PURPLE_SURGICAL_MANUFACTU - Accounts

The director presents the strategic report for the year ended 30 June 2020.

The principal activity of the company continued to be that of the manufacture and sale of medical and surgical instruments and devices; and in the fourth quarter sales of PPE.

The company is the purchasing arm of the Purple Surgical group. All purchases are channelled through the company and passed on to fellow subsidiaries at agreed margins. There are also some sales to third parties.

Core business

The 2020 financial year was challenging due to two primary factors. The expected increase in NHS funding in the UK for core services following the 2019 General Election victory for the Conservatives didn’t materialise as a direct result of the Covid-19 pandemic. Equally, the final quarter of the year was significantly negatively impacted due to global hospital resources being diverted away from elective surgery to treating Covid-19 patients.

UK Covid-19 risk

Despite the very significant impact of Covid-19 in Q4 on the company’s core business, due to hospitals and healthcare workers being substantially diverted to treating Covid-19 patients, the director is able to report that the company finances are well positioned to sustain the current operating conditions and management remain responsive to any macro events as they occur. Its clients, whist impacted by the current crisis, largely remain the NHS and private hospital groups.

Fraud

It is highly regrettable that during the urgent search for reputable suppliers of PPE, Purple Surgical were introduced to a number of unscrupulous, dishonest and fraudulent individuals and organisations. The nature of PPE sourcing from March to June 2020 can be simply characterised by most of the world seeking to secure supplies that were typically 100x greater than their normalised volumes. This created a temporary highly scarce resource and a seller’s market, with significant pre-payments of up to 100% being required to secure inventory and production capacity in Chinese factories, with on occasion a number of intermediaries being involved in any given supply chain. Whilst Purple Surgical had success in locating, diligencing and contracting with legitimate, high quality suppliers, the company also fell victim to others who purported to be able to supply but did not. The director therefore anticipates the company being involved in a number of costly litigations in the UK, Europe, Hong Kong and the U.S. to recover the sums paid out for goods that have not been received. As at 30 June 2020, the company has provided £1,700,870 for non-recovery of advanced payments to suppliers of PPE and potential costs.

Brexit risk

The company has closely monitored the Brexit process and has sought professional advice where appropriate. The company has a good relationship with its EU clients and continues to win new business in the region. The director is confident that the company will continue to do well in the EU markets but are vigilant and monitoring the evolving situation closely.

The medical equipment market is highly competitive and margins continue to be under pressure. The company is subject to government policy and the effect of our markets by the general state of the world economy. The company has in place a risk management programme that seeks to manage its financial exposure. Despite these risk management measures being in place, the company found itself in highly unusual and exceptional circumstances when trying to support our customers in the supply of vital PPE at the outbreak of the Covid-19 pandemic. In our search and selection of vital suppliers the company was faced with numerous unknown entrants purporting to be legitimate suppliers of PPE. Under extreme time pressure and global shortages, our typical supplier due diligence failed to detect and prevent material frauds. Despite this, the company succeeded in supporting our public and private sector clients with their PPE demands from the outset of this crisis.

Foreign exchange risk 

The company is exposed to foreign exchange rate risk in the normal course of business, principally on purchases and sales in Euros and USD. This is mitigated by forward purchasing of currencies.

Credit risk 

The company has implemented policies that require appropriate checks on potential customers before sales are made. The amount of exposure to any individual company is subject to a limit which is assessed regularly by the company.

Liquidity risk 

The group maintains a consistent and appropriate level of cash, which is generated from retained earnings and profits. The director considers that the group has the appropriate funding to meet the immediate needs of the business.  

Development during the financial year

In this reporting year the company was affected by the impact of Covid-19 in the final quarter. Trading results are satisfactory.

ln the opinion of the director the key financial performance indicators are the following:

Turnover 

2020 : £10,067,622 (2019: £11,053,796) 

Turnover is a key measure of the company's economic output. In FY2020 the decline in turnover was attributable to the impact of Covid-19 on our core business.

The negative impact on core revenues of Covid-19 continues into the financial years ending 30 June 2021 and 30 June 2022.

Gross profit 

2020: £927,089 (2019: £1,607,341) 

Gross profit provides an indication of the company's quality and service efficiency.   In FY2020, the gross profit is a reflection of the decline in core revenues due to Covid-19.

The negative impact on core revenues of Covid-19 continues into the financial years ending 30 June 2021 and 30 June 2022.

Going concern and impact of Covid-19

The company had cash resources of £1,196,404 at 30 June 2020 (2019: £104,863).

The director has adopted the going concern basis in preparing these accounts after assessing the principal risks and having considered the impact of a severe but plausible downside scenario for Covid-19. The major variables are the depth and the duration of Covid-19. The director has considered the impact of the current Covid-19 environment on the business for the next 12 months.

Scenario planning is difficult in these circumstances but the director has considered the impact on sales, profits and cash flows. The director has assumed that the Company will continue to be able to support our customers and sell to new clients.

Whilst the virus has impacted various functions of the business it continues to manifest itself in reduced demand by customers and cost cutting by them over the medium to long term. The director has experienced this from our customers in our core markets during 2021. The directors continues to monitor the impact on our core customers. The director has sufficient confidence in the resilience of the Company.

The Company and the Group continues to have significant liquidity headroom on existing facilities and against the financial covenants from Barclays. 

The director believes that the Company is well placed to manage its financing and other business risks satisfactorily, and have a reasonable expectation that the Company will have adequate resources to continue in operation for at least 12 months from the signing date of these financial statements. The director has not identified any material uncertainties to the Group and Company's ability to continue as a going concern. He therefore considers it appropriate to adopt the going concern basis of accounting in preparing the financial statements.

Signed by the sole director

The director presents his annual report and financial statements for the year ended 30 June 2020.

The results for the year are set out on page 9.

No ordinary dividends were paid. The director does not recommend payment of a final dividend.

The director who held office during the year and up to the date of signature of the financial statements was as follows:

Events after the reporting period are disclosed in the notes to the financial statements at Note 22.

The company has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the company's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report. It has done so in respect of its financial risk management objectives and the likely future developments of the business.

So far as the director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the director has taken all the necessary steps that he ought to have taken as director in order to make himself aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

The director is responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the director to prepare financial statements for each financial year. Under that law the director has elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the director must not approve the financial statements unless he is satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the director is required to:

•     select suitable accounting policies and then apply them consistently;

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

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

The director is responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. He is also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

We have audited the financial statements of Purple Surgical Manufacturing Limited (the 'company') for the year ended 30 June 2020 which comprise the statement of comprehensive income, the balance sheet, the statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

•     give a true and fair view of the state of the company's affairs as at 30 June 2020 and of its loss for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter – Provision and events after the reporting period

We draw attention to notes 2, 4, 12 and 22 of the financial statements, which describe judgments and estimates made by the director regarding provisions for litigations affecting the company during the year and after the year end.

Debtors are stated after a provision related to amounts advanced to suppliers that have not been recovered. During the year an expense of the same amount is recognised in the profit and loss account within Exceptional costs – Bad debt and litigation provision.

At the time of approval of these financial statements the litigation is on-going and therefore is inherently uncertain. The director has based their estimate on the continued professional advice received from the company’s lawyers. If the outcome of the litigation differs from the director's expectations then the estimates made may not prove to be accurate and could result in material updates to the provisions. Our opinion is not modified in this respect.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the director's use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the director has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The director is responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the strategic report and the director's report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the director's report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the director's report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

•     adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

•     the financial statements are not in agreement with the accounting records and returns; or

•     certain disclosures of director's remuneration specified by law are not made; or

•     we have not received all the information and explanations we require for our audit.

As explained more fully in the director's responsibilities statement, the director is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the director determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the director is responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the director either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to him in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

The profit and loss account has been prepared on the basis that all operations are continuing operations.

Purple Surgical Manufacturing Limited is a private company limited by shares incorporated in England and Wales. The registered office is 2 Chestnut House, Farm Close, Shenley, Hertfordshire, United Kingdom, WD7 9AD.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:

- Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;

- Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’: Interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;

- Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.

The financial statements of the company are consolidated in the financial statements of Purple Surgical Holdings Limited. These consolidated financial statements are available from its registered office, 2 Chestnut House, Farm Close, Shenley, Hertfordshire, United Kingdom, WD7 9AD.

The director hatrues considered the effect of the Covid-19 pandemic. The pandemic has caused disruption to the company’s business to date and the director considers that a prolonged outbreak is likely to cause further disruption. The business' core sales have been negatively impacted due to hospital resources being diverted away from elective surgery to treating Covid-19 patients. The director expects that the core business will see a return to elective surgery as the world moves out of the global Covid-19 pandemic.

Notwithstanding this, the group has been able to grow its turnover by responding to the UK Government’s request to private sector industry to urgently source much needed PPE on their behalf during the Covid-19 pandemic. The group has also supplied PPE to private sector healthcare institutions. These sales are made via the fellow subsidiary, Purple Surgical UK Limited.

The director is confident that the company has adequate resources to continue in operation for the foreseeable future based on the continued support of the parent company and its group.

The group has returned significant profits in the period since the year end relating to the supply of PPE. The group continues to have significant liquidity headroom on existing bank facilities and is compliant with the financial covenants. Thus the director continues to adopt the going concern basis of accounting in preparing the financial statements.

Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.

At each reporting period end date, the company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Stocks are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost comprises direct costs that have been incurred in bringing the stocks to their present location and condition.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

Cash at bank and in hand are basic financial assets and include cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans and loans from fellow group companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Derivatives, including interest rate swaps and forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or finance income as appropriate, unless hedge accounting is applied and the hedge is a cash flow hedge.

Debt instruments that do not meet the conditions in FRS 102 paragraph 11.9 are subsequently measured at fair value through profit or loss. Debt instruments may be designated as being measured at fair value through profit or loss to eliminate or reduce an accounting mismatch or if the instruments are measured and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Rentals payable under operating leases, including any lease incentives received, are charged to expenses on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

In the application of the company’s accounting policies, the director is required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.

Management reviews the useful lives of depreciable assets at each reporting date, based on expected utility of the assets. Uncertainties in these estimates relate to the period that the company intends to derive future economic benefits from the use of these assets. Depreciation is disclosed in note 10.

Stock is valued at the lower of cost and net realisable value. Net realisable value includes, where necessary, provisions for slow moving and obsolete inventories. Calculation of these estimates requires judgements to be made, which include forecasting consumer demand and the economic environment. This is reviewed by the management on a regular basis. The stock provision at the year end is £272,379 (2019: £361,531).

At the year end the director has recognised provisions against debtors owing to the company. These provisions relate to advance payments made to suppliers for PPE where the supplier was unable to fulfill their obligations or return the advanced payments. The director is in regular contact with the appointed lawyers. Following professional advice, the provisions have been estimated based on the director's expectations of the outcomes of the on-going litigations. Until the litigations are finalised and settled the provisions remain uncertain.

At 30 June 2020 there are provisions of £1,700,870 (2019: £nil) included in the balance sheet relating to on-going litigations for the recovery of advanced payments. During the year, an expense of £1,700,870 (2019: £nil) has been recognised in the profit and loss account within Exceptional costs - bad debts and litigation provision .

Exceptional cost - bad debts and litigation provision

This expense relates to provisions against non-recovery of advanced payments made to suppliers where no PPE goods or refunds were provided. See note 12.

The director regards these expenses as exceptional as they have arisen as a result of the temporary surge in demand for PPE during the Covid-19 pandemic.

The average monthly number of persons (including directors) employed by the company during the year was:

Their aggregate remuneration comprised:

The remuneration of key management personnel totalled £99,097 (2019: £88,046).

The actual (credit)/charge for the year can be reconciled to the expected (credit)/charge for the year based on the profit or loss and the standard rate of tax as follows:

The net carrying value of tangible fixed assets includes the following in respect of assets held under finance leases or hire purchase contracts.

The stock balance above is shown net of stock provisions of £272,379 (2019: £361,531).

Advance payments made to supplier is a balance of £1,838,015 (2019: £nil) shown net of a provision of £1,700,870 (2019: £nil) at the year end. Also see notes 2 and 4.

The bank loan is repayable in 48 monthly instalments commencing 1 February 2018. Interest is charged at 2.95% over bank base rate. This loan is secured by a charge on the assets of the group.

The finance leases are repayable over 60 monthly payments over a period of 5 years from October 2017 and interest charges range from between 8% to 10%.

The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:

The deferred tax liability set out above relates to accelerated capital allowances. The deferred tax liability is expected to reverse over the estimated useful life of tangible fixed assets.

The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.

The A Ordinary and C Ordinary shares rank pari-passu in all respects except with regards to dividends, voting and capital rights.

There are cross guarantees and debentures in existence in respect of the borrowings of fellow group companies totalling £nil (2019: £892,172).

At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

PPE fraud and litigation

During the financial year to 30 June 2021, the Company became aware of a claim against it for amounts relating to the supply of PPE. This claim is subject to on-going settlement discussions and potential litigation. The Company denies any wrongdoing or breach but the director considers it prudent to provide £2,000,000 in the year ended 30 June 2021 for any and all liabilities, including legal costs.

Lease

On 1 July 2020, the company entered into a new property lease agreement with a term ending in June 2026 for a second warehouse site.

The company was under the control of R Sharpe throughout the current and previous year.

The company trades on a commercial basis with fellow subsidiary undertaking Purple Surgical UK Limited. Included in the profit and loss account are sales to Purple Surgical UK Limited of £4,084,361 (2019: £5,439,372).

The company also trades on a commercial basis with Purple Surgical International Limited, a fellow subsidiary undertaking. Sales to Purple Surgical International Limited during the year amounted to £5,585,174 (2019: £5,367,619).

Also included in the profit and loss account is income in respect of warehouse charges charged to Purple Surgical UK Limited of £651,875 (2019: £500,000) and Purple Surgical International Limited of £343,282 (2019: £330,000).

At the year end the company owed £2,822,738 (2019: £274,038) to Purple Surgical UK Limited, £5,214,664 (2019: £3,336,785) to Purple Surgical International Limited and £nil (2019: £1) to Cory Plastics Limited, all fellow subsidiaries.

In addition the company rented premises from the R Sharpe Pension Fund, of which R Sharpe is a Trustee. Rent paid during the year amounted to £206,497 (2019: £206,500).

The parent company is Purple Surgical Holdings Limited, a company incorporated in England whose registered office is 2 Chestnut House, Farm Close, Shenley, Hertfordshire, United Kingdom, WD7 9AD.

The ultimate controlling party throughout the current and previous year was Robert Sharpe.