CRESCENT_PHARMACEUTICALS_ - Accounts

The director presents the strategic report for the year ended 31 December 2021.

During 2021, the company remained the non-trading holding company for one subsidiary, which itself has a subsidiary. On 22 December 2021, the company acquired 100% of the shareholding of Thorpe Laboratories Limited. Therefore as at 31 December 2021, the company had two direct subsidiaries and one indirect subsidiary.

Group turnover has fallen by 9% to £96,671,533 (2020 - increased by 40%). During 2021, the Groups main subsidiary took advantage of all available product markets to maintain its position in an increasingly competitive market. The company maintained its investment in its diversified warehousing and distribution capabilities, together with ongoing investment into UK based manufacturing opportunities.

The group ended the year with net assets totaling £23,808,490 (2020 - £22,419,003). Stock holding has increased in 2021 to £45,401,893 (2020 - £36,113,938), with cash balances falling on the previous year.

The group's financial instruments comprise bank balances, trade debtors and trade creditors. The main purpose of these instruments is to finance the group's operations.

Trade creditors' liquidity risk is managed by ensuring sufficient funds are available to meet amounts due, coupled with beneficial terms of payment with primary suppliers.

The principal risk to the group is the uncertainty surrounding the United Kingdom exit from the European Economic Community which has led to volatility in the foreign exchange markets. A combination of steps are taken to reduce the impact, this includes renegotiating costs where possible, increasing shelf life of product and holding more of a buffer of stock. As part of the contingency plan the group is in regular, detailed talks with the Department of Health regarding stock availability post exit from the European Economic Community.

Other risks to the Group include the lengthy time taken to expand its licence portfolio, and the effect of the COVID-19 lockdown restrictions on the behaviour of patients and the pattern of prescribing by doctors.

The Group would have continued to pursue new product dossiers and licences except that any such activity has been severely restricted by the impact of Covid-19. The coronavirus pandemic has provided significant opportunities for the company in the demand for pharmaceutical due to some shortages and disruptions to the supply lines worldwide. All Group staff have been able to work from home where possible but equally the main offices have remained open as the Group has been identified as a key worker. All warehouses remain operational with staff working adjusted shift to accommodate social distancing and maintain operation and deliveries to hospitals and wholesalers.

Following the year end the Group has built on acquisitions made in 2021 by acquiring two further entities.

The Board of Directors believe that they have acted in the way they consider to be both in good faith and would be most likely to promote the success of the Group for the benefit of its members as a whole (having regard to the stakeholders and matters set out in s172(1)(a-f) of the Act) in the decisions taken during the year ended 31 December 2021; and in so having regard, amongst other matters to; 

(a)    the likely consequences of any decision in the long term,

(b)    the interests of the Group’s employees

(c)    the need to foster the Group's business relationships with suppliers, customers, regulatory authorities

and others,

(d)    the impact of the Group's operations on the community and the environment,

(e)    the desirability of the Group maintaining a reputation for high standards of business conduct, and 

(f)    the need to act fairly as between members of the Group.

The Board has a business plan which is based around achieving our long-term goal of being regarded as a leading wholesaler of licensed pharmaceutical products for the UK and EU markets.

The Board understands the importance of engaging with all its stakeholders and regularly discusses issues concerning employees, clients, suppliers, community and environment, regulators and shareholders which inform its decision making processes.

Inherently, there is an inter-dependency on the success of the Group and the success of its stakeholders.

Employees

Our employees remain fundamental to the achievement of our business plan.  In addition to aiming to be a responsible employer in our approach to pay and benefits, we continue to engage with our team to ascertain which training and development opportunities should be made available to improve our team’s productivity and our individual employees’ potential within the business.

Clients

We continue to engage closely with our clients, who are mainly large UK based. Our aim is ensure that our customers’ needs are met and in particular our products arrive on time and meet their specifications.

Suppliers

We value the supplier base as partners and our aim is to develop and enter into strong stable working relationships with them. We seek to be fair and transparent in our dealings with suppliers and we ensure that we honour our arrangements with them.

Environment and community

The Board takes sustainability and environmental responsibility very seriously. The Group encourages diversity and inclusion of employees of all backgrounds.

Governance and regulation

The Board’s intention is to behave responsibly and to ensure that the management team operates the business in a responsible manner, acting with the high standards of business conduct and good governance expected of a business of our nature and size and in full alignment with the rules and regulations. In doing so, we believe we will achieve our long-term business strategy and also further develop our reputation in our sector.

Members

The Board has a close working relationship with the shareholders and seeks to treat them fairly and equally, in order that they too benefit from the Group achieving its long term business strategy.

The Board seeks to provide information relevant to the shareholders, including monthly management accounts including key metrics set by the Board. 

On behalf of the board

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 group and company, and of the profit or loss of the group 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;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the ;

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

The director is responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The director presents his annual report and financial statements for the year ended 31 December 2021.

The principal activity of the company and group continued to be that of wholesale distribution of pharmaceutical products.

The results for the year are set out on page 10.

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

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

The company is aware of its obligation to report under requirements of Statutory Instrument 2018 No. 1155 The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 and does not qualify as a low energy user under these regulations. Disclosures have been included below in respect of this.

Unfortunately, due to an administrative oversight, the company had not obtained the required data to enable it to comply with these reporting requirements in the previous financial reporting period. The impact of this non-compliance is also noted in the Auditor’s Report, on pages 7-9.

The group has followed the 2019 HM Government Environmental Reporting Guidelines. The group has also used the GHG Reporting Protocol – Corporate Standard and have used the 2021 UK Government’s Conversion Factors for Company Reporting.

The chosen intensity measurement ratio is total gross emissions in metric tonnes CO2e per revenue (£1m).

We have encouraged our departments to go paperless to reduce our carbon footprint. Our printing cost have reduced by 12% in 2021.

Our Head office uses LED lightings which reduces energy by 75% compared to incandescent lighting. We have sensors for infrequently used spaces such as restrooms and staff kitchen to cut down our energy use.

The company continues to strive for energy and carbon reduction arising from its activities.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the auditor of the company is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the auditor of the company is aware of that information.

Azets Audit Services will not be seeking reappointment as auditors of the group and company.

We have audited the financial statements of Crescent Pharmaceuticals Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2021 which comprise the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows, the company statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 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 group's and the parent company's affairs as at 31 December 2021 and of the group's profit 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 group and parent 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.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the director with respect to going concern are described in the relevant sections of this report.

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 contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.

Except for the matter set out below in "Opinions on other matters prescribed by the Companies Act 2006", 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 directors’ report do not comply with the legal requirements of Statutory Instrument 2018 No. 1155 The Companies (Directors’ Report) and the Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, on the basis that the disclosures required by Part 7A of the Statutory Instrument are not given for the comparative period; and

• except for the above, 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 group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the director's report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

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

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

• certain disclosures of directors' 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 parent 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 parent 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 is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.

We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework.  Based on this understanding, we identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.  This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.

In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:

• Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud; 

• Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the entity through enquiry and inspection; 

• Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;

• Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias. 

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation.  This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance.  The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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 them 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.

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £0 (2020 - £0 profit).

In the application of the group’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 following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

The Group considers whether intangible assets (such as purchased intellectual property from third parties including clinical dossiers) are impaired. Management carries out an assessment on the economic viability and expected future financial performance of these purchased intangible assets. Where an indication of impairment is identified, the estimation of the recoverable value requires an assessment of the future cash flows and benefits from these intangible assets and the selection of the appropriate discount rates in order to calculate the net present values of those cash flows. When these do not support the carrying amount, an impairment is recorded.

Determine whether leases entered into by the Group are operating or finance leases. These decisions depend on an assessment of whether the risks and rewards of ownership have been transferred from the lessor to the lessee on a lease by lease basis.

The Group purchases stock from related parties which is subject to market conditions and fluctuations due to variable factors such as inflation, warehouse management charges, rental charges and other overheads borne by the related parties. These variable factors have an impact on the pricing structure which determines the unit cost price of the stock. Management carries out an assessment that these factors are considered at an arms’ length transaction.

The Group carries out an assessment to determine whether borrowings are classed as current or non-current borrowings. These decisions depend on the cash flow requirements of the Group and also an assessment whether the borrowings of the Group can be repaid.

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.

Tangible fixed assets are depreciated over their useful economic lives, taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into consideration. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

At each reporting date, tangible fixed assets are reviewed to determine whether there is any indication that those assets have suffered an impairment loss. The carrying value of tangible fixed assets is reviewed for impairment in periods if events or changes in circumstances indicate the carrying value of these assets may not be recoverable.

Stock is reviewed annually for impairment and a stock provision is provided for accordingly on a line by line basis. Management carries out an assessment based on the shelf lives of each product category with regards to the expiry dates and takes into account the general market conditions and expected net realisable value into consideration when determining the level of provision required.

Rebate accruals are estimated at the year end based on contractual agreements in place.

Stock provision

A provision is included in the accounts for impaired stock. Stock expiring within 12 months of the balance sheet date is provided for at 100%. Stock expiring after 12 months from the balance sheet date is provided for at varying percentages based on the remaining shelf lives of the stock, varying between 90% and 10%.

Management has adopted a new provisioning policy in 2021 and therefore prior period adjustments have been included in 2020 and 2019 in order to reflect the change in accounting policy applied retrospectively.

A detailed explanation of the effect of these changes to the accounts can be found in note 32 of the financial statements.

Crescent Pharmaceuticals Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Key House, Sarum Hill, Basingstoke, Hampshire, United Kingdom, RG21 8SR.

The group consists of Crescent Pharmaceuticals Limited and all of its subsidiaries.

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.

FRS102 allows exemptions from presenting related party transactions with and between wholly owned subsidiaries, provided that the financial statements of the subsidiary are included in the consolidated accounts and there are no objections from the shareholders. The financial statements have been prepared in accordance with the exemptions.

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.

The consolidated financial statements consolidate the financial statements of the company and its subsidiary undertakings drawn up to 31 December 2021.

No Profit and Loss account is presented for the Company as permitted by section 408 of the Companies Act 2006.

A subsidiary is an entity controlled by the company. Control is achieved where the company has the power to govern the financial and operating policies of an entity so to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the Profit and Loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the group.

The purchase method of accounting is used to account for business combinations that result in the acquisition of subsidiaries by the group. The cost of a business combination is measured as the fair value of the assets given, equity instruments used, and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Any excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised is recorded as goodwill.

Inter-company transactions, balances and unrealised gains on transactions between the company and its subsidiaries, which are related parties, are eliminated in full.

Intra-group losses are also eliminated but may indicate an impairment that requires recognition in the consolidated financial statements.

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder's share of changes in equity since the date of the combination.

At the time of approving the financial statements, the director has a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus the director continues to adopt the going concern basis of accounting in preparing the financial statements.

The business continues to maintain strong reserves and has a robust asset base and as a result we remain confident it is appropriate for the Group to continue to adopt the going concern basis of preparation for a period of 12 months from the date of approving these 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.

Research expenditure is written off against profits in the year in which it is incurred. Identifiable development expenditure is capitalised to the extent that the technical, commercial and financial feasibility can be demonstrated.

Goodwill represents the excess of the cost of acquisition of a business over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its useful economic life.

For the purposes of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

Negative goodwill is included within intangible assets and released to the profit and loss account in the periods in which the fair value of the non-monetary assets purchased on the same acquisition are recovered, whether through sale or depreciation.

Negative goodwill in excess of fair value of non-monetary assets acquired is released to the profit and loss account on a straight line basis over 5 years.

In the opinion of the directors, as the acquisition on which goodwill on consolidation arises, occurred at the end of this financial year, it is appropriate not to recognise any amortisation in the financial year.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

The Group considers whether intangible assets (such as purchased intellectual property from third parties including clinical dossiers) are impaired. Management carries out an assessment on the economic viability and expected future financial performance of these purchased intangible assets. Where an indication of impairment is identified, the estimation of the recoverable value requires an assessment of the future cash flows and benefits from these intangible assets and the selection of the appropriate discount rates in order to calculate the net present values of those cash flows. When these do not support the carrying amount, an impairment is recorded.

Amortisation 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:

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 recognised in the profit and loss account.

Equity investments are measured at fair value through profit or loss, except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably, which are recognised at cost less impairment until a reliable measure of fair value becomes available.

In the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

Entities in which the group has a long term interest and shares control under a contractual arrangement are classified as jointly controlled entities.

At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible 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.

The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.

As noted in 3.6 above, In the opinion of the directors, as the acquisition on which goodwill on consolidation arises, occurred at the end of this financial year, it is appropriate not to recognise any amortisation in the financial year.

Stocks are stated at the lower of cost and net realisable value, after due regards for obsolete and slow moving stocks. Net realisable value is based on selling price less anticipated costs to completion and selling costs.

A provision is included in the accounts for impaired stock. Stock expiring within 12 months of the balance sheet date is provided for at 100%. Stock expiring after 12 months from the balance sheet date is provided for at varying percentages based on the remaining shelf life of the stock, varying between 90% and 10%.

This is a change of accounting policy, and as such a prior period adjustment has been recognised accordingly.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The group 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 group's balance sheet when the group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and 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 group 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 group after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, 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.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

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 group's contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the group 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 group.

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 group’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 if, and only if, there is 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.

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

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets at the lower of the assets fair value at the date of inception and the present value of the minimum lease payments. The related liability is included in the balance sheet as a finance lease obligation. Lease payments are treated as consisting of capital and interest elements. The interest is charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss 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 leased asset are consumed.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.

During the year the group entered into a contract for the purchase and further development of pharmaceutical intellectual property. Subsequent to this, the group terminated this contract on the basis of lack of commercial and economic viability, and expected future performance. The intangible asset acquired was therefore fully impaired accordingly.

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

Their aggregate remuneration comprised:

Investment income includes the following:

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

Refer to note 5 for more details on the impairment loss incurred during the year.

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

Details of the company's subsidiaries at 31 December 2021 are as follows:

Thorpe Laboratories Limited was acquired by the Group on the 22 December 2021. Its trading results have been excluded from the consolidated accounts on the grounds it is immaterial.

Included within other borrowings is £1,000,000 (2020 - £nil) due to a company under common ownership. This loan is repayable on demand and has an interest rate of 2% per annum.

Finance lease payments represent rentals payable by the company for certain motor vehicles. Leases include purchase options at the end of the lease period, and no restrictions are placed on the use of the assets. The average lease term is 2 years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

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

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

The share capital represents the nominal value of the shares that have been issued.

The profit and loss account represents all accumulated net gains and losses which are distributable.

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

During the year, the group paid £1,465,000 (2020 - £1,465,000) to related parties for rent for which there is not formal contractual lease obligation.

During the year the group entered into the following transactions with related parties:

The ultimate controlling party is Mr M Al-Doori.

In the current year, the Group has implemented a change in the stock provisioning policy, as detailed in the changes to accounting policy note and the effects of which have been applied retrospectively to the prior periods. As this is a change in accounting policy it has resulted in prior year adjustments for the years ending 31 December 2020 and 31 December 2019.

During the course of the prior year audit, it became apparent that on the change of accounting software in late 2018, Goods Received Not Invoiced had been incorrectly mapped in the Subsidiaries Chart of Accounts, and were consequently incorrectly credited to cost of sales. This resulted in a material misstatement of profit for the year, and creditors at the balance sheet date. Following detailed review and analysis, the Group has corrected for this error, and the comparative figures and opening reserves have been adjusted accordingly.

The taxation adjustment is a result of the movement in the profit and loss figure of the above retrospective adjustments.