000 30,921 159,811 456,006 237,350 254,165 491,515	11,225 50,953 22,332 119,694 - - 23,746 53,956
		281,906
		108,998 258,182
		367,180

(i) The Company engages the executives under consulting agreements to provide their services. A description of the services and the amounts paid or payable are listed in note 16.

Interim Financial Report | For the six months ended 31 December 2017 13

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

3 CASH Cash at bank Balance per statement cash flows	As at 31 Dec 2017 $ 655,242 655,242	As at 30 June 2017
		$
		1,407,153
		1,407,153

(a) Reconciliation of loss after income tax to net cash flows from operating activities Loss for the half year Non-cash items Amortisation Share based payments Acquisition of stock margin & deferred tax Increase in traded receivables Increase in other receivables Decrease in inventories Increase / (decrease) in trade and other payables Net cash outflow from operating activities (b) Non-cash financing and investing activities	Period ended 31 Dec 2017 $ (1,374,440) - 150,095 247,431 43,517 (58,241) (182,821) (60,901) 457,149 (778,211) 0	Period ended 31 Dec 2016
		$
		(769,588) - - - (6,264) (8,876) 61,110 308,612
		(415,006)

(i) Issue of Shares to consultants

The Company issued 1,165,000 shares for services rendered during the period. The total value attributed to the shares was $233,000 (refer note 11).

(ii) Issue of performance rights

The Company obtained shareholder approval to issue 4,400,000 performance rights to directors which includes hurdles that the share price must exceed $0.34 and $0.51 per share for a period of 5 days before 30 June 2019 and 30 June 2020 (further details can be found at note 12 (ii).

Interim Financial Report | For the six months ended 31 December 2017

14

4 TRADE RECEIVABLES Trade receivables	As at 31 Dec 2017 $ 106,929 106,929	As at 30 June 2017
		$
		48,657
		48,657

(i) Classification of trade and other receivables

Trade debtors are amounts due from customers for sale of goods in the ordinary course of business. The trade receivables are generally due for settlement within 30 days and therefore are classified as current. The group does not have any provision for doubtful debts in respect to their receivables as at 31 December 2017 (30 June: Nil). Due to the short term nature of the current receivables, their carrying amounts approximate their fair value.

(ii) Receivables and impairment

The trade debtor’s balance does not have any amounts that are past due but not impaired.

Interim Financial Report | For the six months ended 31 December 2017

15

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2016 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

5 OTHER RECEIVABLES GST receivable (net) ADBN Withholding 6 RESEARCH AND DEVELOPMENT TAX INCENTIVE Research and development grant receivable	As at 31 Dec 2017 $ 22,305 377 22,682 As at 31 Dec 2017 $ 181,391 181,391	As at 30 June 2017
		$
		124,670 377
		125,047
		As at 30 June 2017
		$
		196,584
		196,584

The Group continued its development program during the half year ended 31 December 2017. This program will result in a claim for research and development tax incentive which will subsequently be received after the year end. The Group will continue to develop its all natural skincare technology during 2018 and assess the availability of applicable government assistance.

7 INVENTORY Raw materials Finished goods Movements in inventory Opening balance Inventory purchased Inventory transferred to costs of sales Inventory acquired as part of business combination Inventory written off Closing balance	As at 31 Dec 2017 $ 63,526 376,678 440,204 422,820 246,466 (229,082) - - 440,204	As at 30 June 2017
		$
		- 422,820
		422,820
		89,198 207,125 (196,219) 322,716 -
		422,820

Interim Financial Report | For the six months ended 31 December 2017

16

SKIN ELEMENTS LIMITED HALF - YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

8 INTANGIBLE ASSETS Soléo Organics – formula & technology McArthur – formula & technology Website development costs Elizabeth Jane Natural Cosmetics – formula & technology Movements in Soléo Organics – formula & technology Opening balance Development cost additions Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance Movements in McArthur – formula & technology Opening balance Development cost additions Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance Movements in Website development costs Opening balance Development cost additions Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance Movements in Elizabeth Jane Natural Cosmetics – formula & technology Opening balance Development cost additions Less: R&D tax incentives Less: Write-off or impairments Less: Amortisation Closing balance	As at 31 Dec 2017 $ 6,443,937 685,567 16,501 2,214,253 9,360,258 6,578,398 - - - (134,461) 6,443,937 699,296 - - - (13,729) 685,567 18,407 - - - (1,906) 16,501 2,214,253 - - - - 2,214,253	As at 30 June 2017
		$
		6,578,398 699,296 18,407 2,214,253
		9,510,353
		6,457,529 451,913 (196,584) - (134,461)
		6,578,398
		- 703,572 - - (4,276)
		699,296
		- 19,000 - - (593)
		18,407
		2,214,253 - - - -
		2,214,253

Interim Financial Report | For the six months ended 31 December 2017

17

9 TRADE PAYABLES Trade creditors Other creditors Loans from Related parties	Consolidated As at 31 Dec 2017 $ 437,206 129,216 330,266 896,688
		As at 30 June 2017
		$
		216,784 190,536 330,266
		737,586

(a) Fair value of trade payables

Trade payables are unsecured and are usually paid within 60 days of recognition.

The carrying amount of trade and other payables are assumed to be the same as their fair values, due to their short term nature.

Interim Financial Report | For the six months ended 31 December 2017

18

SKIN ELEMENTS LIMITED HALF - YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

10 BORROWINGS Loans - related parties Movements in related party loans Opening balance Amounts borrowed Amounts repaid Closing balance	As at 31 Dec 2017 $ 44,201 44,201 44,201 - - 44,201	As at 30 June 2017
		$
		44,201
		44,201
		44,611 593,091 (593,501)
		44,201

(i) Terms of the borrowings

The operating company and the Company obtained working capital funding from the executives of the Company to allow the group to continue operating and pay its debts as and when they fell due. The loan is provided on the following terms:

terms:
Particulars	Terms
Principal Interest rate Period Repayment Security	No fixed amount, funding provided when needed. 0% No fixed term. On commencement of listing, at the Company’s discretion and subject to available funds. The borrowingis unsecured and there are no covenants inplace for the loan.

11 ISSUED CAPITAL

ISSUED CAPITAL
(i) Share Capital Ordinary Shares (ii) Movement in share capital Date Details	As at 31 Dec 2017 As at 30 Jun 2017	As at 31 Dec 2017 As at 30 Jun 2017
	Shares No. Share No.	$ $
	77,715,001 76,550,001	13,266,994 13,033,994 Number of shares $
1 July 2017 Opening balance 31 August 2017 Issue of shares to consultants ( 31 August 2017 Issue of shares to Indian Ocean Advisory Group		76,550,001 13,033,994 665,000 133,000 500,000 100,000
		77,715,001 13,266,994

Interim Financial Report | For the six months ended 31 December 2017

19

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017

CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

12	RESERVES Share based payment reserve Converting note reserve (i) Options Options Date Details		As at 31 Dec 2017 $ 131,247 24,000 155,247	As at 30 June 2017
				$
				116,816 -
				116,816
		As at 31 Dec 2017 As at 30 Jun 2017	As at 31 Dec 2017	As at 30 Jun 2017
		Options No. Options No.	$	$
		2,000,000 2,000,000	116,816 Number of Options	116,816 $
	23 December 2016 Opening balance Issue of options – consultants Closing balance		- 2,000,000	- 116,816
			2,000,000	116,816

(ii) Fair value of performance rights granted to key management personnel during the period

On 30 November 2017, at the Company’s 2017 Annual General Meeting, the Company approved the issue of 4,400,000 performance rights in two equal tranches. Of these performance rights, 4,000,000 were issued to Mr Peter Malone (Chairman) and the remaining 400,000 performance rights to Mr Luke Martino (Non-Executive Director).

The company has used a Monte Carlo statistical valuation to determine the value of the rights. Details for each Tranche are tabled below:

					Expiry Date of
			Exercise		Milestone	Fair value per	Total Fair
Tranche	Number	Grant Date	Price	Volatility	Achievements	Right	Value
A	2,200,000	30/11/2017	Nil	90%	30/06/2019	$0.0751	$165,220
B	2,200,000	30/11/2017	Nil	90%	30/06/2020	$0.0768	$168,960

Performance Milestones:

(1) 5 Day VWAP of more than $0.34 per share; and

• (2) 5 Day VWAP of more than $0.51 per share.

There have been no other significant events after the end of the reporting period to the date of this report.

Interim Financial Report | For the six months ended 31 December 2017

20

(iii) Convertible Note Reserve

The Convertible Note Reserve represents the equity portion of the Convertible Notes issued on the following terms:

These notes convert into ordinary fully paid shares at a value of $0.15 per share and not redeemable in cash, with one attaching free unlisted option exercisable at $0.22 per share exercisable within two years. On exercising of this option, a further unlisted option will be attached exercisable at $0.34 per share exercisable within a further two years. These notes have an interest rate of 10% P/A and must convert together with the applicable interest component within one year.

In January 2018 the Company issued Converting Notes for approximately $75,000 cash and approximately $300,000 for payment of amounts payable to related parties for services provided for a total facility of $550,000. Currently $100,000 remains undrawn.

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As at As at
31 Dec 2017 30 June 2017
$ $
ACCUMULATED LOSSES
Opening balance 2,221,983 602,901
Loss for the period / year 1,374,440 1,619,082
Closing balance 3,596,423 2,221,983
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13 ACCUMULATED LOSSES

Interim Financial Report | For the six months ended 31 December 2017

21

SKIN ELEMENTS LIMITED

HALF - YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

	CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT	CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT
14 15	31 Dec 2017 $ EARNINGS PER SHARE Loss attributable to ordinary shareholders (1,374,440) Weighted average number of ordinary shares (i) Balance before transaction 76,550,001 Effect of shares issued for the acquisition (55,000,000 shares) (ii) - Effect of shares issued for the IPO (18,550,000 shares * (8 /184 days)) - Shares issued to consultants (1,165,000 shares * (121/184 days)) 766,114 77,316,115 Basic loss per share calculation (6mths loss / weighted ave shares) (0.017) . Operations Corporate & Administration SEGMENT REPORTING		31 Dec 2016 $ (769,588) 1 55,000,000 806,522 - 55,806,523 (0.014) Company
	Half Year ended 31 December 2017
	Segment Revenue	393,476	- 393,476
	Significant items
	Interest income	- 74 74
	Consultants fees	(238,450) (441,450) (679,900)
	Employment costs	(359,240) (72,885) (432,125)
	Amortisation	(150,095) - (150,095)
	Other expenses	(491,439) - (491,439)
	Share based payments	- (14,431) (14,431)
	Segment net operating loss after tax	(845,748) (528,692) (1,374,440)
	Half Year ended 31 December 2016 Segment Revenue Significant items Interest Income Consultants fees Segment net operating loss after tax Segment assets
		179,782 - 179,782
		95 - 95 (43,599) - (43,589)
		(21,777) - (21,777)
	At 31 December 2017	10,092,945 673,762 10,766,707
	At 30 June 2017 Segment liabilities	10,176,362 1,534,252 11,710,614
	At 31 December 2017	(390,464) (550,425) (940,889)

Interim Financial Report | For the six months ended 31 December 2017

22

At 30 June 2017

(337,477)

(444,310)

(781,787)

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SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017 CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

16 RELATED PARTY TRANSACTIONS

The Group may enter into agreements for services rendered with individuals (or an entity that is associated with the individuals) during the ordinary course of business.

A number of entities associated with the directors and select technical staff have consulting agreements in place which have resulted in transactions between the Group and those entities during the period. The terms and conditions of those transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to unrelated entities on an arm’s length basis.

Director Transaction Peter Malone Executive services (i) IPO placement fee (ii) Luke Martino Corporate advisory services (iii) IPO placement fee (iii)	Transaction Value Outstanding Balance
	31 Dec 2017 31 Dec 2016 31 Dec 2017 31 Dec 2016
	$ $ $ $
	120,000 49,544 83,786 40,318 - 28,926 - 28,926 158,810 168,907 23,637 168,907 - 1,650 - 1,650

(i) A company associated with Mr Malone, Boston Corporate Pty Ltd, provides consulting services in connection with the operations of the Company.

(iii) Companies associated with Mr Martino, Indian Ocean Advisory Group and LJM Corporate Capital Pty Ltd, to which Mr Martino is one of the directors, provided professional accounting and IPO corporate advisory services during the half year. During the period, 500,000 shares at $0.20 per share were issued for services provided.

Technical personnel Transaction Craig Piercy Consultancy services (iv) Office facilities (iv) IPO placement fee (v) Leo Fung Consultancy services (vi)	Transaction Value Outstanding Balance
	31 Dec 2017 31 Dec 2016 31 Dec 2017 31 Dec 2016
	$ $ $ $
	99,300 29,727 36,305 24,711 12,545 11,455 - 4,200 - 17,357 - 17,357 78,000 29,727 105,152 28,237

(iv) A company of which Mr Piercy is a Director, Boston Corporate Pty Ltd, provides consulting services in connection with the operations of the Company in addition to provision of office facilities to the Company.

(vi) A company, Blackridge Group Pty Ltd, provides consulting services of Mr Fung in connection with the operations of the Company.

The Group also obtained funding from entities and associates of three executives of the Company during the half year:

Borrowings Loans – related parties	As at 31 Dec 2017 $ 374,877 374,877	As at 30 June 2017
		$
		44,611
		44,611

Interim Financial Report | For the six months ended 31 December 2017 23

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017

CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

RELATED PARTY TRANSACTIONS 16 (CONTINUED)

In addition to the transactions above, the Company also entered into a share sale agreement with shareholders of SE Operations Pty Ltd (SEO) to swap their securities for securities in Skin Elements Limited (SEL). This included certain related parties or associated entities and the details are listed below.

				No. of
	No. of			Listed	No. of Unlisted
	shares	No. of options	No. of shares	Options	Options
Director / Technical personnel	in SEO	in SEO	in SEL	in SEL (i)	in SEL (ii)
				5,065,3
Peter Malone	40,523,123	20,261,561	10,130,781	90	5,065,390
Luke Martino	5,000,000	2,500,000	1,750,000	625,000	625,000
				2,272,6
Craig Piercy	18,181,310	9,090,655	4,545,328	64	2,272,664

(i) Listed options exercisable at $0.20 each on or before 31 October 2018.

(ii) Unlisted options exercisable at $0.30 each on or before 30 November 2018. The shares and options in SEL are subject to a 2 year escrow period.

(iii) On 30 November 2017, at the Company’s 2017 Annual General Meeting, the Company approved the issue of 4,400,000 performance rights in two equal tranches. Of these performance rights, 4,000,000 were issued to Mr Peter Malone

(Chairman) and the remaining 400,000 performance rights to Mr Luke Martino (Non-Executive Director). Refer to Note 12(ii) for additional details on the performance rights issued.

17 CONTINGENT LIABILITIES

The directors are not aware of any contingent liabilities as at 31 December 2017.

18 SUBSEQUENT EVENTS

Subsequent to period end, the Company issued Convertible notes to related parties, creditors and various third parties. Please refer to Note 12(iii) for additional details on this convertible note.

There have been no other significant events after the end of the reporting period to the date of this report.

Interim Financial Report | For the six months ended 31 December 2017

24

SKIN ELEMENTS LIMITED HALF-YEAR ENDED 31 DECEMBER 2017

CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL REPORT

BUSINESS COMBINATIONS 19 (PROVISIONAL ACCOUNTING)

On 5 May 2017 the Company acquired the business and business assets of McArthur Skincare. The acquisition provides the group with an established product formula which will augment the Company's current activities and future progress.

Business combination Purchase consideration Value of shares issued Cash paid and payable - Total purchase consideration The fair value of assets and liabilities recognised as a result of the acquisition are as follows: Website development asset Product formulation information Inventory Deferred tax liabilities Net identifiable assets acquired Fair value of net assets acquired Business combination Outflow of cash from the acquisition of subsidiaries, net of cash acquired Purchase consideration Less: Balance acquired Amount payable as at 30 June 2017 Acquisition-related costs have all been included in the administration and consulting expenses in the profit and loss.	Year Ended 30 Jun 2017
	$
	555,000 622,716
	1,177,716
	19,000 703,572 455,144 0
	1,177,716
	1,177,716
	416,869 0
	416,869
	(205,847)

Interim Financial Report | For the six months ended 31 December 2017

25

D I R E C T O R S ’ D E C L A R A T I O N

In the opinion of the directors of Skin Elements Limited:

• (a) the consolidated financial statements and notes set out on pages 5 to 25 are in accordance with the Corporations Act 2001 including:

• (i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2017 and of its performance for the half-year ended on that date; and

• (ii) complying with Accounting Standards AASB 134 Interim Financial Reporting , the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

• (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the directors.

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Peter Malone Executive Chairman

Dated at Perth, Western Australia this 28[th] day of February 2018.

Interim Financial Report | For the six months ended 31 December 2017

26

38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia

Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au

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INDEPENDENT AUDITOR’S REVIEW REPORT

To the members of Skin Elements Limited

Report on the Half-Year Financial Report

Conclusion

We have reviewed the half-year financial report of Skin Elements Limited (the Company) and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 31 December 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the halfyear then ended, and notes comprising a statement of accounting policies and other explanatory information, and the directors’ declaration.

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of the Group is not in accordance with the Corporations Act 2001 including:

• (i) Giving a true and fair view of the Group’s financial position as at 31 December 2017 and of its financial performance for the half-year ended on that date; and

• (ii) Complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

Emphasis of matter – Material uncertainty relating to going concern

We draw attention to Note 1(b) in the financial report which describes the events and/or conditions which give rise to the existence of a material uncertainty that may cast significant doubt about the Group’s ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business. Our conclusion is not modified in respect of this matter.

Directors’ responsibility for the Half-Year Financial Report

The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity , in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including giving a true and fair view of the Group’s financial position as at 31 December 2017 and its financial performance for the half-year ended on that date and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 .

BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees.

Interim Financial Report | For the six months ended 31 December 2017

27

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As the auditor of the Group, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 . We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor’s review report.

BDO Audit (WA) Pty Ltd

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Wayne Basford Director

Perth, 28 February 2018

Interim Financial Report | For the six months ended 31 December 2017

28

==> picture [107 x 40] intentionally omitted <==

enhancing health + wellness naturally

Skin Elements Limited (ASX:SKN) 32 Ord Street West Perth, WA 6005, Australia soleoorganics.com mcarthurskincare.com

Interim Financial Report | For the six months ended 31 December 2017

29