Registered number:
02825947
ABC DRUG STORES LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
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COMPANY INFORMATION
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KPMG LLP, Statutory Auditor
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CONTENTS
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Independent Auditor's Report to the Members of ABC Drug Stores Limited
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Statement of Comprehensive Income
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Statement of Changes in Equity
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Notes to the Financial Statements
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STRATEGIC REPORT
FOR THE YEAR ENDED 31 MARCH 2021
The company forms part of the Day Lewis Plc Group retail business.
During the year ended 31 March 2021, the company operated 28 retail pharmacies and all were performing to budget. The company’s strategy was to continue driving growth through its existing portfolio. However, as disclosed in note 2.3, on 31 March 2021, the directors took the decision to hive-up the trade and assets of the company to Day Lewis Plc, a parent undertaking, after the year end and then cease trading. 23 pharmacies were transferred on 2 April 2021, a further 4 were transferred on 4 May 2021, and the last pharmacy was sold under a management agreement until the NHS license transfers to the new owner with completion expected in November 2021.
The English pharmacy sector represents a secure, growing market, underpinned by an increasing need for dispensing of prescription drugs and a government that wants to see community pharmacies expand and improve the range of services they offer to relieve the burden on an overstretched NHS.
The company's pharmacies are typically located in local communities, in or near health centres and GP surgeries, delivering increased footfall, developing strong relationships with the local healthcare community and building Day Lewis’s brand as a trusted healthcare provider.
Day Lewis prides itself on its service led approach; putting the patient at the heart of its decisions is a key differentiator for the business enabling it to build a large base of loyal, recurring customers, evidenced by repeat prescriptions making up 70% of the group's dispensing activities.
The year to 31 March 2021 was dominated by the impact of the COVID-19 pandemic. With additional prescriptions written during March 2020, many for longer periods of treatment as GPs brought forward future prescribing, dispensing decreased nationally over the financial year to 31 March 2021 by 2.7% (versus 1.9% increase in the year to March 2020). Day Lewis continued to outperform the market with the group dispensing 22.4m prescriptions which is a 1.1% decrease from the prior year (23.1m in the year to 31 March 2020).
The Directors of Day Lewis would like to thank colleagues for their efforts during the COVID-19 pandemic. The staff resilience, commitment and overall care for the customers has been hugely appreciated during the challenging times.
With increased raw drug pricing following stock shortages at the start of the COVID-19 pandemic, Government reimbursement increased accordingly. Pharmacies experienced a sharp reduction in additional patient services performed during this time as face-to-face consultations were not possible, although this was offset by a very strong flu vaccination season. Day Lewis also saw strong retail (over-the-counter) sales during the year with strong PPE sales.
The COVID-19 pandemic also saw increased associated costs of doing business, some of which were directly compensated for by the Government. Increased staff costs were the main concern with cover for shielding or COVID positive tested colleagues as well as overtime to cover additional opening required during Public Holidays as per Government guidance. The Directors of Day Lewis were pleased that the Government gave additional support through Business Rates holidays and Retail Hospitality and Leisure Grants. Day Lewis received its share of £370m Pharmacy Funding loan (£7.8m) which was part of the Government response to the COVID-19 pandemic. This is expected to be fully repaid in the financial year to 31 March 2022.
Principal risks and uncertainties
Principal risks and uncertainties and risk management objectives and policies are managed by the group.
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STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2021
Price risk
The company, through its investments, is exposed to the inherent risks of economic and financial market developments, including recession, inflation, availability of affordable credit and currency fluctuations that could lower revenues. The current system of correcting generic reimbursement prices through the mechanism of "Category M & C" has continued through the current financial year. Category M & C was introduced with the new pharmacy contract in 2005 and allows the retail pharmacy industry to retain an amount of £800m of generic procurement profit annually. The system is therefore used retrospectively by the Department of Health to claw back surplus procurement profits or reimburse any shortfall. Through a continual business review process and monitoring of the business environment, the Directors of the company and the wider group seek to mitigate these potential risks.
Liquidity risk
In September 2020, the Group entered into a new long-term financing agreement with its banks. A RCF facility of £125m being agreed until at least 2023, with options to extend to 2025. The Directors believe the company has sufficient current and future cash reserves and facilities available to meet its liabilities including financing obligations for at least twelve months from the signing of these financial statements.
There is significant headroom in the Group's banking covenants at 31 March 2021. At the year end £75m (2020: £117m) of the £125m facility was drawn down and additionally there were cash balances in the Group of £10.4m (2020: £9.6m).
The Directors' assessment of the company's ability to adopt the going concern basis of accounting is set out in note 2.
The entity transferred the trade and assets of ABC Drug Stores Ltd up to the parent company Day Lewis PLC
after the balance sheet date. The accounts have therefore been prepared on the break up basis.
Interest rate risk
The interest rate risk is significantly mitigated by an interest rate swap arrangement that was entered into by the Group in September 2020. Under this agreement, interest is fixed at a rate of 0.088% for £50m of debt (reducing to £40m in March 2023). The swap instrument is in place until September 2025.
Macroeconomic and political environment risk
The Group could be adversely affected by the impact of the current macroeconomic and political environment on key suppliers and customer groups.
The Group views the 5 year pharmacy funding deal agreed in 2019 to have had a positive impact for the industry with security of funding for community pharmacies in the coming years. The COVID-19 pandemic and fluctuations in raw drug prices which has required pharmacy funding to keep pace. With additional revenue received by Pharmacy during the COVID-19 pandemic there is an expectation of clawback returning in the financial year to 31 March 2022.
Brexit had minimal impact on the Group. Day Lewis is better placed to service its patients as it is less reliant on third party wholesalers than the majority of pharmacy contractors. The process of importing stock to the UK from the EU has been well supported by the UK Government. While sales to the EU have been curtailed post Brexit, the strengthening of the Pound has opened opportunities in other markets around the world. Post Brexit recruitment challenges have been mitigated with Pharmacists being included on the Shortage Occupation List for sponsored immigration visas.
The long-term impacts of the COVID-19 pandemic remain to be seen. GPs interactions with patients have changed with more less face-to-face consultations and this will especially impact Day Lewis pharmacies based in GP surgeries. Prescribing dynamics and customer requirement have also changed during the pandemic and Day
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STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2021
Lewis expect these changes to continue to drive customer requirements in the future.
Cash flow risk
The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The group uses interest rate swap contracts to hedge interest rate exposures. Foreign currency rates risk is mitigated by buying currency at spot and one month forward rate.
Interest bearing assets and liabilities are held at fixed rate to ensure certainty of cash flows.
Credit risk
The Group's principal financial assets are bank balances and cash, trade and other receivables. The credit risk on trade and other receivables is limited as the majority of the company's retail exposure is with Department of Health.
Financial key performance indicators
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Turnover for the year was £25.8m (2020: £25.2m).
The gross margin increased by 0.1% to 31.1% in 2021 (2020: 31.0%) based on a gross profit of £8.0m for the year (2020: £7.8m).
Total administrative costs decreased by £0.8m to £5.6m (2020: £6.4m).
Operating profit for the year increased by £1.4m to £2.7m (2020: £1.3m)
This report was approved by the board
and signed on its behalf.
Mr J C Patel (Sam)
Director
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DIRECTORS' REPORT
FOR THE YEAR ENDED 31 MARCH 2021
The Directors present their report and the financial statements for the year ended 31 March 2021.
Directors' responsibilities statement
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The Directors are responsible for preparing the Strategic Report, the Directors' Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year
. Under that law they have elected to prepare the financial statements in accordance with UK accounting standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the Directors are required to:
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select suitable accounting policies and then apply them consistently;
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make judgements and accounting estimates that are reasonable and prudent;
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state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
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assess the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
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use the going concern basis of accounting unless they either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so (as explained in note 2, the directors do not believe that it is appropriate to prepare these financial statements on a going concern basis).
The Directors are 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 to enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
During the year ended 31 March 2021, the company's principal activity was that of retail pharmacy.
On 31 March 2021, the Directors took the decision to hive-up the trade and assets of the company to Day Lewis Plc, a parent undertaking, after the year end and then cease trading. 23 pharmacies were transferred on 2 April 2021, a further 4 were transferred on 4 May 2021, and the last pharmacy was sold under a management agreement until the NHS license transfers to the new owner with completion expected in November 2021. As the Directors do not intend to acquire a replacement trade, they have not prepared the financial statements on a going concern basis. The effect of this is explained in note 2.
The profit for the year, after taxation, amounted to £
2,180,782
(2020 -
£
809,434
)
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The Directors have not recommended a dividend (2020: £nil)
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DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 MARCH 2021
The Directors who served during the year were:
Disclosure of information to auditor
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Each of the persons who are
Directors at the time when this Directors' Report is approved has confirmed that:
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so far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware, and
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the Director has taken all the steps that ought to have been taken as a Director in order to be aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Post balance sheet events
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On 31 March 2021, the Directors took the decision to hive-up the trade and assets of the company to Day Lewis Plc, a parent undertaking, after the year end and then cease trading. 23 pharmacies were transferred on 2 April 2021, a further 4 were transferred on 4 May 2021, and the last pharmacy was sold under a management agreement until the NHS license transfers to the new owner with completion expected in November 2021.
The auditor, KPMG LLP, Statutory Auditor, will be proposed for reappointment in accordance with
section 485 of the Companies Act 2006.
This report was approved by the board and signed on its behalf.
Mr J C Patel (Sam)
Director
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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ABC DRUG STORES LIMITED
Opinion
We have audited the financial statements of ABC Drug Stores Limited (“the Company”) for the year ended 31 March 2021 which comprise the Profit and Loss Account, Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity and related notes, including the accounting policies in note 2.
In our opinion the financial statements:
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give a true and fair view of the state of the Company’s affairs as at 31 March 2021 and of its profit for the year then ended;
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have been properly prepared in accordance with UK accounting standards, including FRS 102
The Financial Reporting Standard applicable in the UK and Republic of Ireland
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have been prepared in accordance with the requirements of the Companies Act 2006.
Emphasis of matter - non-going concern basis of preparation
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the company in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Going concern
We draw attention to the disclosure made in note 2.3 to the financial statements which explains that the financial statements are now not prepared on the going concern basis for the reason set out in that note. Our opinion is not modified in respect of this matter.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
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Enquiring of directors and management as to the Company’s high-level policies and procedures to prevent and detect fraud, including the Company’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud.
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Reading Board minutes.
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Considering remuneration incentive schemes and performance targets for management.
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Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.
As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries. On this audit we do not believe there is a fraud risk related to revenue recognition because of the simple nature and low value of individual transactions.
We did not identify any additional fraud risks.
In determining the audit procedures we took into account the results of our evaluation and testing of the operating effectiveness of some of the Company-wide fraud risk management controls.
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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ABC DRUG STORES LIMITED
We performed procedures including:
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Identifying journal entries to test based on risk criteria and comparing the identified entries to supporting documentation. These included unexpected postings to revenue and cash accounts.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards), and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, taxation legislation, Medicines and Healthcare products Regulatory Agency (MHRA) legislation and General Pharmaceutical Council (GPhC) legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Company’s pharmacy licenses to operate. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, employment law, GDPR, regulatory capital and liquidity and certain aspects of company legislation recognising the nature of the Company’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
Strategic report and directors’ report
The Directors are responsible for the Strategic report and the Directors’ report. Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon.
Our responsibility is to read the Strategic report and the Directors’ report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work:
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we have not identified material misstatements in the Strategic report and the Directors’ report;
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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ABC DRUG STORES LIMITED
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in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
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in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
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adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
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the financial statements are not in agreement with the accounting records and returns; or
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certain disclosures of Directors’ remuneration specified by law are not made; or
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we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
Directors' responsibilities
As explained more fully in their statement set out on page 4, the Directors are responsible for: the preparation of the financial statements and for being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; 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 they either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditors' responsibilities
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 our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not 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 aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities
The purpose of our audit work and to whom we owe our responsibilities
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.
Timothy Rush
(Senior statutory auditor)
for and on behalf of
KPMG LLP, Statutory Auditor
Chartered Accountants
1 Forest Gate
Brighton Road
Crawley
RH11 9PT
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INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ABC DRUG STORES LIMITED
20 September 2021
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PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2021
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Impairment of pharmacy licences
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Interest payable and similar expenses
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Profit for the financial year
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There were no recognised gains and losses for 2021 or 2020 other than those included in the profit and loss account.
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STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2021
Profit for the financial year
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Other comprehensive income
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Total comprehensive income for the year
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The notes on pages 14 to 32 form part of these financial statements.
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ABC DRUG STORES LIMITED
REGISTERED NUMBER:
02825947
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BALANCE SHEET
AS AT
31 MARCH 2021
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Fixed assets held for sale
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Debtors: amounts falling due within one year
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Creditors: amounts falling due within one year
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Net current assets/(liabilities)
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Total assets less current liabilities
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Provisions for liabilities
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The financial statements were approved and authorised for issue by the board and were signed on its behalf by
:
The notes on pages 14 to 32 form part of these financial statements.
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STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
31 MARCH 2021
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Comprehensive income for the year
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Total comprehensive income for the year
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STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED
31 MARCH 2020
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Comprehensive income for the year
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Total comprehensive income for the year
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The notes on pages 14 to 32 form part of these financial statements.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
ABC Drug Stores Limited (the “Company”) is a private company limited by shares and incorporated, domiciled and registered in England in the United Kingdom. The address of the registered office is given on the company information page.
2.
Accounting policies
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Basis of preparation of financial statements
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The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in
the UK and the Republic of Ireland and the Companies Act 2006
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The functional currency of ABC Drug Stores Limited is considered to be pounds sterling because that is the currency of the primary economic environment in which the Company operates. The financial statements are also presented in pounds sterling and rounded to nearest £.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Company's accounting policies (see note 3).
The following principal accounting policies have been applied:
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Financial reporting standard 102 - reduced disclosure exemptions
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The company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by the FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland":
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the requirements of Section 7 Statement of Cash Flows;
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the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d);
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the requirements of Section 11 Financial Instruments paragraphs 11.42, 11.44 to 11.45, 11.47, 11.48(a)(iii), 11.48(a)(iv), 11.48(b) and 11.48(c);
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the requirements of Section 12 Other Financial Instruments paragraphs 12.26 to 12.27, 12.29(a), 12.29(b) and 12.29A;
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the requirements of Section 26 Share-based Payment paragraphs 26.18(b), 26.19 to 26.21 and 26.23;
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the requirements of Section 33 Related Party Disclosures paragraph 33.7.
This information is included in the consolidated financial statements of Day Lewis Plc as at 31 March 2021 and these financial statements may be obtained from 2 Peterwood Way, Croydon, Surrey, CR0 4UQ.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
2.
Accounting policies (continued)
In previous years, the financial statements have been prepared on a going concern basis. However, on 31 March 2021, the directors took the decision to hive-up the trade and assets of the company to Day Lewis Plc, a parent undertaking, after the year end and then cease trading. 23 pharmacies were transferred on 2 April 2021, a further 4 were transferred on 4 May 2021, and the last pharmacy was sold under a management agreement until the NHS license transfers to the new owner with completion expected in November 2021.
Accordingly the Directors have not prepared the financial statements on a going concern basis. As a consequence, the company's intangible fixed assets, tangible fixed assets and investments at 31 March 2021 have been reclassified to held for sale.
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Exemption from preparing consolidated financial statements
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The
Company
is a parent
Company
that is also a subsidiary included in the consolidated financial statements of its immediate parent undertaking established under the law of an EEA state and is therefore exempt from the requirement to prepare consolidated financial statements under
section 400 of the Companies Act 2006
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Turnover comprises revenue recognised by the Company in respect of goods and services supplied during the year, exclusive of Value Added Tax and trade discounts.
A revenue recognition adjustment is made in respect of the estimated recovery of excess profit from NHS income paid through the Category M Pricing Policy in the following year.
Intangible assets are initially recognised at cost. After recognition, under the cost model, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses.
All intangible assets are considered to have a finite useful life. If a reliable estimate of the useful life cannot be made, the useful life shall not exceed ten years.
The estimated useful lives range as follows:
Tangible fixed assets under the cost model are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
2.
Accounting policies (continued)
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Tangible fixed assets (continued)
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Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives.
Depreciation is provided on the following basis:
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Leasehold land and buildings
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Over the life of the lease
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25% per annum straight-line
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Fixtures, fittings and equipment
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15% per annum reducing balance
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The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the Profit and Loss Account.
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Impairment of intangible fixed assets and goodwill
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Assets that are subject to depreciation or amortisation are assessed at each balance sheet date to determine whether there is any indication that the assets are impaired. Where there is any indication that an asset may be impaired, the carrying value of the asset (or cash-generating unit to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's (or CGU's) fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets that have been previously impaired are reviewed at each balance sheet date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased.
Investments in subsidiaries are measured at cost less accumulated impairment.
Stocks are stated at the lower of cost and net realisable value, being the estimated selling price less costs to complete and sell. Cost is based on the cost of purchase on a first in, first out basis. Work in progress and finished goods include labour and attributable overheads.
At each balance sheet date, stocks are assessed for impairment. If stock is impaired, the carrying amount is reduced to its selling price less costs to complete and sell. The impairment loss is recognised immediately in the Profit and Loss Account.
Short term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
2.
Accounting policies (continued)
|
|
Cash and cash equivalents
|
Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.
The Company only enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other debtors and creditors, loans from banks and other third parties, loans to related parties and investments in ordinary shares.
Debt instruments (other than those wholly repayable or receivable within one year), including loans and other accounts receivable and payable, are initially measured at present value of the future cash flows and subsequently at amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year, typically trade debtors and creditors, are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received. However, if the arrangements of a short-term instrument constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or in case of an out-right short-term loan that is not at market rate, the financial asset or liability is measured, initially at the present value of future cash flows discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost, unless it qualifies as a loan from a director in the case of a small company, or a public benefit entity concessionary loan.
Investments in non-derivative instruments that are equity to the issuer are measured:
∙
at fair value with changes recognised in the Profit and Loss Account if the shares are publicly traded or their fair value can otherwise be measured reliably;
∙
at cost less impairment for all other investments.
Financial assets that are measured at cost and amortised cost are assessed at the end of each reporting period for objective evidence of impairment. If objective evidence of impairment is found, an impairment loss is recognised in the Profit and Loss Account.
For financial assets measured at amortised cost, the impairment loss is measured as the difference between an asset's carrying amount and the present value of estimated cash flows discounted at the asset's original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
For financial assets measured at cost less impairment, the impairment loss is measured as the difference between an asset's carrying amount and best estimate of the recoverable amount, which is an approximation of the amount that the Company would receive for the asset if it were to be sold at the balance sheet date.
Financial assets and liabilities are offset and the net amount reported in the Balance Sheet when there is an 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.
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
2.
Accounting policies (continued)
Short term creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
Grants are accounted under the accruals model as permitted by FRS 102. Grants relating to expenditure on tangible fixed assets are credited to the Profit and Loss Account at the same rate as the depreciation on the assets to which the grant relates. The deferred element of grants is included in creditors as deferred income.
Grants of a revenue nature are recognised in the Profit and Loss Account in the same period as the related expenditure.
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Foreign currency translation
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Functional and presentation currency
The Company's functional and presentational currency is GBP.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the spot exchange rates at the dates of the transactions.
At each period end foreign currency monetary items are translated using the closing rate. Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and non-monetary items measured at fair value are measured using the exchange rate when fair value was determined.
Foreign exchange gains and losses resulting from the settlement of transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Profit and Loss Account except when deferred in other comprehensive income as qualifying cash flow hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the Profit and Loss Account within 'finance income or costs'. All other foreign exchange gains and losses are presented in the Profit and Loss Account within 'other operating income'.
Finance costs are charged to the Profit and Loss Account over the term of the debt using the effective interest method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
2.
Accounting policies (continued)
|
|
Operating leases: the Company as lessor
|
Rental income from operating leases is credited to the Profit and Loss Account on a straight-line basis over the lease term.
Amounts paid and payable as an incentive to sign an operating lease are recognised as a reduction to income over the lease term on a straight-line basis, unless another systematic basis is representative of the time pattern over which the lessor's benefit from the leased asset is diminished.
|
|
Operating leases: the Company as lessee
|
Rentals paid under operating leases are charged to the Profit and Loss Account on a straight line basis over the lease term.
Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight line basis over the lease term, unless another systematic basis is representative of the time pattern of the lessee's benefit from the use of the leased asset.
Defined contribution pension plan
The Company operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. Once the contributions have been paid the Company has no further payment obligations.
The contributions are recognised as an expense in the Profit and Loss Account when they fall due. Amounts not paid are shown in accruals as a liability in the Balance Sheet. The assets of the plan are held separately from the Company in independently administered funds.
Interest income is recognised in the Profit and Loss Account using the effective interest method.
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Provisions for liabilities
|
Provisions are made where an event has taken place that gives the Company a legal or constructive obligation that probably requires settlement by a transfer of economic benefit, and a reliable estimate can be made of the amount of the obligation.
Provisions are charged as an expense to the Profit and Loss Account in the year that the Company becomes aware of the obligation, and are measured at the best estimate at the Balance Sheet date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties.
When payments are eventually made, they are charged to the provision carried in the Balance Sheet.
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
2.
Accounting policies (continued)
|
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Current and deferred taxation
|
The tax expense for the year comprises current and deferred tax. Tax is recognised in the Profit and Loss Account except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the balance sheet date in the countries where the Company operates and generates income.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the Balance Sheet date, except that:
•
The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;
•
Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and
•
Where they relate to timing differences in respect of interests in subsidiaries, associates, branches and joint ventures and the Company can control the reversal of the timing differences and such reversal is not considered probable in the foreseeable future.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
|
Judgements in applying accounting policies and key sources of estimation uncertainty
|
In the application of the company's accounting policies, which are described in note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amounts 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 if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgements in applying the company's accounting policies
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Key source of estimation uncertainty - impairment of retail pharmacy licences
Determining whether retail pharmacy licenses are impaired requires an estimation of the value in use of the cash-generating units to which retail pharmacy licenses have been allocated. During this financial year the Directors have reassessed on what basis CGUs are formed to a higher sub regional level. The impairment value is based on applicable discount rate and turnaround plan for cash-generating units that may have been impaired. The carrying amount of retail pharmacy licenses at the balance sheet date was £14.2m (2020: £14.1m) after an impairment loss of £nil was recognised during the year (2020: £195.5k).
Key source of estimation uncertainty - useful life of retail pharmacy licences
The Directors believe that the rights for dispensing UK NHS prescriptions, being the pharmacy licence which is attached to a particular pharmacy, have a continuing value. Such rights, conferred by the Department of Health as contracts to dispense prescriptions, are not generally granted to new pharmacies in the same locality. Consequently the Directors consider that the value of retail pharmacy licences have a long life of 100 years and therefore are amortised over that period.
The whole of the turnover is attributable to be that of retail pharmacy.
Analysis of turnover by country of destination:
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
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|
The operating profit is stated after charging:
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Depreciation of tangible fixed assets
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Amortisation of intangible assets
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Other operating lease rentals
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Defined contribution pension cost
|
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The audit fee was borne by the parent company Day Lewis Plc for the year ended 31 March 2021.
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Staff costs were as follows:
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Contribution to defined contribution scheme
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The company does not have any of its own employees by virtue of the fact that contracts of employment for employees within the group are in the name of the parent company, Day Lewis PLC. Day Lewis PLC makes a recharge to the company for the proportion of staff costs relating to time spent by Day Lewis PLC staff on the company’s affairs. These staff costs are disclosed above.
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|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
|
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|
Directors' remuneration was borne by the parent company, Day Lewis Plc, with no allocation or recharge being made to the company.
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Interest payable and similar expenses
|
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Current tax on profits for the year
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Adjustments in respect of previous periods
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Origination and reversal of timing differences
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Taxation on profit on ordinary activities
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
11.
Taxation (continued)
|
Factors affecting tax charge for the year
|
|
The tax assessed for the year is lower than
(2020 - higher than)
the standard rate of corporation tax in the UK of
19
%
(2020 -
19
%)
. The differences are explained below:
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Profit on ordinary activities before tax
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Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 19% (2020 - 19%)
|
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Non-tax deductible amortisation of goodwill and impairment
|
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Expenses not deductible for tax purposes, other than goodwill amortisation and impairment
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Adjustments to tax charge in respect of prior periods
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Deferred tax prior year adjustment
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Total tax charge for the year
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Factors that may affect future tax charges
|
A reduction in the UK corporation tax rate from 19% to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. The March 2020 Budget announced that a rate of 19% would continue to apply with effect from 1 April 2020, and this change was substantively enacted on 17 March 2020. The UK deferred tax liability as at 2021 was calculated at 19% (2020: 17%).
An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the company's future current tax charge accordingly and increase the deferred tax liability by £366,966.
|
Impairment of pharmacy licences
|
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|
Impairment reversal of pharmacy licence
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
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Reclassified to held for sale
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Charge for the year on owned assets
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Reclassified to held for sale
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Impairment losses written back
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
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Fixtures, fittings and equipment
|
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Reclassified to held for sale
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Charge for the year on owned assets
|
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Reclassified to held for sale
|
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The net book value of assets held under finance leases or hire purchase contracts, included above, are as follows:
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
|
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Investments in subsidiary companies
|
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Reclassified to held for sale
|
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Fixed assets held for sale
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Retail pharmacy licence held for sale
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Leasehold property held for sale
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Plant and machinery held for sale
|
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Fixtures, fittings and equipment held for sale
|
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Investments in subsidiary companies held for sale
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Finished goods and goods for resale
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Stock recognised in cost of sales during the year as an expense was £17,753,819 (2020 - £17,361,326).
An impairment loss of £nil (2020 - £nil) was recognised in cost of sales against stock during the year due to slow-moving and obsolete stock.
|
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
|
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Amounts owed by group undertakings
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Prepayments and accrued income
|
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Cash and cash equivalents
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Creditors: Amounts falling due within one year
|
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Amounts owed to group undertakings
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Amounts owed to other participating interests
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Accruals and deferred income
|
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Government grants repayable
|
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NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
|
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|
Financial assets measured at fair value
|
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Financial assets measured at amortised cost
|
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Financial liabilities measured at amortised cost
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Charged to Profit and Loss
|
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The provision for deferred taxation is made up as follows:
|
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Accelerated capital allowances
|
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Deferred tax re pharmacy licences
|
|
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|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
|
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Charged to Profit and Loss
|
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The NHS reimbursement provision is to cover clawback of potential over-reimbursement received in the current financial year.
|
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Allotted, called up and fully paid
|
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327,000
(2020 -
327,000
)
Ordinary
shares of £
1.00
each
|
|
|
|
|
1
(2020 -
1
)
Ordinary A
share of £
1.00
|
|
|
|
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|
|
|
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|
|
|
|
Profit and loss account
The Profit and Loss reserve represents cumulative profits or losses, including net of dividends paid and other adjustments.
The company is a party to intra-group cross guarantees in respect of bank borrowing within the group.
∙
Unlimited inter-company guarantees supported by legal charges over various properties and other respective associated assets.
The Company operates a defined contributions pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to £89,704 (2020: £88,115).
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
|
Commitments under operating leases
|
|
At 31 March 2021 the Company had future minimum lease payments due under non-cancellable operating leases for each of the following periods:
|
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|
|
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|
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|
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|
Ending not later than 1 year
|
|
|
|
Ending later than 1 year and not later than 5 years
|
|
|
|
Ending later than 5 years
|
|
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|
Related party transactions
|
|
The company paid rent to the following:
Ms R Patel, sister of Jay and Sam, £26,000 (2020: £26,000)
The company purchased goods of £200,709 (2020: £169,970) from Eaststone Limited, a company in which the executors of the Kirit Patel Estate has a controlling interest. At the balance sheet date £32,726 (2020: £40,999) was payable to Eaststone Limited.
During the year, the company paid £2,175 (2020: £5,965) for expenses recharged by the Health Counter Limited, a company under common control. Included in the other creditors as an amount owed by the company £nil (2020: £7,241). Included in trade debtors as an amount owed to the company £nil (2020: £678).
The company owed £3,375,056 (2020: £6,375,056) to Day Lewis Holdings Limited, a company registered in Cyprus and is a ultimate parent company.
|
|
Post balance sheet events
|
On 31 March 2021, the Directors took the decision to hive-up the trade and assets of the company to Day Lewis Plc, a parent undertaking, after the year end and then cease trading. 23 pharmacies were transferred on 2 April 2021, a further 4 were transferred on 4 May 2021, and the last pharmacy was sold under a management agreement until the NHS license transfers to the new owner with completion expected in November 2021.
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2021
The company's parent company is Healthcare Drugstores Limited, a company registered in England and Wales.
Healthcare Drugstores Limited is a subsidiary of Day Lewis Plc, a company registered in England and Wales. It prepares group accounts which are available at Day Lewis House, 2 Peterwood Way, Croydon, Surrey, CR0 4UQ.
The smallest and largest group in which the results of the Company and its group are consolidated is that headed by Day Lewis plc, Day Lewis House, 2 Peterwood Way, Croydon, Surrey, CR0 4UQ.
The ultimate parent company is Day Lewis Holdings Limited, a company registered in Cyprus and controlled by the KCTP Will Trust.
Copies of the ultimate parent and of its group financial statements are not publicly available.
|